Out of the blacklist

Print edition : October 13, 2001

As a reward for their stated position on America's war on terrorism, President George W. Bush lifts the sanctions imposed on India and Pakistan in the wake of the nuclear tests of 1998.

THE decision of India and Pakistan to support the United States in its war postures against the Taliban regime has prompted President George W. Bush to lift the nuclear sanctions imposed on them in the wake of their nuclear tests in May 1998. The announcement was made on September 22 through a Presidential Determination (No. 2001-28), which was sent as a 'memorandum' to the Secretary of State Colin Powell.

Basically, Bush has exercised to the full the nuclear sanctions waiver authority bestowed on the President by Congress in October 1999. Former President Bill Clinton had signed this waiver provision, which was part of the Department of Defence Appropriations Act, 2000 (DDAA2000), into law (Public Law 106-79) on October 25, 1999, and exercised the authority only partially on October 27, 1999.

The exact scope of the lifting of sanctions this time was announced through a notification of the U.S. Federal Register on October 1. The removal of the sanctions has also resulted in a comprehensive review of the supplementary measures that were put in place in 1998 with regard to export controls on "dual-use" goods in the form of an Entity List (EL) and a corresponding export licensing policy.

While the talk of lifting of the sanctions against India had been in the air for some time, in the case of Pakistan it is a reward for the position it has taken vis-a-vis terrorism even in the face of stiff internal public opposition. On September 28, Bush made another determination (No. 2001-31) specifically for Pakistan, which authorised a funding of $50 million, deeming it to be "important to the security interests of the U.S". The special authorisation seems to nullify nearly all the democracy-related sanctions that were imposed after the October 1999 coup and the debt repayment default sanctions (the Brooke Amendment), which are still in place. The implication is that the U.S. is willing to support and assist a non-democratic government in order to further its own national security interests.

The nuclear sanctions of May 1998 were imposed in pursuance of Section 102(b)(2) of the U.S. Arms Export Control Act (AECA) - the so-called Glenn Amendment - which mandated the following:

(A) Termination of assistance under the Foreign Assistance Act of 1961, except humanitarian assistance in the form of food or other agricultural commodities (which includes U.S. development assistance programmes and International Military Education and Training (IMET) programmes);

(B) Termination of (i) sales of any defence articles, defence services or design and construction services; and, (ii) licences for the export of any item on the U.S. Munitions List;

(C) Termination of all military funding;

(D) Denial of any credit, credit guarantees, or other financial assistance by any department agency or instrumentality of the U.S. government (such as the EXIM Bank, the Trade and Development Agency and the Overseas Private Investment Corporation), except humanitarian assistance;

(E) Opposition to the extension of any loan or technical assistance by international financial institutions (such as the World Bank, the International Monetary Fund and the Asian Development Bank);

(F) Prohibition of any U.S. bank making any loan or providing any credit, except for the purpose of purchasing food or other agricultural commodities; and

(G) Prohibition of export of specific goods and technology (broadly termed "dual-use" items).

The export and re-export of "dual-use" technologies are subject to the Export Administration Regulations (EAR), which are implemented by the Bureau of Export Administration (BXA) of the U.S. Department of Commerce (DOC). This covers exports of goods from a country other than the U.S. as well. Such goods, if exported from the U.S., would be controlled by the EAR. An item not manufactured in the U.S. also attracts the EAR if it contains a minimum of 25 per cent of U.S.-made components (the de minimis provision).

The EAR controls export of goods and technologies to individual countries for reasons pertaining to nuclear proliferation, missile technology, national security, chemical and biological weapons, anti-terrorism measures and other foreign policy concerns. For its export licensing process, the BXA maintains a Commerce Control List (CCL), a classification of controlled goods. In implementing the sanctions under category (G), the BXA put in place an export licensing policy in June 1998. Under this policy, export licences for items controlled for reasons pertaining to nuclear proliferation and missile technology would be denied in the case of Indian and Pakistani end-users. Such items account for nearly 50 per cent of the so-called dual-use technologies.

In November 1998, the BXA instituted certain supplementary measures, including in the EL over 300 government, parastatal and private organisations in India and Pakistan that were deemed to be involved in nuclear or missile-related activities. The EL is maintained under the "end use and end user" prohibition clause (Supplement 4 to Section 744) of the EAR.

For the entities named in the list, a licence was required for export of all items controlled by the EAR with a strong "presumption of denial". For all entities except military entities such as ordnance factories, this policy required an export licence (with a presumption of denial) even for the EAR99 items - the basket of routine, non-dual use, non-sensitive items, which do not figure in the CCL and which normally do not require a licence.

The export of high-performance computers (HPCs) is governed by a separate HPC Policy under the EAR, which had classified destinations into four tiers. India is in Tier 3. (Tier 4 is the most restrictive, with complete denial of HPCs.) At the time of the imposition of the sanctions, the rating for HPC in terms of Composite Theoretical Performance (CTP) was 2,000 million theoretical operations per second (MTOPS) - the performance of a Pentium PC - and above. The sanctions and the EL implied that computers with a CTP rating of above 2,000 MTOPS would be denied for the named entities. However, in July 1999, the threshold was increased from 2,000 to 6,500 MTOPS (roughly the performance of a 950 MHz Sun workstation with four processors). Since then, the licence exception limit for end-users that are not on the EL has been increasing every six months as part of Clinton's HPC policy. And, since January 2001, such organisations have been allowed to import without licence systems that have a CTP rating of up to 85,000 MTOPS (roughly a 64-processor Sun system).

In October 1998, the U.S. Congress passed the India-Pakistan Relief Act (IPRA) - the Brownback Amendment - which gave the President the authority to waive part of the sanctions. This authority was valid only for a year and was limited to sanctions under categories (A), (D), (E) and (F). Clinton exercised this authority on December 1, 1998, and waived sanctions under the categories of (A), (D) and (F) for both the countries. Significantly, he also waived the sanctions against Pakistan under category (E), which mandated the U.S. to oppose loans from international financial institutions.

The DDAA2000 waiver authority of October 1999, however, differed from the 1998 waiver in two important respects: 1. As against the one-year waiver period earlier, the new waiver was applicable without any time-limit unless either India or Pakistan conducted fresh nuclear tests. 2. Unlike the IPRA, which specifically excluded waiving of sanctions under categories (B), (C) and (G), the new Act gave the President the power to waive these too if "he determines and so certifies to Congress that the application of the restriction would not be in the national security interests of the U.S."

On October 27, 1999, Clinton exercised this authority in a limited way. In the case of India, he waived the sanctions under (A), (D) and (F); and for Pakistan, the waiver was only in respect of (F) and the extension of credit, credit guarantee or other financial assistance provided by the U.S. Department of Agriculture under (D) for purchase of food and other agricultural commodities.

The DDAA2000 also included the "Sense of the Congress" that called for "Targeted Sanctions". It said: "Export controls should be applied only to those Indian and Pakistani entities that made direct and material contribution to weapons of mass destruction and missile programmes and only to those items that can contribute to such programmes." As a consequence, the EL was revised twice, in December 1999 and in July 2000. The first revision removed 51 Indian entities (mostly ordnance factories, the Tata Institute of Fundamental Research and the Saha Institute of Nuclear Physics) from the EL and the second removed two (the Uranium Recovery Plant and the Nuclear Science Centre) and added one (the Indian Space Research Organisation's Telemetry, Tracking and Command Network, or ISTRAC). No Pakistani entity had been struck off the EL until then. Further, in March 2000, the licensing policy towards Indian and Pakistani entities was changed with regard to EAR99 items, with the "presumption of denial" becoming "presumption of approval".

THE lifting of sanctions per se has done nothing to the EL, which follows entirely from the EAR. However, in the wake of the removal of the sanctions and in keeping with the "Sense of Congress" expressed in DDAA2000, the BXA and the State Department have, in separate exercises, pruned drastically the EL for both India and Pakistan. The final revised EL was announced in the Federal Register notification of October 1 (see table). Significantly, all academic institutions and private and public firms and a large number of units of the three strategic departments - Defence, Atomic Energy and Space - have been removed from the EL.

The licensing policy of the BXA for EAR-controlled items too has undergone a significant change with the removal of the sanctions on "dual-use" goods. According to a statement issued by the BXA on September 25, the current policy of "presumption of denial" for items controlled for reasons of nuclear proliferation and missile technology will now become a policy of "case-by-case review" for all end-users except those on the EL for whom these items will be denied. For entities on the EL, other items not related to nuclear proliferation and missile technology, including the EAR99 items, would continue to require a licence. However, instead of the current policy of "presumption of denial" for non-EAR99 items, it would be a case-by-case review process. For EAR99 items, the policy of "presumption of approval" will apply.

Most of the EAR-controlled items that India requires from the U.S. include EAR99 items and items controlled for reasons relating to national security and chemical and biological weapons. While EAR99 items will become freely available after the removal of the sanctions, import of items not related to nuclear proliferation and missile technology should also go up with the BXA reverting to the standard case-by-case licensing process.

As regards HPCs, the export of systems above a CTP rating of 6,500 MTOPS to the named entities will require a licence even after the lifting of the sanctions. The only difference is that the licence would be granted on a case-by-case basis.

High-technology and strategic programmes such as the Light Combat Aircraft (LCA) and the Advanced Light Helicopter (ALH) got slowed down because of the non-availability of parts and components from the U.S. The LCA programme was hampered because the Indian-designed Flight Control System (FLS), which was sent to the U.S. for evaluation, was held back owing to the sanctions against re-exports. The FLS should be released now. Similarly, the ALH programme suffered because of the denial of licences for the export of engines for the aircraft. More significantly, with the development of the Kaveri engine for the LCA lagging way behind schedule, the first fleet of LCA that would be inducted would require GE404 engines. Now, with the lifting of the sanctions, these can be imported.

The Indian Navy's fleet of Sea King helicopters had to be grounded after the British firm suspended product support following a directive from the U.S. State Department. However, in January this year, Bush had determined that some specific U.S.-made components from the U.S. Munitions List (forbidden by Sanctions (B)) could be exported for the purpose of refurbishing the Sea King helicopters of India. With the complete removal of sanctions, such routine maintenance of defence equipment can now take place. The Indian Army too had suffered - which was evident during the Kargil War - because of the denial of export of weapon-locating radars from the U.S. as well as Europe. Now these should become available.

As regards the other sanctions besides (G) that were in place until September 22, that is (B), (C) and (E), the impact would be minimal from the Indian perspective. Sanctions under (E) had already lost their impact because, for the past two years, the U.S. had been opposing loans from international financial institutions only for non-humanitarian programmes. A host of developmental projects were subsumed under the head of humanitarian lending and loans for them from international financial institutions had reached considerable levels. Therefore, a formal removal of (E) may only have a limited impact.

From Pakistan's perspective, however, the removal of (E) may imply that the flow of loans from international financial institutions will begin. In fact, the U.S., which facilitated the disbursal of a substantial IMF loan for Pakistan in November 2000, will allow the IMF loans being currently negotiated by Pakistan to be passed. The lifting of other sanctions besides (E) would have had a positive implication for Pakistan but for the democracy-related sanctions of 1999.

These sanctions are governed by Section 508 of the Foreign Operations Appropriations Act, which prohibits financing of operations in Pakistan for which funds have been appropriated under this Act.

IN effect, therefore, for Pakistan, the lifting of sanctions under the Glenn Amendment meant that it could now receive loans from international financial institutions and the curbs on export of munition items and dual-use goods would be eased. But it also meant the curbs on bilateral aid of any kind would continue. Therefore, it was not clear how the U.S. would fund the anti-Taliban operations in Pakistan. However, on September 28, Bush struck a coup de grace by decreeing assistance to Pakistan under the authority vested in him by Section 614(a)(1) of the Foreign Assistance Act.

Section 614(a)(1) says: "The President may authorise the furnishing of assistance under this Act without regard to any provision of this Act, the Arms Export Control Act, any law relating to receipts and credits accruing to the United States, and any Act authorising or appropriating funds for use under this Act, in furtherance of any of the purposes of this Act, when the President determines, and so notifies in writing the Speaker of the House of Representatives and the chairman of the Committee on Foreign Relations of the Senate, that to do so is important to the security interests of the United States." The words "any Act authorising or appropriating funds for use under this Act, in furtherance of any purposes of this Act..." virtually include all bilateral funding that would otherwise have been barred by democracy-related sanctions under Section 508 of the Foreign Operations Appropriations Act and the Brooke Amendment (Section 620 (q) of Foreign Assistance Act), which are in place even after the waiver of the nuclear sanctions. Section 614(a)(1), though not a waiver, seems to offer a way out of these sanctions in the "national security interests of the U.S."

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