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Remarks of Franklin L. Lavin
Under Secretary of Commerce for International Trade
U.S. - India Business Council Meeting
Washington, DC
March 16, 2006


as prepared

Good afternoon, and thank you, Ron Somers, for that warm introduction. It is a pleasure to be here with you today at such an auspicious time in U.S. - India relations. I'm particularly pleased to be addressing the U.S. - India Business Council because of your leadership role in opening up a more vibrant economic relationship between the United States and India. You helped to bring us to this important point in the history of the bilateral relationship and you will be key to future progress as well.

Today I would like to discuss where U.S. - India relations stand and provide some thoughts on how we should proceed. I'll discuss the good news and the challenges that lie ahead for our governments and for U.S. companies. I will address the importance of President Bush's trip to India and new opportunities in the commercial relationship. Finally, I will talk to how all of these developments have led us to what we view as a major step ahead for the U.S. - India Commercial Dialogue.

Let's begin with the bilateral relationship. In my view, the U.S. and India are logical, natural partners, although the relationship has not always lived up to its promise. The United States and India share the same bedrock democratic values. India is increasingly enjoying a consensus on the importance of economic growth to create jobs and elevate the lives of its people. Whether we look at the two million Americans of Indian descent or the 85,000 Indian students who come here annually for their education, we can see there is a good fit between our two countries on a range of issues.

The economic numbers bear this out. Twenty-five years ago our total bilateral trade was only $2.8 billion. By 2005, that had increased nearly tenfold to $27 billion. U.S. exports to India have nearly doubled in the last three years from $4.1 billion in 2002 to nearly $8 billion in 2005. With a population of over 1 billion and an economy with an 8% growth rate, India is increasingly a market of interest to American companies. It is important not only as a market for goods and services and also as a partner in opening world markets to free and fair trade.

We applaud the liberalization moves that India has already undertaken such as an open skies air services agreement with the United States and raising investment caps in several sectors. India has lowered the import tariff on most industrial goods to 12.5%, taking an important step in the right direction.

And we are seeing evidence of results. The U.S. Commercial Service in India reports unprecedented interest by American companies this year. This month alone we will see state delegations from Michigan, Iowa, Illinois and Rhode Island visiting India. I helped join the trend while serving in Singapore because I was able to take a business delegation to India comprised of U.S. companies based in Singapore. So I know from personal experience of the growing interest in the market.

So there's a lot of good news in the relationship and in the great potential that we share in trade. But we face significant challenges as well.

Despite the good trade statistics and the progress that India has made in economic reforms and moving towards more open markets in the last 15 years, there's a lot of ground to be made up if trade and investment are to reflect India's role in the world economy. India had the great misfortune of gaining independence at the intellectual high water mark of Fabian socialism and third world nationalism. Unfortunately, those economic philosophies held India hostage for several decades. India still has to make up for many years of little to no economic growth. As a reference point, even with a 30% growth in U.S. exports to India last year, the vast market of India accounts for less than 1% of all U.S. exports.

Additionally, India's reforms are taking place in a context of reforms around the world. So in the competition for business attention globally, India's moves might seem less impressive. Remember, businesses look at relative opportunity and not absolute rates of GDP growth. So the $8 billion dollars of annual U.S. exports to India is about what the U.S. will ship to Canada in a two-week period.

A few other examples: Cumulative U.S. foreign direct investment in India amounted to $6.3 billion at the end of 2004. While the U.S. is India's largest investor, think of the potential being missed when you consider that U.S. FDI in Singapore amounts to $56.9 billion.

Beyond investment, India needs to sort through the challenge of its high trade barriers. The more India can lower its barriers, the better off its people will be. While India has significantly lowered tariffs on non-agricultural products, agricultural tariffs remain around 40%.

Governance is another area that requires attention. Because if a society is hindered by corruption or bureaucracy, removing trade barriers will not get you very far.

A transparent and efficient legal system, and companies that play by the rules are important for translating the opportunity of market economics into benefits for India's citizens. A vibrant IPR regime is critical to the promotion of a creative, technologically advanced economy.

Some progress has been made toward creating a more comprehensive framework for IPR protection in India. For example, in 2005 India extended patent protection to pharmaceutical and agricultural products. Still, India does not have in place a TRIPS-consistent data exclusivity regime for these products. Also, many perceive an uneven enforcement of India's existing trademark and copyright laws. India consumers and businesses deserve the finest IPR protection around. India should be a global leader in pharmaceutical research and development. But until the IPR laws are world class, R&D will take place elsewhere.

Finally, although India has recently opened up a sliver of its retail sector to foreign investment, the sector is still closed to most American retailers. This would be of great benefit to Indian consumers to allow them more convenient access to desired consumer goods at lower prices.

So India faces challenges. And I would argue that the U.S. companies also need to do a better job. The U.S. companies need to think creatively about how to adapt their products and calibrate their activities to take advantage of the great potential in India and meet aggressive competition from companies from Japan, Korea, Europe, and Canada.

So we each have our responsibilities. India is working on making its market more friendly, and U.S. companies are trying to develop architecture and an approach that allows them to enjoy success there.

And Government has an important responsibility in this process as well…which brings us to President Bush's recent trip to India.

The President's trip was a milestone in U.S. - Indian relations and is symbolic of our broader hopes for creating a rich and vital new collaboration. The President has made the relationship with India a priority and has announced cooperation in a number of areas including civil nuclear power and other clean and safe technologies to allow our nations to reduce their dependence on oil.

Importantly for all of us here today, President Bush and Prime Minister Singh discussed intensifying efforts to boost bilateral trade and investment. They agreed to several specific actions on the commercial dialogue between our two countries and I would like to discuss that in some detail.

In the case of Prime Minister Singh, it is helpful for the U.S. to work with a former Finance Minister who fundamentally understands the power of market forces and the need to attract foreign direct investment in promoting economic development and alleviating poverty.

President Bush and Indian Prime Minister Singh recognized that the time was ripe for a new economic dynamic when they agreed to revitalize the bilateral Economic Dialogue at their meeting in Washington last July. To fulfill that commitment, the U.S. Department of Commerce and India's Ministry of Commerce and Industry have taken steps with our part of the Economic Dialogue - the Commercial Dialogue. Both sides are now fully committed to regular contact to discuss nuts-and-bolts issues that affect doing business in each other's markets. Under the Commercial Dialogue, we have been holding a number of substantive public-private sessions on standards, in which we discussed general principles on how standards are established, administered and enforced by both countries. Both sides now have a better understanding of these principles.

In view of the success of the President's trip and the blossoming commercial relationship, I am pleased to announce that the Department of Commerce has proposed to India's Secretary of Commerce S. N. Menon that the Commercial Dialogue should be elevated, enhanced and expanded and that it should demonstrate greater engagement by the two private sectors. We are discussing how to proceed with this in due course and we hope to formalize this shortly.

The expanded agenda for the Commercial Dialogue will cover intellectual property rights enforcement, antidumping and countervailing duty procedures, and commercial opportunities for small and medium-sized enterprises.

This upgraded dialogue reflects the high level of importance we are placing on making commercial relations with India.
The dialogue with India is one of only four such dialogues in current progress, joining those with our NAFTA partners, the EU, and China, but incorporating a distinctive Indian approach.

To mark this new, elevated dialogue, I will be traveling to India this spring so that we may together tackle the challenges I have outlined. I look forward to seeing Secretary Menon, and meeting with other Indian officials. We have much work ahead of us in our bilateral relationship. All of the elements of success are there but let's make sure that we take advantage of these for immediate and long-lasting progress. We will do our part to ensure that the recent uptick in the U.S.-Indian relationship is not a short-term matter but an enduring relationship to our mutual satisfaction and interest.

Thank you.

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