News

USIS Washington 
File

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)