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President Barack Obama’s upcoming visit to India will come just after the mid-term elections in the United States. Whether this timing is coincidental or deliberate, it will decide where Obama stands on several contentious issues between the two countries.
One of these issues is the outsourcing of U.S. jobs to India. Obama has been waging a long-running battle against offshoring in general, and to India in particular. Last year, he urged U.S. companies to “say no to Bangalore, yes to Buffalo.” Two months ago, he signed into law a steep hike in the fees of some visa categories preferred by professionals working for Indian companies where information technology (IT) jobs are outsourced. The extra money will go into building a better border fence with Mexico.
The president also backed Ohio’s decision to prohibit offshore outsourcing of official IT projects and said he would plug tax loopholes that incentivize U.S. investment in overseas jobs. “For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries. I want to change that,” he said in Cleveland. “I’m proposing a more generous, permanent extension of the tax credit that goes to companies for all the research and innovation they do right here in America.”
A more recent hitch in the bilateral relationship is India’s nuclear law, which makes overseas suppliers liable in case of a nuclear accident. The law caps the liability for any nuclear accident at about $325 million. Although the Nuclear Power Corporation of India, the country’s only nuclear operator, will be primarily responsible for accidents, it could take advantage of the law to seek recourse by suing suppliers. But the law might also deter suppliers from the United States and elsewhere from investing in India’s nuclear industry.
This is a pathbreaking development for the global nuclear industry, dominated by powerful U.S. suppliers such as General Electric and Westinghouse Electric and France’s Areva. Many countries -- China, Japan, Russia, France, Germany, the United Kingdom, and Canada, as well as the United States -- put the onus of nuclear accidents exclusively on operators, giving them no legal recourse against suppliers. Such a free ride for suppliers ensures that they pay only minimal attention to the safety of their systems. It also leaves common people at the mercy of the suppliers’ profit-maximization philosophy. Before India, South Korea was the only country giving operators a right to legal recourse—although suppliers to South Korea can nullify that right with the help of a carefully worded contract.
Potential suppliers such as France and Russia have, expectedly, criticized the law. The Obama administration, too, has taken up the cudgels on behalf of the U.S. nuclear industry. “We continue our discussions with the Indian government on this issue,” U.S. state department spokesperson P.J. Crowley said in the first official reaction to the Indian law. “We will look to the Indian government to see what changes can be made.”
Quoting an unnamed U.S. official, the Wall Street Journal reported that the administration is also making a concerted effort to circumvent the law. “One option… is a government-to-government agreement that would take precedence over the law, whereby India would pledge to indemnify foreign suppliers should they be sued. Another option… is for India to negate the effect of the law when it formally implements it… A third route would involve India’s only nuclear operator, a state-run firm, signing contracts promising to take on all liability with U.S. suppliers.”
India the Loser
Such moves will benefit the U.S. nuclear industry and eventually boost the U.S. job market too. But if the Obama administration has its way, India will end up as the loser on both counts: outsourcing and nuclear liability.
Tougher strictures against outsourcing hurt Indian IT workers as well as companies, for whom the United States is by far the biggest market. These new rules are particularly unhelpful coming on the back of the economic slowdown that hit the IT industry particularly hard. Indian IT vendors have severely criticized the Ohio prohibition and the visa fees hike, while the government has threatened to drag the United States to the World Trade Organization.
Against this backdrop, India also finds the Obama administration’s stance on the nuclear law to be an example of double talk. The law will discourage U.S. companies from investing and creating jobs in India. That is what Obama seems to want in the case of the IT sector, but the rules of the game change when they start hurting U.S. interests. Although Obama is protectionist about the IT sector, he assumes the mantle of a neoliberal in the case of the nuclear industry.
Changes in the U.S. tax policy are required so that U.S. firms don’t invest in India’s IT sector, as this hurts the U.S. job market -- even though Indians may start losing jobs as a result. Simultaneously, changes in India’s nuclear policy are required so that U.S. firms do invest in India as this benefits the U.S. nuclear industry and job market—albeit on terms that may cause thousands of Indians to die and leave their families without recourse to damages.
More Double Talk
This is not the first time the Obama administration has adopted such double standards toward India. Some months ago, it refused to extradite Warren Anderson, who was the U.S. chairman of Union Carbide in 1984 when a poisonous leak from the chemical firm’s plant at Bhopal in central India claimed tens of thousands of lives and left many more scarred forever.
This June, an Indian court awarded mild sentences to eight Indian employees of Union Carbide. Victims cried foul and demanded that Anderson be brought to India to face trial. The U.S. government simply said it did not know his whereabouts, even though journalists had rather easily found him living with his wife in New York.
Around the same time, Obama was himself railing against BP, and particularly against its chief executive Tony Hayward, in the wake of the Gulf oil spill. The White House publicly denounced Hayward and summoned him for a dressing down. “My experience is,” Obama said in an interview, “when you talk to a guy like a BP CEO, he’s going to say all the right things to me. I’m not interested in words. I’m interested in actions.” But there was little action on Anderson and Union Carbide.
India is not a tin-pot dictatorship that depends on U.S. military support for survival. The bilateral relationship revolves around shared economic and geopolitical interests, while the upwardly mobile Indian’s love for all things American is the glue that has brought the two countries closer over the last decade or so. That may no longer remain the case if U.S. policy starts impeding Indians’ upward mobility or threatening their safety. Some concerns, after all, count more than Coke and McDonald’s burgers. In a recent international survey by the Washington-based Pew Research Center, the U.S. favorability rating in India slipped from 76 percent a year ago to 66 percent today. While this is still fairly high, the fall of 10 percentage points is the second largest among the 22 countries surveyed -- behind only Mexico’s 13-point fall.
Mexico’s attitude can be attributed to Arizona’s tough new immigration law. But what has caused America’s stock to tumble among Indians so suddenly? The answer is Obama’s foreign policy, whose approval rating among Indians dipped by an identical margin to overall favourability -- 10 percentage points -- over the past year.
Even the pro-U.S. Manmohan Singh government must eventually bow to Indian public opinion, as recently illustrated by the passage of the nuclear liability law in the Indian parliament. The government initially proposed a weaker law, which capped liability well below what was eventually passed and also did not allow legal recourse against suppliers. But civil society groups protested, claiming the law would lay the grounds for another Bhopal-like disaster. Buoyed by the protests, opposition parties on the left and right closed ranks against the law. The opposition called its soft liability terms a “gift” to the United States and forced the government to raise the liability cap three times and create a provision under which damages can be claimed even 20 years after an accident. The government once again tried to dilute the law by sneakily making hand-written changes to the final text -- but opposition politicians discovered and prevented this subterfuge.
Such democratic accountability is vastly different from, say, Saudi Arabia, where no one is going to question a proposed $60 billion arms purchase from the Obama administration. Already, average Indians have begun feeling uneasy about ties with the United States because of Washington’s perceived bias toward Pakistan. As further fears creep in on account of the offshoring and liability law controversies, the Indian government will become increasingly cagey about this relationship.
As president, Obama of course keeps U.S. interests at the top of his mind while formulating policy. This, at times, requires him to adhere to principles that appear conflictual to others, as is the case with India. But a close U.S.-India relationship is also beneficial for the United States. Undermining bilateral ties will hurt U.S. interests in the long run.
The timing of Obama’s visit thus becomes crucial. Domestic economic concerns, particularly job creation, will dominate the U.S. mid-term elections, and the Democrats are expected to fare poorly. The last few months have seen Obama take a number of foreign policy decisions to minimize the damage, such as upping the ante against Iran, organizing doomed peace talks between Israel and Fatah, formally pulling out of Iraq (but leaving 50,000 soldiers behind), and delaying a decision on the course of the Afghan war..
But once the mid-term examination is out of the way, the president will be under less immediate pressure to play to the domestic gallery on issues such as outsourcing and nuclear trade when he arrives in New Delhi. He should use the opportunity to enunciate a sincere and transparent policy on these and other bilateral issues. That is the only way to sustain what Obama once called “one of the defining relationships” of the 21st century.
Saif Shahin, "Obama: Blowing It on India?" (Washington, DC: Foreign Policy In Focus, October 22, 2010)