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Indo-US investment treaty first step towards FTA

Financial Express | 2010-11-11

Indo-US investment treaty first step towards FTA

Sarika Malhotra

US-India Business Council president Ron Somers confirms that protectionism will hurt US in the long run. Somers feels that the engagement between India and the US is a two way street and both have to work together to make the opportunity that is India evident to the American public. FE’s Sarika Malhotra spoke to Somers leading the largest US trade and business delegation to any country Excerpts:

What role do you envisage for the USIBC given that the interaction is more about government to government?

I am very happy that the governments of both countries are finally caught up to the businesses relationship and business is leading the way. In 1902 GE that entered India and developed South Asia’s first hydro electric project, Citi Group has been an early entrant as well, both companies have been in India more than a 106 years. Business to business relationship has been the foundation of the relationship between the two countries. The strategic partnership now crowns that very robust people to people business relationship. USIBC is delighted as we have been suggesting from sometime that we are logical partners and we need to formalise that and what we are seeing the governments of both countries formalising that partnership. USIBC is a 35 year old institution, a bilateral business council formed at the request of both the US government and the Indian government in 1975 as they both saw the benefits of encouraging business to business ties. The entrepreneurial DNA that connects the US and Indian entrepreneur is so evident and we are advancing commercial ties between the two democracies. Toady we are 390 member companies and when I joined in 2004 as the president of USIBC we were only 60 member companies. If that’s any indication, then obviously commercial relationship is going robust. And I have to give credit to the visit of Prime Minister Manmohan Singh to Washington in 2005, when the US India Civil Nuclear corporation Agreement was announced between Bush and Singh’s administration that really kick started a whole new level of engagement and now President Obama will crown that with a strategic partnership.

Given that Nuclear Liability Bill has not gone down well with nuclear energy companies, their have been some media reports about GE and Westing House finding a way around the Bill. Do you think it will impact the investments in the sector?

The Civil Nuclear Liability Bill as passed is unfortunately not workable. Its not in line with international conventions therefore its also in the interest of Indian companies like Bharat Forge, L&T, GVK, Reliance Energy, Tata Power—companies that will be engaged in Indian civil nuclear programme as well as the world’s nuclear renaissance—they will ultimately want a liability regime in line with international convention. The signing by India of the Convention on Supplementary Compensation (CSC) is a very positive step. Ultimately laws will be brought in line domestically to align with the international convention prescribed by the International Atomic Energy Agency. If laws are brought in line with that then it will be much more amenable towards Indian and American and French companies...that understand that we have to work together on the minimum liability in the unlikely event of a nuclear accident. You don’t want a liability with accident victims, you want an insurance pool that can attend to victims needs.

You had pointed out that increased defence trade will spawn technology spinoffs that will benefit virtually every sector of both economies? How central will this defence trade be in the over all trade scenario?

Its absolutely imperative that we develop a deeper defence technology cooperation effort together. In the end the technology that comes from defence—the internet, the computer—deeper defence collaboration between the US and India will deepen technology collaboration. And these technologies will be applicable across all sectors and therefore we should be deepening our partnership in defence. For most problems in the world today and going forward the solutions will come from technology application. Technology is central and defence is based on technology, so the deepen the defence relationship, more technology will come out of that.

The PM announced India needs $1 trillion for infrastructure and would welcome American companies for that. Where do you think American companies want to invest in India?

American companies will be instrumental in developing the capital markets needed to raise the $1.7 trillion for infrastructure development. We would like to see an opening in the Indian insurance sector, raising the FDI cap from 26% to 49% that itself will enable the development of a long term debt market. Infrastructure requires long term debt and yet there is no long term debt or corporate bond market of any substantial depth in India. And the opening of the insurance sector will enable that. Look how we have done beautifully in developing the telecom sector, the IT sector—the softer infrastructure sectors. Energy security is critical. The per capita consumption in India is about 600 kilowatt hours per person per year, the international per capita consumption is about 14,000 kilowatt hours per person per year. That’s a big gap. Developing a 10% GDP, economy will require energy and energy security and therefore the scope of power development is enormous. Energy security is the engine for the economy. Unfortunately American companies are not as involved as they should be in the this. Therefore part of my role is to encourage that development. For that we will like to see the implementation of the US India Civil Nuclear Corporation Agreement. Food security is another are. The infrastructure that is required in the farm to market supply chain to stem the losses in the supply chain. The opening of the multi brand retail sector will encourage that investment to come. We need a policy framework, a legislation to enable that. And ultimately working towards a free trade agreement so that investment can flow directly both ways.

So the FTA will hold the key for better engagement?

India clearly wants to sell services to the US and we value those services and we want an access to markets and sell infrastructure. Recognising that in both countries the political environment is not ripe, but also recognising that our two economies are so closely aligned in many ways, particularly in the knowledge partnership. And the first step toward that partnership is executing a bilateral investment treaty (BIT) between the two countries. So working on the BIT is paramount. It will facilitate two way investment and give comfort level. The hill to climb is a special, one of a kind FTA, that changes the way we do business with one another. We need to kick start negotiations for the BIT. We had some traction 1.5 years ago but the whole process got lost because the US was reevaluating the template but now its done. And BIT is the first correct step towards the FTA, to enable that business in both countries must advocate for the protection and vigilant enforcement of intellectual property across all sectors. This will spur research, invention, and discovery. The US and Indian governments should facilitate greater movement of technical professionals by advocating a special technical visa/work permit regime. Developing a viable alternative to a Totalisation Agreement, and making it suitable to today’s Knowledge Partnership with India, is a practical fix which is especially important as our two economies become more closely intertwined. Also, industry should continue to press for the opening up of India’s legal sector to foreign law firms. Legal alignment will be a conduit for greater two-way investment between our economies. Hopefully the BIT should be done before the conclusion of President Obama’s first term.

Given the mandate back home, do we see a second Obama term?

The new equation in Congress may be more helpful. We will see movement on the Korean FTA, the Columbia FTA needs to be completed. And so the time is ripe to move the BIT. And there will be no resistance that from the US, its time to move on that.

 source: FE