India – U.S. Trade Relations

USA is India's largest trading partner and premier export destination. Two-way trade in 2000 totaled US $ 14.35 billion, reflecting an increase of nearly 100% since 1993.  During the year 2000, India’s exports to USA increased by 17.65% in dollar terms, compared to 1999, but India's imports from USA marginally declined by 1.20%. India - US trade over the last eight years has been as under:

 (in US $ millions)

(* Source: US Department of Commerce, Bureau of Census)

In addition to the traditional trade in goods, software exports from India to USA were estimated to have reached the US $ 3.5 billion mark in 2000, bringing the total two-way trade to nearly US $ 18 billion in 2000.

India’s share in US trade

The end of the Cold War in the 1990s, coinciding with the start in the liberalization of the Indian economy, saw a steady improvement in India-US relations with the Clinton Administration identifying India as one of the 10 major emerging markets. The volume of India-US bilateral trade also started to grow at a good pace, even though it still remains a small fraction of USA's global trade. While US exports to India account for over 10% of India's non-oil imports and US is the destination of one-fifth of India’s exports, USA's trade turnover with India constitutes less than 1% of its global trade. India's percentage share in US imports has remained more or less stable over the last few years; it was 0.88% during 2000. In 2000, India ranked 21^st among countries that export to the US. 

India - USA trade composition

The composition of India's exports has undergone a change over the years. Our exports to the US have been rising mainly on account of significant increases in the exports of diamonds, textiles and ready-made garments, machinery, carpets, footwear and leather products, dyes, iron and steel products, chemicals, edible fruit and nuts and spices, coffee and tea. A handful of items, namely, cut and polished non-industrial diamonds, jewellery, textiles and clothing, carpets, shrimp and other marine products, footwear and leather goods, iron and steel, and cashew nuts, account for over 70% of total Indian exports to the US. 

There has also been a change in the composition of our imports from the USA.  With India having become self sufficient in foodgrains and the PL 480 funds having been used up, imports of wheat and edible oil from the USA on a regular basis have stopped. Crude oil, which was the second highest import item in 1985, has also been virtually phased out. The chief items imported from the U.S. at present are machinery including project items, fertilizers, aircraft and aeronautical equipment, medical equipment, and organic chemicals.

Institutional framework for cooperation

The main joint business group for private sector cooperation is the India-US Business Council. This body has increasingly become more active in organizing promotional events apart from holding the Annual meeting of the Business Council, alternately in Washington and New Delhi. The last annual meeting of the US-India Business Council was held in June 2000 in San Francisco. It was attended by Minister for Communications Shri Ram Vilas Paswan, Secretary (Telecom), Finance Secretary, other government officials and a large business delegation from India. Round table discussions were held on issues covering power & fuel supply, financial services, trade and investment, chemicals and petrochemicals, communications, transportation and knowledge based industries.   

In addition, on the initiative of General Electric an India Interest Group has been set up with the Washington-based representatives of some major U.S. Corporations as its members. The India Interest Group, the National Association of Manufacturers and the India-US Joint Business Council are participants in the India-US Commercial Alliance. The 26^th Annual Meeting of the US IBC was held in Washington DC, June 19^th-20^th. Smt. Sushma Swaraj, Minister for Information and Broadcasting delivered the key note speech to the Annual Meeting this year which focused, inter alia, on emerging opportunities in India, the knowledge-based industry and, recent policy developments.

Visit of President Clinton to India, March 2000

The US President, Mr. Bill Clinton, accompanied by high level dignitaries including Commerce Secretary Mr. William Daley and Ambassador Susan Esserman, visited India from March 20-24, 2000. During his visit, he met President K. R. Narayanan, Prime Minister Atal Behari Vajpayee, and addressed a Joint Session of Parliament in New Delhi. He also visited Hyderabad and Mumbai where he met with the Indian business community.

On March 21, 2000, President Clinton and Prime Minister Vajpayee issued a joint statement outlining a vision for Indo-US relations for the 21^st century. The statement, known as the Vision Document, resolved to create a closer and qualitatively new relationship between the US and India. It envisaged the setting up of a US-India commercial dialogue that would be led by the US Secretary of Commerce and the Minister of Commerce & Industry of India.  The dialogue would encompass regular government-to-government meetings to be held in conjunction with private sector meetings. Its aim would be to (a) facilitate trade, and (b) maximize investment opportunity across a broad range of economic sectors including information technology, infrastructure, bio-technology and services. Close contact would be maintained with business associations, and activities will be planned with the benefit of such private sector input, including the establishment of sub-committees to pursue specific projects or sectoral issues of mutual interests.     

As a quick follow up to the Vision Document, a document for the “Formation of and Terms of Reference for the India-United States Commercial Dialogue” was signed by the US Commerce Secretary Mr. William Daley and the Minister of Commerce and Industry of India Shri Murasoli Maran on March 23, 2000.   

The two sides also agreed to set up a US-India Working Group on Trade under which the USTR and Ministry of Commerce and other concerned Ministries/ Departments of the Government of India would engage in regular discussion to enhance cooperation on trade policy.

Another institutional mechanism to promote economic cooperation that was envisaged in the Vision Document was the US-India Financial and Economic Forum that would be hosted by the US Secretary of Treasury and the Finance Minister of India.  This Forum would cover finance and investment issues, macroeconomic policy and international economic developments at regular intervals.  An Agreement on the Establishment of an India-US Science and Technology Forum, and a Joint Statement on Cooperation in Energy and Environment were also signed during the visit. 

On March 21, 2000, President Clinton announced easing of economic sanctions against India to restart the $ 25 million Financial Institutions Reform and Expansion (FIRE) program to modernize Indian financial markets. On March 24, 2000, he announced that over $ 4 billion worth business agreements were signed during the visit.  As part of this package, the US Export-Import Bank will provide financing for small business exports to India, guarantee rupee denominated loans to Indian importers and finance purchase of 10 Boeing aircraft by Jet Airways.

Visit of Prime Minister Atal Bihari Vajpayee to USA, September 2000

Prime Minister Vajpayee paid a 5 day official visit to Washington DC from September 13-17, 2000. He met President Bill Clinton, Vice President Al Gore and addressed a joint session of the US Congress.  On September 15, 2000, PM and President Clinton issued a joint statement reaffirming the vision they outlined in March 2000 in New Delhi of a closer and qualitatively new relationship between India and the US in the 21^st century.  In the economic arena, they reaffirmed their confidence that the three Ministerial level economic dialogues and the High Level Coordinating Group would improve the bilateral trade environment, facilitate greater commercial cooperation, promote investment and contribute to strengthening the global financial and trading systems.  They agreed that India’s continuing economic reforms, as well as the two countries’ complementary strengthens and resources provided strong bases for expansion of economic ties between the two countries. 

Recognizing the need to deepen cooperation on high tech trade issues, the two leaders noted that the present regime on e-commerce would be rolled over until the next Ministerial meeting of the WTO, and that the two countries would cooperate in building a wider international consensus on information technology.  They expressed satisfaction with their agreement on textiles, and affirmed the need for expansion of bilateral civil aviation ties and agreed to work toward this goal. They also noted significant progress on other important economic issues including investment in the power and other sectors.  The two leaders also noted the intention of both sides to negotiate an arrangement to avoid double taxation under which collection or recovery of tax would generally be suspended on a reciprocal basis. The two sides agreed to explore ways of enhancing cooperation in the biotechnology sector. They recognized the need for appropriate technology for power generation, and the importance of greater South Asian regional cooperation and trade in energy, as well as the development and application of clean technologies. They also noted with satisfaction the signing of major commercial agreements under which US firms will contribute to the development of the power industry in India.

India-US Commercial Dialogue

US and India signed an agreement for the “Formation of and Terms of Reference for the India-United States Commercial Dialogue” on March 23, 2000 during the visit of President Clinton. The Terms of Reference provided a general framework to guide the development and maintenance of a public sector - private sector dialogue on commerce between India and the US that was envisaged to be an element of a broader economic/commercial dialogue between the two governments. The dialogue would encompass regular government-to-government meetings to be held in conjunction with private sector meetings.  Its aim was to (a) facilitate trade, and (b) maximize investment opportunity across a broad range of economic sectors including information technology, infrastructure, bio-technology and services. This would be a forum where emerging issues affecting bilateral trade could also be discussed.

To ensure regularity in the conduct of the dialogue, the Indian Department of Commerce and the US Department of Commerce would maintain close contact with their private sector enterprises and business associations which would enable them to identify at the beginning of each year, meetings and other events where a substantial number of Indian and US business representatives were expected to participate and where India-US commerce was likely to be a prominent part of the program. Within 90 days of the signing of the above document, the two sides were required to consult each other and develop a plan and procedures to implement the Terms of Reference.

The inaugural session of the India-US Commercial Dialogue was held on June 12-13, 2000 in San Francisco during the USIBC annual meeting.  It was co-chaired by Ambassador Naresh Chandra and Mr. Patrick Mulloy, Assistant Secretary, US Department of Commerce. The Dialogue was further developed during the visit of Commerce Secretary, Shri P. Sengupta, to Washington DC in July 2000.

The 2^nd meeting of the Commercial Dialogue was held on September 14, 2000 on the margins of PM’s visit to Washington DC. The morning session of the Dialogue was co-chaired by Finance Minister, Shri Yashwant Sinha and US Commerce Secretary, Mr. Norman Mineta. Both sides reiterated their commitment towards strengthening bilateral commercial and economic relations.   While underlining the vast potential of Indo-US commercial relations, the co-Chairmen encouraged the private sector to take advantage of existing opportunities. They praised the initiatives taken by the private sector and the efforts put in to prepare a comprehensive set of recommendations as a follow up of the first meeting of the Commercial Dialogue in San Francisco. A large delegation of Indian businessmen participated in the meeting. Several major business agreements between India and USA were signed in the presence of Finance Minister and Commerce Secretary Mineta, including an MOU to establish a joint venture for e-commerce between US Business Network and Satyam Infoway Limited, three agreements in the power sector relating to financing of the Srinagar Hydro-Electric Project, development of a 4000 MW coal fired plant at Hirma and development of Ennore Liquefied Natural Gas Terminal/Power Plant in Tamil Nadu; a $20 million loan guarantee by US AID for a housing project and 3 MOUs in the banking sector.  The afternoon session of the Dialogue was co-Chaired by Commerce Secretary Shri Prabir Sengupta and US Assistant Secretary for Trade Development Mr. Michael Copps. It covered interactive policy reviews of sectors such as telecommunications, financial services, power and fuel supply, chemicals and petrochemicals, transportation and business mobility.

India-US Working Group on Trade

As part of the ‘Vision Document’, India and USA agreed to set up a Working Group on Trade under which the USTR and Ministry of Commerce and other concerned Ministries/Departments of the Government of India would engage in regular discussion to enhance cooperation on trade policy. As appropriate, individual trade issues could be examined in greater depth with the participation of other agencies and through creation of sub-groups. The Group is to serve as a focus for consultation on a broad range of trade related issues, including those pertaining to WTO. The group would receive inputs from the private sector, as appropriate.  Discussions with USTR in this regard took place during the visit of Commerce Secretary to Washington DC in July 2000.

Visit of Minister for Commerce and Industry, July 2001, and of USTR, August 2001

Shri Murasoli Maran, Minister for Commerce and Industry (CIM), accompanied by Shri Prabir Sengupta, Commerce Secretary and other senior officials visited Washington DC. CIM held a luncheon meeting with US Trade Representative Robert Zoellick, on July 13^th and also addressed a Roundtable meeting of the US India Business Council at the American Chamber of Commerce. CIM extended an invitation to USTR to visit India, which was accepted and, USTR visited India from August 8^th -10^th 2001. Ambassador Zoellick called on the Prime Minister on August 10^th 2001. He also interacted with the Commerce and Industries Minister, the External Affairs Minister, the Finance Minister and Minister for IT, besides addressing the CII and attending other events while in India.

Cooperation in small scale sector

Smt. Vasundhara Raje, Minister of State for Small Scale Industries and Agro & Rural Industries, visited Washington DC from February 13-16, 2000.  She was accompanied by Secretary, Small Scale Industries, and a 20 member CII business delegation representing the small and medium sector. She met Ms. Aida Alvarez, Administrator, US Small Business Administration (SBA), during which she discussed future cooperation between the Ministry of Small Scale Industries and the SBA. The two sides agreed to sign an MOU outlining areas of mutual interest and cooperation.  Draft of the proposed MOU has since been discussed and finalized by the two sides.

Bilateral Issues

US Sanctions against India

The United States imposed economic sanctions on India immediately after the nuclear tests in May 1998. In imposing these sanctions, the US Government’s stated position was that they sought to send a strong message to would-be nuclear testers; to influence Indian and Pakistani behavior; to target the governments, rather than the people; to maximize the impact on India and Pakistan; and to minimize the damage to other U.S. interests.

Under the sanctions, the US took the following steps:

(a)             Terminated or suspended foreign assistance under the Foreign Assistance Act, with exceptions provided by law (e.g. humanitarian assistance, food, or other agricultural commodities).

(b)             Terminated Foreign Military Sales under the Arms Export Control Act and revoked licenses for commercial sale of any item on the U.S. Munitions List.

(c)             Halted any new commitments of US Government credits and credit guarantees by US Government entities (EXIM, OPIC, CCC).

(d)             Suspended most military-to-military programs, including certain on-going educational programs and official exchange visits.

(e)             Denied export of all dual-use items controlled for nuclear or missile reasons, and presumed denial for all other dual-use exports to government entities involved in nuclear or missile programs.

US Government credits were specifically affected in the following manner:  

(i)               The US EXIM Bank credits were immediately terminated for approximately US$500 million of US exports to India in pending transactions.  An additional US$ 3.5 billion of exports, based on indications of interest received by the EXIM Bank, could be affected in the longer term.

(ii)              Likewise funding by the US OPIC (Overseas Private Investment Cooperation) was also affected. According to OPIC, existing contracts with India would be continued, but there would be no new transactions. OPIC’s total projected investment in India amounted to $10 billion on the basis of the 80 investment projects that were registered with them, and were in sectors such as power, telecom, finance, hotels and manufacturing. Till 1997, OPIC was funding roughly $400 million a year of projects, and expected a $ 1 billion portfolio investments in 1998. 

After the above sanctions were announced in May 1998, the following steps were taken to relax some of the sanctions:

(i)               On 15 July, 1998, the US Department of Agriculture reinstated credit guarantees for export of agricultural commodities to India and Pakistan, after the President signed into law a Bill called the Farmers Export Relief Bill. The decision to exempt agricultural credits extended by the Commodity Credit Corporation from sanctions, was influenced by the US interest in the sale of wheat, under credit, to Pakistan.

(ii)              Using the one-year waiver authority given to him by the US Congress under the Brownback Amendment, President Clinton decided to waive some of the sanctions on November 6^th 1998.  Export-Import Bank (EXIM), OPIC and Trade Development Agency (TDA) programs in India were restored until October 21, 1999. The other sanctions that were lifted for a year included restoration of the International Military Education and Training (IMET) program and permission to US banks to extend loans and credits to the Government of India. The rest of the sanctions, including ban on military equipment sales, export restrictions on dual use goods and funding for development projects by the World Bank and other international lending agencies remained in place. 

While granting similar concessions to India and Pakistan in the above areas, the President made one distinction, i.e. he allowed extension of any loan or financial or technical assistance to Pakistan by any international financial institution in support of the assistance program that Pakistan is negotiating with the IMF.  Explaining the reason behind this discriminatory move, President Clinton stated that it was mainly due to concern about the precarious situation of Pakistan’s economy and what it entails for stability in South Asia. Prime Minister Atal Behari Vajpayee expressed unhappiness at US favoritism towards Pakistan.

In a letter to the Assistant Secretary of State, US industry representatives praised the decision to grant the waiver. The letter dated November 10, 1998 was signed by the Banker’s Association for Foreign Trade, the Coalition for Employment for Experts, the International Energy Development Council, the National Association of Manufacturers, the National Foreign Trade Council and the US-India Business Council. While praising the decision, they pointed out that limiting the EXIM Bank to a 12 month window for completing action would effectively prevent it from supporting most, if not all, transactions in either country. The industry pointed out that major export transactions in these markets usually require well over a year to arrange, even for straightforward deals; infrastructure projects typically take several years. 

On September 17, 1999, the US International Trade Commission (US ITC) published its report on the economic impact of US sanctions with respect to India and Pakistan, pursuant to a request from the Committee on Ways and Means of the US House of Representatives.  According to the report, the Glenn Amendment sanctions appear to have had relatively minimal overall impact on India’s economy, although it is difficult to isolate the effects of the sanctions from the effects of other concurrent economic events.  India experienced an initial downturn in its financial sector after the US sanctions were imposed. However, the Indian economy recovered sufficiently from this downturn by late 1998 to post a 5.6 percent economic growth rate for 1998.  India does not appear to have been adversely affected by the postponement of several non-humanitarian World Bank loans. In quantitative terms, for India, the sanctions impose an estimated total cost of $ 320 million; for Pakistan, sanctions impose an estimated total cost of $ 57 million; for the United States, this cost is $ 161 million. The Glenn Amendment sanctions had limited affect on US employment, US wages and return to capital. The effects on wages and return to capital in India and Pakistan were also very small. According to several industry statements received by the US ITC, one result of the Glenn Amendment sanctions was the increasing perception of US companies as unreliable suppliers.  The major alternative suppliers benefiting from the reduced US exports to India and Pakistan under the Glenn Amendment sanctions were Japan, Europe, and rest of Asia, Australia and New Zealand. The Commission found that the US companies most affected by the Glenn Amendment sanctions were those involved in the sale of certain agricultural products, industrial machinery, transportation, construction and mining equipment, electronic products and infrastructure services.  Restrictions on company or customer access to project financing or loan guarantees from EXIM bank or OPEC were noted by several US companies as factors hindering their business in India and Pakistan.

On October 7, 1999, an Amendment introduced by Senator Brownback giving waiver authority to the President to suspend certain sanctions against India and Pakistan was passed by the House and Senate Conference. The Amendment, a part of the Defense Appropriations Bill, was signed by President Clinton on October 25, 1999. The main elements of the Amendment were:

·         the President may waive, with respect to India and Pakistan, the application of any sanction contained in Section 101 or 102 of the Arms Export Control Act (Glenn Amendment), Section 2 (b)(4) of the EXIM Bank Act of 1945, or Section 620E(c) of the Foreign Assistance Act of 1961, as amended (Presser Amendment),

·         the authority to waive the application of a sanction or prohibition shall not apply with respect to a sanction or prohibition contained in sub-paragraphs (B), (C) or (G) of Section 102(b) 2) of the Arms Export Control Act, unless the President determines, and certifies to Congress, that the application of the restriction would not be in the national security interest of the US. In other words, the President can permit transfer and sale of military as well as dual-use items [covered by sub-paragraphs (B), (C) or (G)], if he certifies that it would be in the national security interest to do so.

·         a sense of the Congress resolution that application of export controls to nearly 300 Indian and Pakistani entities requires refinement,

·         a sense of the Congress resolution that application of export controls should be applied only to entities that make direct and material contribution to weapons of mass destruction and missile program and only to those items that can contribute to such programs,

·         a reporting requirement that no later than 60 days after the enhancement of this Act, the President shall submit a classified and unclassified report to the Congressional committees listing those Indian and Pakistani entities whose activities contribute to missile programs or weapons of mass destruction,

·         a Congressional review requirement that when a license for export of a defense article, defense service, or technology is issued, the Congress has the right to review the license and may, if both Houses oppose the sale or transfer, cancel the license.

·         repeal of the India-Pakistan Relief Act of 1999, effective October 21, 1999, the date on which the waiver authority given in 1998 expired.

Pursuant to the authority vested in him by the above Amendment, President Clinton on October 27, 1999 waived for an indefinite period the following sanctions against India: Activities and programs of the EXIM Bank; Activities and programs of the OPIC; Assistance under the International Military Education and Training Program (IMET); The making of any loan or the providing of any credit to the Government of India by any US bank; Assistance to the Asian Elephant Conservation Fund, the Rhinoceros and Tiger Conservation Fund, and the Indo-American Environmental Leadership program and; Any credit, credit guarantee, or other financial assistance provided by the Department of Agriculture to support the purchase of food or other agricultural commodity.         

On March 16, 2000, President Clinton eased sanctions against the following: Assistance to the South Asia Regional Initiative / Energy; Presidential Initiative on Internet for Economic Development; Financial Institution Reform and Expansion Program and; US Educational Foundation in India Environmental Exchange. 

Developments during 2001

As one of his last trade related actions in Office, President Clinton had issued a Presidential Waiver on January 19, 2001, on Sanctions on the Transfer of Select US Munitions List US-Origin Helicopter Spare Parts from UK to India. The waiver was brought into effect by the Bush Administration on February 1, 2001.

An important development during the early days of the Bush Administration was the announcement by US Secretary of State Colin Powell at the Senate Foreign Relations Committee that he would review all sanctions, especially with respect to India, to see whether it was time to move forward and remove the remaining sanctions that are presently in place. Assistant Secretary for South Asia Affairs at the State Department, Christina Rocca, also told the Senate Foreign Relations Committee, during her confirmation hearings on May 17^th 2001 that sanctions had “outlived their usefulness”, were becoming “an obstacle to fully engaging with India and Pakistan”, and needed to be removed.

On August 24, 2001, Senator Joe Biden, Chairman of the Senate Foreign Relations Committee, conveyed in a letter to President Bush, his assessment that the time had come to lift the economic sanctions imposed on India in May 1998, as these had outlived their usefulness. Senator Biden urged the President to use the waiver authority granted by the Congress and hoped that as bilateral relations continued to improve these sanctions would be entirely repealed. Subsequently, on August 28^th 2001, Tom Lantos, the Ranking Democrat Member of the House International Relations Committee also addressed a letter to President Bush conveying “strong support” for lifting the sanctions on India. Representative Lantos also said that the sanctions had outlived their usefulness and that these were no longer in the interests of the US.

On September 22, 2001, President Bush waived the Glenn amendment sanctions that apply to dual use items controlled for nuclear and missile reasons (section 102(b)(2)(G) of the Arms Export Control Act) that were placed on India and Pakistan after the 1998 nuclear tests. The waiver permits the lifting of the denial policy currently in place in the Export Administration Regulations (EAR) for NP- and MT-controlled items to these countries. A license will continue to be required to India and Pakistan for these items, but the license review policy will revert to a case-by-case review, as set forth in sections 742.3 and 742.5 of the Export Administration Regulations (EAR) for nuclear- and missile- controlled items, respectively. The proclamation issued pursuant to section 9001(b) of the Department of Defense Appropriations Act, 2000 (Public Law 106-79), determines and certifies to the US Congress that the application to India and Pakistan of the sanctions and prohibitions contained in subparagraphs (B), (C), and (G) of section 102(b)(2) of the Arms Export Control Act would not be in the national security interests of the United States.  In addition, pursuant to section 9001(a) of the Department of Defense Appropriations Act, 2000 (Public Law 106-79), President Bush also waived, with respect to India and Pakistan, to the extent not already waived, the application of any sanction contained in section 101 or 102 of the Arms Export Control Act, section 2(b)(4) of the Export Import Bank Act of 1945, and section 620E(e) of the Foreign Assistance Act of 1961, as amended.

Subsequently, on October 1, 2001, the Bureau of Export Administration published in the Federal Register a rule entitled "India and Pakistan: Lifting of Sanctions, Removal of Indian and Pakistani Entities, and Revision in License Review Policy". (details in section below)

US export restrictions on Indian companies

The Bureau of Export Administration (BXA) in the US Department of Commerce issued two notifications, one on May 12, 1997 and the other on June 27, 1997 imposing restrictions on exports to four Indian organizations/companies, namely, Bharat Electronics Ltd, Bhaba Atomic Research Center (BARC), Indira Gandhi Center for Atomic Research, Kalpakkam, and Indian Rare Earths Ltd. In October 1997, these restrictions were removed for seven of BEL’s units and retained only for BEL’s Bangalore and Hyderabad units. As per these regulations, a license was required for exports or re-exports of all items to these entities, implying that without a license these organizations are ineligible to import anything from USA. This licensing applied to all categories of exports, whether they are for hi-tech, dual-use technology products or general destination items that are otherwise free from any export licensing.

Export licensing became stricter with the US imposition of sanctions in May 1998, after our nuclear tests. According to a BXA notification issued in June 1998, following will be the impact of US sanctions:

--BXA will deny all export and re-export applications to India for dual-use items controlled for nuclear or missile non-proliferation reasons under the Export Administration Regulations (EAR) to all end users in India.

--BXA will publish a list of Indian Government and Private entities involved in nuclear and missile activities.  All exports and re-exports of all items subject to the EAR will be prohibited to these listed entities. 

On November 13, 1998 the BXA issued an extended list of Indian government, parastatal and private entities determined to be involved in nuclear or missile activities.  As per the BXA notice, Commerce Department licenses would be required for exports to these entities, and most licenses would be denied.  Applications to export or re-export items controlled for nuclear proliferation or missile technology reasons to listed government entities will be denied, except items intended for preservation of safety of civil aircraft, which will be reviewed on a case by case basis; and computers, which will be reviewed with a presumption of denial.  Thus, for these entities there is a general denial of all trade, including items not specifically listed on the Commerce Commodity Control List (CCCL).  The restrictions on parastatals and private entities are the same as on government entities, with an additional case by case exception for trade, unrelated to nuclear or missile programs, which is pursuant to pre-existing business relationships with US firms. For military entities, there will be a denial of trade in items listed on the CCCL.   

An interim rule revising the Export Administration Regulations (EAR) to codify sanctions against India and Pakistan by setting forth a licensing policy of denial for exports and re-exports of items controlled for nuclear non-proliferation and missile technology reasons to India and Pakistan, was published in the Federal Register on December 19, 1998. The rule also added several government, parastatal and private entities to the entities list and requested written comments on the list by January 19, 1999. The Government of India submitted its comments to the US Department of State on January 11 and to BXA on January 13, 1999.

On 21 April 1999, the BXA clarified the restrictions on exports and re-exports to Bharat Electronics Limited (BEL) in India, which appeared on the “Entity List”. BXA determined that all operations and units of BEL located in Bangalore, Ghaziabad and Hyderabad are considered to be part of BEL and, as such, licenses are required for the export and re-export of U.S. items to all such BEL operations and units in those locations.

The FY-2000 Defense Appropriations Act included a sense of the Congress resolution that the list of nearly 300 Indian and Pakistani entities was too large and required refinement.  The Act also contained a sense of the Congress resolution that exports only of items that make material contribution to weapons of mass destruction and missile program should be restricted.

On December 16, 1999, the BXA announced its decision to remove 51 Indian entities from the Entity List.  While announcing this removal, BXA stated that the Administration would continue to review both the list of sanctioned entities and products and may make additional changes. The Federal Register notice to implement the decision removing the 51 entities was, however, issued only on March 17, 2000.

On July 26, 2000, the Bureau of Export Administration removed two Indian entities from the Entity List: The Nuclear Science Centre located in New Delhi and the Uranium Recovery Plant located in Cochin; and added one Indian entity : Indian Space Research Organization (ISRO), Telemetry, Tracking and Command Network (ISTRAC).  It was announced that the license review policy for ISTRAC would be one of denial for items controlled for non-proliferation or missile technology reasons, except items intended for the preservation of safety of civil aircraft, which would be reviewed on a case-by-case basis; and computers, which would be reviewed with a presumption of denial. All other items subject to the Export Administration Regulations (EAR) would be reviewed with a presumption of denial, with the exception of items classified as EAR 99, which would be reviewed with a presumption of approval.

Recent developments

Pursuant to President Bush’s proclamation of September 22^nd, 2001 lifting sanctions on India, the Bureau of Export Administration on October 1, 2001 published in the Federal Register a rule entitled "India and Pakistan: Lifting of Sanctions, Removal of Indian and Pakistani Entities, and Revision in License Review Policy". This rule amends the Export Administration Regulations (EAR) by implementing President Bush's September 22, 2001 waiver of sanctions on India and Pakistan. The BXA rule lifts the sanctions by removing the license review policy of denial of exports and re-exports of Nuclear Proliferation (NP) and Missile Technology (MT) items to India and Pakistan and restoring the use of License Exceptions for these items for entities not listed on the Entity List. In addition, the rule removes many Indian and Pakistani entities from the Entity List. The license review policy for items classified as EAR 99 (items that are subject to the EAR, but are not listed on the Commerce Control List) has also been revised and the policy now presumes approval for all Indian and Pakistani-listed entities. Items on the Commerce Control List (CCL) will be considered on a case-by-case basis. The entities which remain on the Entity List are as follows: Bharat Dynamics Limited (1 entity), DRDO (4 entities), DAE (3 entities and all nuclear reactor activity related entities, including power plants) and ISRO (8 entities).

Intellectual Property Rights

In April 1991, India was designated as a Priority Country under Special 301, for alleged inadequate protection of intellectual property rights. After several rounds of consultations, differences between the two sides on the issues of Copyright, Trademarks and Access for Motion Pictures were largely resolved.  India agreed to move some amendments to its Copyright and Trademark laws take steps for better enforcement and substantially improve market access for U.S. motion pictures.

In 1993, India was brought down to the priority watch list and has been in the priority watch category since then. The USTR has continued to keep India in the priority watch list stating the failure of India to legalize the "mail-box" provision of the IPR Agreement under WTO.

In its April 1996 determination, the USTR indicated that USA would take up the case in the WTO against India for India’s failure to provide Intellectual Property Rights protection for pharmaceutical and agricultural chemical products, as required under the TRIPS Agreement. This was the first IPR dispute to go through the WTO dispute panel process. The panel of the Dispute Settlement Body, which began its deliberations in April 1997, formally announced its conclusions on September 5, 1997. The panel concluded that India had not complied with its obligations under the TRIPS Agreement because it had failed to establish a mechanism that adequately preserved novelty and purity in respect of products patents for pharmaceutical and agricultural chemical inventions during the transition period from 1995 to 2005 (to which India is entitled under the TRIPs Agreement), and to publish and notify adequately information about such a mechanism. The panel also concluded that India had not complied with its obligations under the TRIPs agreement because it failed to establish a system for the grant of exclusive marketing rights.

India appealed this decision but the WTO Appellate Panel again ruled in favor of the US. After bilateral consultations with the US with the view to arrive at a reasonable period of time for this implementation, India agreed to make necessary changes in its laws to put in place a machinery for implementation of articles 70.8 and 70.9 of the TRIPS Agreement by April 19^th, 1999. A joint statement to this effect has been filed before the DSB.

To fulfill this commitment, the Patents (Amendment) Act, 1999 was passed by the Rajya Sabha on 22^nd December 1998 and the Lok Sabha on March 10, 1999. The Act amends the Patents Act of 1970 providing for establishment of a mailbox system to file patents and accord exclusive marketing rights for 5 years.

The Special 301 Report of April 30, 1999 retained India on the Priority Watch List, and made the following two references to India:

(a)        It noted that "While ongoing piracy and counterfeiting problems persist in many countries, progress has occurred in such countries as India, Bulgaria, Jordan, Mexico, China, Sweden, Korea, and Ireland." 

(b)        It stated that "Ambassador Barshefsky expressed satisfaction with the recent conclusion of the United States' dispute settlement proceedings against India. In December 1997, the WTO Appellate Body upheld a panel ruling in favor of the United States in this case involving patent protection for pharmaceuticals and agricultural chemicals. India's deadline for compliance was April 19, 1999. Earlier this year, the Government of India promulgated a temporary ordinance to meet its obligations, and then last month, it enacted permanent legislation entitled the Patents (Amendment) Act 1999. Through these mechanisms, the Government of India has established a mechanism for the filing of so-called "mailbox" patent applications, and a system for granting exclusive marketing rights for pharmaceuticals and agricultural chemical products. The United States has expressed serious concerns regarding certain features of the new Indian law regarding exclusive marketing rights; however, in light of the discretionary nature of some of the problematic provisions of the new law, as well as the significant steps that India has taken or pledged to take to mitigate the impact of others, the USTR has concluded that no further action is appropriate at this time.  Should any of the problematic provisions in the Indian law be invoked to the detriment of U.S. right holders in the future, the United States retains its rights to take further action."

The annual "Special 301" report for the year 2000 retained India on the Special 301 Priority Watch List and contained the following reference to India: “India continues to lack adequate and effective patent protection, failing to comply with the obligations of the TRIPS Agreement in a number of areas, especially with regard to local working requirements, patentable subject matter and exclusive patent rights, term of protection, and protection for test data.  Although not required to do so under the TRIPS Agreement until 2005, India has yet to provide patent protection for pharmaceutical and agriculture chemical products.  Patent legislation has been drafted but not yet passed.  While India’s copyright law is generally compliant with the TRIPS Agreement, amendments passed in 1999 undermine TRIPS requirements concerning protection for computer programs. In addition, enforcement against piracy, especially cable piracy, remains a growing concern for US copyright industries. We will continue to consult with the Government of India in the coming months in an effort to encourage it to resolve outstanding TRIPS compliance concerns as soon as possible." 

The Office of the USTR released its most recent Super 301/Special 301/Title VII reports on May 1^st, 2001. Overall, the three reports have avoided the harsh criticism and threats of sanctions directed against other countries that used to be the case in such reports issued in the past. Highlights of the three reports are:

Super 301 Report: It highlights the positive results that the US has obtained last year by invoking dispute settlement procedures, enforcing US trade laws, etc.  It is noteworthy that it has included amongst such results achieved during the past year the following two references to India:

·        “Removal of WTO-inconsistent quotas maintained by India on a wide range of textile, industrial, and agricultural products, as a result of WTO rulings;”

·        “Resolution of an outstanding textiles dispute with India concerning the establishment and notification to the WTO of India’s tariff commitments on a wide range of textile and apparel products of importance to US exporters.”

It further notes that amongst examples of practices that the US Administration is carefully monitoring are “customs evaluation practices in Brazil, Mexico and India” and “discriminatory trade and investment measures in the auto sectors of India, Philippines and Malaysia.”

Special 301 Report:

Priority Foreign Country: Ukraine has been singled out and reaffirmed as the sole country in this category due to its "persistent failure to take effective action against significant levels of optical media piracy and to implement adequate and effective intellectual property laws". As such, it may face possible retaliation unless bilateral negotiations presently underway achieve meaningful progress.

Priority Watch List: Lists 16 US trading partners {viz. Argentina, Costa Rica, Dominican Republic, EU, Egypt, Hungary, India, Indonesia, Israel, Korea, Lebanon, Malaysia, Philippines, Russia, Taiwan and Uruguay}. It informs that there will be an “out-of-cycle” review scheduled for Malaysia. 

Watch List: Lists a further 32 US trading partners. 

Title VII Report: It describes a number of foreign procurement practices that are of significant concern to US exporters and notes that these are to be found in EU, Japan, Taiwan, Canada and Germany. It also points out that the Bush Administration is urging the early conclusion of an agreement on transparency in Government procurement that will apply to all WTO members.

The Patent (Second Amendment) Bill, 1999, to amend the Patents Act, 1970, was introduced in the Rajya Sabha on 20 December 1999 and referred to a Joint Committee of the Indian Parliament on 21 December 1999. The Bill not only seeks to make the Indian Patent law TRIPs compliant, but also incorporates therein safeguards for protection of public interest, national security, bio-diversity traditional knowledge, etc.

Efforts have to reconcile differences between India and USA over intellectual property rights issues have led to differences being narrowed down to some extent. It is hoped that such differences would be eliminated when India’s patent laws become fully TRIPs compliant.

Generalized System of Preferences (GSP)

Under the Generalized System of Preferences (GSP), Indian exports worth about US $ 1.1 billion enjoy duty free access or reduced duty access to the U.S. market. The GSP program expired on 30^th June 1999 and was renewed in December 1999 with retrospective effect valid through 30 September 2001. 

In 1992, the US removed GSP benefits for a large number of products from India, mainly agricultural chemicals and pharmaceuticals, on grounds of inadequate intellectual property rights protection. Presently about 800 products that are otherwise eligible for GSP, are denied GSP benefits when imported from India. These include primarily agricultural chemicals and pharmaceuticals, besides other products such as hand-loom textiles, jewellery, etc. The Embassy has made detailed annual written submissions to the Office of the US Trade Representative on behalf of the Government of India requesting that GSP benefits be extended for each of the items so excluded.  Progress made on the intellectual property rights front, in terms of passage of legislation to meet obligations under the TRIPS Agreement, has been highlighted in these submissions, and India’s commitment to strengthening the protection of intellectual property rights in the country has been cited for seeking restoration of GSP benefits for all those items for which such benefits were withdrawn ostensibly for IPR reasons.

The USTR published, in the Federal Register for November 1^st, 2000, a notice requesting public comments on possible changes in the GSP product eligibility list for India through the re-designation and waiver of “competitive need limitations” for articles included in its annex (viz. HTS no’s. 7113.19.25, 7113.19.29, 7113.19.50, 7113.19.10, 9405.50.30). The same FR notice added that GSP benefits may also be abridged and that in making such a determination the President may consider several factors including whether the country offers reasonable and equitable market access for US goods and services. (Inclusion of this reference derived from the ANSAC soda ash petition urging removal of all GSP for India.) Pursuant to this a FR Notice was issued on January 19, 2001 by the Office of the USTR requesting for public comments on modification of duty free treatment on certain products imported from India (303 items). Last date of submission of public comment was February 16, 2001. 

On June 29^th, 2001 President Bush issued a proclamation announcing his intention to restore GSP benefits on certain items to India. The June 29^th 2001 Presidential Proclamation stated that the effective date for restoration would be made by the USTR. Consequently, on August 8^th 2001, during an official visit to India, USTR Robert Zoellick announced, the decision of the US Government to restore GSP benefits to India on 42 products including jewellery (HTS nos. 7113) and other categories. A formal order restoring GSP on the 42 items was published in the US Federal Register on August 22, 2001 and became effective from that date.

Nevertheless, the US continues to deny GSP benefits to India on nearly 800 product lines pertaining to chemicals, agro-chemicals and pharmaceutical products. This denial has ostensibly been made due to alleged lack of sufficient Intellectual Property Rights (IPR) protection in India. The restoration of GSP to India for these products would boost Indian exports of these items to the USA.

Meanwhile, the GSP program expired on 30 September 2001; however, no problem is anticipated in its reinstatement with retrospective effect shortly, during the current session of the US Congress.

H-1 B Visas

The H-1B visa is a temporary non-immigrant visa issued to foreign professionals coming to the US to render services of a specialized nature. The number of visas allowed per year is restrictive. Many of the top information technology companies in the US have been lobbing intensively for an increase in the H1-B visa program. There was, however, concern both in the White House and in the US House of Representatives that increasing the limit on H1-B visas could affect the job security of American workers. Eventually, on 23^rd September 1998, an agreement was reached by Senate Judiciary Immigration Subcommittee Chairman, Spencer Abraham, and Gene Sperling, head of the President’s National Economic Council. Under the Abraham-Sperling compromise, the limit on H1-B visas was increased to 115,000 visas in 1999 and 2000. It was also provided that the number would drop to 107,500 in 2001 before finally reverting to the original 65,000 limit in 2002.  The “American Competitiveness in the 21^st Century Act” has further raised the annual cap on the number of H1-B visas to 195,000 for fiscal years 2001,2002 and 2003 and it will revert back to 65,000 only in fiscal year 2004. Signed into law by President Clinton on October 17, 2000, the Act not only increases the quota numbers for H1-B visa workers, but facilitates the movement of H1-B workers from one employer to another, and modifies the per country limit on employment - based immigrant visas.

Textiles

Textiles and apparel constitute a major chunk of India’s total exports to the US.  About 25% of our exports comprise of woven and knit apparel, miscellaneous textile articles, fabric and yarn. After difficult negotiations, India and the USA concluded an Agreement on Market Access in Textiles on December 31, 1994.  Exports of textiles and apparel from India are covered by the quota system whereby US specifies annual import limits for various categories of textiles and apparel.  All textile shipments to the US must be accompanied by appropriate visa documents.  As per the integration schedule specified under the Agreement on Textile and Clothing (ATC), quotas will be removed by 1^st January 2005.

Despite the Agreement on Market Access, however, India continues to face some problems in our textile trade because of protectionist pressures from the US textile industry.

One of the issues of concern to India relates to the changes made by the US in its rules of origin for textiles and apparel.  USA introduced changes to its rules of origin from July 1, 1996.  Under the new rules of origin, for processed fabrics and made-up products, the country of origin will be the country where the fabric is woven and not the country where the fabric is ultimately converted (processed or stitched) into processed fabric / made-ups.  Since a substantial quantity of our fabrics are going to USA after being processed and stitched in third countries such as Sri Lanka, Bangladesh, Hong Kong and EU, these now require to be accompanied by an Indian visa for clearance by the US Customs.  Thus, fabric going to US via EU is first debited against the EU quota and again debited against the US quota resulting in double jeopardy for Indian exporters.  In our view, the changes effected by the US are not in conformity with its obligations under the ATC.

Bilateral textile consultations between the Ministry of Textiles and the USTR were held in Washington DC from August 14-16, 2000. The Indian delegation was led by Secretary (Textiles), Shri Anil Kumar, while the US side was led by Deputy USTR Susan Esserman. Discussions mainly focused on India’s textile tariff