In the wake of India's nuclear weapons tests and the subsequent and swift imposition of economic sanctions by President Clinton earlier this month, major US corporations and investors are holding their collective breath to see just what, exactly, the sanctions will entail, and who will be hurt. And perhaps no other industry is more unsure about its fate than America's high-tech sector.
According to the US International Trade Administration, computers and peripherals have been expected to top the list of goods and services exported from the United States to India this year, with some US$1.7 billion in sales anticipated -- about one-seventh of last year's total US exports to the country. In addition, computer software exports to India were expected to reach $130 million this year, up from $125 million last year.
"The administration hasn't decided what it's going to do, so we're all just waiting to hear what will specifically be targeted," said John Scheibel, vice president and chief counsel for the Computer and Communications Industry Association.
But most agree that, whatever the details, the sanctions will create an atmosphere of skittishness that will affect trade between the two countries.
"There could certainly be some impact on companies that are looking at long-term investments there because of the greater uncertainty that this creates," said an official at the US State Department who asked not to be identified.
Sanctions that have already been announced include the suspension of loans and guaranties for about $500 million worth of export projects that are pending at the US Export-Import Bank, along with another $3.5 billion worth of projects at a preliminary stage of the process. The Export-Import bank, the official credit agency of the US government, promotes US exports by guaranteeing working capital loans for US exporters, guarantees the repayment of loans, and makes loans to foreign purchasers of US goods and services.
Similar sanctions have been promised against Pakistan in the wake of its own nuclear test conducted Thursday. Although the penalties are expected to have a drastic effect on the Pakistani economy, they do not have the same potentially sweeping implications for the US technology sector.
A particularly severe blow against India is the cutoff of $10.2 billion in insurance and finance by the Overseas Private Investment Corporation, another governmental body that helps promote international trade.
According to a former chairman of the Export-Import Bank, those lost guarantees will effectively kill US investment in Indian tech enterprise.
"If the US government doesn't allow guarantees, which is the case with these sanctions, it will cut back trade with India clearly," said William H. Draper, a former chairman and president of the Export-Import Bank who is now managing director of Draper International, a division of the San Francisco-based venture capital firm Draper Richards, which has offices in India. Draper said that venture capitalists will probably shelve any projects planned for the country, because of the increased risk involved.
Total US investment in India currently runs in the neighborhood of $7 billion annually, according to the State Department.
Draper's company alone has some $55 million invested in India's technology sector, but Draper said his company will suspend all new projects there until the sanctions are lifted. "We're definitely cut out of doing business there because of the sanctions," he said.
Computer manufacturers with factories in India include most of the biggest names in the industry: IBM, Hewlett-Packard, Digital Equipment Corporation, and Silicon Graphics.
"The impact of sanctions should have negligible effect on our business in India today," said Brad Whitworth, a spokesman for Hewlett-Packard, which has manufacturing and marketing operations in India. "What the administration has said it will target is high-end computing that's built for nuclear or military purposes, and ... that would be the very tiniest part of our total business in India."
But Whitworth and others in the industry recognize that, today, supercomputers are built from desktop PC components and consumer software, and the dubious distinction of being dubbed too powerful for export could fall at any point on the technological spectrum.
The sanctions' impact could be felt hard in the US, too. While the sanctions don't affect Indian workers already here, the State Department official predicted that the welcome mat for others waiting to get in could be rolled up and the door locked. Indian technicians are highly valued and heavily recruited by US software and hardware companies.
"They're supposed to hit their ceiling of 50,000 visas before half the year's over," said the State Department official. "The law on those visas is up for review, and there has been a big push for a larger quota for Indian technology specialists. But I wouldn't be surprised if someone in Congress seized on the opportunity to challenge that now."
Scheibel responded, saying, "We have very specific circumstances in the marketplace that require access to specialty professionals such as those coming out of India, and the talents and skills are what help our domestic companies create and build jobs. It'd be a very crude approach to statecraft to tie one to the other."
Of more immediate concern for many American companies are sanctions which will target export of "dual-use" technology that could be used to design weapons. Some in the industry fear that even high-end Computer Aided Design (CAD) software and high-powered computers could be targeted for restriction. While most consumer-oriented computer and software manufacturers aren't too worried, all agree that the devil is in the details -- and the details are, as yet, unknown.
The State Department has announced that sanctions related to commerce licenses, as well as private credit and loans, will not be fully defined for a few weeks.
"It's all hypothetical right now, until we know what the government is going to determine," said Fred McNeese, director International Public Relations at IBM.
