The Indian civil nuclear bureaucracy understands it is "essential" to advance cooperation with the U.S., but claims progress is stymied by the inability of U.S. firms to share sensitive technical information pending the authorizations required under U.S. licensing regulations.

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2/12/2009 12:24:00 PM

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Embassy New Delhi

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E.O. 12958: DECL: 02/11/2019 TAGS: PREL, PARM, TSPL, KNNP, ETTC, ENRG, TRGY, IN SUBJECT: AMBASSADOR PRESSES MENON TO IMPLEMENT CIVIL NUCLEAR COOPERATION WITH U.S.

REF: A. NEW DELHI 48 B. SECSTATE 8510 C. "TALKING POINTS FOR EMBASSY NEW DELHI ON THE MENON-BURNS LETTER" (MCCLELLAN-HOLMES EMAIL 02-04-09) D. NEW DELHI 152

Classified By: Ambassador David Mulford for Reasons 1.4 (B and D)

1. (C) SUMMARY. Highlighting U.S. industry concerns about the slow pace of civil nuclear cooperation and stressing the opportunities it holds for U.S. commerce and job creation, Ambassador Mulford pressed Foreign Secretary Shivshankar Menon February 11 for swifter action on implementation. Menon reiterated India's keen interest in early, senior-level discussions on nonproliferation with the Obama administration. The Indian civil nuclear bureaucracy understands it is "essential" to advance cooperation with the U.S., but claims progress is stymied by the inability of U.S. firms to share sensitive technical information pending the authorizations required under U.S. licensing regulations. India plans to bring its IAEA Safeguards Agreement into force soon, perhaps in March when it also plans to submit its Additional Protocol to the IAEA Board of Governors for approval. Parliament will not act on the Convention on Supplementary Compensation for Nuclear Damage (CSC) until after elections in April-May, but U.S. firms should not feel the need to wait for ratification to begin commercial discussions and reliminary commercial activities. Menon confirmed that the designation of reactor sites for U.S. industry does not have to wait for the completion of the election. One problem is interest from the state of West Bengal, which is most keen to host a U.S. site. Menon is pushing back, and the Ambassador stated that the area was highly unlikely to be acceptable to U.S. companies.

2. (C) SUMMARY CONTINUED. Menon hoped consultations on reprocessing "arrangements and procedures" under the 123 Agreement could begin as soon as possible. He claimed that a clear statement that the Obama administration stands by the commitments made in the 123 Agreement would be sufficient to address concerns in India that U.S. policy favoring a global ban on further transfers of enrichment and reprocessing technology (ENR) in the Nuclear Suppliers Group (NSG) constitutes a "derogation" of the 123 Agreement, but he was vague on why this was necessary. He expressed his hope that Special Representative Holbrooke's visit would be viewed as a success and that a new Indian draft text on end use monitoring (EUM) would result in an agreement. END SUMMARY.

Eager to Talk Nonproliferation with Obama Administration

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3. (C) Ambassador Mulford February 11 pressed Foreign Secretary Shivshankar Menon for action on several civil nuclear cooperation implementation issues, including bringing the IAEA Safeguards Agreement into force, holding consultations on reprocessing arrangements and procedures, designating reactor park sites now for U.S. firms, and implementing liability protection. He highlighted growing concern on the part of U.S. industry that India appeared to be moving faster in implementing cooperation with competitors. He stressed that civil nuclear cooperation has taken on a new dimension in the current economic climate in that it will lead to new and important commercial opportunities for U.S. companies as well as to new job creation. Delays are becoming increasingly difficult to explain in the face of agreements with France and Russia.

4. (C) Menon replied first by stressing that he wanted to reiterate India's keen interest in early, senior-level discussions on nonproliferation matters with the Obama administration (ref A). Menon believed there to be an impression among policy makers in India and the United States that U.S. nonproliferation policies under the Obama administration could be unpopular in India, but Menon said he had not yet heard anything alarming. On the contrary, "Speaking as a Nuclear Weapons State, we see a lot we like in President Obama's views on nonproliferation." He specifically mentioned the Fissile Material Cut-Off Treaty (FMCT) as just one example among many. (Comment: Menon seemed genuinely eager for such talks. His reference to India as a 'Nuclear Weapons State' was deliberate.)

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Civil Nuclear Implementation Update

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5. (C) Menon took pains to explain that the slow pace of implementing civil nuclear cooperation with the United States as compared to other competitors was not deliberate, but rather the cumulative affect of several independent issues. Menon said the External Affairs Ministry has consistently stressed to the Nuclear Power Corporation of India Limited (NPCIL) that it was "essential" to move forward with U.S. firms. NPCIL replied that progress had been stymied by the inability of U.S. firms to share sensitive technical information pending the authorizations required under U.S. licensing regulations, according to Menon. Menon brushed aside the suggestion that the issuance of licenses depended on India first bringing its IAEA Safeguards Agreement into force, saying, "We will take care of the Safeguards very soon." He added that progress on negotiating an Additional Protocol with the IAEA was going well and that India hoped to submit the agreement for approval at the March meeting of the IAEA Board of Governors. (Comment: India signed its Safeguards Agreement February 3 when its delegation was in Vienna for talks on the Additional Protocol. Similarly, Menon suggested that India may bring the Safeguards Agreement into force in conjunction with its plan to complete the Additional Protocol negotiations by March. End Comment.)

6. (C) It would be "impossible," according to Menon, for the current session of Parliament to take action on the Convention on Supplementary Compensation for Nuclear Damage (CSC). Ratifying the convention will not take place until the first Parliament after the April-May general elections, likely in June or July. Menon said he understood the importance of the Convention, but he expressed puzzlement as to why U.S. firms felt they needed to wait for ratification of the Convention to begin commercial discussions. (Comment: Indian officials at the working level have noted that Westinghouse signed a reactor deal with China and began construction on the plant hoping that China would ratify the Convention before the reactor was completed. Senior officials have given no indication they envision such a lengthy process, but they are no doubt keenly aware of the lengths to which U.S. firms went to do business with China. End comment.)

7. (C) Menon confided that the designation of reactor parks sites had become a "problem," with the state of West Bengal most keen to host a U.S. site. He added, "You would not believe how strongly West Bengal is pushing to get you." Menon and Ambassador Mulford commiserated briefly about Tata's high-profile failure to establish its Nano car factory in the state, prompting a move to more business-friendly Gujarat. Menon clearly appreciated that designating a site for U.S. firms in a state dominated by parties that staunchly opposed civil nuclear cooperation with the U.S. would send the wrong signal about India's appreciation for U.S. efforts on its behalf and its genuine desire for robust cooperation. Menon was clear that no decisions had been made and specifically asked that U.S. firms not be informed of West Bengal's lobbying effort until he has had the chance to push back. Ambassador Mulford, however, made it abundantly clear that asking U.S. firms to set up businesses in West Bengal would be unacceptable to most U.S. firms.

Ready to Get Moving on Reprocessing Arrangement

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8. (C) Menon said he hoped consultations on reprocessing "arrangements and procedures" in accordance with Article 6(iii) of the 123 Agreement would begin as soon as possible to "remove the reprocessing issue" as an impediment to commercial cooperation. He was confident these consultations would proceed smoothly and without controversy, observing that the U.S. already had similar arrangements in place with Europe and Japan, so the technical framework was already established. Menon confirmed that he shared our interpretation of the timeline set forth in the 123 Agreement, that we have six months to begin the negotiation and, once initiated, twelve months from that point to complete them, but added that he hoped we could complete the process far more rapidly than the allotted time. Menon also confirmed his understanding that the six-month clock had

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begun ticking February 3 when he sent his letter to Under Secretary Burns. (Note: Embassy delivered ref B demarche February 3 by fax to Gaitri Kumar, MEA Joint Secretary for the Americas, and Gitesh Sarma, MEA Joint Secretary for External Relations at the Department of Atomic Energy, and in person to Gaddam Dharmendra, MEA Director of the Disarmament and International Security Division (MEA/DISA).)

An Un-enriching Discussion of Reprocessing

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9. (C) Ambassador Mulford delivered points cleared by the Department (ref C) responding to Menon's assertion in his February 3 letter to Under Secretary Burns that U.S. policy favoring a global ban on further transfers of enrichment and reprocessing technology (ENR) by the Nuclear Suppliers Group (NSG) constituted a "derogation" of the 123 Agreement. Ambassador Mulford asked what more we could say to convince Menon that this issue did not warrant the aggressive posture adopted by India. Menon expressed surprise that his letter had generated concern. He replied, "All we need is a clear statement that your position has not changed. We would like to know that what we agreed in the 123 Agreement stands."

10. (C) Comment: Menon briefly and vaguely elaborated on why such a statement was necessary, but he was not clear how reaffirming the 123 Agreement commitments would satisfy India's concerns. Indian officials feel that a criteria-based approach to ENR transfers that requires signature of the Nuclear Non-proliferation Treaty (NPT) is discriminatory toward India and not consistent with the spirit of the Agreement. Some officials -- particularly Department of Atomic Energy Chairman Anil Kakodkar, who professed a sense of "betrayal" over the issue (ref D) -- may also feel that our policy is not consistent with their view of assurances provided during the 123 Agreement negotiations that, while the U.S. would not transfer ENR to India, we would not stand in the way of others doing so. Menon's February 3 letter to Under Secretary Burns made a legal claim that an ENR ban would be inconsistent with Article 5.2 of the 123 Agreement itself, which provides for the possibility of amendments to the Agreement to permit ENR transfers, claiming that a ban in the NSG would eliminate the possibility of making such changes. Whatever the truth behind India's concerns, a good place to start would be with a clear affirmation that the Obama administration stands by the commitments made in the 123 Agreement. End Comment.

Other Issues: Hopes for Holbrooke Visit, EUM Agreement

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11. (C) Observing that Special Representative Richard Holbrooke is the first official visitor representing the new Obama Administration, Menon shared that is was important to India that his visit "be seen as a good visit." India was keenly interested in learning Holbrooke's impressions from his discussions in Pakistan. Menon said National Security Advisor M.K. Narayanan felt he had a good discussion with Holbrooke at the Munich Security Conference and that India liked the idea of a Contact Group for Afghanistan and Pakistan. Asked to comment on reports that Pakistan may take legal action against the Mumbai attack planners, Menon said he would not want to speculate about what a "dysfunctional system" would do. An adequate response would show "there are serious people there willing to act," but he added, "The good guys seem to be losing there." Menon remarked that the substantive discussions the Pakistanis seem to be having with the U.S. stand in stark contrast to their "complete lack of communication" with India.

12. (C) Menon shared that Vice Admiral Wieringa, visiting Bangalore for Aero India 2009, should receive February 13 a new Indian draft of an agreement on end use monitoring (EUM) that Menon claimed adequately addresses the unresolved issues.

13. (U) Ambassador Mulford also raised the New York tax case. Menon's response is reported septel.

MULFORD

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