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Overview and Analysis of the Economic Impact of U.S. Sanctions with Respect to India and Pakistan

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Overview and Analysis of the Economic Impact of U.S. Sanctions with Respect to India and Pakistan Overview and Analysis of the Economic Impact of U.S. Sanctions With Respect to India and Pakistan Investigation No. 332-406 Publication 3236 September 1999 U.S. International Trade Commission COMMISSIONERS Lynn M. Bragg, Chairman Marcia E. Miller, Vice Chairman Carol T. Crawford Jennifer A. Hillman Stephen Koplan Thelma Askey Robert A. Rogowsky Director of Operations Robert B. Koopman Director, Office of Economics Arona Butcher Chief, Country and Regional Reports Division Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 www.usitc.gov ITC READER SATISFACTION SURVEY Overview and Analysis of the Economic Impact of U.S. Sanctions With Respect to India and Pakistan The U.S. International Trade Commission (ITC) is interested in your voluntary comments (burden < 15 minutes) to help us assess the value and quality of our reports, and to assist us in improving future products. Please return survey by fax (202Ć205Ć2340) or by mail to the ITC. Your name and title (please print; responses below not for attribution): Please specify information in this report most useful to you/your organization: Was any information missing that you consider important? 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WASHINGTON, DC 20277–2840 ATTN.: OFFICE OF ECONOMICS Economic Sanctions 1999 U.S. International Trade Commission Washington, DC 20436 Overview and Analysis of the Economic Impact of U.S. Sanctions With Respect to India and Pakistan Publication 3236 September 1999 U.S.Overview International and Analysis of Trade the Economic Commission Impact of U.S. Sanctions With Respect to India and Pakistan Project Staff Office of Economics James Stamps, Project Leader [email protected], 202-205-3227 Soamiely Andriamananjara Kyle Johnson Edward Wilson Office of the General Counsel Rhonda Hughes Office of Industries Scott Ki, Coordinator Jennifer Baumert, Alfred Dennis, Jesse L. Johnson, Linda White Peder Andersen, Tsedale Assefa, Laura Bloodgood, Raymond Cantrell, Heidi Colby, John Cutchin, Zachary Falls, Cindy Foreso, Dennis Fravel, Jack Greenblatt , Bill Hoffmeier, Gerald Houck, Elizabeth Howlett, David Ingersoll, Christopher Johnson, Aimison Jonnard, Kathy Lahey, Eric Land, David Lundy, Ruben Mata, Deborah McNay, David G. Michels, Mark Paulson, Tracy Quilter, John Reeder, Karl Rich, Christopher Robinson, Melani Schultz, Carl Seastrum, Josephine Spalding-Masgarha, Rose Steller, Karl Tsuji Special Acknowledgments Maureen Bryant Administrative Support Patricia Thomas Monica Reed and Wanda Tolson Publication Design and Reproduction Services The Office of Publishing PREFACE On April 16, 1999, the United States International Trade Commission (the Commission) instituted investigation No. 332-406, Overview and Analysis of the Economic Impact of U.S. Sanctions With Re- spect to India and Pakistan. The investigation, conducted under section 332(g) of the Tariff Act of 1930, was in response to a request from the Committee on Ways and Means, U.S. House of Representa- tives (see appendix A). The purpose of this investigation is to assess the impact of the economic sanctions imposed on India on May 13, 1998, and Pakistan on May 30, 1998, pursuant to section 102 of the Arms Export Control Act (also known as the “Glenn Amendment”). In particular, the Committee requested that the Commission’s report analyze the actual effects of the sanctions, and the likely economic effects if the sanctions are reimposed, on U.S. industries, agriculture, workers, and consumers. The Committee also requested an assessment of the effects of the sanctions on the economies of India and Pakistan. The Commission solicited public comment for this investigation by publishing a notice in the Fed- eral Register of April 27, 1999 (see appendix B) and holding a public hearing on June 22, 1999. i ii ABSTRACT On March 19, 1999, the Committee on Ways and Means, U.S. House of Representatives (the Com- mittee) requested the U.S. International Trade Commission (the Commission) to examine the econom- ic sanctions imposed on India and Pakistan in May 1998, pursuant to section 102 of the Arms Export Control Act (also known as the “Glenn Amendment”). The sanctions were triggered after India and Pakistan detonated nuclear explosive devices. The Committee requested that the Commission’s report identify U.S. industries and agricultural commodities which were affected by the sanctions; analyze the effects of the sanctions on the U.S. economy; assess the likely economic impact on the United States if the sanctions are reimposed; and analyze the likely impact of the sanctions on the Indian and Pakistani economies, including the effects of the sanctions on humanitarian activities. This investigation employs three approaches—a telephone survey of over 200 U.S. companies and associations; market share and lost export sales analysis, to the extent that data are available; and economic modeling. Additional information was provided by a public hearing held on June 22, 1999, and written submissions to the Commission received in response to a Federal Register notice of the institution of this investigation. Based on the telephone survey, the Commission found that U.S. companies most affected by the Glenn Amendment sanctions were those involved in the sale of certain agricultural products; industri- al machinery; transportation, construction, and mining equipment; electronics products; and infra- structure development services. Several companies noted the loss of trade and project finance support from the U.S. Export-Import Bank and the Overseas Private Insurance Corporation as factors that hin- der their ability to operate in India. The Commission received several reports that the Glenn Amend- ment sanctions have contributed to the perception of U.S. companies as unreliable international sup- pliers. The Glenn Amendment sanctions appeared to have had a relatively minimal overall impact on In- dia, while they appeared to have had a more pronounced adverse impact on Pakistan. However, for both countries it is difficult to isolate the effects of the U.S. sanctions from other concurrent economic events, such as each country’s domestic economic policies and sanctions imposed by other countries. Recent trade data indicate that reimposition of the Glenn Amendment sanctions prohibiting USDA export credits and guarantees most likely would adversely affect U.S. wheat exports to Paki- stan, which is an important customer for white wheat grown in the U.S. Pacific Northwest states. Quantitative estimates from a global general equilibrium trade model indicate that economic effects of the Glenn Amendment sanctions on India, Pakistan, and the United States are likely to be small. For the United States, the sanctions impose a total cost of $161 million. Other model results show that the Glenn Amendment sanctions have limited effects on U.S. employment (a decline of less than 0.2 per- cent in the U.S. grain sector); U.S. wages and the return to capital decline by less than 0.05 percent. The effects on wages and the return to capital in India and Pakistan also are small (decline by 0.1 percent). The major alternative suppliers benefitting from reduced U.S. exports to India and Pakistan under the Glenn Amendment sanctions are Japan; Europe; the rest of Asia; and Australia, New Zealand, and oth- er South Pacific trading partners. The information provided in this report is for the purpose of this report only. Nothing in this report should be considered to reflect possible future findings by the Commission in any investigation con- ducted under statutory authority covering the same or similar subject matter. iii iv EXECUTIVE SUMMARY On March 19, 1999, the Committee on Ways and Means, U.S. House of Representatives (the Com- mittee) requested the U.S. International Trade Commission (the Commission) to examine the econom- ic sanctions imposed on India on May 13, 1998, and Pakistan on May 30, 1998, pursuant to section 102 of the Arms Export Control Act (also known as the “Glenn Amendment”).1 The Committee requested that the Commission’s report: identify the U.S.
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