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Wednesday, March 23, 2016

Implications of US-India nuclear deal

Abdul Matin

INDIA did not sign the Non-Proliferation Treaty (NPT) and exploded its first nuclear weapon in 1974. Consequently, the United States stopped supply of nuclear materials to India in 1978. For thirty years, there was no cooperation between the two countries on uses of atomic energy.    Subsequently, India developed its indigenous nuclear industry.
The US signed a historic deal with India in 2008 to resume supply of nuclear technology and materials. The treaty was inoperative for more than six years for two reasons: (i) insistence of Washington on tracking of nuclear materials and (ii) the supplier's liability in the event of a nuclear accident.
The recent nuclear deal between India and the US removes both the hurdles and paves the way for US suppliers to build nuclear power plants in India. According to the deal, the US will not track nuclear materials in India but the International Atomic Energy Agency (IAEA) will apply safeguards to all of its civilian nuclear installations.
At present, all international conventions make the operators of nuclear power plants liable for damages, regardless of the cause of the accident. The maximum liability of the operator is usually limited to $300 million. The state takes responsibility for damages exceeding this limit. It may be noted that the costs of damages are likely to exceed $100 billion in both the nuclear disasters in Chernobyl and Fukushima.
Failing to get adequate compensation from the plant supplier after the world's worst industrial disaster in Bhopal in 1984, Indian parliament passed the Civil Liability for Nuclear Damages Act, 2010 which makes suppliers of equipment liable for nuclear damages. Russia, which built two nuclear power reactors in Kudankulam in India, agreed to accept the supplier's liability for building two more reactors at the same site.
Under the new deal, the US agreed to provide insurance coverage for nuclear damages to the suppliers of nuclear power plants. Since the US ban, Russia had been the only foreign supplier of nuclear power plants to India. Now, the USA is ready to enter into this lucrative market. France may also follow the suit. The participation of the western suppliers may encourage competition and result in a positive impact on both quality and costs of nuclear power plants in India.

India plans to build 14,600 MWe nuclear capacity by 2020 and aims to increase the share of nuclear electricity from 1.8% to 25% by 2050. India now generates 255,000 MW electricity with coal supplying 60%. This makes India the world's third producer of carbon dioxide, next to China and US. By increasing the share of nuclear electricity, India will reduce the production of carbon dioxide, which is believed to be responsible for global warming and climate changes.

Source: The Daily Star, 29 January 2015

Modi-Obama bonhomie in Delhi

Mahmood Hasan
President Barack Obama was in Delhi between 27 and 27 January. He was the first US President to be the Chief Guest at India's Republic Day parade. Obama is also the first US President to visit India twice while in office. Republic Day parade is a colourful pageant held in Delhi from the Raisina Hill (near Rashtrapati Bhavan) along the Rajpath past the landmark India Gate.
The visit, which was seen as a symbol of US-India friendship, had also achieved a major breakthrough. Three documents were issued – the 59-paragraph US-India Joint Statement titled “Shared Effort: Progress for All”, India-US Delhi Declaration of Friendship, and US-India Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region.
The most significant breakthrough was in operationalising the stalled civil nuclear deal. The Joint Statement released on July 18, 2005 by President George Bush and Prime Minister Manmohan Singh introduced the “123 Agreement” also known as “US-India Civil Nuclear Agreement”, under which India agreed to separate its civil and military nuclear facilities and place all its civil nuclear facilities under IAEA. But because India had not signed the Non-Proliferation Treaty (NPT) it took three years before US Congress gave final approval to the deal on October 1, 2008. The deal was supposed to lift US moratorium on nuclear trade with India, allow US companies to build nuclear reactors in India and provide nuclear fuel for its civilian energy program. However, two issues held up implementation of the deal.
The first was related to India's liability law. The Congress-led UPA government was forced to pass “Civil Liability for Nuclear Damages” in August 2010, when BJP and the Left Front stiffly opposed the agreement. The bill allowed operators (i.e. India) to sue suppliers (from US) in case of accidents but suppliers and the US government were against such a condition. The second problem was that the US insisted on tracking fuel supplies to reactors.  India was against this condition because of it being intrusive.
After formal talks at Hyderabad House, Modi and Obama announced a breakthrough. India will create a “pool of insurance” to take care of damages in case of accidents – meaning US reactor suppliers will not be liable for accidents. US withdrew the 'fuel tracking' clause as India agreed to sign “Additional Protocol” with IAEA, which will allow more intrusive inspections of its civilian nuclear installations.
India is already a nuclear-weapon state but not a NPT signatory. Fear is that this deal may lead to further proliferation against which US is vocal. The devil always lies in the details of agreements. We shall have to wait and see how the deal is “operationalised” by US suppliers and Indian government.
Beijing has already reacted strongly to the mention of South China Sea in the “Strategic Vision.” In his Republic Day message to President Pranab Mukherjee, Chinese President Xi Jinping warned India not to step into a “zero-sum trap” that Washington was setting up for India. Beijing cautioned Delhi that US friendship was part of Washington's “pivot to Asia” strategy -- which means encircling China. Meanwhile Pakistan Army Chief General Raheel Sharif went to Beijing to discuss security and defense-related issues.
The “Friendship Declaration” lists a number of steps to enhance defense and commercial ties between the two countries. President Obama also attended the US-India CEO summit in Delhi. Speaking to the corporate leaders President Obama pledged $4 billion in lending by US banks. Though the potentials are immense, the hurdles relate to India's intellectual property rights (IPR) protection standards and India's regulatory environment. US investment is shy because the two countries still do not have any bilateral agreement on investment. Narendra Modi assured US Corporate chiefs that India will have a stable tax regime that is predictable and competitive, and vowed to make India business-friendly.
What is significant is the way Modi handled President Obama. During the press conference Modi called the US president by his first name. “Barack and I have forged a friendship. There is an openness with which we talk; we talk comfortably over the phone, joke with each other… This chemistry has not only brought us close or Washington and Delhi nearer but also the people of the two countries.  
India–US relations have never been smooth. However, there has been a U-turn in American position towards India since Modi's massive electoral victory in May 2014. Narendra Modi also took the opportunity to put unpleasant incidents involving Indian diplomat Devyani Khobragade and US refusal to grant him visa behind and reached out to Washington.
With President Obama's second visit a new beginning has been made. Will this “partnership” between the two largest democracies but unequal economies sustain? Will India become an “ally” of US?  And one should wait and see what the implications of Modi-Obama bonhomie are for the SAARC and the region as a whole.

The writer is a former Ambassador and Secretary

Source:  The Daily Star, 28 January 2015

‘Breakthrough’ nuclear deal that limits US corporate liability

Andrea Germanos

President Barack Obama and India’s prime minister Narendra Modi on Sunday announced a ‘breakthrough’ after reaching a deal on commerce that appears to shield US companies from liability from nuclear accidents.
Obama is in India for a three-day visit.
A decade-old deal that would allow the US to provide India with nuclear reactor components and fuel had met obstacles, one of which was about tracking where the material went. Siddharth Varadarajan, Senior Fellow at the Centre for Public Affairs and Critical Theory at Shiv Nadar University, explained the second at the Huffington Post:
Nuclear commerce is stuck because American companies like GE and Westinghouse — which regard being sued for a nuclear accident as part of the risk of selling reactors inside the US — are unwilling to subject themselves to any claims for damages in the event of an accident in India. India’s liability law is seen by them as an obstacle and the Obama administration has spent the past four years trying to get the Indian side to dilute its provisions.
Bloomberg News adds:
India is one of the few nations that do not exempt nuclear suppliers from accident liability. The reason can be found in the central Indian city of Bhopal, where more than 10,000 people were killed or injured in a 1984 chemical leak from a Union Carbide Corp pesticide plant. The episode remains the world’s worst industrial accident.
Public support for the liability legislation only hardened after the 2011 Fukushima meltdown in Japan…
Danny Roderick, CEO of Westinghouse, which has a tentative deal to build as many as eight reactors in Gujarat, has said that potential litigation stemming from a nuclear accident in the country would be costly. ‘The way the current law was written, every person in India can sue you’ the Pittsburgh Post-Gazette reports Roderick as saying. ‘That’s the bigger issue — to withstand the legal costs of a billion people trying to sue you.’
According to reporting on Sunday, the sticking point may have been resolved. Reuters reports that the deal reached ‘could open the door for US companies to build nuclear reactors in India by promising insurance cover to US companies that had shied away from an Indian law placing liability on suppliers in case of an accident.’
The Guardian adds: ‘After pressure from US diplomats, the Indian government was thought to have agreed a state-backed insurance scheme that would cap the exposure of nuclear suppliers and open the door to billions of dollars of new contracts. India will also allow closer tracking of spent fuel to limit the risk of it falling into terrorist hands.’
And from the Washington Post: ‘The White House said the agreement was reached through a combination of insurance pools and an assurance that reducing the liability would be within the framework of the 2010 agreement. It will now be up to companies to decide whether or not to go forward with doing business in India. Officials said that, despite the law, the change would not require additional legislation in India.’
Full details on the implementation were not yet revealed, but US Ambassador Richard Verma stated, ‘We think we came to an understanding of the liability’ issue, and said the deal ‘now opens the door for US and other companies to come forward and help India develop its nuclear, non-carbon-based energy production.’
CommonDreams.org, January 25. Andrea Germanos is a staff writer at Common Dreams.


Source:  The New Age, 27 March 2015

The Obama trip: It wasn’t for India

  Mohammad Ali Sattar

It is unusual that a US president visits a country twice in a single tenure. That too, if that country is not a neighbour and has security problems. Obama’s second trip to India has been carrying significance, but the critics and the world watchers have overblown the issue.
By now the world politics has been quite clearly understood. The dismantling of the USSR and the subsequent changes that Europe has undergone deserves attention. The way things were expected to behave, they did not entirely.
The disintegration of the Soviet Union was on the cards and it was only a matter of time. That US is working on a mission of world domination is a stale issue and needs no deliberation. What has been happening inside the country is another matter.
The US has made an impressive comeback after the recession in 2008. It is coming back to its feet and there has been slow but steady escalation in overall economic index, although marginal.
Obama followed his predecessors and the ones who will follow him into the White House shall be walking on the same track. The future leaders of the White House and Pentagon will just have to adjust to the needs and times of the outside world. The objective reality will be determined according to its gravity.
Coming back to the India visit, the tour is to make India a friend (at least to look like one). See the change of stance. Once Narendra Modi was seriously disliked by the US, he was barred from travelling to that country; he also faced legal problems in the US.
All these changed fast when the US found her interest in the South is at stake. Moreover, you cannot ignore the Indian leaders (especially when they get elected). They are powerful allies in the region, although the US is way behind in the race for global competition.
With all smiles the US president arrived with his entourage. His interesting deliberations with the leaders and the general remarks were the goodies that the US president had in his basket. His address in Siri Fort was interesting, if not captivating.
He made things lighter when he mentioned the popularity of Shah Rukh Khan in America. He quoted a hindi line from Shah Rukh’s film. These were very good exercise on his part to win over the minds of the Indians.
He also did not forget to remind the Indian prime minister that the minority problems and the gender issues need to be addressed effectively. He hinted at the wrong situation now prevailing in India about ethnic, minority, gender and women safety issues.
And he must have hinted at the foreign ministry affairs in India. No wonder Modi opted for a more pro-US person as the foreign secretary, so Shujat had to quit well before time.
She had problems with Modi. The US was not happy with the way she handled the diplomatic row that India and the US had found themselves in last year. 
 However, all these has been tamed and Modi is flying in the seventh heaven with Obama’s supposed blessings. For all these President Barack Obama need not have come down to India. These were being handled by his men long before he planned this trip.
So, the backdrop of the visit is certainly a “China factor.” Since the rise of China is a concern for the US, it is but natural that Washington would like to post some form of a partner to guard against the expansion of the middle kingdom.
The US is aware that China is a huge nation. It has its history and tradition. The power of the people is well recorded. The rapid growth of the country in the last 30 years is significant. Not only as an economic powerhouse, the country is also turning into a global player in all sectors.
It has toppled the US as the number one economic superpower. It keeps on growing. Economic power brings in the military supremacy. The long time land dispute in the region with Japan and India has been plaguing the leadership in Tokyo and New Delhi. However, these two countries could hardly contain the Chinese influence.
It is only natural that the countries that feel threatened by the Chinese power will turn to the US for succour. Almost all of the SEA nations have been growing with US assistance and they will be obliged to call on the US for help.
If China can make inroads to the small economies of the region then things will change for the US. South Korea, Malaysia, Singapore, and even Indonesia are growing fast. Therefore, China might find a good partner in them, virtually weakening the US influence economically, and militarily.  Fiscal issues will start working soon.
With the conquest of the region and taming of India, China is sure to make its impression in the region and in extension, the world. South was always richer in wealth and human resources. Therefore, China and the Southern states are likely to grow depending on the friendly policies of the bigger power.
China’s growth will also see the back of the US from the pacific. US military power will also be considered redundant once the nations in the South feel comfortable with China. Washington will have to think of moving elsewhere from the South and the East once the Chinese and allies of the region take hold.
This entire future scenario may not materialise tomorrow, but it is sure to happen if the China syndrome is not taken care of. India will be a part of the US scheme to contain China.
So Obama, or for that matter, the US will befriend any Indian leader to work out the road map. It has also in mind the Silk Road plans of the Chinese. The great highway then, connecting the world, will have a great Chinese authority.
The bilateral issues between India and the US have been somewhat resolved, but not to the expected level. Modi and Obama mingled as good friends, but the actual mission remains incomplete and largely murky.
The 2005 deal with the US under George Bush was stalled for conditions that US put forward. Now Obama tries to ease the conditions, but that too did not look tangible. The experts will have to work on that. The compensation part and the gas emission factors will be hard to work out. The 400 million dollar grant for India is a good gesture.
We do not know what transpired between the two leaders and their team members regarding China. There must be detailed instructions given to the Indian side regarding US plans about China.
All these will come out in the course to time. We shall see those through the action either of Indian authority or in the classified documents that will leak out in the world press through another Assange or Snowden.
If you take a closer look, nothing much has been achieved by India by serving the warm tea to the US president. The sad part is the weaker economies and military shall always be at the receiving end. India is no exception.

The main reason Obama visited India was the China factor, it had nothing really to do with Indian interest. Future will speak. 

Source:  The Dhaka Tribune, 03 February 2015

Obama leads the world to India

MJ Akbar

 

Relations between India and the United States have been flawed with a genetic defect ever since Prime Minister Jawaharlal Nehru called on President Harry Truman in Washington in 1949: A sharply divergent view of the nature of conflict in the post-war, post-colonial era.
India was coming to terms with freedom and partition; America was sifting through the responsibilities of rebuilding the scrapheap of western Europe, while searching for allies in another epochal conflict looming ahead, the Cold War.
Nehru’s foreign policy was shaped by his experience of imperialism and its in-house partner, capitalism. America, equally understandably, viewed communism as an existential challenge to the values of individual liberty, collective democracy, private sector, and free trade.
Nehru was apprehensive about the emergence of America, not as the new colonial power, for that would be too much of a contradiction with America’s professed values as well as its history, but as a neo-colonial force. Nehru preferred neutrality, clumsily described as non-alignment, but equally felt that in a crisis, the people’s republics would be a better guarantor of independence for new nations on the rapidly changing map.
Nehru’s prescription was a relevant antidote for the malaise of its time. But medicine becomes counterproductive when it crosses its sell-by date, or when the illness has passed. With the collapse of the Soviet Union and its sprawling empire, the strategic implications of non-alignment lost their raison d’etre. There was a second, and more lasting, consequence.
A collateral preference for quasi-socialist formulations for the economy, and particularly the conversion of the state into the intellectual and administrative engine of the economy through a Planning Commission, inhibited the creative capabilities of India’s private sector and strangled growth with red tape and startling corruption.
Worse, India’s business community, trapped in insularity and the lazy convenience of a Licence Raj, lost touch with best practices in world manufacturing and market expansion, sabotaging India’s ability to lift the people from the curse of poverty.
Personality, of course, has played a significant part in the dramatic leap forward that India-US relations have taken after the first meetings between Prime Minister Narendra Modi and President Barack Obama in autumn last year.
Obama publicly recognised the sustainable combination of vision and administrative delivery that Modi offered. Perhaps there was a hint of regret as well over past misjudgement, but that is not Obama’s fault; he could only assess on the basis of what he was fed by his institutions. But the past was brushed aside with discretion and maturity as the two leaders discovered the excitement of opportunity.
This opportunity is grounded in objective reality. India and America are, at long last, at a crossroads from where they can travel together for two formative reasons.
First, they are singing from the same hymn sheet over the two bookends of the relationship: Security and prosperity. The nature of conflict has changed. The Cold War, which divided the two nations, has given way to the fourth great war of the last hundred years, the war on terrorism.
Geopolitics made Pakistan a preferred American ally in the Cold War. In the war on terrorism, as the Pentagon slowly began to realise, Pakistan’s role was at best dubious and at worst blatantly hostile. Pakistan, by accepting theocracy as a birth principle, became an epicentre, sanctuary and a supply factory for Islamist warriors who have expanded the perimeters of this raging battlefield from the Wagah border to the Atlantic shores of Africa.
But, as the West is finally beginning to admit, this war is also being fought beyond conventional space. It is the world’s first great unstructured conflict, outside the theories of set battles, uniforms, national objectives or even the familiar impulses that drive armies, like the occupation of ground.
What terrorists seek as much as territory, is psychological dominance through fear. If New York, London, Brussels, Paris, and Berlin can be pushed towards uncertainty and its dangerous offshoot hysteria, then a significant purpose is achieved. When a mainstream, if right-wing, news channel like America’s Fox TV, reports that non-Muslims cannot enter a British city like Birmingham, then some of the job is done by such nonsense.
India is the natural partner of America in this conflict, because India has the experience achieved through resilience. The more important reason however is ideological. This is also a conflict between regression and modernity, between those who champion in faith supremacy and ethnic cleansing of minorities and sectarian enemies; and nations who believe in faith-equality, in multi-cultural and multi-ethnic communities loyal to a national flag that belongs to every citizen. India’s constitution, based on democracy, secularism, gender equality and economic equity, is the model for nations lost in the swamp of dynasty or dictatorship or theocracy.
India has, under Narendra Modi, achieved remarkable clarity about where it stands today and where it wants to reach tomorrow. Its great challenge, articulated with passion by the prime minister, is the elimination of extreme poverty within a foreseeable future, through economic growth that reaches the poor, not by the pernicious limitations of the trickle-down theory, advocated by the previous Congress government, but by a trickle-up theory in which swift financial empowerment of the poor is matched by the availability of goods manufactured in India.
Economic growth must be about the quality of life for the poor. That is the rising tide that will propel India to the foremost ranks of the 21st century; the rest is hot air.

President Obama has recognised this renewal of India’s promise and, through the power of his personal conviction and the huge influence of his office, is leading the world towards this India. In Delhi, he has the perfect host.

Source: The Dhaka Tribune, 28 January 2015

Importance of Obama's India visit

Sylvia Mishra

President Barack Obama's visit to India to attend the Republic Day celebrations is rich in symbolism and has political and diplomatic significance. This is the first time that the president of the United States is the chief guest in India's Republic Day parade. Obama is also the first American president to visit India twice during his tenure. After a period of drift and unpleasantness, the expectations for the bilateral relationship have rapidly risen since the election of a new government in India last May. Both Obama and Prime Minister Narendra Modi have seized the moment to reinvigorate the bilateral ties. If Modi has put America at the very centre of his dynamic foreign policy strategy, Obama appears eager to work with what is undoubtedly a more vigorous and action-oriented government in Delhi. As Obama told an Indian magazine before his arrival in Delhi the “stars are aligned to finally realise” the long shared vision for a deeper partnership.
The visit is expected to galvanise the bilateral relations, embarking on 'fast paced engagement' to elevate Indo-US strategic partnership to the next level. Both the countries have signaled the political will to produce some tangible outcomes from the second summit meeting between the two leaders in less than four months. Four areas -- economic, defence, nuclear and climate change are -- are likely to see concrete steps forward during Obama's three-day sojourn in Delhi.
Enhanced economic cooperation
The renewed growth in the US and the launch of long overdue economic reforms in India have set the stage for some significant steps forward in areas relating to economic cooperation, trade and investment. The growing frustration in America about dealing with Indian economic policy making in the second term of the UPA government has given place to hopes about Modi's promise to significantly improve the ease of doing business in India and create conditions for economic growth and foreign direct investment. Recently, the two countries were successful in negotiating an arrangement to address India's concerns about food security in the context of multilateral trade negotiations, reviving the stalled World Trade Organisation (WTO) trade facilitation. It is likely that both the countries would also discuss issues surrounding property rights regime, thereby developing a common framework for addressing their long-standing differences on patent protection. As India and US near $100 billion in bilateral trade, there have been sustained discussions on both sides to develop a bilateral investment treaty to simultaneously help provide a framework for American investors. The two countries may also explore the prospects for the negotiation of a Bilateral Investment Treaty (BIT). There are also ongoing talks of finalising a framework to resolve the cases of transfer pricing due to differences between tax authorities of both countries. President Obama is also expected to be meeting and discussing with India-US CEOs during his visit.

Extending scope of defence cooperation
It is expected that both the countries would renew the Framework of Defence Cooperation that was signed in 2005 and is due to expire this year. Media reports have suggested that the new agreement will be bolder than the previous one and bring greater purposefulness to joint military exercises, intelligence sharing, cooperation with third parties, and policy consultations between the civilian leaderships of the two defence establishments. There will be particular emphasis on operationalising the Defence Trade and Technology Initiative (DTTI) by announcing the co-production of a number of weapons systems. The DTTI launched under the previous government now dovetails nicely with Modi's emphasis on “make in India” and the new government's determination to strengthen India's domestic defence industrial base by encouraging the participation of domestic private sector and foreign arms companies.

Climate change and clean energy
Both the countries would be exploring opportunities to enhance bilateral partnership on climate change by creating policy frameworks of introducing clean energy, promoting platforms such as Clean Energy Access Network (CLEAN) and phasing down hydro-fluro carbons (HFC). Obama's India visit is expected to operationalise US-India Partnership for Climate Resilience announced during PM Modi's visit to the US last September. It is unlikely that India would accede to any US-initiated climate deal similar to US-China bilateral agreement. While China's industrialisation might have peaked, India's future depends on further expansion of its power generation. The focus, instead, is likely to be on finding a way to rapidly expand renewable energy production in India and reduce the weight of coal in India's future energy mix with American assistance and technology transfer.

Making headway to resolve the nuclear logjam
India and the US are expected to engage in discussions that would break the gridlock over India's nuclear liability law that now prevents American participation in India's atomic energy programme. Intensive negotiations in the last few weeks have explored ways to work around the stringent provisions of the Indian law that expanded the burdens on suppliers of equipment to India's nuclear programme. If Washington is focused on liability issues, India wants America to demonstrate greater flexibility on the arrangements for external safeguards on the nuclear programme and strongly support India's membership of the various non-proliferation regimes including the Nuclear Supplies Group (NSG) and the Missile Technology Control Regime (MTCR). Progress on the three fronts would help realise the full promise of the historic civil nuclear initiative that the two governments had unveiled in 2005.

Apart from economic, defence, nuclear and energy issues, both the leaders are also expected to engage in discussions over a gamut of issues ranging from maritime cooperation in the Indo-Pacific, investments in smart cities and industrial hubs, collaboration and partnership in health, higher education and research, solutions to urban issues and cyber security challenges among others.

The writer is Researcher, Observer Research Foundation, New Delhi.
© Observer Research Foundation


Source:  The Daily Star, 27 January 2015

Obama in India: Time to convert the potential into reality

Vikram Mansharamani

India celebrated the 64th anniversary of its foundation as a republic with a special guest in the reviewing stand. Barack Obama, president of the world’s oldest democracy, lent his presence at the celebration of the world’s largest democracy.
This is Obama’s second visit to India in five years. The two nations do share common values and interests including the need to contain an aggressive China from militarily dominating the Asian region. Yet, the fact it took this long for a grand encounter is a reminder of the issues that divide them and the current urgency to strengthen their ties.
Ranging from investment and trade to defence cooperation, enormous opportunities exist for both sides to create a mutually beneficial and balanced relationship.
Direct economic cooperation is an obvious area for collaboration. India needs infrastructure and power, for instance, and US companies want foreign markets. India has a globally competitive IT talent pool, and US enterprises are on an unending search for technical knowhow.
Consider the collaboration opportunities of merging Indian IT talent with US automobile manufacturers as data from billions of automobile sensors explode in volume, generating what is expected to be the second fastest growing segment of the emerging big-data market.
Further, India’s desire to increase its manufacturing capacity may align with American desires to diversify from China, where average hourly earnings now exceed $3.52, versus 92 cents in India.
Prime Minister Narendra Modi has been marketing India as having three ingredients US companies seek: demand for goods, attractive demographics and a democratic regime. The direct economic benefits of trade and investment will accrue to both Indians and Americans.
China’s economic slowdown provides a powerful tailwind for India’s economy. As the credit-fueled Chinese investment boom ends, the entire supply chain of raw materials fed into its building boom is vulnerable, creating lower prices for many investment commodities – iron ore, lead, steel, zinc, copper and more.
Thus, the Chinese slowdown has reduced the prices of many of the natural resources upon which India depends, lowering inflationary pressures within India, and thereby creating room for rate cuts that can spur economic growth. It allows India to remove subsidies and address trade disputes to allow further liberalisation.
It’s unlikely the November agreement between the United States and India allowing stockpiling to address food-security issues would have been reached in an environment of high food prices. The resolution of this lingering dispute breaks a deadlock holding up global trade talks.
India needs energy, and as the United States allows increasing volumes of crude exports, why shouldn’t the US consider a long-term supply agreement with India? Doing so would solidify relationships with a large, growing market. India would become less dependent upon Russia and Iran, removing a key market from these struggling oil economies.
At a time when much of the western world laments the ills of capitalism gone wild, India is disposing of Soviet-style planning agencies – Modi disposed of the 5-year plans during his first Independence Day speech – and rushing headlong into increasingly capitalist policies.
In 1992, Deng Xiaoping kicked off an explosion of Chinese economic reform around the mantra “to get rich is glorious” – an economic turning point that resulted in staggering growth over the next decades, as suggested by some Sinologists. Modi’s turn towards capitalism and away from socialist policies has a similarly transformative economic reform agenda, one organised around the mantra “to get efficient is glorious.”
If Modi and his team can help get India out of its own way, there’s no reason the country can’t become the fastest growing large economy in the world. Participating in and encouraging this growth is in America’s interest.
A leading obstacle to faster growth is India’s problematic relationship with Pakistan, an association that has focused upon the Kashmir territorial dispute since independence in 1947. Pakistani relations with India chilled noticeably following the 2008 Mumbai terrorist attacks attributed to Lashkar-e-Taiba, a terror group that operates from the region.
India, Pakistan and the United States would benefit from a more stable and prosperous Pakistani economy. Modi invited pro-business Pakistani Prime Minister Nawaz Sharif to attend his inauguration, and relations were improving until Pakistan courts granted bail to an accused terrorist involved in the Mumbai attacks.
Modi’s powerful electoral mandate opens the opportunity for an innovative re-engineering of the India-Pakistan relationship, the basis of which can be increased bilateral trade. His identity as a Hindu nationalist offers potential political cover from domestic Indian opposition to increased collaboration with Pakistan; his bluntly stated objective of accelerating economic growth may mitigate Pakistani concerns of his ultimate goal.
Modi is the first Indian prime minister born to an independent India, and brings a refreshingly focused and open mind to the issues. Pakistan’s Sharif is equally interested in economic progress. Vibrant Pakistan-India trade has the potential to build mutual trust and might ultimately improve political relations – developments that are good for Pakistan, India and the United States.
The United States can and should encourage such developments by offering incentives for both parties and simultaneously increasing counter-terrorism collaboration with both nations to alleviate ongoing concerns. It might even consider deepening military ties with both nations as a means to both diffuse potential Pakistan-India hostilities as well as deter an ambitious China from getting militarily aggressive.
Richard Haas, president of the Council on Foreign Relations, recently described US-India relations while introducing Modi at a CFR event: “The bilateral relationship is potentially one of the most important for the United States … The challenge and the opportunity for both countries … is to translate all this potential into reality.”
One of the main challenges is to overcome the stigma of four recent bilateral flare-ups – each provides compelling evidence of an immature relationship that still requires effort.
First, the spectacular momentum generated by President George Bush’s civil nuclear agreement was lost when India passed a nuclear liability law that de facto prevented US commercial participation in the Indian civil-nuclear industry.
Second, the Indian imposition of protectionist policies and taxes on foreigners generated trade disputes that derailed progress.
Third, Modi’s ascent reminded the world that the United States had barred the former Gujrat minister from entering the country because of his supposed role in 2002 riots that left about 1,000 dead, mostly Muslims.
Lastly, diplomatic hoopla surrounded the arrest and strip-search of Devyani Khobragade, India’s deputy consul general in New York. India escalated tensions by lessening security for US government employees in New Delhi.
Another challenge stems from areas where American and Indian interests diverge. Consider India’s dependence upon foreign energy supplies, defence equipment, power technologies and its prickly nationalism born of centuries of colonial rule.
These factors create Indian alliances that run counter to US interests, particularly the India-Russia relationship. In December, Russian oil giant Rosneft signed a 10-year crude-oil supply agreement with India’s Essar Oil, and the Russian state-owned Rosatom agreed to build 12 nuclear reactors for civilian power generation in India.
Along with these announcements came Modi’s public assurances that Russia would remain India’s top defence supplier. A simultaneous announcement stated that India would build 400 Russian Ka226-T twin-engine multi-role helicopters a year.
Both countries should look beyond these speed bumps, because the blunt reality is the United States needs India – as a beacon of democratic capitalism in a strategically and militarily critical part of the world.
The blunt reality for India is that it needs the United States – as an economic and military superpower capable of assisting the quest to achieve peer status.

While the many hiccups over the years have raised concerns about each country’s ultimate commitment to the other, the commonalities of interests are overwhelming and the impetus to convert the potential of shared values into a functional reality is urgent. 

Source: The Dhaka Tribune, 27 January 2015

Is the Pacific Ocean big enough for both China and the US?

Sophia Pale

IN RECENT years, China has been expanding its presence in the Pacific Ocean, exerting its sphere of influence both over its closest neighbours — Japan, South Korea and Australia — and the global ‘Pacific superpower’ — the United States.
In light of the annual leaders’ summits between the US and China, the latest of which took place in late September 2015, the world media usually pay particular attention to the situation in the South China Sea, where China plans to take control of ‘what is possibly the most important sea trade route in modern geopolitics and the world economy’. However, little is made of another important issue: the reinforcement of China’s presence in another Pacific region that is strategically important for the US — Micronesia.
Despite the fact that at all high-level summits with US representatives since 2013, Beijing has been saying that there is enough space in the vast Pacific Ocean to accommodate both China and the US, China’s capital incursion into the key US possession of Micronesia began in the mid-2000s and has intensified ever since.
Micronesia is a vast area in the Pacific Ocean with a population of about half a million people, located between Australia, Taiwan and Hawaii. Micronesia includes five independent countries: the Federated States of Micronesia, Kiribati, the Marshall Islands, Nauru and Palau; as well as three US territories: Guam, the Northern Mariana Islands and Wake Island. American air and naval bases have been stationed here since the Second World War, the largest of which is on Guam. In the 1950s and 1960s, the US conducted nuclear tests on the Wake atoll. The United States also placed other strategic installations on the islands of Micronesia, thereby turning Micronesia into its most important outpost in the Pacific.
The US dollar allows the US to maintain its strong position in Micronesia. It is the official currency in the Federated States of Micronesia, the Marshall Islands, Palau, the Northern Mariana Islands and Guam. Nauru uses the Australian dollar, and the Kiribati dollar is pegged to Australian dollar at a 1:1 ratio.
Significant dollar subsidies play a key role in the US maintaining its position in Micronesia. However, after the crisis of 2008, Washington cut the annual funding to Micronesian territories by almost a third. And Chinese capital began to fill the void.
Moreover, shortly after coming to power in November 2012, Chinese president Xi Jinping set a new foreign policy in China. In particular, he declared that security in Asia should be provided by Asians. In other words, it’s high time to reduce the US military influence in the field of Chinese interests.
This concept also applies to the countries of Oceania, of which Micronesia is the closest to the United States. Chinese capital has gradually taken hold in all 23 countries and dependent territories in this vast region. As a result, Chinese investment has exceeded that of France in the French territories, especially in Tahiti (French Polynesia). This could lead to the imminent secession of Tahiti from France, with the territory becoming directly dependent on China. Since 2014, China has been planning to install its first military base in the central Pacific Ocean in Tonga, which can’t pay its debts to China. Investments by China there already exceed 40 per cent of the Tongan budget. Other potential locations for the installation of Chinese bases are Samoa and Papua New Guinea, which also are in deep with China.
Finally, Micronesia appeared on the map of Chinese expansion in the Pacific in 2015.
For example, the Federated States of Micronesia, which are linked to the US by the Compact of Free Association signed in 1986 and extended in 2003 till 2023, are on the receiving end of Beijing investments, sometimes in excess of capital injections from the US. Additionally, part of the Chinese subsidies go into a trust fund established with the aim of supporting the economy of the Federated States of Micronesia following its independence in 2023 (ie, after the funding from the United States dries up).
Palau is the most ‘Americanised’ country in the group in terms of lifestyle, and it is Micronesia’s preferred destination for Chinese tourists. Brochures sometimes refer to it as the ‘America of the Pacific.’ Given that travel to mainland America presents the Chinese with financial and bureaucratic difficulties, Palau is much less of a hassle for them. The volume of tourists from China to Palau makes up about 70 per cent of the total tourist influx. This is of particular note because the budget of the Palau is 85 per cent dependent on tourism. Chinese business success in Palau is connected with the tourist industry. In turn, the Chinese diaspora could soon attain economic as well as political influence on the island. The establishment of the Palau-China United Association in November 2015 to assist new arrivals of Chinese who want to do business in Palau can be regarded as a prerequisite for this. This organisation also promises direct financial assistance to Palau’s educational institutions to ‘promote its development and prosperity.’
Thanks to Washington’s efforts, Guam alone is steadfastly holding the Chinese tourist ‘tsunami’ at bay. The influx of tourists from China accounts for only 1 per cent of Guam’s annual total. However, Beijing is making huge investments via banks in Guam, and this is increasing every year. Moreover, in the past few years, China and Guam have been trying to agree on a visa-free regime but so far without success. Due to the complexity of the situation in the South China Sea, not far from Guam, a troop increase is expected at the American military base on the island. Consequently, while curtailing its funding for other Micronesian territories in its control, Washington is holding steady in its support for Guam in order to prevent the growth of Chinese influence.
As a result, China and the US are doomed to compete in the Asia-Pacific region. Many experts tend to conclude that the world is on the threshold of a new era: a US-China cold war.
Lastly, I would like to point out that the rise of Chinese influence in the regions and spheres formerly controlled by the United States has been so significant in recent years that scientific conferences are being held at universities all over the world on this acute issue. In particular, one such conference will be held at the Institute of Oriental Studies of the Russian Academy of Sciences in late November. The author hopes that the results will demonstrate the full reach of Chinese expansion in the ‘American’ territories.
New Eastern Outlook, November 21. Sophia Pale, PhD, Research Fellow of the Centre for South-East Asia, Australia and Oceania of the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online magazine ‘New Eastern Outlook.’


Source:  The New Age, 24 November 2015


Be open, inclusive US diplomat Shannon talks to The Daily Star, stresses keeping democratic space open

Rezaul Karim

The United States has said it would continue its call for “inclusiveness and openness” in democratic countries, including Bangladesh, since using every opportunity was important to keep “democratic space open”.
“When we engage and talk about other countries, we are not prescribing actions. We are just underscoring from our own experience,” Ambassador Thomas Shannon, counsellor of the Department of State, told The Daily Star in an interview before wrapping up his brief visit and leaving Dhaka yesterday.
Expressing his views on how Bangladesh's democracy could be further strengthened, the US Under Secretary for Political Affairs-designate said democracy was a “journey”, not an “end point” and it could always be improved.
Sharing his country's experience, Shannon said they have to work very hard to ensure that their democratic process is “inclusive” and people feel they have a reason to participate in the democratic process.
Responding to a question on human rights situation and freedom of speech in Bangladesh, he said Bangladesh is a democracy with a strong tradition of pluralism and tolerance.
“This is very important in a modern world because it creates space through which people can debate openly and debate on political issues in a fashion that allows eventual consensus and common action,” he said.
As the US engages with Bangladesh and other countries, Shannon said they have always been promoting “peaceful dialogue” and participation (of all) in different entities of democracy, including elections.
“We are looking forward to the upcoming local elections and hoping that it will be largely participated,” Shannon said emphasising on the necessity of holding the municipal polls in a free, fair and transparent manner.
On the recent murders, Shannon condemned the killings of bloggers, writers, publishers, and free-thinkers and said, “Those actions are deeply troubling for us and deeply saddening also.”
Referring to similar incidents in other parts of the world, he said, “Freedom of speech needs to be respected.”
Shannon said in their view, means of expression, including social media platforms, should be as open as possible.
In reply to a question on Bangladesh dismissing IS' reported claims of carrying out the recent killings and attacks, he said he had a conversation with the prime minister about fighting terrorism and fighting extremism.
“We agreed that violent extremism has to be combated. Our relationship in the fight against extremism has been very good and has created some positive results as I noted earlier,” he said.
The US diplomat said Bangladesh and the US need to deepen the cooperation and deepen collaboration between security services of the two countries.
“That's what we are committed to do. We feel very comfortable working with the government of Bangladesh on terrorism issue. We feel very comfortable working with the government of Bangladesh in countering violent extremism. We will continue to do so,” Shannon said.
On current security situation in Bangladesh, Shannon said they were trying to look into broader counter-terrorism partnership and would try to understand the phenomena of ISIL outside of ISIL home territory in Syria and Iraq.
“What is important is that this kind of relationship allows for an open and very frank discussion about this threat.” He said the US agreed completely on the importance of countering violent extremism in terms of countering it in two phases.
Firstly, Shannon said, cooperation is needed to counter the violent extremism and terrorism in the immediate phase and secondly, recognising that it is important to address the root causes and trying to ensure that young people across the world do not find terrorism as means of life.
Shannon laid emphasis on convincing young people that they have a better life in a peaceful, stable and democratic society. “In this regard we are very thankful for the cooperation and partnership we have with Bangladesh.”
Asked whether the US administration considers BNP as a terrorist organisation, he said, “No.”
US Ambassador Marcia Bernicat, who was present during the interview, supplemented by saying that there was only one Bangladeshsi organisation in the list of the US State Department's terrorist organisations but the BNP is not on the list.
Shannon then added by saying that designating an organisation as a terrorist organisation was a very serious thing and in order to do it, this claim had to fit into a legally defined definition and requirements.
On his first visit to Bangladesh, Shannon said in terms of US diplomacy he would characterise it as “successful”.
Explaining further, he said it was successful as he had the opportunity to meet senior members of the government, including Bangladesh Prime Minister Sheikh Hasina and members of opposition political parties.

“In a short period of time we have accomplished a lot.” 

Source:  The Daily Star, 15 December 2015

US monetary tightening: Implications for Bangladesh

Sharjil Haque


US Federal Reserve Chair Janet Yellen suggested earlier this month that central bank policy rates should be hiked as early as December, 2015. This will end a seven-year episode of near-zero interest rates, and have significant cross-country implications for macroeconomic management. Much of the debate over international impact on US monetary tightening focuses on global capital flows. Simply put, investors reallocate their portfolio from risky assets (for instance, assets in emerging economies) to safer assets offering improved returns (US assets after interest rates rise). This channel of international financial transmission is negligible for Bangladesh given that the country has a closed capital account. For instance, Bangladeshi residents are not allowed to invest abroad in bonds or foreign money markets (restricting capital outflow), while foreign investors are not allowed to invest in money market in Bangladesh (restricting capital inflow).

Notwithstanding a relatively closed capital account, Bangladesh is still connected with international markets through alternate channels. To recognise the importance of these channels, we need to look at broader contexts and take a forward-looking perspective. This note argues that Bangladesh's banking sector, the dominant player in the financial system as well as Bangladesh Bank (BB) could gain from higher US interest rates. On the other hand, real sector (non-financial) corporates stand to lose and/or face greater risk.

FROM FEDERAL FUNDS RATE TO LIBOR: IS THERE A CONNECTION? An important aspect of this analysis is that the focus is not on a 25 basis point increase in US short-term rates, resulting from the first hike. Rather, it takes into account the Federal Reserve's forward-expectations on short-term interest rates in the next 2-3 years. The Federal Open Market Committee, which decides US monetary policy direction, is targeting to increase policy rate (known as the Federal Funds rate) to about 2.5-3.0 per cent by 2017 through a series of interest rate spikes. As Chart 1 shows, policy rates could be increased to around 1.4 per cent in 2016, and around 2.6 per cent in 2017.

An increase in US interest rate is expected to be reflected in global financial markets. For instance, as Chart 2 shows, the London Interbank Offered Rate (LIBOR) moves almost perfectly in tandem with U.S. short-term interest rates of similar maturity. Before the global financial crisis, US treasury rate (6 month maturity) had reached about 5.0 per cent before tumbling down to zero 6-month LIBOR exhibited similar movement. When the Federal Reserve increases policy rates, the interest rate channel of monetary policy transmission should ensure that US treasuries increase accordingly. This will have the knock-on effect on increasing LIBOR by similar amounts plus a marginal markup. What are the implications of a 2-3 per cent increase in LIBOR by the next couple of years?

Respite for banks

An increase in LIBOR could be a welcome relief for domestic banks in Bangladesh. Banks have come under tremendous pressure in the last couple of years as major non-financial corporates in Bangladesh have increasingly availed foreign loans. Due to an interest rate differential with foreign lenders of about 6-plus per cent, banks have experienced significant drop in credit demand and profitability. But this interest rate differential is expected to go down markedly in the next couple of years as US increases interest rates and if domestic banks continue their current trend of lowering lending rates. Admittedly, domestic banks cannot bring lending rates below 10 per cent in the near term without a significant lowering of inflation and reduction in non-performing loans.

Given such constraints, if we assume domestic lending rates of about 10-11 per cent by the next two years, the interest rate differential with foreign lenders is expected to fall to around 3-4 per cent (based on an expectation of higher foreign lending rate of 7-8 per cent, due to an increase in LIBOR by 2-3 per cent). Lower interest rate differential will make domestic financial institutions more attractive to real sector firms, given that foreign loans also have added disincentives of exchange rate risks and stricter pre-conditions for loan disbursement.

EARN LOW, PAY HIGH: MISMATCH POINT : An increase in US interest rates is also expected to benefit the BB. The central bank has been under tremendous pressure in preventing an appreciation of the exchange rate to protect exports and remittance. The massive buildup of foreign reserves in the last three years could have appreciated the exchange rate to around BDT 70/USD if BB had not relentlessly removed excess dollars from the foreign exchange market. Yet, buying foreign currency resulted in injection of local currency into the economy, which directly contradicted with the central bank's price stability targets (given that higher money supply can lead to inflation). To resolve this issue, BB had to sterilise excess liquidity by selling BB bills and bonds. This cumbersome task results in massive financial challenge for the central bank given that what they earn on their assets (foreign reserves) is far less than what they pay for their liabilities (bills and bonds). Foreign reserves are generally invested in "safe haven" assets like U.S. treasuries (earning less than 1 per cent) while BB pays 5.25 per cent on its liabilities from sterilisation operations. Depending on BB's portfolio concentration in US risk-free assets, this interest rate mismatch is expected to fall considerably as US tightens monetary policy over the next couple of years and, by extension, US assets yield higher returns. This will allow BB to step up sterilisation operations when needed, while incurring significantly lower financial challenges.

POTENTIAL REDUCTION IN "CARRY-TRADE": Another aspect which BB can gain from is through potential reduction in "carry-trade". This is an age-old investment strategy where a trader borrows cheaply in a low-interest rate currency, and invests the proceeds in a high-interest rate currency. China, India, Sri Lanka, Indonesia and South Africa are few examples of countries where traders have benefitted from this strategy. Given a guaranteed stable exchange rate and high interest rate differential, the motivation for this strategy is certainly present in Bangladesh. Industry experts believe that Bangladeshi expatriates who own apartments in US, mortgage those and use the money to purchase high yielding assets like National Savings Schemes in Bangladesh.

It goes without saying, BB's foreign reserve management gets complicated due to such ad-hoc arbitrage. Carry-trade adds to rapid foreign currency inflow, contributing to exchange rate appreciation pressures. While monetary programming can reasonably foresee current account or FDI-related foreign currency inflow, "carry-trade" induced dollar inflow is certainly not forecastable - distorting BB's monetary policy forecasts. In such a scenario, US interest rate increase may actually be a blessing in disguise. The resultant fall in interest rate differential is expected to reduce motivation for utilising this arbitrage strategy, though not entirely since certain degree of interest rate differential will still persist. Nevertheless, investors would want to rebalance their portfolio with higher amounts of US assets (which are considered very safe) once its' returns improve.

WHAT FINANCIAL SECTOR GAINS, REAL SECTOR LOSES: While financial institutions stand to gain from higher global interest rates, the real sector faces a minor loss. Many non-financial corporates had been availing foreign loans at 5.0 per cent rate, allowing them to lower interest expense and improve profitability. Procedures on accessing foreign loans were eased further this year, implying greater number of firms will avail this relatively new channel. Yet these corporates may not receive loans at such low rates once US monetary policy tightens, due to factors outlined above.

A study conducted by BB dated March 2014 showed that around 200 companies had availed foreign loans since access was liberalised in 2008. These are highly reputed firms which have strong impact on economic activity in Bangladesh. It is safe to assume that the number of such reputable companies availing foreign loans has increased since then. The study also revealed that most companies received loans at LIBOR plus a 3 to 4.5 per cent spread. This is a variable rate foreign-liability which is subject to change if global interest rates rise. Clearly, as LIBOR increases, these firms could face significant interest rate risk which will pose unplanned pressure on their cash flows. Some large local corporates, for instance in the cement sector, have utilised financial derivatives to hedge interest rate risk. But financial sector officials suggest that relatively smaller firms have not hedged their variable-rate foreign liability, owing to added cost and general lack of experience with these instruments. Unprecedented expense due to higher interest rates could impede such firms' near-term investment plans, decrease profitability and reduce industry competitiveness.

DEPRECIATION OF EMERGING MARKET CURRENCIES AND RISKS FOR BANGLADESH EXPORTERS: A less visible threat lies with exporting corporations. Local non-financial corporates have been voicing their concerns over eroding export competitiveness and have urged the BB to depreciate the currency. While a small depreciation was observed this month (November, 2015), this trend is quite temporary and without a sustained pickup in imports, appreciating tendency could return quite soon. At the same time, if exchange rates of other emerging market economies depreciate with respect to the US dollar, Bangladeshi exporting firms will face tremendous competitive disadvantage in the international market. Is there a possibility for further depreciation of emerging market currencies, following the rout in August?

As mentioned earlier, global capital flow is the dominant channel for international transmission of US monetary policy changes. Unlike Bangladesh, emerging markets like India, China, Vietnam, Indonesia, Malaysia, and Cambodia have significantly more open capital accounts. This suggests that an increase in US interest rates will drive capital out of these countries and into the US. Subject to the level of central bank intervention, capital outflow will depreciate their currencies against the dollar. Depreciation will make their exports more competitive in the international market relative to their Bangladeshi counterparts. To tackle this scenario, the BB would have to "administer" an equivalent depreciation of Taka, which as discussed above entails massive financial costs. This is a highly worrisome issue for the real sector, given its heavy reliance on export-led growth.

FINAL REMARKS: Given multiple macroeconomic factors and their interconnectedness, more in-depth examination of a global interest rate shock is necessary. This is essential now as Bangladesh increases integration with international financial markets through easier access to foreign currency loans, gradual opening of capital account (still in very early stage) and issuance of sovereign bonds in addition to existing trade channels. In this context, this note ends by outlining the following questions, which appear important for much deeper understanding by all stakeholders concerned:

1. Should nominal exchange rate policy be revisited if emerging market currencies depreciate due to capital outflow?

2. What are the implications for Bangladesh's real effective exchange rate as US price levels change due to tighter monetary policy?

3. What steps need to be taken to ensure that domestic lending rates come down, sustainably, to at least 10 per cent to ensure a lower interest rate differential with the rest of the world?

4. What are the implications for capital account liberalisation in a global environment where investors might prefer US assets as their returns improve over the next 2-3 years?

5. How should Bangladesh pace its liberalisation of foreign currency borrowing given significant possibility of interest rate risk?

6. Finally, how can risks faced by real sector corporations, due to foreign currency loans, spillover to the domestic financial sector?

Sharjil Haque completed graduate studies in International Economics from Johns Hopkins University, and currently works as a Macroeconomic Analyst for an organization in Washington D.C. He is a Fellow

at the Asian Center for Development in Dhaka.

shaque4@jhu.edu


Source:  The Financial Express, 18 November 2015

Bangladesh-US : Towards new engagements

Delwar Hossain


The third round of the 2014 Bangladesh US security dialogue was held in Dhaka on 22 April. It focused on issues such as peacekeeping, counterterrorism, disastermanagement, maritime security and regional security. 
The security dialogue is part of a larger dialogue process that encompasses defencetodefense dialogue; militarytomilitary dialogue; security dialogue; and partnership dialogue between Dhaka and Washington. This security dialogue has been taking place annually since 2012. The first twoday meeting to bolster bilateral and regional cooperation between the two countries under the Joint Declaration of the BangladeshUS Partnership Dialogue took place in Washington, in September 2012. On the economic front, the first meeting of Trade and 
Investment Cooperation Forum Agreement (TICFA) between Bangladesh and the US was held in April 2014. The TICFA seeks to further bolster the annual bilateral trade – that exceeded $6 billion in 2013 – between the Dhaka and Washington. 
Amid conflicting positions of Bangladesh and the US over several domestic, bilateral and global issues, one may interpret these meetings as puzzling developments. In the postelection period, at the bilateral level, both the countries have continued with old discords on issues such as labour rights, the Yunus factor, the dutyfree, quotafree market access, and the suspension of Generalized System of Preferences (GSP) facilities to Bangladesh, among others. From a Bangladeshi perspective, the US’ stance on domestic political changes in the former is a major irritant to smooth bilateral relations. The US’ insistence on holding credible and inclusive general elections in Bangladesh afresh – after the January 2014 elections – has created a diplomatic challenge for the incumbent Sheikh Hasina government. Globally, the Kosovo and the Crimea questions clearly demonstrate Bangladesh’s different foreign policy priorities. 
However, despite the continuing discord, Bangladesh and the US have remained engaged – as demonstrated via the dialogue process and the maiden meeting of TICFA. A strong view prevails in the policy community that these meetings will put US–Bangladesh relations on the path to recovery. Unlike in the past, the US has made it clear that preventing the spread of global terrorism and strategic understanding are its foremost agendas visàvis Bangladesh. Both countries have developed three structured fora for mutual engagement. They are: the USBangladesh Dialogue on Security Issues; the BangladeshUS Partnership Dialogue; and the US–Bangladesh TICFA. The US recognises that Bangladesh has a vital role in ensuring security and stability regionally and globally.  As the head of the US delegation to the Security Dialogue, Tom Kelly, observed, “A strong bilateral partnership and improved defense ties between Bangladesh and the United States are in both of our interests.... In a broader perspective US values Bangladesh's geographical location. It sees an important role for Bangladesh in the overall security context of the Middle East, and IndianPacificOceans region. This is why US wants Bangladesh by its side in its strategic pursuits.” 
Thus, for the US, geostrategic developments in the South Asian and the Asia Pacific regions have accorded Bangladesh a degree of importance. This is also linked to the shift of the 2010 US defence strategy, that the US cannot go solo, and in its attempt to address primary 
security issues, countries like Bangladesh matter. 
Interestingly, Bangladesh appeared to be shy of expressing much optimism and enthusiasm, specifically regarding the outcomes of the meetings, and on bilateral ties in general. The head of the Bangladesh delegation mentioned that the dialogue was “very fruitful” and appreciated the US for the institutionalisation of the process of talks for intensive bilateral cooperation. The apparent lack of buoyant attitude on Bangladesh’s part reflects frustration about the US for its continuing emphasis on holding fresh elections in Bangladesh. It is also a reflection of Washington’s denial of the GSP facilities and duty freequota free access. 
However, in reality Bangladesh shows a degree of pragmatism while dealing with the US in the current context. The benefits of BangladeshUS bilateral ties – from trade to investment, and from culture to development – are substantive for both the nations. Although the rules of engagement for Dhaka and Washington have been crafted in a new regional environment in South Asia, the issue of the security dialogue may generate disquiet among regional powers such as China and India. Simultaneously, the US may also find it little troubling when Bangladesh joined the naval exercise with China along with India and Pakistan. In April 2014, ships from Bangladesh, Pakistan and India reached the Chinese port of Qingdao to partake in a rare naval exercise 
On the SinoBangladesh naval cooperation, Tom Kelly asserts that the US fully respects Bangladesh's sovereign right to establish cooperation with any other country. Similarly, the Indian High Commissioner to Bangladesh,
Pankaj Saran, maintains that “It is up to you [Bangladesh] to choose a strategic partner. India has nothing to say in the matter.” 
The first TICFA meeting may vindicate the critics that the US would use the platform to create a new regime for protecting its economic interests in Bangladesh, thereby undermining the latter’s development needs. Bangladesh’s opposition to form a women’s economic empowerment committee and a labour affairs committee in the first Meeting is an example. The TICFA and/or the Security Dialogue may open new avenues of bilateral talks, but Dhaka and Washington need to deal with major issues of mutual discord. Under the Westphalian order, attempts to use domestic politics as a diplomatic instrument may undermine gains of bilateral cooperation between the two.


Source:  The Independent, 18 March 2015