Nuclear Liability Issue Remains Key Challenge as Obama Visits India

By Ronak D. Desai —

With President Obama’s visit to India underway, officials in New Delhi are working with Washington to ease American concerns over nuclear liability legislation recently enacted by the Indian Parliament that effectively precludes nuclear commerce between the United States and India.  Formally entitled, “Civil Liability for the Nuclear Damages Bill, 2010,” the legislation should have represented the last stage toward completion of the landmark Indo-U.S. civilian nuclear deal, but it instead threatens to undermine the practical effects of the civilian nuclear accord.

Unveiled in 2005 by President George W. Bush and Indian Prime Minister Manmohan Singh, the civilian nuclear deal quickly emerged as the centerpiece of the much-touted “strategic partnership” between the United States and India.  The civilian nuclear agreement lifted more than three decades worth of nuclear sanctions imposed on New Delhi following its first round of nuclear tests in 1974, paving the way for international energy firms to compete for a share of India’s lucrative energy market.

Although access to global nuclear markets normally requires a country to sign and comply with the nuclear Non-Proliferation Treaty (NPT), the United States successfully spearheaded efforts to grant India, a non-signatory, a rare exemption.  The U.S.-India civilian nuclear deal was considered one of the most significant breakthroughs in the bilateral relationship between Washington and New Delhi, and heralded a new phase of U.S.-India relations.

In addition to providing Washington with crucial non-proliferation assurances, passage of the nuclear liability bill remained the crucial last step towards finalizing the agreement.  While American firms such as General Electric Co. and Westinghouse Electric Co. were eager to capture their own piece of India’s $150 billion nuclear market, they were hesitant to conduct business in India until New Delhi established a civil nuclear liability regime limiting supplier liability in case of a nuclear accident.

Although the Indian Parliament finally passed the legislation in late August, it is widely regarded as inconsistent with existing international standards governing nuclear commerce, which place liability exclusively on the operator of a nuclear reactor while immunizing its suppliers.  The Indian civilian nuclear liability law, however, renders both suppliers and operators liable for eighty years after the construction of the reactor in the event of a nuclear accident, a move that has unsurprisingly caused consternation in Washington, and even among some in New Delhi.  A host of prominent Indian business leaders, and even the government’s own Nuclear Power Corporation of India—the entity responsible for operating the country’s existing nuclear reactors—criticized the legislation, warning it would deter private foreign suppliers from coming to India, and thus jeopardize the entire basis for the civilian nuclear accord.

Domestically, the nuclear liability legislation was mired in controversy from the outset.  Indian opposition parties accused Prime Minister Singh’s Congress Party-led coalition government of sacrificing India’s closely guarded nuclear sovereignty to the United States, and vowed to block any liability legislation from being introduced in Parliament.

When the opposition finally relented and the bill was introduced, political debate and public opinion became quickly impassioned by the infamous 1984 Union Carbide disaster in Bhopal that killed thousands of Indians and injured hundreds of thousands more as a result of a toxic gas leak.  Although India sought more than $3.3 billion dollars in damages from Union Carbide, New Delhi ultimately settled for less than $500 million, and the majority of the settlement funds still remain unpaid to victims and their families more than twenty-five years after the tragedy.  Public outrage was further inflamed in June after an Indian court announced lighter than expected sentences for eight former executives of Union Carbide’s Indian subsidiary.

The Indian government sought Parliamentary approval of the nuclear liability legislation amidst this backdrop of intense domestic suspicion and anger towards foreign corporate interests.   As a result, India’s main opposition Bharatiya Janata Party (BJP) insisted that language holding suppliers responsible for nuclear reactors remain in the bill in exchange for BJP’s support.  The BJP also successfully convinced the government to drop a provision in the text requiring demonstration of supplier intent before making suppliers liable for nuclear accidents.  Additionally, the liability cap was raised to approximately $322 million.

While these compromises and others were necessary to win approval of the legislation from opposition parties, and Washington and New Delhi publicly hailed passage of the civil liability law as a victory for both sides, officials in both capitals have been left scrambling to figure out how to circumvent the supplier liability provision in a way that does not completely undermine the benefits of the civilian nuclear deal and defeat the purpose of the agreement.

While policymakers in Washington were hoping that the Indian parliament would make subsequent modifications to the legislation, some Indian lawmakers have categorically ruled out any amendments to the liability bill.   Instead, Indian and American officials are considering a government-to-government pact indemnifying U.S. suppliers if they are ever sued, as well as a proposal to have the state-run Nuclear Power Corporation of India enter into agreements with American firms to assume their supplier liability.  Another option floated was for Prime Minister Singh to issue the equivalent of a presidential signing statement enumerating his interpretation of the supplier liability provision in order to, in effect, invalidate it.

Secretary of State Hillary Clinton raised the issue with Indian External Affairs Minister S.M. Krishna during his visit to Washington in late September yet was unable to secure any pledges from her Indian counterpart that would make the legislation more palatable to foreign nuclear suppliers.

Prithviraj Chavan, the Indian Minister of State responsible for shepherding the civil liability legislation through Parliament announced, however, that Indian officials were drafting a host of regulations aimed at making the supplier’s liability provision less restrictive, and expressed hope that the regulations would ease suppliers’ concerns about their liability exposure.  The details remain unclear, and given the Indian parliament’s absolute refusal to consider even the slightest modifications to the liability legislation, it is uncertain whether the regulations being drafted will be able to successfully alleviate American concerns and attract foreign investment.

Efforts to resolve the challenge surrounding the liability legislation have adopted greater urgency with President Obama’s state visit to India, and the topic will certainly be a key focus of the President’s discussions with Prime Minister Singh during his trip.  As Prime Minister Singh himself noted, the United States singlehandedly ended India’s three and a half decade “nuclear apartheid,” through civilian nuclear accord, and New Delhi must now fulfill its own end of the agreement by rectifying the nuclear liability issue and effectively completing the final necessary step to consummate the deal.

Doing so would finally allow both sides to achieve the immense political, diplomatic, and commercial benefits of the civilian nuclear agreement, and definitively move the U.S.-India partnership from one of symbolism to substance while transforming rhetoric into reality.   While the US-India partnership, like all other partnerships, is likely to confront challenges in the future, the civil nuclear liability legislation should not be one of them.  President Obama’s visit to India presents New Delhi with the perfect opportunity to finally implement the deal and bring the world’s oldest and largest democracies even closer together.

Image courtesy of OutlookIndia.com