Collision Course

The U.S. and India are headed for a trade war over immigration and protectionism. Can it be stopped before it's too late?

India and the United States have come a long way over the past two decades. A once fraught relationship has developed real strategic significance, especially as both nations face major security challenges in Asia. Much of this progress has been fueled by the enthusiasm of U.S. businesses, who recognize that to be successful in a globalized economy, they need access to Indian talent and the giant subcontinental market. India also understands that to lift itself out of poverty and become globally competitive, it needs access to U.S. markets and the capital and technology of American firms. As a result, bilateral trade has quadrupled to nearly $100 billion since 2006 and, with this, cooperation has blossomed in many other areas -- including intelligence and security.

However, with U.S. Vice President Joe Biden visiting Mumbai and New Delhi this week, it's worth noting that over the past three or four years, the business environment for U.S. firms in India has deteriorated, and tensions have grown over trade and investment matters. American pharmaceutical firms and multinational companies are concerned about how policies and regulation compromise their business model. Many others face nightmarish tax challenges. For their part, Indian IT companies are very concerned about proposed changes in the U.S. Senate's immigration bill to the rules on skilled Indian workers who want to emigrate to the United States.

All companies, Indian and American, face severe headwinds in their day-to-day business operations. As a result, the business ties that have been a pillar in U.S.-India relations for decades have been dramatically weakened. Honeywell CEO and co-Chairman of the U.S.-India CEO Forum Dave Cote spoke for many of his colleagues recently when he said, "Over the last two years, we have felt a cooling when it comes to U.S. interests in investing in India." Ajay Banga, CEO of Mastercard and chairman of the U.S.-India Business Council added frankly, "There are cracks in our relationship." But this cooling may not remain restricted to trade and investment alone; the United States and India may be headed for a collision that could be seriously detrimental to the strategic interests of both nations unless U.S. President Barack Obama and Indian Prime Minister Manmohan Singh lead forcefully and personally to get things back on track

The list of grievances on both sides is long. For U.S. firms operating in India, relentless harassment by tax authorities is at the top of this list. Add to this the much-criticized Preferential Market Access (PMA), a proposed policy that would give preference in government procurement contracts to domestically manufactured electronic, computing, and telecommunciations hardware. Pharmaceutical companies are concerned about intellectual property rights protection and enforcement. Solar panel manufacturers, and companies in insurance, retail, and defense complain about continued regulatory and bureaucratic hurdles to market access in their sectors. Progress on the civil nuclear agreement between the two countries that was signed with much fanfare in 2008 remains stalled over concerns on liability which has scared away French, Russian, and American firms.

Lack of progress on improving infrastructure, a rapidly slowing economy and a rapidly depreciating currency raise further concerns about India's economic progress. For multinational companies eager to enter the Indian market, the mounting list of issues is causing frustration and annoyance to mutate into anger as more and more CEOs fear that India is discriminating against U.S. firms and failing in its obligations as an emerging economic power.

U.S. government officials expect India to collaborate with them in multilateral trade negotiations to shape the global trading system rather than setting dangerous precedents that other countries might emulate. This would drive a stake through the heart of the global expansion of American firms. It is a matter of paramount importance and urgency therefore to get India to act responsibly.

From India's standpoint, the most urgent and lethal threat is that some of the provisions of the U.S. immigration bill currently being considered by Congress would create a huge problem for the country's flagship IT industry, not to mention the American companies that are its clients. The most onerous proposal is one that prevents U.S. technology firms from placing personnel at client's sites if more than 15 percent of their employees are on H1-B visas. This destroys the business models of many global IT service providers and is also extremely problematic for U.S. companies that have become dependent on the amazingly competitive, 24/7 capability provided by Indian firms.

For Indians, it seems as if U.S. officials only criticize protectionist policies when other countries put them in place. From their point of view, India's Preferential Market Access policy is simply a way to encourage electronic hardware firms to manufacture locally in India. Such incentives are essential to creating jobs and reducing the huge balance of payments problem faced by the country. The policy is compliant with World Trade Organization rules and, anyway, how is this different in principle from the provisions of the immigration bill which aims to create more IT jobs in America, they wonder? How can a country which has a Buy American Act, which requires that the U.S. government give preference to U.S.-made products in its purchases, criticize the PMA? In a country with a legacy of colonial rule and socialism, where many Indians are still distrustful of businesses in general and foreign companies in particular, the vigorous approach of American firms and the U.S. government smacks of economic imperialism and awakens protectionist instincts.

The list of issues is mounting and emotions are rising on both sides. Left unchecked, this dynamic could trigger a spiral of finger pointing and retaliation that will damage the hard-won gains in trust and trade between the two countries. Moreover, it threatens to get in the way of the strategic cooperation between the countries as they address complex issues ranging from withdrawal in Afghanistan to simmering problems in Pakistan to China's rise. As Mahatma Gandhi famously said, "An eye for an eye will only make the whole world blind."

The reality is that India and the United States are natural allies and clear strategic partners. In addition to being enormous markets for each other's goods and services, the United States and India both stand to benefit from a more stable, less dangerous Asia. New Delhi needs Washington to stay engaged, focusing its attention and resources on the region. And Washington needs New Delhi to remain a welcoming partner, happy to share both its strategic location and deeper cultural understanding of an enormous turbulent swath of the world. It is vital therefore that the leaders of both countries take a strategic rather than tactical, short-term, and commercial approach to resolving their differences.

Unfortunately, the timing of the negotiations couldn't be more challenging. In both countries the political system is polarized. There is also an asymmetry to the dialogue. The U.S. economy and business confidence is recovering. And with new U.S. Trade Representative Mike Froman at the helm, the administration is approaching these matters forcefully. In India, however, the economy is sputtering and the coalition government has its eye more on the upcoming 2014 election than on governing.

Delhi did make a few promising recent moves in early July, when Preferential Market Access was put on hold and caps on foreign investment in a number of industries were raised. These changes signal that Indian officials are belatedly listening to American concerns. On the other hand, the Obama administration has remained ominously silent on India's grave concerns about the immigration bill. It would make it hard for the United States to make the case for India to open its markets if, with the immigration reform bill, it is closing its own market. Both countries need a stable, fair, mutually acceptable framework for trade relations, and that can only come through joint development of principles that establish parallel lines that separate free trade from tolerated protectionism in each country.

With the August session of the Indian Parliament about to commence, Prime Minister Singh has a final window of opportunity to reach across party lines -- especially to the opposition BJP -- before next year's election and forge a consensus on how to revive the economy. The passage of just a few important bills could restore optimism and trigger several billion dollars of much needed investment to jump-start the economy. This opportunity must not be wasted.

Singh must also reach out to Obama to ensure that both countries take a more strategic approach to reviving the economic partnership. Overcoming tough challenges requires committed leadership on both sides and even more, a personal chemistry between the leaders that is not currently in abundance. Yet given what is at stake for both nations, Obama and Singh must show personal commitment to finding acceptable solutions to these vexing issues. They need to sponsor a cabinet-level working group that tackles a few tough issues and settles them in a very finite period of time. This could then build the foundation of mutual confidence and trust to set the stage for the next government to negotiate a more sweeping bilateral trade and investment treaty.

Leaders in Delhi and Washington find themselves at a critical moment. They must decide whether they will make the relationship into a truly strategic and valuable partnership or allow it to deteriorate into a welter of finger pointing. Despite the political constraints on both sides, it is worth remembering what is at stake here, and how far we've come already.



Wash Out

Mali's presidential vote is scheduled for the absolute worst time -- and Paris is to blame.  

On July 28, Malians will head to the polls for the country's first election since an ill-fated military putsch overthrew the government of President Amadou Toumani Toure in March 2012. But while the vote is intended to mark Mali's return to democratic rule -- and thereby unlock billions in development aid put on hold because of the coup -- it is actually more of an end than a beginning. After six months of operations aimed at routing extremists from the country's north, France is in need of an exit strategy, and elections -- however rushed -- will have to suffice.

But Mali is clearly not ready for elections. With security still tenuous in much of the country, refugees struggling to register to vote, and the rainy season in full swing, the July 28 contest is threatening to be a literal wash. What's more, these problems disproportionately impact northern Mali. And given that the fraught north-south relationship is what led to the current crisis, the rushed timetable for these elections will only deepen the country's woes.

Mali's March 2012 coup, which took place just five weeks before presidential elections were due to be held, plunged the country into chaos from which it has not fully emerged. Lauched by Army Capt. Amadou Sanogo, ostensibly because of the previous government's failure to deal with the Tuareg uprising in the north of the country, the coup had the ironic result of exacerbating the problem it was meant to solve. Sanogo's coup increased insecurity, and led directly to the fall of Mali's three northernmost provinces -- Gao, Kidal, and Timbuktu -- to violent, Islamist extremist groups, including one related to al Qaeda. Having at first partnered with the Islamists, the Tuareg secessionists soon found themselves forced out of the picture.

Meanwhile, in Bamako, Sanogo handed power to an interim, civilian president, who begrudgingly welcomed a French intervention in January once it became clear that the Islamists' southward push might possibly threaten Bamako. Following its intially successful rout of extremists from major population centers in the north, France is now in the process of handing off to a U.N.-sponsored mission. But far from suffering defeat, the extremists have merely melted away into the desert. As a result, most major urban centers -- including Timbuktu and Gao -- remain subject to a continuing insurgency.

Against this backdrop, the primary concern for the upcoming elections is security. Militant Islamists have been retaliating against international forces with increasingly frequent suicide attacks and roadside bombs. Al Qaeda in the Islamic Maghreb (AQIM), meanwhile, has lost many of its senior leaders, but remains a potent threat. Likewise, other Islamist groups such as Ansar al-Dine and the Movement for Unity and Jihad in West Africa (MUJWA) have suffered losses, but are still active in the north.  

One bright spot for Malian authorities was the signing on June 18 of the Ouagadougou Accords in neighbouring Burkina Faso. The accords, agreed to by the Malian government and the Tuareg National Movement for the Liberation of Azawad (MNLA), which had sought an independent state in northern Mali, removed a major obstacle to peaceful elections. Reversing their previous objection to a national poll -- and commitment to preventing government forces from entering the region -- the MNLA has now pledged to allow the election to take place in its stronghold of Kidal. Still, the kidnapping of six election officials by the MNLA on July 20 raises obvious questions about the group's intentions, as well as the ability of French and U.N.-sponsored forces to impose order in the north. (The hostages have all since been freed.)

Another major concern is the current lack of either an up-to-date voting register or a reliable network that can guarantee distribution of ballot papers nationwide. To compound these problems, in a well-intentioned but flawed attempt to make elections less open to fraud, biometric ID cards are being introduced to Mali for the first time this year.

The biometric cards come with a unique national identification number (or NINA) that makes voting more secure. Produced by the French firm Safran Morpho, the new technology may work, but the cards still need to be distributed among registered voters -- and time is running out. The contract for drawing up and distributing ballot papers was only awarded in April, while the NINA cards just arrived in Bamako in June. The start date for nationwide distribution was June 28, exactly one month before Election Day. (In 2008, Bangladesh, a much smaller country that affords easier access to its admittedly much larger population, allowed 90 days for distribution of a similar card.)

Mali's minister for territorial administration, Moussa Sinko Coulibaly, has insisted that the country will be ready for the election, but his colleagues in the national electoral commission beg to differ. On June 27, the head of the electoral commission, Mamadou Diamountani, warned that production and distribution of NINA cards was "way behind schedule," adding that it will be "very difficult to stick to the date of July 28."

Adding to the logistical nightmare is the fact that more than a year's worth of fighting has left much of Mali's northern population scattered about the country in refugee camps. Some officials have trumpeted the fact that displaced Malians will not have to return to their hometowns to vote -- which they would if they felt it was safe -- but can re-register anywhere in the country. This might be relatively straightforward in Bamako, but for the estimated 500,000 internally displaced persons living in far flung camps -- many of whom have lost all forms of identification -- the process will undoubtedly be more complicated. Refugees currently residing in neighbouring countries present a whole other problem.

According to the U.N. High Commission for Refugees (UNHCR) about 175,000 Malians fled to neighboring Niger, Burkina Faso, and Mauritania. The UNHCR is aiding registration efforts in all three countries, but it nonetheless remains a formidable task that Bamako is not likely to complete in time. (According to the UNHCR, only 38 NINA cards had reached Burkina Faso, where more than 49,000 Malians have taken refuge, as of July 23.) The vast majority of refugees and internally displaced persons, moreover, are from northern Mali, which adds weight to concerns of the upcoming election's legitimacy. 

Even inside Mali, there are serious questions about whether or not an election is logistically feasible in the northern half of the country. Communications there, where inadequate roads make hard work of any journey, are tenuous at the best of times. But this week's election will be held in the midst of the rainy season, which started in June. As result, many of the already poor roads will be washed away or made otherwise impassable, impacting both would-be voters and election officials trying to get ballot papers to polling stations.

For farmers, who make up about two thirds of the population in the north, moreover, the late July rains mark a vital period in the agricultural calendar -- one that they are not likely to miss in order to vote for a government both far away and mistrusted. Finally, as if the rains and the refugee problems weren't enough, election day falls smack in the middle of the Muslim holy month of Ramadan, when fasting during daylight hours is also sure to further reduce voter turnout.

So why the rush? The determination to hold elections on July 28 is not being pushed in Bamako nearly as forcefully as it is overseas. In Mali, the agenda of international donors is proving to be more important than facts on the ground. France, which currently has 4,000 troops on the ground, is in as much of a hurry to get out as it was to get in -- nevermind that the only people who want the French to leave are the French. But a full handover of operations to the U.N.-sponsored force that assumed command earlier this month could easily backfire. An increase in violence after the French leave will see the government of François Hollande taking the blame, and could force Paris to send in the legionnaires once more.

The U.N. Multidimensional Integrated Stabilisation Mission (MINUSMA) only began deloying on July 1, meaning that its ability to secure the northern part of the country remains very much in question. A heightened insurgency in Nigeria, meanwhile, has prompted Nigerian President Goodluck Jonathan to scale back his country's involvement in the U.N. effort by withdrawing one 850-troop battalion.

Nonetheless, elections form the central pillar of the international community's exit strategy. By conferring legitimacy on a new government, the vote will allow Paris to declare mission accomplished and head home. It will also allow the United States to restart aid deliveries. Unlike the recent ouster of President Mohamed Morsy in Egypt -- which U.S. officials declined to label a "coup" -- Mali's 2012 putsch triggered the halt of U.S. aid in accordance with laws designed to restrict financial dealings with governments that seize power by force.

The resumption of development assistance -- along with the appearance of the U.N. troops -- will hopefully convince the thousands of farmers that have fled northern Mali to return. If they do not, and crops are not planted this season, there will be the additional problem of a food crisis next year. But aid and blue helmets are no substitute for election results that are widely accepted as legitimate. Since 1992, Malian elections have consistently had the lowest turnout of any country in West or Sahelian Africa, with no vote achieving even a 40 percent turnout. Low turnout does not automatically make an election undemocratic, but in the case of Mali it is likely to cast significant doubt on the results. Limited participation is a nationwide phenomenon, but is most acute in the north -- which has long had strained relations with Bamako. Today, distrust of the government is almost an article of faith in the north.

When Malians head to the polls on July 28, many will either choose not to vote or be unable to do so. That the election has the blessing of the international community will be of little consolation to them. And with the government's bid to build public trust already on shaky ground, what message does this send to Malians?