The Big Deal

This column first appeared in the Indian Express, on January 29, 2015. Like other products of the Brookings Institution India Center, this is intended to contribute to discussion and stimulate debate on important issues. The views are those of the author.

Nuclear cooperation between the United States and India, starting with the July 18, 2005 nuclear agreement and culminating in the formal 123 agreement bill approved by the US Congress on September 28, 2008, was expected to become a springboard for extensive bilateral nuclear cooperation, including the sale of US nuclear reactors to support India’s ambitious clean energy plans, as well as to mark an end to decades-old strategic mistrust between the two biggest democracies. It was also expected to end India’s nuclear isolation and in line with President Barack Obama’s Prague agenda and the nuclear security initiative transform the existing global nuclear order. Yet, just as the agreement was seen as opening the door to a fundamentally strengthened US-India relationship, the failure to operationalise it epitomised the bogging down of efforts to elevate bilateral ties.

Prime Minister Narendra Modi discussed this impasse during his September 2014 visit to Washington and the two sides established a Contact Group “to realise their shared goal of delivering electricity from US-built nuclear power plants to India”. Under direct guidance from the top leadership, the Contact Group, consisting of US and Indian government officials and nuclear industry representatives notably Westinghouse and General Electric met thrice and hammered out an agreement before Obama’s Republic Day visit to clear two key hurdles preventing the building of US nuclear power plants in India.

The January 25 summit joint statement simply notes that the “Leaders welcomed the understandings reached on the issues of civil nuclear liability and administrative arrangements for civil nuclear cooperation”, thus indicating that while details might need to be worked out, a basic agreement had been reached between the two sides to take the issue off any future summit agenda.

In his post-summit statement, Modi announced, “we are moving towards commercial cooperation” and separately argued that summits are not about details or commas and fullstops. Obama too echoed “we achieved a breakthrough understanding on two issues that were holding up our ability to advance our civil nuclear cooperation, and we’re committed to moving towards full implementation”. This political understanding was the big deal.

India’s Civil Liability for Nuclear Damage (CLND) Act of 2010 appears to allow lawsuits to be brought against suppliers for nuclear reactor accidents, which the US government and US private companies regard as inconsistent with existing international norms particularly the Convention for Supplementary Compensation for Nuclear Damage that channel liability to nuclear plant operators. Despite protests from foreign governments and reactor vendors as well as from Indian equipment suppliers, the Indian government reflecting domestic sensitivity over the 1984 Bhopal gas disaster, post-Chernobyl and post-Fukushima nuclear concern, and resistance to giving in to foreign pressure has for now refused to alter the liability law.

Instead, since the September summit, India explored ways to overcome the liability impasse without changing its law. One element of a solution was the creation of an insurance pool that would indemnify operators and suppliers against liability. India’s state-run re-insurer, the General Insurance Corporation, is developing a proposal for such an insurance fund and a related risk-informed premium, which would be available to suppliers and operators. The GIC plus four other public sector companies would contribute a total of Rs 750 crore while the balance Rs 750 crore would be put up by the government on a tapering basis; the assumption being that the liability for operators and suppliers would be limited to Rs 1,500 crore rather than being unlimited. This partial solution was, in principle, accepted by the US, though foreign and even Indian private companies have so far been non-committal about this idea and presumably would find it acceptable only if they could recoup their contribution to the fund by charging more for their reactor supplies.

A second agreed element of a likely solution would be a memorandum of law an authoritative clarification of key provisions of the liability law (Sections 17 and 46), which the Indian government interprets as not placing suppliers in jeopardy. This memorandum remains a work in progress and, to alleviate suppliers’ concerns, would have to be clearly seen as not being subject to challenge by Indian courts. That, however, will become apparent only after the memorandum becomes available publicly.

Perhaps more difficult than the liability issue was the question of tracking and accounting for nuclear material supplied by the US or produced in US-supplied reactors. Until the breakthrough in the Contact Group, the US had maintained that the bilateral agreement called for an “administrative arrangement” that would provide necessary information regarding the whereabouts of those nuclear materials. The US pointed out that it has tracking and accounting arrangements with most of its nuclear cooperation partners, including Euratom and Japan.

India had been unwilling to accept such an arrangement. It argued that tracking and accounting for nuclear materials “by flag” (that is, by nationality) is not required by the 123 agreement. New Delhi maintained that the International Atomic Energy Agency (IAEA) safeguards would cover all nuclear material subject to the agreement and that the agency’s assurance that all the material is accounted for and devoted to peaceful purposes should be sufficient for the US (as it was sufficient for Canada, which initially sought the kind of arrangement that Washington wants).

It was only at the third and last meeting of the Contact Group in London that Indian officials showing greater transparency and sharing how tracking of all IAEA safeguarded material would be carried out were able to convince their US counterparts that the Canada template was adequate to ensure that all sensitive US nuclear material could be accounted for without the cumbersome administrative arrangements, which would have been difficult to carry out even for Washington. This led to a resolution of one of the key obstacles in the implementation of the agreement, just days before the second Modi-Obama summit.

Above all, the political recognition at the highest level that resolving the liability and tracking issues would not only pave the way for implementing the civil nuclear agreement but would also give a boost to the overall bilateral relationship was critical in making what seemed the impossible, possible.