Menon asked that the U.S. prepare a list of annoyances so both sides could try to resolve them in a systematic fashion.

137238 1/14/2008 14:29 08 NEWDELHI 126 Embassy New Delhi SECRET "VZCZCXRO1441OO RUEHBI RUEHCIDE RUEHNE #0126/01 0141429ZNY SSSSS ZZHO 141429Z JAN 08FM AMEMBASSY NEW DELHITO RUEHC/SECSTATE WASHDC IMMEDIATE 0019INFO RUEHCG/AMCONSUL CHENNAI 2261RUEHCI/AMCONSUL KOLKATA 1577RUEHBI/AMCONSUL MUMBAI 1369RUEAIIA/CIA WASHDCRUEKJCS/JOINT STAFF WASHDCRHEHNSC/NSC WASHDCRUEKJCS/SECDEF WASHDC" "S E C R E T SECTION 01 OF 04 NEW DELHI 000126

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/08/2018 TAGS: PREL, AMGT, KREC, OFDP, ODIP, IN

SUBJECT: LET'S FIX IRRITANTS THAT PLAGUE THIS PARTNERSHIP, AMBASSADOR TELLS MENON

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

1. (S) Summary: The Ambassador told Foreign Secretary Menon January 11 that a range of bilateral problems has started to make people question the strategic partnership that both sides seek, and wonder why the USG has encountered such difficulty when it has done so much to try to bring India into the global nonproliferation mainstream. The Ambassador listed the Indian insistence to x-ray the diplomatic pouch, visa delays for U.S. officers, holding U.S. sales of property in India hostage to resolution of the tax issue in New York, the delay in the expansion of the Fulbright program, and persistent lack of cooperation on agricultural issues as among the irritants that seem inconsistent with the emerging strategic partnership that both countries advertise. Menon explained that some issues keep reappearing, others result from lack of enthusiasm from Indians in engaging already negative people in the U.S., and some problems result from political sensitivities. The Ambassador wondered if many annoyances stemmed from increased pressure from India's Intelligence Bureau (IB). Menon asked that the U.S. prepare a list of annoyances so both sides could try to resolve them in a systematic fashion. Since the U.S. and India are partners in building an important strategic relationship, we either should not be having these kinds of petty problems, or, if they do come up, we should work together positively to resolve them immediately. This is not happening. Instead, these problems are multiplying and festering. (The civil nuclear, China and Pakistan portions of the discussion are reported in septels (notal).) End Summary.

Irritants Sour the Relationship

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2. (C) In a January 11 conversation with Foreign Secretary Shivshankar Menon, the Ambassador observed that despite ambitious visions and intentions, the intense efforts that both sides have put into strengthening the partnership, the persistence and number of problems has reached a point to cause players in Washington, NGOs, U.S. companies, foundations, universities, and think tanks to question whether the Government of India remains committed to the grand vision that President Bush and Prime Minister Singh have set out to accomplish. ""There is a long list of troubles for both the government and private sector,"" he asserted, and suggested that the two sides sit down and thoroughly discuss each issue at a later date. He expressed great frustration with:

-- The stark difference between the broad strategic vision and the harsh on-the-ground realities that trouble the USG and private sector players doing business in India. Whether it's trade negotiations, Doha Round talks, unfulfilled legacy items like the outstanding judgment in McDermott's favor, or any of a host of other issues like pending proposals for a Model American Center in New Delhi, the rhetoric is so far above the actual contours of the relationship as to risk the impression that the Emperor has no clothes.

-- The insistence by India on x-raying U.S. diplomatic pouches, which complicates the timely delivery of visa foils to the Chennai consulate, and could trigger a stoppage in visa issuances;

-- Inordinate and unexplained visa delays for officers assigned to the U.S. mission in India, which impose personal inconvenience and costs on people who we want to approach the Indian government with a positive attitude;

-- The linkage established by India between the state tax issue in New York over which the Federal Government has no control and the refusal by the Indian government to allow the U.S. to sell property in New Delhi despite the USG having done all it could to help resolve what is essentially a state-level issue under our Constitution;

-- Delay in approval of two simple amendments to permit the expansion of the Fulbright program, which prevents a 50 percent increase in the program this year, as well as a delay in offering matching funding;

-- The assertion that NGOs can only meet each other under the government-to-government Global Issues Forum (GIF) and crude attempts to enforce this standard;

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-- The unresponsiveness on U.S. efforts to address agriculture market access issues;

-- The lack of cooperation in solving issues related to American schools in Mumbai and Chennai that limit the necessary growth of these schools.

3. (C) The Ambassador added that the recent claim by Agriculture Minister Sharad Pawar that the problems in South Asia have their roots in Washington only further compounds the sense that the partnership exists in name only. (Note: Reports of Pawar's remarks have been emailed to SCA/INS. End Note) Moreover, substantive issues such as the Logistics Support Agreement and the Communications and Information Security Memorandum of Agreement remain stalled, the Ambassador noted. These problems have already lost India traction within the U.S. government, which makes people less willing to go out on a limb to argue on India's behalf. The Ambassador warned that India may be dropped to Tier 3 status in the Trafficking in Persons ranking as a result of the impression in Washington that India had not yet done enough to combat modern day slavery. Finally, the Ambassador related that corporations, NGOs, and others have faced an increasing number of obstacles while trying to do their own business in India, possibly undermining what had been the real success story in the bilateral relationship.

Several Factors Lie Behind the Annoyances

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4. (C) Menon agreed that the two sides should discuss the list of issues, but he said that he saw several reasons behind the accumulation of grievances. Several issues, he pointed out, have persisted over many years, such as the matter of the diplomatic pouch, which he thought the Indian government and U.S. had resolved in 2002. The tax issue has also only recently become major, even though it has existed for several years (although this is not true). Menon complained that other issues exist because the interaction with the U.S. generates negative reinforcement. As an example, he cited the trafficking dialogue as a case in which the Indian government makes an effort to demonstrate its progress but has discussions with U.S. counterparts, which are not reflected in the decisions made in Washington. Finally, he admitted that some bilateral matters suffer from politics, such as the sensitive issue of agriculture, in which the Indian government faces blame for farmer suicides. These reasons notwithstanding, however, Menon said that he wants to work with the U.S. to resolve these issues. The civil nuclear cooperation initiative, however, has nothing to do with these problems, Menon assured.

5. (C) The Ambassador asserted that in his four years in India, he has never sensed such a high level of frustration. Menon noted that the Fulbright issue ""is not a problem, but just a matter of timing."" Menon also dismissed the protocol issues, and told the Ambassador ""not to take them as the barometer of the relationship."" The Ambassador warned that he faced pressure to take reciprocal action, and he feared that such measures could lead to an unpleasant chain of events. Matters that his staff had raised with MEA Protocol had invariably led to inaction, new problems, and petty bickering. The new Model American Center was one such example. Likewise, the petty problems that surround official visits. In the case of the Model American Center, the MEA had promised months ago to help by sending its approval to the Ministry of Housing and to the Delhi government, and by securing a meeting with Delhi's Lieutenant Governor, but nothing had been delivered, and the matter's transfer to the Protocol Department was not an encouraging sign.

We will retaliate on TIP Downgrade

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6. (C) Menon remarked that if the U.S. did lower India to Tier III status, the Indian government would retaliate.

U.S. Suspects Hostility of Intelligence Agencies

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7. (S) The Ambassador surmised that many problems might arise from the Intelligence Bureau, such as the recent revocation from the Indian American in the Mumbai consulate of his Person of Indian Origin (PIO) card, and the renewed delays in issuing visas to arriving mission personnel. Menon demurred,

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and asked the Ambassador to provide a list of instances so that he could pinpoint where the problem originated.

Can't the U.S. Do More On the Tax Issue?

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8. (C) Some of India's positions make little sense, the Ambassador complained, such as tying the New York tax issue to the need for the U.S. to sell property in India. ""Where states have their own authority under our Constitution to impose taxes and have their own courts to review these issues, the federal government cannot make states do things contrary to the U.S. Constitution,"" the Ambassador stressed. Menon responded that states do not have the right to tax diplomatic missions, and India will not compromise. The Ambassador protested the linkage that the Indians have made with the U.S. Embassy's desire to sell property. ""You have made it clear we cannot proceed with the sale of property because of tax issues that are not within our power to resolve,"" the Ambassador stated. Menon asked if the U.S. has any solution to the problem. The Ambassador recalled that the U.S. government submitted a statement as a Friend of the Court, but could not do more, especially with the judgment still pending. ""It is beyond our power,"" the Ambassador underlined. Meanwhile, Menon remarked that India ""did not cave into the sharks that cause problems here.""

Friends Fix Irritants

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9. (C) The Ambassador said that if the U.S. and India wanted to fulfill the vision of friendship and trust, that these problems should not arise, and if they do, the countries should work together to fix them quickly. Menon agreed that reviewing a list of problems would help both sides fix these irritants.

MEA: ""We Are Like This Only""

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10. (C) Subsequent to the Ambassador,s meeting, MEA J/S (AMS) Gaitri Kumar called PolCouns to present her view on the bilateral issues raised with FS Menon. Kumar asked that the USG keep in mind that her tiny office is often working on multiple, simultaneous high-level visits, and tries to keep up with the 36 working group dialogues that the two nations have established. She attributed our problems in resolving key issues to a sluggish and rule-bound Indian bureaucracy that has not yet adjusted to the idea that the U.S.-India relationship has entered a new historical phase. PolCouns reminded Kumar that most of the two dozen or so irritants we have been discussing cannot be resolved until India,s security services signal their concurrence.

Comment: Bureaucracy Still Fighting the Cold War

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11. (S) In the absence of sustained political support from the top of the Indian government for relations with the USG, the Indian bureaucracy is reverting to its knee-jerk bureaucratic non-responsiveness. Much of the blame for the Congress Party's current timidity lies with is fear of the Left's reaction to the advancement of the agenda with the U.S. Also, at least half of our problems stem from the fact that the Intelligence Bureau simply does not trust us and harbors resentment at what it perceives as continuing USG efforts to penetrate the Indian services. The security services also watch Indian bureaucrats very carefully to spot the slightest counter-intelligence concern, so this sort of climate makes it risky for even the most pro-American bureaucrats to stick their necks out for us on the various issues they handle in the absence of political level support and encouragement. We note that under the NDA government of Atal Bihari Vajpayee it was easier to meet Indian officials and get business done, even in the paranoid Ministry of Home Affairs, but the Congress government has reverted to type, indulging in the sorts of Brezhnev-era controls on its people of which Indira Gandhi would have approved. The Nehru dynasty needs to become more like the Tata dynasty.

12. (S) Since the U.S. and India are partners in building an important strategic relationship, and the U.S. is the country that is trying to bring India in from the nuclear cold, we either should not be having these kinds of petty problems, or, if they do come up, we should work together positively to

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resolve them immediately. This is not happening. Instead, these problems are multiplying, festering and being deepened, and attitudes here are out of step with our stated goals. We will engage in a thorough review with Menon of these problems, but we also need Washington support at the highest levels to warn the Indians that they need to be more like Jet Airways and less like Air India or the world will dismiss their hype as well as ours as premature and consign them to the second tier of global powers for the early 21st century. It's not just the USG that is suffering; private investors and businesses, educational institutions, NGOs, foundations, public service groups, and private individuals are also realizing that the Indian government's attitude remains surly, unwelcoming, suspicious, and small minded. If India is truly to become a great power -- a key Presidential goal -- its government will need to shed its traditional petty zero-sum mentality.

MULFORD