Global Economies

The successive visits of French President Hollande and UK Prime Minister Cameron to India this month can be viewed from different angles. Both countries clearly attach increasing importance to the India relationship. Opportunities in India are considerable even now despite the current economic slowdown, and will grow vastly as India continues to rise. Interest in India is also part of the wider reality of economic power shifting steadily towards Asia, with France and the UK, therefore, needing to retain and expand their share of a market that is fostering linkages eastwards. UK’s share of the Indian market has dropped to 2 1/2 % from 10% at one time because they have admittedly not been pro-active enough. The fact that Europe is in crisis and the French and British economies are in trouble explains also the enhanced attention to India.

For India too, relations with France and the UK are of major importance bilaterally and within the framework of our relations with Europe, which remains India’s largest trade and investment partner. The Eurozone crisis has impacted more on the Indian economy than the US financial crisis. France and the UK as the fifth and sixth largest economies in the world with advanced technologies to offer are very valuable partners for India. We are appealing to both to ensure a “fair, balanced and forward looking” India-EU Trade and Investment FTA.

Both leaders were accompanied by large business delegations, 45 with Hollande and over 100 with Cameron- the largest delegation to leave UK’s shores. The target of doubling bilateral trade with France set up in 2008 (Euros 12 billion by 2012) has not been met. That set up with Britain in 2010 (Pounds 24 billion by 2015) is not likely to be met either given present conditions.

On the investment side, the UK is well ahead of France, with Cameron pointing out that 50% of Indian investment in Europe was in the UK and the latter was the biggest European investor in India. He promised to remove barriers to Indian investment in the UK further, asking in return that India remove its barriers too, especially for British legal, accountancy, architecture and other services.

India wants investment for upgrading its infrastructure. Hollande laid stress on cooperation in sustainable urban planning, including infrastructure, transport, water, waste management as well as railways. The UK has shown interest in the Bangalore-Mumbai industrial corridor, but the joint statement on this is couched in very tentative language, with the leaders agreeing “to examine and evolve the modalities and content of a feasibility study of this project concept through mutual discussions and to work out a roadmap for a possible partnership in this area”. British participation in India’s National Manufacturing and Investment Zones has been mooted. This, it is felt, would attract British SMEs to India. A lot of focus during Cameron’s visit was actually on potential opportunities for them.

Cameron singled out health care and education as highly promising areas. In education, the especially strong India-UK relations have been impacted by changes in the UK visa regime. However, Cameron has indicated these will be reversed- there will be no limit on visas and graduate jobs, he said. He has promised the same day visa service to Indian businessmen. France is far behind in education, but is keen to expand student exchanges through an ambitious education plan, including twinning of higher education institutions, mutual recognition of degrees, exchange of doctoral students, along with an enabling agreement on “people mobility and migration”.

Second, there is the advanced technology angle. France, unlike the UK, is a privileged partner for cooperation in nuclear energy with India. The agreement on the Jaitapur nuclear power project could not be signed during Hollande’s visit but the commitment of both sides to its early implementation “as soon as the commercial and technical negotiations, which have made good progress, are completed” was reiterated. India and the UK have now decided to open talks for a civil nuclear cooperation agreement. In space, cooperation with France has been longstanding and an agreement to launch a jointly developed satellite was announced during Hollande’s visit, but this area is absent from the gamut of India-UK ties. India concerns about easier access to hi-technology were addressed by Hollande by the signature of several memorandums of understanding between institutions to broaden the scope and depth of future engagements in science, technology and innovation. Cameron too stated UK’s commitment to make available to India the cutting edge British technologies, civil and military, that the UK currently shares with its top international partners, but in accordance with “international obligations”. Cameron supports greater cooperation betwen DRDO and the UK Defence Science and Technology Laboratory. Both Hollande and Cameron supported India’s membership of the NSG. MTCR, Australia Group and Wassenar Arrangement, the four non-proliferation and technology control regimes.

Third, there is the defence angle. Both France and the UK have been longstanding defence partners of India, but France has a record untainted by participation in sanctions. Cameron has expressed his disappointment publicly at losing the contract for the Medium Multi-role Combat Aircraft (MMRCA) to France. During Hollande’s visit it was noted that “the projects for the Scorpene submarine and upgrade of the Mirage 2000 are moving forward and steps are being taken for early finalization of the Short Range Surface to air Missile project. Both sides noted the progress of ongoing negotiations on the MMRCA programme and look forward to their conclusion.” This should dampen speculation that the Eurofighter might re-enter the fray if the negotiations with Dassault run into difficulty. The Augusta-Westland controversy cast its inevitable shadow on the Cameron visit.

Afghanistan, Iran and Syria figured in discussions, as well as enhanced counter-terrorism and cyber-security cooperation. Both leaders called for an expeditious trial of those responsible for the Mumbai terrorist attacks. Both reiterated support for India’s United Nations Security Council permanent membership.

The recent tendency in India to belittle the importance of Europe in our external ties is ill-considered and ill-informed, suggesting a discomforting hubris on the part of some of our opinion-makers.

“China, the Abnormal Power,” by Yukon Huang. Carnegie Endowment for International Peace. March 5.

"A Russian 'Frenemy'," by Leon Aron. Los Angeles Times. March 5.

"Obama's Nuclear Future: The Battle to Reduce the U.S. Nuclear Stockpile Begins," Foreign Affairs, March 6.

“China navy seeks to 'wear out' Japanese ships in disputed waters,” Reuters. March 6.

"Holder says Obama plans to explain drone policy," The Washington Post. March 6.

“North Korea Warns of Pre-emptive Nuclear Attack,” The New York Times. March 7.

"U.N. Security Council approves new sanctions against North Korea," The Washington Post. March 7.

Follow EWI on Twitter @EWInstitute for continuing news updates.

Zafar Adeel, director of the United Nations University, Institute for Water, Environment and Health, moderated a distinguished panel of experts who helped identify and address global action points for water dialogue and partnerships.

“The time for silo thinking is over,” Ursula Schaeffer-Preuss, chair of the Global Water Partnership, said in her remarks which focused on sustainable approaches. She urged nations to think outside of the traditional ways of tackling water management issues. “This is a global issue that cannot be addressed from one vantage point.”

Olcay Ünver, coordinator of the United Nations World Water Assessment Programme of the UN-Water and director of the UNESCO Programme Office on Global Water Assessment, echoed that sentiment. “Many of the challenges to water security and management come from other sectors and water managers are seldom consulted when dealing with these challenges,” said Ünver.

“Water must become part of the equation,” he continued, stressing that water impacts a huge number of issues in any nation—including public health, jobs, energy, food, sustainability and many women’s issues.

Sanjay Pahuja, senior water resources specialist at the World Bank, stressed the importance of education as key to water cooperation, illustrating his point with an example of Indian farmers, who moderated their own water use after learning pertinent elements of hydrogeology.

“Let the farmers be the scientists,” Pahuja stated, as he elaborated on this bottom-up approach.

Panelists address the crowd at the UN.

He explained further that these farmers did not have much formal education, yet they were able to develop a proficiency that increased their profits and positively impacted their standard of living. “This is how we can alter the course of people’s lives,” Pahuja added.

An additional panelist, Christian Holmes, USAID’s Global Water coordinator, stressed the importance of data exchange as a key catalyst to change. “Bilateral and regional development provide replicable opportunities,” he said.

EWI President John Mroz emphasized that water is key to nation building and that nations must act on it. “We are all aware of this. Now, it’s no longer enough to name the ball, now we have to move the ball down the playing field,” he urged event participants.

The International Year of Water Cooperation is intended to unify all efforts, both undertaken and planned by the UN system, other international and regional organizations, governments, civil society and entrepreneurs, in order to increase people's awareness of freshwater-related problems and ways to resolve them. This follows the 2012 UNGA adopted resolution (A/Res/67/204) on the implementation of the IYWC through convening a series of global high-level events.

Focusing on studies of Egypt and Tunisia, this project has resulted in this new report, which argues that MENA countries already face disproportionate future challenges from and constraints on growth due to energy and water pressures, vulnerability to volatile international food prices, and climate impacts on critical industries.

Click here to download the E3G report Underpinning the MENA Transition: Delivering Climate, Energy and Resource Security.

According to E3G, climate challenges, population growth, and industrialization will result in a growing scarcity of water. Food prices are also expected to increase dramatically, contributing to economic shocks in the region. Developed countries have a strategic interest in successful democratic transitions but current support pledged to the region does not address the critical economic and resource challenges.

The report suggests that “external support for energy and resource investment should ‘stress test’ the value of long lived infrastructure against future resource and climate change scenarios to ensure their economic value is resilient in the medium term.” It goes on to recommend that donor countries and regional partners work together to focus on four strategic priorities: improving resilience to shocks, economic diversification into resource efficient industries, building resilient infrastructure, and focusing support on a few high-impact stability and development objectives.

EWI was pleased to work with E3G in holding workshops in Berlin, New York, Washington D.C., and Brussels with policymakers and relevant experts from the public and private sector for roundtable discussions on the issue. We are particularly grateful to Planet Heritage for funding the project and to the Embassy of Switzerland in Washington, D.C., for hosting the roundtable there.

“As the global community is facing unprecedented challenges, we need to begin to marshal expertise in new ways and make sure it has the necessary influence,” said Austin. “EWI is perfectly situated to do that by working with leading figures from around the world on these critical issues.”

EWI Chairman Ross Perot, Jr. welcomed the appointment and the return of Austin to the EWI staff. He noted: “Few experts out there are as practical yet visionary as Greg. His new unit brings a long-needed focus to better using our global network to promote solutions to seemingly intractable problems that threaten peace, stability and the ability of nations to grow their economies and create jobs for their people. We are excited to see the impact that the Policy Innovation Unit will bring.”

Prior to his current position at EWI, Austin served for five years as a vice president of the institute. He is also a senior visiting fellow in the department of War Studies at King’s College London. Prior to joining EWI, Austin served as director of research at the Foreign Policy Center in London (2004-2006) and as a consultant to the UK Cabinet Office and four other government departments (2003-2004). He was the Asia program director, then director of research at the International Crisis Group (2000-2002). He is the author, co-author and editor of several books on China’s strategic policy. He has a doctorate in International Relations and master’s degree in International Law. He is currently writing a book on China’s cyber policies for publication later this year.

Among more than 400 participants of this year’s Munich Security Conference there are 11 heads of states or governments, 43 foreign ministers and 20 defense ministers. Has this high concentration of global decision-makers brought any good?

At a conference such as this one in Munich, which is the biggest security conference in the world, the most important thing is to capture the general sense of how good or bad the current situation is. Last year it was genuinely depressing, people were not enthusiastic – today it’s much better, although they are not naively positive either. The world is doing much better than one year ago.

But now we have wars – in Syria, Mali…

There will always be wars, and although what’s going on in Mali is terrible, a collapse of the Eurozone would have been something totally different. People are now much more optimistic and eager to cooperate. It’s true that the UN Security Council can’t take action on Syria, but the real concerns are elsewhere. I led a debate on cybersecurity in which we all agreed that the threats are higher than one year ago. In some areas the situation is worse, but if we take everything into account, the overall environment is much better, especially in Europe.

If we stay on Syria and Iran for a moment – how should we observe the Russian foreign minister’s meeting with Syrian opposition leaders?

Lavrov’s meeting with the opposition is a dramatic move, yet what is even more dramatic is that the opposition leader also met with the Iranian foreign minister. It’s exactly why these conferences are important – a lot is going on in the background, leaders meet day and night.

U.S. Vice President Joe Biden said in Munich that international politics can get personal. Do you see any shifts in the U.S. foreign policy as President Obama begins his second term?

Vice President Biden was careful not to announce anything big before President Obama outlines his big foreign policy plans for next four years in his State of the Union address. There are some hints, though – climate change will certainly be one big theme of Obama’s second term.

Another important topic at the Munich conference was the new technologies of shale oil and gas extraction. As America ends its reliance on imported fossil fuels, and even becomes a major exporter, how will all this change international relations?

Many countries will be affected – Russia will bear strong consequences. Russia has so far influenced the prices with its long-term contracts, but its global economic position is about to change dramatically. Nobody knows how this is going to look like in the end, but the situation is going to be much, much different.

How about China?

Chinese leadership is under intense domestic pressure; there’s widespread corruption, a huge emerging middle class that demands clear air and clean water, millions of people still living in poverty. They are facing very difficult challenges – Chinese leaders have their hands full.

At the conference you led a discussion on fighting crime or even war in cyberspace, just as the leading U.S. newspapers accused China for launching cyber attacks as retaliation for their reports on the Chinese prime minister’s family fortune.

Yes, the Washington Post, New York Times and Wall Street Journal all complained about the attacks. There’s a lot going on on the Internet, but cyber crime is still the greatest challenge. It all starts with individuals – how smart we are with our passwords; how often do we change them, how complex they are;do we use one password multiple times. If we go further to companies, organizations and governments, there’s no cyber warfare, but a lot of industrial espionage going on, not just by Russians and Chinese. Democratic countries are in the game, too: Israelis, French, we Americans. But it all gets back to individuals – your computer gets infected with a virus and, while you go to the kitchen for a cup of coffee, for example, the organized criminals take control over your computer; this trend is really dangerous.

Your organization, the EastWest Institute, aims to build trust and solve problems in international relations. Are you succeeding?

Building trust is about dealing with other human beings. If you need somebody, you automatically want to trust that person. If it is somebody from a different culture, religion or ethnic group, acquiring trust takes a little bit longer. If there is bad experience involved, then building trust takes even more effort. Trust-building is a long process that doesn’t depend just on a presumption that you are a good person and therefore I want to trust you. Building trust is a two way street, where we have to work together. In cybersecurity we work in this way with the Chinese on spam. Two thirds of all emails are spam, large number carry viruses, so we are delivering global standards to fight spam.

What are your other projects?

A lot of them deal with water and food security, on the issue of water in Africa, we worked together with the French G20 presidency. Climate change has dramatic impact on water resources, threatening wars and mass migration of people. We deal with this in Central Asia as well, in the Amu Darya basin, which involves 5 countries, including Afghanistan. Once there were rumors of war, now they work together on better management of river flow, etc. The same process is going on between Egypt and Ethiopia. In very practical terms, we did in the Amu Darya basin what we used to do in the Balkans: we brought together people that can help and we focused on practical issues of deforestation and erosion of river basins. These are small things, but it is how you build trust and change people’s mindsets. It’s a hard work that you can’t do at a conference, but somebody has to do it.

Clear air and clean water have impact on clean environment. What about fracking, which wall also talked about? Many Europeans reject the idea, because of strong chemicals involved.

There are arguments for and against. In my country, the U.S., the level of pollution went down to 1982 figures, almost exclusively because we replaced coal with gas. Gas has side effects as well, but nothing compared to coal. Imagine, therefore, if China could replace a third of their coal based power plants with gas. The biggest problem is water, because fracking requires a lot of water mixed with chemicals. In five years, new technologies will emerge that will require smaller amounts of water and no chemicals at all, which will make shale oil and gas extraction environmentally friendly. Shale fossil fuel resources are not found just in America, but China, Ukraine, Poland, Argentina, Brazil and Chile. This is a game-changer.

Years ago, you used to work in Western Balkans. What would you say about the border dispute between Slovenia and Croatia?

The EastWest Institute goes where the situation is toughest, where there is an imminent threat of war: there’s nothing like that between Slovenia and Croatia. A lot depends on the political will, but also on the people, that must say: “That’s enough!” Just when I look at the European economy, and then look at the issue of Cyprus, I think: how ridiculous is that! Let’s resolve this and focus of economic growth.

For Slovenians, however, the access to international waters is a very important issue.

That is something else, that is part of history and should be addressed. I believe that the people should be more vocal in demanding that these open issues should be resolved. However, it is true that nationalism is growing nowadays. Everywhere – in Japan, Korea, China, as well as in Europe. It’s one of the effects of globalization, people are more nationalistic, which makes the problems, like the border one that you mentioned, harder to resolve.

Are you afraid of new currency wars?

No, people might be more nationalistic but they are not mindless to shoot themselves in the foot. I don’t think it will come to that. Many people around the world are aware of everything that Europeans had to undertake. Faced with the crisi, they understood the difficult decisions that had to be made; even in Greece the level of unrest was not that high.

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Return to EWI Now. 

What went wrong? Predictably, the two sides blame each other. But, without a doubt, the trigger for the now seemingly endless exchange of mutual recriminations and tit-for-tat punitive measures were two key events: the U.S. Congress’s passage of the Magnitsky Act, despite efforts by the administration to prevent such an outcome, and Putin’s continued crackdown on dissent at home.

All of which is already making people forget that the reset was far from a complete failure. The policy was effective in improving the tone of discourse and widening the areas on which U.S. and Russian policymakers met and talked regularly, especially through the mechanism of the Bilateral Presidential Commission (BPC). Both the United States and Russia could point to some significant accomplishments. Obama got New START, cooperation on Afghanistan, and initial if fleeting cooperation on Iran. Russia got its long sought-after WTO accession, graduation from Jackson-Vanik, the 123 agreement on civil nuclear cooperation, and the foreign policy attention that it thought it deserved.

The price the U.S. Congress imposed for graduating Russia from Jackson-Vanik and granting permanent normal trade relations was the Magnitsky Act. The Russian Duma responded with the Dima Yakovlev Act, which barred the adoption of Russian children by U.S. citizens. The linkage by the U.S. Congress of the economic relationship to human rights was, for some, “weird,” as U.S. Ambassador Michael McFaul described it. It was not, however, unprecedented as the Jackson-Vanik amendment made the same linkage.

But linking the fate of Russian children stuck in orphanages to the overall bilateral relationship was a new twist, which critics claimed was unusually cruel. The Yakovlev Act is named after a Russian child adopted by American parents and forgotten in a car for hours—an absolute tragedy. But the parents in this case, and the parents in the other cases where adopted Russian children have been abused and mistreated, were not government officials. Many Russian protesters charge that the Yakovlev Act is a desperate and cynical ploy, as were Foreign Minister Sergei Lavrov’s tweets about child abuse in the United States.

Even before the Magnitsky Act was passed, the Kremlin had extended its domestic crackdown to any groups with foreign ties. NGOs that accept foreign funding are now required to register as foreign agents, a loaded term in Russia; USAID was expelled from Russia; and the International Republican Institute and National Democratic Institute are moving their staffs out as well. In utter frustration at the fragile state of civil rights and liberties in Russia, the United States recently pulled out of the Civil Society Working Group of the BPC.

The policy repercussions of the weakening bilateral relationship have extended beyond the human rights sphere: Russia recently declined to renew Nunn-Lugar and halted some counternarcotics cooperation governed by a 2002 agreement (although other avenues of counternarcotics cooperation, especially in regard to Afghanistan, are ongoing).

There still are areas where both sides can continue cooperative efforts. Arms control, nonproliferation, narcotrafficking, and expanding bilateral economic ties are all areas where there was good cooperation in the first term and overlapping interests going forward. But in Washington, the view that Russia is simply not serious about being constructive in the international arena seems to be gaining more traction and policymakers are finding it impossible to overlook Russia’s domestic politics.

If Russia continues respond to U.S. “meddling” in Russian domestic affairs by targeting NGOs, opposition leaders and orphans, it is hard to see how the relationship can return to the effective working relationship of Obama’s first term. At that time, Washington and Moscow agreed to effectively disagree on some issues while pursuing cooperative policies on others where their interests coincided. But Putin may not want to return to the same level of cooperation. The United States’ policy responses have become a convenient rallying cry for trying to build support for continued tough measures against domestic opposition forces, invoking the classic claim that Russia must defend itself against its external enemies.

Four years ago, the reset was supposed to ensure that Russia returned to what it saw as its rightful place as a key concern of U.S. foreign policy. Today, the domestic circumstances in Russia have changed significantly and so has the mood in Washington. Neither Russia nor the United States looks either willing or able to invest in a vigorous bilateral relationship at the official level.

EWI Board Member Tewodros Ashenafi—Chairman and CEO of Southwest Energy, the first Ethiopian oil and gas exploration company—maintained that the “emerging resource bonanza” will transform the region dramatically. "The gas that is being discovered in Mozambique is really awe-inspiring,” he declared. “It has the opportunity to be the next Qatar."

In addition to the potential dividends for corporations and governments, Ashenafi pointed out that the regional cooperation needed to fully make use of oil fields and gas deposits would provide an opportunity for a “prosper-thy-neighbor instead of beggar-thy-neighbor approach.”

But the region still faces major challenges, which could impede development. Raymond Gilpin, director of the United States Institute of Peace’s Center for Sustainable Economies, cautioned that some projections about the time required to get new projects going may be too optimistic due to security and political obstacles. Many of the deposits “just happen to be in contested areas,” he noted. “You only prosper thy neighbor if you work with your neighbor.”

Unresolved territorial disputes have often stalled oil production in East Africa. For example, the oil fields in newly-established South Sudan were a major point of contention following its secession from Sudan in 2011.

An additional obstacle: many resource-rich countries in the region lack basic infrastructure, like pipelines and refineries for oil production. Cross-border collaboration could reduce costs for all stakeholders. The construction of secure pipelines would allow landlocked oil-producing countries like Uganda, for example, to export oil to Indian Ocean ports via Kenya.

Gilpin agreed that recent and future energy discoveries in the region could provide a “fiscal boon for African countries.” However, he also spoke of the “need to manage expectations.” The potential was significant, he continued, “but not like Saudi Arabia.”

Jon Clifton, a partner at Gallup Government Group, presented data on East African countries taken from the Gallup World Poll, a survey of local opinion on a number of issues, including corruption , well-being and how safe average citizens feel walking the streets. He also stressed the need to manage expectations, pointing out that public sentiment needs to be carefully monitored along with traditional metrics like GDP. A nation’s rising GDP, Clifton noted, “doesn’t mean that their well-being will rise in tandem.”

Abdeta Beyene, the former director general of African Affairs at the Ethiopian Ministry of Foreign Affairs, concurred that “East Africa is a resource-rich opportunity.” One of the most important facts to consider in looking at the potential of these discoveries, he noted, is that “the Horn of Africa is changing in terms of security.” Security remains a serious concern, but the panelists agreed that recent more positive trends are still often not recognized by outsiders. While Chinese companies haven’t hesitated to rush into the region to exploit the new opportunities, many Western companies are still vacillating.

Providing security concerns are addressed, oil and gas revenue could enable governments to develop domestic infrastructure—roads, schools, hospitals, sewage systems—promoting sustainable employment in rural areas and improving access to quality healthcare.

In order for these resources to be utilized in a beneficial manner, the panelists argued that there is an urgent need to develop the appropriate training and infrastructure, effective private-public partnerships, and for governments to adhere to existing international standards.

Ashenafi rejected that notion that a so-called “resource curse” may threaten East Africa. “I don’t think oil is a curse,” he said. “It’s like a knife: it depends what you do with it. It’s how these resources are organized.”

Click here to read this article in The Telegraph.

Looking ahead, what could President Barack Obama’s second term mean for relations between India and the United States of America? Will the relationship stay more or less at the level that it has already reached or will it see a surge in the years ahead? Can it begin to wane?

There is no reason for the relationship to wilt, even if it has not lived up to its promise in the eyes of some Americans. India’s nuclear liability law and the ouster of US suppliers from the 126 fighter aircraft deal are cited as evidence. The other areas of disappointment are the lack of convergence in views on developments in the Gulf and West Asia, India’s reluctance to accept burden-sharing in upholding the international order as it is obliged to do by its rising global status, as well as its inadequate bureaucratic expertise and capacity to deal with the expanded scope of the India-US engagement.

A less transactional assessment of the state of relations would highlight the great shift in Indian perceptions about relations with the US—from strategic distrust to strategic cooperation. This is best manifested in the $9 billion worth of defense contracts won by the US in the last seven years, with more to come as India diversifies its sources of supplies, as well as the numerous joint military exercises conducted with strategic objectives in view. Counter-terrorism cooperation is acknowledgedly much better than before, as is the quality of exchange of views on regional and global issues. India-US relations are now stable, with a remarkably rich bilateral agenda whose implementation will occupy both sides in the years ahead.

The chance of any dramatic upswing in relations in the next four years, however, seems unlikely. For one, the economic backdrop is not very favourable. With US economic recovery still sluggish, unemployment high and the debt problem unresolved, Obama will remain preoccupied with the domestic agenda. He is anyway not seen as a ‘foreign policy’ president temperamentally. In India, too, growth rates have fallen and investor sentiment, both domestic and foreign, remains unenthusiastic in spite of some reform measures by the government. Regulatory, taxation, environmental, land acquisition, and implementational issues in general remain to be addressed. With growth rates high, market sentiment buoyant and optimism in the air, countries can deal with each other in a more positive spirit than when they are preoccupied with protecting their own interests first — and those of others become even more secondary.

This means that on issues of concern to us relating to the hike in visa fees and the denial of visas to our information technology professionals, making US companies which outsource work ineligible for federal government grants and loans and the totalization agreement that would address the problem of Indian professionals in the US having to compulsorily contribute to social security, the US, already unresponsive, is unlikely to give us satisfaction. Apart from the populism of opposing outsourcing at a time of high domestic unemployment, Obama seems to have an ideological bias against the transfer of jobs abroad even if that improves the competitiveness of US firms.

India-US economic ties are not as dynamic as some may suppose. In the last three to four years our negotiators feel that we have not been able to secure any tangible concessions from the US for our merchandize and services exports. The Trade Policy Forum has not met for two years, although it should do so in a couple of months. The US has dropped to third place as our trading partner, down from 17 per cent to a 10 per cent share of our trade. Investment levels are also low. The US Consumer Protection Act, the extension of the US Foreign Account Tax Compliance Act of 2009 to foreign companies currently under Congressional consideration, the foreign manufacturers liability bill, the ‘Buy America’ campaign and so on are all potential hurdles for building a stronger trade partnership with the US.

Some US trade initiatives would need to be watched closely for their impact on India. The Trans-Pacific Partnership that the US is promoting does not include India, or, for that matter, China and Japan. India’s focus is on the East Asia-centred Regional Comprehensive Economic Partnership. The contemplated trans-Atlantic free trade area between the US and Europe, if established, will affect Indian interests. Bilaterally, regulatory issues on our side need resolution for allowing trade in US agricultural products. In the education sector there are complementarities but legislation on foreign universities operating in India is languishing in Parliament. The stipulation of local content in the solar power and telecommunications sectors has raised US objections. Internet governance is a contentious issue ahead. Our energy dialogue continues, with India hoping to obtain exemption for importing liquefied natural gas from the US. If that happens on a significant scale, it can change India’s energy equations and concomitant strategic calculations. The ambitious goal ahead is to finalize a bilateral investment treaty with the US, the prominent sticking issues being US demands on intellectual property rights (India is on the US watchlist on IPRs), environmental and labour issues and pre-establishment rules. In our strategy, an India-US FTA, for which we discern no appetite in the US as of now, should follow the BIT. All said and done, in spite of issues, it is well to keep in mind that our economic cooperation with the US generally builds our strategic capacities whereas that with China erodes them.

The US envisages a key Indian role in its pivot towards Asia, but we are not clear about its scope given the complex texture of trade and financial interdependence between the US and China. Moreover, the US financial downturn will inevitably lead to a reduction of the country’s defence budgets, whereas any credible pivot will require enhanced US military presence in Asia with a concomitant increase in defence outlays. Obama’s domestic priorities could also over-ride any robust Asia pivot. India is already distancing itself from the pivot by the notable friendly discourse towards China by the foreign minister, Salman Khurshid. During the Australian foreign minister’s recent visit, both countries poured cold water on the idea of a trilateral India-Australia-Japan dialogue, not to mention any quadrilateral dialogue involving the US in addition.

The contours of Obama’s policy towards Afghanistan turning on the accelerated and effectively complete withdrawal of troops, the offer of a share in power to the Taliban, the use of Pakistan as a facilitator — entailing greater deference to its ambitions in Afghanistan — are all causing concern in India. India could be pushed into an opposing axis in Afghanistan. India and the US will need, therefore, to reconcile their respective visions of Afghanistan’s future in the period ahead. Pakistan’s renewed agressiveness towards India is complicating the situation further.

There are some question marks in New Delhi about the new team in Washington, especially with regard to the naming of the senator, John Kerry, as secretary of state because of his perceived softness towards Pakistan and the expected departure of some India-friendly state department officials. The changes in the Pentagon and the Central Intelligence Agency, however, are not causing any particular unease. How much attention Obama pays personally to the India-relationship, which is fundamentally on track, is open to question too.

All in all, therefore, India and the US will neither enter into an embrace nor disengage; they will continue to shake friendly hands as Obama’s second term unfolds.