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Hearing on U.S.-India Trade Relations: Opportunities and Challenges
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HEARING BEFORE THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION |
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COMMITTEE ON WAYS AND MEANS |
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SAM JOHNSON, Texas |
SANDER M. LEVIN, Michigan CHARLES B. RANGEL, New York JIM MCDERMOTT, Washington JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts XAVIER BECERRA, California LLOYD DOGGETT, Texas MIKE THOMPSON, California JOHN B. LARSON, Connecticut EARL BLUMENAUER, Oregon RON KIND, Wisconsin BILL PASCRELL, JR., New Jersey JOSEPH CROWLEY, New York ALLYSON SCHWARTZ, Pennsylvania DANNY DAVIS, Illinois LINDA SÁNCHEZ, California |
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JENNIFER M. SAFAVIAN,Staff Director and General Counsel
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SUBCOMMITTEE ON TRADE |
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KEVIN BRADY, Texas |
CHARLES B. RANGEL, New York RICHARD E. NEAL, Massachusetts JOHN B. LARSON, Connecticut EARL BLUMENAUER, Oregon RON KIND, Wisconsin |
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C O N T E N T S
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WITNESSES
Dan Twining
Senior Fellow for Asia, German Marshall Fund of the United States
Testimony
Arvind Subramanian
Senior Fellow, Peterson Institute for International Economics, and the Center for Global Development
Testimony
Ambassador Allen F. Johnson
Founder, Allen F. Johnson & Associates, and Former Chief Agricultural Negotiator, Office of the United States Trade Representative
Testimony
Dean Garfield
President & CEO, Information Technology Industry Council
Testimony
Roy Waldron
Senior Vice President and Chief Intellectual Property Counsel, Pfizer
Testimony
Hearing on U.S.-India Trade Relations: Opportunities and Challenges
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.
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The Subcommittee met, pursuant to notice, at 10:08 a.m., in Room 1100, Longworth House Office Building, Hon. Devin Nunes [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
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*Chairman Nunes. Good morning. I want to welcome our panel of witnesses and everyone else to our hearing on U.S.‑India Trade Relations.
It is an honor and privilege to be chairing my first hearing as Trade Subcommittee Chairman and to be serving with my colleague, Ranking Member Charles Rangel.
Under Chairman Camp and Chairman Brady’s leadership, the previous Congress passed seven bipartisan trade bills. These achievements show that Congress and the White House, Republican and Democrats can come together and pursue pro‑growth, pro‑job policies. We must now accelerate this momentum so that U.S. businesses, farmers, ranchers and workers will find new opportunities abroad, where 95 percent of the world’s consumers live.
That takes us to the focus of today’s hearing. India has risen rapidly since its market‑opening reforms in the early 1990s. Its GDP has grown from 275 billion in 1991 to 1.8 trillion in 2012.
Nevertheless, India remains the largest recipient of benefits under the U.S. Generalized System of Preferences. This is a program that expires this July and one this Committee must deal with.
The U.S.‑India Strategic Partnership is a key relationship with bilateral trade in goods and services rising from minuscule amounts 25 years ago to more than 86 billion a year now. But there is scope for much more. With a population of over 1.2 billion, India’s market holds potential for world class U.S. products and services.
I want to ensure that U.S. job creators compete there on a level-playing field. This hearing will provide an opportunity for the Committee to explore the positive aspects of the U.S.‑India economic relationship, as well as to examine India’s tariff and non‑tariff barriers that are acting as impediments.
In particular, I want to examine the following issues:
Deepening and expanding the long‑term trade and investment relationship;
Understanding the existing U.S.‑India bilateral for a for discussion and how they can be more effective in addressing bilateral irritants and establishing metrics for measuring progress;
Addressing India’s troubling use of forced localization in key sectors;
Ensuring India’s protection of intellectual property rights;
Addressing agricultural market access barriers to ensure a level playing field for U.S. farmers and ranchers;
Completing a bilateral investment treating;
Addressing investment cap; and
Exploring new bilateral investment opportunities which are all vital to U.S. growth;
And, finally, partnering with India to advance negotiations at the WTO, including a post‑DOHA issue such as Information Technology Agreement Expansion, a trade facilitation agreement, and the International Services Agreement negotiations that are about to be launched in Geneva.
I look forward to having a comprehensive discussion today about promoting economic growth and job creation by solving difficult bilateral issues and strengthening U.S.‑India ties.
I will now yield to Ranking Member Rangel for the purpose of an opening statement.
*Mr. Rangel. Let me on behalf of the Democrats congratulate you, Chairman Nunes, for becoming the chair, and also thank you for having this first hearing.
As was pointed out so many times, the area of trade has been the most successful area in which we have been able to penetrate the depth of partisanship that exists in our Congress unfortunately. But I do hope that you know that you can depend on us to move forward in working with you toward improving the economic situation that exists in our country on the international area.
I think there is much agreement, especially with our terrific relationship with India, who is a vital ally not only in terms of national security, but it is one of our great growing trading relationships; a great democracy. Total trade was nearly $50 billion, up from just 8 billion in 2000, and total services have grown just as rapidly, from 4.5 billion in 2000 to 28.5 billion in 2011. And our investment in India and India’s investment in the United States has been constantly and continuously expanding.
This people should recognize, we being the two greatest democracies in the world, and I think that we do have problems as most friends and family would have, and we like to point out some of what we believe are unfair incentives in order to improve the relationship that exists, as we think that many of these things violate international trade.
We know the particular concerns that India has with its large, young population. We also know in our country what the pains are of unemployment. But we do have forums that we can try to work out these differences in how we try to bring a better working relationship with both of our great democracies.
We hope that we can avoid threatening taking every issue to the World Trade Organization. We hope that our business people, as well as legislators, work to eliminate or take away the problems that we have in this area, and we hope that we will do this under your leadership and the Congress and the President.
And once again, I welcome you to the chair, and our committee is anxious to get started.
*Chairman Nunes. Well, thank you, Mr. Rangel.
And Mr. Rangel and I are trying to work as closely as we can. I think we both feel that this is really one of the issues in Congress where there is bipartisan agreement, and we hope to advance the trade agenda as best as we can.
Today we are joined by five witnesses. Our first witness will be Dan Twining, Senior Fellow for Asia, at the German Marshall Fund of the United States. Mr. Twining will be our scene setter regarding the past, present and future of the U.S.‑India relationship.
After him, Arvind Subramanian, Senior Fellow, at the Peterson Institute for International Economics and the Center for Global Development, will be our second witness. Dr. Subramanian will speak about India’s economy and domestic developments that are affecting India’s outward policies.
Our third witness will be someone who is familiar with this Committee, Ambassador Allen Johnson, founder of the Allen F. Johnson & Associates. Ambassador Johnson has held the position of Chief Agricultural Negotiator at the Office of the United States Trade Representative and will speak today about the multilateral and bilateral relations with India, focusing on agricultural issues.
Our fourth witness will be Dean Garfield, President and CEO of The Information Technology Industry Council. Mr. Garfield will speak on the opportunities and challenges in bilateral high-tech trade.
Our fifth and final witness will be Roy Waldron, Senior Vice President and Chief Intellectual Property Counsel, at Pfizer, Inc. Mr. Waldron will testify about his company’s longstanding work in India and India’s intellectual property regime.
We welcome all of you and look forward to your testimony.
Before recognizing our first witness let me note that our time this morning is limited. So we will be limiting questions to five minutes in the hopes of giving as many Members the opportunity to be recognized as possible
Mr. Twining, your written statement, like those of all the witnesses, will be made part of the record, and you are now recognized for five minutes.
STATEMENT OF DAN TWINING, SENIOR FELLOW FOR ASIA, GERMAN MARSHALL FUND OF THE UNITED STATES
*Mr. Twining. Thanks, Mr. Chairman, Members of the subcommittee. It’s an honor to appear before you today to discuss the enormous potential of U.S.‑India trade and investment relations.
Within a generation India is likely to become one of America’s most vital partners in world affairs. It will bring more capabilities to the table than any existing U.S. ally in pursuit of our convergent interests; defeating terrorism and extremism, managing China’s rise, keeping open the Indian Ocean sea lanes, and sustaining a liberal international order.
Recognizing this, Washington and New Delhi have developed a far‑reaching strategic partnership centered on defense cooperation, but our economic relationship remains strangely underdeveloped. Despite disappointing growth recently, India’s economy has doubled in size in less than seven years. Its economy is likely to become the world’s third largest sometime in the 2020s.
The U.S. National Intelligence Council forecasts that India will become the biggest driver of middle class growth on earth by 2030 and will surpass China in economic dynamism. The NIC also forecasts that India could have the world’s largest economy by the end of this century. This is a country America will want to work with to sustain an open global economy that promotes the prosperity of all free societies.
A decade ago, then American Ambassador Bob Blackwill famously said that U.S.‑India economic ties were “flat as a chapatti”. The situation has improved. America is now India’s top economic partner measured in goods and services trade. China is India’s top partner measured in terms of goods alone.
Since 2001, U.S.‑India trade has doubled every five years. It is approaching the 100 billion dollar mark. This is good news in a way, but it is also disappointing. It is a low number still. Our trade with India is only one‑seventh of our trade with China, despite the fact that one country is a strategic partner and the other is a strategic competitor.
Regrettably, the Obama Administration’s signature trade initiatives, TTP and TTIP, do not include India. The primary economic initiative between our two countries has been a modest bilateral investment treaty. It has been stuck in the bowels of our bureaucracies for years.
At the same time, India has enacted or is negotiating trade agreements with Japan, the EU, ASEAN and a number of other partners, but not the United States. Although India is part of Asia’s security architecture, it is not part of Asia’s economic architecture. India applied for APEC membership back in 1991, but the U.S. eventually backed a moratorium on membership. That moratorium has expired. India’s exclusion makes little sense for a country that sits in the middle of Asia, is an important trading partner to America, China, and Japan, and has an economy that comprises nearly 20 percent of global GDP by 2060, according to the OECD.
Without a strategic framework for economic cooperation, Indian and American trade negotiators skirmish frequently in bilateral channels and at the WTO. Our trade ties too often degenerate into parochial disputes over things like pistachio nuts and chickens that have occupied even top political leaders. This is no way to build a strategic economic relationship between the world’s largest democracies.
To elevate our bilateral relations to the strategic level, I believe America and India should launch negotiations for a free trade agreement. India will have to undertake far‑reaching domestic reforms to qualify. New Delhi might find it easier to undertake these reforms if it can do so as part of a process of acceding to APEC. This will take time, but the requirements of membership could incentivize an Indian system wary of reform, the political costs of reform, to pursue aggressive liberalization.
The prize of eventual APEC membership coupled with an eventual FTA with America could empower economic reformers within the Indian system and mobilize the Indian private sector which is, frankly, quite fed up with the government’s slow pace of reform.
Skeptics will argue correctly that Indian officials have been among the most obstreperous opponents of the U.S. trade agenda in venues like the WTO. This is true. Stepping back, however, looking strategically at India’s deepening involvement in international institutions, we see that India behaves quite differently once it is inside a club than when it is excluded from it. Rather than throwing bombs from the outside, India has acted more responsibly in institutions like the IAEA and the U.N. Security Council. Indians crave the status of full membership in an international order they believe has excluded them for too long. Once seated at the high table, they are more inclined to help enforce global rules. I think the same would be true if India should accede to APEC.
India needs to grow in order to underwrite its security in a very tough neighborhood and to uplift more poor people than exist in all of Sub‑Saharan Africa. The country has implemented massive rural welfare schemes, but government welfare alone will never build the world’s largest middle class. Only a dynamic private sector will do that.
The U.S. can help accelerate this process by incentivizing our Indian friends to open up their economy to again produce growth rates approaching ten percent. China grew at this pace for several decades, as did Japan and South Korea before it. There is no cultural or historic reason India cannot deliver a “South Asian miracle” to match the “East Asian miracle” we have seen in the Pacific.
India should ultimately find it has no stronger partner in economics than the United States. It is time to put in place an agenda for economic cooperation between our countries that mirrors the ambitions of our strategic partnership, and catalyzes enduring prosperity for both our peoples.
Thank you.
[The statement of Mr. Twining follows:]
*Chairman Nunes. Thank you, Mr. Twining.
Mr. Subramanian.
STATEMENT OF ARVIND SUBRAMANIAN, SENIOR FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS, AND THE CENTER FOR GLOBAL DEVELOPMENT
*Mr. Subramanian. Thank you, Chairman Nunes, Ranking Member Rangel, and Members of the subcommittee for giving me the opportunity to testify today.
In the brief time available, I want to make three observations and three recommendations. Observation number one, the prize is big. I have breaking news for you. In 2012 India became the world’s third largest economy in purchasing power parity terms, surpassing Japan and now behind only the United States and China.
My forecast is that this $4.7 trillion economy will double every seven to ten years. This one trillion trade economy will double every seven years, and the U.S. has benefitted immensely, as my colleague has suggested, and it is worth emphasizing that India‑U.S. trade and investment are balanced so that you do not have the kinds of tensions with other countries from imbalanced trade.
Observation number two, the sectorial and the micro should not obscure the broad macro development, and these developments are that despite India’s transitional turbulence that is happening now, slower growth, mounting macro vulnerabilities, the predominant trend has been toward opening.
In the last two, three years, few countries have opened up to FDI and foreign capital across the board, you know, stock markets, equities, debt instruments, et cetera, like India has, and that is because it reflects a deep and fundamental bipartisan consensus within India that the way forward is greater openness and globalization.
Observation number three, all that being said, however, there are, I think, three major challenges that the U.S. States and U.S. business face in India. Two of these I think my colleagues are going to talk about. One is the localization that, Chairman Nunes, you referred to. And here I just want to say that India has caught the China bug. India wants to do the same Chinese indigenization and localization that China has been doing, and I think there is a domestic imperative to create a manufacturing base which India has not been able to do. So it is resorting to these measures.
A second challenge is the weak and uncertain regulatory and tax environment that affects the U.S., the civil nuclear industry, pharmaceuticals, agriculture, infrastructure, et cetera, and I’ll have more to say on that.
The third big challenge that American firms are not complaining about but which they should most of all is what my colleague referred to, which is that because of all these free trade agreements that India has signed or is about to sign, U.S. business is getting disadvantaged.
And why is this serious? For two reasons. India has very high barriers, and it is a growing market. So the extent of disadvantage to American business is absolutely huge.
How should these three challenges be addressed? One, on the localization protectionist measures, the regulatory environment, my strong urging would be to dialogue in the first instance, but if not, if that doesn’t work, use the WTO to resolve conflicts as much as possible for two reasons.
One, you can test the validity of claims, you know, about India being way out of line on many of these issues, IPRs, agriculture; and, second, India has a great record of complying with WTO rulings. A factor that I think is worth pointing out is that India’s biggest trade reform came after the U.S. initiated a dispute against U.S.‑Indian quantitative restrictions on consumer goods that went through. India complied with it, and you had the biggest change possible.
Recommendation number two, on the uncertain regulatory environment I think the problem here is serious. It is not going to get resolved very soon. I think that U.S. business has a challenge to adapt to the Indian environment because if not, it risks losing ground to other countries, other competitors that are getting in despite the challenging environment.
Recommendation three, and my last recommendation, go big. This is a marathon, not a sprint. This is multidimensional, not unidimensional, and sometimes going big is the best way to address even the small. You cannot resolve chickens by talking only chickens.
So a common theme running through many of these testimonies here this morning is that there is no broad strategic framework for dealing with U.S.‑India trade relations. I think my colleague made a very good point. I think it is important for three reasons: the fundamental sharing of values as a democracy; second, to reverse the disadvantage that’s taking place with both sides negotiating free trade agreements; third, above all, I think it is very important to realize that a U.S.‑India trade relationship is absolutely vital for the other big prize, which is China and keeping China tethered to the multilateral trading system and ensuring that China remains open, nondiscriminatory, and follows the policies that we want.
Finally, I would just add by saying that for this reason and FTA, relations on an FTA make sense, and we at the Peterson Institute have embarked on a big project and hopefully by the end of the year we will have something to show you for it.
[The statement of Mr. Subramanian follows:]
*Chairman Nunes. Thank you, Mr. Subramanian.
Ambassador Johnson.
STATEMENT OF AMBASSADOR ALLEN F. JOHNSON, FOUNDER, ALLEN F. JOHNSON & ASSOCIATES, AND FORMER CHIEF AGRICULTURAL NEGOTIATOR, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
*Mr. Johnson. Thank you, Mr. Chairman, for having me, and Mr. Rangel. It is a very interesting discussion listening to the other two panelists. From an agricultural point of view the potential in India is very significant.
As you mentioned there are 1.2 billion people. It is 17 percent of the world’s population. It is growing income, growing population, and it is changing in better diets. It is a young population. About 60 percent are under 30, and we have seen and I put in my testimony that there is growing demand, significant growing demand for a lot of products that the United States can export effectively and efficiently in providing for the Indian market.
And we have seen some progress, although India has seen more. Since 1995, we have seen our agriculture exports triple to India to almost $900 million, and that is out of the total U.S. export of $141 billion. So it is really about a half of one percent of our exports go to India even though it is 17 percent of the world’s population. It is the 27th largest market in the United States behind Guatemala, which is 14 million people. About a third of that number comes from almonds, which is followed at some distance by other commodities that are listed in my testimony.
But India has fared far better. Their exports over that same period have increased by tenfold, now over $5 billion. So in other words, they export five times as much agricultural products to the United States than we export to them. Half of that is rubber, but even then you are looking at two and a half times what is exported to the United States, and these are things like cashews, essential oils and other things I list in my testimony.
So you would ask yourself: what is wrong with this picture? They have four times the people. They have a growing population and income. They obviously have dietary needs that we can service, and yet we actually have an agricultural food deficit with the country. And the answer is pretty simple, which is India is very protectionist when it comes to agriculture and to a large extent because they are concerned about rural economic and political instability.
First of all, they have very high agricultural tariffs, among the highest in the world; maximum bound rates are generally between 100 and 300 percent with an average of about 120 percent. The applied tariffs are about on average 35 percent, and the difference between the bound and the applied is what we call water. They use that water effectively for managing imports basically. So if they want to avoid domestic food inflation, they lower the tariff. If they want to protect domestic prices, they raise the tariff, and they can do it within their WTO bound levels.
Most U.S. exports could face a bound level of up to 100 percent. Almonds are top export, as I mentioned earlier, faces a specific rate of 35 rupees per kilogram for shelled and 57 rupees per kilogram for unshelled. That is equal under recent prices to about a 14 percent tariff. Imagine what we could do if that did not exist, and it even today is our third largest export markets for almonds.
Other products, such as beef, pork, poultry are facing similar situations in that they have bound rates of 100 percent and applied rates between 30 and 100 percent. Dairy, for example, has bound rates between 40 and 150 percent, and applied rates between 30 and 60 percent. There are more details on this in my testimony.
The second thing that they do is they have high sanitary and phytosanitary barriers, arbitrary export certificate requirements, restrictive maximum residue levels, unjustified animal disease controls, among other things. For example, in dairy we’ve been effectively blocked since 2003 due to unwarranted important requirements. Both the U.S. Government and the industry believe these are not scientifically justified. I believe the industry has a paper here today. And to add insult to injury, we actually import twice as much dairy from India as we export.
Pork had access denied due to import residue requirements that do not have a scientific justification, as well as other requirements. U.S. livestock, poultry and pork are denied access due to overly restrictive avian influenza standards, and they have a ban on low‑path AI, which is inconsistent with international standards. So the U.S. has initiated a WTO case on this, which had a panel instituted last month.
As a global player, India we have to recognize is a very important player. Unfortunately, it has not always been helpful in moving forward, and at times it has advocated moving backwards. It is a leading member of the G20 and the G33 in the WTO talks, helping those groups to define positions for developing countries that often are not related to market openings, and even loosening rules on tariffs and subsidies allowing developing countries to actually increase the barriers or the subsidies.
They have been active in other trade agreements beyond the WTO, but to a large extent agriculture has been excluded. For example, in the Mercosur Agreement, they only included 20 tariff lines and in the Chilean agreement only 40 in agriculture, and that are out of over 600 tariff lines that they could have included.
The good news is, consistent with what he is saying, by not including us, they have not put us at a significant disadvantage relative to other exporting countries in agriculture, but as he has pointed out, they could easily start doing that and put us at a disadvantage.
The more interesting thing to me is that the world is changing very clearly. After a drought of activity in negotiations, we are seeing stepped up United States in a lot of negotiations that are very important to us. We have seen Europe and others who have never stopped having negotiations and bilateral regional agreements. Even Japan is talking about joining the TPP.
What India does and how it sees its role and sees its interests being affected by this changing environment, especially as the WTO has been stalled, is going to be very interesting. If I were them, I would be watching negotiations very closely and thinking about what I should be doing to engage in a world that is becoming more interactive without me.
So thank you, Mr. Chairman.
[The statement of Mr. Johnson follows:]
*Chairman Nunes. Thank you, Mr. Ambassador.
Mr. Garfield.
STATEMENT OF DEAN GARFIELD, PRESIDENT AND CEO, INFORMATION TECHNOLOGY INDUSTRY COUNCIL
*Mr. Garfield. Thank you, Mr. Chairman, Ranking Member Rangel, Members of the committee.
On behalf of the Information Technology Council and the world’s most dynamic and innovative companies, I would like to thank you for your bipartisan approach on trade holding this hearing. It is quite timely.
We have submitted my testimony for the record, and so rather than repeat what I know you have read, what I will do is make three points.
First, this relationship is incredibly important for geopolitical and economic reasons. The rest of the world is watching, including China, and these two democracies at least for the last 20 years have been illustrative of the power of innovation and open markets to improve lives and drive economic growth. The economist Julian Simon has made the point that the earth’s greatest resource is human innovation, and that has come to the fore and has been demonstrated quite well by India over the last 20 years.
As they have opened their markets, we have seen wholly new industries created in India, many in partnership with U.S.‑based companies. The result of that for India has been real, but also for the United States. We have gone over some of the statistics this morning about the number of people, for example, who have been moved out of poverty in India, over 400 million people. They have created a middle class that, in fact, is larger than the entire U.S. population.
The result of that is actually economic growth and job creation in the United States as well. India has moved rapidly up the list of our trading partners. In 1990, for example, the two‑way trade between India and the United States was a mere $5 billion. Now it exceeds $60 billion, which has created jobs in this country.
Point number two, there are real challenges on the ground in India right now. In spite of the opportunities that exist and the impact, the positive impact that open markets have had on the ground in India, the Government of India seems to be doing a stutter‑step on open markets and setting up a steeple chase of barriers to the success of foreign companies, especially American entities.
And the examples are wide ranging, from random new regulations, for example, new testing and certification regimes that require testing your products in the market in order to have access to the market at all. Some of the other folks testifying this morning have alluded to the tax regime there. To say it is unpredictable is to be quite kind.
Similarly, on trade agreements India is one of the partners and participants in the Information Technology Agreement, or “ITA”, that was signed in 1996, but the world has changed tremendously since 1996. None of us are carrying around mobile devices that we held back then, and yet still India seems resistant to updating that agreement and moving forward with a new ITA.
Most problematic, which we have alluded to earlier, is the preferential market access regime that is now in place in India which essentially boils down “ to if it’s not manufactured in India, then it cannot be merchandised in India there”, which has the potential to foreclose that market to foreign players, including the United States, and as a result, over the last few years we’ve started to see a decline in foreign direct investment in India, and a lot of companies questioning their ability to fully access the market, particularly since it is not just limited to government procurement, but includes private sector arrangements and deals between private entities.
India has suggested that the concern there is really focused on information security and protecting the security of the country, which we can empathize with, but the security of their products is not related to where it is made. It is related to how it is made, and there are reasonable ways for addressing those security concerns that I think industry is well prepared to address.
The third and final point is that though these issues are important for our relationship with India, they are, in fact, quite significant because of the potential contagion effect. India is not the only market that is moving forward with these forced localization requirements that Chairman Nunes referred to. We see the same sorts of developments, of course, in China, but we see them as well in Brazil, Argentina, and in certain parts of Africa. And so if we do not take steps now to deal with these challenges, they will continue to grow and will actually have real and meaningful impact on the ability of U.S.‑based industries and companies, particularly in the tech sector, to continue to grow.
We look forward to working with this Committee and Congress generally to resolving these problems.
Thank you.
[The statement of Mr. Garfield follows:]
*Chairman Nunes. Thank you, Mr. Garfield.
Mr. Waldron.
STATEMENT OF ROY WALDRON, SENIOR VICE PRESIDENT AND CHIEF INTELLECTUAL PROPERTY COUNSEL, PFIZER
*Mr. Waldron. Chairman Nunes, Ranking member Rangel, and Members of the subcommittee, thank you for the opportunity to testify here today.
My name is Roy Waldron, and I serve as the Chief Intellectual Property Counsel at Pfizer. In that capacity, I am responsible for managing and protecting Pfizer’s intellectual property portfolio worldwide.
Pfizer was founded in 1849. Our mission is to apply science to improve the health and well‑being of people’s lives. We have developed some of the world’s best known pharmaceutical products. We employ 90,000 individuals worldwide, and 30,000 in the U.S. We have a presence in all 50 States with 17 manufacturing facilities and 21 R&D sites located throughout the U.S.
In the U.S., our industry supports over four million jobs, invests over 35 billion annually in R&D, and exports 46 billion in goods. The pharmaceutical sector is the country’s sixth largest exporter. Ninety‑five percent of our consumers are outside the United States. Emerging markets like India are our key growth markets.
R&D is the lifeblood of our industry. It produces new and innovative medicines to treat diseases for patients worldwide, and intellectual property rights protect the fruits of our innovation.
Today it takes on average more than one billion dollars and ten to 15 years to research and develop a new medicine. Our industry is high risk. Only about one in 10,000 compounds ever enters the drug discovery phase and is approved by the FDA.
India is a critical growth market for Pfizer and for the pharmaceutical sector generally. Pfizer is committed to India and has been operating there for over 60 years, yet the business environment for innovative industries has deteriorated significantly and created uncertainty in that market.
India has taken steps that call into question the sustainability of foreign investment and the ability to compete fairly. India has essentially created a protectionist regime that harms U.S. job creators. Despite being a member of the WTO and an important global trading partner, India has systematically failed to interpret and apply its IP laws in a manner consistent with recognized global standards. In fact, the Global IP Center’s International IP Index ranked India last in terms of overall IP protection.
In September of last year, India revoked Pfizer’s patent for a cancer medication, Sutent. The patent for Sutent was granted in 90 countries around the world, including India, the United States, Europe and Japan. The Indian patent had been in effect for five years prior to its revocation. The revocation will now allow Indian generic companies to manufacture and sell generic copies of Sutent long before the patent is set to expire.
I would like to note that to ensure Sutent is available to patients who need it, Pfizer developed a patient access program in India. The program provides 80 percent of the patients taking Sutent with a complete or partial subsidy.
We believe that India is undermining IP by misuse of its compulsory license provisions. Compulsory licenses are intended for use in extraordinary situations of extreme urgency or other national emergency. Last March India issued a compulsory license for a cancer medicine, Nexavar, that the Indian Government had justified in part because the product was imported rather than manufactured locally. Such an industrial policy plainly contravenes established international trade obligations.
Recent reports indicate that India has started the process of issuing compulsory licenses for the manufacture of three additional cancer medicines under a public emergency provision that sidesteps notice and public comment obligations. If left alone, this trend will destroy the market for innovative pharmaceuticals in India.
And since many other countries look to India as a leader and an example, India’s actions reverberate far beyond its borders. We have seen several countries adopt policies similar to India’s which are leading to a worldwide deteriorating trend on intellectual property rights.
These actions also diminish our exports, jeopardize our R&D activities, and ultimately harm U.S. jobs. We need your help. We need the support of Congress and the Administration. It is vital that you prioritize this matter and work together to address these challenges.
Specifically, I would like to highlight four recommendations: that the U.S. Government increase the frequency of talks with the Indian Government and continue to raise concerns directly with Indian officials;
That the U.S. Government should raise concerns at every available bilateral and multilateral forum to send a strong signal to the Indian Government and to other governments that it does not condone these actions;
The U.S. Government should review all available trade policy tools in light of the deteriorating IP environment.
And, four, the U.S. Government should pursue a robust trade agenda that includes strong intellectual property protections, including robust provisions in the trans‑Pacific partnership agreement.
Thank you for holding this hearing today, and I look forward to answering your questions.
[The statement of Mr. Waldron follows:]
*Chairman Nunes. Thank you, Mr. Waldron.
So as you all know, this Committee has basically two major capabilities. One is to produce legislation. The other is to conduct oversight. So I am going to ask just a real basic question to all of you, and that is if you had up to three things that we could do either legislatively or through oversight, specifically what would you like to see this Committee engage in over this coming Congress?
And we will just start on the left with Mr. Twining.
*Mr. Twining. Mr. Chairman, rather than three things, I mean, my prize would be one big thing, which is passing trade promotion authority so that the President and the Executive Branch can negotiate the suite of trade agreements, these very ambitious trade agreements. I mean whether or not we include a U.S.‑India FTA in that. TTP, TTIP, these horizon stretching agreements, I think some of us are worried that the enabling foundation, should we get to a point where we have these agreements, is not yet in place to see them move through this body expeditiously, and that would be my quick answer.
*Chairman Nunes. Thank you, Mr. Twining.
Mr. Subramanian.
*Mr. Subramanian. I would wholeheartedly endorse what Mr. Twining just said, that we need legislative authority to pursue, you know, all the things that are already on the table, TTP, TTIP, but also a whole bunch of new initiatives like with India, but also to move beyond the DOHA round to a new kind of round of negotiations.
Because the fact of the matter is it is true that India is not very actively participating, Chairman Nunes, in the agreement that you said, and I think there is a problem here. But I think some of that could be overcome if you have a broader agenda, multilateral agenda, moving beyond DOHA that includes items of interest to China and India, as well.
So I think you need a broader agenda for which I think getting this broad based trade authority is very important.
Second, I would urge also that in looking at the economic architecture in Asia, that greater efforts be made to bring India into that architecture as a way of promoting some of the objectives that have been put forward.
And finally, the third thing I would say, you asked us what you could do, but I also want to say something on what perhaps you should not do, if I may with your permission. I think, for example, GSP expires in July, and certainly I read some of the comments you are saying that, you know, maybe we should use all trade tools available. I think on the GSP my kind of cautious advice would be the following.
I think the U.S. needs to think about graduating many countries out of GSP. I mean, I will give you one good reason. India itself now gives GSP to many least developed countries. So it is a bit odd for, you know, a GSP granting country to give GSP.
However, I would not link that to either use that as kind of a retaliatory threat or use it to force, you know, action, change within India because you incur the diplomatic cost without necessarily getting any benefits out of it because I would be highly doubtful whether actions like that, you know, would really change the regulatory environment in a way that we all want to see it changed.
*Chairman Nunes. Thank you, Mr. Subramanian.
Ambassador.
*Mr. Johnson. Yes. Thank you.
I often think of India as being a developing country with a First World bureaucracy. They are capable of stopping things very creatively, and so hearings like this and engagement, whether it is through letters or calling in Indian officials to talk about problems that they have created to our trade, I think, is really priceless because it forces an action. It forces some interaction within their own government about problems as they exist.
The second thing I would suggest is that you encourage trade, and having many battle scars from pursuing trade promotion authority in the past, I would encourage you to do it again. But I think the main thing is that, as I mentioned in my testimony, the more that India sees the rest of the world is moving, the more it has to think about the consequence to itself for not moving, whether it is in agriculture, in bilateral agreements, or in a World Trade Organization agreement. They could be constructive players if they decided that it was in their best interest to do so.
As I mentioned earlier, we have taken a WTO case recently against India on AI, and I think we are going to need to continue to do those sorts of things.
On other activities, my general point, and you brought up GSP, is that what we should be doing is encouraging them to be moving from the rural areas to other industries, and so as we can encourage that, I think that helps them in taking some of the pressure off reform in agriculture, which is ultimately essential for their own development.
*Chairman Nunes. Thank you, Ambassador.
Mr. Garfield.
*Mr. Garfield. Yes. Number one, I agree with what the other panelists have said about trade promotion authority. I think that is critically important.
Two is making clear the exigency of moving forward and resolving the issues around the preferential market access regulations that are in place. This hearing is quite timely. Just yesterday there was a report out of India that they intend to proceed full speed ahead with the private sector portions of that, which would be significantly detrimental to businesses globally, but specifically here in the United States as well.
And so making sure through Congress as well as the Administration that we are dealing with that and dealing with it now I would say is the second thing.
And then the third is something that you have done before, which is through your letters that come through in a bipartisan fashion making clear that you are paying attention, and that this is an area of emphasis and focus I think is quite important, and continuing that, I think, would be quite helpful.
*Chairman Nunes. Thank you, Mr. Garfield.
*Mr. Garfield. You are welcome
*Chairman Nunes. Mr. Waldron.
*Mr. Waldron. I have to echo the comments of my fellow panelists, but I think that some of the emphasis has to be on intellectual property. I think that there is an exigency, as Mr. Garfield references. The acceleration of compulsory license policies has accelerated in the last year. So there is some urgency with respect to the frequency of talks that we have with the Indian Government to register our displeasure with the developments that have taken place there.
I also agree that IP chapters or IP understandings are also important in these bilateral and multilateral fora. So this is really something as a second matter that I think we really have to pursue and go with our eyes wide open as to what is really happening right now, and essentially if we wait too long, we may find ourselves in a situation where it is irremediable.
And referring back to some earlier comments on GSP, I think that we do have to review all available policy tools. I think it is a matter of equity and fairness, and perhaps the upcoming renewal will be a time to actually seriously look at what we want to do and how we want to do that.
Thank you.
*Chairman Nunes. Thank you, Mr. Waldron.
With that, my time is up and I yield to you, Mr. Rangel.
*Mr. Rangel. Thank you, Mr. Chair.
I have to admit to the panel that I have not really been up to India’s position as it relates to problems that they see in international trade, and I wonder whether any of the witnesses today, although you want to improve the trade relationship, actually can be speaking on behalf of the Government of India as to how they see.
Are any of you in touch with the Government of India directly? You are.
*Mr. Garfield. We all are.
*Mr. Rangel. How could I have any little bit of assurances that if we did do what you are recommending, that the Government of India would say, “Thank you and let’s move forward”?
What do I have to work with?
*Mr. Garfield. Well, the thing that I would point to is what has happened in India in the last 20 years. I think all of the panelists have been pretty consistent about the turnaround story and the growth story and the power of innovation in India, the industries that are being created, the people that are being moved out of poverty, the people that have been moved into the middle class, which is the point I made earlier, which is that segment of the population is now larger than the U.S. population in its entirety.
*Mr. Rangel. Mr. Garfield, I did not frame my question correctly. I think all of us are excited about the increase in trade, the number of people that are moving out of poverty into the middle class, and the Chairman asked what is it that all of you three would think is the most important, and of course, that is good.
I also want to know whether there is anyone here that can say this is what India thinks is the most important. Does India want to move toward a free trade agreement? Does India agree with Mr. Subramanian that rather than get issues resolved, that we should take them to the WTO with all the time and expense we have with that?
And even though I would acknowledge you to answer, I cannot perceive that India would support that. You know, do not work it out. We have got a good record with the WTO. Talk to them.
Does that make any sense? What am I missing?
*Mr. Subramanian. If I may.
*Mr. Garfield. Yes.
*Mr. Subramanian. Thank you, Chairman Rangel.
I would say two things in response. One, does India want to move forward? I think there is a sense, firstly, India is moving forward with Japan, the EU, Canada, ASEAN Plus Six, et cetera, et cetera.
*Mr. Rangel. Well, how does India deal with the observations that some of our business have that they have not been fair in terms of their trade agreements, and so why in the world would we be supporting them in the WTO or free trade agreements?
Who here would suggest that India recognizes that we have problems with the tariffs? We have problems with them like we want to make it in USA and they want to make it in India. We recognize that these are problems that we have with all countries, and they have got big problems with us.
I am just having a small problem and wondering how you can help us to deal with these problems. I think after this meeting when I talk with the Ambassador from India more of my questions will be answered as I can deal with their trade people and get a better answer.
But I just do not know if you told the Chair the three things you thought were important and all of us agreed, then what would we do? Tell our Trade Representatives to do it?
*Mr. Garfield. Yes. If I can jump in as well. Fundamentally, I do not think India would necessarily agree with all of the solutions we have offered. That is number one.
Number two, to the question of what we hear from India, most of what we hear in response to the concerns that we raise relates to security, and so what we are told is this is not directed at the United States, but it is a broader concern about security and the security of India, which we empathize with. And we spend a lot of time talking to the Indian Government, including with the Ambassador, whom we are seeing this evening, about ways of addressing those legitimate security concerns without building a wall around India and Balkanizing the country.
*Mr. Rangel. I am sorry. Who are “we” that is concerned? When you say “we”?
*Mr. Garfield. When I say “we” it is actually broad, you know. So we just ‑‑
*Mr. Rangel. I know, but who are you talking about?
*Mr. Garfield. Actually most specifically I am talking about the global technology sector when I say “we,” but I am also talking about the United States and other countries that have significant concerns about the direction in India.
Just a few weeks ago we sent a letter to the Prime Minister that was signed by 39 different entities representing over ten different countries, and so we are here in front of the U.S. Congress, and so, of course, this is a U.S. concern, but I feel comfortable saying this is a multi‑sectorial and a multinational issue where the United States and this Congress can play a significant leadership role.
*Mr. Rangel. I yield back, Mr. Chairman.
*Chairman Nunes. Thank you, Mr. Rangel.
Mr. Reichert is recognized for five minutes.
*Mr. Reichert. Thank you, Mr. Chairman.
I just want to follow up on the Ranking Member’s questions.
So as you said, Mr. Garfield, 39 international trade groups have written the Prime Minister. Other groups have followed with additional letters expressing their concerns about India’s actions. But an official at India’s Department of Telecommunications said, “The concerns expressed by various stakeholders would be considered as India finalizes their rules.”
What does that really mean? It does not sound too promising, as I think Mr. Rangel was pointing out.
We have sent letters; Congress has sent letters expressing our concern. You have sent letters. Others have sent them. What does that really mean, “we will take this under consideration,” the concerns?
*Mr. Subramanian. Let me jump in here. I do not carry a brief for anyone, but I think the important point to recognize is that what is also a response to Chairman Rangel is that the Indian Government’s response would be that on many of the concerns that have been raised, we are actually consistent with our international obligations, you know, and where we are not, we are open to dialogue, including, you know, dispute settlement under multilateral procedures.
So I think in some ways to understand the Indian perspective one has to take into account what the domestic challenges are, you know, creating a manufacturing base, for example, you know, imitating China, and that underlies the PMA policy, for example.
But in response to the concerns, they would say in agriculture, yes, our tariffs are high, but out bound tariffs are much higher, and we are not violating any of them. So I think that is why to test some of these claims I think it is useful to get them adjudicated under multilateral dispute settlement procedures.
*Mr. Reichert. Is there any concern on India’s part that, you know, we are all, as Mr. Rangel, again, said, pleased to see that a lot of people are moving out of poverty and upward mobility into the middle class and higher in India, and that has been the result of some of their policies possibly.
But when they look into the future, is there any concern at all that as they move ahead other countries are developing other technologies that they will not necessarily have access to, and they will begin to fall behind?
Has that been a consideration at all?
I am from Washington State, and we do a lot of business with India. We just opened, I think our seventh Starbucks in India, some progress, but we are concerned because in 2012 Washington State exported $1.2 billion worth of goods to India, up from $661 million in 2011, but down $3 billion since 2007.
So, you know, we are losing our ability to interact with India and exchange ideas and technology, negative on us, but is India even aware or thinking about the future and the loss of this technology and these opportunities to interact with other countries in the future where they may lose instead of be gaining?
*Mr. Garfield. I think it is hard to ignore. The foreign direct investment numbers over the last three years are reflective of that. Starbucks is a great example because they’re in, but there are a lot of other retailers, including some in the technology sector, who would like to be in and are challenged in doing so, some very prominent ones, in fact.
Your initial question, I think we have heard it before, which is it is under advisement, and we will consider it, and I think until there is a sense that the implications of not addressing this are going to be significant, then it will continue to be under advisement, and that is why this hearing today is so important.
We know the powers that be in India are, in fact, paying attention.
*Mr. Reichert. Yes.
*Mr. Subramanian. I just want to add, I just want to say that, you know, again, I think one risks obscuring, you know, what is happening in specific sectors with what is happen overall; that in fact, late last year the most dramatic opening to FDI happened, you know, which would allow Walmart to go into India. That happened recently.
And in the last three years, the access that U.S. investors have to Indian stocks, equities, bonds, have been increased dramatically. So I think one needs to have this balance of, yes, there are sectorial problems, but the underlying trends. FDI came down during the crisis, but it has picked up again once again.
*Mr. Reichert. Thank you, Mr. Chairman.
*Chairman Nunes. Thank you, Mr. Reichert.
Mr. Neal is recognized for five minutes.
*Mr. Neal. Thank you, Mr. Chairman.
Just a quick footnote. The issue of intellectual property has lingered here for a long time as we have witnessed this growing relationship between the United States and India, but it is a very stubborn problem, but I want to take you to another question that is more specific with a specific company located in New England, TAKO. They have asked that because we are holding this hearing that I raise this issue specifically on their behalf.
This is an American company that is moving part of their manufacturing business to India from China. Now, you would think that that would be a good thing for India. However, India has made the move so difficult that the company is now beginning to regret the decision.
For example, TAKO has sent some samples of their finished products to Indian vendors who will be manufacturing their products and TAKO ran into major problems with Indian customs, including long holds on samples and arbitrary duties and fees. With a work force of 500 million people which is slated to grow over these next 25 years, India is grasping at any means to generate manufacturing employment, and we have seen and witnessed some forced localization measures.
Here is an instance where an American manufacturer is trying to create manufacturing jobs in India, and India is making it very difficult for them to do so.
As witnesses, is there any one of you who wishes to speak specifically to this question?
And I would note that TAKO is headquartered in Cranston, Rhode Island.
*Mr. Twining. Sir, I can make just a general point, which is that one reason the U.S. and India had a very fraught relationship really throughout the Cold War was not simply because of Cold War divisions, but because India socialized most of its economic base when it became independent after the British Colonial period. Most of us are pretty progressive, and we are used to thinking about India as this dynamic market, a billion plus people, one of the biggest economies down the road, but in fact, you still have a government whose tentacles are everywhere in the economy, and it is one reason why the Indian private sector, quite interestingly, they are so fed up with the regulatory mess in India that many of them are actually going abroad. It is actually much easier and more rewarding for many Indian companies to invest in Europe or the United States than it is in their own country.
And so we do not have an Indian private sector representative here at the dais, but if we did, I suspect he would say, “Gosh, we have this kind of problem ourselves and it drives us nuts.”
But from a ten, 20‑year perspective, the Indian Government has been in the process of stepping back from the economy, but it is still far too heavily involved in it, and that is something we think, again, I think there is a consensus that a big push on trade liberalization between our countries would help to extract the Indian state in ways that would really benefit the Indian people through greater economic growth.
*Mr. Neal. But the difficult with that point is that as we pursue free trade agreements and breaking down barriers to trade, one of the items, I think, that could fairly be ascribed to governments in China or India is that they are for free trade on their terms.
*Mr. Subramanian. I think that that is a fair point, Mr. Neal, but I think the other side, the way this could possibly work, the big push that we are talking about is because trade is a two‑way street. For example, just as localization and others, IP issues are raising concerns, I think the Indian Government also has, you know, issues of concern in the U.S. which, you know, a kind of big push would allow this kind of tradeoff to be made.
To give one example, the H1B issue, the immigration issue, you know, export licensing, for example, that is another issue. Totalization in Social Security agreements, that is another issue.
So I think the important thing here is how can we create a framework so that more of these exchanges can take place and it does not just become, you know, U.S. business complaining about problems in India which no doubt exist, but creating a more positive two‑way dynamic to create the incentives that Mr. Twining talked about also for India to change some of these policies.
*Chairman Nunes. Mr. Waldron.
*Mr. Waldron. I think it is possible here at least in the discussion of technology and intellectual property to create win‑win situations. I think you want to be able to convince the Indian Government that this is not a zero sum game. This is about creating an environment for innovation, and India has the resources technically to advance very far in terms of creating new, innovative technologies, yet it seems to be going towards a very short‑term view of what is going on.
But I think we can play a very strong role in at least advocating, look, the long term and the future here of prosperity is with advancing a win‑win situation.
*Mr. Neal. Thank you, Mr. Chairman.
*Chairman Nunes. Thank you, Mr. Neal.
Mr. Smith.
*Mr. Smith. Thank you, Mr. Chairman, and thank you to our witnesses for your participation today.
Ambassador Johnson, you touched a bit on agriculture and, you know, I guess in general and some more specific terms, obviously we know we have got a globalized economy, and I think of a business that exports around the world. This business happens to obviously be in my district, but in a town of 300 population, and I hear from them that India’s policies have inconsistent tariffs, non‑tariff trade barriers, various other challenges.
Could you elaborate on that perhaps?
*Mr. Johnson. I am sorry. What was the business?
*Mr. Smith. Agriculture.
*Mr. Johnson. Oh, in general.
*Mr. Smith. Right.
*Mr. Johnson. Well, I come from a town of 300 people in Iowa. So I have sympathy for your constituents.
No, actually in combination response to the question that Chairman Nunes has asked in sort of responding to Congressman Nunes, is that what India basically wants is agreements on its own terms, whether you are talking about the WTO that they actually want to backtrack on tariffs and developing country subsidies, or are you talking about bilateral agreements where they basically leave agriculture out. They include 20 tariff lines out of 600 potentially.
And in response to Chairman Nunes, I tried to say that I think this Committee is showing an aggressive agenda, an aggressive agenda on trade that India would be left out of if they do not start acting in a way that is more conducive to trade. It would be helpful.
In agriculture, we see countless not just in the number of SPS barriers, but the goal line keeps moving. If you start addressing one and then another one seems to pop up. There is one reason, motivation for it, and you deal with that. Then they come up with another reason for justifying a barrier.
And then as we started out by saying they have very high tariffs, the highest in the world when it comes to agriculture across virtually all of their agricultural industries, and that is very problematic, and it allows them because they have a high bound rate and they apply it, it gives them so much water, so much protection that it gives them the flexibility to lower it whenever they need something, if there is a draught or something domestically, but they put it right back up.
Well, if you are an exporter, it is hard to build a business around not knowing what is going to happen either on the tariff side or on the regulatory, sanitary and phytosanitary rules that seem to be somewhat arbitrary at times.
I hope that answers your question.
*Mr. Smith. Sure. Now, could you reflect a little bit in terms of the restrictions that are or are not based on the sound science and economics?
*Mr. Johnson. Well, for example, in the dairy industry they have had in place a number of regulations that, in fact, have been changing over time that have to do with what we feed our animals or the drugs that we might use that are internationally recognized and accepted, and then when we go through and we spend a lot of time assisting the industry on this, when we go through trying to address each one of those problems, we get sort of similar responses to what we heard over here, which is that they are under consideration or they still believe they are justified. And so far we have not pulled a trigger on a WTO case.
Another one is avian influenza, which basically they put a ban in place for low path avian influenza, which is not an internationally recognized standard. We have the most rigorous system for monitoring and dealing with avian influenza in the world, and India has actually had high path avian influenza on numerous occasions.
And so now we have taken a WTO case against them that the panel was just empowered last month.
*Mr. Smith. When you say that the policies are changing, could you elaborate on that?
*Mr. Johnson. So I know the dairy industry has a paper here, but so, for example, when we start working through trying to deal with even things that are not science based, so, for example, they do not want certain drugs to be used for the dairy products that are sent there.
So even when we start investigating how we could be identifying suppliers that could address that specific requirement, then we will find later that there is another reason that those suppliers maybe do not fit the case or the conversation does not continue.
*Mr. Smith. Or perhaps it has less to do about public safety than some other ‑‑
*Mr. Johnson. Oh, clearly, and I think it is pretty clear on a number of these that there is not a human or animal health benefit from the regulation, but really there are effectively acts of protectionism.
*Mr. Smith. Would anyone else? Mr. Subramanian?
*Mr. Subramanian. Just a thought. You know, the description of going to WTO as pulling the trigger, at one level that is true, but I think you have to recognize that many of these regulations that are formulated within India come about because of complicated interests, and sometimes having an international ruling which says this is not based on sound science actually helps the pro liberalization law be within India to act on those who are against it.
So I think that is a big advantage of having, you know, international pressure through, you know, multilateral procedures to kind of strengthen the hands of kind of the good guys within India.
*Mr. Smith. Okay. Thank you. I yield back.
*Chairman Nunes. Thank you.
Mr. Larson is recognized for five minutes.
*Mr. Larson. Thank you, Chairman Nunes and Mr. Rangel, and our distinguished guests that are here today. The testimony has been enlightening and certainly we all share the concerns and the great opportunity that exists with the vast potential of India.
I would like to amplify a point that Mr. Neal made and one that continues to be a thorny issue for this Committee and American manufacturers in general, and that deals with the issue of intellectual properties.
And having several value added manufacturers in the Northeast and specifically in the State of Connecticut and one testifying today in terms of Pfizer, I would like to get the perspective, if I could, Mr. Waldron, from you and other panelists if they want to join in, about the difficulties that American companies face.
I believe it was Mr. Garfield that talked about the complications of preferential markets and the bureaucratic entanglements that that creates, and of course, the ongoing concern that so many American manufacturers have related to us about intellectual property, if you could, sir.
Mr. Waldron.
*Mr. Waldron. Thank you, Congressman Larson.
I think we have to sort of talk about balance here in the intellectual property area. I mean, even though India will proclaim it is consistent with trade obligations in terms of its patent law, we have had in the recent past about eight sort of cases that have come up dealing with patented products, and frankly, we are dealing with a situation where we are at zero and eight in terms of the patent being upheld or any sort of pushing back on a compulsory license or revocation actions. I think it speaks to a very poor record, and there is something out of balance.
I mean, the rest of the world has IP provisions that are consistent with international obligations. Yet we are so far towards the range where everything is revoked or there is no valid patent in India. I think we really have to sort of address this quickly before it becomes a very dire situation and we find ourselves where we really have nothing left.
*Mr. Larson. Would you say that that is because of an ensnarled bureaucracy or more of a deliberate plan of India?
*Mr. Waldron. Well, I cannot speak to the intentions of the Indian Government, but I think the government there should play a role and does play a role in at least communicating what it finds important and its priorities. So if all the administrative agencies are deciding cases in a certain way, that seems to be reflective of the tone that is being set at the highest levels.
I really think that there is a role that the Indian Government can do in communicating to its agencies in terms of creating a more positive environment because, frankly speaking, their interests lie in creating a culture of innovation, as we do here. The IP system has been the driver, the historic driver of innovation over many years and contributed to the great prosperity that we enjoy in this country. It is something that we should share. I think it is a legacy that we have to bring to them simply because we are in a world where we do not have drug products that cure all diseases. I think we really need to get further along, and these are interests that we all share in common with every country regardless of border.
So the emphasis really has to be on innovation, and there really needs to be messages from the top within India.
*Mr. Garfield. If I could add.
*Mr. Larson. Sure.
*Mr. Garfield. There are multiple forces at play here, and so in part it is bureaucracy. In part it is a slowing economy, and markets like India looking at China and that model and thinking that maybe the path to take, and so the point that has been made about creating opportunities for multidirectional or bidirectional dialogue, so we’re exchanging ways in which their interests can be met as well as ours, and when I say “ours,” I mean global companies, I think will serve us all well.
The concern I have is ‑‑ and not to sound too much like the boy who cried wolf ‑‑ is that some of these challenges that are progressing now could become non‑remediable if we do not address them immediately, and so creating those opportunities and that dialogue immediately, I think, is critically important.
*Mr. Larson. I believe it was Gandhi who said, “I want all of the winds of the world to be able to blow freely through my house, but I will not be blown over by any.”
And it seems to me, both Mr. Waldron and Mr. Garfield, that what you have said this would enhance their ability to stand with the rest of the world.
*Mr. Garfield. Well articulated.
*Chairman Nunes. Thank you, Mr. Larson.
Mr. Boustany is recognized for five minutes.
*Mr. Boustany. Thank you, Mr. Chairman.
This has been a really informative and compelling hearing. I really appreciate all of our witnesses and their testimony.
It has been clearly stated obviously that the benefits of a close trade and investment relationship with India is very significant, and it is also strategically important as well as we look at the growth in Asia, the Rim around the Indian Ocean, and so forth, and back in the second term of the Bush Administration, I was really enthusiastic about the civil nuclear agreement. I thought this was a very important strategic step, an opening, if you will, toward India to really formalize and enhance the relationship, and yet subsequently we saw the liability regime that was put in place, and it sort of really dampened the enthusiasm across the board.
So it is sort of like we take a step, and then there is a reaction which further pushes, and I found this problematic, but hopefully we can continue to move forward.
India clearly is critical, I think, as you all have stated very clearly. India is critical in getting back to rules‑based global trading system and bring China in and so forth, and I know we are pushing on TPP and the trans‑Atlantic agreement as leverage to hopefully bring them in and to deal with China. But the problem is we are behind timing‑wise on this while India is already moving forward with a number of other regional agreements that are, you know, not as comprehensive, but clearly put us at a disadvantage as you all stated.
But it seems to me in answering Mr. Rangel’s question, and clearly we need to talk to the Indians about it as well; I agree with you, but a couple of observations.
One, India needs to move up the value chain on manufacturing. That is clearly one of their objectives, but secondly, you know, the security issue as was raised by Mr. Garfield. But what was not mentioned is India’s severe vulnerability with regard to energy and the need for energy. And as I think about this, I know Cheniere Energy, for instance, is a company in my district. In fact, the first LNG export license has been granted to Cheniere, and we in Louisiana are very, very excited about this because it does mean jobs. They have completed a 20‑year contract with the Indian energy company. GAIL, I believe, is the name of the company, and this is taking effect in 2017. I think the contract entails 3.5 million tons of natural gas, liquefied natural gas exported from the U.S. annually.
This is a time limited opportunity given, you know, the nature of the change in global LNG markets. We have an arbitrage opportunity that is immense, but it is time limited. None of you address this specifically in your testimony, and as I look at how do we catalyze this relationship with India, what can we use as leverage?
The energy vulnerability seems key in this to me on many levels, both from a security and manufacturing standpoint, and so forth. I would like Mr. Twining and Dr. Subramanian to comment on how we could, you know, position ourselves because this is the second step granting this type of export license to a non‑FTA country.
*Mr. Twining. Sir, that is an excellent question, and I am so glad you raised it. India has one of the greatest energy import requirements in the world, and that dependency on world energy supplies will only grow as the country develops, as the population continues to bloom.
One of the smartest things the United States could do strategically in Asia, we are quite used to thinking about our military presence, our naval presence, our alliance commitments. We also sometimes talk about our trade agenda and some kind of market liberalization, but we need to add an energy pillar to this.
And exactly as you say, the shale gas revolution in the United States creates an extraordinary opportunity for us to export it, and I think we should probably export it to the world, but we should also particularly build in that dimension to our key security partnerships in Asia. I would say in Asia our most important, most capable security partnerships are with Japan and India. In different ways, and say to them, “Look. Part of this package could be preferential access or some facilitated agreement to U.S. energy exports because, in fact, we have a national security interest in helping you develop your economy and helping you develop your military capacity, help us police this tough region in the world, create some ballast in Asia other than around China,” and this is something our allies desperately need.
And so, you know, I think this could be a game changer if we play it right.
*Mr. Subramanian. It is a great question, and I agree completely with what Mr. Twining said. I would just add a couple of points.
One is that India is heavily dependent on coal. So from a climate change point of view as well, getting cleaner gas from the United States, I think, will help enormously, and also the fact that not only is coal dirty, but Indian coal supplies are kind of now again boggled by all of these regulatory problems.
So I think there is a huge opportunity there, both the energy side on the climate change side, and I think the United States should use that as leverage, you know, in pursuing not just the energy agenda. So this comes back to my point about, you know, the two‑way need.
I mean, just as, you know, concerns that we have, the U.S. has this great leverage in terms of energy exports. So I think that reinforces my view that we need to get this big thing going whether much more two‑way tradeoffs are possible.
And just one comment on your value added. The Indian problem is not moving up the value added chain. It’s moving down the value added chain because, you know, it’s too skill intensive and too technology intensive. We need to create more jobs and employment.
*Mr. Boustany. Thank you.
*Chairman Nunes. Thank you, Mr. Boustany.
Mr. Roskam is recognized for five minutes.
*Mr. Roskam. Thank you, Mr. Chairman.
Mr. Twining, in your opening remarks you said that India plays better inside the club than outside the club, and I just wanted to follow up on Dr. Boustany’s observation about the civil nuclear agreement in which they sort of made their own club.
In other words, it seems to me that part of what India has got going for it is they say, “Look. We are so big and so strategically important we are going to wait and you are going to redefine rules based on how big we are.”
Am I overstating that? Is that an over‑characterization or how would you frame that up?
*Mr. Twining. The way I would frame it is as somebody who worked in the Bush Administration on the civil nuclear agreement was we had a problem, which is that we had a country that was completely outside of the normal proliferation regime, the nonproliferation regime. We had a country that had nuclear weapons and was not proliferating them like China, Pakistan, other countries have proliferated them beyond its borders, but we had a big hole in the rule book on global nuclear trade and proliferation.
We eventually concluded, the U.S. Congress concluded along with the Administration that bringing India into the system would be better than having it on the outside. The liability law that India subsequently passed shot itself in the foot. I mean, a lot of domestic politics here, a lot of domestic politics there. The government in India had fought so hard for that civil nuclear deal. It was the first time an Indian Prime Minister had put his government on the line on a foreign policy issue, put his government on the line over building this new relationship with us.
He won that, but then it was almost like the fight went out of his Administration. They let the parliament devise this liability law that was, frankly, inadequate.
What we had seen though in terms of your question, India’s inclusion in the club, not only did we collectively bring India into this civilian nuclear regime, in civilian trade in nuclear components. India now is lobbying to join the clubs that had excluded it: the Australia group, the nuclear suppliers group, the WASSENAAR arrangement, all of these nuclear cartels that control the civilian trade in nuclear energy. India now wants to be a full member of those clubs.
*Mr. Roskam. So in that case, I mean, the paradigm has shifted, and what you are describing is more of an opportunity to invite‑‑
*Mr. Twining. No, I think it is a longer term socialization opportunity. We have also seen, I know, the Hill India’s policies towards Iran were a huge cause of concern during the civil nuclear debates. There was no quid pro quo.
We have seen India vote with the United States against Iran five times now in the IAEA, and so I think that is another example of where the country can be more responsible when it is inside than when it is out.
*Mr. Roskam. Okay. Thank you.
*Mr. Twining. Thank you.
*Mr. Roskam. Mr. Subramanian, when you went through your one, two, three and one, two, three, and thank you for doing that in a very organized way, by the way, for one of your comments I wrote down, “Rub some dirt on it,” meaning the U.S. should basically get over the regulatory and tax problems.
Can you describe what you meant? In other words, what it sounded like to me as, look, this is really big and complicated, and we are not going to be able to influence this as much as we think we can. So the phrase when a kid bumps himself, “Hey, rub some dirt on it. Get over it and move on.” Is that what you are saying?
*Mr. Subramanian. Well, I would put it in the following way. The thrust is you got it exactly right, but the issue is something that is an important issue because, you know, the first best is, for example, on the civil nuclear, is to get a much better law. There is no question about that.
But what if you don’t get that law? What if it’s not going to happen? Then I think there is a dilemma for American business.
*Mr. Roskam. So the point is do not wait.
*Mr. Subramanian. Yes, because others are getting in.
*Mr. Roskam. Okay. That is my next question. Who is getting in? How are they beating us to this?
So when this Committee in the last Congress was dealing with PNTR for Russia, for example, one of the recurrent themes and it was very persuasive and agreed was that lack of action on the part of the committee and Congress gives other global competitors an advantage in the Russian marketplace.
And so I think we did the right thing and moved forward on it. Who is beating us to the punch? And what are they doing differently? If it is so complicated for us to get these deals and sort of the nickel and dime stuff of pistachios and chickens as you guys were making these analogies, who is beating us? And are they less sophisticated agreements?
What are we missing or how are these being compared?
*Mr. Subramanian. That is a great question. So I will just give you an example. On the civil nuclear, I think France and Russia, whatever inadequacies are there in the India law, make it up in some way through kind of government guarantees of some sort, and that is the way.
*Mr. Roskam. Okay.
*Mr. Subramanian. I mean, unfortunately we are done here, right?
*Mr. Roskam. Right.
*Mr. Subramanian. And so it is a problem, but that is one of the examples of the way they are heading. In infrastructure, for example, I think, you know, the East Asians and Malaysians are getting in in a way that U.S. business is not.
*Mr. Roskam. Well, what are they doing? What are the Malaysians doing, for example? And then wind it up because we have got the red light.
*Mr. Subramanian. I mean, I think that essentially partly they are willing to take greater risks because I think U.S. business needs this rule of law comfort, you know, which is very good, but I think it loses out in the process.
*Mr. Roskam. Okay. Fair enough. Thank you.
Yield back.
*Chairman Nunes. Thank you.
Mr. Kind is recognized.
*Mr. Kind. Thank you, Mr. Chairman, and thank you for holding this very insightful and helpful hearing, and I want to thank the witnesses for your excellent testimony here today.
This is a crucial relationship, not only geopolitically but economically, and it is one that is going to require a lot of care and nurturing and attention as we move forward, given some of the challenges and the obstacles that we face.
I had a chance, Mr. Chairman, last October to head for India for a few day with Adam Smith, Duncan Hunter, and a couple of other members, and it was not just New Delhi. We got out in the countryside and the various cities, and it was a fascinating place with tremendous potential, but also some huge challenges in regards to our economic relationship.
Ambassador Johnson, I appreciate your update on where we are with the agricultural sphere of it and the difficulties that we still face trying to get India to open up a little bit more in regards to our own egg products.
Coming from my home State of Wisconsin, dairy obviously is a source of concern and, Mr. Chairman, I notice that the National Milk Producers and the Dairy Export Council submitted a statement for today’s hearing. I am not sure if it was officially included in the record, but I would ask unanimous consent at this time to have it included if it was not.
*Chairman Nunes. Without objection.
[The information follows: Dairy Industry ]
*Mr. Kind. Thank you.
But, Mr. Subramanian, something that you mentioned earlier when you were going through your litany of three things as far as U.S.‑India relations, the final one was what not to do, and that is GSP. Obviously that is coming up for reauthorization, and given the compulsory license decisions that they have made right now, which is very unsettling and could detrimentally affect Indian foreign investment going into the country, but also some of the other hurdles that we have faced, agricultural or otherwise, your recommendation is not to use that as a point of leverage as far as engaging India.
But assuming we did, what would the consequences be if they lost GSP preference from us, and what would that mean as we move forward?
*Mr. Subramanian. That is a great question, Mr. Kind. My sense is that the loss of GSP in quantitative terms will not be huge for India, you know. India basically exports a lot of high tech, you know, more advanced goods, and apart from a few things here and there, I think the quantitative impact will not be great.
So it does not make for a very strong lever vis‑a‑vis India, but I think you are going to incur the diplomatic costs because this will be symbolically seen as a kind of, you know, retaliatory action or so. That is why I think on the balance of cost and benefits I would be a little hesitant about using that.
And on the compulsory licensing, I do agree with Mr. Waldron that, you know, there are a few things in Indian law like Section 3(d) of the Indian Patent Act has these requirements for a patent, the efficacy requirement or the working requirement. I think these are things that are well tested in the WTO. I mean, I do not think we need to resort to retaliatory threats to get these changes because I think because India might be out of line with international practice, I think it is good to get an international‑‑
*Mr. Kind. You think it would be fair game as we come up with reauthorization of GSP to be looking at India and other countries involved, too, in regards to whether we need to at this point in development extend those preferences to India or some others.
*Mr. Subramanian. Yes, but that should be a more generic discussion, right?
*Mr. Kind. Yes.
*Mr. Subramanian. Because, as I have said, why should a country that grounds GSP receive GSP, and that is true for many countries. But that is a different conversation and a different dynamic from using this as a specific ‑‑
*Mr. Kind. Mr. Waldron, let me go back to the compulsory license issue on that, and assuming they are moving forward on this, what would be the impact on foreign investment or other private companies looking to do business in India if they go down this road?
*Mr. Waldron. Well, I cannot speak to all of the individual countries, but I would say that if you are an innovator and you are trying to sell innovative products there, you are going to find yourself in competition with numerous other products. We have had products on the market there that did not have patent protection, where we were competing against 60 other competitors marking the same thing. So obviously, the consequences of that are dire.
I guess in talking about trade instruments or trade tools, I do think that they are somewhat of a blunt instrument to try to deal with something that you are really trying to get focus on. If you are trying to focus on specific issues, you may not get that through the revocation of certain preferences or a WTO case, which has all kinds of unintended consequences.
But you really have to send strong messages on the things that you believe are priorities, and I think that that is really the starting point, but obviously we do not have a lot of time.
*Mr. Kind. Yes. Well, thank you, Mr. Chairman. I certainly encourage this Committee with your leadership to continue to focus on India and any parliament or congressional exchanges that we might have, too, so that we can have the dialogue at that level I think would be very helpful and productive as we move forward.
Thank you.
*Chairman Nunes. Thank you, Mr. Kind.
Mr. Paulsen is recognized for five minutes.
*Mr. Paulsen. Thank you, Mr. Chairman, also for holding this hearing.
Great testimony today. I really have appreciated kind of the reinforcement about what I have heard about these disturbing trends within India kind of turning inward and erecting more barriers to trade and investment and kind of turning back the clock, if you will, and so some real challenging opportunities for us moving forward.
One of Minnesota’s largest exports to India is in the area of medical technology, and unfortunately, I understand that the United States medical manufacturers are facing incredible challenges now selling their products in India, including lack of transparency in pricing under India’s central government health care scheme, as well as discriminatory government procurement policies.
And there is no doubt that American medical device companies are well positioned to partner with the Indian Government toward improving health care access and outcomes and awareness and developing much need more stronger health care infrastructure, but they are going to have a difficult time doing so in the current environment.
Mr. Waldron, you touched on some of this from the drug perspective. Now, can you also maybe comment from the perspective of maybe how an American medical device company might have difficulty selling their products in India?
And is it going to be helpful to have a renewed or a revised bilateral trade dialogue in this area, addressing this industry’s concerns?
*Mr. Waldron. I guess very generally I think it is probably one of the more important tools that might be helpful. I guess it all depends on the particularities of what is included in that. So I would say that if it is amongst the instruments that you could move forward on, but I mean, a lot of medical instruments also depend on intellectual property and sort of the respect for the innovation that is coming in.
So I think it is sort of like part and parcel of the same kind of environment that we are trying to create there. I think we are all experiencing it in the same way. Our innovation really is not being respected, and it is being pushed back.
*Mr. Garfield. The thing that I would add there is particularly in the context of GSP coming up for renewal, before we get there I think we have an opportunity to engage in the kind of bidirectional dialogue so that we can talk strategically about differing interests that can help us advance and resolve some of the challenges we are facing in the market, and so it is something that we would highly endorse.
*Mr. Subramanian. Just a thought on this, the PMA policy. So India, I mean, it is not a member of the Government Procurement Code, and so localization in government contracts is okay, and now it is extending it to the private sector. I think there is a great opportunity here actually through the government procurement route because the government wants to save money in its purchases. Fiscal deficits are very high, and you know, getting the fiscal under control is a major objective.
Therefore, I think getting India into the Government Procurement Code is actually an easier way of, you know, dealing with the PMA policy than it is, in fact, of addressing PMS in the private sector. I think that is the kind of thing that is worth considering, and that is another reason why I think getting India into the WTO, into the Government Procurement Code would be worth pursuing.
*Mr. Paulsen. Let me ask this question, too, because today global supply chains are absolutely playing a more increasing integral role in trade overall, and there are a lot of Minnesota companies that have a strong network of supply chains, you know, 3M, General Mills, Cargill, Equal Labs, C.H. Robinson, Medtronic. The list goes on and on and on.
But more and more of these goods and services now used by producers and consumers contain inputs and value added components from a number of countries rather than just being produced in one country alone. How well is India itself integrated now into global supply chains and how can it improve that integration in the global supply chain? Anybody?
*Mr. Garfield. It is incredibly well integrated certainly for technology, and that is a part of what is so surprising about the direction in which India has been going in the last couple years, particularly as it relates to the PMA and some of the regulation that we talked about earlier, including the testing or certification or taxes.
They have benefitted. India has benefitted significantly, given the global integrated supply chains that we see today, and given the policies they put in place though, they stand to lose their role as a part of that process, and so our hope is that through these types of conversation, they are able to see as well as we are how we mutually benefit from this relationship.
*Mr. Paulsen. Anyone else?
[No response.]
*Mr. Paulsen. Thank you, Mr. Chairman. I appreciate it.
*Chairman Nunes. Thank you, Mr. Paulsen.
I would like to thank the witnesses for their testimony and for the responses to our questions. I think you have given us much to think about concerning the opportunities and the challenges presented by the U.S.‑India bilateral relationship.
Our record is open until March 27th, 2013, and I urge interested parties to submit statements to inform the committee’s consideration of the issues discussed today.
With that this hearing is now adjourned.
[Whereupon, at 11:42 a.m., the subcommittee was adjourned.]
Public Submissions For The Record
American Bar Association
ASCAP
BIO
Blue Diamond Growers
CII
CSIS
Dairy Industry
DISCUS
IBM
IIPA
ITIF
KEI
NAM
National Chicken Council 1
National Chicken Council 2
National Chicken Council 3
National Chicken Council 4
National Cotton Council
NPPC
PhRMA
Rapaport
Rio Tinto
SoFTEC
Wine Institute