Next Steps on the Silk Road

Remarks
Geoffrey Pyatt
Principal Deputy Assistant Secretary, Bureau of South and Central Asian Affairs
Chennai, India

November 15, 2011

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As Prepared

Thank you, Mr. Murari, for such a warm introduction. I’d also like to thank the members of the Federation of Indian Chambers of Commerce and Industry for asking me to speak today. For me, it’s a real treat to be back in Chennai, a city blessed by geography, an intrepid and highly intellectual citizenry, and of course, the majestic waters of the Bay of Bengal I spent my childhood along the coast of Southern California, and have always appreciated the economic and cultural advantages bestowed upon beautiful coastal cities like this one.

One need only take a stroll along Marina Beach to realize the virtues of this exceptional city and its people. Throughout history, Madras – and later Chennai – has lured international commerce and fostered global connectivity. While the phenomenon of globalization is measured most places in years and decades, Madras has enjoyed global connectivity for centuries!

Bearing in mind this city’s history as a crossroads of culture and commerce, I would like to focus my remarks today on India’s economic relationships – with the United States, with its immediate neighbors and finally with the wider Asia-Pacific region and along what we have called the new “Silk Road.” So let’s start with India and the United States.

The U.S-India Economic Moment

I don’t need to convince this audience that U.S.-India economic ties are as promising as they have ever been. Economic cooperation has been the driving force behind our transformed bilateral relationship and, in many ways, is the decisive factor behind India’s achievement of greater influence and responsibility in the international system. We find ourselves in an enviable moment in time, where our perseverance and hard work on the U.S. – India relationship will improve the lives of hundreds of millions of people – if not billions – through the 21st century.

Bilateral trade is flourishing, with Indian investment in the United States increasing substantially. The pace of innovation in India has been amazing. Here in Chennai, automobile components, software development, hardware manufacturing and healthcare industries are all thriving, building-out a diversified economic base reflecting the Indian economy of tomorrow, directly linked to global markets and vital to U.S. and global economic prosperity

On the U.S. side, the outdated perception of an Indian economy that detracts from U.S. production and output is widely seen as an anachronism. As former United States Trade Representative Susan Esserman recently noted, the periodic debate over outsourcing doesn’t “begin to capture the richness, breadth and diversity of the U.S.-India economic relationship.”

Now, given that 80 percent of the infrastructure of India of 2030 has yet to be built – 80 percent! – the United States sees a great opportunity to deepen our commercial partnership. Three statistics to illustrate this point:

India’s GDP is 10 times what it was 20 years ago, when I was first posted in Delhi. What was then a closed economy is now our 12th largest trading partner in goods.

India is the world’s second fastest-growing major economy, and is projected to become the world’s third largest economy in 2025.

India will soon be the world’s most populous country. At a time when much of the industrialized world and China face rapidly declining birthrates, half of India’s population is under age 25, giving India an unforeseen demographic edge.

So to move our investment relationship forward, we recently resumed technical discussions with the government of India on a bilateral investment treaty (BIT). We believe a BIT will provide added confidence to investors, deepen our economic relationship, and support job creation through economic growth in both countries.

With 1.2 billion of the world’s consumers, and per capita incomes forecast to grow at a rate of 8 percent over the next several years, India is an enormous market for U.S. goods and services. For that reason, but also because it will support India’s continued rise as a global power, we want to be India’s partner in building the railroads, airports, power plants, and fiber optic networks needed to sustain India’s impressive economic pace. The proof of this potential lies in our trade statistics:

Between 2002 and 2010, U.S. exports to India quadrupled, growing from $41 billion in 2002 to more than $19.3 billion in 2010. From 2002 to 2010, US. services exports to India more than tripled, rising to more than $10.3 billion in 2010.

Simply put: We, the United States, are open for business in India. But I don’t want to give anybody the impression this is a one-way street. In 2010, India exported $13.7 billion in services to the United States, roughly balancing exports to the U.S. with imports.

If trade continues to expand at its current pace, total two-way trade in goods and services will surpass $100 billion in 2011 for the first year on record. Reflecting on the two-way nature of our relationship, India is also a growing source of Foreign Direct Investment into the United States. Total stock of FDI has grown at a compound annual growth rate of 35 percent from 2004 - 2009, making India the 7th fastest-growing source of investment in the United States.

With business-to-business engagement at the vanguard of our relations, these statistics point to the potential for even greater innovation and business development between our two knowledge-based societies. The task ahead, therefore, is to continue to open doors for greater private sector engagement. Your involvement as leading business participants in this collaboration is crucial.

America’s (and India’s) Asia-Pacific Century

I’ve discussed the economic side of the coin – but how will a global strategic partnership between the United States and India affect the rest of the world?

With the fulcrum of geopolitics shifting quickly to Asia, India and the greater Indo-Pacific region play an increasingly important role in U.S. strategy. In a region undergoing rapid change, India stands out as an anchor of both economic dynamism and democratic stability.

By virtue of our unique geography, the United States is both an Atlantic and a Pacific power. We are proud of our European partnerships, and remain deeply committed to our alliances and friendships with Atlantic partners. But as President Obama and Secretary Clinton have made clear this week in their travels across Asia, our challenge now is to build a web of partnerships and institutions across the Pacific that is as durable and consistent with American interests and values as the web we have built across the Atlantic. That is the touchstone of our efforts in all the areas I have discussed today.

As Secretary Clinton noted in her recent Foreign Policy article “America’s Pacific Century,” U.S. engagement in Asia will proceed along six key lines of action: strengthening bilateral security alliances; deepening our working relationships with emerging powers; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing democracy and human rights. India – I would emphasize – plays a key role in nearly every one of these areas.

India has long been an Asian power in its own right – and signs of its cultural influence can be seen throughout the region. We welcome the fact that India’s outreach is growing toward a comprehensive vision for the East Asia region – a ‘Look East’ policy that is becoming an ‘Act East’ policy. We have placed a priority on deepening our bilateral consultations on Asian issues, and look forward to furthering this collaboration when India, the U.S. and Japan conduct our first trilateral consultations on economic and security matters.

With President Obama and Secretary Clinton firmly in the lead, the United States is making an unprecedented commitment to supporting Asia’s promising regional institutions, including the Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC) forum, the East Asian Summit, and the South Asian Association for Regional Cooperation (SAARC), where we are an observer. Mindful that this work with regional institutions supplements (and does not supplant) our bilateral ties, we have embraced a call from the region or America to play an active role in the agenda-setting of many of these institutions, not least because it is in our interests that they are as effective and responsive as possible.

With the East Asia Summit, the United States is working with India and other members to make it the premier forum for Asia-Pacific leaders to discuss pressing security and strategic issues. Joining Prime Minister Singh, President Obama will be attending the 2011 East Asia Summit in Bali, Indonesia, in just a few days, providing the perfect opportunity for the U.S. and India to follow-up the President’s visit last year and to deepen our dialogue about security and economic architectures in Asia.

Likewise, we have partnered closely with India to take full advantage of our observership in SAARC to see that the organization fulfills its potential as an engine of cooperation and growth. Naturally, a focus on promoting American prosperity means a greater focus on trade and economic openness in the Asia-Pacific. The region already generates more than half of global output and nearly half of global trade. It is not a coincidence that the three free trade agreements President Obama signed into law last month (Korea, Colombia, and Panama) were all with Pacific Rim partners.

So as we strive to meet President Obama's goal of doubling exports by 2015 through the National Export Initiative (NEI), we are looking for opportunities to do even more business in Asia, with India as a keystone of that effort.

As you well know, achieving balance in our trade relationships requires a two-way commitment. That's the nature of balance – it can't be unilaterally imposed. So we are working through APEC, the G-20, and our bilateral relationships to advocate for more open markets, fewer restrictions on exports, more transparency, and an overall commitment to a level playing field.

A South Asian Economic Renaissance

When considering Asian economic integration, we should not forget India’s immediate neighborhood, a region whose prospects for economic growth loom larger than anywhere on Earth. Historically, trade among the SAARC countries has been far below its potential, but India in recent months has made exceptional progress in expanding commercial ties with its neighbors.

Indeed, as former Foreign Secretary Shyam Saran reminded us in a recent essay, South Asia is a single geopolitical unit by virtue of history, geography and culture. Today the prospects for regional progress are better than they have been in many years.

We congratulate the Governments of Bangladesh and India on their efforts to improve bilateral relations, enhance trade, and resolve longstanding conflicts. Sheikh Hasina’s landmark visit to New Delhi in January 2010 and Prime Minister Singh’s visit to Dhaka in September 2011 are but the most visible examples of the two countries’ remarkable efforts to cooperate and build new bridges, presenting a credible model for regional cooperation throughout South Asia.

We also appreciate the success of India’s free trade agreement with Sri Lanka, which has quadrupled trade over the last ten years. Increased trade has been followed by increased investment, as a number of prominent Indian companies have invested in Sri Lanka, and several well known Sri Lankan garment companies are now investing in India.

On the open border between India and Nepal, the free flow of goods, information, and people has been a positive development for both countries, and the recent breakthrough in implementation of the Comprehensive Peace Agreement promises to open the door for furthering the India-Nepal economic partnership. Many aspects of this open relationship can and should serve as a model for the rest of the region.

And finally there is Indo-Pak trade, which I will speak to at the end of my remarks.

On the multilateral side in South Asia, SAARC has charted a path for increasing regional trade, and provides the region with a platform for discussing the technical agreements that will allow regional commerce to fulfill its potential. Through SAARC, India has championed the South Asian Free Trade Area (SAFTA), which we see as an important avenue for fostering increased trade flows and prosperity among all SAARC members.

Full implementation of SAFTA would also enhance opportunities for trade with other countries, including the United States. The observer roles of China, Japan, Korea, Australia and the U.S. have helped expand SAARC’s brand across the Pacific, but SAARC could do much more. Though a long way off, a fully implemented SAFTA would provide a strong, stable and transparent framework for investment in the region, and would have the potential to accelerate trade and opportunity for fully one-fifth of the Earth’s population.

The New Silk Road and the Importance of Regional Economic Synergies

As many of you will remember, Secretary Clinton outlined a vision of regional economic cooperation, trade liberalization, and increased trade flows in this region last Summer in Chennai, and again at the UN General Assembly this Fall, referring to it as a ‘new Silk Road.’ This new Silk Road envisions a network of economic and transit connections running throughout Central and South Asia, with Afghanistan at its heart. In essence, this new Silk Road consists of two complimentary components. The first is energy and infrastructure - roads, bridges, railways and pipelines connecting goods, services, and people. The second is trade liberalization – which includes the reduction of non-tariff trade barriers, improved regulatory regimes, transparent border clearance procedures, and coordinated policies that accelerate the flow of goods and services throughout the region.

The idea is a simple one: by maximizing the use of transportation and energy infrastructure and actively promoting cross-border collaboration and trade, Central and South Asia can once again become a bustling hub for global commerce. This is the exact same vision Prime Minister Singh outlined at last week’s SAARC summit when he said “the imperative of greater regional integration, of a regional economy without boundaries, is an objective to which India is fully committed.”

Because it’s not unreasonable to imagine Tajik nuts moving south across Afghanistan to processing facilities in India or Indian plastic goods heading north to Almaty’s green bazaar; entrepreneurs in Chennai starting businesses in Bishkek, or Turkmen gas powering businesses in Afghanistan, Pakistan, and India.

With the rapid economic expansion of China and Japan to the east, Russia to the north, and India, Pakistan and Bangladesh to the south, there is unprecedented opportunity for India’s landlocked northern neighbors, including Afghanistan, to evolve into a land link for Eurasia.

How does South Asia address growing energy concerns? Central Asia just happens to be sitting on some of the world’s largest energy and mineral reserves, and has the expertise and will to supply energy-hungry markets in India and Pakistan, where new energy resources are desperately needed to power economic growth and development. Afghanistan lies in the middle of that nexus.

This is not news to the Government of India or the Indian private sector, both of which have been actively investing in Afghanistan for years. Whether in agri-business, energy, textiles, extractive industries, construction, transport, logistics, banking, telecom, hydrocarbons, or real estate, current estimates suggest India-Afghanistan trade could double to $1 billion by 2012. Already, India accounts for one quarter of Afghanistan’s exports.

In Afghanistan’s extractive industries, the Indian-led SAIL Consortium is bidding for 1.8 billion tons of high-quality iron ore in the Hajigak mine in central Afghanistan. With the Afghan government planning to issue six additional mining tenders in February/March 2012 – three in copper, two in gold, one in lithium – Indian companies are actively preparing bids. The United States strongly supports this Indian private sector role in Afghanistan.

But India’s economic interests in Afghanistan don’t stop at extractives: Indian companies have built over 700 kilometers of roads in Afghanistan, in addition to the new Afghan parliament complex. Indian companies have also constructed 157 kilometers of double-circuit transmission lines between Uzbekistan to Afghanistan, and installed 700 pre-fabricated high-voltage transmission towers throughout the country. Whether Indian companies are building electricity substations outside of Kabul, installing solar power generation modules for rural electrification in Kandahar, or designing electro-mechanical equipment for hydroelectric projects in Herat, the Indian government and Indian private sector are aggressively pursuing economic opportunity in Afghanistan not only for the sake of development, but also because it’s profitable.

Our vision is a secure, stable and prosperous Afghanistan at the heart of a secure, stable and prosperous region. All of Afghanistan’s neighbors and near-neighbors, including India, stand to benefit from an end to the insurgency and a political solution in Afghanistan.

As Afghanistan assumes lead responsibility for its own security, it is critical that the international community, including India, remain engaged to ensure that the progress we have all worked so hard to achieve in the past 10 years is preserved and has the momentum to continue. India’s own experience with reconciliation brings a crucial perspective to these ongoing efforts.

Over the past several months, we have been supporting Afghan, Turkish, and German efforts to organize a series of important conferences that will strengthen the region’s and the international community’s commitment to Afghanistan beyond 2014.

At the recent Istanbul conference, Afghanistan’s neighbors reiterated their commitment to a stable, secure, and economically viable Afghanistan, reaffirming the importance of Afghanistan-led reconciliation, transition to Afghan security leadership, and a shared regional economic vision.

In the upcoming Bonn conference, we will urge the members of the international community to welcome these regional initiatives and to reaffirm their own commitments to Afghanistan as transition proceeds. As our transition to Afghan-led governance continues on the security side, Bonn will be an opportunity to review how the international community and Afghan government can work together on behalf of Afghanistan’s political and economic future.

Indo-Pak Trade

Given the significance of the India-Pakistan relationship to this New Silk Road vision, we applaud Pakistan’s cabinet approval of the path to normalize trade relations with India, as determined during the meeting of the Indian and Pakistani Commerce Ministers in New Delhi this past September.

The doubling in cross-border trade envisioned by Indian and Pakistani Commerce Ministers within three years is certainly within reach – India’s current global imports are over $328 billion, less than one percent of which come from Pakistan.

This process of normalization in both directions, including the eventual extension of Most Favored Nation (MFN) status by Pakistan and the reduction of non-tariff barriers by India, will lead to expanded economic opportunity and stability for the people of both countries. Indeed, a 2007 World Bank study estimated that if all these barriers were removed, trade could jump to $5-$10 billion per year. I am sure all of you look forward to seeing further progress, including when the Indian and Pakistani Commerce Secretaries meet later this month. But this will be a long-term, step-by-step process, that if fully executed will establish India-Pakistan ties as a driver of region-wide growth.

Conclusion

As President Obama told the Indian parliament last year, the relationship between India and America will be one of the defining partnerships of the 21st century, rooted in common values and interests. The President said our relations constitute an “indispensable partnership” for the 21st century, stressing that “the United States not only welcomes India as a rising power, we fervently support it, and we have worked to help make it a reality.”

There are still obstacles to overcome and questions to answer on both sides, but the United States is making a strategic bet on India's future – that India's greater role on the world stage will enhance peace and security; that opening India's markets to the world will pave the way to greater regional and global prosperity; that Indian advances in science and technology will improve lives and advance human knowledge everywhere; and that India's vibrant, pluralistic democracy will produce measurable results and improvements for its citizens and inspire others to follow a similar path of openness and tolerance.

Chennai, with its outward orientation and strong tradition of innovation, sits at the core of this expansive vision for U.S.-India partnership, and with that in mind, I look forward to taking your questions and comments.

ENDS

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