Hopes for significant commercial gains have been a major factor behind efforts to bring to fruition the nuclear agreement signed by President George W. Bush and Indian Prime Minister Manmohan Singh on July 15, 2005. Under the agreement, the United States would open civil nuclear cooperation with India after a decades-long embargo. While there has been opposition to the July 2005 understanding from influential players in both the United States and India, business lobbies in both states have vocally supported increased nuclear ties between the two states, mindful both of potential profits in the nuclear sector and of spillover benefits in other economic sectors as well. The attitude is shared by firms from other nuclear supplier states, who are also pressing to see the deal realized, because ending the U.S. nuclear embargo will require the elimination of a parallel nuclear trade ban adopted in 1992 by the 45-member Nuclear Suppliers Group (NSG). (The United States is an NSG member.) This step will open nuclear trade opportunities with India for all NSG member states. [1]

Challenges Delaying Implementation of the Agreement
Implementation of the July 2005 agreement appears to be unlikely for some time, however. In brief, under the Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act (the “Hyde Act”), enacted in December 2006, before U.S. nuclear cooperation with India can commence, three steps must be taken: (1) the NSG must amend its guidelines (by consensus) to permit it; (2) India and the International Atomic Energy Agency (IAEA) must conclude an agreement on the safeguards to apply to India’s civilian facilities; and (3) the United States and India must complete a formal agreement for cooperation pursuant to Section 123 of the U.S. Atomic Energy Act that includes a U.S. right to veto the reprocessing of U.S.-origin spent fuel. In addition, the act provides that U.S.-cooperation will be terminated if India conducts a nuclear test. [2] Many of the issues to be negotiated in these settings are highly contentious. (For more information, see the inset tex below, Implementing the U.S.-India Agreement)

Adding to the challenges confronting the July 2005 agreement is that as of late April 2007, the NSG had yet to take up the question of amending its rules to permit nuclear trade with India, a matter that was not included on the agenda of its April 2007 plenary meeting in Cape Town, South Africa. Moreover, it appears that some NSG members will attempt to defer consideration of the matter within the NSG until India and the IAEA conclude their safeguards agreement. In the meantime, India has held only preliminary discussions with the IAEA concerning that agreement.

Implementing the U.S.-India Agreement To implement the July 2005 agreement, the United States and India must overcome a number of substantial obstacles. The first, amending U.S. law to end the U.S. nuclear embargo, was surmounted in December 2006, with the passage of the Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006 (the “Hyde Act”). However, that law imposed a number of important conditions. In particular, it specified that before the United States could begin nuclear trade with India, the Nuclear Suppliers Group (NSG), operating under its normal consensus procedures, would have to change its guidelines to permit such trade. The NSG rule, like that previously applicable under U.S. law, bans nuclear cooperation with states like India that are not recognized as nuclear weapon states under the nuclear Non-Proliferation Treaty (NPT) unless they place all of their nuclear activities under the accounting and inspection system (“safeguards”) of the International Atomic Energy Agency (IAEA) so as to preclude their use for nuclear weapons. Under the July 2005 agreement with Washington, India agreed to separate its civilian from its military nuclear facilities and to place the former – but not the latter – under IAEA monitoring. Thus, while the United States has agreed through the Hyde Act to waive, for India, the requirement that recipients of U.S. nuclear goods implement comprehensive (or “full-scope”) safeguards, the NSG continues to apply this rule. In addition, the Hyde Act required as a precondition for the opening of U.S. nuclear cooperation that India conclude a safeguards agreement with the IAEA covering its civilian facilities. The negotiations are expected to be lengthy because India has declared that it will seek “India-specific” safeguards to cover its civilian facilities, while the IAEA is likely to insist on the safeguards traditionally used in non-NPT countries, pursuant to IAEA Information Circular 66. The crucial question will be whether safeguards, once applied to specific facilities and materials, will remain in effect “in perpetuity,” even in the event of a termination or interruption of fuel supplies to that facility. At issue, for example, is whether IAEA inspections would continue on a foreign-supplied reactor and previously supplied fuel if a supplier chose to cut off shipments of fresh fuel following a future Indian nuclear test. The IAEA is likely to press for such permanent safeguards, while India is known to oppose them. The issue has particular importance because a further condition in the Hyde Act is that U.S. trade with India will be terminated if India conducts another nuclear test. Under the July 2005 agreement, India agreed to maintain its existing unilateral moratorium on nuclear testing, but did not pledge to do so indefinitely, thus retaining the option to resume such testing if future circumstances warrant. Finally, the Hyde Act left intact the requirement that the United States and India conclude a formal agreement for nuclear cooperation setting out the terms for nuclear trade in detail, pursuant to Section 123 of the U.S. Atomic Energy Act. That provision lists, among other requirements, that the other party to the agreement obtain U.S. permission before “reprocessing” (separating plutonium from) spent reactor fuel that was supplied by the United States or irradiated in a U.S.-supplied reactor. While the United States has traditionally sought to limit reprocessing because it provides access to material that can not only be recycled as nuclear reactor fuel, but can also be used for nuclear weapons, India’s civilian nuclear program anticipates reprocessing and reuse of the plutonium as fuel.

U.S.-India negotiations on the Section 123 Agreement are also making little progress. As of late 2007, they have deadlocked over three main issues: (1) the implicit ban on nuclear testing by India; (2) lack of assurances of fuel supplies; and (3) whether India would have the right to reprocess spent fuel. [3] In an effort to make headway, Indian and U.S. negotiators met on the sidelines of the 2007 NSG Cape Town plenary, but little appears to have been accomplished. [4] Recent reports have quoted U.S. officials as saying that the agreement is at risk, but they have also speculated that New Delhi would eventually come around to the existing framework, if the only alternative were no deal at all. [5]

In addition to disputes concerning the bilateral agreement itself, other issues have cast a shadow on U.S.-India relations. Washington, for example, has pressed India to cancel plans for an Iran-Pakistan-India pipeline, an issue seen as being linked to movement on the civilian nuclear agreement. [6] In addition, in April 2007, the U.S. Department of Justice charged four employees of the U.S. office of a Singapore-based firm, Cirrus Electronics, with illegally supplying Intel i980 microprocessors and computer chips to Indian state-run defense research entities, including the Vikram Sarabhai Space Center and the Aeronautical Development Establishment, for India’s light combat aircraft and space and missile programs. [7] In the United States, critics of the nuclear agreement have seen this development as a black mark on India’s nonproliferation record. [8] Nevertheless, for now, Washington has stated that the arrests and indictments would not negatively impact relations between the two countries. [9]

These developments underscore the hurdles that U.S. companies face in pursuing nuclear trade with India, despite expectations of great opportunities. Indeed, the shadows cast by such issues and the legal obstacles underlying the deal, may provide non-U.S. companies a significant advantage in competing for nuclear trade with New Delhi. As one Indian analyst has stated, if the bilateral Section 123 Agreement makes the supply of U.S. nuclear fuel contingent on India’s not testing, India would retain the option of going to a different supplier, provided the NSG as a whole does not adopt a similar policy to that of the United States. [10]

U.S. Energy Companies
In a March 2006 op-ed piece in The Washington Post, Secretary of State Condoleezza Rice defended the nuclear agreement with New Delhi, stating that nuclear trade with India would create thousands of new American jobs. [11] Indeed, according to the U.S.-India Business Council (USIBC), in the next ten years, the pact will create 27,000 new jobs in the U.S. nuclear industry. [12] In recent months, several U.S. multinational energy firms, including General Electric, Bechtel, Edlow International, Nukem, Thorium Power, and Westinghouse, have sent representatives to New Delhi for discussions on future contracts. [13] Their advocacy group, the American Council on Global Nuclear Competitiveness (ACGNC), has actively promoted the agreement. [14]

These high expectations are reinforced by the growing interest in nuclear energy around the globe. At least 29 nuclear power plants are under construction worldwide, and more than 100 additional plants are being planned. [15] Nuclear power is gaining popularity as an environmentally-friendly and potentially cost-effective alternative to power generated from coal, oil, and hydropower.
At present, New Delhi is constructing seven nuclear power reactors. [16] According to the U.S. nuclear industry, as much as $100 billion in foreign direct investment will be needed to meet India’s nuclear energy goals, providing significant opportunities once the July 2005 agreement is implemented. [17] The Indian government estimates that its power generation needs will require a minimum of 30 additional nuclear reactors with a capacity of 1,000 megawatts (MW) each. [18] General Electric representatives have already stated that their company is hoping to provide eight to ten light water-type power reactors with a capacity of between 1,000-1,600 MW each. [19]

Private ownership of generating facilities is not allowed in India’s nuclear power sector, but New Delhi is considering amendments to its Atomic Energy Act to facilitate this option. [20] In this respect, New Delhi has assured U.S. and other energy companies that it would push through reforms in the power sector that would limit the influence of state-owned entities in power generation and distribution. [21] India has also told interested companies that it will guarantee purchases of power from their new installations. [22]

Even before the U.S. Congress passed the Hyde Act, some U.S. companies were negotiating deals with Indian entities in anticipation of the eventual implementation of the July 2005 nuclear agreement. For example, WM Mining, a uranium mining firm, negotiated an agreement with the Nuclear Fuel Complex, an Indian Department of Atomic Energy facility, to supply 500 metric tons of uranium annually with an expectation of $1.3 million in profits. [23]

India is also expanding nuclear exports. Earlier this year, New Delhi exported 4.4 metric tons of heavy water to Spectra Gases, a New Jersey-based firm with interests in fiber optics and semi- conductors. [24] Heavy water, which is used in India’s domestically built pressurized heavy water power reactors, is said to be of very high quality. India is the world’s second largest producer of the material, and officials expect India’s export market share to increase. [25] In recent months, the Indian Heavy Water Board (HWB) has also exported heavy water to South Korea and China. [26] New Delhi hopes to supply pressurized heavy water reactors to countries such as Cambodia, Indonesia, Thailand, and Vietnam at rates much cheaper than other suppliers. [27] According to one U.S. firm, Nukem Inc., Indian companies may also seek to import and process uranium and then export the improved product to other countries. [28]

U.S. Defense Companies
Riding on the enthusiasm generated by the agreement, U.S. defense companies also anticipate lucrative deals with New Delhi. U.S. business representatives believe that if the nuclear deal goes through, India would modify its traditional reliance on military suppliers from Russia and Britain to allow purchases from U.S.-based companies as well. [29] U.S. ambassador to India David Mulford, while noting that Washington has not pressured New Delhi to select U.S. defense companies, stated, “There is an expectation among U.S. companies, the public, and the political class that we have helped India and that the U.S. companies should get favorable treatment.” [30] Whether India’s smuggling of U.S. defense products, reflected in the April indictments noted above, will cast a shadow over such expanded defense sector ties remains to be seen.

A prominent example of growing high-tech trade ties was the participation by U.S. aerospace companies in Aero India 2007, in February 2007. Former U.S. Defense Secretary William Cohen, who was part of the U.S. delegation, stated that U.S. companies expect to be allotted a major portion of India’s defense purchases, estimated at $30 billion, in the next five years. [31] These defense contracts could cover 126 multi-role combat aircraft, including F-16 and F-18 fighter jets. The Indian Air Force also plans to purchase transport aircraft and is considering Lockheed Martin’s C-130J. [32] In addition, the Indian Navy is expected to order Boeing’s P8I maritime reconnaissance aircraft and Lockheed’s P3C Orion aircraft. [33] With respect to the P8I, Boeing has also offered significant technology transfers and opportunities for substantial Indian industry participation. [34] At present, the Indian Defense Ministry is still formulating the “request for proposals” for the C-130 aircraft, as well as for the 126 fighter jets. [35]

Other Countries Exploring Nuclear Deals Pending NSG Approval
The July 2005 agreement has also encouraged other supplier states to push commercial deals with New Delhi in anticipation of changes to the NSG guidelines to allow such nuclear trade. [36] The importance of such changes is reflected in the fact that in the years before the agreement, both Russia and France were known to be interested in selling nuclear power reactors to India, but were barred from doing so by the NSG embargo. [37]

New Delhi has sought to obtain support for ending the embargo from a number of prominent NSG members, including South Africa, Brazil, and Japan, by offering them future business opportunities in India’s booming information technology sector. [38] Japan has not yet taken a firm stance on the matter, but statements by senior Japanese figures such as foreign minister Taro Aso are being interpreted as encouraging. [39]

Brazil has stated that it has no serious concerns regarding the nuclear agreement and looked forward to engaging in civilian nuclear cooperation with India. [40] In this context, Brazilian officials indicated in April 2007 that a delegation from Brazil’s National Nuclear Energy Commission is to hold talks in India later in the year. [41] For India, positive signals have also come from Belarus, another NSG member, which has advocated bilateral civilian nuclear cooperation. A joint statement issued during Belarusian President Aleksandr Lukashenko’s April visit to New Delhi reflected this intention. [42]

Even China has hinted at establishing commercial nuclear ties with India, if international nuclear trade rules permit. China’s vote will be particularly important at the NSG, where it may condition its approval for ending the NSG embargo against India on obtaining concessions on nuclear trade with Pakistan, China’s long-time ally. [43]

India’s growing economic power may be an important factor in the calculations of NSG members. The Irish government, for example, has conceded that possible disruptions of economic ties with India have been an important factor in forming its position on relaxing NSG rules for New Delhi. [44]

The implementation of the U.S.-India nuclear agreement, including revised NSG guidelines, is expected to benefit one or more of five giant energy concerns, including one American company, General Electric. [45] A second company, Westinghouse, although a subsidiary of Toshiba since 2006, is based in Pennsylvania. Three other major energy concerns hoping to benefit are Toshiba, itself, the Russian firm Atomprom, and the French firm Areva. [46]

Russia
Indian Foreign Minister Pranab Mukherjee stated in March 2007 that the nuclear deal with Washington will not adversely affect long-standing nuclear ties with Russia. [47] Indeed, in early 2007, Moscow agreed to supply four 1,000 MW nuclear reactors to India, assuming a change in the NSG rules, a deal potentially worth $10.35 billion. [48] (Even before the change, Russia agreed to supply fuel for India’s Tarapur reactor, arguing, contrary to the view of many NSG members, that it was permitted for safety reasons and came within an exception to the NSG embargo rule.) [49] Apart from reinforcing India’s commercial nuclear ties with Russia, New Delhi’s pledge to sustain the relationship has also helped quell Indian critics of the nuclear agreement. [50] It is therefore not surprising that Russian officials have encouraged the ongoing negotiations between India and the United States to bring the July 2005 agreement into effect. [51]

Russia is likely to have a strong advantage in negotiating future reactor sales, since it is currently constructing two 1,000 MW nuclear power reactors in India at Koodankulam. The contract for the two reactors, which was concluded in 1988, prior to the NSG’s 1992 embargo on nuclear supplies to India, has not been marked by the contentiousness surrounding the pending U.S.-India Section 123 Agreement. [52] Russia plans to begin supplying fuel for the two reactors in the second quarter of 2007. The reactors will be subject to IAEA monitoring under a project-specific safeguards agreement, and Moscow has already coordinated its implementation with the IAEA. [53]

The speed with which Moscow has prepared the way for new contracts contrasts sharply with the slow pace of U.S.-India cooperation, and has led some Indian officials to suggest the Hyde Act provisos, together with the requirements of the Section 123 Agreement, could be so onerous as to lead New Delhi to restrict nuclear trade to non-U.S. companies – assuming other suppliers do not adopt export rules comparable to those of the United States. [54] In addition, according to Indian analysts, Russian nuclear dealings with India are not linked to Indian behavior in other areas, such as supporting international efforts to curb the Iranian nuclear program. [55]

Indo-Russian ties were further strengthened during President Vladimir Putin’s January 2007 visit to India, when the two countries concluded agreements for India’s purchase of the MiG-35 fifth generation fighter and for Indian participation in the GLONASS satellite communication system.

Australia
Australia, which possesses an estimated 40 percent of the world’s uranium, figures prominently in India’s nuclear trade plans. India’s domestic uranium resources are not adequate for its power generation targets, which are set at between 20,000 MW and 40,000 MW by 2030, and thus it will have to import uranium. [56] The Australian government has consistently adhered to its stated policy of not trading in the nuclear sector with states that are not members of the nuclear Nonproliferation Treaty. However, vigorous lobbying by India has led Australia to consider the possibility of nuclear trade under certain conditions. [57]

In early April, for example, Prime Minister John Howard stated that his government would examine possible changes in Australia’s policy and might approve uranium sales to India in the future. [58] In line with this statement, he indicated that Australia might be prepared to support India at the NSG, but stressed that a change in Australian policy would be “premature” until all details of the agreement between India and the United States had been worked out. [59] Canberra has also emphasized that it will have to study the adequacy of India’s planned safeguards agreement with the IAEA before commencing nuclear trade. [60]

European Union
The European Union (EU) has stated that it is similarly considering civilian nuclear ties with India, but it has not yet come to a firm position on the matter. [61] Significantly, all 27 EU members are part of the 45-member NSG, thus constituting more than half of the votes. Perhaps in an effort to encourage the EU to agree to lift the NSG embargo, New Delhi has announced that next year the state-owned Nuclear Power Corporation of India hopes to begin construction of a 10,000 MW, six-reactor nuclear power station using European pressurized reactors (EPR) from France, Germany, and Finland. [62]

Industry officials in Finland have also stated that their country would like to play a role in the EU’s proposed civilian nuclear energy cooperation with India. [63] To date, Finland has refused to endorse India’s agreement with the United States. [64] However, Helsinki’s ongoing construction of its largest nuclear plant is being touted by the Finnish nuclear industry as a possible model for India’s six proposed EPRs. [65]

The EU Commissioner for External Relations Benita Ferrero-Waldner has stated that once New Delhi’s negotiations with the IAEA and NSG are successfully concluded, the EU would like to be part of the nuclear cooperation framework, stating that companies from the EU would be strong contenders. [66] However, noting the lack of progress in India’s bilateral Section 123 Agreement negotiations with the United States, EU officials have also expressed concern about the extended delays confronting countries and companies that are hoping to bring nuclear reactors to India. [67]

Conclusion
Despite high expectations in many quarters of significant new commercial nuclear power reactor sales to India, along with other economic benefits, implementation of the July 2005 U.S.-India nuclear agreement is still many contentious steps away from fruition. If the Indo-U.S. nuclear deal successfully overcomes these hurdles, major nuclear suppliers are expected to step up their commercial activities. However, it remains to be seen whether U.S. companies will profit, particularly given the strong competition from other suppliers, some of which may operate under less restrictive nonproliferation controls than U.S. vendors, unless the NSG adopts uniform standards. Given the considerable political and diplomatic investment in the agreement by New Delhi and Washington, and the strong push from commercial interests, prospects for completion of the accord, although perhaps less bright than once hoped, cannot yet be considered dim. [68]

Sharad Joshi – Monterey Institute Center for Nonproliferation Studies