An analysis of what the waiver implies for India and Pakistan

Lifting of US sanctions: Type, scope and legal backing

K Santhanam,G Balachandran, Rajiv Nayan & Manish

On September 22, 2001, George W Bush, through Presidential Determination No. 2001-28, lifted sanctions imposed on India and Pakistan in May 1998. This Determination was pursuant to Section 9001(b) of the Defense Appropriations Act, 2000.

The Presidential Determination said that the sanctions and prohibitions operated through the Arms Export Control Act Section 102 (b) on India and Pakistan are not in the national security interests of the United States. It also removed sanctions under Sections 101 of the Arms Export Control Act, Section 2 (b) (4) of the Export Import Bank Act of 1945 and Section 620 E (e) of the Foreign Assistance Act of 1961.

The Government of India said that the Presidential Determination is a “welcome development”. Indian Industry and media have also welcomed it. Pakistani officials have said that the waiver of sanctions is a “positive step” and has been “long overdue”. Pakistan’s media, however, seems to have downplayed its importance.

The US has been called a paradise for lawyers, with good reason; and we are aware of that Administration to understand the full scope of the Glenn Amendment and how to implement in 1998. Hence, for ease of understanding, we would briefly summarise the type, scope and legal backing of these “apparently” bewildering sanctions.

* Sanctions under Section 101 of the Arms Export Control Act forbid economic assistance under the Foreign Assistance Act of 1961, military assistance, credits or guarantees, and military education and training.

* Section 102 (b) (2)(A) of the Act also deals with termination of assistance under the Foreign Assistance Act of 1961. Section 102 (b) (2) (B) of the Act deals with ending and restricting the sale of defence items, defence services, defence design and construction services as well as licensing of items covered under the Munitions List controlled by the Department of State. Section 102 (b) (2) (C) of the Act enables the US government to cancel Foreign Military Sales involving US financing.

* Section 102 (b) (2) (D) provides for rejection of credit, credit guarantees or other financial assistance by any Department, Agency or instrumentality of the US Administration. Section 102 (b) (2) (E) relates to opposing of loan and financial or technical assistance by international financial institutions. Section 102 (b) (2) (F) disallows loans or credits by a US bank. Section 102 (b) (2) (G) of the Arms Export Control Act imposes restrictions on transfers of dual-use technology.

* Section 2(b) (4) of the Export Import Bank Act of 1945 empowers the US Secretary of State to deny guarantees, insurance and credit to a US-defined non-nuclear weapon country, which conducts nuclear tests.

* Section 620 E (e) of the Foreign Assistance Act is Pakistan-specific and prohibits sale or transfer of military equipment.
When sanctions were announced in the wake of the 1998 tests, the Bureau of Export Administration (BXA) of the US Department of Commerce made changes in the Export Administration Regulations (EAR).

One was in Supplement No. 4 to Part 744. More than 300 government, parastatal and private entities of India and Pakistan were put on the “Entity List”. This list is being published by the BXA since 1997, and is based on the Enhanced Proliferation Control Initiative of 1990. The objective of the Entity List is to alert US companies that these entities are engaged either directly or materially contributing to nuclear and missile proliferation; so, licenses are needed.

Later, in two phases, some Indian entities were removed from the list by BXA —possibly as a result of the Strobe Talbott-Jaswant Singh series of meetings. On March 17, 2000, 51 entities were removed from the list. On July 26, 2000, two more entities were removed. These were: Nuclear Science Centre, Delhi affiliated to the Jawaharlal Nehru University and Uranium Recovery Plant, Kochi. The same notification added one more entity to the list: the ISRO (Indian Space Research Organisation) Satellite Tracking Centre (ISTRAC)!

The net result: around 250 Indian entities were in the list till September 22, 2001. The second change in November 1998 was to insert a new Section 742.16 that requires validated licenses for all exports and re-export to all end-users in India and Pakistan for items which are controlled for nuclear and missile proliferation reasons.
However, the inserted Section said that high performance computers as well as items and technologies required for the safety of civil aviation and safe operation of commercial passenger aircraft were exempt from the coverage.

Items which are not listed in the Commodity Control List administered by the US Department of Commerce, but which are subject to Export Administration Regulations, are known as EAR 99 items. Because of the wide-ranging nature of the 1998 sanctions, even export of trivial EAR 99 items became subject to control. In October 1999, legislation was approved by Congress vested the power with the President to waive certain sanctions on India and Pakistan. These provisions were contained in Title IX, Section 9001 of Public Law 106-79.

This led to Presidential Determination No. 2000-04 of October 27, 1999 which permitted resumption of services and assistance from the following: Export-Import Bank Overseas Private Investment Corporation (OPIC), Trade and Development Agency International Military Education and Training Programme (IMET), Asian Elephant Conservation Fund Rhinoceros and Tiger Conservation Fund Indo-American Environmental Leadership Programme.

A clause in Title IX of Section 9001 of Public Law 106-79 provided some relief to licensing of dual-use technologies and articles, which were not required for developing nuclear weapons or missiles, covered under the Missile Technology Control Regime.

For Pakistan, the waiver of sanctions was limited in scope. The waiver was for: (a) credit, credit guarantee or other financial assistance provided by the Department of Agriculture to support the purchase of food and other agricultural commodities, and (b) availability of loan or credit from US banks.

Analysis of the September 22, 2001 waiver Impact on India: As some of the sanctions imposed in May 1998 under Section 102 (b) of the Arms Control Act were already removed Presidential Determination No. 2000-04, India was covered only under Section 102 (b) (2) (A), (B), (C), (E) and (G) for the sanctions listed in the September 22 Determination. Through this Determination all these sanctions stand removed.

To implement this Determination, BXA has moved in the following ways:

* Entity List pruning: Till September 22 the number was 40; earlier it was 157. Now, the number is 16.
* Deletion of Section 742.16. This removes the “blanket denial “ under Nuclear Proliferation (NP) and Missile Technology (MT) reasons for all entities deleted from the list.
* Relaxation for EAR 99 items. These items would be processed with the presumption of approval; not denial. For entities surviving in the list there could be presumption of denial.

It may be noted that BXA, however, has asked US companies to be alert in transactions with Indian and Pakistani entities removed from the list. Possibly, eternal suspicion is the price the US wishes to pay for proliferation vigilance.

For non-nuclear and non-missile end-use/end-users the new policy is likely to have a positive impact, a changed policy may be in place. The 2001 Foreign Policy Report of the Bureau of Export Administration says: “In FY (Fiscal Year) 2000, the United States approved 751 licenses for exports to India valued at $164 million and denied 244 license applications valued at $23 million. In the calendar year 2000, the denial rate for licenses (including returned applications) fell to 34 percent from a 63.7 percent denial rate for 1999. This improvement in license denials is largely due to the March 2000 policy change that removed 51 Indian Entities from the Entity List and revised the license review policy for items classified as EAR 99 (items that are subject to the EAR but are not listed on the Commerce Control List) to Indian and Pakistani government, private and parastatal entities from a presumption of denial to a presumption of approval.”

Since the majority of licences denied to India in 1998 were in the EAR 99 category, the present waiver is likely to result in a decrease in the percentage of denials.

Under Section 102 (b) (2) (A) of the Arms Export Control Act, foreign assistance under the “humanitarian assistance” category was available to India. With the September 22 Determination, the full spectrum of foreign assistance is enabled.

The lifting of sanctions under Section 102 (b) (E) implies that the US Administration need not have to mandatorily oppose India’s proposals before the World Bank, International Monetary Fund and the Asian Development Bank. Since India has not approached, and has no intention or need to approach IMF for any financial assistance, there would only be a theoretical benefit.

The waiver of Section 2 (b) (2) (B) (C) of the Arms Export Control Act could have some positive implications for Indian defence. It implies that, theoretically, access to defence articles, defence services or design and construction services as well as procurement of items on the Munitions List of interest to India may not be as difficult or undesirable as in the past. The LCA programme could expect a resumption of normal relationships with participating US firms.

The potential also seems to exist for the Indian armed forces and the Indian defence industry to explore and conclude transactions with US industry to mutual benefit. Recently, the doors have been opened for Indian private sector participation in the manufacture of defence systems. And, Indian engineering firms in the large and medium sector may feel encouraged to seek joint venture partners in the US for co-development or co-production of contemporary defence systems which are needed by the services and are not in the current product portfolio of the Indian defence (government) industry.

However, Indian parties may like to note that Nato countries have raised the issue of “security of supply” with the US for components, sub-systems or parts in July 2001. Their concern is about unilateral supply discontinuity, especially in times of crises. This has been a major Indian concern too; the Indian government and industrial establishments would have to address this issue squarely.

The “Agreed Minute on Defence Relations signed between India and the United States”, on January 12, 1995, by the US Secretary of Defence, William Perry and Minister of State for Defence, Mallikarjun, may also see a resurrection. It provides for high-level consultations in the Defence Policy Group which, in turn, is supported by the Services Group and the Joint Technical Group. Service-to-Service co-operation between the armed forces of India and the US may also be expected to see a rise; more so, now, in the area of response to global terrorism with all its ramifications.

Satellite Launch Vehicle programmes like SLV-3, and GSLV as well as missile programmes like the Prithvi and Agni have been under licensing requirements for “common or garden variety” EAR 99 items. Such restrictions are likely to continue. However, it is rather difficult to understand how patently civilian satellite launch vehicle programmes and their work centres continue to attract such provisions. Both the Senate and the Administration need to re-address such anomalies. It also appears that a more pragmatic approach to the emotive issue of “non-proliferation” has emerged in the US.

Non-proliferation may not be abandoned, but it may have a lower priority in the scheme of things of the present Administration. By failing to acknowledge the difference between Satellite Launch Vehicles and missiles, the letter and spirit of the Missile Technology Control Regime regarding non-hindrance to activities connected with the peaceful uses of outer space appear to have been violated. A related comment would be that, clearly, India will have to depend on indigenous pursuit of strategic programmes in nuclear, missile and space technologies; indeed, all critical technologies of importance to the national interest, including the national security interest.

Impact on Pakistan: Of the sanctions listed under September 22, Presidential Determination for waiver Pakistan was covered by Section 102 (b) (2) (A), (B), (C), (D), (E) and (G) as well as Section 101 of the Act, Section 620 E (e) of the Foreign Assistance Act of 1961 and Section 2 (b) (4) of the Export Import Bank Act of 1945. For Pakistan, operation of the democracy-related sanctions under Section 508 of the Foreign Operations Appropriations Act 2001 a more complicated method has been adopted to provide relief contained in Title V of Public Law 106-554. Under Section 508, a country which overthrows a democratically elected head of government, cannot get financial assistance from the US.

Although sanctions under the Section 508 cannot be removed until and unless the President certifies that a democratically elected government has taken charge, President Bush, through the authority granted by 22 USC 2364 has over-ridden some of the restrictions imposed by Section 508 of the Foreign Operations Appropriations Act. Through the Presidential Determination of September 28, 2001, President George Bush, the US has released a grant of $50 million to Pakistan without regard to any provisions of law within the scope of Section 614 (a) of the Foreign Assistance Act of 1961. It gave security interests of the US as the reason for the grant— which is certainly due to the September 11 attacks and the need to have Pakistan as a “frontline” State in the “retribution process”; and, possibly, thereafter.

In the meantime, Pakistan and the US have signed an agreement to reschedule the $379 million government-to-government debt of Pakistan. This seems to indicate that President Bush exercised authority under USC 2364 to lift all restrictions under Section 508. For all practical purposes, we can assume Section 508 has ceased to exist.

As far as dual-use technology and items are concerned, Pakistan is likely to be a beneficiary. The number of Pakistani entities has been brought down from 92 to 22. Entities involved with the “indigenous” Hatf, Ghauri and Shaheen missiles would attract licensing requirements even for EAR 99 items. Non-Pakistani entities in other countries (e.g China) would also face this situation. Non-nuclear and non-missile entities and programmes would be able to get licenses on the basis of presumption of approval. The lifting of sanctions on Pakistan would, immediately, enable resumption of US arms supply and product support.

From the Indian perspective, the documented evidence of usage of such systems against India in the past should inform the US Administration of the type and quantity of weapon systems it proposes to supply and the conditionalities it ought to apply. India would have to closely monitor developments in this regard.

(K Santhanam is director of Institute of Defence Studies and Analyses, New Delhi and G Balachandran is an independent analyst)