It's time for Asia to look beyond the dollar: An interview with Joseph Stiglitz

Winner of the 2001 Nobel prize for economics,Joseph Stiglitz is a trenchant critic of the "market fundamentalism" of the International Monetary Fund. I caught up with him last week in New Delhi to interview him on some of the ideas in his latest book, Making Globalisation Work (Viking, 2006), including the need for an alternative to the dollar reserve system. We also had a useful discussion on privatisation and land acquisition, topics of great relevance to the debate in India over SEZs and other big industrial projects.

28 December 2006
The Hindu

It's time for Asia to look beyond the dollar

Interview of Joseph Stiglitz by Siddharth Varadarajan

Both Thomas Friedman and you start your books in Bangalore but he discovers the world is flat while you discover the path to globalisation is full of potholes.

The amusing thing is that Friedman went to Bangalore and visited Infosys a month after I did. I heard exactly the same stories and we were both struck in some of the same ways. But I say that not only is the world not flat but in many ways it's getting less flat. Some countries are doing much better — India and China are growing at historically unprecedented rates, and this has a lot to do with globalisation — but Africa doesn't have either the education or resources to take advantage of these new technologies. As a result, disparities are actually increasing. The Uruguay trade agreement was so unfair it made the poorest countries in the world worse off.

In your book, you also argue that the rules of the game — the financial architecture, corporate domination, IPR regimes — are all making the world less flat, more unequal. Can you give us an example?

One manifestation is that for the first time we have a global monopoly in an industry that is the pivotal industry, IT — Microsoft, Intel. This may not be a permanent monopoly but clearly we have a dominant firm that is dominant for a considerable number of years and gained its dominance through anti-competitive practices. Judges in the U.S. and Europe have ruled it engaged in anti-competitive practices. In the case of Standard Oil, there was a monopoly, so they broke it up. Here, they don't know what to do, so they've allowed it to continue, and it has continued to engage in anti-competitive practices.

You mentioned India as a success. How sustainable is its current growth?

If you look at the sector where India has grown, it's been IT. And the success of IT is largely based on heavy government investments in the past on education, the IITs, science. These are investments made over 50-100 years that have started to pay fruit.

Course corrections

What about public investments in heavy industry — the fact that India was able to reach a critical level in manufacturing?

I haven't studied the Indian economy that thoroughly but my impression is that the real engine has been the IT sector and that's related to education and to the good fortune of the world changing in ways that suddenly gave new opportunities India was able to seize. There are many things which facilitated that — over-investment in fibre optics in the U.S., for example, brought down telecommunication costs. Some telecom policies of liberalisation meant the cost of communications were lower. And there were things the government could have done that would have messed things up. For example, in Mexico, the cost of telecommunications is very high because they have a monopoly provider and monopoly providers raise the price. They privatised, but not in the right way. So India did a number of things in the right way, some over a long period, some in the short run, and the world changed in a way that was just right for India.

There is a debate on the sustainability of India's growth rate without the manufacturing sector also playing a larger role. Economists are talking about the need for a course correction.

I think the view that you need to have a particular sectoral composition is wrong. The U.S., for example, is now two-thirds services, and manufacturing is down to 11 per cent.

But the share has come down after 100 years of growth. Recent research on employment elasticities suggests India's over-dependence on IT and services may not be the best strategy. Can a country of India's size develop without manufacturing being a major contributor?

The view that everybody has to go through the same historical sequence is wrong. The world today is different from what it was 50 years ago, there was no IT then, and there is no particular reason you have to go through the same sequence. It may be that for India it is appropriate to skip the manufacturing stage, that China may have a comparative advantage in manufacturing. I'm not saying that's true, but there is no a priori reason to stress manufacturing. We should ask what the comparative advantages are, and, from a global perspective, whether one can have sustained growth based on a service sector economy. The answer is clearly yes. Can you have heavy exports related to services? Again, the answer is yes. Creating jobs is an important issue, but it may be that, for instance, part of the strategy for creating jobs will involve expanding tourism, which is a very labour intensive service sector. The problem in manufacturing is that modern technology doesn't use much labour. Most modern technologies in manufacturing are very capital intensive.

India now has an employment guarantee scheme to provide income support for the poor. How do you rate such welfare schemes against the objection that they boost fiscal deficits?

I think they're absolutely necessary for long-term sustainable growth. Latin America has shown what happens with high degrees of inequality. You get political and social instability. You have high crime rates and an environment that's not good for investment. What's also very clear is that trickle-down economics doesn't work. It hasn't worked anywhere. It hasn't worked in the United States. Even though GDP is going up, most Americans are worse off today than they were six years ago.

In fact, a survey just came out here — the Focus report on the status of children under six — which shows that despite six per cent growth for nearly a decade, the nutritional status of Indian children hasn't improved.

Yes, I just saw that and these are very, very disturbing numbers. Nutrition is a more reliable indicator than income because it is a physically observed characteristic. Growth is not trickling down so doing something about this exclusion is absolutely necessary. Even if there was just a transfer of income, this would be a benefit. But if these schemes are well-designed, they can be used to create infrastructure in the rural sector as well.

Manmohan Singh has once again started talking about capital account convertibility for India. What would your advice to him be?

I share the sentiments of those who have very strong reservations. The overwhelming evidence is that convertibility doesn't bring faster economic growth. It brings more instability. You can't build factories with money that's going to come in and out overnight but this money can wreak havoc on an economy. You have to look at the balance of benefits and costs. The costs are clear and the evidence is strong, the benefits are weak and the evidence in favour of these benefits is very weak.

Privatisation & land acquisition

In India today, there is no political support for privatisation but many reform-oriented economists consider this a bad thing. How do you see this issue?

It depends very critically on what is being privatised and how things are being privatised. When you privatise a natural monopoly before you put in a regulatory structure, the firm is more interested in raising prices. Second, based on Latin American evidence, privatisations do not, in general, lead to greater efficiency. It is true that if you artificially tie the hands of an industry by restricting investment — and IMF accounting often makes it difficult to engage in investment because it treats borrowing by the government for a public enterprise in the same manner as borrowing for social services or anything else — and then you privatise and release the artificially imposed investment constraint, privatisation can then sometimes increase efficiency. But the answer to that is to get rid of the artificial investment constraint. The benefits come from release of that constraint, not privatisation. Third, privatisation is very problematic in oil, mining sectors, etc., where the resources of a country have been turned over at bargain-basement prices.

In India, most of our privatisations involved serious valuation problems.

Revenue is an issue. One of the countries market fundamentalists often cite is Chile. I once asked the President of Chile his opinion and he said, "We were successful because we didn't follow the Washington Consensus." He went on to point out they only privatised half the copper mines. The government mines are just as efficient as the private ones but bring in 10 times more revenue for the government. So in terms of generating revenue that can be used for public purposes, privatisation was a big mistake. A lot depends on the pace and manner of privatisation but the evidence is that it is extraordinarily difficult to do it well. And there are some theoretical problems why this is so.

Agency problems?

Broadly speaking, yes. You talk about corruption and one of the arguments for privatisation is often that governments run things inefficiently and corruptly. But when you privatise, the incentives for corruption are even greater. The incentive is to try and get it at bargain-basement prices. Because you capitalise all future returns.

The rent seeking associated with the life of the asset being privatised is compressed at one moment in time.

Yes, and because it is compressed at one moment, the incentive to cheat becomes all the greater. The willingness to go beyond bounds of normal behaviour becomes all the greater. So privatisation doesn't solve the agency problem, and by compressing it, it may exacerbate it.

One of the paradoxes of market `reform' in India is that if you are a big company and are planning to set up a factory, you want a free market to buy equipment and hire workers but expect government intervention to acquire land. Can this be justified on the basis of first principles?

There is a general view that where there are large externalities — urban renewal programmes, for instance — there may be grounds for government to try and buy land and help renew a city or part of a city. But the dangers of doing this when there is a single firm without externalities are enormous. This is because the government often uses the right of eminent domain with compensation below market price.

So future rents are shared between the firm for whom land is acquired and the original land owners in a very unequal way...

That's right, exactly, and that's why these firms turn to the government. In general, there is a price at which people would sell their land. The reason these firms ask the government to do it is because they don't want to pay that market price. So once you get into that mindset, it becomes a very dangerous precedent.

The argument made in India is that land holdings are fragmented, that there is no land market. Is this valid?

You have a problem when land is fragmented, or there are land market inefficiencies, and difficulties in getting clear title. Markets might be so poorly developed that businesses can't acquire land and that becomes an impediment to development. But, of course, the right answer is to solve the problem of the land market and not to solve it for this particular person by taking over that particular piece of property!

Asia and the dollar's decline

One of the most interesting arguments in your book is where you talk about a new global reserve system. Given Washington's resistance to such ideas in the past, including to Japan's proposal for an Asian Monetary Fund, how feasible is this, especially since there's a link between the role of the dollar and the global power, the seigniorage, the U.S. derives from this?

The system of seigniorage to the U.S. is inequitable. The foreign aid from developing countries to the U.S. is greater than the foreign aid the U.S. gives and the system has a downward bias in aggregate demand. This is a very peculiar and unstable system where the only thing keeping global demand strong is if the richest country in the world consumes beyond its means. As the U.S. gets more and indebted, confidence in the dollar erodes, and it no longer is a good store of value.

Rather than holding dollars as reserves, countries should hold an internationally created `bancor' or global greenback — a `money' that's used in reserves and is convertible into ordinary currency. The idea is similar to special drawing rights but the SDR system is periodical and subject to veto by the U.S., which mistakenly thinks it gains from the system. I argue it doesn't. It gains seigniorage, but it loses stability. My proposal is for a regular rather than periodic system and one that is automatic and rule based.

And is this feasible, politically?

The current dollar system is fraying. We might go to a two-currency reserve system, which simply maintains the problem and divides it between the U.S. and Europe. This would be better than the current system but is not a good solution. As countries recognise the problem, there will be demand for change. There are two reasons why I think it is politically feasible, besides the fact that the current system is crumbling. First, the major source of savings in the world today is Asia and a lot of Asian countries are asking, "Why are we subsidising the U.S.?" This is a weird system! The Chiang Mai initiative was a framework of exchanging reserves, which is really basically the same idea. Rather than using the U.S. dollar as a reserve, we use each other, and all you have to say is that if we're using each other, we'll create a currency. One of the proposals I talk about in my book is to make this an open architecture. We'll have a cooperative agreement, and anybody who wants to join can do so, and there will be a rule that over time you have to put more and more of your reserves in the members of the club. That will put a strong incentive for countries outside the club to join, namely the U.S.

For this to work, Asia will have to take the lead.

Very much. That is the core thing. A new reserve system is not going to happen overnight but it's getting discussed.

Can Asian countries push the debate by pricing trade, especially natural resources like oil, in currencies other than dollars? Would that provide the critical mass for us to move in the direction of a new system?

It's already happening. The U.S. would like to keep the dollar as the reserve currency, and all the seigniorage. But as it realises it is fighting a losing battle — that people are moving out of the dollar — it will not be able to keep the dollar as the sole reserve currency. So the U.S. may realise that it would benefit from the greater stability that a new system would bring.

Bush seeks to allay India's concerns on nuclear deal

Bush has said he will not be bound by certain provisions of domestic U.S. law that India has objected to. But Indians would do well to remember that what one President giveth, another can taketh away. That is why India ought to take the line that it is the contents of the 123 Agreement which matter, not promises made by the White House.

20 December 2006
The Hindu

Bush seeks to allay India's concerns
President issues three caveats to construe policy statements as advisory

Siddharth Varadarajan

New Delhi: In an effort to allay official Indian concerns about several aspects of the nuclear cooperation legislation passed by the U.S. Congress earlier this month, President George W. Bush declared on Monday that he would not be bound by some of the law's provisions.

In a formal statement issued shortly after signing into law the Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006, Mr. Bush introduced three specific caveats based on the executive's constitutional prerogative to conduct foreign policy.

"Not foreign policy"

Noting that Section 103 of the Act "purports to establish U.S. policy with respect to various international affairs matters," he said his approval of the Act "does not constitute my adoption of the statements of policy as U.S. foreign policy." Among the clauses in this section that Indian officials found particularly objectionable were directions to limit the amount of nuclear fuel India could store, and to "seek to prevent the transfer" to India of nuclear material by other countries in the event that the U.S. cuts off supplies.

"Given the Constitution's commitment to the presidency of the authority to conduct the Nation's foreign affairs," Mr. Bush's statement notes, "the executive branch shall construe such policy statements as advisory."

The second caveat attempts to undo the presumption of denial of enrichment and reprocessing-related equipment to India, built into Section 104(d)(2) of the Act. India objected to this clause because it tended to rule out the resumption of "full" nuclear cooperation as promised by the July 2005 agreement.

In his statement, Mr. Bush noted that this restriction could give rise to a potential conflict between U.S. domestic law and Nuclear Suppliers' Group guidelines, and raise "a constitutional question." Thus, in order to avoid such an eventuality, "the executive branch shall construe Section 104(d)(2) as advisory."

Finally, Mr. Bush's statement said he would "construe provisions of the Act that mandate, regulate, or prohibit submission of information to the Congress, an international organisation, or the public" in a manner that would be consistent with his "constitutional authority to protect and control information that could impair foreign relations."

In this regard, he specifically mentioned Sections 104 and 109 of the Act, which deal, inter alia, with reports on whether India is in compliance with its obligations, as well as on the establishment of a "joint scientific cooperative nuclear non-proliferation programme," and which mandate close scrutiny of India's strategic programme.

Reporting requirements

Prime Minister Manmohan Singh noted last August that some of the annual reporting requirements, even if non-binding, introduced an element of uncertainty and should be done away with. Though the Hyde Act tempered these requirements somewhat, New Delhi was not fully satisfied with the outcome, and wanted the White House to clear the air on these.

Officials said though Mr. Bush's caveats allayed some of the major concerns India had about attempts to shift the goalposts of the July 2005 agreement, New Delhi's aim was to ensure that the bilateral "123 agreement" fully incorporates all U.S. commitments, including those implied by the latest statement. This is considered crucial since Presidential statements and clarifications can always be reversed depending on changed political circumstances.

Lifetime fuel guarantee remains a sticking point in `123' talks with U.S.

Differences on reprocessing right, language on testing have narrowed but there are still crucial obstacles to overcome in the bilateral nuclear cooperation agreement.

13 December 2006
The Hindu

Lifetime fuel guarantee remains a sticking point in `123' talks with U.S.

Siddharth Varadarajan

New Delhi: U.S. and Indian negotiators have managed to narrow some of their differences over the text of the bilateral Peaceful Nuclear Cooperation Agreement but differences still remain on a number of key issues.

When finalised, the agreement — also known as the `123 agreement' after the section of the U.S. Atomic Energy Act which mandates it — will have to be submitted to the American legislature for approval. Only after that can United States firms sell to India nuclear equipment, technology and material not explicitly barred by the agreement or the U.S. statute.

The two sides have held several rounds of discussion since the U.S. side presented its first draft of the agreement last March. According to officials familiar with the course of the negotiations, the areas where differences have narrowed are on India acquiring the right to reprocess spent fuel produced from imported U.S. reactors or material, as well as on avoiding a reference to India's adherence to its unilateral moratorium on nuclear tests as a condition for cooperation.

But on the issues of life-time fuel guarantees as envisaged by the March 2 joint statement and Indian separation plan, the exclusion of equipment and technology related to enrichment, reprocessing and heavy water, and the scope of end-use verification and fallback safeguards, major differences still remain.

Manmohan's statement

For the Indian side, the parameters of what the agreement must contain were spelt out by Prime Minister Manmohan Singh in Parliament on August 17. He said that "a reference to nuclear detonation in the [123] Agreement as a condition for future cooperation is not acceptable to us." He also made it clear that India would not settle for anything less than "full civil nuclear energy cooperation", including the right to reprocess spent fuel and access technology and equipment connected to the complete nuclear fuel cycle. Since the Henry Hyde U.S.-India nuclear cooperation Act does not grant India these rights, the Government hopes the 123 agreement will unambiguously address India's concerns.

On the issue of testing, the U.S. has proposed language which allows either side to end its cooperation citing "supreme national interests". The understanding is that for the U.S., this is shorthand for India conducting a nuclear test in the future. While Indian officials feel this formulation might meet the Prime Minister's stipulation that there be no reference to an "Indian nuclear detonation", there is concern about the U.S. also then insisting that India agree to return all U.S-origin facilities, equipment and materials, as well as their derivatives. The U.S. side says any return of exported items would be appropriately compensated but Indian negotiators are wary of acceding to any restitution clause.

Tarapur experience

Given the experience of Tarapur, where India has neither been allowed to reprocess the spent fuel accumulating there nor to return this fuel to the U.S., Indian negotiators are also insisting that reprocessing rights be an integral part of the 123 agreement rather than be granted in a subsequent agreement as the U.S. side had initially proposed. Under U.S. law, countries wishing to reprocess spent nuclear fuel derived from American imports must fulfil criteria spelt out by Section 131 of the Atomic Energy Act. This section also specifies a procedure for the return of spent fuel. According to Indian officials, the U.S. now sees the merit in one overall agreement and that the right to reprocess will figure in the 123 itself.

The one sticking point, however, is the conditions under which this would be permissible. The U.S. side is insisting on onsite verification of reprocessing going beyond the relevant International Atomic Energy Agency (IAEA) safeguards which are applied, say, when India will reprocess spent fuel produced by the Russian-supplied reactors at Kudankulam. In general, Indian negotiators are not inclined to allow the U.S. any access beyond what the End-Use Verification Agreement of 2004 already envisages — i.e. only to areas where nuclear material will not be present.

Citing the Kudankulam agreement, where India received sovereign and unqualified Russian guarantees for the lifetime supply of fuel for the reactors being imported, Indian negotiators have said a similar sovereign guarantee by the U.S. must be written into the 123 agreement if the March 2 joint understanding is to be fulfilled. The U.S. side, however, is only willing to provide guarantees against disruptions caused by market failure and imperfection and not the kind of unconditional guarantee India is seeking in exchange for in-perpetuity safeguards.

Finally, on the issue of "full" cooperation, as Secretary of State Condoleezza Rice testified in a written answer to Senator Richard Lugar on April 5, the Bush administration is clear that the 123 agreement "will not permit" the transfer to India of reprocessing, enrichment and heavy water technology and equipment. With Dr. Singh formally defining "full" to include these areas of cooperation, however, the Indian side says India cannot be party to a bilateral agreement which does not lift restrictions in all areas of civilian nuclear energy.

Nuclear Deal: Some interesting links

Suo motu statement made by External Affairs minister Pranab Mukherjee in Parliament on 12 December 2006

US Legislation on Nuclear Deal Not Acceptable: Communist Party of India (Marxist) statement of December 11

Bharatiya Janata Party statement of December 10

Congressional Research Service: Side by side comparison of final version of U.S.-India nuclear cooperation Act with earlier drafts

U.S. already got NSG inspection rule tightened for India

The United States got the 45-member Nuclear Suppliers Group to amend its export Guidelines to mandate third country fall-back safeguards verification inspections of the kind India says it cannot accept. The purpose of the NSG rule is to make sure India can't buy nuclear equipment from Russian or French firms under conditions that are less restrictive than what will apply to U.S. equipment.

12 December 2006
The Hindu

U.S. got NSG inspection rule tightened for India

Siddharth Varadarajan

New Delhi: Prime Minister Manmohan Singh may have assured Parliament last August that "there is no question of allowing American inspectors to roam around our nuclear facilities." But under new U.S.-drafted rules adopted by the Nuclear Suppliers Group on the eve of last July's landmark deal, India will have to accept potentially intrusive inspections from any country it buys nuclear equipment from.

At its Oslo plenary last June, the NSG amended its crucial guideline governing the conditions under which the cartel's 45 members may sell equipment notified in their "trigger list" covering nuclear equipment and material. The new guidelines were only notified to the International Atomic Energy Agency in December 2005 and published on March 20 as INFCIRC/254/Rev.8/Part 1.

The new guideline states: "Suppliers should authorise [nuclear] transfers only upon formal government assurances from the recipient that... if the IAEA decides that the application of IAEA safeguards is no longer possible, the supplier and recipient should elaborate appropriate verification measures."

The guideline adds that if the recipient does not accept these measures, "it should allow at the request of the supplier the restitution of transferred and derived trigger list items".

Unlike the requirement for full-scope safeguards — which the U.S. is asking NSG countries to waive in the case of India — this new rule is not going to be changed. A precondition for imports, therefore, will be the acceptance of a parallel bilateral inspection regime. And a subsequent refusal by India to allow intrusive visits by inspectors from a supplier country could lead to that country demanding the return of nuclear facilities, materials and their derivatives.

India's objection

In his statement to the Rajya Sabha on August 17, Dr. Singh had objected to a clause in the Senate version of the U.S.-India nuclear cooperation Bill explicitly spelling out the fall-back safeguards Washington wanted India to agree to before it lifted nuclear sanctions on Delhi. This clause was reworded in the final Act but its intent was left untouched. Though supporters of the Act have said the clause would not be binding on the Bush administration or India, the fact that fall-back safeguards have been made part of the NSG guidelines suggests the Indian negotiators will have to wage a tough battle to keep intrusive third-party inspections off the agenda.

End-use verification

Until now, India has maintained that it will not allow the U.S. access beyond what is envisaged by the bilateral "End-Use Verification Agreement" signed as part of the Next Steps in Strategic Partnership in 2004. Though the EUVA is a secret document, officials say it provides for U.S. inspectors to visit the "balance of plant" (i.e. non-reactor) portion of an Indian nuclear facility where any American dual-use item might be used.

Whatever the U.S.-India nuclear Act may finally contain, the U.S. administration has so far been insisting on writing into its bilateral nuclear cooperation agreement with India (the `123 Agreement') a provision for "special verification visits" in the event that the IAEA is unable to implement its safeguards agreement with India.

In her testimony to Congress on April 5, 2006, Secretary of State Condoleezza Rice described the "fall-back" safeguards the U.S. is seeking as "direct verification by the United States of material, equipment and components subject to the agreement." "In general", she said, the U.S. relies upon IAEA inspections and monitoring. "However, the United States would in fact be able to conduct "special verification visits" in the form of fall-back safeguards as required by the U.S.-India agreement for peaceful nuclear cooperation in the event that IAEA safeguards were not being applied."

By amending the NSG rule, Washington has ensured a level playing field for its own nuclear contractors once the Indian nuclear industry is opened up for business. Section 123(a)(1) of the U.S. Atomic Energy Act (AEA) stipulates the provision of fall-back safeguards that a potential customer like India may find intrusive. By universalising this requirement and forcing India to sign a similar bilateral agreement with other potential suppliers like Russia or France, U.S. firms will no longer be unduly disadvantaged. In other words, buying Russian or French equipment as a means of avoiding U.S. conditionalities may no longer be an option since the NSG guideline mandating fall-back safeguards is not going to be waived.

What worries Indian officials is the different interpretation of the circumstances under which fall-back safeguards might kick in. "When we first began negotiating, the U.S. side said fall-back safeguards would only be applied if the IAEA breaks up of if there is some major calamity or act of God," an official noted. "But now we see in the Congress conference report the argument that fall-back safeguards are needed in case budget or personnel strains at the IAEA render it unable to fulfil a safeguards mandate."

In his August 17 statement, the Prime Minister chose his words carefully, almost as if to keep open the door to U.S. inspectors. "[T]here is no question of accepting other verification measures or third country inspectors to visit our nuclear facilities, outside the framework of the India specific safeguards agreement [with the IAEA]," he said. One proposal that has been made is for India to specify a limited role for U.S. inspectors "within the framework of the India specific safeguards agreement."

[In the printed edition, this story was split into two parts. The original link for the second part is here.]

U.S. Congress for killer clause in Nuclear Suppliers Group guidelines

Wants stipulation that any violation by India of agreements with one country should lead to termmination of exports by others.

11 December 2006
The Hindu

U.S. Congress for killer clause in Nuclear Suppliers Group guidelines

Siddharth Varadarajan

New Delhi: If the United States Congress has its way, Washington will insist that the Nuclear Suppliers Group's amended guidelines include a stipulation that a violation by India of any of its agreements with one supplier country should lead to the cancellation of cooperation with every other.

In their background report attached to the final version of the U.S.-India Nuclear Cooperation Act, the conferees — the three Senators and three Congressmen tasked with reconciling the Senate and House versions of the draft law — dwelt at length on the possibility that India might turn to other countries for supplies because of the onerous conditions attached to U.S. nuclear transfers to India.

Apart from urging the Executive to persuade other NSG countries to harmonise their nuclear export provisions for India with those of the U.S., the conferees said the U.S. must "seek agreement among NSG members that violations by one country of an agreement with any NSG member should result in joint action by all members, including, as appropriate, the termination of nuclear exports".

In the Act, this demand finds expression in Section 103(a)(6) when it states that U.S. policy must be to seek to prevent the transfer "to a country" (i.e. India) of any nuclear material from NSG members if the U.S. itself terminates or suspends nuclear transfers to that country.

If adopted, such a rule would introduce a permanent element of uncertainty into not just India's nuclear cooperation with the U.S. but with other countries like France and Russia as well.

The conferees also stressed that the U.S. "must ensure that any decision the NSG makes regarding granting an exemption for nuclear commerce [with India] does not disadvantage U.S. industry by setting less strict conditions for countries trading with India than those embodied in the conditions and requirements of this Act".

So far, the Bush administration's proposal for revised guidelines at the NSG asks only for the restriction contained in Section 4 of INFCIRC 254/Part 1/Rev. 7 - that "trigger list" items can only be sold to countries with full-scope safeguards - to be lifted in the case of India. The "pre-decisional draft" circulated to NSG members in March suggesting this rule change also takes note of India's commitment to abide by six conditions including a nuclear testing moratorium.

Just as the first draft of the nuclear cooperation Bill started out life as a one-page document only to end up as a 41-page Act, it is possible the NSG revision may also be made more complex and conditional. As matters stand, for example, allowing India to access the trigger list means allowing it to access even "sensitive" technologies like enrichment. However, in testimony to the House International Relations Committee on April 5, Secretary of State Condoleezza Rice said that "we have informed our NSG partners that we do not intend to provide enrichment or reprocessing technologies to India [and] our bilateral agreement for peaceful nuclear cooperation will not permit such transfers to be made under it." At the NSG plenary, then, it is possible some move may be made formally to dilute or qualify the trigger list exemption for India.

U.S. nuclear Act ignored Rice plea on key points

Based on the Government of India's objections to the draft U.S.-India nuclear cooperation Bill, SecState Condoleezza Rice wrote to Congress asking for nine specific changes in the text. Though these changes fell woefully short of what India wanted, she felt these were the minimum necessary in order to secure New Delhi's approval for the historic but controversial deal.

Unfortunately for Rice -- and India -- the six Congressmen and Senators who "conferenced" the final version opted to make only cosmetic changes. Virtually all dealbreakers have been left intact.

12 December 2006
The Hindu

U.S. nuclear Act ignored Rice plea on key points
Administration called some of these `deal breakers'

Siddharth Varadarajan

NEW DELHI: The final version of the United States law authorising nuclear commerce with India failed to incorporate key eleventh hour suggestions made by Secretary of State Condoleezza Rice, despite her claim that some of the Indian objections they were intended to overcome were "deal-breakers."

Lobby NSG against India

Rice suggestion: In her letter to Senator Richard Lugar, Dr. Rice had said that the provision urging the President to lobby against nuclear fuel supplies to India if the U.S. terminates nuclear cooperation should be changed. "Although non-binding... India has taken the position that this is a deal-killer, arguing that this provision is directly at odds with the U.S. pledge to facilitate nuclear supply to India." She suggested changing the wording to say the U.S. "should not seek to facilitate or encourage the continuation of nuclear exports to India" by others if the U.S. ends its exports.

Final provision: This suggestion was rejected. Under Statements of Policy, Section 103 (a) (6) states that the U.S. shall "seek to prevent the transfer to a country of nuclear equipment, materials or technology from other participating governments in the NSG or from any other source" if the U.S. terminates its exports under the U.S.-India Act or any other U.S. law.

Full nuclear cooperation

Rice suggestion: She said the Bill's language singled out India by banning transfers related to enrichment, reprocessing and heavy water production. Prime Minister Manmohan Singh has also assured Parliament that India would not accept anything less than full cooperation, including access to these technologies.

Final provision: This suggestion was rejected, though Congress cleverly replaced the word "Prohibition" from the title of the relevant clause with the more anodyne "Exports, re-exports, transfers and re-transfers to India related to enrichment... " and re-framed the clause to highlight what is permissible rather than what is being denied. Thus, 104 (d)(4), like the earlier Senate Bill, allows the sale of such equipment only to multilateral or bilateral facilities on Indian soil intended to provide "alternatives to national fuel cycle capabilities" or a "proliferation resistant fuel cycle". Indian national facilities would still be denied this technology.

Sequencing

Rice suggestion: The Secretary of State had said the requirement that the Indian safeguards agreement with the International Atomic Energy Agency (IAEA) should have already entered into force before the U.S. lifts its restrictions should be changed. Her suggestion was that the agreement should be fully negotiated and ready for submission to the IAEA Board of Governors for approval.

Final provision: Rather than incorporating this suggestion, Section 104 (b)(2) says "all legal steps prior to signature" by India and the IAEA must have been completed, which means approval by the IAEA Board must have been secured. What this does is to lock in to place the Indian safeguards agreement even before the U.S. completes all its legal steps to allow nuclear commerce with India. If Congress introduces new conditions at that stage, India will find it politically costly to return to the IAEA Board for fresh approval.

Termination clause

Rice suggestion: She had noted India's objection to the provision that nuclear cooperation would be automatically terminated if the country violated the guidelines of the NSG or Missile Technology Control Regime. As she herself noted, "[These] regimes set policy guidelines rather than legal prohibitions and operate by consensus, making it difficult to determine and agree on violations." She urged that the provision be modified into a statement of policy or a reporting provision since India considered it a case of "moving the goalposts."

Final provision: The goalposts have still been moved, but by a little less than before. The Act retains the U.S. "determination" of Indian missile exports as a trigger for the termination of nuclear cooperation but moderates the automaticity by allowing for an exception that the Indian Government has had no role to play in the impugned export and is taking corrective legal action. But in effect, this means India cannot enter the business of exporting missiles with a range of more than 300 km to other countries — including those which are MTCR adherents — without triggering the end of nuclear cooperation.

In other respects, Dr. Rice's suggestions were incorporated, especially the one on Iran, where she urged the removal of the clause demanding a Presidential determination that India is "fully and actively participating in U.S. and international efforts" to sanction Iran. This clause, however, has been incorporated as a reporting requirement and will still figure as a perpetual point of pressure.

Fallback safeguards

On intrusive fallback safeguards, the Act in its final form incorporates Dr. Rice's tactical suggestions.

The specifics of fallback safeguards have not been spelt out though it is clear the enforcement of perpetuity safeguards as envisaged by Article 123(a)(1) of the U.S. Atomic Energy Act must necessarily involve site visits by U.S. inspectors as and when the IAEA is unable to do the job. As for the controversial threat reduction programme, the Act renames it a "scientific" programme but maintains the same role for the National Nuclear Security Administration (NNSA), the nodal U.S. nuclear weapons agency, that Indian scientists are objecting to.

U.S. law on nuclear cooperation -- Why India has little reason to cheer

Of the 10 concerns raised by Prime Minister Manmohan Singh, the final U.S. law on nuclear cooperation addresses little more than two-and-a-half. Does this mean India should walk away? Maybe not yet. But wariness has to be the watchword at every step.

9 December 2006
The Hindu

India has little reason to cheer

Siddharth Varadarajan

IT IS a measure of the American legislature's indifference to the assurances conveyed by Prime Minister Manmohan Singh to the Indian Parliament on August 17 that most of the objections he raised about the legislative shape given to the U.S.-India nuclear agreement have largely been ignored. Worse, the U.S. Congress — with the encouragement and support of the Bush administration — has actually tried to mislead the Indian establishment and public opinion by introducing cosmetic or procedural changes that leave untouched the shifting of goalposts that has consistently occurred since the two countries issued their joint statement last July.

First, it is now clear, for example, that despite the Prime Minister's categorical assurance that India would not settle for anything less than the resumption of "full civil nuclear energy cooperation," neither the U.S. Congress nor the Administration have any intention of allowing India to access enrichment and reprocessing technologies. Such is the dishonesty here that although the Act creates an enabling provision, the Background Note attached to the legislation makes it quite clear no such cooperation is going to take place. On this issue, then, the score is zero.

Secondly, on the issues of reciprocity and sequencing, the Act addresses only half the concern highlighted by the Prime Minister. The July 18 agreement spoke of India and the U.S. taking reciprocal steps to implement their side of the bargain. India is no longer expected to bring into effect its safeguards agreement with the International Atomic Energy Agency but has nevertheless to take matters up to the point where all that remains is the final signature. What this means is that the agreement should have already been submitted to the IAEA Board of Governors for approval, since that is a condition precedent to the final signing. Only then will the U.S. President make his `determination' of Indian compliance, following which the bilateral U.S.-India Nuclear Cooperation Agreement (i.e. 123 Agreement) gets taken up by Congress for approval. At that point, if Congress insists on changes — including changes that may prompt India to seek a revision in the language of its safeguards agreement — the procedure will become extremely fraught with legal and political complications. The July 2005 agreement envisaged the 123 Agreement and India-specific safeguards agreement proceeding in tandem but this is not going to happen. On this issue, therefore, the score is only half.

Certification by another name

Thirdly, the Prime Minister used very strong language to oppose the requirement that the U.S. President make annual reports to Congress including certification that India is in full compliance with its non-proliferation and other commitments. "We have made it clear to the United States our opposition to these provisions, even if they are projected as non-binding on India, as being contrary to the letter and spirit of the July Statement. We have told the US Administration that the effect of such certification will be to diminish a permanent waiver authority into an annual one. We have also indicated that this would introduce an element of uncertainty regarding future cooperation and is not acceptable to us." What has been the U.S. response? Congress has merely replaced the word "certification" with "assessment." Thus, the U.S. President is still obligated by Section 104 (g)(2)(D) to report every year his assessment of whether India is complying. He must also provide his assessment of whether India is working with the U.S. to contain and constrain Iran. These are all elements of political subjectivity. True, the Act does not say the deal is off in case of a negative assessment, but then neither did the Senate version stipulate such a course of action in case of a negative "certification." Yet, Dr. Singh quite correctly anticipated that this kind of annual reporting process would cause difficulties for India by introducing an element of uncertainty and wanted it removed. On this issue, then, the score is zero.

Fourthly, the Prime Minister said he would "oppose any legislative provisions that mandate scrutiny of either our nuclear weapons programme or our unsafeguarded nuclear facilities." Depending on what Dr. Singh meant by "scrutiny," the score is either zero or one. Certainly, the Act mandates the U.S. President to scrutinise in minute detail every aspect of India's nuclear weapons programme, including dual use capabilities and the production and import of nuclear materials. Of course, India is not obliged to facilitate this scrutiny, which arguably takes place even now.

Fifthly, Dr. Singh assured Parliament that the nuclear deal would involve the U.S. helping to guarantee for India uninterrupted fuel supplies in exchange for the placing of its civilian reactors under in-perpetuity safeguards. He also stated: "An important assurance is the commitment of support for India's right to build up strategic reserves of nuclear fuel over the lifetime of India's reactors." The Act, in fact, enjoins the U.S. government to oppose the stockpiling of nuclear fuel beyond a small reserve to take care of market imperfections. As if the Act were not explicit enough, the accompanying Background Note prepared by the six Senators and Congressmen who cleared the final version of the law explicitly reiterates this caveat in black and white. Here, once again, the score is zero.

Sixthly, the Prime Minister insisted the autonomy and integrity of India's civilian nuclear programme would be maintained. Here, he did not specify any particular section in the draft U.S. law that might compromise this programme. But unless India is able to exercise its right to reprocess — under international safeguards, of course — the integrity of its indigenous three-stage civil nuclear programme will always be under pressure. The new Act is completely silent on this matter though it is possible the Government could negotiate appropriate language on reprocessing in the 123 Agreement. On this front, therefore, the score is half.

Seventhly, the Prime Minister said India would never accept a moratorium on the production of fissile material. To the extent to which the U.S. Act does not mandate such a moratorium, his assurance has been borne out and the score here is one. But there is a potential area of discord. The Act demands that India "working actively" with the U.S. on a multilateral Fissile Material Cut-Off Treaty. In Parliament, Dr. Singh said India stood for a "non-discriminatory, multilaterally negotiated and internationally verifiable" FMCT. The U.S. insists the FMCT must not be verifiable. How India can work actively towards such an objective remains to be seen.

Eighthly, Dr. Singh promised Parliament there would be no deviation from India's commitment to non-discriminatory, universal nuclear disarmament. How effectively India is able to push this commitment is a different matter since the Act attempts to tie India down to backing only horizontal proliferation. Indeed, many of the "non-proliferation" measures the country is being told to actively support are quite likely to produce the opposite result — as the North Korean case demonstrated last month. Here, too, then, the score is only half.

Ninthly, the Prime Minister had objected to "provision in the proposed US law that were India to detonate a nuclear explosive device, the US will have the right to cease further cooperation." Curiously, he did not demand that this reference be removed or at least modified to include a reference to the possibility of the U.S. or others testing. Nevertheless, he did state that India would not be able to accept a reference to its unilateral test moratorium in the 123 Agreement. That hurdle has yet to be crossed. But the current Act is very clear that an Indian test — regardless of the circumstances which might occasion it — would lead to the end of nuclear cooperation, to efforts by the U.S. to cut off nuclear supplies to India from any other country, and to the demand that India return any equipment or fuel it may have received from an American source. Regardless of what the 123 Agreement says, then, India's unilateral moratorium is already being treated as a condition precedent for the entire deal and represents an attempt to intrude on Indian sovereignty. On this issue, the score is clearly zero.

Tenthly, the Prime Minister promised India would not accept additional verification measures other than IAEA safeguards. All the U.S. Act has done is swap an explicit demand for intrusive end-use verification with implicit provisions. In essence, there is no change. Here, the score is zero.

Where does this leave us? Out of 10, India scores between two-and-a-half and three. Does this mean India should walk away? Not quite. There is still the Nuclear Suppliers Group, whose changed guidelines may offer India a less restrictive framework for nuclear cooperation. This is, of course, highly unlikely but India can afford to wait and see how the debate at the NSG develops. The Background Note to the U.S. Act makes it clear that Washington will not tolerate a situation where NSG countries get to sell material to India that U.S. contractors might be barred from selling. India will have to keep its eyes wide open. There can be no room for complacency, let alone celebrations.

A bit of France, a bit of Britain

Madrid11.net, a project of opendemocracy.net, interviewed me recently on recent developments in Indian foreign policy. They asked whether I thought India would be to the United States in Asia a bit like what France is in Europe, aligned to Washington but also sticking to its own guns. My answer -- India will be both France and Britain...

8 December 2006
madrid11.net

Security in focus: India

In recent years, much has been made of India's creeping ascent to importance on the global stage. With its booming economy and expanding foreign interests, the world's second largest country has already convinced many of its"superpower" destiny.

Despite India's global ambitions, the country remains in a region rife with tensions and uncertainty. Brahma Chellaney and Siddharth Varadarajan, two leading Indian policy analysts, explore the country's strategic concerns and internal threats.

On the strategic relationship with China

Madrid11.net:

Hu Jintao's recent visit to India produced a substantial trade agreement and murmurs of future strategic and even civil nuclear cooperation. Is China merely gardening in its backyard or does Hu's visit herald a new era in Sino-Indian relations?

Brahma Chellaney:

During Hu’s visit to India, the underlying wariness or even suspicion of each other’s intentions was not absent. Yet both sides felt the need to publicly play down the competitive dynamics of their relationship and put the accent on cooperation. The visit, although low in substance, yielded a rhetoric-laden joint statement with nice jingles, such as “all-round mutually beneficial cooperation".

It makes sense for India to stress cooperation while working to narrow the power disparity with China and seeking power equilibrium in Asia through strategic partnerships with other democracies, including the U.S. To China, an accent on cooperation chimes with its larger strategy to advertise its "peaceful rise".

Given their underlying strategic dissonance, however, India and China are likely to remain business partners rather than become friends.

That is why the proclaimed “India-China strategic and cooperative partnership for peace and prosperity” remains devoid of content, and the new reference to joint civil nuclear cooperation is unlikely to translate into actual cooperation. The two sides can only showcase their fast-growing trade, expected to top $20 billion this year. But Japan and China, with 10 times higher volume of trade, are discovering that when strategic animosities remain untreated, interdependent commercial ties do not guarantee moderation and restraint.

Siddharth Varadarajan:

The Chinese are very serious about mending fences with India. This is not just because the economic relationship between the two has become big business but also because they know the United States is using Indian insecurity and paranoia about China to push its own strategic interests in Asia. It is for this reason, I believe, that China is eventually unlikely to block the Indo-US nuclear deal at the Nuclear Suppliers Group.

India remains wary of the Sino-Pak relationship but much of this wariness stems from a fundamental misunderstanding of Chinese foreign policy and strategic thinking. Indians believe Chinese assistance to Pakistan is tantamount to "containing" India. In fact, the Chinese regard Pakistan as a crucial swing state in the region since it also has a close military relationship with the United States. Chinese assistance to Pakistan, such as the development of Gwadar or the sale of military hardware, is aimed at strengthening China's reach in a region through which more than half of its energy imports pass.

Indians should not over-react to this relationship or regard Chinese weapons sales to Pakistan as anti-Indian any more than they see US weapons sales to India as an anti-Indian act.

On relations with the United States

M11:

A recent article in YaleGlobal suggested that following Hu's visit, India is less likely to become a US-allied "hedge" against China than the "France of Asia" – sharing similar values with the US but pursuing its own foreign policy agenda. Would you agree with that assessment?

SV:

India will be a bit like France and a bit like Britain. Let me explain what I mean. As Asian integration progresses and India slowly rises in economic and strategic significance, the United States hopes India will play in Asia a similar role to what Britain plays in Europe: in and out at the same time, modulating the design and utility of Asian architecture to ensure vital US interests are not affected.

In American eyes, only India can play such a role in the long-term, given the demographic realities in Japan and the uncertain role (in US eyes) that an eventually reunified (and nuclear) Korea would play.

To the extent to which the emphasis on "balance of power" dominates official thinking and the corporate sector increasingly influences foreign policy, India will play this role in terms of Asia's emerging institutions. At the same time, India's democratic polity and the interests of certain key sectors of the economy - such as energy - will not allow its rulers to enter into the more fanciful entanglements that being a "Britain in Asia" implies. Shades of "France" were visible in 2003 when India refused to send troops to Iraq. India is also being a "France" when it joins hands with China to buy oil fields in Syria and Sudan. But "Britain" is always lurking below the surface.

On internal security threats

M11:

In November, the government published the findings of a study that showed that Indian Muslims lagged far behind their compatriots in almost all major socioeconomic indicators. In the wake of the Mumbai bombings, what implications, if any, does this carry for Indian security? Can Muslim social alienation be tackled by Muslim quotas?

BC:

Historical reasons for the Muslims’ backwardness should not be forgotten. When India was partitioned, the well-to-do Muslims migrated to Pakistan, leaving behind their poorer brethren.

Caste-based quotas have proved controversial and divisive. Religion-based quotas could further fragment Indian society and undermine the task of building social cohesion. The latter would also demand an amendment of the Constitution, which forbids introduction of quotas based on religious affiliation

SV:

The marginalisation of the Muslim is one of India's most pressing problems. There is undoubtedly a security dimension but that tends to be overblown.

India implements limited quotas in higher education and government jobs for socially discriminated sections of its population, primarily the Scheduled Castes and tribes, as well as other backward classes. However, Muslims who fall within these socially disadvantaged categories are denied the benefits of quotas. This is discriminatory and unfair.

For the wider Muslim community, however, it is clear that quotas can at best be a palliative. The government, instead, needs actively to tackle discrimination in recruitment, housing, law enforcement, public expenditure on health and education, credit and so on - all of which are rampant and completely unchecked. At the same time, targeted expenditure aimed at bringing underprivileged sections of the population better or equal access to good education is a must.

M11:

While Mao is long dead in China, Maoists are on the up in the subcontinent. Recent agreements in Kathmandu have brought to end the region's more publicised Maoist insurgency. Will Indian Maoists be emboldened to make more noise in hope of future political concessions? How serious a security threat does the Indian Maoist insurgency pose?

BC:

In Nepal, it is too early to conclude that the Maoist insurrection is over. Despite the peace deal, the tough part now begins. The deal’s implementation poses major challenges, with the reestablishment of peace hinging on several questions: Will the Maoists play by the rules of democracy, or make the most of their new central role to try and usher in a proletariat dictatorship? Will they honor the deal by disbanding the parallel administration they run in many rural districts, or will they continue to levy taxes and mete out savage punishment upon those who fall foul of them? Will the Maoists exploit the culture of violence they have instilled in the impoverished countryside to secure a dominant position in the Constitutional Assembly to be elected next year?

There are links between the Nepalese Maoists and Indian Maoists, with the developments in Nepal coming as a shot in the arm to the Indian Maoists. It is not an accident that the Maoists are the strongest in the most backward districts of India. This calls for better governance and more rapid economic development in those areas.

SV:

The Indian Maoists have been denouncing their Nepali comrades for having compromised and given up the strategic goal of capturing power through armed struggle. On the other hand, [Nepali Maoist leader] Prachanda has been telling his Indian comrades that they should learn from Nepal's experiences and come forward to take part in "competitive politics".

The Indian Maoists are not willing to listen because they see their own strength growing, their areas of operation expanding. As neoliberal economic policies bring more and more remote areas under their sway through forcible land acquisition and displacement of settled tribal and peasant populations, the Maoists are able to find a steady stream of recruits. The Indian state's reaction has been to treat them as the most important threat to the country's security.

This is a mistake because the Maoist movement has developed out of social inequalities and imbalances and should not be treated as a law and order problem or a terrorist problem.

M11:

Is trouble still brewing in the northeast? Indian officials revealed recently that United Liberation Front of Asom (ULFA) leaders had travelled to Islamabad in search of assistance. Is this a sign of strength or desperation (ULFA, after all, has begun recruiting from impoverished Bangladeshi families)?

SV:

Though a peace process of sorts is on thanks to the mediation of prominent Assamese civil society personalities, matters are not helped by the approach of the Indian security forces or the ULFA leadership.

The security forces are reluctant to enter into a ceasefire arrangement. As for the ULFA leadership, they have long since completed the transition from being a politically oriented (if somewhat misguided) organisation to a lumpenised gang who have no qualms about using violence against civilians and noncombatants. As a result, their credibility is ebbing within Assam.

BC:

While the situation has improved in parts of India’s northeast, it has deteriorated in Assam because of the resurgence of the ULFA. The federal government pursues a disjointed approach towards the northeast. Where insurgent groups have kept their word not to target security forces, the government has dragged its feet on follow-up steps, as in Nagaland. But where guerrillas continue to attack police and the Army, New Delhi has precipitately extended an olive branch.

If ULFA remains “in the grip of the ISI agency” of Pakistan, as the Prime Minister admitted last week, why did New Delhi unilaterally cease counter-insurgency operations against that outfit for six weeks from 13 August? The spate of terrorist bombings in Assam is a direct consequence of that ceasefire, which allowed ULFA to regroup and rearm.

The government’s approach seeks to treat the northeast as a development-related problem that demands more funds. Without a comprehensive, integrated approach, however, not only will much of the funds, including the latest Rs. 200 billion planned outlay, continue to be siphoned off by those benefiting from the insurgencies, but it will also be difficult to mainstream those who feel they remain on the margins of the Indian state.

Brahma Chellaney is professor of strategic studies at the Centre for Policy Research in New Delhi.

Siddharth Varadarajan is strategic affairs editor of The Hindu, a leading English-language national daily. He is also based in New Delhi.

Don't lose sight of the hurdles in the last lap

Between Manmohan Singh's assurances in Parliament and the changes sought by Condoleezza Rice is a big gap that is unlikely to be addressed by the "reconciled" text of the proposed U.S. legislation on nuclear cooperation with India.

6 December 2006
The Hindu

Don't lose sight of the hurdles in the last lap

Siddharth Varadarajan

ON AUGUST 17, 2006, Prime Minister Manmohan Singh made a detailed statement in Parliament on the status of the India-U.S. nuclear deal. He was responding to the misgivings expressed by MPs cutting across party lines as well as members of the country's scientific and strategic communities. Dr. Singh had before him the texts of the proposed legislation both the Senate and House of Representatives intended to pass. He admitted that these texts breached the terms of the July 18, 2005, and March 2, 2006, joint India-U.S. statements in a variety of ways, often substantially so. More importantly, he signalled his Government's intention to walk away from the deal if the U.S. offered India something less than full civil nuclear cooperation on terms more onerous than what the two sides had already agreed upon.

Since then, the full Senate has approved its version of the Bill, but not before adding more objectionable conditions. The Senate and House versions will now be reconciled by a conference of select legislators before being put to a fresh "up or down" vote with no further amendments allowed. The conferees have already started their work. As matters stand, HR 5682 — as amended in the Conference Report — will be voted upon by Congress on either December 7 or 8. Its passage is a foregone conclusion. Less certain, of course, is whether the legislation will stay within the red lines drawn by the Prime Minister.

The letter written last week by U.S. Secretary of State Condoleezza Rice to Senate Foreign Relations Committee head Richard Lugar has led to some excitement in a section of the media. In that letter, Dr. Rice has sought specific changes in nine clauses of the proposed law, besides urging a redrafting of language on the requirement for annual certification. But even if the changes she suggests are all incorporated, several vital assurances made by Dr. Singh will remain unfulfilled. In other words, even in elaborating the White House's maximalist position, Dr. Rice chose deliberately not to push for changes India says it needs. The idea clearly is to present New Delhi with a fait accompli. As well as an implicit warning that if it chooses to reject this "sweetheart deal" for which the administration has "battled hard," bilateral relations will go into a tailspin.

While the Bush administration is urging the adoption of changes that seek partially to address Indian concerns on issues like Iran and the circumstances under which the agreement can be terminated, several key problems remain unresolved.

1. Not full cooperation

In Parliament, the Prime Minister had stated: "We seek the removal of restrictions on all aspects of cooperation and technology transfers pertaining to civil nuclear energy — ranging from nuclear fuel, nuclear reactors, to re-processing spent fuel, i.e. all aspects of a complete nuclear fuel cycle... We will not agree to any dilution... "

In her letter, Dr. Rice proposes only that an explicit bar on the sale of reprocessing equipment be dropped from the Senate version of the Bill. At the same time, she confirms that it will remain U.S. policy not to sell such equipment to India. In other words, India is still to be denied full nuclear cooperation, but by executive decision alone rather than legislative fiat. Moreover, she has made no attempt to clarify the issue of reprocessing spent fuel. Since the relevant sub-clause of Section 123 of the Atomic Energy Act is not being amended, the existing prohibition on reprocessing safeguarded spent fuel produced by U.S.-supplied reactors or fuel will stay. Thus, India will not be able to reprocess that spent fuel except with the prior consent of the U.S. In the case of Tarapur, the DAE has been forced to store vast pools of spent fuel since the U.S. will neither allow India to reprocess it nor will it agree to take the waste back.

The American reluctance to change its policy on enrichment and reprocessing makes it highly unlikely that the Nuclear Suppliers Group will amend its no nuclear exports rule for India to allow the sale of these technologies.

2. No fuel supply guarantees

India agreed to place its civilian reactors under IAEA safeguards in perpetuity in exchange for assurances that those reactors would be guaranteed fuel supplies over their lifetime. In August, the Prime Minister reiterated this point. "[It] is worth emphasizing that the March 2006 Separation Plan provides for an India Specific Safeguards Agreement with the IAEA, with assurances of uninterrupted supply of fuel to reactors that would be placed under IAEA safeguards together with India's right to take corrective measures in the event fuel supplies are interrupted."

The possibility of such assurances was flatly rejected by Dr. Rice in her testimony before the House Committee on International Relations on April 5, 2006, and thus finds no legislative endorsement in either version of the Bill. She dismissed the March 2006 Separation Plan as "an Indian document that contains India's views on the fuel assurances it seeks" (original emphasis). She acknowledged the U.S. had held "exploratory" discussions with India on the subject but added a killer caveat. "Our negotiators were very clear that while the U.S. would be willing to provide reasonable fuel assurances designed to counter market imperfections, fuel assurances could not be a `condition' to any of India's commitments under the [separation] plan, including, in particular, safeguards in perpetuity."

As if the lack of fuel assurances is not violation enough of the bilateral understanding reached by India and the U.S. in March, the proposed law enjoins the administration not to help, and even hinder, the Indian quest for fuel in the event of a disruption of supply.

In her letter to Senator Lugar, Dr. Rice merely seeks to soften the language of the bill. She is also silent on the Obama amendment (Section 114), which aims to block the possibility of India stockpiling uranium as insurance against future supply disruptions. In short, as far as the Prime Minister's assurances on uninterrupted fuel supplies in exchange for `in perpetuity' safeguards is concerned, it is clear the U.S. side has no intention of keeping its side of the bargain.

These conditions — as well as the U.S. refusal to countenance an exit clause in India's safeguards agreement with the IAEA — will lead to major problems for the country both at the IAEA Board of Governors (which must endorse the India-specific safeguards agreement) as well as the NSG.

3. U.S. verification measures

In Parliament, the Prime Minister opposed Section 107 (b)(3) of the Senate bill on end-use monitoring by the U.S. He insisted that India "will not accept any verification measures regarding our safeguarded nuclear facilities beyond those contained in an India-Specific Safeguards Agreement with the IAEA... Therefore, there is no question of accepting other verification measures or third country inspectors to visit our nuclear facilities, outside the framework of the India specific safeguards agreement."

On this crucial issue, Dr. Rice's letter offers only a cosmetic solution. She asks Senator Lugar to change the offending clause but suggests two ways in which to reintroduce the same measure through the backdoor. It could either be modified "so that it merely restates the Atomic Energy Act requirement for continuity of safeguards."

Or it could be dropped, because "fall-back safeguards and end-use monitoring... are currently subject to negotiations" and there is no reason to "limit [the administration's] options on how best to meet an existing statutory requirement." Either way, bilateral verification measures — in addition to IAEA safeguards — are very much still in the works. Dr. Rice only wants its specifics to be designed by the executive rather than legislative branch.

4. Unwanted cooperation

While the proposed U.S. law denies India "full cooperation" in civil nuclear energy, it thrusts the same in areas where the country is not looking for a helping hand. A `stealth amendment' in the Senate version seeks to impose a "Scientific Cooperative Threat-Reduction Program" on India. The measure is a thinly disguised attempt to learn more about the inner workings of the Indian nuclear establishment.

In her letter, Dr. Rice merely suggests the programme's name be changed to "Scientific Non-proliferation Cooperation Program." But the thrust of the initiative would continue to be greater interaction at all levels with Indian nuclear scientists, especially those with some knowledge or experience of `non-proliferation' (i.e. weapons-related) issues.

One final area where problems remain is sequencing. Dr. Rice has suggested the Senate version scrap its patently unreasonable demand that Indian facilities come under safeguards before the U.S. (and by extension, the NSG) ends the existing embargo on nuclear sales. According to her, the President should be able to waive U.S. restrictions when India fully negotiates its safeguards agreement and places the same before the IAEA Board.

However, there are two sequencing issues where ambiguity remains. First, it is not clear when the NSG guidelines will be changed. Secondly, Indian negotiators believe the safeguards agreement with the IAEA should ideally be finalised after the U.S.-India Nuclear Cooperation Agreement (the `123 Agreement') is fully negotiated.

If the Senate-House conferees fail to act on Dr. Rice's rather tepid suggestions, especially as far as the sequencing, enrichment and reprocessing, verification and termination issues are concerned, the Government will come under pressure to reject the deal. But even if her suggestions are incorporated, it is be difficult to see how the deal will pass the gauntlet of strict conditions the Prime Minister himself laid down in Parliament.

Armed Forces Act to be amended

After years of protest against one of India's most Draconian laws, is there finally some light at the end of the tunnel?

2 December
The Hindu

Armed Forces Act to be amended

Siddharth Varadarajan

Prime Minister Manmohan Singh to make announcement in Manipur today

New Delhi: In an attempt to address the long-standing demand of the people of Manipur and other north-eastern States for the withdrawal of the Armed Forces (Special Powers) Act, the Union Government has finally decided to amend the controversial law and remove its most draconian provisions.

Prime Minister Manmohan Singh will make an announcement to that effect during his visit to Manipur on Saturday, official sources told The Hindu .

"The Prime Minister will also promise that he is prepared to scrap the entire law if subsequent conditions allow," a senior official said.

According to the sources, the Government is looking to introduce two major changes in AFSPA "within a matter of weeks."

The first amendment will remove from the law the provision in Section 4 which gives soldiers above and including the rank of non-commissioned officer the authority to fire upon and even kill individuals so long as they are "of the opinion that it is necessary to do so for the maintenance of public order."

The second change will be to incorporate the safeguards or list of "do's and don'ts" — stipulated by the Supreme Court in its 1997 judgment on the constitutionality of AFSPA.

Panel recommendation

In its report on the workings of the Act submitted to the Government last year, the Justice Jeevan Reddy Committee had recommended that AFSPA be scrapped and its main provisions incorporated into the Unlawful Activities (Prevention) Act (ULPA).

Asked what relation the Prime Minister's proposed course of action bore to the recommendations of the committee, the sources said the Government was not prepared to implement its recommendations. "ULPA is applicable across the country and is not meant to cover situations where the Army is deployed. It cannot provide the armed forces the indemnity they need," they said. However, now that the shoot-to-kill provision was going to be taken out, the "worst aspect" of AFPSA would have been addressed, they added.

Major issue

On two prior occasions, the Prime Minister had told Manipuri delegations that he was prepared to replace AFPSA with a "more humane" law. The demand for the repeal of AFSPA snowballed into a major issue in 2004 following the custodial killing and alleged sexual molestation of Th. Manorama, a Manipuri woman, by soldiers from the Assam Rifles.

See also:

Does anybody care about Manipur?

The challenge of Asian security architecture

If the 'Asianists' in both New Delhi and Beijing prevail, a stable `win-win' environment can be established in the region.

Erected on the building blocks of the East Asia summit process, the Shanghai Cooperation Organisation and pan-Asian energy grids, a cooperative and open Asian architecture is possible.

But if China and India do not get their act together, the United States is likely to seize the strategic initiative in Asia to the detriment of stability and security in the entire region.

1 December 2006
The Hindu

The challenge of Asian security architecture

Siddharth Varadarajan

IN THE first decade of a century that the entire world agrees is Asia's, this great continent — home to half the world's peoples and resources — finds itself at a strategic crossroads. Will it be able to give rise to new architecture and institutions that foster stability, security, cooperation, and growth? Or will it continue to remain mired in the suspicions and insecurities that outside powers have traditionally taken advantage of in order to offer themselves as `balancers' of power in the region?

During the visit to India last week of President Hu Jintao of China, the Indian and Chinese governments seemed to signal their willingness to take the first road. Indeed, the goal of Asian architecture figured explicitly in the Joint Declaration issued by Prime Minister Manmohan Singh and Mr. Hu. Both sides agreed "to expand their coordination within regional organisations and explore a new architecture for closer regional cooperation in Asia." Seeking to allay latent suspicions about each other's role in the emerging patchwork of organisations that have sprung up across the continent in the past few years, the two countries said they "positively view each other's participation in Asian inter-regional, regional and sub-regional cooperation processes."

But if China and India are to translate these fine words into reality, there is need for greater clarity in the foreign policy establishments of both countries. Clarity not only in terms of how they see each other, but also in terms of the role they envisage the United States playing in Asia.
Two years ago, for example, India was actively promoting the idea of an Asian energy grid linking major oil and gas producing and consuming countries in the continent with India, China, and Iran serving as major arteries. Unfortunately, with the Indo-U.S. nuclear deal on the anvil, pan-Asian hydrocarbon cooperation is no longer being seen in New Delhi as a priority. And with the Bush administration opposing the development of regional organisations that "exclude" the U.S. — a point forcefully made by Defence Secretary Donald Rumsfeld at the Shangri La conference in Singapore earlier this year — India has consciously been limiting its participation at SCO events.

Since energy and the SCO are now more or less on hold as far as India is concerned, the only pillar of the emerging Asian architecture New Delhi still seems excited about is the East Asia Summit.

The EAS is good but it may not be enough. Events have moved so rapidly since 9/11 that India and China have not had the chance to fully assess the evolution of U.S. strategic thinking in Asia or study the implications the growing American military presence in the region is having on regional security. Despite fashionable talk of the "decline" of America, the U.S. is an ascendant military power in the world and in Asia. It may lack the power to establish a new order but it certainly doesn't lack the ability to destroy the old. Both India and China need to factor this into their strategic thinking. They need to develop relations with each other — and with the United States — that can serve to restrain the destructive exercise of U.S. power in the region. And this restraint can be brought about not by establishing a new bilateral or trilateral entente against the U.S. as some imagine but by pushing for the development of an Asian cooperative security architecture to deal with conflicts and contradictions on the basis of Asian strategic interests and values.

India recognises the destabilising nature of U.S. policies in Iraq, Afghanistan, Lebanon, Palestine, North Korea, and Iran but the dominant section of its foreign policy and security establishment still clings to the notion that the U.S. could help the country "balance" a rising China in Asia. This was the burden of the major policy speech made by Shyam Saran as Foreign Secretary last November at an India-U.S. business meet in New Delhi.

The U.S. has responded to the prospect of institution building in Asia with initiatives and coalitions of its own. Soon after the Cold War, it floated the idea of an Asian version of the Organisation for Security and Cooperation in Europe and an Asian Nato, both of which failed to materialise. The APEC forum came into being linking all countries in the Asia-Pacific but its ambit has remained static. Today, Washington is pursuing two principal lines of action in order to ensure its "leadership" in Asia. Both depend crucially on its emerging "strategic partnership" with India.

The first is the so-called "Big Four" strategy where the U.S. works alongside India, Australia, and Japan. The post-tsunami naval cooperation between the "Big Four" was an example of this but India has been reluctant to convert one-off humanitarian operations into a more concrete strategic arrangement. The second U.S. strategy is the so-called "Five plus Five", which seeks to add on to its five existing military alliances with Japan, South Korea, Australia, Thailand, and Philippines the support of five "hedging" powers, viz. India, Indonesia, Singapore, Vietnam, and New Zealand. In both these strategies, the object of U.S. partnership building is China. Not surprisingly, these efforts have not gone unnoticed in Beijing.

The Indian willingness to be seduced by the U.S. illusion of "balance" is driven mostly by a fundamental lack of understanding of Chinese policy. For example, many Indian analysts mistakenly imagine the `string of pearls' strategy whereby China is developing naval facilities in Pakistan or Myanmar is primarily directed at India. In reality, the Chinese concern is with protecting its sea lines of communication from potential disruption by the U.S. Likewise, Chinese arms sales to Pakistan are seen only as an attempt to "contain" India rather than as an investment by China in a strategic relationship that gives Beijing naval access to the Arabian Sea through which its oil and gas imports pass.

Globalists and Asianists

Above all, India has failed to understand that the Chinese foreign policy establishment is not monolithic and that different trends are constantly jostling for space against each other. Ever since Zheng Bijian developed his influential thesis of China's "peaceful rise" in 2003, Western scholars have tended to focus only on the debates this thesis has generated within the Chinese Communist Party. Since then, "peaceful rise" has made way for "peaceful development" and now, "harmonious world," as the official defining characteristic of Chinese foreign policy. While these nomenclatural shifts have been carefully tracked by scholars, less well known and understood is the division within the Chinese foreign policy establishment between the so-called `globalists' and Asianists. The former consist mainly of `America hands' — officials who have served in the U.S. or on the U.S. desk — who believe Chinese interests are best served by going along with U.S. policy on a wide variety of issues. The latter consist of those who link China's future to its ability to develop harmonious relations with all major Asian countries, particularly India but also Japan.

Except for brief moments — such as when the U.S. bombed the Chinese embassy in Belgrade in 1999 or when the U.S. EP-3 spy plane was forced down by China in 2001 — the `globalist' trend has dominated. Nor are the lines always neatly drawn. However, some evidence of the different approach favoured by the two became apparent in China's response to the North Korean nuclear test last month. The initial Chinese reaction, which reflected the `globalist' perspective, was sharply critical of North Korea. Subsequently, the Asianists argued that it was U.S. policy itself that pushed North Korea to the wall and that Beijing could not afford to burn its bridges with Pyongyang. Since then, China's tone has changed and its attitude and pronouncements are more in line with South Korea than with the U.S.

Within China, it is the Asianist impulse that is pushing the country towards establishing better relations with India. But there is also a growing realisation that confrontation with Japan only encourages Japanese militarism and strengthens the U.S.-Japan alliance and that Beijing needs to repair its relations with Tokyo too.

In the final analysis, China, India, and Japan are the three principal pillars on which the cooperative Asian security architecture would have to be based, with a reunified Korea and also Russia eventually serving as pillars four and five, and ASEAN playing the role of sheet-anchor. For matters to go in this direction, however, it is vital that the Asianist line — in China and in India — prevail. Asia is too big to be led by any one power and neither China nor India nor Japan can or should aspire to "lead" Asia either by themselves or in alliance with an external power.

Since a regionalism that is cooperative would also be inclusive, there is no reason for the U.S. to feel excluded and work against the emerging institutions. Like others from outside Asia, the U.S. too would be welcome to take part in any future Asian security framework. But only as an observer or even a participant and not as a "leader" or "driving force."

See also:

Defence pact with U.S. -- India entering risky, uncharted waters
Asian interests and the myth of balance