A clove hitch: Old mindset still persists

From the very first Nuclear explosion in 1974 India became a target of US administrations which imposed many export controls on India for high technology goods and the intense Cold War between the US and Russia led further isolation of India, which became severe in the post 1998 Pokhran nuclear explosion.

However, the US side very soon realized the importance of India which cannot be ignored and treated like a rogue state at its own cost.

When the then Prime Minister A B Vajpayee and the then US President George Bush met in Washington in November 2001 they resolved to remove the barriers in high technology trade between the two countries and qualitatively transform India-US relations.

The principal concern from the US side was the nature of dual use goods that can be misused in India’s strategic programs like nuclear weapons and ballistic missiles which the US administration feverishly tried to block by putting all sorts of impediments through various export control regimes like the MTCR and NSG.

However, India was ready to give any commitment to prevent their ‘misuse’ and agreed in a joint statement issued after the second HTCG meeting in Washington in 2003 that “The two Governments understand the importance of enhancing trade between India and the United States in “dual-use” items, including controlled “dual use” goods and technologies, while protecting the national security and foreign policy interests of both countries, and intend to take steps to facilitate such trade, which is a component of high technology commerce.”

In the 2003 joint statement the US administration acknowledged, “the importance that the Government of India attaches to the widest possible access to US “dual-use” goods and technologies and to efficiency, continuity, stability, and transparency in the export license application process.

The US Government intends to do its utmost in this regard, consistent with its laws and national security and foreign policy objectives, including compliance with international commitments.

Since then much water has flown in the Yamuna and the Potomac rivers and the two nations have traveled a long distance in trade in high technology goods and technology.

India's stand

However, when the HTCG met for the eighth time last July 11-12, the then Indian foreign secretary Nirupama Rao had much to complain, “there is a shared perception that the HTCG has in a sense, underperformed and underachieved, especially in commercial sectors.”

Rao asserted that reciprocity was vital in two way trade relations, ”While the focus has been on conventional trade and market access, we must now focus equally on promoting cooperation in research and development, design, commercialization, and production.” She said that the two sides must pay attention not only to trade barriers but also to commercial opportunities in the broadest sense.

As far as defence equipments are concerned, which is an area of vital interest for the US companies, the Foreign Secretary said that India would opt for joint production, joint research and development and technology transfer while placing orders with foreign companies.

But, observers said that the US side seems to be overly worried about the end use of these dual use technology and equipments even after taking the bilateral relationships to a new height. Hence, they insist on several defence agreements like CISMOA (Communications Interoperability and Security Memorandum of Agreement), BECA (Basic Exchange and Cooperation Agreement for Geo Spatial Cooperation) and LSA (Logistics Supply Agreement).

But the American Charge de Affaires to India Peter Burleigh revealed that US side is no longer focusing on these issues. Perhaps the Americans have reconciled to the Indian resistance to these agreements in view of their intrusive character.

The Indian officials acknowledge, “in fact the regulatory framework in India and US are still not compatible for a robust high technology trade between the two countries. It should evolve in a manner that facilitates trade and expands opportunities for collaboration in defence equipment and services.”

But the US business feels that there is a mismatch between Indian procurement requirements and the American licensing regime. Hence the US business chamber USIBC in its presentation before the HTCG meeting on July 11 strongly pitched for finding a breakdown in these procedures and also recommended the issuance of a list of pre-approved technologies by the US to India.

According to the USIBC chief Ron Somers, four case studies - two from each country -should be done to find out the breakdown in the procurement process in India and license regime in the US, including missile control regime.

The disappointment over the loss of MMRCA contract writ large on the face of the US officials and business representatives during the HTCG meeting but they also realized the concerns in India relating to the intrusive nature of the defence agreements that the US side has proposed.

Perhaps the American companies are loosing billions of dollars worth of these high technology exports to India, hence they want “action to match the rhetoric.”

The rhetoric is, according to the USIBC Chairman Ron Somers, that India is a strategic partner of the United States. Therefore, let us have a list of all technologies that we are willing to transfer to India, so that our countries can engage substantially with India,” said Somers.

Indian economy would be creating huge market for the US high technology not only in the defence sector but in the space, civil aviation, life sciences and nano technology for which the HTCG has recommended specific actions to boost bilateral trade and cooperation.

This is why Rao said that the two sides must not only focus on barriers to trade, but also on commercial opportunities in the broadest sense. In the defence sector, India would lay emphasis on building national capacity through joint production, joint research and development and transfer of technology.

Mutual benefit

The foreign secretary commented that that “such collaborations would create the same kind of mutual benefit that we see in other economic sectors.”

She suggested that regulatory framework in both countries should evolve in a manner that facilitates trade and expands opportunities for collaboration in defence equipment and services.

She also suggested that the two sides should look at innovative models to harness opportunities in aviation sector, aircraft and aircraft components, air traffic management, repairs and maintenance, aviation safety and security and capacity building.

Thus the best way to make progress in the high technology trade was to identify tangible and time bound goals for each sector. She said, “we are likely to be more successful if we identify one or two key goals each year rather than a wide array of diffused goals and priorities.”

However, the US Undersecretary of Industry and Commerce Eric Hirschhorn indirectly indicated towards India’s weak IPR regulations by commenting that India and the US must continue efforts to eliminate policies that discourage research and innovation.

“We must find new ways to breakdown tariff and non-tariff barriers to trade that stifle cooperation” he commented. He pointed out that US export controls affect less than one per cent of trade with India. US authorities have approved 400 export licenses for controlled technologies and 99 per cent of applications had got permissions.”

After the visit of the US President Barack Obama to India, the US side has taken out many Indian organizations, agencies and entities out of the sanctions regime but the Indian DRDO and nuclear establishments continue to feel the pinch of the sanctions regime.

In spite of the declarations of good intent from the US officials and leaders most of the applications for import licenses by Indian establishments face bureaucratic scrutiny, which delays the delivery of the dual use equipments to India.

Perhaps the mindset of the US officials still seems to be rooted in the Cold War era which needs to be cleared of misconceptions.

Still, after the conclusion of the Indo-US strategic dialogue in July India welcomed the steps taken by the US to remove Indian entities from the US Department of Commerce Entity List and realignment of India in US Export Control Regulations.

The joint statement after the talks between US Secretary of State Hilary Clinton and Indian External Affairs Minister S M Krishna, revealed unfulfilled commitments as it said, “both sides agreed to continue efforts to fulfill objectives of strengthening export control cooperation envisaged in the Joint Statement of November 2010 as well as on the basis of discussions in the High Technology Cooperation Group held earlier this month.”

The restrictions in high technology trade worries the US business class as well, as it restricts the flow of high technology equipments to India at the cost of the US industry.

This denial to India in fact benefits other advanced European countries, Russia, Israel etc. During January-October 2010 the bilateral trade jumped to USD 41.13 billion in which India’s export share was USD 25.044 billion whereas the import was only USD 16.086 billion.

This imbalance in trade can be removed if restrictions and barriers in high technology trade is removed by the US Department of Commerce.

Interestingly, when the US wants to deepen the partnerships in nuclear, space and defence sector and promote sales of the US made defence products to India and is advocating India’s entry to four export control regimes MTCR, NSG, Australia Group and the Wassenar Arrangement, the existence of restrictive mindset on high technology exports to India  is mysterious.