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June 19, 1998


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'Sanctions will not affect all US trade with India but will still hit the prospects of both countries'

The economic sanctions mandated under the Glenn Amendment in the wake of nuclear tests will not affect all US trade with India but will still hit the prospects of both countries, said Undersecretary of Commerce for International Trade David Aaron.

While it's doubtful the sanctions ''will cripple'' India's economy and economic development, he pointed out, they would nevertheless diminish the ability of US companies to pursue projects in India and block new financing by international financial institutions.

Testifying yesterday before a congressional panel on Asia and the Pacific during its special hearing on ''India-Pakistan nuclear proliferation,'' he said ''our approach has been to implement sanctions in a way that is most likely to influence the affected governments, while minimising to the extent possible the impact on US business and labour and the populations of these countries.''

While the sanctions would allow some trade and commerce with the two countries to continue, he pointed out, they would preclude the export of selected items, and US government financial assistance to American companies for exports and projects in India and Pakistan.

One example is the prohibition of exports of dual-use items, such as certain computer technology that could be used for nuclear or missile development.

With regards to Pakistan, Aaron said the impact of the sanctions, which were identical to those imposed on India, had ''the potential to be much more severe'' because of the country's ''daunting economic problems.''

Moreover, he said, the new sanctions would add to other ''daunting challenges'' US companies face there. ''We cannot make the assumption that the Pakistani economy is strong enough to withstand a period of additional economic shocks,'' he remarked. The following is the text of Aaron's testimony as prepared for delivery:

US President Bill Clinton was required to impose sanctions under the section 102 of the Arms Export Control Act, which is also known as the Glenn Amendment. Under the law, sanctions will remain in effect until the congress passes legislation removing them.

Aaron said the sanctions would preclude the export of selected items and the provision by the US government of financial assistance to American companies for exports and projects in India and Pakistan. This financial assistance had been important to US companies.

To drive his point home, Aaron said, ''It is important in the major infrastructure projects, which have been very visible products of the new commercial relationships that we have been building in recent years. Until implementation of the sanctions is well underway, it will be difficult to determine the precise impact on US business.''

To give an idea of the impact of sanctions on US trade and commerce with India and Pakistan, he outlined briefly what the commerce department's bureau of export administration (BXA) is doing to implement the sanction prohibiting the export of dual use goods and technology subject to export licensing.

Aaron said the BXA would deny exports of dual-use items controlled for nuclear or missile non-proliferation reasons under the Export Administration Act to all end users in India and Pakistan -- with an exception for commercial aircraft safety and maintenance equipment, and for computers above 2,000 MTOPS, which will be controlled under the EAA for security purposes.

On a discretionary basis under the EAA, he pointed out, the US would control all exports with a presumption of denial, including those not presently requiring a licence, to a published list of Indian and Pakistani government entities involved in nuclear and missile programme.

Aaron said the US would also publish a list of Indian and Pakistani government entities involved in military activities and will require license, with a presumption of denial, for all items controlled by the export administration regulations with the exception of common use items.

He said the United States would also identify private entities supporting India's and Pakistan's nuclear or missile programmes under the Enhanced Proliferation Control Initiative.

''This will result in a broader licensing requirement for those entities with a case-by-case review of such licenses and a presumption of denial for transactions that would support prohibited activities,'' he added.

He, however, said favourable consideration would continue to be given on a case-by-case basis to other dual use exports, US business relationships and other arrangements providing benefit to the US with private and public Indian and Pakistani entities. License exceptions would remain intact.

Prior to imposition of sanctions, bilateral trade and investment ties were increasing as a result of Indian liberalisation. In fact, the US is India's largest trade and investment partner. In 1997, US exports to India were valued at 3.6 billion dollars, while US imports from India totalled 7.3 billion dollars.

''Our principal exports to India included aircraft and aircraft parts, computers and components, and chemicals. Our principal imports from India included textiles and apparel, diamonds and jewellery," he said.

US exports to India in 1997 increased nine per cent over 1996, and increased 81 per cent between 1991 -- when India began its economic liberalisation programme -- and last year. As of 1996, the actual total US investment in India was 1.1 billion dollars. Also as of 1996, the US accounted for 177 per cent of actual foreign direct investment in India, and 27 per cent of FDI approvals (7.2 billion dollars of 28.9 billion dollars).

Aaron said the ability of US companies to respond to new opportunities in India had been helped by the commerce department's trade promotion and advocacy activities. It remains to be seen how effective the international trade administration would be in the climate of sanctions.

The activities of US companies in India and Pakistan also had benefited from financial support of the Export-Import bank, the Overseas Private Investment Corporation and the Trade and Development Agency.

Aaron also listed what this amounts to: 10 billion dollars in projects on the commerce department's advocacy agenda for India that were conceived with assistance from Eximbank, OPIC or TDA in mind.

The Eximbank believed sanctions will immediately affect approximately 500 million dollars in US exports to India in pending commitments and 3.5 billion dollars in projected US exports based on indications of interest. Total Eximbank exposure in India is 1.5 billion dollars.

When sanctions were imposed on may 13, OPIC's outstanding financing and political risk insurance commitments in India were in billions of dollars.

The TDA had provided about one million dollars in support of feasibility studies for projects in india when sanctions were imposed on May 13, precluding new assistance.

Aaron said the US companies' ability to pursue projects in India would be diminished without the US government's financial support. Certainly, suppliers and investors in other countries whose governments had not imposed comparable sanctions would benefit. The relative insularity of the Indian economy, combined with the US being the only country to impose such extensive sanctions, though, make it doubtful that the sanctions will cripple India's economy and economic development.

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