Sanctions Against India Could Cost U.S. Firms Billions
President Clinton’s announcement Wednesday of tough sanctions against India jeopardizes billions of dollars in U.S. trade and investment in that populous nation, a blow to U.S. companies already hurting from the financial crisis in Asia.
U.S. government officials and business executives were scrambling to assess the impact of the sanctions, which include a ban on the sale of military goods and technology, a cutoff of U.S. aid and financial assistance and a ban on private bank lending to Indian government entities.
Late Wednesday, the directors of the U.S. Export-Import Bank suspended $500 million worth of loan requests from half a dozen companies, including Boeing Co. and Hughes Network Systems. Up to $1 billion more in additional financing for India projects could also be affected, according to a bank spokesman.
U.S. Commerce Secretary Bill Daley said his department is working on about $10 billion worth of potential business agreements with India, many of which could be stalled by the sanctions. Also affected are programs run by the Overseas Private Investment Corp., the U.S. Trade and Development Agency and the Small Business Administration.
Marshall Bouton, an India expert and executive vice president of the New York-based Asia Society, said large infrastructure projects that require complex financing and big ticket items such as airplanes and air traffic control systems will be the first to suffer.
But he predicted the sanctions will also have a chilling effect on U.S. trade and investment with India in the near future, given the political uncertainty created by the heightened tensions in the region.
“Companies will not want to go through the hassle of trying to wend their way through another maze of Indo-U.S. problems and they don’t want to risk being accused of going against U.S. policy,” Bouton said.
Ashi Malik, president and chief executive officer of Qualimatrix Inc., an Emeryville, Calif.-based automated process control firm, was counting on India to help offset a drastic loss of business in Southeast Asia and South Korea. Until now, India and Southeast Asia each represented about 20% of his firm’s business.
But even though Malik doesn’t think his business will be directly hurt by the sanctions, he fears the overall business climate in India will suffer and bank financing will become more difficult to obtain because of the heightened tensions.
“Business will dry up,” he predicted. “A country which is desperately in need of infrastructure and capital has just shot itself in both feet.”
The stiff U.S. sanctions, a response to India’s startling detonation of a series of underground nuclear explosions, are authorized under the 1994 Nuclear Proliferation Prevention Act, which has never been implemented before.
Boeing spokesman Mark Hooper said the aerospace firm is still trying to assess the damage. Boeing was seeking Ex-Im Bank financing for a $480-million order for 10 of its 737 aircraft by India’s Jet Airways, a domestic airline. It is also vying for a $3-billion jet order from Air India, for which it might need Ex-Im assistance.
The Ex-Im Bank was established to help U.S. exporters by providing loans to cash-strapped overseas customers that would have trouble obtaining financing through more traditional sources.
Hughes Network Systems, a unit of El Segundo-based Hughes Electronics Corp. that provides satellite and wireless communications networks, had sought Ex-Im Bank support for a joint-venture power project in India.
Houston-based Enron Corp., a major player in India, is a partner with Bechtel Corp. and GE Capital in another $2.5-billion power plant in India. At risk is the second phase of that project, which has not yet been financed.
“We are carefully reviewing all elements of this,” said Kelly Kimberly, an Enron spokeswoman.
A State Department spokesman said it is not yet clear, for example, whether private banks will be prohibited from lending to Indian government entities such as railroads, airlines and energy companies or to joint ventures involving those firms.
Also of concern is how narrowly the U.S. government will define those products restricted for sale to India under the “dual-use” category, meaning products or services that could have either commercial or military application.
“There are some people in this town that would argue against an export of a plant to manufacture shellac because it could also be used to manufacture mustard gas,” said Willard Workman, an international vice president of the U.S. Chamber of Commerce.
The greatest immediate threat to India’s economy would be a cutoff of World Bank assistance. The United States, the most powerful member of the bank, is required under the sanctions to oppose all loans to India by multilateral lending agencies.
India is the World Bank’s largest customer, having borrowed $44 billion to date. Of the $3 billion budgeted for India this year, the bank has approved $1.19 billion.
But it is not yet clear how hard the Clinton administration will push for a World Bank lending freeze or whether other major nations will follow. Japan and Denmark are the only nations so far that have agreed to cut off aid to India.
Despite India’s standing as the world’s second-most-populous nation, its economic ties to much of the world are relatively limited. A history of nationalist policies has limited U.S. involvement in India to a handful of large multinationals.
Only in recent years has the Indian government begun reaching out to foreigners in an effort to attract badly needed capital and technology. Even with that stepped-up effort, U.S. bilateral trade with India is a remarkably modest $15 billion.
Unlike some of its heavily indebted Asian neighbors, India’s government kept a lid on foreign borrowing. As of June 1997, India’s total private foreign bank debt was $19 billion, of which U.S. banks held less than $2 billion, according to the Institute for International Economics.
* MORE TESTS: India ignored global criticism and set off two more nuclear test explosions. A1
