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The U.S.-India nuclear breakthrough that wasn’t

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During U.S. President Barack Obama’s recent India visit, a stalled, decade-old civil nuclear deal took center-stage, with the two sides announcing a breakthrough on the contentious issues blocking its implementation — a development that promised to potentially open the path for a Japan-India nuclear deal. It now appears that the breakthrough was more hype than reality and that there is little prospect of the U.S.-India deal’s early commercialization.

With Indian Prime Minister Narendra Modi by his side, Obama announced that “we achieved a breakthrough understanding on two issues that were holding up our ability to advance our civil nuclear cooperation.” The two issues identified were nuclear accident liability and the administrative arrangements to govern the bilateral nuclear cooperation agreement — the successor to an accord the United States unilaterally terminated after India detonated a nuclear device in 1974.

U.S. officials said India agreed to address American concerns over its liability legislation by setting up a $245 million nuclear insurance pool and issuing a “memorandum of law” — essentially an executive action. The Indian foreign ministry, for its part, said “the deal is done,” with the two sides having “reached an understanding on civil nuclear liability and finalized the text of the administrative arrangements.”

But it has now become apparent that the U.S. and India are still locked in negotiations to tie up loose ends and that the much-trumpeted breakthrough was little more than an effort to project a substantive advance during a presidential visit rich in pageantry and symbolism. Obama was the chief guest at India’s Jan. 26 Republic Day parade, a year after Prime Minister Shinzo Abe had that honor.

While claiming a breakthrough, neither side released any details, including on how another sticking point had been resolved: a U.S. demand that New Delhi accept nuclear-material tracking and accounting arrangements that go beyond the safeguards system that the International Atomic Energy Agency (IAEA) has approved and applied to nuclear-armed India’s civilian nuclear program. The U.S. demand entails establishing, on top of the IAEA inspections system, a bilateral safeguards system — an elaborate and expensive arrangement in which India would separately track and account for nuclear materials “by flag” (that is, by each national origin).

The same stumbling block over parallel safeguards in perpetuity has held up India’s conclusion of nuclear deals with Japan and Australia but not with Canada, which dropped that demand. Shortly after Modi took office last May, the Indian foreign ministry conveyed to Tokyo that concluding a nuclear deal must take centerstage during a Modi visit to Japan. Even though Modi postponed his Japan visit by several weeks for unrelated reasons, negotiations failed to yield a deal.

Australia has no nuclear power program, despite holding the world’s largest uranium reserves, and can only offer to export yellowcake, which India is already sourcing amply from other suppliers. Japan’s importance, by contrast, is underscored by two facts: It is the world’s leading supplier of heavy nuclear forgings, with just one Japanese company — Japan Steel Works — controlling 80 percent of the global market for large forged components for light-water reactors (LWRs); and the U.S.-based Westinghouse is owned by Japan’s Toshiba, while another reactor vendor, GE-Hitachi, also headquartered in the U.S., is jointly owned by America’s GE and Hitachi of Japan.

India, pointing out that IAEA safeguards guarantee that all its imported materials are accounted for and devoted to peaceful purposes, has resisted the demand for establishing additional safeguards with America (and Japan) bilaterally, saying this would amount to assuming onerous obligations not envisaged even in the original U.S.-India nuclear deal of 2005.

While the “flagging” arrangements sought by the U.S. and Japan are strictly a government-to-government issue, nuclear liability has become a bone of contention between the Indian government and the firms seeking to export commercial reactors to it — the two U.S.-Japanese private companies, France’s state-controlled Areva and Russia’s Rosatom. The U.S. government, however, has also weighed in against the Indian liability law, calling it an obstacle to the deal’s commercialization.

To be sure, India and the U.S. have made considerable progress in recent months on resolving the sticking points, although a final deal has yet to be clinched. Progress has come mainly due to Indian concessions. As U.S. Assistant Secretary for State Nisha Biswal admitted last week, the two sides are still “trading paper” and working to stitch up the deal.

The Modi government has yielded ground, even at the risk of facing criticism at home. For example, it has agreed to reinterpret domestic law so as to effectively transfer reactor vendors’ nuclear accident liability risks to Indian taxpayers. Indian law allows suppliers to be held liable in case of an accident. The government is also reinterpreting another provision of the law to bar victims of a nuclear accident in India from suing for damages in the U.S.

These actions are likely to prove controversial, given India’s bitter experience over the 1984 gas leak from an American-owned Bhopal city plant that killed about as many people as the Fukushima disaster. Indeed, Japan’s dual liability laws, which indemnify suppliers and make plant operators exclusively liable, should serve as a sobering lesson for India: GE built or designed all the three Fukushima reactors that suffered core meltdowns in 2011, yet the U.S. firm went scot-free, despite a fundamental design deficiency in the reactors.

To deflect supplier liability, New Delhi — besides creating a nuclear insurance pool to cover suppliers — is issuing a “memorandum of law” incorporating its legal reinterpretations and authoritative clarifications as well as the understandings it has reached with America. But this raises a basic legal question: How can a “memorandum of law,” with no legislative imprimatur and backed merely by the Indian attorney general’s opinion, reinterpret a statute in a way to effectively gut it? Given that such reinterpretation could be challenged in Indian courts, U.S. officials are advising Westinghouse and GE-Hitachi to make their own risk assessment to decide whether to enter the Indian nuclear market.

On the issue of parallel safeguards, New Delhi has agreed to go more than half-way to meet America’s demand, which springs from its Henry J. Hyde Act, enacted in 2006 to govern the nuclear deal unveiled the year before. The Hyde Act calls for a “detailed system of reporting and accounting” of exports to and retransfers within India, including an annual independent audit about the form, amounts and location of exported items.

India will establish a data-sharing and material-accounting mechanism with America. Its “flagging” of materials by nationality will also involve tracking items sourced from third countries but used in U.S.-origin reactors. Yet U.S. House Foreign Affairs Committee Chairman Edward R. Royce has criticized this arrangement as not adequate.

With complex legal, pricing and other issues still pending, the deal’s commercialization is anything but imminent. In fact, the two sides are yet to sign the administrative arrangements, which they announced had been “finalized.”

It is an open question whether the deal will ever yield substantive energy benefits for India, given the exorbitant price of foreign-origin reactors, the concomitant need for India to heavily subsidize the electricity from such plants, and grassroots safety concerns over the Fukushima-type multi-plant nuclear parks earmarked by India for Westinghouse, GE-Hitachi and Areva, each of which is to sell prototype LWR models presently not in operation anywhere in the world. The accident-stricken Fukushima reactors were also the first of their kind.

Adding to India’s risks is its plan to induct a multiplicity of different LWR technologies from the U.S., France and Russia. This will also exacerbate its maintenance challenges.

Consider another issue: Years after the U.S. pledged to bring India into four American-led technology-control cartels — the Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement — India is still pleading for its admission, with Obama merely reiterating America’s support for India’s “phased entry” into these groups. India now intends to file a formal application for admission to each cartel, in the hope that the U.S. would be more forthcoming in its support than it has been so far.

The Obama visit was a testament to how hyping the nuclear deal obscures more important issues. For example, despite the vaunted U.S.-India Defense Technology and Trade Initiative (DTTI), the U.S. side refused to accept any the six joint high technology projects proposed by India, insisting that New Delhi first sign “foundational agreements” on military logistics and communication interoperability that America has designed for its allies in a patron-client framework. India, which seeks a level-playing field, is America’s strategic partner, not its ally. The four joint projects announced during the visit are for relatively modest defense products.

Nuclear power faces an uncertain future, with few new reactors under construction in the West. Yet India has continued to place the nuclear deal at the hub of its relationship with America. Washington has obligingly pandered to this Indian weakness, entering into protracted implementation-related negotiations. The original deal had already spawned multiple subsidiary deals before Obama announced a “breakthrough” on two more auxiliary deals. Each deal has been hailed by New Delhi as a diplomatic success, regardless of the concessions it had to make or the new obligations thrust upon it.

It is past time for India to reduce the salience of the nuclear deal in its relations with America and prioritize other issues concerning its core interests. Why a deal to import reactors to generate an increasingly uneconomical source of energy is critical to Indian interests has never been elaborated by the deal pushers in India other than through beguiling slogans, such as “End of nuclear apartheid against India” and “A place for India at the international high table.” Such imports will create thousands of jobs for American workers but will be out of sync with Modi’s “Make in India” initiative to expand domestic manufacturing base.

India’s diplomatic overinvestment in the nuclear deal has only made it harder for it to address more fundamental issues in its ties with the U.S., including an increasingly one-sided defense relationship. Rarely before has America acquired a major arms client of the size of India so rapidly. It will take concerted efforts, without being weighed down by the nuclear deal millstone, to forge a true, enduring U.S.-India partnership.

Brahma Chellaney, a longtime contributor to The Japan Times, is a geostrategist and the author of the award-winning “Water: Asia’s New Battleground.”

  • IAF101

    Considering that the full text and scope of the US-India negotiations on the nuclear deal haven’t been made public it is puzzling to read that all the alleged breakthroughs claimed by Obama were made by Indian concessions.

  • Dipak Bose

    Modi is a cheat. He has cheated his way in. Now he is losing. People do not trust him.

  • Richard Solomon

    The supposed nuclear deal is, hopefully, smoke and mirrors that will turn out for naught in the long run. First, nuclear power is neither clean nor safe. The extraction and refinement process of uranium requires huge amounts of energy: powered by fossil fuels which produce CO2 and thus contribute to global warming. The events at Fukushima in Marcy 2011 prove what some people have known along: the storage of spent fuel in pools of water is a huge, huge risk. The industry promised to develop safer storage methods or a way to reprocess the spent fuel economically. Neither has happened in the more than 50 years that the industry has been operating. There is little reason to believe it will happen in the next 50 years as well.

    Second, the events at Fukushima have proven that a $245 million fun for insurance in the event of an accident is a piddling amount. It has cost Japan BILLIONS of dollars so far to try to clean up the mess. And TEPCO is not even gotten to where it can ascertain where the melted fuel is in the 3 reactors, let alone figured out a way to get hold of it safely. Does India have enough wealth to pay for such a cleanup if/when it becomes necessary? Not without bankrupting the country!

  • Kautilya

    The article misses a key point; the US government, by proclaiming that individual companies will have to make their own risk assessments, is effectively accepting that India’s Nuclear Liability law is no longer an impediment to implementation of the 123 Agreement. Any reservations on the part of US companies to commercialize the Agreement would be strictly a commercial matter. In all probability, India will move ahead with Russian reactors, the French may contribute their bit while the Japanese and the Americans will be allowed to complain about the risks, without necessarily getting anything for it. The Thorium Cycle, will likely be built on the feedstock from the Russian reactors. The absence of Japanese and American companies from the Indian Nuclear Energy market will only serve to marginalize in the future, any influence (atleast in the Nuclear Energy space) the two countries may have sought with India.

  • Dipak Bose

    There is need for any American companies in India. This particularly true about GE, who, when ENRON went bankrupt after cheating about $1 Billion loan from the Industrial Development Bank of India, came to India to demand about $200 million compensation from India and India obliged. The total loss for the worthless power plant of ENRON to India was about $1.5 Billion.
    Previously Union Carbide killed about 8000 people in Bhopal and got away with.
    Similarly now GE and Westinghouse will not pay any compensation to the Indian people if there will be any accident.
    This is a surrender of Modi to Obama. There is no need for any American nuclear plant, as Russia has offered 12 new nuclear plants to India.
    .

  • Rajiv Sharma

    It all may reignite a battle for justice that had fallen off the radar of much of Indian media and society. Nuclear deal could be a game-changer for US-India relations, but serious question is if Indians will ultimately pay the price. Little is known about the deal and it’s unclear whether compensation would be paid to victims of any nuclear disaster. National security could be jeopardised if American companies are given nuclear reactor inspection rights at Indian facilities, as demanded by the US. We need to get out of this all dirty nuclear business and Modi must think on other paradigms for the development and bright future of the country.

  • Tooba mansoor

    The ever growing and extending relations between India and US are solely for making their political and economical interests secured. USA is making full use of India to counter the emerging influence of China in the South Asian region. After 10 years of the Indo-US nuclear deal when the time comes to implement the deal and to make India get benefited by the deal, US comes up with another sticking point. This shows that despite of meeting and talks no consensus on the issue of liability have come forward. This is well incapability of Indian government or the level of trust which US and the private companies put over the India’s flawed civil liability law.

  • Sataish

    This is a break thorough only for
    governments of both sides US and India. We are still in ambiguity that how come
    there is a breakthrough of a nuclear deal without making any single change in the
    Indian nuclear liability law. It’s a nuclear deal which can give dominant
    position the global nuclear market. But what about the poor Indian nationals who
    can’t afford to have bread rather than to enjoy cheapest nuclear energy.
    Nuclear is predominant in Modi/BJP agenda and no clue to address the woes of
    common citizen of India. Bhopal Gas Tragedy equitized in magnitude with Fukuhshima.
    There is no framework to overcome nuclear mishaps in India but we are living
    under nuclear shadows.

  • Limpkisar

    123 Agreement, which has not been materialized yet, put serious challenges to the global efforts regarding nuclear disarmament and non proliferation treaty. Unfortunately, US’ economic ambitions have put question mark on credibility of nuclear arms reduction in future. The great irony lies in the fact that preachers of global zero are the main cause of nuclearization.

  • Madhusudhan Haravu

    In my opinion suppliers of nuclear power reactors will continue to be fully liable in the event of a nuclear accident thta can be proven to have been caused by a manufacturing defect in the reactor and not due to acts of ommission and commission of the operator . As far as I can gather from media reports ,there is nothing in the understanding purportedly reached between the US and India recently, which eliminates the liability of suppliers in the event of a manufacturing defect.The existing nuclear liability law does not curtail the supplier’s liability in such circumstances. The only thing is that manufacturing defect will have to be proved by substantial evidence in a court of law.