x Abu Dhabi, UAEMonday 24 July 2017

Obama's chance to build bridges

The US President embarks on a major trip to India next week with an entourage of business leaders eager to woo the growing economic powerhouse and restore harmonious trade relations between the two countries after a bumpy few months.

The US President Barack Obama's tour to India begins with a business summit organised by the US-India Business Council that will be attended by top managers from about 250 US companies.
The US President Barack Obama's tour to India begins with a business summit organised by the US-India Business Council that will be attended by top managers from about 250 US companies.

When the US President Barack Obama introduced a tax code in May last year ending years of incentives for multinational firms shipping jobs oversees, it sent shock waves through outsourcing giants in India.

"It's a tax code that says if you create a job in Bangalore, India, you create one in Buffalo, New York," Mr Obama said.

His comments were dismissed in India as a populist measure to appease a local constituency in a tough economy. The move, observers warned at the time, threatened to sour Indo-US trade relations.

Mr Obama arrives in Mumbai next weekend with an entirely different mandate: to explore synergies of growth with this rapidly expanding Asian powerhouse to meet its ambitious exports target amid a sluggish US economy.

Shepherding the largest-ever delegation of US businessmen on an overseas tour, Mr Obama will be the first US president to begin his India visit in the commercial capital. It is, experts say, a tacit admission of India's growing importance as an expanding consumer market for US companies.

Trade between the two nations rose to about US$50 billion (Dh183.65bn) in recent years from just $5bn two decades ago.

But despite India's impressive economic ascent, the relationship is overshadowed by the $296bn trade between the US and China. India is only America's 14th biggest trading partner but observers say there is immense untapped potential.

Mr Obama's tour is expected to begin with a business summit organised by the US-India Business Council that will be attended by top managers from about 250 US companies, many of them Fortune 500 companies.

The White House announced on Monday that Mr Obama would hold meetings with business leaders of US corporations such as Honeywell's David Cote and General Electric's (GE) Jeffrey Immelt - all trying to tap into India's burgeoning consumer market.

"The fact that the president has agreed to address this business summit demonstrates the priority this administration places on … cultivating deeper commercial ties with India, the world's largest free-market economy," said Ron Somers, the president of the council.

The trade body is based in Washington and represents more than 300 top US companies investing in India.

As India gears up to spend billions of dollars on upgrading its military arsenal, the US companies Boeing and Lockheed Martin are aggressively competing with Russian, European and Israeli companies for lucrative defence contracts.

KPMG, a leading audit and consulting company, ranks India as the world's ninth largest military spender. More than half of its defence equipment is in need of "urgent upgrade". India has bought US military hardware worth $10bn in the past two years.

"Several US companies are competing to supply defence equipment to India," KPMG said in a recent report.

Of the latest national budget of $32bn, $13bn is for acquiring modern armament and services. Between March 2008 and this month, Boeing, Lockheed Martin and GE Aviation had won at least 42 per cent of military contracts in India worth about $8.78bn.

But experts point out defence trade can only be further boosted if the US lifts its export controls on dual-use technologies, which has both military and civil applications.

The restrictions deny India technology that falls into the category of non-proliferation and were imposed after India detonated a nuclear bomb in a 1998 test.

"We are keenly looking forward to a significant relaxation in the US export control regime for dual use technologies," Amit Mitra, the secretary general of the Federation of Indian Chambers of Commerce and Industry, said recently.

US firms such as GE and Westinghouse Electric, a subsidiary of Japan's Toshiba, are also interested in nuclear trade projects worth $10bn after the Indo-US nuclear deal was formalised in 2008. But the companies are believed to be put off by a nuclear liability law approved by the Indian parliament in August.

"US firms will likely be very reluctant to engage in nuclear trade with India if the government does not adhere to the Convention on Supplementary Compensation for Nuclear Damage (CSC), which has not yet entered into force," the congressional research service, a bipartisan research wing of the US Congress, said in a recent report.

CSC is an international convention on compensation for victims in the event of a nuclear disaster.

India's $60bn information technology sector, which depends on the US market for 70 per cent of its business, is concerned about protectionist measures recently introduced by Mr Obama's administration.

With the aim of protecting its domestic jobs market, Mr Obama last year ended tax breaks for companies that create jobs and profits outside the US.

Last month, the US state of Ohio placed a ban on outsourcing government contracts funded by state money.

And in August, it ordered a steep rise in the cost of some categories of H-1B and L-1 visas, which act as work permits for Indian engineers operating in the US, to fund enhanced security measures at the US-Mexico border.

The move will cost Indian IT companies an additional $200 million every year, according to Anand Sharma, the minister for commerce and industry who calls the measure "regressive".

Mr Somers agrees with that assessment. Mr Obama, he says, needs to woo India more than ever to achieve its target of doubling US exports by 2015. That, Mr Somers adds, will boost the near-zero domestic growth of the US and create millions of badly needed jobs.

"I am very forward-leaning on this issue and I am disappointed by these retrograde signals emanating from the US," Mr Somers says. "We must remain vigilant in both countries to resist tendencies towards protectionism.

"A strong and rising, economically powerful India is a great American opportunity for the creation of jobs at home."

International trade, he points out, accounts for 25 per cent of US GDP and one in five American jobs. He calls the US's latest approach "dangerous" and "damaging to growth".

"One simple example of how a rising India translates into greater prosperity for the US is Mumbai's new airport, which involved US high-end manufacturing and services by some of America's finest firms," Mr Somers says. "The largest petroleum refinery in the world, at Jamnagar, was recently completed by Bechtel.

"Boeing aircraft are filling India's skies, powered by GE and Pratt & Whitney jet engines, helping India maintain a burgeoning civilian airline industry growing at 30 per cent annually. This list goes on and on."

business@thenational.ae


What the US-India Business Council’s expects the US President Barack Obama to accomplish on his three-day India tour next week:
Deals
• Successful conclusion to Indian purchase of 10 Boeing C-17s military transport planes, worth about US$4.5 billion (Dh16.52bn). The sale awaits US congressional approval

• Hopeful sale by Boeing of 30 new 737 aircraft, worth $2.7bn, to private Indian airlines

• Sale by General Electric of fighter jet engines worth $800 million to the Indian air force and a separate $500m sale of heavy-duty gas turbines to India’s Reliance Energy

• Caterpillar’s $50m marine engine deal for the Indian coastguard.

• Building on progress by Cummins and Eaton in producing natural-gas hybrid buses with the Indian vehicle giant Tata Motors to be used in the New Delhi transport system

• Harley-Davidson plans a new plant in India to assemble US-made motorcycle kits. The iconic US motorcycle maker announced in January it would launch 12 models in India this year.

Agreements
• Loosening US export controls and dual-use licensing policies to foster high-tech and defence industry trade between the countries by elevating the bilateral relationship to one of a “true strategic partnership”

• US backing for Indian membership in global nuclear non-proliferation regimes, particularly the Nuclear Suppliers Group; the Missile Technology Control Regime; the Australian Group, which aims to reduce the spread of chemical and biological weapons; and the Wassenaar Arrangement, a multinational effort to control the transfer of conventional arms and dual-use technology

• Revitalised negotiations on a bilateral investment treaty

• Greater collaboration in commercial space and aerospace


* Source US-India Business Council