In India, Secretary Locke Notes Trade Opportunities, Obstacles

By February 7, 2011Taxation, Trade

Secretary of Commerce Gary Locke gave the keynote speech today at an event sponsored by the Confederation of Indian Industry (CII) in New Delhi, one of the events on a trade and business mission he is leading through India this week. Twenty-four U.S. businesses are represented on the trip, including several manufacturers.

The Commerce Department is blogging the trip. Key excerpt from the secretary’s speech:

Between 2004 and 2008, trade doubled between India and the United States. 

And ours is increasingly a partnership of equals. . .

. . . With major U.S. multinationals like Cisco, GE and IBM locating major research and development facilities here, and depending on Indian scientists and engineers to do growing amounts of higher value-added work.

I think the growing respect that U.S. businesses have for India can be summed up by the words of a Cisco executive who said:

We came to India for the costs, we stayed for the quality and we’re now investing for innovation.

Key caveat:

Even though India has made tremendous strides to open up its economy, there is much work left to be done.

While many tariffs have come down, others remain, ranging from 19 percent levies on civil aviation aircraft and 30 percent on pistachios to 26 percent on X-ray film and 50 percent on apples.   

When there are not outright tariffs, there are other non-tariff barriers that limit trade and investment including:

  • Mandatory technology transfer requirements  for telecom equipment;
  • Limits on foreign direct investment in key sectors; and
  • Inadequate protection of intellectual property rights.

These measures explain why India is still ranked only 134 out of 183 countries on the World Bank’s Ease of Doing Business Report.

The United States ranks five according to the World Bank report.

The Indians have their own gripes, naturally, including objections from the CII about the financing of last year’s James Zadroga 9/11 Health Care and Compensation Act. Here’s the latest news from IndianExpress.com:

India is contemplating to move the World Trade Organisation (WTO) against a US health and compensation Act, which levies a two per cent tax on all goods and services procured by the US from countries not party to an international procurement agreement with it.

The James Zadroga 9/11 Health and Compensation Act of 2010, signed by US president Barack Obama on January 2, 2011, is seen to violate the very premise of the WTO which calls for Most Favoured Nation (MFN) and national treatment obligation to countries which are a part of the world trade body.

“The 2 per cent levy on goods and services is going to hurt India because we are a marginal player in the US procurement. Hardly one per cent of India’s total export (as per the latest figures available) forms part of the US procurement and the new levy will lead to loss of opportunities for India vis-à-vis countries which are in the WTO government procurement agreement (GPA) with the US,” the sources said.

The Confederation of Indian Industry to which Secretary Locke spoke today is one of sharpest critics of the new financing mechanism.

UPDATE (11:40 a.m.): The CII has a statement at its website, “US supports permanent seat for India at the UN Security Council.”

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