16 June 1999
TEXT: EIZENSTAT SEES SANCTIONS REFORMS AIDING NON-PROLIFERATION
(Waivers are preferable to automatic sanctions, he notes)(2740) Washington -- "We continue to seek comprehensive and permanent national interest waiver authority for all of the Glenn Amendment and related sanctions against India and Pakistan," said Stuart E. Eizenstat, Undersecretary of State for Economic, Agricultural, and Business Affairs, to the U.S.-India Business Council annual conference on June 16. However, Eizenstat said that sanctions would not be lifted on U.S. bilateral assistance and military sales programs and that the U.S. would not recommend to international financial institutions to issue loans to India for projects other than for basic human needs. Because both countries conducted nuclear tests last year, setting off economic and political sanctions against them, the United States will not lift sanctions entirely until it sees "further progress with non-proliferation." "Recent events have led us to conclude that a comprehensive, permanent waiver is strongly preferable to legislating either a suspension of sanctions, or certainly, a return to the mandatory Glenn Amendment regime," Eizenstat said. For the past two years, he said, the Clinton Administration has worked with the U.S. Congress to reform its sanctions policy towards the subcontinent and other places where sanctions have been applied such as Cuba and Libya. Under the Glenn Amendment, there is a "dual use" sanction provision, Eizenstat noted. "The basic choice before us was either to put in place a broad embargo, or to selectively target specific entities and sub entities," he said. The Clinton Administration established the "entities list" to make clear that a wide range of trade could continue with most Indian companies. "The United States has emphasized for many years that there is a link between economic prosperity and regional stability, between open markets and political freedom," said Eizenstat, noting that India can still position itself to attract foreign investment and increase its exports internationally. Eizenstat warned both India and Pakistan not to replicate the U.S. and Soviet nuclear competition or to continue to engage in military conflict over Kashmir. "They should consider the price tag," he said, noting that the money spent on such programs could be used for literacy, health and food. Following is the text of Eizenstat's remarks, as prepared for delivery: (begin text) U.S.-India Business Council Annual Meeting Remarks by Stuart E. Eizenstat Undersecretary of State for Economic, Agricultural, and Business Affairs June 16, 1999 Thank you very much, Dean (O'Hare), for that kind introduction. I am pleased to be here today among so many good friends in the U.S. and Indian business communities to discuss Indo-American relations. Many of you might be expecting me to focus exclusively on the challenges and difficulties of the moment, which are quite serious, given the situation on the ground in Kashmir. And I will indeed begin by updating you on the Administration's stance on what I know is one of your biggest concerns: our sanctions policy in the wake of last May's nuclear tests. Beyond that, however, I want to remind you of President Clinton's long-term vision for U.S. relations with India, and to describe how, albeit necessarily tempered by current realities, it informs our approach even today. SANCTIONS POLICY As all of you know, within days of the nuclear tests last May by both India and Pakistan, the Administration, in consultation with the Congress and as mandated by U.S. law, moved to invoke a wide range of economic and military sanctions against both countries. The Glenn Amendment gave the President virtually no discretion to do otherwise. At the same time, Deputy Secretary Strobe Talbott began an intensive effort to persuade India and Pakistan to take steps to lessen the danger of a nuclear arms race in South Asia and to repair the damage to the global nonproliferation regime. In response to progress in the non-proliferation dialogue and to facilitate further progress, the President invoked the limited, one-year waiver authority provided under the Brownback Amendment that the Congress enacted in October 1998. In November, President Clinton announced his decision to restore Export-Import Bank, OPIC, and TDA programs in Indian and Pakistan, and not to impose restrictions on the activities of U.S. banks. The President also signaled his support for the efforts of the international financial institutions to help avert economic collapse in Pakistan. The current Presidential waiver authority expires this October, and we have now seen several different Congressional proposals dealing with the sanctions issue. We worked closely with Senator Brownback and others last year, and are actively engaged in consultations on the legislative proposals now circulating on the Hill. Until we see further progress on non-proliferation benchmarks, we are not prepared to waive the remaining sanctions -- for example, in the multilateral arena, on non-basic human needs lending to India by the international financial institutions, or on U.S. bilateral assistance and military sales. That said, we continue to seek comprehensive and permanent "national interest" waiver authority for all of the Glenn Amendment and related sanctions against India and Pakistan. Building in this kind of flexibility for American diplomacy to work is a fundamental principle of the overall sanctions reform effort the Administration has been engaged in with the Congress over the past two years. In our view, the case of India and Pakistan is an excellent illustration of why the President ought to have such flexibility. Recent events have led us to conclude that a comprehensive, permanent waiver is strongly preferable to legislating either a suspension of sanctions or, certainly, a return to the mandatory Glenn Amendment regime. Allow me to address one last very important point on sanctions. In implementing the Glenn Amendment, both we and the Congress sailed into uncharted waters. It had never before been triggered. While some of its provisions are quite clear, others are not. This is particularly true of the "dual use" sanction. The basic choice before us was either to put in place a broad embargo, or to selectively target specific entities and subentities. We established the "entities list" to make it clear that a wide range of trade could continue with the great bulk of Indian companies. Again, this effort to appropriately target sanctions and consider their commercial impact is consistent with our overall sanctions reform effort. We recognize that the sanctions in general, and in particular the entities list, has had something of a dampening effect on American business in India. But I want to reassure you that the Clinton Administration understands and accepts the need to support the legitimate interests of the business community in our conduct of foreign policy. THE ROLE OF FOREIGN INVESTMENT AND TRADE You should have no doubt that President Clinton recognizes the importance of India -- economically and politically -- to the future of a stable and prosperous Asia in a stable and prosperous 21st century. We all recognize the role that India has played in the first half century of its independence, and can play to an even greater extent in the decades to come. The United States has emphasized for many years that there is a link between economic prosperity and regional stability, between open markets and political freedom. For India to set an example, in the region and beyond, of these principles at work, what must happen on the economic front? We believe India must and can position itself to attract high rates of foreign investment and greatly increase trade with the rest of the world. We feel strongly that before India and Pakistan decide to replicate the U.S. and Soviet nuclear competition or engage in further military conflict over Kashmir, they should consider the price tag. A recent Brookings Institution study estimates that maintaining the American nuclear capability cost the United States just under $5.5 trillion. Not only does increased military spending deprive India of badly needed funds for literacy, health, and food distribution, it also puts India at a disadvantage in competing with other countries on the global scene. India's fiscal deficit is already stubbornly high, at around 6 percent of GDP. The curve of foreign direct investment in infrastructure, a sector marked unequivocally as a priority by the four governments since 1991, has remained flat in recent years when it should be soaring. Today, the Indian public sector accounts for a quarter of GDP, a third of gross domestic fixed investment, and two-thirds of the workforce in the so-called "organized sector," comprised mostly of large firms. The consolidated public-sector deficit has been about 9 percent of GDP per annum; financing this deficit absorbs more than 70 percent of the assets of the country's banking system, which is itself mostly nationalized and has been in government hands for three decades. What this all suggests is that Indian governments must effectively tackle the most challenging reform yet -- that of the public sector. Eight years after India opened its gates to private and foreign investment in infrastructure, there is progress. But, measured against India's gargantuan needs and the stated goals of successive governments since economic liberalization began in 1991, progress has been mixed and modest. In critical sectors such as power and telecommunications where U.S. firms have so much to offer, ambitious policies to attract private investment have often foundered on policy revision and review, bureaucratic delay, political controversy and other, often unforeseen, costs and complexities. India's economy must break out of the vicious cycle of deteriorated infrastructure, inadequate domestic capital formation, high fiscal deficits, public sector drain on limited capital, and continuing inability to meet infrastructure financing requirements. On the trade front, India's total exports for 1998 were approximately $39 billion, and its GDP was about $430 billion. India's total trade for the past year was about $82 billion. In 1997, U.S.-India trade topped $10 billion for the first time, and actually increased slightly in 1998. Yet to put this good news into perspective, the U.S. trade deficit with China was about $60 billion, more than two-thirds of what India trades with the entire world. It is far from impossible to imagine this changing dramatically over the next several years, if India accepts the challenge of globalization. At present, we must be concerned about the Indian government's current efforts to raise tariffs above their WTO bound levels on over 800 items that were removed from quantitative restrictions under India's new ExIm policy. Such tariff walls will slow the vital process of increasing the global competitiveness of Indian companies across all sectors. It is certainly true that frequent changes of government and related dissolutions of Parliaments mean far fewer opportunities to pass new legislation or legislative changes relating to the economy. It is my understanding that many of the bills pending before the Lok Sabha when it was dissolved related to business, including insurance liberalization, foreign exchange management, and amendments to the Companies Act. Unless legal and administrative reforms are in place, the second stage of reforms cannot begin to be adopted. Also, many of the first-stage reforms are hindered by the lack of changes in the administrative setup and an outdated legal system. We therefore share the hope of those in India's business elite, such as CII and FICCI, that the current "caretaker" government will push the economic liberalization agenda forward by implementing such widely agreed reforms as insurance liberalization through ordinances. INDIA AS EMERGING WORLD LEADER Moving ahead on the economic reform agenda will no doubt unleash a tremendous amount of energy, because India is a nation of talented, hardworking, and visionary people. The whole world is watching and admiring distinguished accomplishments in software development and engineering, high-tech education, and biomedical research. In the area of software development and engineering, we note the growing number of global companies setting up specialized operations in India. In a single recent month, GE Capital and Global Insurer Royal and Sunalliance announced that they would set up subsidiaries in India to do in-house software development. The software business continues to grow rapidly. Today's $2.6 billion in software exports to the United States is projected to triple over the next two to three years. Indian programmers are playing a major role in world efforts to tackle the approaching Y2K problem. Similarly, major companies have set up offices in India to do engineering for projects worldwide. Indian excellence in high-tech education is evidenced by the high-caliber engineering and science training found on the campuses of the Indian Institutes of Technology. Graduates of these institutes work in leading companies around the globe. Another indication of this outstanding level of technical education is the fact that half of the U.S. visas available worldwide for foreign engineers and technicians go to Indians. In biomedical research, Indian and American researchers are allies in the battle against disease. This past year, scientists at the National Institute of Immunology in New Delhi announced the development of a promising new possible vaccine against malaria. Scientists working in New Delhi and Bangalore under the Indo-US vaccine action program developed two new potential vaccines against rotavirus. CONCLUSION Let me now offer some concluding thoughts. India is the preeminent power in the South Asian subcontinent. As such, it commands a corresponding level of thought and care here in the United States. That is why we were working on transforming the U.S.-Indian relationship into a true partnership before the nuclear tests and why we continue to remain engaged and hopeful that we will be able to reach an understanding on non-proliferation issues. The Indo-American partnership of the future offers enormous opportunities, not only for economic cooperation but also for collaboration on global concerns such as promoting greater understanding of democratic values, safeguarding religious and ethnic diversity, battling the scourge of international terrorism, and reversing dangerous trends in population growth, environmental degradation, and the spread of infectious diseases. We can undertake to develop an expanded agenda for cooperation on environmental protection, with particular attention to joint venture opportunities for production and deployment of clean technologies in India and elsewhere. The context is a world market for environmental technologies that is expected to grow to $600 billion by 2010. Just last month, at a conference here in Washington, visiting government officials and industrialists from India met with U.S. counterparts to discuss these opportunities. Laying the foundations for a consensus between India and the United States on meaningful participation in a global climate change regime, our two governments can steer our respective private sectors toward fashioning models for how emissions trading could generate an important source of capital for infrastructure development in India. We can build upon the extraordinary, but little known, record of cooperative science between our two nations. We should pursue a full-bodied agenda of collaborative research, especially in life-threatening diseases such as HIV/AIDS, plant biotechnology, and advanced information technology. In each instance, we could focus upon how the fruits of such cooperation will serve our societies at large, particularly those in need. Finally, and perhaps of greatest importance, we can build on the intellectual, social, and artistic ties that have been developing between the United States and India in recent years. The United States has been the fortunate beneficiary of an extraordinary influx of scientific, engineering, and management talent from India. This growing Indian-American community is making its mark as one of the most productive and patriotic segments of our society. For these good reasons, then -- reasons that have nothing to do with nuclear weapons capability -- India is being increasingly perceived as an emerging world force in the United States. The India of today and tomorrow will be closely identified with the rich works of best-selling authors and the business acumen of CEOs like Sonny Mehta, Rakesh Gangwal, and Amar Bose. India has inspired some of our most popular films and the academic achievements of economists Amartya Sen and Jagdish Bhagwati. These luminaries and others like them along with the dozens of examples of cooperative activities between India and the United States represent indications of what our partnership for the 21st century might look like. The policy of active engagement with India articulated by President Clinton in August 1997, during the 50th anniversary of the establishment of secular democracy in India, remains a worthy blueprint. Both the U.S. government and American private sector companies look forward to resuming full engagement with India in a post-sanctions environment. When India takes steps to reduce the likelihood of an arms race in the region and joins the global community in active support of nonproliferation, the way forward will be clear. (end text)
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