High tariffs have contributed to the United States $8 billion-plus trade imbalance with India (India, 2004).
There have been numerous diplomatic and business lobbying efforts over the past several years to further open India's markets to American goods. And, to a certain degree, those efforts have achieved success. India has reduced tariffs on a number of product categories and has cut its basic ceiling tariff rate from 25% to 20% (India, 2004). However, there were notable exceptions to that cut and India's average weighted tariff actually increased to 28% in 2004 compared to 21% in 2001 (2006 Index, 2006). In short, tariffs continue to be high in key product categories.
The good news is that India has been receptive to discussions on lowering its tariffs, but India still remains a protectionist economy that is not completely open for business. The government even controls pricing in certain sectors - such as energy and pharmaceuticals - and tries to regulate pricing in others (India, 2004). India's trade practices remain a sticky issue in U.S.-Indian relations and have closed off the Indian market to some American companies. Although dialogue is ongoing, this is an issue that will need to be addressed.
Arguably India's most pressing security issue is its rivalry with northern neighbor Pakistan, and most of the dispute between the two countries centers around who should control Kashmir in northern India. The dispute over Kashmir - which dates back to even before Pakistan's founding in 1947 - has led to wars between the two sides and frequent lower-level military conflict and terrorist attacks. Both India and Pakistan have aggressively courted the United States' support on the Kashmir issue and have been disappointed by America's near neutrality, even though the United States probably has limited ability to mediate the conflict (Kapila, 2002). Both sides are suspicious about any words or activities from American officials that would seem to indicate the U.S. supporting one side or the other. In this way, the Kashmir issue has had a dominant influence on U.S.-Indian relations.
Needless to say, there was no small amount of paranoia in India when Pakistan became a key American ally after the terrorist attacks of Sept. 11, 2001. In exchange for Pakistan's support, the U.S. agreed to sell Pakistan military technology, such as F-16 fighter jets - military technology that, if history is any guide, could one day be used on India (India takes, 2005). To appease India, the United States sold it slightly better technology (India takes, 2005). Such is the balancing game that is necessary if the United States hopes to maintain friendships with both India and Pakistan.
Whenever the Kashmir situation escalates, the United States, as the world's greatest superpower, can not avoid being dragged into it. And it is critical to U.S.-Indian relations that the U.S. not appear to validate Pakistan's claim to Kashmir, even though Pakistan is a key ally in the war on terror (Mandelbaum, 2002). Fortunately, this political hot potato seems to be cooling for the moment. Both India and Pakistan have been working more closely to peacefully resolve the Kashmir issue, a process that was largely spurred by the 2005 earthquake that devastated parts of Kashmir. The two sides have cooperated on transportation and economic aid issues and, thus far, have not allowed attempts by extremists to undermine the peace process (Musharraf upbeat, 2005). Any resolution of the Kashmir issue - or any moves that keep it on the back burner - will be helpful for U.S.-Indian relations.
The other major security issue in U.S.-Indian relations is India's possession of nuclear technology and how the U.S. has dealt with it. When India first developed nuclear capabilities in 1974, the basic U.S. position was that India was a rogue nuclear state. India was not - and is not - a signatory to the Non-Proliferation Treaty, which establishes various safeguards in nuclear countries. The fact that India possessed civilian and weaponized nuclear technology and would not sign the non-proliferation agreement led the U.S. To slap India with economic sanctions that lasted from 1998 to 2001 (Gwertzman, 2005).
India, in its defense, maintains that the non-proliferation agreement is financially punitive to developing countries and that it has followed the provisions of the agreement, even without becoming a signatory (India takes, 2005). There is, in fact, evidence that India has been a conscientious nuclear power and the country has not conducted a test nuclear detonation since a global test ban treaty in 1998 (India takes, 2005). During the later years of the Clinton presidency and the early years of the Bush administration, America began to change its view of India as a rogue nuclear state. In fact, Bush was able to push through a Republican Congress in 2005 an agreement that allows U.S. nuclear technology to be sold to India for civilian purposes (Gwertzman, 2005). In supporting the agreement, Pres. George W. Bush stated that India had proven itself a responsible user of nuclear technology, which signified a major policy shift from the previous American insistence that nuclear nations be signatories to the non-proliferation agreement. In addition, the economic sanctions against India that were waived in 2001 allow for more military technology to be sold in India, and this business has become brisk and growing (Gwertzman, 2005).
The issue over India's nuclear capabilities seems to be evolving into a non-factor in U.S.-India relations. The relationship between India and Pakistan is the greatest risk to U.S.-India ties, as the United States has essentially been playing both sides. If the Kashmir dispute flairs again, America will again be drawn into the middle. Further, if military conflict ever arises again between India and Pakistan, it will not go unnoticed in India when the Pakistani army is dropping American-made bombs from American-made jets. In essence, the United States may proclaim neutrality in such a conflict, but there is plenty to undermine the appearance of that neutrality. Peace between India and Pakistan is simply critical to U.S.-Indian relations.
India and the United States are still in the early stages of what will hopefully be a strong and prosperous friendship. These two nations both have a democratic tradition and are strategically important to each other. However, decades of mistrust and friction have left lingering issues that will need to eventually be resolved if relations are to fully flourish. On the economic side, India has developed protectionist trade practices that have caused a significant trade imbalance in India's favor. American companies have imported thousands of jobs to India, but the nation's tariffs keep it closed for business to many American companies who would like to sell to India's considerable consumer base. As long as India keeps slapping American and other foreign products with punitively high tariffs, there will always be a degree of economic friction between the U.S. And India.
The major security issue between the United States and India will continue to be India's relationship with Pakistan, which has become a critical U.S. ally in the war on terror. The United States has become a military and economic partner to both nations, and if tensions flair again over Kashmir, a neutral U.S. policy might not be acceptable to either side.
Clearly, there are remaining issues that must be resolved to broaden U.S.-Indian ties, but they are not necessarily any worse than the issues the U.S. faces with a great number of other nations. Important progress has been made by both nations in the past 10 years, and both sides seem interested in continuing the forward momentum.
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