A Transformative Trip

Focus

International relations typically evolve fairly slowly, other than in times of crisis. Yet strategic relations between the United States and India seem to have two speeds – sprint and stall. President Obama’s latest visit shows that we are, indeed, back in sprint mode and hopefully this time we can convert the velocity of our growing partnership into a marathoners pace, insists Richard M Rossow

America’s interest in partnering with India on strategic and economic matters is not, as is sometimes charged, to force India to act as a vassal state, blindly supporting America’s interests around the globe. Instead, we want to empower India to pursue its own strategic interests, which we believe are closely aligned with our own. While the rhetoric around ‘world’s oldest and largest democracies,’ ‘pluralistic societies,’ ‘English language and rule of law,’ is sometimes dismissed as tired, empty statements, it in fact underlies a large part of America’s ‘big bet’ on being a partner to India’s economic and strategic development. As India grows into its role as a major global player, these shared interests point towards India playing an even-larger role in promoting global stability and prosperity. It is in America’s interest to partner with India to expedite the realisation of a larger, stronger India actively pursuing its interests on the global stage.

Lack of Direction and Long-Term Vision

President Barack Obama is sometimes criticised for lacking an interest in pursuing a deeper relationship with India. This charge is unfair. Events in the waning years of the UPA government made the Obama administration lose confidence that India would be able to fulfil its commitments, most notably when the UPA government could not push a clean civilian nuclear liability law through parliament. After that day, the US strategic community largely began to look elsewhere for new partnership prospects, with the notable exception of the slow but steady pace of the Defence Trade and Technology Initiative launched in 2012.

When the American strategic community saw less opportunity to deepen our partnership with India, we were left without any real, long-term vision for our relationship. At the same time, new commercial disputes arose, including forced local manufacturing rules, aggressive cross-border taxation collections, and disputes over India’s applications of patent laws and rules. In addition, India’s process of enacting further economic reforms slowed. American businesses began to actively agitate against India’s economic policymaking. Instead of a long-term view of the partnership, American policy towards India was dominated by these short term concerns.

With the election of a majority BJP government in May 2014, the American strategic community saw a potential opening. There was some concern initially that Prime Minister Narendra Modi would want to slow-walk the relationship with the United States government following the withdrawal of his US visa in 2005. Such concerns were clearly misplaced, as the Modi government has reciprocated every overture by the US, and we have already had two major bilateral leader summits in the first eight months of the Modi government. Prime Minister Modi has shown a pragmatic, transformative approach to foreign relations that provided an opportunity to dramatically deepen our bilateral partnership. The US seized the moment upon noticing an empowered India no longer carrying the baggage of non-alignment, and more cognisant and reactive towards her own strategic interests.

September Summit: A Step in the Right Direction

The visit of Prime Minister Modi to the United States in September 2014 was important for two reasons. First, it set the table in terms of the types of issues on which we would look to cooperate. Second, Prime Minister Modi spent time to meaningfully engage multiple interest groups in the US who support the relationship, including the Obama administration, the business community, the Indian-American community, and the American public through his speech at Central Park. Expanding the base of groups actively supporting a stronger relationship will provide a critical buffer during times when negativity abounds in one area.

During the September summit, India agreed to work with the US on regional issues where India does not have a powerful direct interest today, such as North Korea, the South China Sea, and the rise of extremism in West Asia. Of course, we also outlined areas where we have previously enjoyed cooperation including economic issues, Afghanistan, clean energy, and people-to-people connections.

While the September summit was warmly received, supporters wanted to see more tangible points of collaboration. The Joint Statement reaffirmed principles, yet the meeting produced few direct deliverables. We like to say the relationship should not rest solely on deliverables, but in fact there are very real obstacles to realising the full potential of this partnership. On a good day, deliverables are the mechanisms to reduce those obstacles. This might mean signing a Bilateral Investment Treaty/Bilateral Investment Promotion Agreement, agreeing to expedite approvals in strategic trade such as defence and nuclear technology, or removing traditional trade barriers such as high tariffs or caps on foreign direct investment.

Rising Expectations for Big Ticket Deliverables

President Obama’s confirmation to attend the January 26 Republic Day celebration in New Delhi came as a pleasant surprise. Initially the focus of the visit was on backdrop issues. The visit marked the first time an American president would be the chief guest. This was the first time a sitting American president visited India twice while in office. These and other flashy narratives received a great deal of attention. Expectations for big ticket deliverables were tamped down since it would only be four months since the last bilateral summit between the leaders.

However, once the visit was confirmed, both sides went to work to set up the delivery of tangible agreements that could be ready by the time of the summit. In particular, the ‘Contact Group’ established in September 2014 to look at possible solutions for the nuclear liability law and the Defence Trade and Technology Initiative teams began serious consultations, and spent the entire week ahead of the actual visit in January in bilateral meetings to come to agreement on the path forward for defence and civil nuclear trade.

In the days leading up to President Obama’s arrival in India, the buzz in Delhi’s policy circles was at a fever pitch. Everybody was betting one way or the other in terms of whether the summit would result in paths forward in strategic trade. One group felt there had not been sufficient time to find workarounds on these thorny issues, while another group felt that two leaders focussed on delivering on their promises would not allow their own expectations to fail. The negotiating teams would have to have something substantive to show. And it turns out this latter group was on the mark.

Tangible Path Forward

While we are still waiting on details, it appears the most important facets of our strategic relationship should be getting back on track following this visit. The finalisation of the ‘New Framework for the US India Defence Relationship’ came four months prior to the expiration of the previous version. The two sides believe they have found a solution to the issues that precluded civilian nuclear trade, including both the liability issue in India as well as American trade oversight over civilian nuclear technology.

There were also important announcements on the commercial partnership, beyond the areas of strategic trade noted above. Notably, we committed to restarting talks on negotiating a Bilateral Investment Treaty (BIT)/Bilateral Investment Promotion Agreement (BIPA). Talks on a BIT/BIPA were launched about eight years back, but progress has been tedious as both countries have undertaken reviews of their model treaties. India’s new model has not yet been released, so we cannot be sure of the exact differences between our models. But at the very least the security offered by a BIT should help bring American infrastructure investors back to India, and BIT provisions on national treatment and performance requirements could remove some of the market access issues faced by American investors into India.

It was also intriguing to see a commitment by the United States to support India’s membership in the Asia Pacific Economic Community (APEC). APEC membership at the very least would provide a platform for India to tighten its relations with Southeast Asia and deepen involvement with important initiatives to adopt uniform rules and regulations. This could also lead to India’s eventual inclusion in the major Trans Pacific Partnership (TPP) trade agreement, which may be concluded later this year. Of course, APEC membership is far from automatic. APEC has a current freeze on introducing new members, and India’s stance this summer on the World Trade Organisation’s Trade Facilitation Agreement has caused many countries to question the Modi government’s openness to trade. It will be a long, hard road to rebuild confidence that India is ready to be a more proactive member of multilateral trade discussions.

One further point in the Joint Statement that deserves more attention is the agreement to discuss ‘the elements required in both countries to pursue an India-US Totalisation Agreement.’ The Totalisation Agreement, if successfully negotiated, will ease the taxation burden of Indian technology workers in the United States. These workers pay Social Security taxes (our national retirement system), yet can never earn enough credits under their visa tenure to receive benefits. A Totalisation Agreement is typically used to offset credits earned under the US retirement system with credits from a worker’s home system. Because India does not have what the US considers an equivalent system, we have thus far been unwilling to enter into negotiations for a solution. It is important that this issue has been highlighted by our respective leaders.

The Joint Statement and other accompanying documents touch on numerous other critical issues. These include climate change, intellectual property rights, infrastructure investment, and much more. While some of these issues do not have specific actions tied to them from this visit, the fact we were able to work out tangible paths forward for civilian nuclear trade and defence co-development should give us all confidence that we are entering an exciting phase of our relationship where both sides are deeply committed to producing tangible results.

One important aspect to this deepening of our strategic partnership is that it will now be much easier to manage minor obstacles that arise, particularly on the economic front. As noted earlier, when our strategic relationship lacked direction, small hurdles became major obstacles. Negativity began to dominate the discourse. Now that we have a long-term vision and a broader range of areas in which we are cooperating, it will be far easier to raise and resolve disputes. And small disputes will no longer be the lead point in discussions between our leaders.

The trick is to make sure the flash of movement we have seen in the last eight months is sustained over a long period of time. The US-India relationship is still relatively new, and suffers greatly when leaders do not pay sufficient attention to its maintenance and growth. The next potential obstacle is the US Presidential election in November 2016. While Americans like to say that support for a stronger partnership with India is a bipartisan affair, it is also shaped to a large extent by personalities. The business community and Indian-American community must both work to shape candidates’ views of India so that they can avoid making anti-India statements on issues such as immigration and cross-border trade in information technology services. And the winning candidate must come to office prepared to pick up the existing agenda and look for ways to support the relationship, both in strategic and economic terms.

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Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

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