Can Prime Minister Singh push through a Nuclear Deal with Japan?

Prime Minister Manmohan Singh undertakes a three-nation week-long visit to Japan, Vietnam, and Malaysia from 24 October. At a time when the security environment in the East Asian region has become more volatile than ever before, Prime Minister Singh’s visit to Japan assumes greater importance. There is an element of optimism in both countries and both expect benefits to accrue from Singh’s visit.

Relations between India and Japan are warming up. So is the case between India and Vietnam. Apart from convergence of interests in the defence and security realms, the economic component is also being strengthened. Greater integration and engagement in diverse fields would also give a fillip to India’s ‘Look East’ policy.

Three issues are going to dominate Singh’s talks with his Japanese counterpart: civil nuclear cooperation, enhancing trade ties with possible conclusion of the Comprehensive Economic Cooperation Agreement (CEPA) that has been pending for quite some time, and reforms of the United Nations.

Of these three issues, what is of utmost importance for India is the crucial civil nuclear agreement. Unfortunately, it will not be ready when Singh arrives in Tokyo. As is well known, the nuclear issue is an extremely sensitive one in Japan. Previous LDP governments could never dare raise the issue of a civil nuclear agreement with India. The DPJ government saw some merit in such an initiative and started negotiations, notwithstanding the fact that it will be a perilous journey.

Japan’s policy has been to not enter into any such deal with countries that are not signatories to the nuclear non-proliferation treaty (NPT) and Comprehensive Test Ban Treaty (CTBT). India’s policy has been consistent that both the NPT and CTBT are discriminatory treaties, which tend to divide the world into nuclear-haves and have-nots. India’s record on non-proliferation is impeccable and it adheres to a voluntary moratorium on nuclear testing. Still, Japan does not seem to be fully convinced.

The new Indian nuclear liability bill is another sore point for Japan, where the perception is that it would deter Japanese nuclear suppliers after the deal goes through. American companies are already raising concerns about a provision in the law that makes suppliers liable in case of a nuclear accident. A second clause in the law that leaves companies liable to be prosecuted under other Indian laws is also giving them jitters.

The law caps nuclear reactor operator liability in the country at roughly $320 million and permits lawsuits against suppliers of nuclear materials, services and technology. The outside world feels that such a law goes against international norms. But as Foreign Minister S.M. Krishna explained, “India wants to provide a level playing field to all those who want to do nuclear business with India.” India has argued that its nuclear liability law does not conflict with the atomic liability rules established by the Convention of Supplementary Compensation for Nuclear Damage. Even some US atomic firms involved in advancing the 2008 Indo-US nuclear trade deal expect India to join the CSC. India retains an open mind on the matter.

Japan’s demand is however more stringent. Japan demands that the agreement should have a provision for cessation of nuclear cooperation if India tests another nuclear device. India will have to find another word that will address and assuage Japan’s concern, if the latter brings some element of flexibility to the table.

There seems to be a resolve in the leadership of both countries to reduce disagreements and sort out differences over nuclear proliferation and testing limitations. The internal political dynamics of Japan would suggest that the conservative LDP would have no major objection if the DPJ were to go ahead and fructify the negotiations. It may be remembered that many top DPJ leaders at the helm of decision making were formerly from the LDP and therefore there exists some commonality of views. Though the Social Democrats and the Communists are opposed to such a deal with India, and though the DPJ lost elections to the Upper House a few months ago, the DPJ still holds a majority in the more powerful Lower House and can afford to venture upon a bold initiative. Yet, in view of the sensitive nature of the issue and immense domestic pressure, Japan wants explicit provisions to call off the deal should India conduct another nuclear test. Also, officials in the Ministry of Foreign Affairs in Kasumegaseki are unwilling to take a positive stand and loosen their bureaucratic stranglehold.

Representatives from both countries met in New Delhi on 8-9 October to thrash out some key differences ahead of Singh’s visit to Tokyo. Though not much headway could be made, the intent became demonstrably clear. A civil cooperation deal would permit Japan to sell its advanced atomic energy equipment and associated technology to India.

The positive aspect of the DPJ’s stance is that it has relaxed its earlier rigid position and is no longer demanding that India join the NPT as a pre-condition for the nuclear pact. What it wants is a “strict guarantee” that India would not deviate from its commitment to non-proliferation. Japan wants a condition to be put in the deal that would debar India from another atomic test in the future.

A nuclear pact between the two countries would facilitate India’s nuclear commerce with France and the US. Both French nuclear major Areva and the US group led by General Electric have sought to sell nuclear reactors to India, but Japanese parts are necessary for this. Japan Steel Works produces reactor vessels used by both companies, and General Electric receives many components from Hitachi Ltd. for its reactor work.

The CEPA with South Korea which took effect on 1 January 2010 and the immediate result of a 70 per cent increase in trade volume between the two countries in the first half of 2010, and India starting negotiations with South Korea on a possible civil nuclear pact have put Japan on notice. Japan fears that it might lose the Indian market to South Korea eventually. Even the India-Japan CEPA is hanging fire after a dozen rounds of negotiations with no breakthrough in sight.

Japan’s nuclear power industry is big business at home. In recent times, it is aspiring to extend its reach overseas. Japan’s three big nuclear technology companies – Toshiba, Hitachi and Mitsubishi Heavy Industries – have built most of the nuclear plants that supply Japan with a quarter of its power. A consortium of six Japanese utilities and nuclear power developers has set up a working group in July 2010 to create a venture at winning orders to build nuclear power plants overseas. They were miffed at losing a nuclear power plant order from the United Arab Emirates to South Korean firms. They blame lack of state help for several recent setbacks including the loss of the right to build Vietnam’s first nuclear plant to Russia’s state-owned nuclear company.

Against this backdrop, the DPJ government took a bold initiative in June 2010 to start talks with India on a civil nuclear energy pact. If the pact comes through, it would pave the way for Japanese groups to sell nuclear reactors and technology to India. At a time when the Japanese economy is sluggish and global nuclear plant construction is likely to double by 2030 as per the International Energy Agency, reactor builders in Japan see great potential in exports. Therefore, both the nuclear power industry in Japan and Indian officials watch Singh’s forthcoming visit to Japan with a lot of optimism.