In today’s interconnected global economy, trade sanctions have emerged as a crucial instrument for countries to exert influence over international relations, safeguard national interests, and address issues such as human rights violations and geopolitical conflicts. For Indian investors, companies and shareholders navigating these complexities, understanding trade sanctions – particularly those imposed by the United States (US), European Union (EU), and United Kingdom (UK) – is essential.
Trade Sanctions: An Overview
Trade sanctions are restrictive measures designed to control or limit trade with specific countries, entities, or individuals. These differ from traditional sanctions, which often focus on broader financial restrictions such as asset freezes or travel bans. Trade sanctions directly target the exchange of goods, services, and technology, often impacting supply chains and international commerce.
For Indian businesses engaged in international trade, compliance with the below-mentioned frameworks is critical to avoid penalties and safeguard reputation. Given the growing reliance on global supply chains, any disruptions caused by sanctions can have ripple effects, making it imperative for companies to integrate risk management strategies into their operations.
Legal Frameworks Around Trade Sanctions
United States
In the US, trade sanctions are primarily enforced by the Office of Foreign Assets Control (OFAC) under the Department of the Treasury.[1] OFAC administers and enforces sanctions programmes that restrict trade with countries like Iran, North Korea, and Russia. These sanctions are designed to achieve US foreign policy and national security objectives. The enforcement of these sanctions often involves strict penalties for non-compliance, including significant fines and potential legal action against offending companies.
Additionally, the Bureau of Industry and Security (BIS) within the Department of Commerce oversees export controls under the Export Administration Regulations (EAR).[2] The EAR regulates the export of dual-use goods, i.e., items with both civilian and military applications, and technology to countries like China. The BIS actively monitors and updates the Commerce Control List (CCL)[3] to ensure that sensitive technologies are not transferred to restricted entities or countries. For example, entities like Huawei Technologies Co. and Semiconductor Manufacturing International Corporation (SMIC) have been restricted from accessing US-origin technologies.[4] Companies dealing in advanced manufacturing, biotechnology, or AI-related technologies must be especially vigilant and comply with these controls.
The International Emergency Economic Powers Act (IEEPA) grants the US President authority to regulate commerce during national emergencies, allowing rapid imposition of trade restrictions. The Export Control Reform Act (ECRA) governs the control of emerging and foundational technologies critical to national security, such as artificial intelligence and quantum computing.
European Union
The EU’s sanctions framework is governed by the Common Foreign and Security Policy (CFSP)[5], which facilitates coordinated action among member states. Sanctions implemented by the EU often focus on limiting trade in goods, services, and technology with countries engaged in activities that undermine international peace and security. EU sanctions often emphasise multilateralism and align closely with United Nations Security Council (UNSC) resolutions. However, the EU has also imposed autonomous sanctions, particularly in response to human rights violations and cybersecurity threats.
In addition, the EU has recently expanded its sanctions to cover sectors such as digital services, financial technology, and advanced manufacturing. These targeted measures are designed to not only limit revenue streams for adversarial nations, but also create significant compliance requirements for businesses engaged in cross-border trade.
United Kingdom
Post-Brexit, the UK has established its own independent sanctions regime under the Sanctions and Anti-Money Laundering Act, 2018 (SAMLA). The UK’s sanctions framework is tailored to address issues such as terrorism, corruption, and human rights abuse. Recent measures targeting Chinese entities have reflected concerns over forced labour in Xinjiang and the misuse of advanced technologies.[6] British sanctions policies often mirror those of the US and EU, but the UK’s independent status allows it to respond swiftly to emerging threats.
Additionally, the UK has taken a more proactive approach to address digital challenges, including restrictions on technology transfers that could enhance adversarial surveillance capabilities. This proactive stance places additional compliance burdens on businesses importing advanced software and hardware from UK-based suppliers. The UK also emphasises enforcement with regulatory bodies like the Office of Financial Sanctions Implementation (OFSI) taking an increasingly proactive role. Businesses operating under the UK jurisdiction must navigate new compliance expectations, particularly in sectors such as finance, technology, and manufacturing.
Weaponising of Trade Sanctions
With Donald Trump’s return to power, the trajectory of US trade sanctions could undergo significant changes. During his previous administration, President Trump prioritised economic nationalism and adopted a tough stance against China, implementing tariffs and export controls, targeting Chinese technology companies. His approach to trade sanctions reflected a broader strategy to enhance US economic competitiveness, while addressing perceived security threats.
Predictions for President Trump’s policies on trade sanctions include heightened focus on restricting China’s access to advanced technologies.[7] The US is likely to expand its restrictions on export of semiconductors, artificial intelligence tools, and telecommunications equipment, potentially reshaping global supply chains. Trump’s preference for unilateral sanctions over multilateral agreements could also lead to stricter measures targeting adversarial states such as Iran and North Korea, reflecting his prioritisation of US sovereignty in international policymaking.[8]
Economic decoupling from China remains a prominent theme, with efforts to reduce dependency on Chinese supply chains expected to accelerate. These developments could disrupt established trade relationships, creating opportunities and challenges for Indian businesses seeking to navigate this evolving landscape.
Implications for Indian Businesses: Expect more investigation and scrutiny
Export controls under the EAR represent a significant area of concern for Indian businesses. Companies importing advanced technology or dual-use items must ensure compliance with the US regulations, as violations can result in severe penalties. For instance, restrictions on semiconductor manufacturing equipment have already impacted global markets, with Indian firms needing to assess potential supply chain vulnerabilities.[9]
Conducting due diligence on counterparties is another critical step for Indian investors. Ensuring that business partners are not listed on the sanctions lists, such as OFAC’s Specially Designated Nationals (SDN) List, is essential to avoid secondary sanctions. This process requires robust screening mechanisms and a comprehensive understanding of applicable laws.
As trade tensions between the US and China persist, Indian companies have an opportunity to position themselves as alternative suppliers in sectors such as electronics, pharmaceuticals, and renewable energy. However, capitalising on these opportunities necessitates adherence to evolving trade restrictions and proactive risk management.
Engaging with the EU and UK also requires Indian businesses to remain updated with regulatory developments. The EU’s focus on restricting energy imports from Russia and promoting sustainable trade practices could align with India’s renewable energy goals. Similarly, the UK’s independent sanctions regime offers opportunities for collaboration in areas such as technology and finance. In line with the US, both EU and the UK have imposed similar restrictions on China.
Indian businesses must also evaluate how domestic regulatory frameworks interact with international sanctions. For example, India’s increasing focus on self-reliance with programmes such as Atmanirbhar Bharat, in key sectors like defence and technology, could create unique synergies or conflicts with global trade restrictions.
Key Considerations for Compliance
For effective sanctions compliance, vendor diligence is key. Companies must carefully evaluate their suppliers and third-party vendors to ensure they are not affiliated with sanctioned entities. This process involves examining ownership structures, conducting background checks, and reviewing vendor compliance policies. Ensuring that vendors adhere to international sanctions regimes is essential to avoid indirect violations.
It is also crucial to identify the final recipient, or end-use, of exported goods and services. Businesses must track where their products end up and how they are used. This includes identifying intermediaries in the supply chain and verifying that the end-use aligns with permitted activities under the relevant sanctions laws. End-use monitoring helps prevent unintentional provision of goods or technology to prohibited entities or for restricted purposes.
Supply chain considerations require companies to map their entire logistics network to identify potential risks. This involves scrutinising the flow of goods, the jurisdictions through which they pass, and the entities involved at each stage. By conducting thorough supply chain audits, businesses can ensure that no part of their operations inadvertently violates the sanctions regulations. Robust supply chain transparency not only mitigates compliance risks, but also enhances operational resilience.
[1] https://ofac.treasury.gov.
[2] https://www.bis.gov/regulations.
[3] https://www.bis.doc.gov/index.php/regulations/commerce-control-list-ccl.
[4]https://www.bis.gov/press-release/commerce-strengthens-export-controls-restrict-chinas-capability-produce-advanced
[5] https://www.europarl.europa.eu/enlargement/briefings/pdf/30a1_en.pdf.
[6] UK says credible evidence of forced labour in China’s Xinjiang region – The Economic Times
[7] https://www.nytimes.com/2025/01/17/business/china-us-trade-sanctions.html
[8] https://business.columbia.edu/insights/trump-trade-policies-tariffs-mexico-canada-columbia-business.
[9] Proposed US restriction on AI chip export threatens India’s AI hardware plans: IESA – The Economic Times.