» News » EXPLAINED: Why Indo-US nuclear deal is in COLD STORAGE

EXPLAINED: Why Indo-US nuclear deal is in COLD STORAGE

By Aziz Haniffa
June 11, 2012 15:18 IST
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The Barack Obama administration is resigned to the reality that the Manmohan Singh government has little chance of salvaging the deal from the limbo it is in now and providing some leeway on the Nuclear Liability Law, experts tell Aziz Haniffa
For all of the public assurances by senior United States and Indian officials that the India-US civilian nuclear agreement will come to full fruition soon, none of them are holding their breath on this issue.
Consequently, the Barack Obama administration is resigned to the reality that the Manmohan Singh government is virtually held hostage by the likes of West Bengal Chief Minister Mamata Banerjee and others and is growing unpopular by the day. It has little chance of salvaging the deal from the limbo it is in now and providing some leeway on the Nuclear Liability Law passed by Parliament that would reassure US firms to invest in nuclear reactors, technology etc.

Incidentally, American business and industry were once salivating to jump into the Indian market, particularly after they lobbied heavily for the deal's passage in the US Congress, with the hope that they would get the lion's share of the Indian nuclear pie.
Publicly, in May, the Obama administration attempted rather weakly to assuage the angst that Washington has been taken for a ride by New Delhi.

The assurance came amid growing concern in the US Congress that the Parliament's Nuclear Liability Law had left American companies hanging, 
Congressman Steve Chabot, Ohio Republican, chairman of the House Foreign Affairs Subcommittee on South Asia, who convened a hearing last week on US Foreign Policy Priorities in the subcontinent, had stated, "It is no secret to date the India-US civil nuclear agreement hasn't met US commercial expectations due to the Nuclear Liability Law passed by Parliament, which essentially shuts out US companies."
Assistant Secretary of State for South Asian Affairs Robert Blake, who was among several senior officials who appeared before the subcommittee, agreed with Chabot, saying, "There's more work to be done on both sides to create the level playing field necessary for US companies to fully participate in India's civil nuclear market."
He noted, "In the interim, we continue to have constructive dialogue with the Indian government on these issues, and we are pleased that US companies are finding ways to move forward now with commercial negotiations."
But Chabot apparently wasn't impressed and returned to this topic during the interaction that followed the testimony of all the officials. He asked Blake why American companies should have any optimism that the deal will be ultimately be implemented.
Blake said that Secretary of State Hillary Clinton, during her recent trip to New Delhi, had "discussed this with senior Indian leaders and she noted that we continue to have a very strong interest in supporting our companies' interests in moving ahead, particularly Westinghouse and General Electric."
He told Chabot and the other lawmakers that "she was pleased to hear from India that they have restated their commitment to ensuring a level playing field for our companies and we have had a very strong dialogue on the liability legislation."
"That dialogue has relieved some of our concerns, but not all of our concerns," he added.
Blake acknowledged, "Our companies still feel that there are impediments to moving ahead with the current law, so we will continue to work through that."
"But in the meantime," he explained, "we are focusing on trying to support our companies' efforts to sign early commercial agreements -- things that do not require or don't impede in any way by existing liability legislation."
Indian Ambassador Nirupama Rao too tried to sound upbeat in May, during a speech to the Atlantic Council, while acknowledging, "I am aware that there are some concerns about the civil nuclear liability law that our Parliament has passed."

She noted, "We have had useful discussions and have sought to address these questions and concerns with seriousness and transparency. In fact, the Indian nuclear power plant operator NPCIL and the US companies are actively engaged in discussions to finalise an agreement to commence commercial operations."
A nuclear expert who is intimately knowledgeable about the situation and who regularly interacts with government officials in Washington and Delhi, in an exclusive analysis to, said,  " The US and India are trying to find a common ground to keep the hopes of civil nuclear commerce between the two countries alive," although the much hyped hopes are virtually comatose now because of the nuclear liability issue.
But the expert seemed to be of the view that if India continued to hold out and play hardball, the US may acquiesce, although senior administration officials and leading industry leaders told that such an outcome is unlikely.
The expert, who did not want to be identified, said, "In 2007, India agreed in writing, in an official note sent to the US government, that its nuclear law will be compliant with the Convention on Supplementary Compensation for Nuclear Damage."
"From the US perspective," he explained, "the CSC achieves legal certainty by requiring each member country to have a national law on nuclear liability that is based on the Paris Convention, the Vienna Convention or the 'Annex to the CSC' and that incorporates the provisions in the CSC on jurisdiction, compensation and the definition of nuclear damage."
The expert said that this requirement ensures that the national law of each member country will reflect the basic principles of nuclear liability law, which include: (1) channeling all legal liability for nuclear damage exclusively to the operator; (2) imposing liability on the operator without the need to demonstrate fault, negligence or intent; (3) granting exclusive jurisdiction to the courts of the country where a nuclear incident occurs; (4) permitting liability to be limited in amount and in time; and (5) compensating damage without any discrimination based upon nationality, domicile or residence.
But he acknowledged that it was important to remember that "the CSC is not presently in force."
The expert said, "Most countries with commercial nuclear programmes also have their own legislative regimes for nuclear liability. These national regimes implement the conventions' principles, and impose financial security requirements, which vary from country to country. There are three categories of countries in this regard: those that are party to one or both of the international conventions --Vienna or Paris-- and have their own legislation, those that are not parties to an international convention but have their own legislation -- notably USA, Canada, Japan, and South Korea -- and those that are not party to a convention and are without their own legislation--notably China. China has certain directives stating its position on nuclear liability, but has not yet developed a specific regime".

India passed a Nuclear Liability Law in August 2010. It was voted in the Lok Sabha on August 25, 2010, and the Raj Sabha on August 30, 2011. Claiming that the law was compliant with the CSC, India signed the CSC in Vienna on October 27, 2011. India had also publicly announced that it will ratify the CSC before the end of 2011.

At the moment, only four nations have signed and ratified the CSC -- Argentina, Morocco, Romania and the United States. India's signing brings a total of 14 nations as current signatories to the CSC. The CSC is set to enter into force on the ninetieth day after the date of ratification by at least five nations who have a minimum of 400,000 units of installed nuclear capacity. Even though India's ratification will bring the number of nations that have ratified the CSC to the minimum threshold, India does not produce enough nuclear power now, or in the foreseeable future, to bring the generating capacity to the threshold -- 400 GWt, according to the expert.

Ever since the NLL was signed, the US government has voiced its concern that the Indian nuclear law is not CSC compliant. This concern has been generally reinforced by the US nuclear community, including the US nuclear industry and US policy makers. The Indian response has been that the NLL, with all its faults and strengths, is the law of the land, and given the political landscape in India is literally impossible to change. Furthermore, India's posture is that the NLL is CSC compliant.
The expert noted that "India promised 'adjustments' to implementation rules, following the passage of the NLL, that would address some of the concerns, with a caution that such rules would not, and could not, negate basic tenants of the NLL."
He said, "The situation in the US today can be summarised as follows. There are two schools of opinions which cut across government officials, lawyers, policy makers, etc. The purists will accept nothing short of India changing the NLL and the Implementation Rules to be consistent with the five principles of the CSC. The pragmatists recognise that the Indian government does not have the political ability to change the NLL and thus the effort should be to build on the existing NLL with various legal and technical defenses to achieve a practical -- if not the perfect -- solution."
"Some in the latter camp also believe CSC and NLL should be addressed separately - meaning that CSC is a matter that needs to be handled at the official level -- since it is it is based on a government-to-government understanding -- whereas the NLL must be addressed by nuclear suppliers just as it is in countries engaged in nuclear commerce with the US that are not members of any international nuclear regime today," the expert said.
According to the expert, "The pragmatists seem to be gaining the ground lately because the earlier approach based on the 'purists' point of view only poisoned the relationship between the two countries and eroded much of the goodwill generated after the US and India signed the path breaking 123 Agreement."
"The consequence of the new approach is that the US government has officially held off any public comment on the Implementation Rules, preferring to work with India through quiet diplomacy. Both nations have agreed to enter into a dialogue about how the arrangements -- implementation of the NLL -- can be structured to ensure participation by US nuclear industry in the Indian civil nuclear expansion."
Meanwhile, the expert said, "The US still expects India to ratify the CSC as promised by India. The US expectation is that the ratification process may also impact the Implementation Rules, and perhaps the NLL, in a favourable way.
Thus, according to him, "We are entering a new phase of accommodative positioning by the US. There will be no more finger-pointing in the public. The two parties will work diligently to try to reach a compromise."
The expert acknowledged, "While there are both lawyers and suppliers, along with US officials, in the pragmatist camp, it is by no means inclusive of every major player or interested party in the US involved in civil nuclear commerce. However, there is recognition now that the role of the US government is to open and smoothen the path to commercial success in India as much as possible, and it is up to each supplier to decide whether or not to enter the Indian civil nuclear market. This is neither new nor unique. American capitalism is built on risk taking and high adventure."
"On the Indian side, it is still unclear how big a market India will turn out to be for international players. It is uncertain whether there is room for five nuclear vendors -- one each from Russia, France and South Korea, and two from the US -- in a country that is very bureaucratic with endless negotiations -- has deepening political divide affecting all decisions involving participation by foreign investors, and an energised anti-nuclear lobby."
Thus, he predicted, "In the end, that disturbing and evolving mosaic may turn out to be the bigger deterrent to participation by the US nuclear suppliers than the NLL itself."

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