Submission for the Record to the
House Committee on Ways and Means Trade Subcommittee
for a hearing on
U.S.-India Trade Relations: Opportunities and Challenges March 13, 2013
The National Association of Manufacturers (NAM) is the nation’s largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states. Our membership includes both large multinational corporations with operations in many foreign countries, and small and medium-sized manufacturers that engage in international trade. The manufacturing sector employs nearly 12 million Americans, and is the engine that drives the U.S. economy by creating jobs, opportunity and prosperity.
NAM member companies are focused on policies, international trade and investment agreements, and legislation that promote America’s manufacturing competitiveness in the international economy.
The NAM applauds the Ways and Means Trade Subcommittee for closely examining the bilateral U.S.-India trade relationship and welcomes this opportunity to provide our comments on behalf of the NAM membership.
While the U.S.-India relationship has deepened and strengthened over the last several years and India continues to present many commercial opportunities, manufacturers face persistent challenges in India, including tax and market access issues, localization barriers to trade (LBTs), lack of or inadequate protections for intellectual property (IP) rights, and other investment or trade-restrictive policies. These policies are exacerbated by India’s negotiation of regional trade agreements, such as the India-ASEAN Comprehensive Economic Agreement and the ASEAN+6 agreement, that leave manufacturers in the United States at an even greater competitive disadvantage.
Manufacturers see important opportunities to address many key issues in the U.S.-India commercial relationship through full implementation of existing World Trade Organization (WTO) commitments and building stronger ties, including through a high-standard U.S.-India Bilateral Investment Treaty (BIT) and through joining together in multilateral customs and trade facilitation, information technology and services negotiations.
In 2012, India was the United States 13th largest trading partner and 18th largest export market for America’s manufacturers, with $18.3 billion in manufactured exports. While U.S.
manufactured exports have been on the increase since 2009, reaching a record $1.3 billion mark in 2012, U.S. suppliers were not even in the top five exporters to India in the most recent WTO report.1
Market Access and Localization Barriers to Trade (LBTs)
In recent years, manufacturers have witnessed a growing and worrisome trend among our trading partners, including India, to impose localization measures designed to protect, favor, or stimulate domestic industries and technologies at the expense of imported goods or services. Some of these discriminatory policies require the localization of intellectual property and servers for data storage; others seek to mandate domestic research and development (R&D) and manufacturing in key industries.
Manufacturers welcome the U.S. government’s work to develop and execute a more robust approach to address these growing market access challenges, including the recent announcement of the new interagency Task Force on Localization Barriers to Trade. A coordinated approach within the U.S. government to combating LBTs with other like-minded governments is vital to push back effectively on these anti-competitive practices, including using multilateral venues like the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC) forum, as well as through the Trans-Pacific Partnership, Transatlantic Trade and Investment Partnership and investment treaty negotiations.
LBTs include measures that link market access to local intellectual property development, domestic input and product requirements, local product design and data storage requirements, and other performance requirements that distort trade and competitive market conditions. These barriers affect manufacturers in a broad range of sectors and effectively close markets to many manufacturers in the United States and their exports. While these practices may seem appealing to India and other countries in the short term, they serve only to distort the domestic economy, including by undermining the country’s overall investment climate, decreasing efficiencies, stifling innovation, increasing costs and limiting access to competitive inputs from overseas.
India has embarked on a number of localization and preference policies in recent years. Just one example of India’s troubling LBT policies is their Department of Telecommunications Order No. 10-15/2009-AS-III/193 (March 2010), which required service providers to mandate in their contracts that foreign equipment manufacturers transfer all critical equipment and software to Indian manufacturers within three years of signing the purchase order. In addition, Order No. 10-15/209-AS.III/Vol.II (Pt.)(25) (July 2010) mandated a template to be signed by vendors and operators for procurement of equipment that included a clause for escrowing source code. These regulations have since been amended due to significant opposition by foreign governments and industry, but demonstrate a worrisome trend by India’s government to seek trade-restrictive measures as a means to grow their domestic economy.
Barriers to market access more generally, be it high tariffs, non-tariff barriers and discriminatory tax and procurement policies, also impede stronger U.S.-India commercial relations. The NAM urges that India join key negotiations to address such issues, including:
1World Trade Organization, Trade Profiles 2012.
- The WTO Customs and Trade Facilitation negotiations that could eliminate barriers and inconsistencies in customs processing for all WTO countries, helping to facilitate and reduce costs in the global trading system;
- The expansion of the WTO Information Technology Agreement (ITA), that is critical to promote innovation and lower costs for manufacturers worldwide (both
as producers and consumers of information technology products);
- The WTO Agreement on Government Procurement, in which India should move quickly to join and adopt more transparent, market-driven and non-discriminatory
government procurement systems; and,
- The plurilateral services negotiations that will open services markets, including important transportation and distribution services that are critical to manufacturers.
Intellectual Property (IP) Rights and Protections
IP rights are the lifeblood of the U.S. economy, and the protection of those rights assures manufacturers that their inventions will be secure as they create jobs and build industries around them. Manufacturers rely on IP rights – such as patents, copyrights, trademarks, and trade secrets (including test data) – as an integral part of business in the global market. The NAM has long been a strong supporter of a proactive and aggressive U.S. Government approach to international intellectual property (IP) rights protection and enforcement given the importance that IP has to the development and growth of manufacturing industries throughout the United States and the competitiveness of manufacturers in the global economy.
India remains a top country of concern to manufacturers for a number of reasons. India continues to be a major channel for the export of counterfeits to consumers worldwide, with ineffective remedies as a result of major judicial delays and, in criminal cases, extremely low rates of conviction. Furthermore, manufacturers are disturbed that India consistently promotes the view that trade secrets and patents impede innovation and the free exchange of technology.
In addition, India has a growing and troubling record of violating and ineffectively enforcing patent rights, and issuing unwarranted compulsory licenses on a number of innovative technologies. In many cases these failures and unfair policies disproportionately affect manufacturers in the United States and have the adverse effect of stifling innovation. Equally, manufacturers are concerned by India’s proposals in international negotiations, particularly the United Nations Framework Convention of Climate Change negotiations, that seek to force the compulsory licensing of environmental and other advanced innovative technologies.
The NAM urges Congress and the Administration to intensify their efforts to help India improve the protection and enforcement of IP rights for all industries.
U.S.-India Bilateral Investment Treaty (BIT) Negotiations
The NAM recognizes the importance of U.S. investment overseas, including in India, in expanding markets to advance the growth and competitiveness of manufacturers in the United States. Our members are strong supporters of the global system of rules that promote trade and investment on a level playing field and create new economic opportunities. U.S. investment overseas is a key driver of U.S. exports. We strongly support, therefore, the U.S. Bilateral Investment Treaty (BIT) program, which helps to expand and protect private investment overseas.
A BIT is an international agreement between two governments that sets forth rules binding each government’s treatment of investment from the other country. BITs open markets, include strong rules based in substantial part on core U.S. legal principles, such as non- discrimination, the Takings Clause and due process, and provide binding dispute settlement between the investor and the country where the investment is located. Concluding a U.S.-India BIT would be a major accomplishment that would substantially advance commercial relations between our two countries.
While the United States and India formally launched BIT negotiations in 2008, those negotiations have effectively been on hold, first for the Obama Administration’s internal BIT review, which was completed in April 2012, and now by India’s own internal BIT review. The failure to move these negotiations forward undermines the ability of manufacturers in the United States to compete on a level playing field. India has signed BITs with 61 countries, including all major European countries and recently concluded BIT negotiations with Canada.
An investment treaty between India and the United States would provide protection to investors from arbitrary, discriminatory or confiscatory measures as well as independent investor-state arbitration to resolve disputes that may arise. A strong BIT could help facilitate additional investment in infrastructure and other areas, expanding economic opportunities for both the United States and India.
The United States has a growing manufactured goods trade surplus with countries with which the United States already has BITs, and a stronger investment relationship with India would promote job growth in the United States.
General Regulatory and Investment Climate
The uncertainty in India regarding tax administration has increased the cost and difficulty for foreign direct investors to do business in the country. Improved bilateral tax relations between India and the United States are important to support a more robust investment climate and commercial relations.
The NAM welcomes the opportunity to provide these comments and looks forward to working with the committee to identify solutions and improvements that can increase opportunities for manufacturers and grow commercial activity between the United States and India.