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How India-US can learn from US-Canada ties

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Co-authored with Chris Sands

Long term relationships are founded on core beliefs, understanding of the other's compulsions and an agreement to compromise. America's Atlantic partnership as well as its ties with its northern and southern neighbors (Canada and Mexico) are founded on these principles. However, when we turn to US ties with countries outside the Western hemisphere one rarely sees the application of the same policy.

For most people it would seem puzzling why India and the US, the world's largest democracy and one of the world's oldest democracies, do not have closer ties and relations. For the last two decades administrations in both countries have attempted to build relations and refer to each other as 'natural allies' or to the relationship as the 'defining partnership' of the twenty first century.

However, if one were to pick up the newspaper today or attend discussions on India-US ties, one would be mistaken in believing that the two have irreconcilable differences ranging from foreign and security (Iran, Pakistan and Ukraine-Russia) to economic (intellectual property rights, trade) issues.

For decades India's economic ties with the US were limited but in 2013 bilateral trade in goods and services stood at $ 93 billion. In 2012, U.S. foreign direct investment (FDI) in India was $28.4 billion and Indian FDI in the US was $5.2 billion. Despite the enthusiasm and massive expectations on both sides that trade would boom, only 10% of India's imports come from US and only 1.4 % of American exports go to India --- in effect the same as go to Netherlands, a country whose population equals that of India's financial capital, Mumbai.

Further both sides have their grievances, which have been played out in the media in both countries.

According to American manufacturing and industry, there is lack of fair access to the Indian market for their goods due to India's non-trade barriers and India's domestic content requirements. Seeing a one billion plus large economic market in front of them, the tremendous time it takes to start business in India, the infrastructure related problems and others have dampened the enthusiasm of many in the American corporate sector. Further, as an economy which is now primarily knowledge-based, for American corporations intellectual property rights protections are at the top of their list of concerns. In this context both in the field of software as well as pharmaceuticals there is friction with India. There are over fourteen past and current WTO cases between India and the US.

India's grievances lie primarily in the way the Indian government perceives the issue of trade disputes as attacking those sectors of the Indian economy which are their shining stars, the pharmaceutical and services industries. India's generics pharmaceutical industry was seen not only as benefitting the poor within India but also tied into India's role as being a leader to other developing countries. India's services industry benefitted from BPO or Business process outsourcing and the recent changes in immigration policy in the US will have a damaging effect on these companies. As an emerging economy while India recognizes the benefits of foreign direct investment there is still a vestigial fear of domestic companies being wiped out if foreign multinationals enter the market. The need to impose domestic content requirements comes partly from this concern.

As democracies India and US share deep values. The 3 mn strong Indian American diaspora has enriched American life for decades and contributed in all spheres of American politics, economy and academia. Further, over 100,000 Indian students come to study in the United States every year and when most of them return to India they carry back with them American ideas, American understanding and help deepen the bonds between the two countries. Furthermore, annual polls in both countries demonstrate the vast majority of Indians and Americans have a positive view of the other country.

India & the US also share a common vision of the future security architecture for the world, especially the Asia Pacific region. Both prefer an inclusive open security architecture and face common challenges tied to terrorism. One therefore wonders why policy makers in both countries have not been able to move beyond their disagreements to focus on the critical issues which both agree upon.

It is not as though the US does not have disagreements with close allies and neighbors. If we analyze US ties with Canada we see how two countries who still have border and trade and other disputes have managed to ensure that their disputes do not overwhelm their overall relationship.

Canada has been placed on the list of "intellectual property pirate nations" by the United States Trade Representative for more than a decade because, among other things, Canada has rescinded patent protection for pharmaceutical drugs when promises made to renew a patent for a new purpose (so-called "evergreening") are not met.

Since September 2001, U.S. border security measures have restricted the market access Canadian found hard to get in the Canada-U.S. Free Trade Agreement and NAFTA. This has hurt Canadian exports and slowed growth, while U.S. officials demanded Canada increase its domestic security and intelligence cooperation to sustain even this reduced access.

Energy is the biggest Canadian export to the United States, and a lucrative part of the world's largest bilateral trade relationship. Canada exports 2.5 million barrels of oil to the United States per day, at prices below world market prices because Canada lacks the infrastructure to move more oil by sea (its oil is landlocked mid-continent). The U.S. is currently blocking the Keystone pipeline project, which would bring more Canadian oil across the border. And yet Canada and the United States are considered the best of friends. Public opinion surveys consistently show that the citizens of both countries regard each other with respect and deep affection.

The lesson for India in this is clear. Good relations with the United States don't mean that there will be no disputes, and harsh words about policy disagreements will be shared by candid friends. And in a mature relationship, no side gets everything it wants, nor can either side take umbrage at the other for trying to do so.
The United States and India are developing just such a mature relationship. New Delhi should not shrink from pursuing its interests, nor blanch at strong language from Washington. As Canada proves, this is the best way to get along with Americans. And they should know.

Aparna Pande is Research Fellow & Director of Hudson Institute's Initiative on India & the Future of South Asia. Christopher Sands is Senior Fellow where he directs the Initiative on North American Competitiveness and concentrates on regional economic integration and policy coordination.