Obama Drops the Ball on India

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Obama Drops the Ball on India

Indian firms should be a boon for American workers. So why has the administration been dragging its feet on trade deals?

The White House took great pains to brand President Barack Obama’s 2010 visit to India as a jobs trip. At every turn, it seemed, the White House press machine rolled out a new advisor to speak about the president’s efforts to “expand U.S. export opportunities and jobs” for American workers. And Obama himself stated that: “As we look to India today, the United States sees an opportunity to sell our exports in one of the fastest-growing markets in the world. For America, this is a jobs strategy.”

Yet, when it comes to India, the administration is dropping the ball. Although trade between the United States and India has increased, the economic relationship hasn’t yet reached its full potential. To do so, the administration should finalize a mutually beneficial investment treaty with India, and move forward on steps to negotiate a comprehensive Free Trade Agreement. These pacts would link American companies – and American workers – to important opportunities presented by India’s growing economy. In turn, this would lead to new jobs, and further link the United States to a critical Asia-Pacific partner.

To be sure, trade with India is on the upswing. Bilateral trade reached $48 billion in 2010, according to data from the Commerce Department, and the United States has become India’s third largest economic partner. With the exception of the global recession in 2009 and the burst of the dot-com bubble in 2001, total trade between the two countries has increased every year since 1991.

India’s economic transformation has been a boon for American companies and workers. In less than a decade, U.S. exports have quadrupled to $19 billion. While a broad array of American businesses now trade with India, few have benefited more from the relationship than U.S. manufacturers. The Office of the U.S. Trade Representative says that three manufacturing sectors – namely, machinery, electrical machinery, and aircrafts – account for three of the top five export categories to India. In the past two years, for example, India’s low-cost carrier, SpiceJet Airlines, purchased 33 new generation 737s from Boeing; India’s Ministry of Defense bought 10 Boeing C-17 Globemaster III airlifters; and Reliance Power ordered six turbines from General Electric Co. as part of a deal worth $750 million.

Equally important, yet seldom noticed, are the investments that Indian companies are making inside the United States. From 2000 to 2010, India was the United States’ second fastest growing foreign investor, with an annualized growth rate of 53 percent. In 2009 alone, Indian companies invested $4.4 billion into wide-ranging American sectors like pharmaceuticals, oil and coal, iron and steel, and telecommunications.

The tangible results of these investments can be seen across the United States. In Ohio, for example, subsidiaries of TATA, India’s largest company, employ over 1,200 people at diverse production facilities that manufacture steel products in Warren, and develop and deliver software technology in Milford. The same can be said in northeast Minnesota, where in 2008 India’s Essar Steal broke ground on a $1.6 billion steel plant on the state’s Mesabi iron range.

To his credit, Obama’s so-called “pivot” towards the Asia-Pacific acknowledges the region’s vast potential to support American jobs in the 21st century. The president signed into law – after a two and a half years delay – a job-creating free trade agreement with South Korea. The administration is now in discussions with eight Trans-Pacific Partnership countries to finalize language on a regional trade agreement with the goal of “eventually creating a free trade area of the Asia-Pacific.”

However, when it comes to India, one of the world’s most dynamic economies, the administration’s actions fall short. Obama has shown zero interest in pursuing a Free Trade Agreement with India, and other important economic discussions are moving at a snail’s pace.

Meanwhile, global competitors, such as Europe and Japan, have actively pursued strategies to knock down trade barriers with this expanding market. India has already locked a tariff-slashing trade agreement with the Association of Southeast Asian Nations, and has implemented additional economic pacts with Japan, Malaysia, South Korea, and Thailand. New Delhi is expected to conclude an agreement with the European Union, one of its largest trading partners, and is in ongoing talks with Australia and Canada to liberalize commerce in goods, services, and investment. Indian Foreign Secretary Ranjan Mathai recently stated: “The United States is the only advanced economy in the world with which India has not concluded or is pursuing a Comprehensive Economic Partnership Agreement.”

If Obama wants Indian companies such as Essar and TATA to make future investments in the United States, there are important steps the administration must take. First, finalize a Bilateral Investment Treaty, or BIT Treaty, with India. Washington and New Delhi first agreed, in principle, to negotiate a BIT Treaty under the Bush administration in 2008. The proposed pact would provide a predictable investment environment for companies in both countries by expanding legal protections and rights for investors abroad. However, some argue the White House is dragging its feet, despite the fact that the United States has already negotiated investment treaties with 48 other nations.

Members of Congress are increasingly impatient. Senators Mark Warner (D-VA) and John Cornyn (R-TX) co-sponsored a bipartisan letter that urged the administration to “expedite the ongoing discussions about the treaty as part of a proactive engagement strategy that will produce tremendous benefits for American companies and investors, as well as for their Indian counterparts.” The senators – and American companies – realize that failing to move forward with the BIT Treaty will result, at the least, in lost opportunities for U.S. businesses.

Second, begin negotiations on a free-trade agreement. Realistically, election year politics will prevent such a pact from gaining traction in 2012. However, this shouldn’t prevent Obama’s team from moving forward with the concept. The U.S.-India relationship is built on bold initiatives, and expanding opportunities for greater people-to-people contact through a free trade agreement is the next logical step.

But the president’s slow movement on these important trade matters is indicative of an administration that has consistently mishandled – and undervalued – relations with New Delhi. Consider: Obama skipped India on his maiden trip to Asia in 2009; Obama and Chinese Premier Wen Jiabao repeatedly discussed the expanded roll Beijing could play across India’s backyard in South Asia; and last year, President Obama took seven months to nominate a replacement Ambassador to New Delhi. It’s no wonder, as two Washington-based analysts wrote in December, that the U.S.-India relationship “has lost momentum.”

In December, Deputy Secretary of State William Burns said that too often, “rhetoric tends to outpace the reality” when it comes to U.S.-India cooperation. When it comes to expanding trade ties with Asia, the administration is talking a big game.  On India, it’s high time for the administration to step up to the plate.

Patrick Christy is a policy analyst at the Foreign Policy Initiative.