U.S.-India Ties: Focus the Summit on High Tech

President Obama and Indian Prime Minister Singh need to promote a trade agenda focusing on innovation and launch a bilateral IT trade initiative

Indian Prime Minister Manmohan Singh travels to Washington on Nov. 24 for the first state visit of the Obama Presidency. State visits are elaborate affairs and the status-conscious Indians will take special note of the honor, especially since President Barack Obama will have just returned from his own high-profile trip to China. With Obama making it known that he considers Singh and India part of his family, bonhomie will flow, as will talk about taking bilateral relations to a higher plane. But beyond high symbolism and rhetoric, the summit provides a wonderful opportunity to articulate a bold, substantive agenda for the next stage of U.S.-India ties.

Undoubtedly, the two leaders have much to celebrate, from last year's ratification of the landmark civilian nuclear agreement to an increasingly cooperative geopolitical partnership. A booming economic relationship has also developed over the past five years, so much so that suggestions are now being floated about crafting a U.S.-India free-trade arrangement (FTA). India has recently concluded such deals with South Korea and the 10-country Association of Southeast Asian Nations and has embarked on FTA discussions with Japan, China, and the European Union.

But with Washington and New Delhi at loggerheads in the Doha Round global trade negotiations—not to mention the extreme sensitivity of the agricultural access and subsidy issues that will need to be included and the political climate in both countries running against deeper integration with the global economy—the prospects for a broad-based bilateral FTA are not strong in the foreseeable future.

"underwhelming" high-tech trade

To be sure, the reciprocal economic gains accruing from a far-reaching, multidimensional U.S.-India FTA make it a worthy long-term goal, and both governments should announce a commitment to signing such an accord by 2015, even if it is one whose provisions take effect over an extended period. But the immediate energies of senior officials on both sides would be more profitably focused on crafting a bilateral free-trade mechanism relevant to the advanced technology sectors.

Despite key synergies in the information technology sector, overall bilateral trade in advanced technology products is underwhelming and far below potential. In 2008, U.S.-India exchange in high-tech items totaled about $5.6 billion, compared with the U.S.-China figure of $110 billion. Unlike a more comprehensive arrangement—which would entail prolonged negotiations, unwieldy bargaining trade-offs, and protracted coalition-building at home—an initiative with a limited but sharp focus on the innovation economy could likely be formulated quickly, with its self-evident win-win features overriding 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 original agreement was negotiated in late 1996 by 14 countries, then representing about 80% 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 soon joined by other countries, including India, and currently has some 70 participants collectively representing 97% of the global IT trade. The ITA is credited with spurring world trade in IT products and remains the only industry-specific, comprehensive free-trade agreement ever signed.

IT bilateral initiative needed

While the ITA is still in effect, its value has been significantly diluted by a series of technological developments in the decade 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 10 years ago and on addressing the issue of nontariff barriers. Moreover, multiparty negotiations to update the ITA have been stalled for years, mainly due to U.S. disagreements with the European Union.

In light of the ITA's recent problems, the U.S. and India should launch a bilateral initiative 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 critical role the high-tech sector plays 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. It might also have the effect of renewing momentum for multilateral trade negotiations or, in the absence of that, offer a concrete road map for promoting mutual gains applicable to interested nations in a vital segment of the global economy.

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