Tag: cartels

Reprocessing arguments

The G-8 statement on non-proliferation does not take away the core benefits of the India-US nuclear deal

Don’t blame yourself if you have difficulty in navigating through the jargon, subtext and the writers’ agenda in the return this week of the India-US nuclear deal into the media limelight. But before you subscribe to any of the conclusions that reporter-commentators, opposition leaders and incumbent ministers want you to, take a step back and consider what the deal is about. (See A good deal, but bad politics, from August 2007)

The deal—which itself comprises of the bilateral agreements between India and the US; US domestic law in the form of the Hyde Act; and the multilateral “clean waiver” at the Nuclear Suppliers Group—allows India to import foreign reactors and nuclear fuel for generating electricity. These reactors and fuel supplies will be under an international inspection regime (called ‘safeguards’) under the International Atomic Energy Agency, which ensure that they are not used for producing weapons.

This means two things: first, provided the domestic regulatory environment is liberalised, it will be much easier for India to address the huge energy shortage by exploiting nuclear power. And second, it will free up domestic and foreign non-NSG sources of nuclear fuel for use in the weapons programme.

There is nothing in what the G-8 leaders said earlier this week that will change this. But wait, didn’t they, as Siddharth Varadarajan argues,—at the behest of the Obama administration—call for a ban on the transfer of enrichment & reprocessing (ENR) technology to India, even to safeguarded civilian facilities? Yes, but it doesn’t really matter.

It only means eight of the 45 countries of the NSG have agreed to implement a draft of a text that the NSG has not yet agreed to. The NSG is a cartel, not a treaty, and its agreements are non-binding on its members. The G-8 is a loose group, not even a cartel, less a treaty, and its agreements are non-binding on its members. France and Russia are aware that the United States disadvantaged itself as a nuclear supplier to India by hobbling itself with the Hyde Act. Are they likely to sign away a long-term competitive commercial advantage for the sake of a lofty principle? Unlikely—the prisoners’ dilemma is in India’s favour. But what if they do?

Well, it means that the fuel for civilian nuclear reactors will have to be sent back to reprocessing facilities abroad. While this might change the price of the fuel—and affect the competitiveness of the supplier of that fuel—it does not disturb the security of fuel supply.

Since India has its own indigenous reprocessing technology, the ‘ban’ on ENR exports to India, were it ever to materialise, does not affect the ability to produce fissile material for the nuclear arsenal. Even Mr Varadarajan admits that India is “technologically self-sufficient in reprocessing and enrichment technology” and its inclusion in the India-US nuclear deal was “matter of principle, positioning and ‘paisa’.” (Actually, the real problem with respect to reprocessing is not the G-8 or NSG rules, but rather, the Indian government’s lackadaisical attitude towards investing in new reprocessing facilities.)

So it turns out that even in the worst case—if the G-8 countries decide to overturn bilateral agreements, voluntarily give up their competitive advantages and prevent others from doing so—India’s energy security and nuclear programme will remain substantially unaffected.

Why the outcry then? Mr Varadarajan is right on two counts: the US government will do what it must to protect its interests, and the Indian government can’t afford to be complacent.

But unless you’ve been living in a cave you would have guessed by now that Barack Obama does not have the same view on India as his predecessor did. You will also know that Mr Obama intends to take the old arms control and non-proliferation route to nuclear disarmament. This means that the old alphabet soup of CTBT, FMCT and NPT is back on the table, and the G-8 decision is an early sign of that. Disagreements and differences of opinion are on the cards, but India is in a much better position to deal with these because of the nuclear deal, than it would have been without it.

Six small states, one big one, and the nuclear cartel

It is easy to take a moral position when there is little cost to it

Before China publicly signaled its opposition to clearing the decks for India at the Nuclear Suppliers Group, six small states were instrumental in throwing a spanner in the works. They opposed the first draft of the proposal to unconditionally lift the ban in export of nuclear material to India. Now emboldened by China’s ‘unofficial’ position, they may yet block the revised draft.

But why are these small states, minor players on the international scene, behaving in this manner? Are they being merely being racist or are they acting as the world’s “conscience keepers” ? Or as Paul Nelson, a professor emeritus at Texas A&M University argues, their domestic perspectives on nuclear power and nuclear weapons may be preventing them from understanding India’s compulsions. [via Idaho Samizdata, which has a good post on this topic]

Whatever it might be, it only reflects that they have calculated that it is inexpensive for them to take the position they did. In fact, they have little to lose, in the short-term, from taking an anti-India position. They are geographically distant and, except for Norwegian peace diplomacy in Sri Lanka, are removed from the geopolitics of India and its neighbourhood. More importantly, India’s trade with these states is miniscule. The Commerce Ministry’s latest trade figures (as of February 2008) explain why these countries could afford to be more concerned about nuclear non-proliferation. Clearly they don’t really have much of a share of emerging India.

Country Exports (%) Imports (%)
Ireland 0.2 0.1
Austria 0.12 0.24
New Zealand 0.09 0.14
Netherlands 3.18 0.84
Norway 0.17 0.67
Switzerland 0.37 4.13

Now, the Netherlands and Switzerland played a role in permitting A Q Khan and the Pakistani nuclear underground to operate for so long and cause so much damage to non-proliferation, the cause they now ostensibly espouse.

But John 8:7 does not apply in international relations. What really makes the Dutch and Swiss stand inexplicable is that there is reasonable inward foreign investment coming into India from these countries, as well as some trade. They are also likely to be beneficiaries from an opening of India’s nuclear power sector to foreign investment. Perhaps their position is designed to extract a quid pro quo at a later date, or indeed motivated by a quid pro quo with other parties.

In any event, by overplaying their hand, the six small states are risking pushing the NSG into irrelevance. The dynamics of cartels being what they are, the interests of the United States, Russia and France being what they are, and the NSG being what it is (a cartel and not a treaty), the question for India is one of timing and convenience.

This episode serves to highlight the need for India to develop deep economic linkages with countries that are a source of fuel supplies and technology. At the same time it is important to ensure that countries do not find taking anti-India positions costless or inexpensive.