As America focused on its economic crisis and presidential race, another major development went largely unnoticed and little debated. On Oct. 8, President Bush signed a groundbreaking agreement to lift a ban on U.S. nuclear energy trade with India, a country that had been largely exiled from the nuclear community since conducting nuclear tests in 1974.

Passage of the 123 Agreement was a major foreign policy victory for Bush in the waning days of his administration and culmi-nates his long-standing push for stronger relations with India. Regardless of November’s election result, the United States is likely to uphold the deal: It passed Congress overwhelmingly, and both presidential candidates strongly backed it. It was also a triumph for Indian Prime Minister Manmohan Singh, who risked his government’s coalition by supporting the contentious deal, which sparked fears in India that the country’s nuclear program would come under outside control.

Conversely, critics outside of India say that breaking the nuclear rules for one country sets a dangerous double standard that will make it much harder to rein in other countries’ nuclear ambitions. The agreement now opens up worldwide nuclear trade with India and makes it a de facto nuclear power even though it has never signed the Nuclear Non-Proliferation Treaty. In return, the United States says the deal brings India’s nuclear industry under the umbrella of international inspection, although weapons-material sites are notably exempted.

One remarkable aspect of the agreement was its lightning-quick approval by Congress, which held just one hearing on the issue. Both critics and supporters of the deal agreed that a key factor was September’s action by the Nuclear Suppliers Group.

The NSG, a 45-nation body governing nuclear trade, authorized a loosening of international restrictions on India, clearing the way for New Delhi to start cutting nuclear deals with foreign countries. Those restrictions were originally imposed because India exploited loopholes in conventional nuclear trade rules to develop its weapons program — restrictions that, ironically, the United States had pushed to create. But this time around, the United States exerted heavy pressure on the 45 NSG members — any of whom could have derailed the deal — to ease the long-standing block on India.

Once they agreed, any country could trade with India, and if Congress hadn’t of subsequently passed the 123 Agreement, the United States would have been left out of a landmark deal that it crafted, while France, Russia and others could’ve taken ad-vantage of the NSG decision.

“There was tremendous political pressure because once the NSG made an exception for other states to trade with India, there was a feeling in the U.S. that our nuclear companies were at a disadvantage,” said Sharon Squassoni, senior associate with the Nonproliferation Program at the D.C.-based Carnegie Endowment for International Peace. “So it played out rather predictably.”

Squassoni added that other factors influencing the quick approval were possible attendant sales of U.S. conventional weapons to India and the political influence of the small but wealthy Indian-American lobby on Capitol Hill.

New World Order, Part 2?

Although President Bush hailed the 123 Agreement for increasing “ties between the world’s two largest democracies,” it was fiercely opposed by nonproliferation advocates, despite Bush’s assurances that it would bring large portions of India’s nuclear industry under international inspection. U.S. Secretary of State Condoleezza Rice also pledged to push for NSG bans on Indian sales of nuclear equipment to countries that have not signed the Nuclear Non-Proliferation Treaty (NPT).

But many opponents argued that in its desperate haste to gain one last foreign policy triumph, the Bush administration made too many concessions to the Indians instead of insisting on limits imposed by a 2006 U.S. law that initially smoothed the way for the deal.

India has never signed the NPT, which limits nuclear weapons trade, and the deal’s inspections safeguards apply only to India’s civilian reactors, not to its nuclear weapons facilities. Indeed, the Bush administration required no pledges from India to stop nuclear testing or to limit its weapons stockpile. However, Bush aides have privately vowed that nuclear trade with India would be stopped if it conducted another weapons test (although legally India is only bound by a voluntary moratorium, and the NSG never required any country to stop trade with India if it breaks that pledge).

That’s why Squassoni believes the unprecedented arrangement is a major blow to the international nonproliferation regime, as countries like Iran will become even more tempted to pursue nuclear programs.

“The administration is fond of saying that because India didn’t sign the NPT, they never violated it,” said Squassoni. “That’s a red herring. The question is not whether India deserved this agreement, but how to minimize the negative effects of this blatantly discriminatory policy that the U.S. has adopted.

“Iran, which already believes that it has been discriminated against within the NPT, will look to India as a model,” she argued. “The lesson the Iranians will take away from this deal is that if the world considers you an important enough country — and Iran would place itself in the same category as India as a cultural powerhouse and regional hegemony — it will forgive and forget any nuclear weapon transgressions over time.”

Squassoni said another question is whether the United States is sacrificing the cooperation of non-nuclear states who are part of the NPT. “They will wonder why they gave up nuclear weapons when India is getting similar benefits without giving up any-thing.”

Triangulation, Asia Style

However, Stephen Cohen, a foreign policy senior fellow with the Brookings Institution, counters that the deal stands to benefit many countries, not just India, and was a long overdue acknowledgement of reality. “It’s the kind of agreement people have been talking about for years,” he said. “It’s a halfway house for India with regard to the NPT.”

He pointed out that critics of the deal have been quiet about China’s nuclear program and have disregarded India’s good non-proliferation track record. “Where were they when China transferred nuclear technology to Pakistan?” he asked.

Squassoni said that one obvious U.S. objective of the deal was to provide a strategic counterweight in Asia to China, although neither the United States nor India is likely to publicly admit that. “The supposed nonproliferation benefits were just a way of sugarcoating a bitter pill,” she said.

Cohen doesn’t see India becoming a strategic counterweight to China as a result of the deal, although he acknowledged that may happen in the future. He also predicted that India may join Pakistan and China to form an Asian “nuclear restraint” program, given that none of the three countries wants to see an open-ended arms race. “Pakistan was irritated by the deal but because their own proliferation record is so bad, they couldn’t expect the same sort of agreement with us,” said Cohen, adding though that if Pakistan improves its record, such a deal may be possible in the future.

Ted Jones, policy advocacy director for the U.S.-India Business Council (which lobbied for the deal), contends that the agreement will also lower the chance of further Indian nuclear tests, because such a test would not only result in a cutoff in U.S. nuclear fuel supplies to New Delhi but also a stoppage in spare parts for conventional defense weapons previously sold by the United States to India.

Cohen concluded that the most important aspect of the deal is its contribution to healing a long-strained U.S.-Indian relationship. “It removes an enormous psychological barrier between us and India,” he said. “They’re not quite an ally yet, but this has been critical in removing the cloud over our relationship.”

Cohen, who has spent extensive time in India since his student days in the early 1960s, has used his fluency in Hindi to assess this attitude change firsthand. “The whole opinion of the Indian elite has changed — the unthinking distrust is gone,” he observed.

Balancing the Business of Power

Another argument in favor of the 123 Agreement was that with India’s economy booming and energy appetite growing along-side it, expanding the country’s nuclear power was essential to limiting fossil fuel consumption. The NSG ban on nuclear trade had effectively whittled down the nuclear portion of India’s energy supply to just 3 percent.

But Squassoni debated that point, citing the nation’s construction of many such facilities over past decades. “India has tremen-dous energy problems and needs to improve their distribution system and efficiency [as well as] exploiting as many renewable resources as they can,” she said. “The question on building new nuclear facilities is who’s gonna pay for it?”

Yet Cohen said the deal should help India address its energy challenges. The country has already agreed to buy reactors from Russia and France, and is now likely to buy a reactor from the United States. “They may even go into the reactor export busi-ness themselves,” Cohen forecasted, noting that safeguards in the agreement should ensure that such moves would be done re-sponsibly.

However, critics cite statistics showing that at most, the deal would boost India’s nuclear energy to 7 percent, which would still be an improvement nonetheless for the energy-starved country.

Since the NSG granted India a waiver from restriction on its nuclear trade with the world, the country has announced plans to spend up to billon on nuclear development in 2009, with France and Russia taking most of the business. The deal also clears the way for an estimated billion to billion in contracts to build up to 20 nuclear reactors.

“They have 4,000 megawatts of nuclear generation capacity now, but they will attain 60,000 megawatts by 2030,” said Jones of the U.S.-India Business Council. “At to .5 billion per 1,000 megawatts, that’s a 0 billion opportunity.”

Jones also pointed out that the agreement has created “tremendous goodwill” among the Indians to include U.S. businesses in helping them build their new nuclear capacity, citing a letter of intent between the two countries to set aside at least 10,000 megawatts of nuclear capacity for development by U.S. companies. That figure equates to approximately 8 to 10 nuclear reactors, and billion worth of business opportunity for companies such as General Electric and Westinghouse.

Indeed, on the very day Jones spoke with The Diplomat, Indian and U.S. nuclear companies met in Washington to discuss such deals. Although he acknowledged that India will not “put all its eggs in one basket” and will seek partnerships with other countries, Jones noted that Russia’s relationship with India is souring because Russia has conditioned fulfillment of such contracts on Indian purchases of Russian conventional weapons.

Jones said that on the U.S. side, there will be numerous business opportunities and not just for defense contractors — claiming that of the millions in lobbying dollars spent by the U.S.-India Business Council to win support for the deal, more than half came from companies with no ties to the defense or nuclear industries, such as Ford and AIG. He said such companies saw the agreement as laying the foundation for wider commercial relationships between the two countries, “which don’t seem so hard when you’ve cracked a nut like this.”

About the Author

Mark Hilpert is a contributing writer for The Washington Diplomat.