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India, the United States, and High-Tech Trade
By Neena Shenai
The U.S.-India trade relationship requires more attention, from both sides.
Perhaps unbeknownst even to the most avid follower of U.S.-India relations, the seventh annual U.S.-India High Technology Cooperation Group (HTCG) meetings will be held in Washington this Monday and Tuesday. There is much to celebrate. U.S.-India trade has nearly tripled from $13.5 billion in 2001 to $37.6 billion in 2009. Last year, high-tech products accounted for more than 13 percent of total bilateral trade and nearly 25 percent of all U.S. exports to India. Despite these successes, complacency has plagued recent HTCG discussions. Vital but thorny issues have been routinely glossed over and tough discussions conveniently postponed. In reality, the U.S.-India trade relationship requires more attention, from both sides. The current trend must change: the United States and India must take a roll-up-your-sleeves approach to address barriers to bilateral high-tech trade.
Conceived in 2002 out of President George W. Bush and Prime Minister Atal Bihari Vajpayees vision for closer U.S.-India cooperation, the HTCG was instituted to enhance bilateral high-tech trade and to promote confidence building in the trade of sensitive goods and technologies. Co-chaired by the U.S. Department of Commerces undersecretary for the Bureau of Industry and Security (BIS) and the Indian Ministry of External Affairs foreign secretary and in partnership with the U.S.-India Business Council, the Federation of Indian Chambers of Commerce and Industry, and Confederation of Indian Industry, the HTCG is a two-day conference in which U.S. and Indian industry representatives meet to discuss impediments to bilateral trade and provide recommendations to their governments, which then subsequently take up these recommendations and other bilateral issues. Over the years, the HTCG has included discussions on defense and strategic trade, biotechnology and life sciences, nanotechnology, and information technology. This year, there will be talks on these areas as well as civil aviation and industry meetings on civil nuclear issues.
As this is the first HTCG of the Obama administration and Prime Minister Manmohan Singhs re-elected government, the conference presents a prime opportunity to discuss long-standing issues important to the U.S.-India relationship, specifically export controls, defense trade, and civil nuclear cooperation.
U.S.-India trade has nearly tripled from $13.5 billion in 2001 to $37.6 billion in 2009.
U.S. Export Control Policy: There have been repeated calls for the United States to relax export controls toward India to take into account the transformed bilateral relationship. In brief, the United States maintains some unilateral controls on exports to India based on a number of reasons, including historic nonproliferation concerns. In addition, some Indian entities are on the Entity List, which invokes special licensing requirements for entities whose activities have been deemed to increase the risk of diversion to weapons of mass destruction programs and to pose other threats to U.S. foreign policy interests. To put export controls into context, in 1999, 24 percent of total U.S. exports to India required a dual-use license from BIS, today that number is less than 0.2 percent. While this number appears small, it is impossible to quantify trade that is precluded due to misperceptions over the reach of U.S. export controls.
Reportedly, the White House has already tabled a proposal to revise U.S. export control policy toward India. BIS Assistant Secretary Kevin Wolf is slated to speak at the HTCG and may shed more light on what has been proposed. The Obama administration should be commended for taking up this unfinished business of the Bush administration: U.S. export control policy should take into account Indias status as a strategic ally. However, U.S. proposals should be matched with reciprocal commitments. India should shed its reluctance to join the multilateral export control regimes, provide substantiation for why its listed entities should be removed from the Entity List, and be more aware of U.S. political sensitivities with respect to certain U.S. licensing requirements. The HTCG should provide a forum for meaningful discussions on these issues and both sides should be prepared to make concrete commitments to move the process forward.
Defense Trade: Since the completion of the 2005 U.S.-India defense framework, military-to-military contacts and joint exercises have been on the rise along with defense trade. India is expected to expand its military and homeland security capabilities, spending at least $30 billion in acquisitions over the next five years, rising to more than $100 billion in the next ten years. U.S. defense companies are well-placed to supply this demand. India recently purchased six Lockheed Martin C-130J Super Hercules Airlifters and the Department of Defense recently notified Congress of a potential upcoming sale of 145 M777 light-weight Howitzers. U.S. companies are also among the finalists for the Indian governments purchase of a fleet of Multi-Role Combat Aircrafts.
As this is the first U.S.-India High Technology Cooperation Group of the Obama administration and Prime Minister Manmohan Singhs re-elected government, the conference presents a prime opportunity to discuss long-standing issues important to the U.S.-India relationship.
While defense procurement continues to be an important element of the U.S.-India strategic relationship, there are issues which are hindering more robust trade. First, the Indian government has not yet signed the Communications Interoperability and Security Memorandum of Agreement (CISMOA), the Logistics Support Agreement (LSA), and the Basic Exchange and Cooperation Agreement for Geospatial Cooperation (AGC), which are crucial to providing mutual logistical support and enabling the exchange of sensitive communications and equipment. Prime Minister Singh faces domestic opposition to these agreements over sovereignty concerns. The United States has historically been dogmatic about such agreements, but they are required under U.S. law in order to sell top-flight U.S. military equipment abroad and enhance cooperation between military forces. The United States and India should conclude these agreements to pave the way for enhanced technology and information sharing, and closer cooperation on counterterrorism and regional and global security efforts.
Second, the Indian government maintains a restrictive offset policy which requires that foreign firms selling defense products to India must re-invest up to 30 percent of their investment in India. The purpose of offsets is to enhance indigenous military production capabilities. However, because of historic state involvement in Indian defense production, the nascent private Indian defense production base is not yet equipped to support this magnitude of investment. The Indian government should consider adopting international best practices for offsets by rethinking the scope of where offsets may be reinvested, making the policy more practical for all parties.
Civil Nuclear Cooperation: The landmark U.S.-India Civil Nuclear Agreementthe crown jewel of the U.S.-India strategic partnershipwas signed in October 2008, but remains unimplemented due to a number of unresolved bilateral issues. French and Russian nuclear companies have been the beneficiaries of this delay, at the expense of U.S. companies, and have progressively secured a larger market share in India. These outstanding issues must be addressed without delay so that the U.S. efforts in forging the Civil Nuclear Agreement actually yield benefits for U.S. industry. There will be industry meetings on civil nuclear cooperation during the HTCG, but no government meetings. Consequently, the governments should refer the industry recommendations to the appropriate forum for immediate action.
A U.S.-India agreement on the reprocessing of spent nuclear fuel is also pending and needs to be completed in short order.
First, the U.S. Department of Energy (DOE) is required to authorize U.S. companies to participate in most aspects of civil nuclear activities abroad through the Part 810 process. Applications to provide nuclear products and technologies to India have been submitted to DOE, but the Indian government has balked at providing the required nonproliferation assurances, claiming that these were already provided under the Civil Nuclear Agreement. These Part 810 assurances are required under U.S. law and were known to the Indian government in advance. India should look to provide these Part 810 assurances as soon as possible.
Second, a U.S.-India agreement on reprocessing spent nuclear fuel is also pending and needs to be completed in short order. Negotiations began in July 2009 and a number of deadlines have passed. Moreover, the Indian Department of Atomic Energy has apparently taken the position that the reprocessing agreement is a prerequisite to doing business with any U.S. nuclear company. This policy includes U.S. nuclear fuel suppliers, who do not require Part 810 assurances to operate in India. The Indian government has instead concluded nuclear fuel supply agreements with France, Russia, Canada, Kazakhstan, and others, supplanting most potential business opportunities for U.S. companies.
Third, India is neither party to any international convention on nuclear liability nor has any domestic laws which limit nuclear damage liability for suppliers of nuclear materialsa requirement for the participation of U.S. companies in the Indian civil nuclear market not just of U.S. suppliers, but all private-sector companies, including Indian companies. There is currently nuclear liability legislation pending in the Indian parliament, but it is facing stiff political opposition. In addition, India has yet to join the Convention on Supplementary Compensation for Nuclear Damage, which will provide added liability protections. French and Russian companies have not required the Indian government to take action on nuclear liability, likely because of their respective home government support. The cost of this time delay has again been borne by U.S. suppliers and must be addressed.
The issues discussed above have persisted for years and are impeding significant opportunities for the expansion of U.S.-India high-tech trade. The HTCG can provide a re-energized forum in which these and other bilateral irritants can be taken up and resolved. The U.S.-India strategic partnership as a whole will be the beneficiary.
By Neena Shenai
The U.S.-India trade relationship requires more attention, from both sides.
Perhaps unbeknownst even to the most avid follower of U.S.-India relations, the seventh annual U.S.-India High Technology Cooperation Group (HTCG) meetings will be held in Washington this Monday and Tuesday. There is much to celebrate. U.S.-India trade has nearly tripled from $13.5 billion in 2001 to $37.6 billion in 2009. Last year, high-tech products accounted for more than 13 percent of total bilateral trade and nearly 25 percent of all U.S. exports to India. Despite these successes, complacency has plagued recent HTCG discussions. Vital but thorny issues have been routinely glossed over and tough discussions conveniently postponed. In reality, the U.S.-India trade relationship requires more attention, from both sides. The current trend must change: the United States and India must take a roll-up-your-sleeves approach to address barriers to bilateral high-tech trade.
Conceived in 2002 out of President George W. Bush and Prime Minister Atal Bihari Vajpayees vision for closer U.S.-India cooperation, the HTCG was instituted to enhance bilateral high-tech trade and to promote confidence building in the trade of sensitive goods and technologies. Co-chaired by the U.S. Department of Commerces undersecretary for the Bureau of Industry and Security (BIS) and the Indian Ministry of External Affairs foreign secretary and in partnership with the U.S.-India Business Council, the Federation of Indian Chambers of Commerce and Industry, and Confederation of Indian Industry, the HTCG is a two-day conference in which U.S. and Indian industry representatives meet to discuss impediments to bilateral trade and provide recommendations to their governments, which then subsequently take up these recommendations and other bilateral issues. Over the years, the HTCG has included discussions on defense and strategic trade, biotechnology and life sciences, nanotechnology, and information technology. This year, there will be talks on these areas as well as civil aviation and industry meetings on civil nuclear issues.
As this is the first HTCG of the Obama administration and Prime Minister Manmohan Singhs re-elected government, the conference presents a prime opportunity to discuss long-standing issues important to the U.S.-India relationship, specifically export controls, defense trade, and civil nuclear cooperation.
U.S.-India trade has nearly tripled from $13.5 billion in 2001 to $37.6 billion in 2009.
U.S. Export Control Policy: There have been repeated calls for the United States to relax export controls toward India to take into account the transformed bilateral relationship. In brief, the United States maintains some unilateral controls on exports to India based on a number of reasons, including historic nonproliferation concerns. In addition, some Indian entities are on the Entity List, which invokes special licensing requirements for entities whose activities have been deemed to increase the risk of diversion to weapons of mass destruction programs and to pose other threats to U.S. foreign policy interests. To put export controls into context, in 1999, 24 percent of total U.S. exports to India required a dual-use license from BIS, today that number is less than 0.2 percent. While this number appears small, it is impossible to quantify trade that is precluded due to misperceptions over the reach of U.S. export controls.
Reportedly, the White House has already tabled a proposal to revise U.S. export control policy toward India. BIS Assistant Secretary Kevin Wolf is slated to speak at the HTCG and may shed more light on what has been proposed. The Obama administration should be commended for taking up this unfinished business of the Bush administration: U.S. export control policy should take into account Indias status as a strategic ally. However, U.S. proposals should be matched with reciprocal commitments. India should shed its reluctance to join the multilateral export control regimes, provide substantiation for why its listed entities should be removed from the Entity List, and be more aware of U.S. political sensitivities with respect to certain U.S. licensing requirements. The HTCG should provide a forum for meaningful discussions on these issues and both sides should be prepared to make concrete commitments to move the process forward.
Defense Trade: Since the completion of the 2005 U.S.-India defense framework, military-to-military contacts and joint exercises have been on the rise along with defense trade. India is expected to expand its military and homeland security capabilities, spending at least $30 billion in acquisitions over the next five years, rising to more than $100 billion in the next ten years. U.S. defense companies are well-placed to supply this demand. India recently purchased six Lockheed Martin C-130J Super Hercules Airlifters and the Department of Defense recently notified Congress of a potential upcoming sale of 145 M777 light-weight Howitzers. U.S. companies are also among the finalists for the Indian governments purchase of a fleet of Multi-Role Combat Aircrafts.
As this is the first U.S.-India High Technology Cooperation Group of the Obama administration and Prime Minister Manmohan Singhs re-elected government, the conference presents a prime opportunity to discuss long-standing issues important to the U.S.-India relationship.
While defense procurement continues to be an important element of the U.S.-India strategic relationship, there are issues which are hindering more robust trade. First, the Indian government has not yet signed the Communications Interoperability and Security Memorandum of Agreement (CISMOA), the Logistics Support Agreement (LSA), and the Basic Exchange and Cooperation Agreement for Geospatial Cooperation (AGC), which are crucial to providing mutual logistical support and enabling the exchange of sensitive communications and equipment. Prime Minister Singh faces domestic opposition to these agreements over sovereignty concerns. The United States has historically been dogmatic about such agreements, but they are required under U.S. law in order to sell top-flight U.S. military equipment abroad and enhance cooperation between military forces. The United States and India should conclude these agreements to pave the way for enhanced technology and information sharing, and closer cooperation on counterterrorism and regional and global security efforts.
Second, the Indian government maintains a restrictive offset policy which requires that foreign firms selling defense products to India must re-invest up to 30 percent of their investment in India. The purpose of offsets is to enhance indigenous military production capabilities. However, because of historic state involvement in Indian defense production, the nascent private Indian defense production base is not yet equipped to support this magnitude of investment. The Indian government should consider adopting international best practices for offsets by rethinking the scope of where offsets may be reinvested, making the policy more practical for all parties.
Civil Nuclear Cooperation: The landmark U.S.-India Civil Nuclear Agreementthe crown jewel of the U.S.-India strategic partnershipwas signed in October 2008, but remains unimplemented due to a number of unresolved bilateral issues. French and Russian nuclear companies have been the beneficiaries of this delay, at the expense of U.S. companies, and have progressively secured a larger market share in India. These outstanding issues must be addressed without delay so that the U.S. efforts in forging the Civil Nuclear Agreement actually yield benefits for U.S. industry. There will be industry meetings on civil nuclear cooperation during the HTCG, but no government meetings. Consequently, the governments should refer the industry recommendations to the appropriate forum for immediate action.
A U.S.-India agreement on the reprocessing of spent nuclear fuel is also pending and needs to be completed in short order.
First, the U.S. Department of Energy (DOE) is required to authorize U.S. companies to participate in most aspects of civil nuclear activities abroad through the Part 810 process. Applications to provide nuclear products and technologies to India have been submitted to DOE, but the Indian government has balked at providing the required nonproliferation assurances, claiming that these were already provided under the Civil Nuclear Agreement. These Part 810 assurances are required under U.S. law and were known to the Indian government in advance. India should look to provide these Part 810 assurances as soon as possible.
Second, a U.S.-India agreement on reprocessing spent nuclear fuel is also pending and needs to be completed in short order. Negotiations began in July 2009 and a number of deadlines have passed. Moreover, the Indian Department of Atomic Energy has apparently taken the position that the reprocessing agreement is a prerequisite to doing business with any U.S. nuclear company. This policy includes U.S. nuclear fuel suppliers, who do not require Part 810 assurances to operate in India. The Indian government has instead concluded nuclear fuel supply agreements with France, Russia, Canada, Kazakhstan, and others, supplanting most potential business opportunities for U.S. companies.
Third, India is neither party to any international convention on nuclear liability nor has any domestic laws which limit nuclear damage liability for suppliers of nuclear materialsa requirement for the participation of U.S. companies in the Indian civil nuclear market not just of U.S. suppliers, but all private-sector companies, including Indian companies. There is currently nuclear liability legislation pending in the Indian parliament, but it is facing stiff political opposition. In addition, India has yet to join the Convention on Supplementary Compensation for Nuclear Damage, which will provide added liability protections. French and Russian companies have not required the Indian government to take action on nuclear liability, likely because of their respective home government support. The cost of this time delay has again been borne by U.S. suppliers and must be addressed.
The issues discussed above have persisted for years and are impeding significant opportunities for the expansion of U.S.-India high-tech trade. The HTCG can provide a re-energized forum in which these and other bilateral irritants can be taken up and resolved. The U.S.-India strategic partnership as a whole will be the beneficiary.
