The U.S. Economic Relationship With India and Pakistan

8:45 a.m

As Prepared for Delivery

In a few days, President Bush will make an historic visit to both India and Pakistan. On Wednesday, the President spoke about his trip at the Asia Society stating up front: "The United States has not always enjoyed close relations with Pakistan and India." This is true.

What the President then outlined, and what I would like to discuss with you today, is the deep positive transformation that has been happening – and is continuing – in our relations with both nations. While this deepening is reflective in some ways of historic trends and shifts, it has been cultivated and nurtured through leadership – both between our nations and by leaders within their nations – and by the hard work of many who recognize the shared and vital interests we have in each other. These shifts in U.S. relations with India and Pakistan are both prime examples of transformational diplomacy.

From many decades of Cold War tensions, competing strategic alignments and antithetical views on a host of security, political and economic matters we are building bridges in our relationships across shared interests and shared values. Today our relationships with both India and Pakistan are broad and deep, now covering constructive engagement on dozens of global, regional and bilateral issues.

The President’s trip will highlight how far these relationships have come over the past few years. Nowhere is this more evident than on the economic side.
Our economic relationships are now a foundational part of these partnerships. Our economies are increasingly interlinked - bringing innovation, trade, opportunity – as we deepen our understanding of our shared interests as stakeholders in promoting and sustaining open economies.

INDIA

President Bush has made a fundamental judgment that strategic partnership with India will be central to the future success of American foreign policy in South Asia and around the world. The visit of Indian Prime Minister Singh to Washington last July marked a watershed in our relationship; the President’s visit there next week will be another major step.

These visits, and the initiatives we have launched, showcase the fact that the U.S.-India bilateral relationship has emerged from a long period of "unproductive estrangement."

Today a strong, democratic India is an important and natural partner for the United States. We expect India to play an increasingly important leadership role in 21^st Century Asia, working with us to promote democracy, economic growth, stability and peace in that vital region.

The relationship is deepening along five major pillars including:

1. cooperation in fighting terrorism,
2. support of democracy at home and abroad;
3. cooperation in promoting prosperity and development through open, rule- based trade;
4. cooperation on the environment and in developing clean, efficient sustainable energy resources; and
5. cooperation in meeting India’s rising energy needs – including working with India in the context of our Global Nuclear Energy Partnership to help them develop civilian nuclear power under the safeguards of the International Atomic Energy Agency.

These initiatives showcase our common values and our shared commitment to preserve and promote open societies. We are interested in developing a strategic partnership that advances shared interests and enhances global security; and we look to strengthen cooperation in all areas important to the well being of both nations.

In particular, our economic relationship with India is transforming across the board: in trade, energy, agricultural cooperation, scientific research and in other areas.

We have launched strategic dialogues or concluded agreements on:

• Airline access and open skies
• Trade in sensitive technologies
• The environment
• Intellectual property development and protection
• Investment and commercial issues and more

In addition, we have developed a robust economic dialogue and a high level CEO Forum led by Indian and American business leaders to advise our governments on how to improve the trade and investment climates.

But after decades of often contentious positions on global trade and investment across a range of issues, why the improvement now?

At the recent World Economic Forum in Davos that featured India I was struck by the slogan put forth by my Indian colleagues there – signs everywhere touted India as "the world’s largest and fastest growing market democracy."

The potential for India’s newly confident embrace of trade and market economics was laid decades ago when Prime Minister Nehru told his nation shortly after independence that its future lie in building scientific knowledge. India then launched some of the world’s premier centers of scientific and technological learning. But for too many years, the most innovative citizens of India found greater opportunity to successfully deploy those skills beyond their own borders – and the contribution of the Indian diaspora to America’s technology revolution centered in Silicon Valley and elsewhere has been profound.

The most recent seeds for India’s growing economic success were sown 15 years ago, when India’s leaders – including current PM Manmohan Singh decided to initiate serious economic reforms.

While much work remains to be done, this increased opportunity created by regulatory reform, improvements in business requirements, tariff reductions, improved intellectual property protections, and greater liberalization of investment regimes has begun developing enough critical mass to begin making a difference. These growing changes have been coupled with new opportunities created by broad-band technologies which allow businesses to overcome structural impediments such as inadequate roads, and energy or global transportation links. All of these are helping foster a significant transformation in U.S.-India economic relations. In addition, private sector Americans and Indians have worked hard to build understanding and to bring best practices across our borders.

Today, Indian-American and Indian investors are a very influential presence in Washington, on Wall Street, and in the media. Some 2 million people of Indian origin are in the U.S. There are over 85,000 Indian students in the U.S., more than from China. And while U.S. trade and investment with India is only 10 percent of what it is with China, this is changing – to the benefit of Americans and Indians -- through increased opportunities in India for American trade and investment. This growth in American economic ties is being well received in India. Polls in India show a notable 75 percent favorable view of the U.S.

The Economic Relationship

The bilateral Economic Dialogue is the cornerstone of our economic cooperation, and the main avenue for addressing issues of the greatest importance to our private sectors.

By 2025, India’s economy is expected to be one of the five largest in the world. It will soon be the world’s most populous nation, with an increasingly young, skilled labor force. U.S. exports to India grew 30 percent last year; Indian exports to the U.S. grew over 20 percent. Since 1997, bilateral trade has grown from $10 billion to almost $30 billion in 2005.

While outsourcing has become a controversial issue, the U.S. actually enjoys a healthy surplus in trade in services with India. In 2004, the U.S. exported $4.6 billion worth of services to India, a surplus of $1.8 billion.

Despite its impressive record of economic growth during the last decade, India still struggles with many of the persistent challenges faced by developing countries: insufficient and underdeveloped infrastructure, inefficient markets for goods and agricultural products, and minimal access of credit and capital among the urban and rural poor, and overlapping and often confirming bureaucratic involvement in entrepreneurial enterprises. In addition, India still suffers from a shortage of foreign capital and investment, which can bring in key, new technologies, create jobs, and modernize industries.

Our near term energies are focused on several sectors where we believe further liberalization and reform are needed, including the financial sector, the retail sector, and improved IPR protection. And we need to resolve legacy commercial disputes that are important to U.S. and Indian companies.

In addition, we are working with India on a broad range of energy issues in the U.S.-India Energy Dialogue, which is aimed at strengthening energy security and promoting the development of stable and efficient energy markets in India.

We are working closely with India on issues in the WTO to propose solutions and forge agreements that can translate the promise of the WTO’s mission – and the new era of U.S.-India relations – into reality. India’s voice carries weight and credibility in many areas of the world, and many developing countries look to India as a leader in major global issues. This continued effort will take hard work on both sides, and we look forward to this opportunity to engage India seriously, on behalf of both our peoples.

Civil Nuclear Agreement

In their July 18 Joint Statement, President Bush and Prime Minister Singh committed to work with Congress and with our international partners toward full cooperation with India in civil nuclear energy. India for its part committed to take a number of important nonproliferation steps that will bring it closer to international non-proliferation practices.

The goal of the initiative is to provide India access to the technology it needs from the U.S. and elsewhere to build a safe, modern, and efficient infrastructure that will promote a cleaner, more secure global energy supply to support India’s growing economy. At the same time, the additional nonproliferation commitments India made as part of the Joint Statement will, once implemented, strengthen the international nuclear nonproliferation regime.

PAKISTAN

As the President said in his speech on Wednesday, Pakistan now has the opportunity to write a new chapter in its history. And the United States wants to build a broad and lasting strategic partnership with the people of Pakistan.

At the June 2003 meeting at Camp David, President Bush made a commitment to develop with Pakistan a long-term, broad-based partnership as evidenced our five-year, 3 billion dollar commitment.

We look forward to building on that commitment, developing our shared interests in promoting prosperity, peace, security, mutual understanding and tolerance in the region and across the globe. We also intend to strengthen cooperation on counter-terrorism and security including striking at the conditions that give rise to extremism and terrorism, such as poverty and hopelessness.

As the President stated on Wednesday, the United States will continue to work with Pakistan to strengthen the institutions that help guarantee civil liberties and help lay the foundations for a democratic future for the Pakistani people. The United States and Pakistan both want the elections scheduled for next year to be successful. This will be an important test of Pakistan’s commitment to democratic reform, and the government in Islamabad must ensure that these elections are open, free and fair.

Our partnership with Pakistan will increasingly build on expanded bilateral commercial links, particularly greater trade and investment. We also seek cooperation aimed at fostering expanded commerce within the region including with Afghanistan and Central Asia. The U.S. is Pakistan’s largest partner for both investment and trade.

We hear from many sectors of Pakistan's economy an eagerness for increased trade with the U.S. We have encouraged Pakistan to further diversify their economy and exports, to build on their success in the textile field. This will help Pakistan to increase much needed job opportunities for its plentiful, skilled workforce. One of our assistance programs is focused on helping Pakistan improve its competitiveness in dairy, gems and jewelry, and marble (sectors identified through public-private dialogue).

All these efforts are producing results. Pakistan has experienced strong economic growth in the last five years. In 2005, Pakistan had the second fastest growing economy in Asia. Although it will need to continue economic reforms and contain inflation to continue these positive trends, Pakistan has taken great strides from its bleak performance in the late 1990s, due in no small part to an excellent economic team. This team is headed by Prime Minister Aziz, the previous Finance Minister who engineered this stunning turnaround during which strong export growth lead to record foreign reserves in 2004, after Pakistan teetered on the brink of economic disaster.

Our engagement with Pakistan in building its economic future will grow in new and mutually beneficial ways. One that I can highlight today is our joint effort to conclude negotiations for a high-standard Bilateral Investment Treaty, or BIT, which will increase investment opportunities in both of our countries. By fostering economic development and opportunity, we will reduce the appeal of radical Islam and demonstrate that America is a steadfast friend and partner of the Pakistani people.

The American response to the needs of the Pakistani people after the recent earthquake is another sign of America’s commitment to this partnership. Not only were American soldiers and relief workers on the ground almost immediately, but the United States pledged more than a half a billion dollars for relief and reconstruction. In addition, President Bush asked five leading U.S. CEOs to spearhead private relief and reconstruction fundraising. Their efforts have contributed to the more than $100 million in private donations from America.

Conclusion

The President spoke Wednesday about the great changes taking place inside India and Pakistan and how they are helping to transform the relationship between these important countries. He pointed out that good relations with America can help both nations in their quest for peace. He noted that Pakistan now understands that it benefits when America has good relations with India and India understands that it benefits when America has good relations with Pakistan. This is not a zero sum equation. The President believes that India and Pakistan now have an historic opportunity to work toward a lasting peace. We are encouraged and optimistic because, as the President said, "Prime Minister Singh and President Musharraf have shown themselves to be leaders of courage and vision." The President concluded with the following words:

"[W]e can proceed with confidence because we know the power of freedom to transform lives and cultures and overcome tyranny and terror. We can proceed with confidence because we have two partners – two strong partners – in India and Pakistan.

Some people have said the 21^st century will be the Asian century. I believe the 21^st century will be freedom’s century. And together, free Asians and free Americans will seize the opportunities this new century offers, and lay a foundation of peace and prosperity for generations to come."