Tag Archives: East Asia

India-US Relations Blog

Advancing the Strategic Partnership in 2012

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Notwithstanding the “Delhi disillusionment” that now prevails in Washington, a U.S.-India strategic coalition focused on China is steadily coming together.

The state visit to New Delhi by Wen Jiabao at the end of last year focused on the potential for mutual economic cooperation. The Chinese premier arrived with a large business delegation that promptly signed some $16 billion worth of deals. The two governments also pledged to take their $60-billion trade relationship to the $100-billion level by 2015.

But the India-China narrative in 2011 was more about strategic competition than economic collaboration. Two events over the last month signify how long-standing disputes along their Himalayan frontier have increasingly come to the fore. The first is the abrupt cancellation of border talks due to Beijing’s concerns about the Dalai Lama’s activities inside India. The second is the alarm sounded in the Indian parliament by Mulayam Singh Yadav, a former defense minister, that China is on the verge of launching an attack.  Prime Minister Manmohan Singh dismissed the claim but apprehensions about Beijing’s strategic intentions are growing in Indian public opinion.

New Delhi’s strategic activism in East Asia and the reactions it has elicited in Beijing were also on display this year. During his state visit last year, President Barack Obama urged India not only to “look East” but also “to engage East” for the sake of enhanced security and prosperity throughout Asia. Secretary of State Hillary Rodman Clinton echoed this message during her own trip to India this past July.

The advice was seemingly taken to heart when the Indian government, in defiance of explicit Chinese warnings, proceeded with hydrocarbon exploration in the South China Sea, an area Beijing assertively claims in almost its entirety. New Delhi also moved to solidify security relations with Vietnam, a Chinese nemesis, and to strengthen its influence in Myanmar, which China and India have long regarded as an arena for geopolitical jousting.

Central to the “Delhi disillusionment” that now prevails in Washington are questions about whether the nuclear cooperation accord has succeeded in invigorating U.S.-India geopolitical cooperation in the face of a rapidly growing and more assertive China. But events over the last month demonstrate that a strategic entente focused on Beijing is alive and well. The United States, India and Japan this week held their first trilateral meeting on security issues in East Asia. Nirupama Rao, the Indian ambassador in Washington, has stated that New Delhi will use this dialogue to bolster its engagement in the region. The initiative also represents a further step in the security ties New Delhi and Tokyo have built up in the past few years and which Prime Minister Yoshihiko Noda’s trip to India next week will add to.

A trilateral security effort (here and here) also seems to be congealing among the United States, India and Australia, even if New Delhi remains wary of a formal arrangement. And within its strategic backyard, India has started a tripartite security dialogue with Sri Lanka and Maldives that has China as a focus.

As a previous post noted, 2012 will not be a year of grand initiatives in U.S.-India relations. But officials in Washington and New Delhi should concentrate their energies in the next 12 months on two eminently accomplishable projects:

  • A revival of quadrilateral security cooperation among the U.S., India, Japan and Australia that briefly flowered in 2006-2007. This initiative grew out of the cooperative efforts by the four navies after the December 2004 Indian Ocean tsunami, but lost momentum following the collapse in late 2007 of the Shinzo Abe government in Tokyo and the John Howard government in Canberra. In view of the renewed geopolitical stirrings among the four capitals, the time seems opportune for putting this “Asian Democracies” initiative back on the agenda.
  • New Delhi’s entry into the Asia Pacific Economic Cooperation (APEC) forum. Given India’s rising military and economic profile in East Asia, its absence from this grouping is a serious omission that ought to be rectified.
Defence And Strategic Affairs Blog

Red Lines and Reversed Roles

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The South China Sea controversy demonstrates how Beijing’s actions will inevitably draw Washington and New Delhi closer together.

The respective security roles that the United States and India traditionally play in East Asia seemed to switch last week. By deciding not to supply Taiwan with the new fighter aircraft it has requested, the U.S. appeared to defer to China, which had cautioned that the sale was a “red line” that must not be crossed. In contrast, New Delhi’s determined sally into the South China Sea, in defiance of Beijing’s explicit warnings, exemplified the strategic assertion that the Obama administration has been urging on India. The dichotomy offers a glimpse of the shifting power dynamics now underway in Asia and, perhaps, a preview of what the regional security order might look like beyond the horizon.

america20xy.comThe U.S. decision to refurbish Taiwan’s aging F-16 fleet rather than provide it with more sophisticated versions of the aircraft is taken by some in Asia as the latest sign of China’s ascent and America’s subsidence in the western Pacific, an area long thought of as a U.S. lake. The Associated Press reported that Philippine Defense Secretary Voltaire Gazmin sees the decision primarily as a function of Beijing’s growing financial leverage vis-à-vis Washington. “It has a large debt and if China will try to apply pressure, the U.S. can end up in trouble,” he said. “The U.S. has to temper its relations with Taiwan for China.” The report also quoted a South Korean defense analyst as saying that some in that country have reached the conclusion that it would be better to bandwagon with China than continue to adhere to the decades-old security alliance with the United States.

By striking coincidence, a similar storyline was being replicated last week in another part of the world in which Washington has long exercised sway. Treasury Secretary Timothy F. Geithner put in an unprecedented appearance at a gathering of European finance officials called to address the region’s burgeoning debt crisis. His presence was intended to signal U.S. concern about the spillover potential of Europe’s financial woes. But some in the audience did not take kindly to his telling them what to do.  Both the Austrian and Belgian finance ministers tartly questioned how the Americans could presume to dispense advice when their own fiscal house is in such visible disarray. One media commentator observed the proceedings underscore that “in the wake of the debt-ceiling debacle, Geithner has lost a significant amount of international heft.” The Europeans, on the other, are much more interested these days in China’s views. With Beijing sitting on top of the world’s largest pile of foreign exchange, regional leaders have started to look to it as a potential financial savior.

India’s actions last week, in contrast, were the very definition of foreign policy steadfastness. On a visit to Vietnam, Foreign Minister S.M. Krishna announced that the overseas arm of India’s state-owned Oil and Natural Gas Corporation (ONGC) would proceed with hydrocarbon exploration activities in the South China Sea, an energy-rich area that in claimed in almost its entirety by Beijing. China has been increasingly brusque in asserting its claim of “indisputable sovereignty” over the waters, which it last year elevated to a “core national interest.” The marker Krishna laid down comes two months after Beijing warned New Delhi against involving itself in the area and after an unusual incident between the INS Airavat, an amphibious warfare vessel, and the Chinese navy off the coast of Vietnam.

New Delhi’s temerity sparked a passionate reaction in the China Times, a nationalist tabloid affiliated with the Communist Party. It lashed out in a lead editorial that India was engaged in “a serious political provocation” that constitutes a major challenge to China’s national resolve. It urged the Chinese leadership to use “every means possible” to reverse Indian actions. And in what seemed to be a retaliatory move, Beijing quickly announced that it would expand seabed explorations in the southwestern Indian Ocean.

Media commentary in India saw things differently. A Times of India editorial averred that “India has done well to hold its ground” and termed the ONGC move as a befitting response to the infrastructure projects China is conducting in the disputed territory of Kashmir. In a similar vein, Harsh V. Pant, a well-known foreign policy expert, noted that if “China wants to expand its presence in South Asia and the Indian Ocean region, New Delhi’s thinking goes, India can do the same thing in East Asia.” And M.K. Bhadrakumar, a former Indian diplomat, called India’s actions “a historic move,” arguing that “India’s ‘Look East’ policy acquires swagger.  The Sino-Indian geostrategic rivalry is not going to be the same again.”

Observing the train of events, Time magazine’s “Global Spin” blog asked “Is This How Wars Start?” Of course, a booming bilateral economic relationship gives New Delhi and Beijing strong reason to moderate impulses toward outright military conflict. But as both countries continue simultaneously to rise in power and prestige, dynamics of competition and one-upmanship will inevitability deepen. This pattern is already evident in their Himalayan border area, in Burma and elsewhere in the Indian Ocean region and as far afield as Africa. And as last week’s events demonstrate, the South China Sea is now emerging as a new arena for strategic rivalry.

Pundits in Washington who doubt the prospects for the United States and India conjoining in a coalition directed against China should take note. The meteoric rise of Beijing’s power and the assertiveness in which it is exercised will ineluctably draw Washington and New Delhi even closer together. As a former U.S. official once predicted, “we don’t need to talk about the containment of China. It will take care of itself as India rises.”

India-US Relations Blog

India-US Medical Alliance will cut deficit

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The U.S. is – and will continue to be for at least a generation more – the primary engine driving the international economy. If Asia has made progress during the post-colonial period (i.e.after 1947), one of the major reasons is the U.S. economy. Although the Eurocentric administrations in Washington DC refused to sanction a Marshall Plan for Asia the way they implemented for Europe, the private industry has made up for a lot of the slack. Although the Vietnam war of the 1960s and beyond was a disaster in several ways, including the devastation it caused to that land and people without being able to prevent the takeover of the country by the Viet Minh, yet the purchases of goods and services made by the U.S. from the countries of East and South-east Asia for prosecuting  the war created tigers out of pussycats. Even Hong Kong developed,once the British withdrew east of Suez and lost interest in the day-to-day running of the colony.

India under Indira Gandhi missed the US-driven bus. Unlike Thailand, Japan, Singapore and South Korea, she refused to create the conditions needed for Indian businesses to take advantage in the spurt of U.S. procurement created by the Vietnam war. Indeed, she turned away from such opportunities, even rejecting an invitation to be a part of ASEAN. As for industry, Indira Gandhi continued with Jawaharlal Nehru’s policy of strangling the private sector through taxes and regulation, and creating state-owned monopolies that were citadels of incompetence and corruption. Small wonder that SE Asia and East Asia rapidly overtook India and entered the fold of middle-income countries two decades before India finally began to catch up in the mid-1990s,  a rise that has been threatened by the sharp increase in regulation seen in the Sonia Gandhi-led UPA since 2004.

Despite the return of frank Nehruism in central policy, India still remains a country where the newly-empowered private sector is fighting back. Honest corporates are happy at the increase in public awareness of the fact that it is graft on a monumental scale that is keeping them in such misery. Those traveling by the potholed roads of India; enduring power cut after power cut despite sky-high electricity prices; going through substandard public schooling at a time when the UPA is seeking to choke the private education sector through fresh regulations; and suffering such depredations as income-tax raids conducted just to collect bribes for settlement, are now coming on to the streets. If not in 2012, certainly by 2013, India will have its own Tahrir Square, with millions likely to picket the homes of the powerful trinity of corrupt bureaucrats, businesspersons and politicians who have aped the British colonial authorities by enriching themselves through impoverishing the country. For the first time since the 1950s, India seems to be on a path towards cleaner government and greater powers to the ordinary citizen vis-a-vis the colonial-style state,largely because of the pressure from the Supreme Court and the fact that Prime Minister Manmohan Singh is personally honest,and hence has no personal interest in continuing to cover up corruption.

This is the ideal time for a great democracy to create multiple linkages with India, so that civil society in both countries can benefit. In the field of energy, this writer has already pointed out how the negative bias of the non-proliferation lobby in the U.S. is creating the conditions for an Indo-Russian atomic alliance from which the U.S. will get excluded. Healthcare is another field in which India has several advantages. Indeed, it is this potential that is scaring pharmaceutical and fat-cat medical lobbies in Europe, making them invent risks in India that are unproven by scientific evidence. The Lancet, for example (whose advocacy of the medical mafia in the developed world is transprent) has been printing report after report warning individuals to keep away from India. The latest smear is that the country is swarming with a “superbug”. Unexplained is why such a “deadly” microbe has made zero dent on the country’s population, or in its health services. The reality is that cooperation with India will cost the medical mafia in several countries their millions of euros, hence the hysteria against India.

The fact is that only – repeat only – an alliance with India can reduce healthcare costs in the U.S. and the EU to levels that are compatible with continued prosperity. Instead of blocking low-cost Indian pharmaceuticals from entering their (or other) markets by the foisting of cases and by other means, EU governments should get their corporates to form alliances with Indian companies that can ensure low-cost healthcare to billions of people in Europe, India and in North America.

However, given their mindset (which is clearly still lost in nostalgia for the colonial era), it is unlikely that the EU will follow such a rational path. On the contrary, we can expect several more efforts to malign both the country as well as its medical profession, because of the fact that it can provide healthcare at a fraction of the cost charged by the medical mafia. Rather, it is the U.S. that needs to take the lead in forming an alliance with India, that would ensure enhanced Indo-US production of cheaper drugs and cheaper procedures. Unless this be done, the U.S. budget deficit will continue to balloon to a level that threatens the future of the world’s biggest economy. The sharing of healthcare facilities by India and the U.S. will ensure the saving of tens of billions of dollars every year, and in time form a fusion that can bring healthcare to the doorsteps of the needy in every country.

Defence And Strategic Affairs Blog

India’s defense budget increase

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In the 2011 Union Budget presented yesterday in the Indian Parliament, the Finance Minister announced an 11% hike in the defense budget during the next fiscal year. India has now set the defense budget for FY 2011-12 at $36.28 billion. Forty percent of the budget would be spent on capital expenses, while the rest goes towards maintaining the Indian Army, which is one of the largest in the world.

The significant rise in defense spending could be attributed to the increasing military capabilities of India’s two immediate neighbors with whom it has fought wars previously – China and Pakistan. Over the last few years China has been rapidly expanding its defense spending, and it has grown approximately 13% annual on an average since 1989. According to some estimates, China’s defense spending in 2010 was about $100 billion. The size of its army is almost twice that of India’s and is much better equipped.

On its western border, Pakistan has been going through a rough phase of economic, political and social upheaval, while its military budget keeps increasing. Last year it increased its defense spending by 17%, partly to aid U.S. in the war on terror. This is in addition to the economic and military aid the U.S. provides Pakistan for the same purpose. Over the last few weeks there have also been news of a rapid increases in Pakistan’s nuclear arsenal, with it set to overtake Britain as the fifth largest nuclear power. Pakistan is building its fourth plutonium reactor and has more than 100 deployed nuclear weapons. Not to mention that the Pakistan Army and the ISI policies have traditionally been India-centric, with a majority of the forces deployed along the Indian border.

Under such external circumstances and the need to upgrade and procure equipments and machinery, the Indian defense spending increase seems well placed. India has a few procurement deals lined up for the year, but it would need to do a lot more to match up to China’s standards. As its primary competitor not only economically, but also for geopolitical influence particularly in East Asia and Africa, India needs to speed up and match up its defense capabilities with those of China. A strong military would be essential to counter any potential threats from an unstable AfPak region.

Circumstantially as important as it may be, the increases in defense spending of all the three countries contribute to the arms race in the region taking it to the edge of volatility. While it would not be prudent to expect a decrease in expenditures or an end to military procurements and upgrades, the three countries need to make concentrated efforts to reduce the need for the increase in military spending.

India-US Relations Blog

Gary Locke’s Missed Opportunity

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U.S. Commerce Secretary Gary Locke traveled to India earlier this month for a six-day tour focused on enhancing bilateral high-tech trade and cooperation. The first U.S. Cabinet officer to come to India since President Obama’s state visit last November, he brought with him representatives from 24 U.S. companies, including Boeing, Lockheed Martin and Westinghouse.  The trip resulted in an agreement on closer collaboration in the area of energy technology as well as an announcement about the further easing of U.S. export controls on India. As one senior U.S. official accompanying Locke stated: “We have agreed to an unprecedented level of technology transfers to India and we can go even further.” Judged by the usual standards of such trade missions, the visit was not unproductive. Yet by the time Locke’s sojourn ended, one had the feeling that he nonetheless missed a good opportunity to significantly advance the bilateral economic agenda.

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Just how large a miss this was became clear a few days later, when Indian and Japanese Cabinet officials gathered in Tokyo to sign a comprehensive economic partnership agreement (CEPA). This accord provides a stark counterpoise to Locke’s visit, exemplifying the imaginative initiatives that should have been on his brief. The Indian-Japanese pact not only eases the movement of goods but also the flow of services, capital and labor.  It promises to increase the value of bilateral trade 150 percent over the next few years and has been received with great enthusiasm by the Indian business community. Indeed, the agreement is an apt economic expression of the growing partnership that the two countries are forging in the geopolitical realm.

Indian trade diplomacy is on a tear. Just days after the deal with Tokyo, New Delhi signed a similar arrangement with Kuala Lumpur, which will further deepen India’s involvement in Southeast Asia’s dynamic economy. And Commerce Minister Anand Sharma has raised expectations that trade negotiations with the 27-nation European Union will soon be concluded.  India has also concluded free trade accords with South Korea, Thailand and the ten-country Association of Southeast Asian Nations (ASEAN) in recent years, and has launched bilateral trade negotiations with China and Canada.

Suggestions have been floated about crafting a U.S.-India free trade agreement (FTA), an idea that would certainly result in significant economic gains for both countries. Despite dramatic increases over the past decade, the bilateral economic relationship is far from achieving critical mass and will require purposeful nurturing to reach its full potential.  Trade and investments flows between the two countries remain a small fraction of the U.S.-China level, and China recently eclipsed the United States as India’s top trading partner. Indeed, it is a telling indicator that President Obama’s visit to India netted trade deals worth some $10 billion, while Chinese Prime Minister Wen Jiabao’s trip just a month later resulted in $16 billion in business deals – this despite the increased diplomatic tensions that color India-China relations. Moreover, the two countries used the Wen visit to announce an ambitious effort to nearly double their trade in the next five years to $100 billion annually. For all of the spectacular improvement in U.S-India ties, India is still only the 14th largest trading partner for the United States and India remains a comparatively minor destination for U.S. investment flows.

So a far-reaching multi-dimensional U.S.-India FTA deserves an important spot on the bilateral agenda, though one must also admit the difficulties in forging one. Given that Washington and New Delhi are at loggerheads in the Doha Round negotiations, as well as the unpromising political climate in the United States regarding trade policy, the prospects for a broad-based bilateral FTA are not strong in the foreseeable future.  Moreover, the agricultural access issues that will need to be included are highly problematic for both sides. Consider, for example, that India’s negotiations with the European Union have lasted nearly four years and since the EU is not a large exporter of farm products, agricultural issues have not been the major obstacle in the EU-India FTA talks that they would be in an U.S.-India negotiation. At best, Washington and New Delhi should announce a commitment to signing such an accord by 2015, even if it is one whose provisions take effect over an extended period. An excellent opportunity to make such an announcement is in early April, when the next round of the U.S.-India Strategic Dialogue convenes in New Delhi.

But even as Washington and New Delhi hash out the terms of a broad-based FTA, trade officials should focus the bulk of their energies on an accord that promises a large payoff in the immediate term. A sweeping initiative aimed at capitalizing on mutual synergies in the area of high-technology trade would do just that.

The high-tech sector plays a critical – and largely complementary – role in the economies of both nations, and the United States has been a prominent factor in the spectacular development of the Indian IT sector. Yet overall bilateral trade in advanced technology products is surprisingly low and important synergies remain untapped. And unlike a more comprehensive FTA – entailing prolonged negotiations, unwieldy bargaining tradeoffs and protracted coalition-building at home – an arrangement with a limited but sharp focus on the innovation economy could likely be formulated relatively quickly, and its self-evident “win-win” features would override bureaucratic timidity and domestic opposition.

A model for such an initiative exists in the 1997 Information Technology Agreement (ITA), which eliminated tariffs on a range of capital goods, intermediate inputs and final products in the information and communications technology sector. The agreement was negotiated by 29 original countries (then representing about 80 percent of the global IT trade). Although conducted under the auspices of the World Trade Organization, the agreement was formulated quickly outside of its normal (and cumbersome) negotiating process. The final agreement was quickly joined by other countries (including India) and currently has over 70 participants (collectively representing 97 percent of the global IT trade). The ITA is credited with spurring world trade in IT products, currently estimated at $4 trillion annually, and remains the only industry-specific comprehensive free trade agreement ever signed.

While the ITA is still in effect, its value has been significantly diluted by a series of technological developments in the period since its creation. Specifically, disputes have arisen among the signatories over how to apply the agreement to hundreds of new IT products that were not foreseen a decade ago and on addressing the issue of non-tariff barriers. Moreover, multi-party negotiations to update the ITA have been stalled for years.

In light of these problems, the United States and India should launch a bilateral effort to further liberalize trade and deepen engagement in the IT field or, even more one that covers the entire range of advanced technology products and services.  This agreement could then be opened to the participation of other like-minded countries.  Given the vital role of the high-tech sector in the American and Indian economies, not to mention the broader world economy, such an initiative would pay robust commercial dividends.  Additionally, with Washington and New Delhi at odds in the Doha Round talks, this initiative would have great political value, further solidifying the U.S.-India partnership and providing an important example of joint leadership in the global economy between developed and emerging nations.  Finally, it would be a good down payment on the Obama administration’s pledge to double U.S. exports over the next five years, as well as India’s effort to double its own trade levels.

An effort focused on crafting a bilateral free trade mechanism relevant to the advanced technology sectors would instill a level of momentum in bilateral ties that has been noticeably missing since George W. Bush left the White House. The Obama state visit succeeded in righting a relationship that had been adrift for the better part of two years.  But with the civilian nuclear accord now a done deal, officials in both governments are still searching for a bold, creative initiative capable of driving relations forward.  An exchange that occurred at the start of the Obama administration is instructive. In January 2009, Richard Boucher, then U.S. Assistant Secretary of State for South Asia, suggested to Shivshankar Menon, then India’s Foreign Secretary and now Prime Minister Singh’s National Security Advisor, that both capitals needed to find “the next big idea” to animate bilateral affairs. Menon concurred, noting that in the absence of something that captures the imagination “Indians were beginning to view the relationship with the U.S. as only about political-military and nuclear issues.”

Focusing on the high-tech agenda would be a very good way to stir imaginations in both countries. It would underscore the critical role that economic engagement has played in launching the new era in U.S.-India affairs.  Indeed, increased private-sector ties will be one key in securing the growth of broad-based, resilient relations over the long term, since they work to limit the risk that momentary political and diplomatic frictions could escalate and disrupt the overall bilateral partnership.