U.S.-India Relations and High-Technology Trade Kenneth I. Juster,
Under Secretary of Commerce
The Federation of Indian Chambers of Commerce and Industry
New Delhi, India
November 20, 2003
I would like to discuss some of the important developments that have transpired in U.S.-India relations over the last two and one half years, focusing in particular on our economic and high technology relationship. Let me begin, however, by saying how great it is to be back in India.
As all the world knows, India has a rich and glorious history. It has been the cradle of major civilizations and the birthplace of major religions. Indian culture and values have spread not only throughout Asia, but throughout the world, including of course in the United States.
The Indian-American community is one of the fastest growing and most successful immigrant groups in the United States, having doubled in size in the last decade, to reach almost two million strong. Many medical professionals in the United States are of Indian origin and a significant percentage of new ventures in Silicon Valley have been started by Indian Americans. Indeed, scientists and engineers of Indian origin have been making extraordinary contributions to American society.
The United States appreciates India's great history and views India today as a world power, whose influence internationally is important and growing. We support this trend, because we think it is good for India and good for the United States.
Soon after President Bush took office, he made clear his intention to intensify and enhance the warming of relations that had begun between our two countries. In the historic joint statement that President Bush and Prime Minister Vajpayee issued on November 9, 2001, they reaffirmed the enduring ties between both nations and stressed their commitment to complete the process of qualitatively transforming U.S.-Indian relations in pursuit of their many common goals in Asia and beyond. In particular, the two leaders emphasized the importance of stimulating bilateral high-technology commerce.
When the United States issued its National Security Strategy last year, we expressly spoke of the transformation of our bilateral relationship and recognized India's potential to become one of the great democratic powers of the 21st century. From our perspective, a strategic partnership between our countries serves both of our interests. A strong and vibrant India will be most effective in advancing our shared objectives of promoting peace and stability in Asia, combating global terrorism and stemming the proliferation of weapons of mass destruction.
As this audience well knows, the level of cooperation for the last two years between our two countries across a broad range of issues has been nothing short of extraordinary. We now consult regularly at senior levels on political, economic, security and global issues, looking to expand common positions, rather than focusing only on differences. We share intelligence, we coordinate on law enforcement, we cooperate in counter-terrorism activities, we conduct joint scientific and health projects, and we collaborate on development assistance.
The Economic Dimension of the Relationship
The one area, however, where progress has at times been less than what it could be is in trade. Given the level of cooperation between the United States and India in other areas, one would logically expect the trade and economic relationship to be equally robust. While the recent trends are certainly positive, the trade relationship should be much better than it is.
There are explanations on both sides for this state of affairs. From the Indian perspective, one often hears that the so-called U.S. sanctions still stifle economic relations, particularly in the area of high-technology and that U.S. companies, therefore, are not viewed as reliable trading partners. And from the U.S. perspective, we still see in India tariffs and taxes that are too high, restrictive investment caps, complex customs and other administrative procedures, and less than full intellectual property rights protection. We also regret that India has not, in our view, demonstrated a level of ambition reflective of its size, influence, and potential economic benefit in the current WTO multilateral trade negotiations.
Whatever the explanations, both sides have been keenly aware that we have to devote greater attention to our economic relationship, and one area of natural synergy is high-technology commerce. If we can make real progress in liberalizing the trade and investment environment related to high-tech, then we can use the positive experience in this area to stimulate progress elsewhere.
We recognize and greatly admire India's technical competence in information technology, life sciences, and other disciplines of high technology. As President Bush has remarked, human resources and intellectual capital are great assets of India. Your engineers are among the best in the world, and we have no desire to restrict your progress in high-technology endeavors. Instead, we want to work together with you as partners in unleashing the ability of our private sectors to cooperate constructively in this field.
High Technology Cooperation
To provide a standing framework for discussing high-technology issues of mutual concern, the United States and India decided last November to establish the High Technology Cooperation Group (HTCG), or in shorthand the HTCG.
Our two governments have agreed that the HTCG will have two primary and inter-related substantive components. One will be facilitating and promoting high-technology trade and will focus on cooperative steps that our two countries can take to create the appropriate economic, legal, and structural environments that are necessary for successful high-tech commerce. The second component will be building confidence for additional strategic trade and will focus on discussing ways to enhance trade between the United States and India in controlled dual-use goods and technologies.
For those of you who might not be familiar with such terms, dual-use items are those that have both a legitimate commercial use and a military use in the development or production of advanced conventional weapons or weapons of mass destruction. For example, intertial navigation equipment can be used in civilian aircraft, but it also can be used in the guidance systems for cruise missiles. And high-performance computers can be used for modeling weather patterns, but they also can be used to model explosions to test nuclear weapons.
Trade in dual-use items is often referred to as strategic trade, and one of the core activities of my Bureau at the Commerce Department is to administer and enforce U.S. controls on the export of sensitive dual-use goods and technologies. Let me be clear that these controls apply to every country with whom we trade, including our closest allies. In fact, this past year we processed several hundred export licenses for the United Kingdom.
The Government of India has expressed its strong desire to see progress with the United States in the area of strategic trade, as well as in civilian space and civilian nuclear matters, the other components of the so-called Trinity of issues. The United States has been and remains committed to enhancing our cooperation in each of these important areas, consistent with our laws and national security and foreign policy objectives, including compliance with international commitments. In order to guide the work of the HTCG, our two countries negotiated a Statement of Principles for U.S.-India high-technology commerce during the visit of Foreign Secretary Sibal to Washington in February of this year.
The Statement of Principles
The Statement sets forth 14 principles, which constitute the basis for strengthening bilateral high-technology commerce. The principles can actually be grouped into four major categories that address the different aspects of our work. Those categories are the role of the private sector, the need to lower barriers to trade in India, the increased access to U.S. dual-use goods and technologies, and the importance of enhanced non-proliferation measures. I would like to briefly summarize our work in each of these areas.
The Private Sector
First, the principles recognize the importance that the two governments place on working in partnership with the private sectors in the United States and in India to promote high-technology trade. After all, it is these sectors and not simply government officials that ultimately determine the level of trade and investment between our countries. You are in the best position to identify obstacles to expanded high-technology commerce. We need your assistance in translating broad policy ideas into specific, practical, and realistic steps.
That is why the High Technology Cooperation Group, in conjunction with the Federation of Indian Chambers of Commerce and Industry (FICCI), the Confederation of Indian Industry (CII), the National Association of Software and Service Companies (NASSCOM), and the U.S.-India Business Council (USIBC), sponsored a public-private forum on "Financing Innovation" in Washington on July 1 of this year. That forum, which brought together over one hundred representatives from the United States and India, focused on further growth of bilateral commercial cooperation in four emerging areas of technology - information technology, life sciences, defense technology and nano-technology. These are areas deemed by both countries to be of great opportunity for bilateral trade and investment.
We just concluded yesterday our second Public-Private Forum in Bangalore, this time focused on "Advancing Synergy," in each of the four fields of technology that I just mentioned. Again, FICCI, CII, NASSCOM and the USIBC did a great job in organizing this event.
What is unique about these two conferences is that each has directly preceded a full day of government-to-government meetings of the High Technology Cooperation Group, where our discussions have been aided by the input that we have received from conference participants.
The second area on which the two governments agreed to focus relates to creating the appropriate environment for successful high-technology commerce. On this score, to be frank, we believe that the burden of action rests largely on Indian shoulders.
It is worth noting that the IT sectors in both of our countries have thrived in part because of minimal government interference. Indeed, it has not escaped our attention, nor should it yours, that the IT sector came of age in India in the post-reform environment and has been able to operate largely free of government regulation and control. We think there is an important lesson in this when we look at international trade. As businessmen from both countries have told us, bilateral trade and investment in high technology will take off if we can reduce whatever government impediments exist. The latest trade figures appear to support this. Since India's most recent round of tariff reductions, we have seen an increase in U.S. exports to India, which have grown by approximately 25 per cent so far in 2003. Further reductions in tariffs, as well as in non-tariff barriers, can strengthen this very positive trend.
We also encourage India to provide the world-class intellectual rights protection necessary to attract high-technology businesses and entrepreneurs. The exchange of knowledge and know-how is key to the 21st century economy. Willingness to share knowledge and know-how requires confidence by the private sector that its inventions and creativity will receive the government's full legal and enforcement protection. That is why we hope that India will enact a patent law that fully complies with its WTO commitments under the Agreement on Trade-Related Aspects of Intellectual Property rights. Without this U.S. companies, including those in biotechnology, will be reluctant to conduct fundamental research and development in India.
Trade in Dual-Use Items
Third, the Statement of Principles imposes on the United States the task of reviewing its export licensing processes and policies so as to grant India the widest possible access to U.S. dual-use goods and technologies, consistent with our laws and our national security and foreign policy objectives, including our compliance with international commitments. We have completed this review and are pleased to report that export controls today have far less impact on U.S.-India high-technology trade than is commonly perceived. Indeed, I have been asked by one Indian representative to inform this audience of the new opportunities that exist for such trade. The fact of the matter is that other than in areas related to sensitive missile, nuclear, chemical and biological activities, in other words, areas related to weapons of mass destruction, the opportunities are vast.
For instance, in the area of knowledge trade, we are in the process of updating controls toward India and other countries on computer and microprocessor technology and related software. As I have indicated, the 21st Century will be the Age of Information and Knowledge, and we have to put in place the building blocks for greater knowledge-based trade between our two countries.
As many of you know, information networks and technology increasingly manage company operations, control our critical infrastructures, and provide the essential tools for advanced research, development and production in biotechnology, pharmaceuticals, and other scientific endeavors. Computer and microprocessor technology have even become key ingredients in our entertainment industries. These are all areas where Indians and Americans can and should work together. In fact, one task related to all of these areas, and one that I believe is ripe for joint efforts, is the development of appropriate measures to secure our cyber space and reduce the threat of cyber attacks. The threat of such attacks represents an entirely new form of vulnerability that will increasingly challenge our reliance on information technology and our efforts to transmit knowledge and know-how across borders.
Returning to dual-use export controls generally, since the lifting of sanctions by the Bush Administration in October 2001, only a very small percentage of our total trade with India today is even subject to such controls. Let me repeat that sanctions do not apply to India and the vast majority of dual-use items do not even require a license. I would like to briefly review some numbers with you. Please bear with me because I will be going into a bit of detail. But I think this is important to appreciate the facts -- and not the myths -- about trade and controls in dual-use technologies.
In fiscal year 2002, which was the period of time directly after the United States lifted sanctions relating to India, U.S. exports to India that were subject to licensing requirements totaled merely 38 million dollars, or approximately one percent of total U.S. exports to India. License denials in fiscal year 2002 were less than one half of one percent of total U.S. exports to India. Overall approximately 84 percent of all licensing decisions for India in fiscal year 2002 were approvals. Perhaps more tellingly, in that fiscal year, the year directly after sanctions were lifted, we returned without action almost 280 license applications corresponding to over 500 million dollars worth of goods, primarily because no license was needed. This told us that there were continuing misperceptions about allegedly ongoing U.S. sanctions that in fact no longer existed. It is what I call the "hangover effect."
Since the formation of the High Technology Cooperation Group, we have engaged in widespread outreach to correct these misperceptions. That work is not yet done because I still hear from Indian journalists and businessmen about sanctions that are no longer in effect. We are, however, making important progress as indicated by the new statistics for fiscal year 2003, which just ended on September 30. Total U.S. exports to India have grown by approximately 25 percent to 4.8 billion dollars. We also processed almost 200 more license applications.
Despite making decisions on this increased number of license applications, we actually denied fewer applications in fiscal year 2003 than we did in fiscal year 2002. Thus, our overall approval rate rose from 84 percent to 90 percent. In terms of overall U.S. exports, licensed trade remained relatively low, at slightly more than one percent of our total U.S. exports. License denials were less than one third of one per cent of total U.S. exports.
So I want to repeat the point that I made and that Foreign Secretary Sibal acknowledged: U.S. export controls are not a major impediment to broad high-technology development and growth in India. Nonetheless, we fully understand and we fully appreciate the importance to India of trade in sensitive technologies and the potential benefits to India from such trade. We are therefore working steadily with our counterparts in the Government of India to continue to find ways to further expand our strategic trade. And that has been a very successful and ongoing process.
Nonproliferation and Export Controls
Finally, the HTCG principles stress the importance for both governments to cooperatively address proliferation concerns and to strengthen national export control systems through laws, regulations, and enforcement, in accordance with modern export control standards. India is working with us to stop proliferators, and we hope for continued aggressive action on this front. We want to work together with you to achieve our common counter-proliferation goals.
The United States recognizes that India is not a party to the multilateral non-proliferation regimes. But we respectfully submit that India has a stake in the success of those regimes precisely because of the foundation they provide for our joint interest in halting proliferation. From our standpoint we need to advance our cooperation in high technology and other areas in ways that do not undermine the international framework on non-proliferation under which we have certain treaty obligations and commitments.
Our Agenda Going Forward
The Statement of Principles for U.S.-India High Technology Commerce, to which I have just referred, has provided a solid foundation for our discussions. As many of you also know, senior representatives of the United States and Indian governments have also met several times this past year to discuss expanding cooperation on two other elements of the Trinity, civilian space and civilian nuclear activities, in addition to high technology. We discussed possible cooperation in missile defense as well, leading some to change metaphors from theology to music and transform the Trinity into a Quartet. The discussions on these issues are on going. But I hope it is clear that there has been significant progress in this regard. In fact, I recently read an interview with my counterpart and good friend in this process, Indian Foreign Secretary Kanwal Sibal. The interview began by describing him as a "no-nonsense" man, and quoted him as stating that there has been substantial progress on very complex issues in a short time-frame. I agree with that. I want to personally thank Foreign Secretary Sibal for all of his outstanding efforts in this regard. He has been a critical part of our success in high- technology cooperation and our overall strategic dialog and we certainly wish him well in his future endeavors.
The Real Opportunity of an Enhanced Economic Relationship
In closing I want to emphasize the incredible opportunities that exist for increased high tech and knowledge trade and overall collaboration between our two countries -- as well as the pitfalls that await us if we squander these opportunities. India's economy has enormous potential. India is now producing companies that compete with any in the world. If India undertakes certain reforms, it can be the next economic tiger. Indeed, a recent Goldman Sachs study projects India to be the world's third largest economy by the year 2050 if a number of structural barriers to trade and investment are removed.
To truly create ties that bind our two countries together, to truly institutionalize the strategic partnership that we are developing, and to truly give the people of each country a stake in our bilateral relationship, we need to have a substantially increased level of economic interaction. This will ensure that the transformation in our relationship permeates throughout our two societies.
If we only transform our relationship at senior government levels, then we will be making decisions that can be reversed all too easily. Strategic engagement cannot proceed without a strong commercial underpinning. Business relationships build broad foundations of common interest and trust. They are vital and indispensable elements of a strategic partnership. An enhanced economic relationship will provide a solid foundation for everything else that we wish to do together. It will create business constituencies who have a stake in the reliability of trade and investment, and who will moderate any problems that may arise in the relationship.
That is why in our view, and let me say this as a good friend of India, India cannot take the position that free trade and globalization make sense when they mean outsourcing jobs to India or obtaining visas to work in the United States, but that they do not make sense when it means lowering barriers to trade or increasing access to your markets. To succeed, trade must be a two-way street. These are steps that are every bit as much in your interest as they are in ours. The answer to the economic challenges that we face in today's globalized world is to open markets. An open trading system brings with it growth, innovation, and job opportunities for all parties. An open international trading system has the benefit of more competitive markets, greater diversity of product choice, and improved access to innovation.
So let me conclude by emphasizing to this audience what I have emphasized on several occasions to my counterparts in the Government of India. Advancing the economic component of our relationship will ultimately create the critical mass that is essential to sustaining the overall stability of that relationship.
Thank you very much.