NUCLEAR ISSUES

Sanctions: an uncertain status

Have the nuclear-related sanctions imposed by the United States against India and Pakistan got kicked in again or not? No one seems to know.

R. RAMACHANDRAN
in New Delhi

THE imposition of sanctions against India and Pakistan by the United States as a consequence of the nuclear tests conducted in May 1998, or their waiver, would seem to be stuck in a legislative conundrum in the administrative machinery in the U.S. as a fallout of the standoff between the Republicans and the Clinton administration. The sanctions, pursuant to Section 102(b) of the Arms Export Control Act (AECA), also known as the Glenn Amendment, were imposed soon after the tests and were partially lifted through waiver provisions of the Agriculture Export Relief Act (AERA) 1998 and the India Pakistan Relief Act (IPRA) 1998.

But these expired on October 21, 1999. Legislative action or a presidential executive order that would dictate the course of action by the U.S. administration in this regard is not in place. Though a bill that would grant authority to the President to waive the sanctions beyond October 21 was sent to him by the Senate on October 14, he had not signed it into law because of disagreements over other provisions of the bill. So, at the beginning of the last week of October, the fate of the sanctions remained unclear.

The issue would appear to have got caught in the politico-legal mess which seems to have been created over the ratification of the Comprehensive Test Ban Treaty (CTBT) by the Senate. Early in October, the Senate deliberated on the Treaty after a delay of over two years and rejected it. In what would appear to be Clinton's way of getting back at the Republicans, he has not signed into laws many pending appropriation bills for financial year 2000. In fact, he exercised his veto on the Foreign Operations, Export Financing and Related Programmes Appropriations Bill (containing the provision for sanctions in the event of a coup that would be applied on Pakistan) on October 18 and returned it to the Senate alleging that the Republicans were shortchanging expenditure on key foreign policy affairs.

The provision for the waiver of sanctions against India and Pakistan is contained in the House Joint Resolution 2561 which has been tagged on to the Defence Department Appropriation Bill (DDAB) for financial year 2000 and sent to the President for assent. The President had not signed it on the ground that it went beyond what had been sought and that it budgeted for things which the Pentagon had not asked for.

The administration is apparently making a last-ditch effort to sort out the issue with Congress and find politically feasible measures to address the expiry of the sanctions waiver, pending the enactment of a new presidential waiver authority. Given that such an authority has been passed by Congress in the DDAB, the attempt apparently is to see whether this can be interpreted to imply a continuation of the waiver until a new piece of legislation takes effect. This they think is possible because of the Continuing Resolution H.J. Res 71 which was signed into a public law as of October 21. If this is (legally and politically) feasible, the imbroglio with regard to the sanctions may be viewed as a merely technical one, and business as usual (with the limited waivers on the sanctions as they were in place till October 21) could go on. In any case, though the waiver has expired, a renewal of AECA sanctions in full will take effect only if the President decrees a fresh imposition. In legal terms, therefore, it all appeared very confusing, and everything may be put on hold till things get sorted out.

TO trace the course of sanctions so far, after Clinton announced in May 1998 the sanctions, which flow from Section 102(b) of the AECA, the administration announced the details on June 18. These included: (a) the termination of the assistance under the Foreign Assistance Act of 1961, except for humanitarian assistance and food or agricultural commodities - which includes U.S. developmental assistance and International Military Education and Training (IMET) programme funding; (b) the termination of the sale of defence articles, defence services or design or construction services under the AECA, and the termination of licences for the export of any item under the United States Munitions List; (c) the termination of all foreign military financing under the AECA; (d) the denial of any credit, credit guarantees, or other financial assistance by any department or agency of the U.S. government - such as the Department of Agriculture (USDA), the U.S. Exim Bank, the Overseas Private Investment Corporation (OPIC) and the Trade Development Agency (TDA); (e) opposition to any loan for financial or technical assistance by any international financial institution - such as the Asian Development Bank, the International Monetary Fund and the World Bank - except for humanitarian purposes; (f) the prohibition on U.S. banks from making any loan or providing any credit to the government of the country against which sanctions have been imposed, except for the purposes of purchasing food or other agricultural commodities; and (g) the prohibition of exports of dual-use goods and technology controlled by the Export Administration Regulations (EAR).

After its enactment in 1994 as part of the Nuclear Proliferation Prevention Act (NPPA), the Glenn Amendment sanctions were being implemented for the first time. However, the U.S. farming community was concerned over the loss of its market in India and Pakistan, particularly the latter, because of suspension of USDA export credit guarantees. (Pakistan is a major user of these credit guarantees under USDA's scheme called GSM-102. India has a credit line but has never made use of it.) This led to the enactment of the Agriculture Export Relief Act (AERA) on July 14, 1998, which exempted USDA export credit guarantees from the Glenn Amendment provisions till September 30, 1999.

Pursuant to the above-mentioned bar on loans or assistance by international financial instituions, the U.S. administration claimed on June 18, 1998, that it had gained the support of the G-7 countries and Russia to postpone consideration of "non-basic human needs" loans for India and Pakistan. On the same date, the U.S. administration announced that bank-related sanctions (item 'f' as mentioned obove) would be implemented through an "executive order". But these remained in the draft stage with the Treasury Department and were not implemented. That is, that particular categtory of sanctions was not in place.

The dual-use export sanctions were implemented by means of guidelines of the Bureau of Export Administration (BXA) of the Department of Commerce issued on June 22, 1998. These were formally incorporated into the EAR as an "interim rule" on November 19, 1998. This rule included an Entities list comprising 40 Indian and 46 Pakistani end-users, along with more than 200 subsidiaries. The sanctions meant a presumption of denial of export licences for items subject to export controls to these entities. A ceiling of 2,000 million theoretical operations per second (MTOPS) on high performance computers (HPCs) was imposed, above which level a licence would be required for exports with a strong presumption of denial to all the entities.

On October 21, 1998, Congress passed the India-Pakistan Relief Act (IPRA) of 1998. Section 902 of the Act (the Brownback Amendment) authorised the President to waive "for a period not more than a year upon enactment of the Act" certain parts of the Glenn Amendment sanctions. This was necessary because the Glenn sanctions do not provide for the lifting or waiving of sanctions. Significantly, IPRA also gave an authority to waive sanctions pursuant to Section 620(E)(e) of the Foreign Assistance Act (the Pressler Amendment), which allows economic and military assistance to Pakistan. As regards the Glenn sanctions alone, this allowed a waiver of sanctions (a), (d), (e) and (f) as given above but not (b), (c) and (g).

President Clinton partially exercised this authority on December 1, 1998. Even within the scope of (a), (d), (e) and (f) of 102(b), sanctions were lifted only with respect to (1) Eximbank, OPIC and TDA operations; (2) IMET programmes; (3) loans or credits to the two governments by U.S. banks (though this part had not been imposed); and (4) any loan or financial or technical assistance (only) to Pakistan by international financial institutions in support of the assistance programme that Pakistan was negotiating with the IMF. (On January 14, 1999, a $575-million IMF loan was approved, in the voting of which the U.S. abstained.) The lifting of sanctions on USDA credits ran concurrently but only till September 30, 1999, since (1) above did not include the USDA.

Interestingly, on October 1, 1999, the President extended the waiver on USDA credits till October 21 so that all waiver provisions expired on that date, although a 20-day difference between the two sets of waivers should not have caused any problem. This seems to have been specifically done in order to enable Pakistan to complete the negotiations with the USDA for a pending $60-million credit line that was opened in January 1999. Between September 3 and October 6, 1999, $36.80 million seems to have been negotiated and approved while $23.20 million remained to be approved. Now if the coup-linked sanctions are put in place, the remaining ones cannot be negotiated unless this amount too has already been approved between October 6 and the imposition of sanctions following the October 12 coup.

KHUE BUI/AP
President Bill Clinton.

While with regard to India it would be easy for the U.S. administration to adopt the interpretation of a continuing waiver beyond October 21, with regard to Pakistan the issue may be more complex because of the coup-related sanctions. The overthrow of a democratically elected government in a military coup attracts its own set of sanctions under Section 508 of the Foreign Assistance Act which would override the waivers that were in place till October 21. However, while the coup-related sanctions cover all manner of U.S. assistance, they do not include the provision to oppose loans from multilateral funding organisations such as the IMF, and the World Bank as the sanctions pursuant to Section 102 (b) of the AECA do. So, unless the G-7 and Russia decide to postpone decisions on loans to Pakistan, the U.S. will not oppose such multilateral assistance to Pakistan.

Unlike the India-Pakistan Relief Act (Brownback I), the new waiver authority bill (HJRes. 2561), which now forms part of the DDAB, is a permanent waiver with a provision of reimposition only if the country detonates a nuclear device subsequent to the enactment. Otherwise the scope of the waiver is identical to Brownback I in the sense that it does not allow any waiver on (b), (c) and (g) of 102 (b) of the AECA, which means restrictions on dual-use technologies and goods will remain and so will the opposition to loans from international financial institutions. From the Indian perspective, these would be the key considerations for a long-term impact (Frontline, May 21, 1999).

Also, as in the case of Brownback I, it provides authority to waive the Pressler provision. Therefore, if this bill - which is the only one that has been sent to the President - becomes an act, exercising the waiver authority to any of its elements become a permanent feature, unless another detonation takes place. Given this fact, it is not clear why so much of noise was being made about the waiver on the Pressler provision. As in the case of Brownback I, it only gives a waiver authority and it is up to the President to exercise it or not. However, in the wake of the coup, Republican Frank Jr. Pallone introduced another bill on October 18 (H.R. 3095) that seeks to amend DDAB so that the authority to waive the Pressler Amendment sanctions is not there.

Now Brownback I or IPRA required the Secretary of State to report to Congress one month before the expiry of the sanctions on the economic and security developments in India and Pakistan. As part of this exercise, and in anticipation of congressional action during 1999 on sanctions reform legislation and the consideration of the renewal of the presidential waiver authority, the House Committee on Ways and Means had directed the U.S. International Trade Commission (USITC) to examine the impact of the sanctions. The USITC submitted its report on September 17. The findings of the report, "Overview and Analysis of the Economic Impact of U.S. Sanctions with Respect to India and Pakistan" , must have formed the basis for the joint resolution seeking a permanent waiver authority for some provisions of the Glenn Amendment sanctions. Besides other factors, including the October 12 coup, this report is also likely to influence the President's decision on extending the waiver in the manner of the joint resolution or otherwise.

The USITC investigation employed three methods - a telephone survey of 269 U.S. companies and associations; market share and lost export sales analysis to the extent data were available; and modelling. The Commission obtained additional views from the industry through a public hearing held on June 22, 1999, and through written submissions. According to the findings of the telephonic survey, the U.S. companies most affected by the Glenn sanctions were those involved in the sale of certain agricultural products, industrial machinery, transportation, construction and mining equipment, electronics products and infrastructural development services. Restrictions on customer or company access to project financing or loan guarantees from Exim Bank and OPIC were noted as factors hindering their business in the two countries. Financial services firms stated that their operations were affected by the uncertainty regarding how the sanctions would eventually be implemented.

Industry representatives stated that one result of the sanctions was the increasing perception of U.S. companies as unreliable suppliers and many customers were turning to sources in Europe, Japan and elsewhere. The U.S. Embassy in Delhi apparently reported to the USITC that sanctions continued to have a negative impact on U.S. business in India as U.S. companies were reluctant to pursue business opportunities because of the uncertainty over sanctions.

As regards the overall economic impact of sanctions, the Report says they had a relatively minimal overall impact on India's economy, although it would be difficult to isolate the effects of sanctions from the effects of other concurrent economic events and policies. They, however, had a small adverse effect on Pakistan's economy, says the Report. According to it, since U.S. was a relatively small provider of aid, trade and investment, the sanctions alone may not have had a large impact, and moreover most economic assistance was terminated as a result of other sanctions which were already in place, such as those pursuant to the Pressler Amendment.

On the likely impact of the reimposition of sanctions, the Report, based on submissions from the private sector U.S. companies, says that the reimposition of prohibition of USDA credits is likely to affect U.S. wheat exports to Pakistan and that wheat producers in the Pacific Northwest would be affected most. U.S. agencies also expressed concern that prohibiting Eximbank and OPIC financing might harm U.S. competitiveness and diminish the perception of U.S. companies as reliable partners. It was felt that sanctions would make it difficult for U.S. companies to participate in major infrastructural projects. Prohibiting Eximbank and OPIC financing could delay projects in India and Pakistan until alternative sources of financing were arranged, the companies stated. Pakistan could be adversely affected if the U.S. and other major countries opposed future IMF loans to Pakistan.

The implication of the Report that sanctions have had only a marginal impact on the economies of India and Pakistan, as well as that of the U.S., save loss of business to individual companies, probably served as a guide in formulating a legislation toward a permanent waiver. But what President Clinton is likley to do is anybody's guess.

Meanwhile, administration officials are likely pulling their hair out. Are the sanctions in place or not?