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July 1, 2011

Analysis: U.S.-India Trade Talks Focus on Trade Barriers

Although the U.S.-India economic relationship has grown significantly in recent years, economic barriers continue to prevent U.S. investment in several lucrative sectors.

U.S. Secretary of Treasury Timothy Geithner and Indian Finance Minister Pranab Mukherjee met in Washington this week to discuss trade and economic investment opportunities between the United States and India in the second meeting under the U.S.-India Economic and Financial Partnership. The Indian economy grew 8.5% in 2010 and American corporations are eager to expand their business reach to the Indian marketplace of nearly 1.2 billion people.

Geithner urged India to implement substantive economic reforms, particularly in the finance sector, to enable the United States and India to fully realize the “enormous potential” of the bilateral economic relationship. Mukherjee lauded the rapid growth of trade between Washington and New Delhi in recent years and acknowledged the need for the easing of trade barriers

Analysis

Despite the robust rhetoric welcoming expanded foreign investment, significant barriers remain to additional U.S. investment in several Indian sectors including banking, education, and legal services. India’s ruling Congress Party has been beset by a wave of corruption scandals that have weakened its ability to pass much needed economic reforms to lessen trade and investment barriers.

India desperately needs foreign investment to develop and expand a national infrastructure that is woefully inadequate to support its continued economic growth. New Delhi is likely to move incrementally toward further economic reforms with an eye toward easing restrictions that will allow foreign investment for infrastructure improvements.

Carolyn Leddy held senior positions with the U.S. Department of State and the National Security Council under the George W. Bush administration. She was a 2009-2010 Council on Foreign Relations-Hitachi Ltd. International Affairs Fellow in Japan and Visiting Fellow at the National Institute for Defense Studies in Tokyo.

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June 29, 2011

Blagojevich Mess Will Linger for Years in Illinois

SPRINGFIELD, Ill. (AP) — In the end, Rod Blagojevich did not bring doom for his party or the national political figures whose names got dragged into his scandal. But long after he is behind bars, Illinois will still be cleaning up the mess left behind by the state’s cartoonish former governor.

Blagojevich — who drew laughs around the nation for his goofy haircut, foot-in-mouth quotes and affinity for Elvis Presley — will also be remembered here for six years of dysfunctional leadership. He contributed to a massive budget deficit, nearly paralyzed the government with his stubborn inaction and damaged the reputations of some fellow Democrats in President Barack Obama’s home state.

A day after Blagojevich was convicted on wide-ranging corruption charges, experts and veterans of Illinois politics said his attempt to sell Obama’s Senate seat was only the most heinous example of the harm inflicted by a lazy, disinterested chief executive.

“Clearly he was one of the worst governors that we’ve seen in modern times,” said Chris Mooney, a political science professor at the University of Illinois at Springfield. “Not only in terms of ethical shenanigans … but he really was incompetent. He didn’t understand what he was doing.”

Testimony at Blagojevich’s two trials depicted a governor who all but left the state to run itself. Lawmakers quickly concluded they couldn’t trust him to spend money fairly and refused to work with him — a political breakdown that carried lasting consequences.

If Blagojevich was in his office — which was rare — he seemed unwilling to do his job. Aides said he was known to hide in the bathroom to avoid discussing complex issues.

They talked about tracking the governor down at his tailor or even a bowling alley to force him to sign legislation. He showed up late for meetings and public events and explained that he had been busy jogging or playing video games with his children.

The lack of cooperation that developed with lawmakers delayed many proposals, including major public works projects that would have created jobs.

“His approach tarnished everything he touched,” agreed Debbie Halvorson, a former Democratic state legislator and member of Congress.

Blagojevich didn’t create the state’s budget problems, which began under Republican Gov. George Ryan and were caused by national economic trends. But there’s ample evidence that Blagojevich made the crisis worse at a time when decisive action might have helped.

He didn’t cut spending when tax revenue plummeted. Instead, he got lawmakers to go along with temporary fixes like skipping the state’s annual pension payment. Those maneuvers got the state through one budget season but left an even bigger hole to fill the next year.

Blagojevich’s core political promise was that he wouldn’t raise income taxes or sales taxes, and he kept that pledge even when the state’s deficit grew to billions of dollars. But that didn’t keep him from spending more money, sometimes without legislative approval, on things like expanded health care for children and free prescription drugs for the elderly.

Mooney said Blagojevich also hired unqualified candidates to run programs and drove competent people out of government. His handed jobs to campaign donors and circumvented laws that give preference to veterans so he could hire political allies.

State employees flocked to unions under Blagojevich’s tenure, partly to gain protection from his salary cuts and political hiring decisions.

But Alan Gitelson, a Loyola University political scientist, cautioned against blaming all of Illinois’ problems on Blagojevich.

“There’s a limited amount of damage any governor can do because he is dealing with the Legislature,” Gitelson said. “These are joint efforts.”

Blagojevich’s troubles did not extend in any lasting way to his party.

The state still has a Democratic governor, Pat Quinn, who was elected despite twice serving as Blagojevich’s lieutenant governor. And Obama’s name surfaced repeatedly in Blagojevich’s two trials, but there was never any suggestion that he did anything wrong as Blagojevich schemed to benefit from his power to choose Obama’s Senate replacement.

Last fall, when Rahm Emanuel left his post as White House chief of staff, some political analysts warned that his dealings with Blagojevich could doom his chances to be elected mayor of Chicago.

But Emanuel easily won. And while he testified briefly at Blagojevich’s second trial, he was never accused of any wrongdoing. In fact, on the charge directly involving Emanuel — that Blagojevich tried to shake down Emanuel for a fundraiser — jurors were unable to reach a verdict.

The politician hurt most by his association with Blagojevich was Rep. Jesse Jackson Jr., whose name arose in a scheme by the governor to solicit campaign contributions in exchange for naming Jackson to the Senate.

By the time jurors convicted Blagojevich, Jackson had been badly damaged.

Gitelson said Jackson had been “a bright light” for the party who might have been a contender for Chicago mayor or U.S. senator.

Now it’s unlikely that Jackson “is in any sense a viable candidate outside his congressional district,” Gitelson said.

Blagojevich gave the public reason to question the judgment of Democratic leaders who supported the governor long after evidence of misconduct had surfaced.

House Speaker Michael Madigan, also chairman of the state Democratic Party, eventually refused to attend meetings with the governor because he felt it was a waste of time. That did not stop Madigan from serving as co-chairman of Blagojevich’s re-election campaign, however.

Quinn vouched for Blagojevich’s honesty. Obama endorsed Blagojevich for re-election.

“We’ve got a governor in Rod Blagojevich who has delivered consistently on behalf of the people of Illinois,” Obama said in 2006.

Republicans seemed to pay a higher price after one of their own, Gov. George Ryan, left office amid scandal in 2003 and eventually went to prison. The GOP lost every statewide race in the next election, and four years later their candidate for governor lost in large part because the Blagojevich campaign portrayed her as Ryan’s best friend.

Still, Ryan will also be remembered for his stance on the death penalty. He is an international hero among death penalty opponents for pardoning wrongly convicted death row inmates and eventually halting executions and commuting 167 death sentences to life in prison.

Blagojevich has no such legacy. His biggest initiatives, such as providing health care and preschool for all children, were hobbled by the state’s record-setting deficit. They’re footnotes in an administration that will always be associated with scandal.

Stephen Schnorf, budget director under two Republican governors who preceded Blagojevich, said the disgraced former governor never seemed to have any ambition to lead.

“It was as if not working was the purpose of the whole thing, as if that was the goal,” he said.

___

Babwin reported from Chicago.

© Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

June 27, 2011

Home Depot Accused of Violating Buy American Act

SAN FRANCISCO — The photograph on the Home Depot website shows a line of smiling soldiers unloading a truck stacked with power tools and other company wares.

The company says this shows “federal dollars go farther at The Home Depot.”

San Francisco Attorney Paul Scott says the photo also shows the company providing Chinese-made products in violation of the Buy American Act, and the U.S. Department of Justice is investigating.

A federal judge refused Home Depot’s bid in April to toss a whistleblower lawsuit Scott and other attorneys filed against the company. Now the country’s largest home improvement retailer is the latest company accused of running afoul of the Buy American Act, a 1933 law aimed at protecting U.S. jobs. The law requires that all materials used in construction of public projects originate in the United States or “designated countries.”

Like most protectionist trade provisions, the Buy American Act has its supporters and detractors.

Proponents support the act as a way to boost the economy and preserve U.S. jobs. Critics complain the law limits the government’s ability to make the best purchase on price and quality. Further, they argue that complying with the letter of the law is difficult, given the many exemptions and the reality that the component parts of many products originate in multiple countries. In addition, the law’s critics say it’s especially difficult for large companies such as Home Depot that carry thousands of products to ensure it follows the law with every government transaction.

The law has been through many revisions, and trade agreements with Canada, Israel and several other countries allow for use of material made in those countries. In the decades after its enactment, the law was little used. But with the explosion of international trade a number of companies have been accused of violating the Buy American Act over the last several years.

Earlier this year, the national hardware distributor Fastenal Co. agreed to pay $6.25 million to resolve DOJ claims made after a government audit found among other things that it violated its contract with the General Services Administration by providing Chinese-made goods.

Fastenal said in a statement that it settled because “we continue to believe that we complied with our obligation under the GSA contract in all material respects. However, we felt a continuation of our dispute with the DOJ and GSA was not the best use of our resources.”

In the last six years, Staples, Office Depot, and OfficeMax have paid a combined $22 million to settle government claims they violated the act. In 2008, the Department of Justice announced that W.W. Grainger agreed to pay $6 million to settle claims the company overcharged the government and provided it with Chinese and Taiwanese products in violation of the Buy American Act.

At issue in the Home Depot case are GSA “schedule” contracts. Those contracts authorize any government agency to purchase tens of thousands of products from the company’s Web site.

The lawsuit alleges that up to half of those products are made in China and other non-designated countries. The lawsuit was filed by two employees of another government contractor in 2008 that claimed their employer, the Actus Lend Lease Co., supplied noncompliant material in several military housing projects.

Before Actus was dropped from the case this year after paying an undisclosed amount of money to settle, lawyers discovered allegations that one of its corporate partners — Home Depot — was also violating the law.

The two Actus employees initially filed the so-called whistleblower lawsuit under seal, as all such claims on behalf of the government are filed. That gives the DOJ a chance to investigate the claims and decide if it wants to take over the lawsuit, which seeks to recover damages on behalf of the government.

All damages recovered are split between the government and the plaintiffs filing the lawsuit, with the government always receiving a larger amount.

Last year, the judge denied the government’s request to keep the lawsuit under seal so it could continue its investigation.

After the lawsuit was made public, Home Depot asked the judge to dismiss the case, noting the government’s non-intervention in the case. In March, federal prosecutors fired back at Home Depot with a court filing stating that it “would be erroneous to assume that the government’s lack of intervention reflects its conclusion that the case lacks merit.”

The DOJ continues to investigate the issue and still has not decided whether to join the case.

In court filings and a brief interview, Home Depot officials argue they have complied fully with the terms of the contract and the Buy American Act.

“We would never knowingly sell prohibited goods under any circumstances, and we have been cooperating with the government to provide requested information,” said Home Depot spokesman Stephen Holmes. “We believe the plaintiffs have an inaccurate view of the facts, so we look forward to presenting our side of this case as the process moves forward.”

A judge has scheduled a trial for early next year.

© Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

June 24, 2011

US Hits Iran Air, Port Company with Sanctions

WASHINGTON (AP) — The Obama administration hit two pillars of the Iranian economy with sanctions Thursday, targeting the Islamic republic’s national airline carrier and a major port company on charges that they facilitate illegal weapons trade and help the mighty Revolutionary Guard corps in destabilizing activity in Iran and nearby countries.

The Treasury Department’s action blocks any assets in the United States belonging to Iran Air, Tidewater Middle East Co. and three other firms. It also prevents Americans from doing business with them.

In a joint statement, Treasury Secretary Timothy Geithner and Secretary of State Hillary Rodham Clinton said the hardline Revolutionary Guard’s use of Tidewater and Iran Air for proliferation activities was indicative of its increasing power in the Iranian economy. This displaces legitimate private Iranian companies in the commercial and energy sectors, which they called “deeply troubling.”

The Revolutionary Guard serves as the “enforcer” for the Iranian regime by suppressing peaceful protests, and imports and exports weapons for the government, the secretaries said. They also blamed it for supporting terrorism in the Middle East.

The other companies sanctioned were the Mehr-e Eqtesad-e Iranian Investment Company, Iran Air Tours and the Behnam Shahriyari Trading Company. Iranian businessman Behnam Shahriyari was personally targeted for his alleged role in providing weapons to the militant group Hezbollah in Lebanon.

Although the sanctions only apply to the United States, senior Treasury and State Department officials said they hoped other countries would take a closer look at business being conducted with the companies. The U.S. is hoping authorities will halt the refueling of Iran Air planes, though non-U.S. airports are not required to take any action against the company, the officials said.

The Treasury Department says Iran Air has helped the military obtain raw materials such as titanium sheets, which can be used in support of advancing nuclear weapons. It has also transported rockets on passenger planes and taken missile components to Syria, Treasury alleges.

The airline operates about 40 aircraft flying to 35 international destinations.

The statement from Geithner and Clinton said preventing Iran from developing nuclear weapons is a top U.S. priority. They said they remain deeply concerned about Iran’s uranium enrichment program, even if the Iranian government insists it is solely designed for energy purposes.

“The international community must continue to increase and broaden the scope of pressures on Iran,” the two secretaries said. “We have made important progress in isolating Iran, but we cannot waver. Our efforts must be unrelenting to sharpen the choice for Iran’s leaders to abandon their dangerous course.”

Tidewater manages seven ports in Iran and serves as a key element in Iran’s infrastructure and transport network. Treasury says it has operations at terminals that have facilitated the Iranian government’s weapons trade.

The company has no relation to Tidewater Inc., an international shipping company based in the United States.

© Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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