Order Code IB94041
CRS Issue Brief for Congress
Received through the CRS Web
Pakistan-U.S. Relations
Updated November 12, 2004
K. Alan Kronstadt
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Historical Background
Pakistan-India Rivalry
The China Factor
Pakistan’s Political Setting
Pakistan-U.S. Relations and Key Country Issues
Security
International Terrorism
Domestic Terrorism
Pakistan-U.S. Security Cooperation
Nuclear Weapons and Missile Proliferation
U.S. Nonproliferation Efforts
The Kashmir Issue
Islamization and Anti-American Sentiment
Democratization and Human Rights
Democracy and Governance
Human Rights Problems
Narcotics
Economic Issues
Overview
Trade and Investment
U.S. Aid and Congressional Action
U.S. Assistance
Proliferation-Related Legislation
Coup-Related Legislation
Trade-Related Legislation
Other Legislation
9/11 Commission Recommendations

---

IB94041
11-12-04
Pakistan-U.S. Relations
SUMMARY
A stable, democratic, economically
received pledges from Islamabad that all
thriving Pakistan is vital to U.S. interests in
“cross-border terrorism” would cease and that
Asia. Key U.S. concerns regarding Pakistan
any terrorist facilities in Pakistani-controlled
include regional terrorism; weapons prolifera-
areas would be closed. Similar pledges have
tion; the ongoing Kashmir problem and
been made to India. The United States strong-
Pakistan-India tensions; human rights protec-
ly encourages maintenance of a cease-fire
tion; and economic development. A U.S.-
along the Kashmiri Line of Control and con-
Pakistan relationship marked by periods of
tinued substantive dialogue between
both cooperation and discord was transformed
Islamabad and New Delhi.
by the September 2001 terrorist attacks on the
United States and the ensuing enlistment of
Pakistan’s macroeconomic indicators
Pakistan as a pivotal ally in U.S.-led
have turned positive since 2001, but wide-
counterterrorism efforts. Top U.S. officials
spread poverty persists. Democracy has fared
regularly praise Islamabad for its ongoing
poorly in Pakistan; the country has endured
cooperation, although doubts exist about
military rule for half of its existence. In 1999,
Islamabad’s commitment to some core U.S.
the elected government was ousted in an
interests in the region. Pakistan is identified
extra-constitutional coup led by Army Chief
as a base for terrorist groups and their support-
Gen. Pervez Musharraf, who later assumed the
ers operating in Kashmir, India, and
title of President. National elections in 2002
Afghanistan. Pakistan continues to face
resulted in no majority party emerging, though
serious problems, including domestic terror-
significant gains for Islamist parties were
ism and human rights violations.
notable. A new National Assembly and Prime
Minister are seated (Musharraf ally and Fi-
A potential Pakistan-India nuclear arms
nance Minister Shaukat Aziz took office in
race has been the focus of U.S. nonproliferati-
August 2004), but the civilian government
on efforts in South Asia. Attention to this
remains weak and was stalled on issues re-
issue intensified following nuclear tests by
lated to the legality of constitutional changes
both countries in May 1998; the tests triggered
made by Musharraf (and ratified in December
restrictions on U.S. aid to both countries
2003) and to his continued status as Army
(remaining nuclear-related sanctions on Paki-
Chief. The United States strongly urges the
stan were waived in October 2001). Pakistan
Musharraf government to restore fully func-
and India have fought three wars since 1947.
tioning democracy in Islamabad. Congress
Recently, the United States has been troubled
has granted the President authority to waive
by evidence of “onward” proliferation of
coup-related sanctions through FY2005.
Pakistani nuclear technology to third parties,
including North Korea, Iran, and Libya. Such
Pakistan received nearly $2 billion in
evidence became stark in February 2004.
U.S. assistance for FY2002-FY2004. Presi-

dent Bush called for establishment of a five-
Separatist violence in Kashmir has con-
year, $3 billion aid package for Pakistan to
tinued unabated since 1989. India blames
begin in FY2005. See also CRS Report
Pakistan for the infiltration of Islamic mili-
RL32259, Terrorism in South Asia; and CRS
tants into Indian Kashmir, a charge Islamabad
Report RL32615, Pakistan’s Domestic Politi-
denies. The United States reportedly has
cal Developments.
Congressional Research Service ˜ The Library of Congress

---

IB94041
11-12-04
MOST RECENT DEVELOPMENTS
Pakistan has made major strides in its battle with Islamic extremists based in urban
areas. Numerous militants were apprehended during the summer, and in September, Pakistan
reported having killed suspected top Al Qaeda operative Amjad Farooqi, wanted in
connection with attempts to assassinate President Musharraf. The United States expressed
being pleased with Islamabad’s successes. Military operations against suspected militant
hide-outs in Pakistan’s western tribal regions are ongoing and bring regular casualties,
including one Chinese national who had been kidnaped by militants loyal to Abdullah
Mehsud, a former Taliban fighter and prisoner at the U.S. facility at Guantanamo Bay.
Fallout from these efforts has included failed suicide attacks on top Pakistani officials.
Major sectarian violence is again a rising and dire concern, with early October bomb attacks
in the cities of Sialkot and Multan causing at least 71 deaths, and the October 9 assassination
of two prominent Sunni clerics in Karachi.
In September, President Musharraf met with Indian Prime Minister Singh on the
sidelines of the U.N. General Assembly meeting in New York. In a joint statement that
Musharraf called a “major breakthrough,” the two leaders agreed to explore possible options
for a “peaceful, negotiated settlement” of the Kashmir issue and they discussed the
possibility of building a gas pipeline to India via Pakistan. In late October, Musharraf caused
a stir when he suggested to a group of journalists a “geographical” solution for Kashmir that
would discuss seven regions (five in India and two in Pakistan) to be identified,
demilitarized, and have their status settled. New Delhi reacted cooly to the statements,
saying that discussions on the subject should not be held through the media. Opposition
figures in Islamabad called the proposals a “roll back” of Pakistan’s long-held Kashmir
policy. Some Kashmiri separatists welcomed Musharraf’s comments as “path-breaking.”
The 18-month-old Pakistan-India peace initiative is set to continue with high-level meetings
in December.
On October 14, Pakistan’s National Assembly passed a bill that would allow President
Musharraf to remain as army chief until 2007. Opposition figures vowed to oppose the
“black law.” In response to signs that Musharraf will break his pledge to resign from the
military at year’s end, a U.S. State Department spokesman reiterated the U.S. position that
“Pakistan’s long-term interest is to continue its transition to fully functioning democracy”
and the United States “expects to see continuing progress toward this goal.”
Also in October, the U.S. Congress acted on two pieces of major legislation (S. 2845
and H.R. 10) that seek to implement the recommendations of the 9/11 Commission Report
in ways that may affect U.S.-Pakistan relations. On October 6, career foreign service officer
Ryan Crocker was confirmed by the Senate as the new U.S. Ambassador to Pakistan. On
October 26, as many as 17 pro-government Pashtun tribesmen were killed when their convoy
came under mortar- or rocket-fire near Wana in South Waziristan. On October 28, an
explosion at a luxury hotel in Islamabad injured seven people, including a U.S. embassy
employee. A U.S. State Department spokesman said that it was probably “a bomb of some
kind.” On November 6, President Musharraf met with Afghan President Karzai in Kabul
where he vowed full cooperation with Afghanistan and efforts to combat terrorism. On
November 8, Deputy Secretary of State Armitage arrived in Islamabad for talks on Iraq,
CRS-1

---

IB94041
11-12-04
Afghanistan, and terrorism. More information is in CRS Report RS21584, Pakistan:
Chronology of Recent Events.
BACKGROUND AND ANALYSIS
Historical Background
The long and checkered Pakistan-U.S. relationship has its roots in the Cold War and
South Asia regional politics of the 1950s. U.S. concerns about Soviet expansionism and
Pakistan’s desire for security assistance against a perceived threat from India prompted the
two countries to negotiate a mutual defense assistance agreement in 1954. By 1955, Pakistan
had further aligned itself with the West by joining two regional defense pacts, the South East
Asia Treaty Organization and the Central Treaty Organization. As a result of these alliances,
Islamabad received nearly $2 billion in U.S.
assistance from 1953 to 1961, including $508
PAKISTAN IN BRIEF
million in military aid.
Population: 159 million; growth rate:
1.98% (2004 est.)
Area: 803,940 sq. km. (slightly less than
Differing expectations of the security
twice the size of California)
relationship have long bedeviled bilateral ties.
Capital: Islamabad
During and immediately after the Indo-Pakistani
Ethnic Groups: Punjabi, Sindhi, Pashtun
wars of 1965 and 1971, the United States
(Pathan), Baloch, Muhajir (immigrants
from India at the time of partition and
suspended military assistance to both sides,
their descendants)
resulting in a cooling of the Pakistan-U.S.
Languages: Punjabi 58%, Sindhi 12%,
relationship and a perception among some in
Pashtu 8%, Urdu (official) 8%, other
Pakistan that the United States was not a reliable
14%; English widely used
ally. In the mid-1970s, new strains arose over
Religions: Muslim 97% (Sunni 77%, Shia
20%), Christian, Hindu, and other 3%
Pakistan’s efforts to respond to India’s 1974
Life Expectancy at Birth: female 63.6
underground test of a nuclear device by seeking
years; male 61.7 years (2004 est.)
its own nuclear weapons capability. Limited U.S.
Literacy: female 31%; male 60% (2003
aid was resumed in 1975, but was suspended
est.)
Gross Domestic Product (at PPP): $333
again in 1979 by the Carter Administration in
billion; per capita: $2,080; growth
response to Pakistan’s covert construction of a
rate 5.8% (2003)
uranium enrichment facility. Following the
Inflation: 3.9% (2002)
Soviet invasion of Afghanistan in December
U.S. Trade: exports to U.S. $2.53 billion;
1979, Pakistan was again viewed as a frontline
imports from U.S. $840 million (2003)
Sources: CIA World Factbook; U.S. Commerce Dept.
ally in the effort to block Soviet expansionism.
In September 1981, the Reagan Administration
negotiated a five-year, $3.2 billion aid package with Islamabad. Pakistan became a key
transit country for arms supplies to the Afghan resistance, as well as a camp for some three
million Afghan refugees, many of whom have yet to return home.
Despite the renewal of U.S. aid and close security ties, many in Congress remained
troubled by Pakistan’s nuclear weapons program. Concern was based in part on evidence
of U.S. export control violations that suggested a crash Pakistani program to acquire a
nuclear capability. In 1985, Section 620E(e) (the Pressler amendment) was added to the
Foreign Assistance Act, requiring the President to certify to Congress that Pakistan does not
possess a nuclear explosive device during the fiscal year for which aid is to be provided.
With the Soviet withdrawal from Afghanistan beginning in May 1988, Pakistan’s nuclear
CRS-2

---

IB94041
11-12-04
activities again came under intensive U.S. scrutiny and, in October 1990, President Bush
again suspended aid to Pakistan. Under the provisions of the Pressler amendment, most
economic and all military aid to Pakistan was stopped and deliveries of major military
equipment suspended. In 1992, Congress partially relaxed the scope of the aid cutoff to
allow for P.L. 480 food assistance and continuing support for nongovernmental
organizations. One of the most serious results of the aid cutoff for Pakistan was the
nondelivery of some 71 F-16 fighter aircraft ordered by Pakistan in 1989. In December
1998, the United States agreed to pay Pakistan $324.6 million from the U.S. Treasury’s
Judgment Fund, as well as to provide Pakistan with $140 million in goods as compensation.
Pakistan-India Rivalry
Three full-scale wars — in 1947-48, 1965, and 1971 — and a constant state of military
preparedness on both sides of their mutual border have marked the half-century of bitter
rivalry between India and Pakistan. The acrimonious nature of the partition of British India
into two successor states in 1947 and the unresolved issue of Kashmiri sovereignty have been
major sources of tension. Both Pakistan and India have built large defense establishments
at significant cost to economic and social development. The Kashmir problem is rooted in
claims by both countries to the former princely state, divided since 1948 by a military Line
of Control (LOC) into the Indian state of Jammu and Kashmir and Pakistan-held Azad (Free)
Kashmir. India blames Pakistan for supporting a violent separatist rebellion in the
Muslim-dominated Kashmir Valley that has taken between 40,000 and 90,000 lives since
1989. Pakistan admits only to lending moral and political support to the rebellion, and it
criticizes India for alleged human rights abuses against Kashmiris. The most recent major
armed clash with India was in May-June 1999, when separatist militants backed by Pakistan
Army troops crossed the LOC near Kargil and were repulsed after six weeks of heavy
fighting that killed more than 1,000 combatants. During most of 2002, nearly one million
Pakistani and Indian soldiers were mobilized at their shared border after India blamed
Pakistan for supporting terrorist groups that had undertaken deadly attacks in India, including
a December 2001 assault on the Indian Parliament complex. Yet an April 2003 peace
initiative has brought major improvement in the bilateral relationship, including a January
2004 summit meeting that produced a joint agreement to launch a “composite dialogue” to
bring about “peaceful settlement of all bilateral issues, including Jammu and Kashmir, to the
satisfaction of both sides.” In 2004, numerous mid-level meetings and a general cease-fire
at the border and LOC have brought modest, but still meaningful, progress toward
normalized relations.
The China Factor
Pakistan and China have enjoyed a generally close and mutually beneficial relationship
over recent decades. India and China, on the other hand, are seen to have a strategic rivalry
in the region——the two large nations fought a brief border war in 1962 and significant
border disputes between them remain unresolved. Pakistan served as a link between Beijing
and Washington in 1971, as well as a bridge to the Muslim world for China during the 1980s.
China’s continuing role as a major arms supplier for Pakistan began in the 1960s, and
included helping to build a number of arms factories in Pakistan, as well as supplying
complete weapons systems. After the 1990 imposition of U.S. sanctions on Pakistan, the
Islamabad-Beijing arms relationship was further strengthened (see CRS Report RL31555,
China and Proliferation of Weapons of Mass Destruction and Missiles). Although relations
CRS-3

---

IB94041
11-12-04
between India and China warmed significantly in 2003, India’s Ambassador to the United
States said in April 2004 that the Islamabad-Beijing nuclear and missile proliferation “nexus”
continued to cause serious concerns in New Delhi.
Pakistan’s Political Setting
The history of democracy in Pakistan is a troubled one, marked by ongoing tripartite
power struggles among presidents, prime ministers, and army chiefs. Military regimes have
ruled Pakistan for more than half of its 57 years of existence, interspersed with periods of
generally weak civilian governance. From 1988 to 1999, Pakistan had democratically elected
governments, and the army appeared to have moved from its traditional role of “kingmaker”
to one of power broker or referee. Benazir Bhutto (leader of the Pakistan People’s Party) and
Nawaz Sharif (leader of the Pakistan Muslim League) each served twice as prime minister
during this period. President Farooq Leghari dismissed the Bhutto government for
corruption and nepotism in 1996, and Nawaz Sharif won a landslide victory in February 1997
elections, which were judged generally free and fair by international observers. Sharif, who
moved quickly to consolidate his power by curtailing the powers of the President and the
judiciary, emerged as one of Pakistan’s strongest elected leaders since independence. Critics
accused him of further consolidating his power by intimidating the opposition and the press.
In October 1999, in response to Sharif’s attempt to remove him, Army Chief Gen. Pervez
Musharraf overthrew the government, dismissed the National Assembly, and appointed
himself “Chief Executive.” He declared a state of emergency, suspended the constitution
and, by special decree, ensured that his actions could not be challenged by any court, thus
essentially imposing martial law. In April 2002, Musharraf assumed the title of President.
National elections were held in October of that year, as ordered by the Supreme Court. (See
section on “Democracy and Governance” below. See also CRS Report RL32615, Pakistan’s
Domestic Political Developments.)
Pakistan-U.S. Relations and Key Country Issues
U.S. policy interests in Pakistan encompass a wide range of issues, including
counterterrorism, nuclear weapons and missile proliferation, South Asian regional stability,
democratization and human rights, economic reform and market opening, and efforts to
counter narcotics trafficking. These concerns have been affected by several key
developments over the years, including proliferation- and democracy-related sanctions; a
Pakistan-India conflict over Kashmir and a continuing bilateral nuclear standoff; and, most
recently, the September 2001 terrorist attacks against the United States. In the wake of those
attacks, President Musharraf — under strong U.S. diplomatic pressure — offered President
Bush Pakistan’s “unstinted cooperation in the fight against terrorism.” Pakistan became a
vital ally in the U.S.-led anti-terrorism coalition. In a U.S. effort to shore up the Musharraf
government, sanctions relating to Pakistan’s 1998 nuclear tests and 1999 military coup
quickly were waived. In October 2001, large amounts of U.S. aid began flowing into
Pakistan. Direct assistance programs include aid for health, education, food, democracy
promotion, child labor elimination, counter-narcotics, border security and law enforcement,
as well as trade preference benefits. The United States also supports grant, loan, and debt
rescheduling programs for Pakistan by the various major international financial institutions.
In June 2004, President Bush designated Pakistan as a major non-NATO ally of the United
CRS-4

---

IB94041
11-12-04
States under Section 517 of the Foreign Assistance Act of 1961, a move that may be more
symbolic than practical. Revelations that Pakistan has been a source of onward nuclear
proliferation to North Korea, Iran, and Libya may complicate future Pakistan-U.S. relations.
Security
International Terrorism. After the September 2001 terrorist attacks on the United
States, Pakistan pledged and has provided support for the U.S.-led anti-terror coalition.
According to the U.S. Departments of State and Defense, Pakistan has afforded the United
States unprecedented levels of cooperation by allowing the U.S. military to use bases within
the country, helping to identify and detain extremists, and tightening the border between
Pakistan and Afghanistan. Top U.S. officials regularly praise Pakistani anti-terrorism efforts.
In the spring of 2002, U.S. military and law enforcement personnel reportedly began
engaging in direct, low-profile efforts to assist Pakistani security forces in tracking and
apprehending fugitive Al Qaeda and Taliban fighters on Pakistani territory. Pakistani
authorities have remanded to U.S. custody nearly 500 such fugitives to date. In a landmark
speech in January 2002, President Musharraf vowed to end Pakistan’s use as a base for
terrorism of any kind, and he banned numerous militant groups, including Lashkar-e-Taiba
and Jaish-e-Muhammad, both blamed for terrorist violence in Kashmir and India and
designated as Foreign Terrorist Organizations under U.S. law. In the wake of the speech,
thousands of Muslim extremists were arrested and detained, though many of these have since
been released. (See CRS Report RL32259, Terrorism in South Asia; and CRS Report
RL31624, Pakistan-U.S. Anti-Terrorism Cooperation.)
Pivotal Al Qaeda-related arrests in Pakistan have included Abu Zubaydah (March
2002), Ramzi bin al-Shibh (September 2002), and Khalid Mohammed (March 2003), along
with several key captures in the summer of 2004. Yet Al Qaeda and Taliban fugitives still
are numerous in Pakistan and appear to have re-established their organizations in Pakistani
cities such as Karachi, Peshawar, and Quetta, as well as in the mountainous tribal regions
along the Afghan border. Al Qaeda founder Osama bin Laden and his lieutenant, Egyptian
Islamic radical leader Ayman al-Zawahiri, may themselves be in Pakistan. Meanwhile,
numerous banned indigenous groups have continued to operate under new names: Lashkar-
e-Taiba became Jamaat al-Dawat; Jaish-e-Mohammed was re-dubbed Khudam-ul Islam.
Musharraf repeatedly has vowed to end the activities of religious extremists in Pakistan and
to permanently prevent banned groups from resurfacing there. His policies likely spurred
two lethal but failed attempts to assassinate him in December 2003. Nonetheless, some
analysts call Musharraf’s efforts cosmetic, ineffective, and the result of international pressure
rather than a genuine recognition of the threat posed.
Infiltration Into Afghanistan. Beginning in early 2003, U.S. military commanders
overseeing Operation Enduring Freedom complained that renegade Al Qaeda and Taliban
fighters were able to attack coalition troops in Afghanistan, then escape across the Pakistani
frontier. They expressed dismay at the slow pace of progress in capturing wanted fugitives
in Pakistan and urged Islamabad to do more to secure its rugged western border area.
Numerous U.S. government officials voiced similar worries, even expressing concern that
elements of Pakistan’s intelligence agency might be assisting members of the Taliban. In
mid-2003, tensions between the Kabul and Islamabad governments reached alarming levels,
with some top Afghan officials accusing Pakistan of manipulating Islamic militancy in the
region to destabilize Afghanistan. In an unprecedented show of force, President Musharraf
CRS-5

---

IB94041
11-12-04
moved some 25,000 Pakistani troops into the traditionally autonomous tribal areas. The first
half of 2004 saw an escalation of Pakistani Army operations, many in coordination with U.S.
and Afghan forces just across the international frontier (U.S. forces have no official
authorization to cross the border into Pakistan). Major battles between Pakistani troops and
militants in South Waziristan during the spring and summer of 2004 reportedly have left 246
Islamic militants (two-fifths of them foreigners), 170 Pakistani soldiers, and an unknown
number of civilians dead. The battles, which continue sporadically to date, have exacerbated
already volatile anti-Musharraf and anti-American sentiments held by many Pakistani
Pashtuns. Afghan President Karzai has continued to express concern that militants trained
on Pakistani territory cross into Afghanistan to mount anti-government attacks there. In
August, President Musharraf hosted Karzai in Islamabad and assured the Afghan president
that Pakistan would not allow extremists to use its territory to disrupt October’s Afghan
elections. In November, Karzai hosted Musharraf in Kabul, where the Pakistani president
vowed full cooperation with Afghanistan and efforts to combat terrorism.
Infiltration Into Kashmir. Islamabad has been under continuous pressure from the
United States and other governments to terminate the infiltration of insurgents across the
Kashmiri Line of Control. Such pressure reportedly elicited a promise from President
Musharraf to U.S. Deputy Secretary of State Armitage that all such movements would cease.
During a May 2003 visit to Islamabad, Deputy Secretary Armitage reportedly received
another pledge from the Pakistani president, this time an assurance that any existing terrorist
camps in Pakistani Kashmir would be closed. Musharraf has assured India that he will not
permit any territory under Pakistan’s control to be used to support terrorism, and he insists
that his government is doing everything possible to stop infiltration and shut down militant
base camps in Pakistani-controlled territory. Critics contend, however, that Islamabad has
provided active support for the insurgents in Kashmir as a means to both maintain
strategically the domestic backing of Islamists who view the Kashmir issue as fundamental
to the Pakistani national idea, and to disrupt tactically the state government in Indian
Kashmir in seeking to erode New Delhi’s legitimacy there. Positive indications growing
from the latest Pakistan-India peace initiative include a cease-fire at the LOC that has held
since November 2003, and summer 2004 statements from Indian officials indicating that
rates of militant infiltration were down significantly. However, in October 2004, India’s
external affairs minister said that the India-Pakistan peace process is “critically dependent”
on Pakistan fulfilling its pledges to end all activities by terrorist groups on its soil.
Domestic Terrorism. Pakistan is known to be a base for numerous indigenous
terrorist organizations and the country continues to suffer from anti-Shia, anti-Christian, and
anti-Western terrorism at home. In January 2002, reporter Daniel Pearl was kidnaped in
Karachi and later found murdered. Spring 2002 car bomb attacks on Western targets,
including the U.S. consulate in Karachi, killed 29 people, among them 11 French military
technicians. A March 2002 grenade attack on a Protestant church in Islamabad killed five,
including a U.S. Embassy employee and her daughter. These attacks were viewed as
expressions of militants’ anger with the Musharraf regime for its cooperation with the United
States. The incidents were linked to Al Qaeda, as well as to indigenous militant groups.
During 2003 and into 2004, the worst domestic terrorism was directed against Pakistan’s
Shia minority. Indications are that the indigenous Lashkar-i-Jhangvi Sunni militant group
was responsible for the most deadly incidents. Two bloody attempts to kill Musharraf in
December 2003 and failed efforts to assassinate other top Pakistani officials in June and July
2004 may have been linked to Al Qaeda and illuminated the danger presented by the
CRS-6

---

IB94041
11-12-04
determined extremists. The United States has played a direct role in training the security
detail of the Pakistani president, helped to fund a new 650-officer Diplomatic Security Unit,
and assists with numerous programs designed to improve the quality of Pakistan’s internal
police forces through the provision of equipment and training.
Pakistan-U.S. Security Cooperation. In June 2004, President Bush declared
Pakistan to be a major non-NATO ally of the United States, a move that may be more
symbolic than practical. The close U.S.- Pakistan security ties of the cold war era — which
had come to near halt after the 1990 aid cutoff — appear to be in the process of restoration
as a result of Pakistan’s role in U.S.-led anti-terrorism campaign. In July 2002, the United
States began allowing commercial sales that enabled Pakistan to refurbish at least part of its
fleet of American-made F-16 fighter aircraft. In July 2003, it was announced that Islamabad
will purchase six C-130 military transport aircraft from Lockheed Martin for approximately
$75 million under a Foreign Military Financing grant. Congress also was notified of another
pending Foreign Military Sale arrangement with Pakistan reportedly worth $155 million.
Under this deal, Pakistan is to receive six Aerostat surveillance radars. These mark the first
major arms sales to Pakistan in more than a decade and are intended to bolster Islamabad’s
counterterrorism capabilities. In September 2003, the Pentagon notified Congress of three
pending major arms sales to Pakistan potentially worth more than $300 million. The 12
radars, and 40 Bell helicopters are meant to enhance Pakistan’s ability to support Operation
Enduring Freedom and to secure its borders. In May 2004, the State Department notified
Congress of the two-year lease by Pakistan of 26 Bell helicopters funded by the Pentagon
under P.L. 108-11 and P.L. 108-106. In August 2004, the Pentagon notified Congress of the
possible sale to Pakistan of $78 million worth of military radio systems meant to improve
Pakistani communication capabilities and to increase interoperability between Pakistani and
U.S.-led counterterrorist forces. The United States also has undertaken to train and equip
new Pakistan Army Air Assault units that can move quickly to find and target terrorist
elements. The Pentagon reports Foreign Military Sales agreements with Pakistan worth $27
million in FY2002 and $167 million in FY2003. Islamabad continues to seek increased arms
imports, especially in an effort to bolster its air forces. Pakistani officials are eager to
purchase major U.S. weapons platforms, including F-16s fighters, P-3 maritime surveillance
aircraft, and Harpoon anti-ship missiles. A revived high-level U.S.-Pakistan Defense
Consultative Group (DCG) — moribund since 1997 — met in September 2002 for high-level
discussions on military cooperation, security assistance, and anti-terrorism. A September
2003 meeting set a schedule for joint military exercises and training, discussed how the U.S.
military can assist Pakistan in improving its counterterrorism capabilities, and included a
U.S. vow to expedite future security assistance.
Nuclear Weapons and Missile Proliferation. U.S. policy analysts consider the
apparent arms race between India and Pakistan as posing perhaps the most likely prospect
for the future use of nuclear weapons. In May 1998, India conducted unannounced nuclear
tests, breaking a 24-year, self-imposed moratorium on such testing. Despite U.S. and world
efforts to dissuade it, Pakistan quickly followed. The tests created a global storm of
criticism, and represented a serious setback to two decades of U.S. nuclear nonproliferation
efforts in South Asia. Pakistan currently is believed to have enough fissile material, mainly
enriched uranium, for 55-90 nuclear weapons; India, with a program focused on plutonium,
may be capable of building a similar number. Both countries have aircraft capable of
delivering nuclear bombs. Pakistan’s military has inducted short- and medium-range
ballistic missiles (allegedly acquired from China and North Korea), while India possesses
CRS-7

---

IB94041
11-12-04
short- and intermediate-range missiles. All are assumed to be capable of delivering nuclear
warheads over significant distances. In 2000, Pakistan placed its nuclear forces under the
control of a National Command Authority led by the president.
Press reports in late 2002 suggested that Pakistan assisted Pyongyang’s covert nuclear
weapons program by providing North Korea with uranium enrichment materials and
technologies beginning in the mid-1990s and as recently as July 2002. Islamabad rejected
such reports as “baseless” and Secretary of State Powell was assured that no such transfers
are occurring. If such assistance is confirmed by President Bush, all non-humanitarian U.S.
aid to Pakistan may be suspended, although the President has the authority to waive any
sanctions that he determines would jeopardize U.S. national security. In March 2003, the
Administration determined that the relevant facts “do not warrant imposition of sanctions
under applicable U.S. laws.” Press reports during 2003 suggested that both Iran and Libya
benefitted from Pakistani nuclear assistance. Islamabad denied any nuclear cooperation with
Tehran or Tripoli, although it conceded in December 2003 that certain senior scientists were
under investigation for possible independent proliferation activities.
That investigation led to the February 2004 “public humiliation” of metallurgist Abdul
Qadeer Khan, known as the founder of Pakistan’s nuclear weapons program and national
hero, when he confessed to involvement in a proliferation network. Khan and at least seven
associates are said to have sold crucial nuclear weapons technology and uranium-enrichment
materials to North Korea, Iran, and Libya. President Musharraf, citing Khan’s contributions
to his nation, issued a pardon that has since been called conditional. The United States has
been assured that the Islamabad government had no knowledge of such activities and
indicated that the decision to pardon is an internal Pakistani matter. Musharraf has promised
President Bush that he will share all information learned about the Khan’s proliferation
network. To date, Musharraf refuses to allow any direct access to Khan by U.S. or U.N.
investigators. (See CRS Report RL32115, Missile Proliferation and the Strategic Balance
in South Asia; and CRS Report RL31900, Weapons of Mass Destruction: Trade Between
North Korea and Pakistan.)
U.S. Nonproliferation Efforts. In May 1998, following the South Asian nuclear
tests, President Clinton imposed full restrictions on all non-humanitarian aid to both Pakistan
and India as mandated under Section 102 of the Arms Export Control Act. In some respects,
Pakistan was less affected by the sanctions than was India, as most U.S. assistance to
Pakistan had been cut off in 1990. At the same time, Pakistan’s smaller and more fragile
economy was more vulnerable to the negative effects of aid restrictions. However, Congress
and the President acted almost immediately to lift certain aid restrictions and, after October
2001, all remaining nuclear-related sanctions on Pakistan (and India) were removed. In April
2004, the U.S. Assistant Secretary of State for Proliferation urged Pakistan and India to join
the Nuclear Nonproliferation Treaty (NPT) as non-nuclear weapon states, saying that the
United States does not accept either country as a nuclear weapon state under the NPT.
During the latter years of the Clinton administration, the United States set forth
nonproliferation “benchmarks” for India and Pakistan, including halting further nuclear
testing and signing and ratifying the Comprehensive Test Ban Treaty (CTBT); halting fissile
material production and pursuing Fissile Material Control Treaty negotiations; refraining
from deploying nuclear weapons and testing ballistic missiles; and restricting any and all
exportation of nuclear materials or technologies. The results of U.S. efforts were mixed, at
CRS-8

---

IB94041
11-12-04
best, and neither Pakistan nor India are signatories to the CTBT or NPT. The Bush
Administration makes no reference to the benchmark framework. Senator Richard Lugar,
Chairman of the Senate Foreign Relations Committee, has called upon the United States to
promote nuclear confidence-building measures in South Asia, including “assistance on
export controls, border security, and the protection, control, and accounting of nuclear
stockpiles and arsenals.” U.S. and Pakistani officials have held talks on improving security
and installing new safeguards on Pakistan’s nuclear weapons and nuclear power plants, but
Pakistani officials insist that Pakistan will not accept any demand for access to or inspections
of its nuclear and strategic assets, materials, and facilities. Concerns about onward
proliferation and fears that Pakistan could become destabilized by the U.S.-led
counterterrorism efforts in Afghanistan have heightened U.S. attention to weapons
proliferation in South Asia. (See CRS Report RL31559, Proliferation Control Regimes;
CRS Report RS20995, India and Pakistan: Current U.S. Economic Sanctions; and CRS
Report RL31589, Nuclear Threat Reduction Measures for India and Pakistan.)
The Kashmir Issue. Bilateral relations between Pakistan and India remain
deadlocked on the issue of Kashmiri sovereignty, and a separatist rebellion has been
underway in the region since 1989. Tensions between Pakistan and India remained
extremely high in the wake of the Kargil conflict of 1999, when an incursion by Pakistani
soldiers led to a bloody six-week-long battle. Throughout 2000 and 2001, cross-border firing
and shelling caused scores of both military and civilian deaths. In May 2001, the Indian
government announced that it was ending a unilateral cease-fire in Kashmir but that PM
Vajpayee would invite President Musharraf to India for talks. A July summit meeting in
Agra failed to produce a joint communique, reportedly as a result of pressure from hardliners
on both sides. Major stumbling blocks were India’s refusal to acknowledge the “centrality
of Kashmir” to future talks and Pakistan’s objection to references to “cross-border
terrorism.” Secretary of State Powell visited South Asia in an effort to ease escalating
tensions over Kashmir, but an October 2001 bombing at the Jammu and Kashmir state
assembly building was followed by a December assault on the Indian Parliament in New
Delhi. Both incidents were blamed on Pakistan-based terrorist groups. The Indian
government responded by mobilizing some 700,000 troops along the Pakistan-India frontier
and threatened war unless Islamabad ended all cross-border infiltration of Islamic militants.
Under significant international diplomatic pressure and the threat of India’s use of possibly
massive force, President Musharraf in January 2002 vowed to end the presence of terrorist
entities on Pakistani soil and he outlawed five militant groups, including Lashkar-e-Taiba
and Jaish-e-Mohammed.
Despite the Pakistani pledge, infiltrations into Indian-held Kashmir continued, and a
May 2002 terrorist attack on an Indian army base at Kaluchak killed 34, most of them women
and children. This event again brought Pakistan and India to the brink of full-scale war, and
caused Islamabad to recall army troops from both patrol operations along the Pakistan-
Afghanistan border as well as from international peacekeeping operations. Intensive
international diplomatic missions to South Asia reduced tensions during the summer of 2002
and appear to have prevented the outbreak of war. Numerous top U.S. officials were
involved in this effort and continued strenuously to urge the two countries to renew bilateral
dialogue. A “hand of friendship” offer to Pakistan by the India’s PM in April 2003 led to the
restoration of full diplomatic relations in July, but surging separatist violence that summer
contributed to an exchange of sharp rhetoric between Pakistani and Indian leaders at the
United Nations in September, casting doubt on the peace effort. However, an October
CRS-9

---

IB94041
11-12-04
confidence-building initiative got Pakistan and India back on track toward improved
relations, and a November cease-fire was initiated after a proposal by Pakistani PM Jamali.
In December, President Musharraf suggested that Pakistan might be willing to “set aside” its
long-standing demand for a plebiscite in Kashmir, a proposal welcomed by the United States,
but called a “disastrous shift” in policy by Pakistani opposition parties.
Although militant infiltration did not end, the Indian government acknowledged that it
was significantly decreased and, combined with other confidence-building measures,
relations were sufficiently improved that the Indian PM attended a three-day summit meeting
of the South Asian Association for Regional Cooperation (SAARC) in Islamabad in January
2004, where Pakistan and India issued a joint “Islamabad Declaration” calling for a
“composite dialogue” to begin in February 2004 to bring about “peaceful settlement of all
bilateral issues, including Jammu and Kashmir, to the satisfaction of both sides.” Many
Kashmiris reject any effort at settlement that excludes them. Pakistan-based and Kashmiri
militant groups expressed a determination to continue fighting against Indian forces in
Kashmir despite the agreement. A spate of deadly attacks in the summer of 2004
underscored that the issue remains dangerous and unresolved.
Islamization and Anti-American Sentiment
An unexpected outcome of the 2002 elections saw the Muttahida Majlis-e-Amal (MMA
or United Action Front), a coalition of six Islamic parties, win 68 seats in the National
Assembly — about 20% of the total. It also controls the provincial assembly in the North
West Frontier Province (NWFP) and leads a coalition in the Baluchistan assembly. These
western provinces are Pashtun-majority regions that border Afghanistan where important
U.S.-led counterterrorism operations are ongoing. The result led to concerns that a shift in
Pakistani policies might be in the offing, perhaps even a “Talibanization” of western border
regions. In June 2003, the NWFP assembly passed a Shariat bill in the provincial assembly.
These laws seek to replicate in Pakistan the harsh enforcement of Islamic law seen in
Afghanistan under the Taliban. As such, the development alarmed Pakistan’s more secular
moderates, and President Musharraf has decried any attempts to “Talibanize” regions of
Pakistan. Islamists are notable for their virulent expressions of anti-American sentiment;
they have at times called for “jihad” against what they view as the existential threat to
Pakistani sovereignty that alliance with Washington entails. Anti-American sentiment is not
limited to Islamic groups, however. A March 2004 public opinion survey by the Pew Center
found that only 6% of Pakistan’s believe the United States is sincere in its efforts to combat
terrorism; half believe that the United States is seeking to “dominate the world.” The survey
also found nearly two-thirds of Pakistanis expressing a favorable view of Al Qaeda founder
Osama bin Laden. Most analysts contend that two December 2003 attempts to assassinate
President Musharraf were carried out by Islamic militants angered by Pakistan’s post-
September 2001 policy shift. In January 2004 testimony before the Senate Foreign Relations
Committee, one senior expert opined that “Pakistan is probably the most anti-American
country in the world right now, ranging from the radical Islamists on one side to the liberals
and Westernized elites on the other side.”
Democratization and Human Rights
Democracy and Governance. There had been hopes that national elections in
October 2002 would reverse Pakistan’s historic trend toward unstable governance and
CRS-10

---

IB94041
11-12-04
military interference in democratic institutions. Such hopes were eroded by the passage of
some highly restrictive election laws, including those that prevented the country’s two
leading civilian politicians from participating, as well as President Musharraf’s unilateral
imposition of major constitutional changes in August 2002. An October 2003 report from
New York-based Human Rights Watch claimed that four years of military rule had “led to
serious human rights abuses.” In 2004, and for the eleventh straight year, the nonpartisan
Freedom House rated Pakistan as “not free” in the areas of political rights and civil liberties.
While praising Pakistan’s electoral exercises as moves in the right direction, the United
States has expressed concern that seemingly nondemocratic developments may make the
realization of true democracy in Pakistan more elusive.
Gen. Musharraf’s April 2002 assumption of the title of President ostensibly was
legitimized by a controversial referendum that many observers claimed was marked by
“excessive fraud and coercion.” In August 2002, the Musharraf government announced
sweeping changes to the Pakistani constitution under a “Legal Framework Order” (LFO).
These changes provide the office of President and the armed forces powers not previously
available in the country’s constitutional history, including provisions for presidential
dissolution of the National Assembly. The United States expressed concerns that the
changes “could make it more difficult to build strong, democratic institutions in Pakistan.”
The October 2002 elections nominally fulfilled President Musharraf’s promise to restore the
National Assembly that was dissolved in the wake of his extra-constitutional seizure of
power. The pro-military Pakistan Muslim League-Quaid-e-Azam (PML-Q) won a plurality
of seats, while a coalition of Islamist parties made a surprisingly strong showing. Musharraf
supporter M.Z. Jamali became Pakistan’s new prime minister. The civilian government was
hamstrung for more than one year by fractious debate over the legitimacy of the LFO and
Musharraf’s continued status as army chief and president. A surprise December 2003
agreement between Musharraf and the Islamist opposition ended the deadlock by bringing
the constitutional changes before Parliament and by eliciting a promise from Musharraf to
resign his military commission before 2005. Non-Islamist opposition parties unified under
the Alliance for the Restoration of Democracy (ARD) accused the MMA of betrayal and
insisted that the new arrangement merely institutionalized military rule in Pakistan,
especially after the April 2004 establishment of a new National Security Council.
The spring of 2004 saw further apparent reversals for Pakistani democratization: in
April, ARD leader Javed Hashmi was sentenced to 23 years in prison for sedition, mutiny,
and forgery; in May, Shabaz Sharif, a former Punjab Chief Minister and brother of deposed
PM Nawaz Sharif, attempted to return to Pakistan from exile, but immediately was deported
to Saudi Arabia; and in June, PM Jamali was pushed to resign for what numerous analysts
called his insufficient deference to President Musharraf. Musharraf “shuffled” prime
ministers to seat his close ally, Finance Minister Shaukat Aziz. Aziz is seen to be an able
financial manager and technocrat favored by Musharraf and the military, but he has no
political base in Pakistan. Moreover, the latter months of 2004 have seen Musharraf signal
that he may continue his role as army chief beyond the stated deadline. There are concerns
that Pakistan’s civilian democratic institutions have been weakened by these developments.
(See also CRS Report RL32615, Pakistan’s Domestic Political Developments.)
Human Rights Problems. The U.S. State Department, in its Pakistan Country
Report on Human Rights Practices 2003, determined that the Islamabad government’s record
on human rights “remained poor; although there were some improvements in a few areas,
CRS-11

---

IB94041
11-12-04
serious problems remained.” Along with concerns about ongoing anti-democratic practices,
the report lists “acute” corruption, extrajudicial killings, lack of judicial independence,
political violence, terrorism, and “extremely poor” prison conditions among the serious
problems. Police have abused and raped citizens with apparent impunity. Improvement in
a few areas was noted, however, particularly with press freedoms and the punishment of
some security officials who were found guilty of abuses. The Human Rights Commission
of Pakistan, Amnesty International, and Human Rights Watch have issued reports critical of
Pakistan’s lack of political freedoms and of the country’s perceived abuses of the rights of
women and minorities. Discrimination against women is widespread, and traditional
constraints — cultural, legal, and spousal — have kept women in a subordinate position in
society. “Honor killings” continue to occur throughout the country. The adult literacy rate
for men in Pakistan is 60%, while only one-third of women can read and write. The State
Department’s International Religious Freedom Report 2004 singled out Pakistan for “state
hostility toward minority or non-approved religions” for the sixth consecutive year,
indicating that the Pakistani government continued to impose limits on freedom of religion,
to fail in many respects to protect the rights of religious minorities, and to fail at times to
intervene in cases of sectarian violence. In June 2004, a State Department report on
trafficking in persons placed Pakistan on the “Tier 2 Watch List” as a “source, transit, and
destination country for trafficked persons,” indicating that, despite significant efforts, “the
government of Pakistan does not fully comply with the minimum standards for the
elimination of trafficking.”
Narcotics
Pakistan is a major transit country for opiates that are grown and processed in
Afghanistan and western Pakistan, then distributed throughout the world by Pakistan-based
traffickers. The U.S. Department of State indicates that Pakistan’s cooperation on drug
control with the United States “remains excellent.” The Islamabad government has made
impressive strides in eradicating opium poppy cultivation; estimated production in 2001 was
only 5 metric tons, less than one-thirtieth of the estimated 155 tons produced in 1995.
However, opium production has spiked in post-Taliban Afghanistan and, in September 2004,
President Bush again identified Pakistan as being among the world’s “major illicit drug
producing or drug-transit countries.” Pakistan’s powerful Inter-Services Intelligence agency
(ISI) is suspected of involvement in drug trafficking; in March 2003, a former U.S.
Ambassador to Pakistan told a House International Relations Committee panel that the role
of the ISI in the heroin trade from 1997-2003 was “substantial.” Reports indicate that profits
from drug sales are financing the activities of Islamic extremists in Pakistan, Afghanistan,
and Kashmir. Pakistan’s counter-narcotics efforts are hampered by lack of full government
commitment; scarcity of funds; poor infrastructure; government wariness of provoking unrest
in tribal areas; and “acute” corruption. The State Department’s Bureau of International
Narcotics and Law Enforcement Affairs (INL) oversaw Pakistani projects with more than
$90 million in FY2002, including $73 million in emergency supplemental appropriations for
border security efforts that continued in FY2003. INL was budgeted $6 million for FY2003,
rising to $36.5 million estimated for FY2004 and $40 million requested for FY2005.
Economic Issues
Overview. Pakistan is a poor country with great extremes in the distribution of wealth.
Per capita GDP is about $2,080 when accounting for purchasing power parity. The long-
CRS-12

---

IB94041
11-12-04
term economic outlook for Pakistan is much improved in recent years, but remains clouded
in a country highly dependent on foreign lending and the importation of basic commodities
(public debt is equal to more than 70% of GDP). Greater political stability in recent years
brightened the outlook by providing President Musharraf with a base for the further pursuit
of economic reform, but a hamstrung National Assembly and tensions with India hampered
progress (developments in late 2003 and early 2004 helped to resolve these latter issues).
In the short-run, substantial fiscal deficits and the still urgent dependency on external aid
donations counterbalance a major overhaul of the tax collection system and what have been
notable gains in the Karachi Stock Exchange, the world’s best performer in 2002 and up 65%
in 2003. Output from both the industrial and service sectors grew in 2002, but the
agricultural sector’s performance slowed growth overall (in part due to severe drought).
Agricultural labor accounts for nearly half of the country’s work force. Pakistan’s real GDP
for the fiscal year ending June 2004 grew by more than 6%, driven by a strong manufacturing
sector. This rate was up from 5.1% during the previous year and 3.6% in FY2001/FY2002.
An industrial sector recovery and the end of a three-year drought have most foreseeing solid
growth ahead, with predictions nearing 6% for FY2004/FY2005.
The Pakistani government stabilized the country’s external debt at about $33 billion by
June 2003. The country’s total liquid reserves topped $12 billion by mid-2004, an all-time
high and an increase of more than 400% since October 1999. Foreign remittances for
FY2003 exceeded $4.2 billion, nearly quadrupling the amount in 2001. Inflation, generally
steady at around 3%, likely will rise slightly in 2004. Defense spending and interest on
public debt together consume 70% of total revenues, thus squeezing out development
expenditure. Pakistan’s resources and comparatively well-developed entrepreneurial skills
may hold promise for more rapid economic growth and development in coming years. This
is particularly true for Pakistan’s textile industry, which accounts for 60% of Pakistan’s
exports. Analysts point to the pressing need to further broaden the country’s tax base in
order to provide increased revenue for investment in improved infrastructure, health, and
education, all prerequisites for economic development.
Attempts at economic reform historically have floundered due to political instability.
The Musharraf government has had notable successes in effecting macroeconomic reform,
although efforts to reduce poverty have made little headway. The January 2004 sale of Habib
Bank, the country’s second-largest, was Pakistan’s largest-ever privatization move. Rewards
for its participation in the post-September 2001 anti-terror coalition eased somewhat
Pakistan’s severe national debt situation, with many countries, including the United States,
boosting bilateral assistance efforts and large amounts of external aid flowing into the
country. In March 2004, the Asian Development Bank confirmed a strong economic
recovery for Pakistan during the latter half of 2003, led by “substantial improvement” in the
country’s two main commodity producing sectors, agriculture and large-scale manufacturing.
July 2004 reports from the International Monetary Fund found macroeconomic performance
continuing to be “very strong,” with reform efforts “firmly on track,” but also noted that the
reform process is not advancing equally across all financial sectors.
Trade and Investment. The United States is by far Pakistan’s leading export market,
accounting for nearly one-quarter of total exports. Pakistan’s primary exports are cotton,
textiles and apparel, rice, and leather products. During 2003, total U.S. imports from
Pakistan were worth about $2.53 billion. Three-quarters of this value came from the
purchase cotton apparel, cotton cloth, and related articles. U.S. exports to Pakistan during
CRS-13

---

IB94041
11-12-04
2003 were worth $840 million, an increase of 21% over 2002. The leading U.S. export to
Pakistan was raw cotton. The State Bank of Pakistan reports a steady increase in foreign
investment in the country since 2001, with a total of $922 million for the year ending June
2004. More than one-quarter of this amount came from the United States.
According to the most recent report of the U.S. Trade Representative, Pakistan has
made progress in reducing import tariff schedules, though a number of trade barriers remain.
Some items are either restricted or banned from importation for reasons related to religion,
national security, luxury consumption, or protection of local industries. The U.S.
pharmaceutical industry believes that Pakistan maintains discriminatory practices that
impede U.S. manufacturer profitability, and some U.S. companies have complained about
Pakistani violations of intellectual property rights. The International Intellectual Property
Alliance estimated trade losses of $126 million in 2003 due to copyright piracy and criticized
Islamabad for “ignoring” a problem — Pakistan is a world leader in the pirating of CDs —
that has kept Pakistan on the U.S. Trade Representative’s “Special 301” watch list for 14
consecutive years. The Heritage Foundation’s 2004 Index of Economic Freedom rated
Pakistan as being “mostly unfree,” highlighting an especially restrictive set of trade policies,
weak property ownership protections, and a high level of black market activity. Heritage also
noted an increase in Islamabad’s domination of the banking system and influence over credit
allocation, but noted improved government monetary policies.
U.S. Aid and Congressional Action
U.S. Assistance. Total U.S. economic and military assistance to Pakistan from 1947-
2003 was just above $14 billion. Actual U.S. assistance to Pakistan in FY2002 was just
above $1 billion, up substantially over the $3.5 million for FY2001 (excluding food aid). For
FY2003, Congress allocated about $295 million for Pakistan in the Consolidated
Appropriations Resolution, 2003 (P.L. 108-7). In April 2003, the Emergency Wartime
Supplemental Appropriations Act, 2003 (P.L. 108-11) allocated $200 million in additional
security-related assistance to Pakistan. The current estimate for total FY2004 aid stands at
$385 million. In June 2003, President Bush vowed to work with Congress on establishing
a five-year, $3 billion aid package for Pakistan. Annual installments of $600 million each
are meant to begin in FY2005 and be evenly split between military and economic aid. When
additional funds for development assistance, law enforcement, and other programs are
included, the aid request for FY2005 is $700 million (see Table 1, below). In July 2004, the
House passed the Foreign Operations FY2005 Appropriations bill (H.R. 4818). The bill
would establish a new base program of $300 million for military assistance for Pakistan, but
allocates only half of that amount while authorizing the President to transfer the remainder
from unobligated balances of funds under previous appropriations Acts. The bill also
authorizes Pakistan to use up to $200 million in Economic Support Funds to further reduce
Pakistan’s concessional debt to the United States. The Senate passed H.R. 4818 in
September 2004, along with S.Amdt. 3694, which would require the President to report to
Congress on education reform efforts in Pakistan.
Congress also has appropriated significant funds to reimburse Pakistan for its support
of U.S.-led counterterrorism operations. In April 2003, the Emergency Wartime
Supplemental Appropriations Act, 2003 (P.L. 108-11) provided that $1.4 billion in additional
defense spending may be used for payments to reimburse Pakistan and other cooperating
nations for their support of U.S. military operations. The Asian Development Bank reported
CRS-14

---

IB94041
11-12-04
that Pakistan received $581 million in U.S. logistics support for the latter half of 2003, an
amount equal to 38% of Pakistan’s total defense expenditures during that period. In
November, a presidential request for emergency FY2004 supplemental funding became P.L.
108-106. This law made available $1.15 billion for continuing reimbursements. P.L. 108-
106 also provided that up to $200 million in FY2004 Economic Support Funds may be used
for the further modification of direct loans and guarantees for Pakistan. In July 2004, this
amount was used to reduce Pakistan’s concessional debt to the United States by $495
million, leaving a balance of some $1.3 billion.
Proliferation-Related Legislation. Through a series of legislative measures,
Congress incrementally lifted sanctions on Pakistan and India resulting from their nuclear
weapons proliferation activities.* After the September 2001 terrorist attacks on the United
States, policymakers searched for new means of providing assistance to Pakistan. President
Bush’s September 2001 issuance of a final determination removed remaining sanctions on
Pakistan (and India) resulting from the 1998 nuclear tests, finding that restrictions were not
in the national security interests of the United States. Some Members of the 108th Congress
have urged reinstatement of proliferation-related sanctions in response to evidence of
Pakistani assistance to the North Korean, Iranian, and Libyan nuclear weapons programs.
The Nuclear Black-Market Elimination Act (H.R. 4965) would authorize the President to
impose three-year-minimum sanctions on any “foreign person or entity” that is determined
to have been involved in the illicit transfer of nuclear materials or technologies. Title III of
the act would require the President to determine that Pakistan has verifiably halted all
proliferation activities and is fully sharing with the United States all information relevant to
the A.Q. Khan proliferation network.
Coup-Related Legislation. Pakistan’s 1999 coup triggered U.S. aid restrictions
under Section 508 of the annual Foreign Assistance Appropriations Act. New geopolitical
circumstances after September 2001 saw Congress take action on aid restrictions on Pakistan.
P.L. 107-57 (October 2001) waived coup-related sanctions on Pakistan through FY2002 and
granted presidential authority to waive them through FY2003. President Bush exercised this
authority in March 2003. P.L. 108-106 (November 2003) extended the President’s waiver
authority through FY2004; this was exercised in March 2004. Pending legislation includes
H.R. 1403, which seeks to remove the President’s waiver authority, and H.R. 4818 (passed
by both the House and Senate), which would extend that authority through FY2005.
Trade-Related Legislation. In the 108th Congress, H.R. 2467 and S. 1121 seek to
extend certain trade benefits that are meant to increase trade and investment with eligible
countries of the greater Middle East, including Pakistan. H.R. 3496 and S. 2875 would
* The Agricultural Export Relief Act of 1998 (P.L. 105-194) allowed U.S. wheat sales to Pakistan
after July 1998. The India-Pakistan Relief Act of 1998 (in P.L. 105-277) authorized a one-year
sanctions waiver exercised by President Clinton in November 1998. The Department of Defense
Appropriations Act, 2000 (P.L. 106-79) gave the President permanent authority after October 1999
to waive nuclear-test-related sanctions applied against Pakistan and India. On October 27, 1999,
President Clinton waived economic sanctions on India (Pakistan remained under sanctions as a result
of the October 1999 coup). The Foreign Operations Export Financing and Related Appropriations
Agencies Act, 2001 (P.L. 106-429; Section 597) provided an exception under which Pakistan could
be provided U.S. foreign assistance funding for basic education programs. (See also CRS Report
RS20995, India and Pakistan: Current U.S. Economic Sanctions.)
CRS-15

---

IB94041
11-12-04
extend trade benefits to certain tents imported into the United States from eligible countries,
including Pakistan. The Miscellaneous and Technical Corrections Act of 2004 (H.R. 1047)
would authorize the President to designate certain hand-made or hand-woven carpets as
eligible articles for duty-free treatment under the Generalized System of Preferences, a move
that the Senate Committee on Finance believes would be of particular benefit to Pakistan.
Other Legislation. In July 2003, the House passed the Foreign Relations
Authorization Act, FY2004-2005 (H.R. 1950). Section 709 of the act would require the
President to report to Congress on actions taken by Islamabad to close terrorist camps in
Pakistan-controlled areas, prohibit the infiltration of militants at the Kashmiri Line of
Control, and cease the transfer of WMD or related technologies to any third parties. In June
2004, the House passed the Intelligence Authorization Act, FY2005 (H.R. 4548) (the Senate
passed this bill in October). Section 304 of the act would require the Director of Central
Intelligence to report to the Congress on Pakistani efforts to curb proliferation of weapons
of mass destruction and to fight terrorism.
9/11 Commission Recommendations. The 9/11 Commission Report identifies
the government of President Musharraf as the best hope for stability in Pakistan and
Afghanistan, and it recommends that the United States make a long-term commitment to
provide comprehensive support for Islamabad so long as Pakistan itself is committed to
combating extremism and to a policy of “enlightened moderation.” Pending legislation in
the 108th Congress seeks to implement this and other Commission recommendations. In
October 2004, the House passed the 9/11 Recommendations Implementation Act of 2004
(H.R. 10), which details particular areas of concentration regarding Pakistan — including
democratization, economic modernization, nonproliferation, and education reform — and
would require the President to transmit to Congress a “detailed proposed strategy” for long-
term engagement with that country. Also in October, the House and Senate both passed the
National Intelligence Reform Act of 2004 (S. 2845). S.Amdt. 3942 to the bill calls for a
long-term U.S. commitment to Pakistan to include U.S. assistance sustained at a minimum
of FY2005 levels requested by the President. The bill also would require the President to
transmit to Congress within 180 days of enactment a description of U.S. efforts to support
Pakistan and encourage moderation there, including examinations of and recommendations
for funding levels for educational, military, and financial support, as well as an examination
of the desirability of establishing a Pakistan Education Fund.

CRS-16

---

IB94041
11-12-04
Table 1. U.S. Assistance to Pakistan, FY2001-FY2005
(in millions of dollars)
Program or
FY2001
FY2002
FY2003
FY2004
FY2005
Account
Actual
Actual
Actual
Estimate
Request
CSH
-.-
5.0
15.6
25.6
21.1
DA
-.-
10.0
34.5
42.4
29.0
ERMA
-.-
25.0
-.-
-.-
-.-
ESF
-.-
624.5
188.0a
200.0a
300.0
FMF
-.-
75.0
224.5
74.6
300.0
IMET
-.-
0.9
1.0
1.3
2.0
INCLE
3.5
90.5b
31.0
36.5
40.0
NADR
-.-
10.1
-.-
4.2
8.0
PKO
-.-
220.0
-.-
-.-
-.-
Subtotal
$3.5
$1,061.0
$494.6
$384.6
$700.1
P.L.480 Title Ic
0.5
10.0
9.0
5.8
-.-
P.L.480 Title IIc
1.9
5.1
9.7
(d)
(d)
Section 416(b)c
85.1
75.7
-.-
-.-
-.-
Total
$91.0
$1,151.8
$513.3
$390.4
$700.1
Sources: U.S. Departments of State and Agriculture; U.S. Agency for International Development.
Abbreviations:
CSH:
Child Survival and Health
NADR:
Nonproliferation, Anti-Terrorism,
DA:
Development Assistance
Demining, and Related
ERMA:
Emergency Refugee and Migration
PKO:
Peacekeeping Operations
Assistance
P.L.480 Title I:
Trade and Development Assistance
ESF:
Economic Support Fund
food aid (loans)
FMF:
Foreign Military Financing
P.L.480 Title II: Emergency and Private Assistance
IMET:
International Military Education and
food aid (grants)
Training
Section 416(b):
The Agricultural Act of 1949, as
INCLE:
International Narcotics Control and Law
amended (surplus agricultural
Enforcement (includes border security)
commodity donations)
Notes:
a. Congress authorized Pakistan to use the FY2003 ESF allocation to cancel $988 million and the FY2004 ESF
allocation to cancel $495 million in concessional debt to the U.S. government.
b. Included $73 million for border security projects that continued in FY2003.
c. Food aid amounts do not include what can be significant transportation costs.
d. Title II food aid accounts generally are held in reserve.
CRS-17

---