Forced Trade And An Indian Blocking Statute

By mid-July, the Council of the EU will finalise its 21st sanctions package against Russia, including export-control measures against around fifty third-country companies, among them some Indian firms. It would be the EU's fourth package in 11 months reaching beyond the targeted country and the second to designate Indian entities. The package reflects a broader trend. Over the past two years, sanctions, secondary enforcement and export-control measures have reached not only firms in sanctioned states but increasingly also third-country firms beyond the jurisdictions imposing them. In November 2024, the US sanctioned nearly 400 entities for trade with Russia, including 19 Indian companies and two Indian citizens, despite their activities being lawful under Indian law.The post-war ‘free trade’ system rested on the proposition that markets would allocate the flow of goods and services. A ‘fair trade’ phase followed, in which market access became conditioned on labour and environmental norms. A ‘forced trade’ phase is now taking hold through the use of sanctions, financial leverage and secondary coercion to shape sovereign trading choices. The deeper shift is from commerce governed by multilateral rules to commerce increasingly shaped by control over key economic levers: Reserve currencies, payment systems, technology platforms and logistics networks. Forced trade is consolidating as a durable feature of the international trading system.The US has long relied on sanctions and secondary enforcement, including through the Countering America’s Adversaries Through Sanctions Act of 2017. The EU has developed its own sanctions infrastructure through Regulations 833 and 269 of 2014, and successive amendment packages. The UK has done likewise. What was once extraordinary is now routine.India’s position on this issue was forged during an earlier sanctions confrontation. After our May 1998 nuclear tests, the US, Japan, Australia, Canada and others imposed unilateral sanctions intended to influence a sovereign Indian decision. India has consistently maintained that it only recognises UN-mandated sanctions, not coercive measures imposed outside the UN framework. This principle remains relevant as non-UN sanctions and secondary enforcement become common.The earlier EU sanctions package involving an Indian entity was anchored in energy, while the latest one extends also to dual-use exports. India operates a robust export-control framework through its special chemicals, organisms, materials, equipment and technologies list. It is a member of the MTCR, Wassenaar Arrangement and Australia Group and, while not a Nuclear Suppliers Group member, aligns its domestic controls with the latter’s guidelines. Concerns about diversion are legitimate, and cooperation through established channels meets India’s interest. The issue is how to address such concerns.Cooperation proceeds through legal channels, intelligence-sharing and case-by-case enforcement under the receiving state’s laws. Secondary enforcement bypasses these, substituting the sanctioning State’s determination for the receiving State’s procedures. Presented as conditions for accessing markets and financial systems, such measures exert extraterritorial effects by penalising conduct beyond the sanctioning jurisdiction. They shift commercial decision-making from Indian legal processes to foreign regulatory determinations.A sanctions designation does not require an Indian firm to alter its business. Yet banks, insurers, shippers and counterparties often distance themselves from designated entities irrespective of any Indian law being breached. The resulting commercial isolation, rather than direct enforcement, is how secondary sanctions operate. This is reflected in the adjustments Indian refiners made following US warnings against entities dealing with Rosneft and Lukoil.One consequence is the incentive for states and firms to build parallel commercial circuits. Some remain centred on western finance and services; others rely increasingly on alternative payment, shipping and insurance networks. Neither is complete, but firms are being pushed to choose between them. India’s interest lies in remaining connected to all major trade and financial systems while avoiding dependence on any one. Strategic autonomy in trade requires policy, process and law, not diplomatic declarations alone.India’s response should rest on three pillars. First, articulating that secondary enforcement against Indian firms operating under Indian law is inconsistent with sovereign equality, particularly where the transactions occur outside the sanctioning jurisdiction and remain lawful under Indian law. Second, developing a legal instrument that gives India’s position enduring practical effect. Third, greater cooperation with partner jurisdictions under India’s export-control framework, so that genuine diversion concerns are addressed through Indian processes and do not justify secondary action.The idea of shielding domestic firms from the extraterritorial application of foreign laws is not novel. The EU codified it through Regulation 2271/96, the Blocking Statute enacted in 1996 to protect EU firms from US extraterritorial sanctions on Cuba, Iran and Libya. The UK, Australia, Canada and Mexico have similar measures. China issued blocking rules in 2021.An Indian blocking statute would prohibit Indian firms from complying with certain non-UN sanctions when doing so would harm India’s commercial or strategic interests. Such a statute would translate doctrine into enforceable protection under Indian law.India’s freedom of commercial choice has long rested on declaratory positions. Today, as forced trade becomes more deeply embedded in the international system, India needs to put in place the means to resist unilateral external coercion. The larger issue is whether commercial ties among sovereign States will be governed by multilateral rules or by the jurisdictional overreach of those controlling key economic networks.The forced trade era is consolidating. India has the standing to resist the extraterritorial reach of foreign sanctions and must develop a legal instrument to give effect to that position. An Indian blocking statute deserves urgent finalisation. (The views expressed are personal)This article is authored by Ajai Malhotra, Distinguished Fellow, TERI, and former ambassador.