I would like to thank USIBC for inviting me to participate in this annual event. I’m particularly honored to appear with Secretary Cohen and a distinguished g roup of influential leaders who have contributed so much to the U.S.-India relationship.
I’ve been asked to give some of my views on the bilateral strategic relationship, and I think it is fitting to talk about this after we just recently concluded our 4th U.S. – India Strategic Dialogue last month led by Secretary Kerry and co-chaired by Foreign Minister Khurshid.
There has been a lot of talk around town recently about the relationship “settling” or somehow falling into a rut of becoming too routine because there have been no major breakthroughs. Plainly, some major initiatives have hit legislative, political, or economic hurdles. I have been saying for quite a while that some perspective here would be tremendously helpful, but at the same time I do not want to downplay some of the very real business frustrations and concerns many of you have in this room here today. Recently, we have taken on the issue of Preferential Market Access and raised the electronic manufacturing indigenization mandate up with the Government of India. Based on initial press reports, it appears that the Prime Minister’s Office has issued a clarification revoking its application to the private sector. We have also noticed India’s issuance of compulsory licenses to a variety of patented pharmaceutical products and this has caused considerable concern to a number of those in the innovation and research and development sphere.
Before we get to the Q&A portion of this panel, I would like to touch briefly on two issues that are particularly relevant as bellwethers of how far we have come over the past decade: civil-nuclear cooperation and defense trade.
Civil Nuclear Cooperation
So let me start with a brief assessment of where we are on civil nuclear cooperation.
My key point today is a simple one – that the strategic calculus underlying the transformation of U.S.-India relations is sound, and indeed that this evolution of India’s role has brought important benefits to India and our international partners.
The clearest and most tangible evidence of this is in the area of nonproliferation. Eight years ago, the U.S. and India announced plans to move forward with a bilateral civil nuclear cooperation agreement grounded in our assessment of convergent interests. India committed at the time to a series of enhanced nonproliferation commitments that underpin our commercial civil nuclear cooperation, and India continues to abide by those commitments. India has brought a significant portion of its current and future nuclear power reactor fleet under the scrutiny of international safeguards, making them off-limits to its weapons program. This alone is a major gain for nonproliferation, but is not the only noteworthy step. India has also signed an Additional Protocol with the International Atomic Energy Agency, which we hope to see ratified in the near future, adopted national export control legislation following international norms, and committed to keeping it up to date. In fact, this past March, India’s Directorate General of Foreign Trade published amendments to 14 SCOMET categories covering a range of Missile Technology Control Regime and Nuclear Suppliers Group items added by the regimes since India’s last major SCOMET revision, which in our assessment, brought SCOMET in line with the control list of the MTCR. And while there is still work to be done, the SCOMET (control list) updates are an important step towards membership. These SCOMET amendments came on the heels of IAEA Director General Amano’s visit to India, during which Amano publicly highlighted India’s “good record on nonproliferation”.
These nonproliferation accomplishments are matched by progress on the civil nuclear energy side. The commercial logic of our cooperation is just as sound, and we continue to see India as an important part of a globally connected civil nuclear market place. Since the Nuclear Suppliers Group cleared the way in 2008 for civil nuclear exports to India, and despite ongoing concerns with India’s nuclear liability regime, we have witnessed remarkable growth in India’s international commercial nuclear activities. India has entered into nuclear cooperation agreements with the United States, Russia, France, the United Kingdom, Canada, Kazakhstan, South Korea, and Argentina, and negotiations are underway with other major supplier countries such as Australia and Japan.
Just last year India’s Nuclear Power Corporation announced ambitious plans to launch 16 new nuclear reactors over the next five years – a goal that can be reached only through close collaboration with American and other international nuclear suppliers . According to the latest IAEA figures, of the 66 new nuclear power plants under construction in countries like the U.S., Japan, France, Russia, and China, India currently ranks third, and in a matter of a few years will have the fifth largest fleet of nuclear power plants in the world. For those of us in this room, this means that for the foreseeable future India will have a profound influence on the global flow of civil nuclear material, services, and technology.
For my Indian colleagues I would emphasize the importance of delivering on the commercial promise of this agreement – to put it in the American vernacular, we need to finish what we started. The 2005 nuclear deal, the successful collaboration that produced the 2008 NSG exception and the Obama Administration’s rapid negotiation of reprocessing arrangements completed in 2010 are illustrations of what we can accomplish when we work together in the spirit of shared enterprise. We are now tantalizingly close to the first commercial contracts between India’s Nuclear Power Corporation and a major U.S. nuclear supplier. The prompt conclusion of these early commercial contracts should be a priority for both our governments and would be an important signal to skeptics that the U.S.-India strategic partnership is living up to its promise and delivering real benefits for people in both our countries.
On defense trade, many of you know that the State Department is responsible for approving all defense articles and services, Foreign Military Sale and Direct Commercial Sale, to our allies and close partners.
We are committed to further strengthening our already robust defense trade relationship with India. We are proud to have a growing track record of major system sales, including C-17 and C-130J transport aircraft, P-8I maritime surveillance aircraft, and are on the cusp of signing many more deals.
This is significant progress from where we started a decade ago. We have now signed more than 20 Foreign Military Sales cases for defense articles and services with India. Our Direct to Commercial Sales, the number of licenses issues, and the complexity of those licenses all continue to increase.
Defense sales are more than mere transactions. We both endeavor to move beyond a transactional defense relationship. Large, complex weapons systems are meant to last years, even decades. These systems require maintenance and upgrades throughout their life cycle.
Indeed, the initial sale of a defense system is often just the starting point of a long-term relationship. When a country commits to purchase a military system deemed vital to its national defense, it is also to a certain extent committing itself to years of collaboration with the selling country. India’s purchases of U.S. military hardware are a visible sign of our growing partnership and reflect our shared long-term commitment to regional stability.
We view our defense sales as a means to the greater end of building a strategic partnership that will foster cooperation in areas of mutual interest. The Foreign Military Sales system requires that U.S. government personnel manage the procurement and delivery of military equipment. This establishes strong lines of communication and helps develop personal interaction between officials of the U.S. Government and the Government of India and, in particular, between members of our defense communities.
As a result, an increase in defense sales helps build trust and strengthen bilateral ties over the long-term. In other words, defense sales allow us to get to know each other better, which is crucial to building a closer partnership. We view our defense sales as a means to the greater end of building a strategic partnership that will foster cooperation in areas of mutual interest.
In our efforts to expand defense trade with India, it helps that we’re able to offer the best systems manufactured anywhere in the world. U.S. companies continue to lead the way in making the highest quality, most dependable, and most technologically advanced products on the market. Countries want to buy the best and the Indian government recognizes the quality and value of U.S. defense goods.
Over the years we have made tremendous strides forward, in accordance with the National Export Initiative and BIS-led Export Control Reform process. We have both reduced the licensing clearance time as well as increased the aperture and scope of releasable technology so that we can pursue a more robust defense co-production and co-development relationship. Specifically, in 2006, the average time to process a license for India was 46 days. In 2011, it was down to just 19 days.
Vikram here is actually at the helm of one of the most exciting initiatives I’ve seen specifically dedicated to enhancing our relationship with India, and this is an initiative started by former Secretary of Defense Panetta and overseen by Deputy Secretary of Defense Dr. Ashton Carter, the Defense Trade Initiative, or “DTI”. Vikram can speak in more detail about this but let me make some overarching points:
India is our most important partner in South Asia, and security cooperation is one of the pillars of our strategic collaboration and represents an enormous achievement for the overall bilateral security relationship. Through DTI, we are committed to reducing bureaucratic impediments, easing transactions between buyers and sellers, increasing cooperative research, and focusing on co-production and co-development opportunities.
The benefits of this enhanced security cooperation were visible recently, when India’s Air Force deployed recently purchased C-130J aircraft to provide its flood-ravaged northern states with critical relief supplies. But I want to emphasize that our efforts are not a one-way street. To improve the relationship, though, we’ll need to work through a handful of complex challenges in our defense trade relationship. These issues are sometimes technical, but they can also be political.
We continue to engage with India on best ways to harmonize our defense acquisition systems and overcome hurdles in our bilateral trade relationship. The progress we have made thus far in the DTI is the right step forward in meeting our desired end states.
Of course, significant obstacles to further growth in our defense trade with India remain. India’s insistence on 30-50% offset packages to facilitate the growth of its defense industrial base is often incompatible with its existing capacity. And the current 26% cap on foreign direct investment in defense industries limits incentive for U.S. companies to fulfill Indian requests for high-technology defense articles.
Despite the challenges, overall we are extremely excited by the steps that have been taken and the potential for expanding our collaboration. We also offer to India a defense sales process that few other countries can claim, in that the FMS process is a corruption free system. FMS invokes the full faith and performance of the U.S. government military procurement system. It commits the United States to honor contract terms and to support U.S. weapon systems throughout their life-cycle. India can therefore rely on the U.S. government FMS process for a transparent, corruption-free process with an established history of performance.
My colleague and friend, DASD Vikram Singh can speak in more detail about DTI, but let me conclude by emphasizing a point I made at a similar event last fall in Delhi, that from where I sit the greatest risk to the U.S.-India strategic relationship looking forward is complacency. On both sides we have complicated democratic systems and certainly those of us who have been in the trenches of building this bilateral relationship have relied on the vision and political commitment of our leaderships on both sides.
The Obama Administration has made a considered investment in our India vision -- of which the issues we’re discussing today are a critical piece. We need to keep driving forward, and to get that right we will need the best advice of private sectors in both countries.