Order Code RS20995
Updated October 12, 2001
CRS Report for Congress
Received through the CRS Web
India and Pakistan: Current U.S. Economic
Sanctions
Dianne E. Rennack
Specialist in Foreign Policy Legislation
Foreign Affairs, Defense, and Trade Division
Summary
In 1998, India and Pakistan each conducted tests of nuclear explosive devices,
drawing world condemnation. The United States and a number of India’s and Pakistan’s
major trading partners imposed economic sanctions in response. Most U.S. economic
sanctions were lifted or eased within a few months of their imposition, however, and
Congress gave the President the authority to remove all remaining restrictions in 1999.
The sanctions were lifted incrementally. President Bush issued a final determination
on September 22, 2001, to remove the remaining restrictions, finding denying export
licenses and assistance not to be in the national security interests of the United States.
Today, the United States imposes no economic sanctions against India. Pakistan
continues to be denied U.S. foreign assistance as a result of its military overthrowing its
democratically elected government in 1999, and for falling into arrears in servicing its
debt to the United States in 2000. U.S. and Pakistani representatives signed an
agreement to reschedule the debt on September 24; sanctions can be lifted 30 days after
Congress is so notified. The Senate passed S. 1465 on October 4, 2001, which would
remove the impediments on foreign assistance for Pakistan for the next two fiscal years,
if that aid is granted as part of the war against international terrorism. On September 23,
2001, the President issued Executive Order 13224 to block property and transactions
with 27 organizations or individuals who commit, threaten to commit, or support
terrorism. The Secretary of the Treasury added another 39 entities and individuals to the
list on October 12, 2001, in part to include the 22 persons listed among the Federal
Bureau of Investigation’s Most Wanted. Some of the organizations listed are based in
Pakistan and others may have ties to that country.
Congressional Research Service ˜ The Library of Congress

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Recap of Nuclear Tests Sanctions1
In May 1998, India and Pakistan each conducted tests of nuclear explosive devices,
triggering sweeping U.S. economic sanctions as required by the Arms Export Control Act
and the Export-Import Bank Act.2 Prior to the tests, for international treaty purposes, the
two countries were classified as non-nuclear-weapon states; the tests put each country in
jeopardy of world condemnation and sanctions. In the United States, the law required the
President to impose the following restrictions or prohibitions on U.S. relations with both
India and Pakistan: termination of U.S. foreign assistance other than humanitarian or food
assistance; termination of U.S. government sales of defense articles and services, design
and construction services, licenses for exporting U.S. Munitions List (USML) items;
termination of foreign military financing; denial of most U.S. government-backed credit
or financial assistance; U.S. opposition to loans or assistance from any international
financial institution; prohibition of most U.S. bank-backed loans or credits; prohibition on
licensing exports of “specific goods and technology;” and denial of credit or other Export-
Import Bank support for exports to either country.
Since 1990, Pakistan had been under a sanctions regime that was mandated by
another provision of U.S. law pertaining to U.S. foreign assistance. The Pressler
amendment, added in 1985 to the Foreign Assistance Act of 1961, requires the President
to determine that Pakistan does not possess a nuclear explosive device and that any
proposed U.S. assistance would reduce the risk of obtaining such a device.3 President
Reagan and President Bush issued determinations each year until 1990, when then-
President Bush did not make the finding required to make assistance available. In 1995,
this requirement was changed to apply only to military assistance to Pakistan, making the
country eligible for other foreign assistance.
Sanctions are Eased
Almost immediately after the 1998 imposition of sanctions on India and Pakistan
required in the Arms Export Control Act, Congress intervened on behalf of U.S. wheat
growers by passing the Agriculture Export Relief Act, which President Clinton signed into
1 For extensive discussion of the sanctions imposed after the President determined that nuclear tests
had been conducted, see LePoer, Barbara, et al., India-Pakistan Nuclear Tests and U.S. Response,
CRS Report 98-570, updated November 24, 1998, 35 p; and Grimmett, Jeanne, Nuclear
Sanctions: Section 102(b) of the Arms Export Control Act and Its Application to India and
Pakistan. CRS Report 98-486, updated September 19, 2001, 17 p. For in-depth discussion of the
respective countries and relations with the United States, see LePoer, Barbara, Pakistan-U.S.
Relations, CRS Issue Brief IB94041, updated regularly; and LePoer, Barbara, India-U.S.
Relations, CRS Issue Brief IB93097, updated regularly.
2 Sec. 102 of the Arms Export Control Act (Public Law 90-629; 22 U.S.C. 2799aa-1), popularly
referred to as the Glenn amendment; and sec. 2(b)(4) of the Export-Import Bank Act of 1945 (P.L.
79-173; 12 U.S.C. 635(b)(4)).
3 Sec. 620E(e) of the Foreign Assistance Act of 1961, as amended (P.L. 87-195; 22 U.S.C.
2375(e)), popularly referred to as the Pressler amendment. Portions of Pressler are also referred
to as the Brown amendment and the Brownback amendment.

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law on July 14, 1998.4 The Act amended the Arms Export Control Act to exempt various
forms of U.S. Department of Agriculture-backed financial support from sanctions applied
pursuant to section 102 of that Act. This freed up U.S. wheat farmers to participate in
early summer auctions in which Pakistan was a substantial buyer. Later in the year,
Congress passed the India-Pakistan Relief Act of 1998, signed into law by the President
on October 21, 1998.5 This Act authorized the President to waive, for a period of one
year, the application of sanctions relating to U.S. foreign assistance, U.S. government
nonmilitary transactions, the U.S. position on loans or assistance by international financial
institutions, and U.S. commercial bank transactions. President Clinton quickly made use
of his new authority, announcing on November 7, 1998, that certain transactions and
support would be restored.
The authority granted to the President in each of these 1998 laws, however, was
limited to a one-year period. Additional legislation was required to make the authority
permanent. Congress provided permanent waiver authority in the Department of Defense
Appropriations Act, FY 2000, signed into law on October 25, 1999.6 This Act gave the
President the authority to waive all the economic sanctions imposed against India and
Pakistan in response to the nuclear tests, including for the first time those sanctions related
to military assistance, USML licenses, and exports to high technology entities. To waive
those sanctions pertaining to the sales of defense articles, defense services, design or
construction services; foreign military financing; or export licenses for specific goods and
technology (the sanctions related to, or with possible, military applications), current law
requires the President to determine and certify to Congress “that the application of the
restriction would not be in the national security interests of the United States.” President
Clinton exercised this authority on October 27, 1999, when he waived the applicability
of nonmilitary restrictions for India, on Export-Import Bank loans and credits, Overseas
Private Investment Corporation (OPIC) funding, Trade and Development Agency (TDA)
export support, International Military Education and Training (IMET) programs, U.S.
commercial banks transactions and loans, Department of Agriculture (USDA) export
credits, and specific conservation-oriented assistance. For Pakistan, he waived the
restrictions on USDA credits and U.S. commercial banks loans and transactions.
What Is in Place Today
Throughout the first eight months of 2001, the Bush administration had hinted that
the United States would like to remove the sanctions imposed against India and, to a lesser
extent, Pakistan.7 India’s foreign and defense minister visited Washington in April;
4 P.L. 105-194 (112 Stat. 627).
5 Title IX of the Agriculture, Rural Development, Food and Drug Administration, and Related
Agencies Appropriations Act, 1999, incorporated into the Omnibus Consolidated and Emergency
Supplemental Appropriations Act, 1999 (Public Law 105-277; 112 Stat. 2681).
6 P.L. 106-79 (113 Stat. 1283).
7 The U.S.-India relationship appears straight-forward, even taking into consideration India’s Cold
War cooperation with the former Soviet Union, or that country’s relationship with China. Not all
in the Bush administration supported lifting sanctions against India; see Harrison, Selig S., “No
More Sanctions: Why the U.S. Needs Closer Ties with India,” Washington Times, April 5, 2001,
(continued...)

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Chairman of the Joint Chiefs of State, General Shelton visited India in May to discuss
military-to-military relations. In May, 2001, and again in August, Deputy Secretary of
State Richard Armitage visited India and publically stated the United States’ interests in
fully normalizing relations with the country. In August 2001, U.S. Trade Representative
Robert Zoellick visited India to promote global trade talks.
Regarding Pakistan, Secretary of State Powell met with its foreign minister in
Washington in June; they reportedly discussed Afghanistan and the Taliban, terrorism,
democracy, nuclear proliferation, and sanctions.8
With two notable exceptions pertaining to Pakistan, discussed below, all of the
economic sanctions against India and Pakistan imposed pursuant to the Arms Export
Control Act, the Export-Import Bank Act of 1945, and the Pressler amendment in the
Foreign Assistance Act of 1961 have been waived by the President, pursuant to the
authority granted him in the Defense Appropriations Act, FY 2000. The President
exercised this authority incrementally, and finally lifted all nuclear test-related economic
sanctions against the two countries on September 22, 2001, finding that denying export
licenses and assistance not to be in the national security interests of the United States.9
Other Provisions of Law Affecting Assistance to Pakistan. Pakistan
continues to be ineligible for most forms of U.S. foreign assistance under a provision of
the annual foreign assistance appropriations act that bans foreign assistance “to any
country whose duly elected head of government is deposed by military coup or decree.”
Pakistan’s current leader, General Pervez Musharraf seized power and overthrew a
democratically elected government in October 1999. He declared himself President on
June 20, 2001. Musharraf, however, has pledged to hold parliamentary elections by
October 2002, as directed by Pakistan’s Supreme Court. The current foreign operations
appropriations act requires that the President determines and certifies to Congress that a
democratically elected government has taken office before aid can be restored. Language
in the foreign operations appropriations bill for FY2002 may establish a different threshold
(see discussion below). Passage of S. 1465, already cleared in the Senate, would also alter
the application of foreign aid restrictions for anti-terrorism support.
Congress enacted an exception to the prohibition on aid to Pakistan for fiscal year
2001. Section 597 of the that year’s foreign assistance appropriations makes Development
Assistance and Economic Support Funds available to Pakistan for basic education
programs, “notwithstanding any provision of law that restricts assistance to foreign
countries.” Other programs that use a “Notwithstanding” clause, either in authorizing
legislation or in appropriations, can also be made available to Pakistan.
7 (...continued)
p. A17; and Barber, Ben, “State Split Over Lifting Sanctions Against India: Alliance Could Lesson
China’s Power,” Washington Times, May 10, 2001, p. A1.
8 Fidler, Stephen and Edward Luce, “A Fine Line: The Bush Administration Has Signalled That
It Wants to Forge Closer Ties With India,”Financial Times, June 1, 2001, p. 18. U.S. Department
of State. Daily Press Briefing, June 20, 2001.
9 Presidential Determination No. 2001-28, September 22, 2001 ([http://usinfo.state.gov/]).

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Pakistan is also denied most U.S. foreign assistance for falling into arrears in servicing
its debt to the United States.10 Pakistan was found to be in arrears under terms of the
Foreign Assistance Act in September 2000, and under terms of the Foreign Operations
Appropriations Act in March 2001.11 At the end of 1999, Pakistan’s international debt
was $30.7 billion, of which $2.38 billion was owed to the United States ($1.14 billion in
AID loans, $981 million in food aid, $139 million in Export Import Bank loans, and $119
million in military loans). On September 24, 2001, the U.S. Ambassador to Pakistan
signed an agreement in Pakistan to reschedule $379 million of its debt to the United
States.12 Current law provides that foreign assistance may resume 30 days after Congress
is notified of the rescheduling. In addition, of the total $30.7 billion owed by Pakistan,
$14.1 billion was owed to multilateral development banks.13
The President invoked the authority granted him in sec. 614 of the Foreign Assistance
Act of 1961 (22 U.S.C. 2364) to provide $50 million in Economic Support Funds to
Pakistan on September 28, 2001, without regard to restrictions in that Act or the Foreign
Operations Act that are applicable to Pakistan. The President is expected to make another
$50 million available under the same authority in the new fiscal year, which began October
1, 2001. The authority in sec. 614 had never been used before to assist a country
sanctioned under the military coup terms in annual foreign assistance appropriations acts.
The President also released $25 million in Emergency Migration and Refugee Funds to
Pakistan around the same time. On October 5, the President made another $100 million
available for management of the emerging Afghan refugee crisis – $50 million in food
assistance to Afghanistan and neighboring countries, and $50 million in Migration and
Refugee Assistance to be administered through the United Nations and associated
nongovernmental organizations tending to the Pakistan-Afghanistan border. None of
these recent fund releases is subject to current sanctions. For the longer term, the
Administration is considering constructing a $600 million package of assistance to
Pakistan, in anticipation of passage of S. 1465, which would remove all impediments on
aid to that country if the assistance relates to anti-terrorism efforts. And on September 26,
2001, the International Monetary Fund determined that Pakistan had met the requirements
to become eligible for $135 million, to complete disbursement of a $600 million loan.14
10 Sec. 620(q) of the Foreign Assistance Act of 1961 (22 U.S.C. 2370(q)) denies foreign assistance
to any country that is in default for more than 6 months in servicing or repaying loans to the United
States. The President may waive this restriction if he finds that assistance is in the national interest
and so notifies Congress. Sec. 512 of the Foreign Operations, Export Financing and Related
Programs Appropriations Act, 2001 (P.L. 106-429; 114 Stat. 1900A-25), the Brooke Amendment,
denies foreign assistance to any country that falls into arrears for more than 12 months. This latter
restriction includes no waiver authority for the President.
11 Agency for International Development, Loan Delinquency Status Report, As of August 31, 2001.
12 Chandrasekaran, Rajiv. “Taliban Deploys Its Fighters to Borders,” Washington Post,
September 25, 2001, p. A14. White House Briefing, September 25, 2001.
13 Department of the Treasury and Office of Management and Budget. United States Government
Foreign Credit Exposure as of December 31, 1999, Part II.
14 Sipress, Alan and Steven Mufson, “U.S. Readies Financial Aid for Allies,” Washington Post.
October 2, 2001. p. A12; and Dawson, Thomas C., “A Loan for Pakistan,” [letter to the editor],
Washington Post. October 4, 2001. p. A30.

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Proposals During the 107th Congress
General Musharraf has pledged to hold parliamentary elections in October 2002. In
the meantime, the House has proposed a change in the law restricting foreign aid to states
under military rule. H.R. 2506, the Foreign Operations, Export Financing, and Related
Programs Appropriations Act, 2002, sent to the Senate on July 25, would authorize the
President to resume foreign aid to a country “...if the President determines and reports to
the Committees on Appropriations that subsequent to the termination of assistance a
democratically elected government has taken office or substantial progress has been made
towards the holding of democratic elections.” The Senate has reported H.R. 2506 without
the new language authorizing the President to waive the sanction. On October 12, a
cloture motion was filed in the Senate to require the completion of the measure.
S. 1465, introduced on September 25, 2001, by Senators Brownback and McConnell,
and passed, as amended, by the Senate on October 4 by unanimous consent, specifically
removes the government of Pakistan from the application of restrictions on foreign
assistance because of its military regime. The measure exempts Pakistan from the
requirements of the Foreign Operations Appropriations Act for the upcoming fiscal year,
and for any previous fiscal year. It authorizes the President to waive the application of
sanctions related to Pakistan’s military regime in fiscal year 2003 if he determines and
certifies to Congress that waiving the restriction would facilitate a transition to democracy
and is important to the United States’ anti-terrorism efforts. S. 1465 waives the
application of sanctions related to Pakistan’s debt arrearage for fiscal years 2001 and 2002.
The measure requires the President to consult with Congress if he seeks to waive missile
proliferation sanctions imposed against Pakistani entities prior to January 1, 2001.15 More
broadly, S. 1465 reduces the time required to notify Congress before the President draws
down military assistance or transfers excess defense articles to respond to, deter, or
prevent acts of international terrorism. All provisions of S. 1465 terminate on October 1,
2003, unless otherwise specifically stated.
Some Pakistani entities and individuals remain under economic sanctions imposed by
the United States and other nations. On September 23, 2001, the President issued
Executive Order 13224, to block the property and prohibit transactions with persons who
threaten, commit, or support terrorism. This Order freezes all U.S.-based assets of 66
organizations and individuals and authorizes the Secretary of State or Secretary of the
Treasury to add to that initial list. The original issuance listed 27 individuals and entities;
the Secretary of the Treasury added another 39 on October 12, 2001, in part to include
the 22 persons listed among the Federal Bureau of Investigation’s Most Wanted. The
Order prohibits U.S. citizens from engaging in financial transactions with the named
entities, some of whom are Pakistani or have close ties to Pakistan. The President
circulated the list internationally, and stated that the United States will freeze assets of
third-country entities that do not freeze the assets of those entities named in the Order.16
In announcing the expansion of the original list, the Department of the Treasury reported
that some 66 countries had ordered assets frozen in their jurisdictions, and that over $20
million had been blocked by the international effort.
15 Pursuant to sec. 73 of the Arms Export Control Act (P.L. 90-629; 22 U.S.C. 2797b) and sec.
11B of the Export Administration Act of 1979 (P.L. 96-72; 50 U.S.C. app. 2401b).
16 Executive Order 13224, September 23, 2001 (66 F.R. 49079; September 25, 2001).

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