Where Industry and Security Intersect
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I am delighted to be here today to speak on an issue to which I have been devoting an increasing amount of my time recently – and that is, stimulating high-technology commerce between the United States and India. A vibrant high-technology trade relationship is a key component of the Administration’s overall agenda for fundamentally transforming U.S.-Indian relations.
As this audience well knows, President Bush and Prime Minister Vajpayee are committed to such a transformation. In many ways, it has already occurred. We now consult regularly at senior levels across a broad range of political, economic, security, and global issues – working to expand common positions rather than focus on differences. We share intelligence; we coordinate on law enforcement; we conduct joint scientific and health projects; and we collaborate on development assistance. Two years ago we did not have any joint military operations. Today, there has been substantial military cooperation, with several joint training exercises having taken place.
A good deal of credit for this progress should go to our two talented ambassadors – Bob Blackwill of the United States and Lalit Mansingh of India. I have had the pleasure of working closely with each of them, and I know how committed they are to the fundamental transformation of our relationship. Unfortunately, as you may know, Ambassador Blackwill will be resigning his post this summer to return to Harvard. I would like to say a special thanks to Bob for his service as Ambassador. Our embassy in Delhi – and the U.S. Government in general – will miss his vast knowledge and expertise on how to bring the U.S.-India relationship to its full potential.
One area, however, where Bob would be the first to agree that progress has 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 positive, the trade relationship should be better than it is. From 1997 to 2001, U.S. exports to India were stagnant at approximately $3.8 billion per year. U.S. exports to India did increase in 2002 to $4.1 billion, but India was still only the 27th largest export market for the United States. Countries with substantially smaller economies – such as Ireland and even the Dominican Republic – were greater recipients of U.S. exports in 2002 than was India.
More and more attention within the U.S. Government is being directed to finding ways to strengthen and invigorate our economic relationship with India. Part of this is due to our own commercial interests. Many U.S. companies – especially IT and software companies of all sizes – have established a presence in India to take advantage of the extremely talented workforce there. Given the potential market of a highly-educated middle class of over 300 million consumers, many more U.S. companies are intrigued by the trade and investment opportunities in India.
This interest is enhanced by successes in commercial collaboration that have, in fact, occurred in the high technology arena. Take, for example, GE’s John F. Welch Technology Centre in Bangalore, which I had the opportunity to visit when I was in India last Fall. This impressive facility is fast becoming GE’s global center for technology enhancement and testing. Or, take the example of Lucent’s pioneering work, done entirely in India, on its initial third-generation wireless technology. I know that there are other examples of high-technology collaboration in action or being planned, and I look forward to hearing about them from you today.
In addition to these commercial interests, however, we have a larger strategic interest in pursuing an agenda devoted to strengthening the economy of and our economic relationship with the world’s largest democracy. An India with a strong, vibrant, and open economy will be better able to exert its influence in Asia and throughout the world, and will be more 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.
The Government of India understands the strategic and economic benefits that would result from a more robust high-technology trade relationship. It has identified “high-technology trade” as one of the three so-called “trinity” of issues to which it is giving priority attention with the U.S. Government – with the other two issues in the “trinity” being civil space and civil nuclear cooperation. I would therefore like to speak this afternoon on the high-technology relationship between our two countries – what exactly it encompasses, the opportunities that are present, and the assistance that we need from you, the experts in the private sector, to help us move forward. Because of India’s interest in this area, I hope and believe that we can make real progress in liberalizing the trade and investment environment related to high-tech, and perhaps even use progress in this area to stimulate progress elsewhere.
Let me begin by explaining how the high-technology dialogue with India has evolved over the past 18 months. India’s strong interest in high-technology trade has focused in large part on one particular element of that trade – items known as “dual-use” goods and technologies. “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, inertial navigation equipment can be used in civilian aircraft, but it also can be used in guidance systems for cruise missiles. Or high performance computers can be used for meteorological modeling, but they also can be used to model explosions to test nuclear weapons.
Trade in dual-use items is referred to as “strategic trade.” One of the core activities of my Bureau at the Commerce Department – the Bureau of Industry and Security – is to administer and enforce U.S. controls on the export of sensitive dual-use goods and technologies. Our mission is to do this in a way that promotes U.S. economic interests, while at the same time protecting U.S. national security.
Early in the Administration, the Government of India indicated a strong desire to see progress in the area of strategic trade, as well as in the civil space and civil nuclear components of the “trinity” – even suggesting, at one point, that such progress was a “litmus test” for the overall transformation of U.S.-India relations. I should note that, in my view, no one set of issues should be viewed as a litmus test when two countries are involved in a broad-gauged relationship. The key point, however, is that we have been and remain committed to enhancing our cooperation in these important areas, consistent with our laws and our national security and foreign policy objectives, including compliance with international obligations. But we also need to be clear about the limited impact of export controls on overall high-technology trade.
Some have suggested that U.S. dual-use export controls are impeding the U.S.-India high-technology trade relationship, and that lessening – or removing – such controls is a key to unleashing high-tech trade. In short, they argue that, if we liberalize controls on strategic trade, then high-tech trade overall will flourish. I submit that the facts do not support this argument. In analyzing the data, as well as ways to increase high-technology trade between our two countries, it is clear that export controls are not a major factor impeding increased high-technology trade.
Export Controls Have Minimal Affect on Overall Trade
Dual-use licensing data show that, since the lifting of sanctions by the Bush Administration in September 2001, only a very small percentage of total trade with India is even subject to such controls. In fiscal year 2002 – that is, from October 1, 2001 to September 30, 2002, which was the period directly following the lifting of U.S. sanctions – U.S. exports to India that were subject to licensing requirements totaled merely $38 million, or approximately 1 percent of total U.S. exports to India. License denials in fiscal year 2002 totaled only $11 million, or less than one-half of 1 percent of total U.S. exports to India. And the data for the first half of fiscal year 2003 show that these trends are continuing.
Not only do the quantitative data show that very few U.S. exports to India are subject to licensing requirements, but a qualitative analysis shows that the relevant licensing requirements are fairly circumscribed and generally apply only to items that are controlled under the multilateral regimes relating to nuclear, chemical, and biological weapons and missile technology. These are generally not sectors that are engines for high-technology growth. U.S. export controls do not meaningfully restrict exports to India of products such as high performance computers, microprocessors, or encryption software, or affect key sectors of high technology such as information technology, life sciences, and nanotechnology.
The China Comparison
My point that U.S. export controls are not inhibiting high-technology growth in India is further supported by examining the U.S.-China trade and high-technology relationship. The United States maintains a more restrictive dual-use export control policy toward China than it does India. Nonetheless, U.S.-China trade – including trade in high-technology – has thrived. U.S. exports to China in 2002 were over five times greater than U.S. exports to India, and China was the fourth largest trading partner of the United States. Clearly, the more restrictive export controls on China have not impeded or prevented the emergence of a vibrant U.S.-China high-technology relationship.
I fully appreciate that obtaining a further liberalization of U.S. export controls is an important and meaningful political objective of the Government of India. It signifies the growing strategic relationship – and a stable trading relationship – between our two countries. But such liberalization alone is not sufficient to advance the bilateral high-technology trade relationship. That is why we are focusing as well on the economic component of high-technology trade – and that means identifying the specific laws, policies, practices, and procedures that are obstacles or deterrents to bilateral high-technology trade and investment.
Over the past year, we have discussed these issues on several occasions with a diverse array of U.S. companies and with many Indian businessmen, including during my visit last November to Delhi, Mumbai, and Bangalore. Private sector representatives in both countries have identified issues that, despite recent reforms, are still problematic. These include high tariffs, lack of adequate infrastructure, lack of enforcement of intellectual property rights protections, absence of transparent government procurement processes, complex customs policies and procedures, and excessive taxes as obstacles to a more robust bilateral economic relationship.
Accordingly, in order to truly transform U.S.-Indian high-technology trade, our bilateral efforts must focus on all of the issues affecting such trade. If our actions are limited only to dual-use export controls, we will make an important political statement, but we will not achieve full progress in the overall trade relationship. That is why I was pleased to hear this morning about the development of Special Economic Zones in India, which will directly address some of the broader trade issues. As I have emphasized to my Indian counterparts, advancing the overall trade relationship will create the key constituencies within the business community that are critical to promoting change on the political dimension of high-tech commerce and ensuring a stable trading relationship.
To coordinate our activities and provide a standing framework for discussing high-technology issues of mutual concern, the United States and India agreed during my November 2002 visit to Delhi to establish the High-Technology Cooperation Group – or, in shorthand, the HTCG. Our two governments have agreed that the HTCG will have two primary and interrelated substantive components. One component 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. The first full meeting of the HTCG is scheduled to take place on July 2 in Washington, D.C.
In order to guide the work of the HTCG, our two countries also negotiated a “Statement of Principles for U.S.-India High-Technology Commerce” during the visit of Indian Foreign Secretary Sibal to Washington, D.C. in February of this year. The Statement sets forth 14 principles, which are posted on our website – www.bis.doc.gov – and will constitute the basis for strengthening bilateral high-technology commerce.
The principles can actually be grouped together into several categories that address the major aspects of the work of the HTCG. Some of the principles directly relate to dual-use export control issues. For example, the U.S. Government commits to examine its current export control policies for non-missile and non-nuclear items, and to take steps to modify such controls, where appropriate and consistent with our national security and international obligations, to reflect the transformation of our bilateral relationship. We also agree to conduct a series of cooperative activities designed to share perspectives on export controls, and strengthen and modernize the Indian export control system.
What I would like to discuss with this audience, however, are those principles that relate to private sector participation in the HTCG and the desire for there to be tangible progress on trade and economic issues. In the Statement of Principles, the Government of India expressly “recognize[s] the importance of taking steps to remove systemic tariff and non-tariff barriers,” pledges “to do its utmost in this regard,” and further recognizes that the private sectors in our two countries “are important partners in this endeavor.” These principles are fundamental to enhancing our bilateral high-technology relationship.
Progress on Trade and Economic Issues
The first HTCG meeting in July, therefore, will address a number of important trade issues, including the following:
In addition to these agenda items, the HTCG will undertake activities to promote U.S. exports to India and educate U.S. industry about potential market opportunities in India. These efforts, which are being led by the Commerce Department’s International Trade Administration, include preparing an “Export IT” report on information technology market opportunities in India, conducting “Doing Business in India” seminars in conjunction with U.S. trade associations to educate companies about high-technology opportunities in India, and – possibly – organizing a high-technology trade mission to India later this year.
Private Sector Participation
As the Statement of Principles makes clear, the private sectors in each of our countries must work in partnership with us and play a significant role in addressing bilateral high-technology trade issues. As we well know, it is the private sector – and not government bureaucrats – who will ultimately determine the level of trade and investment between our countries and, therefore, are in the best position to identify specific obstacles to expanded bilateral high-technology commerce. Realistically, we cannot expect such obstacles to disappear overnight. Where we need your help is in translating broad policy concerns into specific, practical, and realistic steps that can be usefully taken to address these concerns.
As I noted earlier, we have already met with many representatives from private companies and industry associations – both in the United States and in India – to gain insight as to what they believe are the primary obstacles to increased high-technology trade between the United States and India. And we plan to consult with the major trade associations in both countries – such as the U.S.-India Business Council, the Federation of Indian Chambers of Commerce and Industry, the Confederation of Indian Industry, and the National Association of Software and Service Companies – to ensure that the views of the private sector on specific steps we can take are factored into our work. For this reason, we have actually organized the first meeting of the High-Technology Cooperation Group on July 2 to directly follow a private sector conference the previous day, July 1, that we are organizing in conjunction with the U.S-India Business Council on the topic of “Financing Innovation.”
The objective of this Forum, sponsored by the HTCG, is to bring together representatives from the U.S. and Indian private sectors, with government observers, to exchange perspectives on the current climate affecting capital investment and financing in both countries – with a particular focus on the areas of information technology, defense technology, life sciences, and nanotechnology. Our hope is that our private sector experts will produce specific ideas and proposals, with clear timetables, for the government officials to consider. We want to be your vehicle to help advance the U.S.-India high-technology trade relationship – so we need your input and assistance.
Export Control Outreach
The last group of principles that I would like to mention reflects the importance of regular outreach activities to educate the private sectors in the United States and India about applicable export control laws, regulations, policies, and licensing procedures. One purpose of increased outreach is to educate parties in both countries about the substantial progress already made in streamlining U.S. export controls related to India. Even before the HTCG was established, the United States had unilaterally undertaken some significant steps to transform the relationship relating to strategic trade. On September 22, 2001, President Bush waived the sanctions that were placed on India in May 1998 after a series of nuclear weapons tests. As part of the implementation of the sanctions waiver, we removed a large number of Indian entities from what we call the “Entity List,” which is the list of companies involved in proliferation activities and for which a license is required to export any U.S. items or technologies. India also has benefited from the liberalization of our licensing requirements for the export of high performance computers and general purpose microprocessors.
In addition to education, increased outreach activities are intended to dispel trade-deterring “myths” about the scope and effect of U.S. export controls. Through our discussions and work with industry, we have discovered that, even after the sanctions were lifted, there remains what I call a “hangover” effect with respect to strategic trade. Many U.S. and Indian companies do not appear to fully understand the controls that are currently applicable, incorrectly believe that trade with Indian companies currently or formerly identified on the Entity list is “prohibited,” or fail to apply for licenses because they wrongly perceive a policy of automatic denial. This is shown by the enormous number of license applications that are “returned without action.” Indeed, in fiscal year 2002 – right after the sanctions were lifted – 279 license applications covering trade worth $538 million were returned to the U.S. applicants without action, in most cases because no license was required for the transaction. And these figures do not show the likely high number of exporters that did not even bother to apply for a license due to perceived difficulties. Increased and targeted outreach can go a long way toward dispelling the misperception that trade with India or certain Indian entities is problematic, or that exporting controlled items to India is “not worth the hassle” of submitting a license application.
We have posted detailed guidance on our export control policy toward India on our website. Moreover, U.S. Government officials will soon be traveling to Delhi to conduct a seminar on government-industry outreach planning at which we plan to share ideas on how the Indian government can enhance its work with the private sector to raise awareness of and compliance with export control laws. In addition, we have invited Indian officials and private sector representatives to attend one of our export control seminars in New York in July to observe our training program for U.S. industry and to learn how small- and medium-sized companies implement export control management practices that comply with U.S. export control laws.
I hope you will agree, we have begun a good process. But we have a significant amount of work ahead of us to start achieving our objectives. It will not be easy, but I think we have assembled a group of officials from both governments that are committed to moving the U.S.-India high-technology trade relationship forward, as envisioned by President Bush and Prime Minister Vajpayee.
These efforts, however, cannot be limited to government actions. In order to be successful, there must a true public-private partnership to identify obstacles to increased high-technology trade and provide realistic and obtainable solutions that address those issues. We need input from you on the types of tangible steps that can be taken to reduce barriers and make it easier for U.S. companies to engage in high-technology trade with Indian companies on a day-to-day basis. My colleagues and I at the Commerce Department look forward to hearing from you and working with you on these matters in the days and weeks ahead.
Thank you.