RS20995 -- India and Pakistan: U.S. Economic Sanctions
Updated February 3, 2003

	Recap of Nuclear Tests Sanctions (1)

In May 1998, India and Pakistan each conducted tests of nuclear explosive devices, triggering sweeping U.S. economic sanctions as required by the ArmsExport Control Act (AECA) and the Export-Import Bank Act. In theUnited States, the law required the President toimpose the following restrictions or prohibitions on U.S. relations with both India and Pakistan: termination of U.S.foreign assistance other than humanitarianor food assistance; termination of U.S. government sales of defense articles and services, design and constructionservices, licenses for exporting U.S.Munitions List (USML) items; termination of foreign military financing; denial of most U.S. government-backedcredit or financial assistance; U.S. oppositionto loans or assistance from any international financial institution; prohibition of most U.S. bank-backed loans orcredits; prohibition on licensing exports of"specific goods and technology"; and denial of credit or other Export-Import Bank support for exports to eithercountry. Throughout the first eight months of 2001, the Bush administration hadhinted that the United States would like to remove the sanctions imposed against India and, to a lesser extent,Pakistan. As a result, the President exercised the authority granted him in the Defense Appropriations Act, FY2000,on September 22, 2001, when he lifted allnuclear test-related economic sanctions against the two countries after finding that denying export licenses andassistance was not in the national securityinterests of the United States. (9) Today, the solevestige of the nuclear sanctions is the listing of four Indian and 20 Pakistani entities (and their subsidiaries) onthe Commerce Department's list of entities for which export licenses are required. By comparison, restricted entitiesnumbered in the hundreds in the wake ofthe 1998 nuclear tests. Pakistan's current leader, General PervezMusharraf seized power and overthrew a democratically elected government in October 1999. Pakistan wasalso denied most U.S. foreign assistance for falling into arrears in servicing its debt to the United States.
In 1998, India and Pakistan each conducted tests of nuclear explosive devices, drawingworld condemnation. TheUnited States and a number of India's and Pakistan's major trading partners imposed economic sanctions in response. Most U.S. economic sanctions werelifted or eased within a few months of their imposition, however, and Congress gave the President the authority toremove 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 that denying export licenses and assistance was not in the national security interests of the United States.
Today, four Indian and 20 Pakistani entities (and their subsidiaries) remain on the Commerce Department's listof entities for which export licenses arerequired. By comparison, restricted entities numbered in the hundreds in the wake of the 1998 nuclear tests. Anexport license is still required to ship missiletechnology-controlled or nuclear proliferation-controlled items to users in either country, but the Department ofCommerce no longer views such licenseapplications with a presumption of denying their issuance.
Apart from the sanctions imposed following the nuclear tests, the United States prohibited foreign aid toPakistan when that country fell into arrears in servicingits debt to the United States in late 1998, a prohibition reenforced when Pakistan's military forces overthrew thedemocratic government in late 1999. Post-September 11 cooperation between the United States and Pakistan included a rescheduling of the debt and newlegislation to waive the so-calleddemocracy sanctions. Pakistan thus became eligible to receive U.S. foreign assistance through FY2003 when, unlessit holds free and fair elections, restrictionson foreign aid could be reimposed.