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Diplomacy in Action

Bridging Trade Boundaries: Strengthening Strategic Alliances


Remarks
Robert O. Blake, Jr.
Assistant Secretary, Bureau of South and Central Asian Affairs
Remarks at the 20th Asian Corporate Conference
New Delhi, India
March 19, 2010

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As prepared for delivery

Part I: The Overall Transformed Relationship between the United States and India

Today I’d like to review the transformation in the U.S.-India relationship, highlight India’s embrace of globalization, reiterate the U.S. commitment to global trade, and encourage India to do more to achieve its rightful place as a world leader by opening its economy even further.

We have seen a breathtaking evolution in U.S.-India relations in the more than 20 years since the Society hosted its first corporate conference in Asia. Today, our Strategic Dialogue touches nearly every corner of our ever-expanding bilateral relationship – from counterterrorism to women’s empowerment; from clean energy to the goal of a second green revolution.

President Obama is committed to building on the path laid out by his predecessors to work ever more closely with the country he described as an “indispensible partner in securing the future prosperity and security of the world.”

The President dedicated his first and thus far only state visit to Prime Minister Singh last November, a clear signal that he considers the U.S.-India relationship a key cornerstone in shaping the 21st century world.

As we confront global challenges like terrorism, pandemics and, climate change, we need India as a global partner. That means working together on tough areas like global hunger, non-proliferation, and climate change and taking principled positions to meet these challenges now. And that means that our friendship has to be broader than mere government-to-government ties, although those are obviously crucial. It means that we also need the support and commitment of our people, the kind of relationship that develops out of people-to-people ties, out of travel and educational exchanges, out of investment and trade and public-private partnerships.

Part II: India’s Progress in Opening Itself to Globalization

By any measure, India is a rising global giant. Propelled by the reforms initiated by Manmohan Singh in the early 1990s, Indian’s trillion dollar-plus economy is the fourth largest in the world by purchasing power parity and its technology industry is the envy of developed and developing nations alike. India’s trade policy reform, especially reductions in tariffs and import restrictions, are key contributors to India’s rising prosperity.

Even a seemingly small step – like Finance Minister Mukherjee’s recent budget proposal to narrow tariffs on digital media by applying the tariff to the value of the media itself, instead of on projected future profits, can have a profound and positive ripple effect, discouraging piracy and emboldening new entrepreneurs to enter a legitimate market. Not only do such reform measures broaden everyday Indian access to goods and services; they stimulate new indigenous Indian business and promote productivity.

As India’s economy has grown and opened, so has U.S.-India trade. In 1990, U.S.-India merchandise trade stood at just $6 billion. By 2006 it had risen to $32 billion and had jumped to $43 billion by 2008. In 2008 India was our 18th largest trading partner. By 2009, it had jumped to our 14th largest. We’d like to see it make the top 10 in 2010!

We recognize the benefits that trade and investment bring to both our countries. In 2008, India imported nearly $19 billion of American produced goods, helping create new jobs in the U.S.

Economists estimate that for every $1 billion of additional exports, 7,000 very good jobs in America are created.

Indian investment also is creating jobs. Over the last four, Indian investment in the U.S. grew annually by an average of 64 percent, second only to the UAE (which grew 230 percent annually over the last four years). This is not just big companies like GE and Honeywell but also American companies like RSA, a security solutions provider that employs over 350 at its center of excellence in Bangalore and expects to hire more locals in 2010.

The liberalization of foreign direct investment requirements has played a significant role in stimulating the Indian economy. By allowing external investors to own a majority share in a large number of industries, India has been able to put millions of people to work and learn and master an incalculable number of new skills and technologies.

Financial service reforms have empowered the banking sector to offer loans at more competitive rates to a greater number of people, further opening up opportunities for commerce and promoting fiscal stability and predictability. Reforms include the liberalization of interest rate controls, a reduced role of the Reserve Bank of India in approving large loans, the introduction of minimum capital holdings for banks, and the easing of license requirements for indigenous and external banks.

We hope such reforms will continue, for the benefit of both of our countries.

Part III: U.S. Commitment to Global Trade

Just as we argue that the enhanced openness in India has helped Indians, the Obama administration sees trade as a necessary driver of economic recovery. Trade is an imperative in our globalized world. Ninety-five percent of the world’s customers and nearly 80 percent of its economic production are outside U.S. borders.

In the last half of 2009, exports accounted for half of our economic growth. We have focused our trade policy on opening markets and boosting innovation, based on principles of a rules-based global trading system. We will continue to push for lower trade barriers while strengthening the trade system through an ambitious and balanced Doha Round negotiation that aims to increase exports worldwide. Success in the Doha Round relies on clarifications by advanced developing countries like China, Brazil, and India about the opportunities available in their markets.

The U.S. is the most open major market in the world. We provide significant duty-free and quota-free access to least-developed countries. Our goal is sustainable economic growth that brings home the benefits of trade – including well-paying jobs in the U.S. – while also advancing global recovery.

President Roosevelt, in the midst of the Depression in 1934, said that “full and permanent domestic recovery depends in part upon a revived and strengthened international trade.” That is still true today.

Part IV: Bridging Trade Barriers to Strengthen Strategic Alliances

Just as Americans benefit from our open economy, Indians will benefit from a renewed commitment to making their market more accessible for outside investors. Open markets also strengthen India’s strategic partnerships, binding India to the global networks that make it a more relevant player. The key to fostering these relationships rests upon engagement and the reduction of barriers, many of them self-imposed, to help India achieve its rightful place in the community of nations.

One specific area that would reap benefits for the Indian people and foreign investors is the multi-brand retail sector. Best Price is an example of how a company and the community are being held back by current laws. The company has helped the people of Amritsar by creating efficient farm-to-market networks which reduce post-harvest decay. Best Price has also partnered with 100 individual farmers in the local community and helped organizations as large as the Indian Army and as small as local kiranas sell more goods at a cheaper price. The company’s Bharti Training Centre empowers Indians with skills to compete effectively in an increasingly globalized world. It would like to expand these public-private partnerships.

But unless laws are changed to allow companies like Best Price to sell a variety of brands directly to the Indian consumer, it will not be able to expand its food-to-market networks. Fruit will continue to spoil before reaching the market while farmers go unpaid and children go hungry, in India and neighboring countries.

Increasing the foreign direct investment (or FDI) cap to 49% would help companies extend their goods and services to more people and employ more Indians who will learn modern management techniques. Reducing agricultural import barriers would also provide relief to Indian consumers suffering from high food price inflation. Reducing barriers to infrastructure development would also improve the livelihoods of all Indians.

India’s cities face a flood of migrants that is overwhelming its inadequate urban infrastructure. Many of India’s rural areas lack electricity, running water, or decent roads. To correct these problems, India’s leaders are rightly focusing on enhancing the nation’s infrastructure. But the dreams of its leaders may have to be deferred if India does not foster the development of a long-term capital debt market and remove onerous local content requirements to finance and complete projects like the Jawaharlal Nehru National Solar Mission.

And despite good intentions, if India does not promote technology-neutral, standards-based regulations for the intelligent transportation systems which permit the use of the most current technology, irrespective of its origin, India may find it more difficult to compete with the rest of the world.

There are many other procedural and legal reforms that could help streamline the investment process. Reducing regulatory barriers to business will also help bring India’s vibrant informal economy into the formal economy, helping India realize its true economic potential and continue lifting its citizens out of poverty.

India perennially ranks among the lowest in the world in the World Bank’s Doing Business Report. For instance, India ranks 182 out of 183 countries (second to last above Timor-Leste) in enforcing contracts, and 175 out of 183 in dealing with construction permits. Overall, India ranks only 133rd in the world.

While an emerging middle class has helped compensate for these challenges, reforms could bring India up to the double digit growth path it seeks. Not only will the infusion of additional investment for modern infrastructure help India, it will reinforce inclusive growth throughout the South Asian region, where intraregional trade accounts for just five percent of the region’s total trade. Reducing tariff and non-tariff barriers, promoting the harmonization of customs standards, and clear visa guidelines and quick adjudication will all spur innovation, investment, and industry. If implemented via the South Asian Free Trade Agreement (SAFTA), this model for inclusive growth will help India meet its stated goal of achieving double digit growth in a few years.

The Federation of Indian Chambers of Commerce and Industry and the Asian Development Bank have just published a useful study with detailed proposals for harnessing the opportunities for the private sector in intra-regional trade and investment. Among other things, they concluded that India, as the economic leader in South Asia, should be magnanimous in granting unilateral trade concessions to SAARC nations to help catalyze these opportunities.

SAFTA is a unique regional trade agreement in South Asia, but has not achieved significant liberalization since it took effect in 2006, largely due to the extensive lists of products that are exempted from SAFTA, under different countries’ “negative lists”.

Two bright spots are India’s trade with Sri Lanka and Bangladesh, which have flourished and can provide examples for the rest of the SAFTA region. In contrast, Pakistan accounts for less than 1 percent of India’s trade, and India accounts for less than 5 percent of Pakistan’s trade.

On the multilateral trade side, President Obama stressed in his State of the Union address that “we’ll continue to shape a Doha agreement that will open markets.” The United States is committed to working with Indian and other partners to achieve an ambitious and balanced success that will result in significant new trade flows, but substance will drive progress, not deadlines.

The WTO circle of leadership has grown broader and more inclusive in terms of a few of the key emerging markets. India needs to take on more responsibility and show more flexibility, especially with market access contributions for industrial goods, agricultural goods, and services.

Part V: Conclusion

The value of the U.S.-India relationship today is only surpassed by its potential tomorrow. We will not always agree on every issue, but we agree on more and more, and we should honor our partnership by continuing to work closely with each other on matters of mutual importance and encouraging each other to be the best we can be.

Our shared values and complementary strengths will help us bridge barriers to trade, sparking innovation, facilitating the growth of industry, promoting investment, building infrastructure, and encouraging sustainability. But shared values will only take us so far – India should continue to increase market access for American businesses, finance, and people, and the United States will do the same.

I am confident that if these reforms are implemented, we will witness not only continued progress in our bilateral relationship but also India’s continued ascent in the global community, a process that will benefit us all.

Thank you for inviting me to speak before you today.



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