1. Column: Indo-US trade ties – Obama needs to walk the talk

Column: Indo-US trade ties – Obama needs to walk the talk

Despite the Modi-Obama bonhomie, there are areas like solar technology and ITeS where India and the US differ

Updated: February 5, 2015 3:38 AM

The joint statement at the end of the meeting between prime minister Narendra Modi and US president Barack Obama speaks of a new economic partnership that the two major economies would be charting out for the future. The statement expresses confidence that India-US “bilateral collaboration will increase opportunities for investment, improve bilateral trade and investment ties and lead to the creation of jobs and prosperity in both economies”. The two leaders spoke of their “shared commitment to facilitating increased bilateral investment flows and fostering an open and predictable climate for investment”. The most significant outcome of the Modi-Obama bonhomie was their endorsement of the India-US Delhi Declaration of Friendship, which articulates “tangible principles to guide ongoing efforts to advance mutual prosperity, a clean and healthy environment”, and greater economic cooperation, among others.

The statement stands out for the manner in which the US has come forward to promise its support for a vast array of areas which form the core of India’s development endeavours. The scope of collaboration extends from strengthening India’s digital platform by encouraging investment in the information and communication technology (ICT) sector to the upgrading of India’s railways and civil aviation facilities. The US has also promised to build on its existing partnership with India in the higher education sector and to also collaborate in skill development and strengthen the innovation and entrepreneurship ecosystem.

Although the leaders of the two countries have charted out the future course of their collaboration in elaborate terms, the fact remains that governments of India and the US have had considerable differences on critical issues of economic significance to both countries, and in bilateral and multilateral forums alike. One area in which bilateral differences have been rather sharp is the information technology enabled services (ITeS) sector. India has repeatedly voiced concern that its enterprises and professionals are facing myriad market entry barriers in doing business in the US and that these problems are lately threatening to exacerbate.

India has been consistently raising these issues at the World Trade Organization (WTO) where negotiations for liberalising the services sector have been going on for the past 13 years. Not only has India’s demand for a less restrictive regime for service-providers failed to cut any ice with countries like the US, domestic policies in these countries have become significantly more unfavourable since the economic downturn in 2008.

Currently, the US Congress is debating a slew of proposals for immigration reforms, which could have far-reaching implications for the Indian IT firms. The shape of things to come was apparent from the Border Security Economic Opportunity and Immigration Modernization Act of 2013 that proposes to cap the share of employees holding H1B visas in any firm at 15%. This bill went through the Senate in 2013, but is yet to be cleared by the House of Representatives. The non-inclusion of this substantive issue in the priorities identified by Obama and Modi should be seen as a setback for the Indian business interests, which are looking for ways of improving their presence in an US economy that is performing well beyond expectations.

The joint statement speaks of the agreement between India and the US on the ways to navigate through the issues relating to climate change, which seems to suggest a softening of the position that India has held thus far. India and the other developing countries have long argued that their response to climate change would hinge on transfer of climate-friendly technologies and availability of finance. India appears to have moderated its position by extending support to adaptation measures through joint research and development and technology innovation, adoption and diffusion for clean energy and efficiency solutions in order to move towards a climate-resilient and low-carbon economy. Further, India and the US have spoken of “working together and with other countries” to conclude an ambitious climate agreement in 21st meeting of the Conference of Parties of the United Nations Framework Convention on Climate Change  that is to be held in Paris later this year. It is the very first time that India and the US have spoken about “working together” on an issue in which the two countries have historically been on the opposite ends of the negotiating divide. But now that India has agreed to work with the US, there are clear signals that it is willing to consider reducing its carbon footprint through mitigation actions taken unilaterally.

It is not that India has not considered ways of adopting green technologies, especially in the energy sector. The UPA government had put in place the ambitious National Solar Mission, which was aimed at providing 20,000 MW of grid connected solar power by 2022. The strategy was to reduce the cost of power generation by promoting the use of domestically produced solar panels. These plans are now in serious jeopardy as the US objected to the use of made-in-India solar panels, labelling it as a violation of India’s commitment to the World Trade Organization (WTO). Currently, India is busy defending itself against the complaint made by the US to the Dispute Settlement Body of the WTO. Now that the leaders of the two countries have agreed to work in a spirit of cooperation, India should expect the US to support the plans it had put in place for generating affordable solar power in the country.

But this is not the only area in which India’s economic policies have met with serious challenge from the US Administration. In December 2014, the US International Trade Commission (USITC) unveiled the report of its yearlong investigation of the effects of India’s trade, investment, and industrial policies on the US economy. The investigation carried out at the request of the US House Committee on Ways and Means and the US Senate Committee on Finance concluded that a wide range of restrictive Indian policies have adversely affected US companies doing business in India. USITC reports that its investigations, covering a large number of US business lobbies, showed that two sets of policies, namely tariffs, and taxes and financial regulations have had the heaviest effects on US companies. Other issues, including FDI and intellectual property (IP) policies, have had large negative effects on specific industries. Companies providing agricultural products and food, financial services, and certain manufacturing products, including pharmaceuticals, were the most affected, with Indian policies having a substantial effect on the operations of US companies in these sectors. The key message this report sends out to the Indian policy makers is that “if tariff and investment restrictions were fully eliminated and standards of IP protection were made comparable to US and Western European levels, US exports to India would rise by two-thirds, and US investment in India would roughly double”. The message is unambiguous: India must undertake a significant change in its policy orientation so that it meets the expectations of the business interests in US and Western European countries.

This broad affront on India’s economic policies by the USITC, which closely followed the investigation of India’s intellectual property laws by the US Trade Representative, seem to undermine the new-found warmth in the relations between the two countries. It is clear that the various wings of the US administration need to understand the spirit of the New Delhi dialogue on economic issues between the leaders of the world’s largest democracies, and to therefore allow president Obama to walk-the-talk.

By Biswajit Dhar
The author is Professor, Centre of Economic Studies and Planning, School of Social Sciences, JNU

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