INDIAN FOREIGN SECRETARY MENON,S WASHINGTON VISIT:

S E C R E T SECTION 01 OF 04 NEW DELHI 000441

SIPDIS

E.O. 12958: DECL: 03/06/2019
TAGS: PREL PGOV PTER ABLD ECON OFDP IN
SUBJECT: INDIAN FOREIGN SECRETARY MENON,S WASHINGTON VISIT:
A PREVIEW

REF: NEW DELHI 268

Classified By: CDA Steven White for Reasons 1.4 (B, D)


1. (C) Summary. Indian Foreign Secretary Shiv Shankar
Menon will travel to Washington March 9-11 at the invitation
of Special Representative Holbrooke to provide India's input
to our Afghanistan policy review. While in Washington, Menon
will meet with Ambassador Holbrooke, the Deputy Secretary,
Under Secretary Burns, and perhaps Department of Defense
counterparts. Menon also plans to hold meetings on the Hill.
Post provides a preview of some of the topics Menon is
likely to raise. End Summary.

-------------- First, political context: India election season has
just begun --------------


2. (C) With the March 2 announcement of national elections
to be held April 16-May 13, the political season in India
entered its final lap. The Indian political establishment,
including the government, will be focused intensely on the
elections and government formation for the next 11 weeks.
Although the permanent government bureaucracy will continue
to function, it will be marking time and waiting until a new
Government is in place by June 2. The Government will no
longer take any significant domestic or foreign policy
decisions. Menon is expected to remain Foreign Secretary
until his retirement at the end of July regardless of
election results, providing continuity to our policy
discussions. However he will likely not offer any bold new
initiatives during his visit. He will seek reassurance that
the foundations of the bilateral relationship are strong and
that no matter what the
shape of the next Indian government, the relationship will
prosper. This would be an accurate assessment, with one
significant caveat: if the new coalition turns out to be
shaky and unstable, we could see a period of drift because
the government may not be confident it could make the
decisions needed to move the relationship forward.

-------------- Afghanistan/Pakistan: concern grows with another attack
in Lahore --------------


3. (C) Reftel was the scenesetter for Special Representative
Holbrooke's visit, and we refer to it for recent Indian
thinking on Afghanistan and Pakistan. Since the Holbrooke
visit to India, however, Pakistan was hit by another
terrorist attack, the March 3 ambush of the Sri Lankan
cricket team, which has served to exacerbate concerns in
India that: 1) Pak-based terror is out of control of the
government; and 2) India may again soon be the victim of an
attack. Indian media was quick to seize on one Pakistani
minister's assertion that Indians were involved in the Lahore
attack, and equally quick to report on subsequent statements,
both in Islamabad and Colombo, shifting accusations to al
Qaeda. As Menon is an integral part of the Composite
Dialogue process, Post suggests we use these meetings to try
to discern from Menon when and under what conditions dialogue
might resume, as well as ways the U.S. may facilitate an
honest broker role in coordinating law enforcement efforts on
the Mumbai attacks.

-------------- Counter-terrorism cooperation: low hanging fruit? --------------


4. (S) Since the November 2008 Mumbai attacks, there has been
unprecedented cooperation between law enforcement and
intelligence agencies, highlighted by the March 3 visit of
FBI Director Mueller to India. National Security Advisor
Narayanan, Home Minister P. Chidambaram and the Directors of
India's Intelligence Bureau and National Intelligence Agency
thanked Director Mueller for the Bureau's assistance into the
case. Narayanan characterized the pace of the improving
relationship since Mumbai as "frenetic." Because the GOI
deemed U.S. assistance in the Mumbai valuable it has begun to
seek a more cooperative relationship across the board on
counterterrorism. Although many GOI officials thought there
would be blowback from the public for the FBI,s involvement
in the case, Menon himself noted that the reaction has been
positive, enabling our agencies to work together more

NEW DELHI 00000441 002.2 OF 004


closely. As Menon has expressed an interest in discussing
next steps in the bilateral relationship, Post suggests using
his Washington meetings to get his buy-in for making
counter-terrorism cooperation an integral part of our
strategic partnership, in particular institutionalizing
recent gains made in our cooperation to make the point that
we should be working proactively to prevent future attacks,
and not just getting ready to respond to the next Mumbai.

-------------- Civil Nuclear: Implementation Next Steps --------------


5. (C) Implementation of civil nuclear cooperation with India
requires progress on four issues: (1) ratification of India's
IAEA Safeguards Agreement along with a declaration of
safeguarded facilities to the IAEA; (2) designation of
reactor park sites for U.S. firms; (3) consultations on a
reprocessing arrangement; and (4) ratification of the
Convention on Supplementary Compensation for Nuclear Damage
to provide liability protection. The Safeguards Agreement and
site designation are the most immediate concerns, and are
also the most ripe for immediate action by India. The
reprocessing arrangement consultations should begin as soon
as possible, but will take time to complete. Liability
protection must wait for Cabinet approval and passage by the
new Parliament after the general elections, probably
not before June.


6. (C) India signed its Safeguards Agreement Feb 3, but has
yet to (1) bring it into force, which requires a Cabinet
decision followed by written notification to the IAEA, or (2)
provide the IAEA with a declaration of safeguarded
facilities, the list of about 14 facilities that will be
designated as 'civil' and thus fall under safeguards. The 123
Agreement implementing legislation required that the
President certify to Congress that these two steps have been
taken -- and that the facilities declaration not be
materially inconsistent with India's 2005 Separation Plan --
before the Nuclear Regulatory Commission (NRC) can license
U.S. civil nuclear exports to India. With the Indian
electoral code's prohibition on new policy initiatives in
force since March 2, Indian officials may claim the
Safeguards Agreement and the facilities declaration have to
wait for the next government. Working-level MEA officials
have assured us this is an on-going initiative; the
government can move forward, but may decide not to for
political reasons in an election season. Menon may be able to
clarify this point. Further delay in ratifying the Safeguards
Agreement will delay our own Presidential certifications and
the issuance of the licenses necessary for U.S. firms to
share sensitive technical information that Indian officials
say is necessary to make progress toward commercial deals.
The so-called "Part 810" licensing process and the NRC
licensing process are separate and collectively could take
several months. The French and Russians do not have this
licensing problem, but at the same time, they cannot transfer
materials until safeguards are in place. Until then, they can
continue pressing ahead with
planning and deal-making even if they can not transfer
materials or break ground for new reactors. (Comment: Indian
officials have given no compelling reason to delay bringing
the Safeguards Agreement into force, suggesting there may be
some political opposition to operationalizing the U.S. deal
prior to elections. This is alarming because it raises the
possibility that a future government might change course. End
Comment.)


7. (C) GE and Westinghouse in particular need reactor park
sites designated for U.S. firms. Menon told the Charge
February 28 that a decision has been made about site
designations and that he might bring this information to his
meetings in Washington. Media reports claim that the
government has designated seven or eight sites, four of which
are coastal sites for reactor parks. These coastal sites are
rumored to be West Bengal, Andhra Pradesh, Gujarat, and
Jaitapur in Maharashtra (already designated for France),with
two for U.S. firms and an additional site for Russia. Menon
previously told Ambassador Mulford that that pressure from
West Bengal had subsided and that Andhra Pradesh was likely
for one site. Local GE representatives have made clear that

NEW DELHI 00000441 003.2 OF 004


the Gujarat site is most favorable, followed by Andhra
Pradesh. It is not clear whether the government decision on
site designation will be binding following the elections or
whether it plans to announce the decision publicly.


8. (C) The silver lining to the delay in bringing the
Safeguards Agreement into force is that it gives the U.S.
several months to make progress on the reprocessing
arrangement negotiations -- under Article 6 Section 3 of the
123 Agreement -- thereby removing a major impediment to
competitiveness compared to the French and Russians. An
agreement on reprocessing arrangements would also permit U.S.
uranium suppliers to sell to India once the safeguards are in
place. Dr. Kakodkar clearly told the USIBC delegation that
these consultations can go ahead regardless of the elections.
The Indians have made clear they cannot purchase fuel from
the U.S. until they know the terms under which it could be
reprocessed. The consultations must begin within six months
of the formal request from India on
February 3, so by August 3, and conclude within one year from
the date they begin. It is in our commercial interest to
complete these consultations as quickly as possible. Menon
told Ambassador Mulford he does not think it will be
controversial. However, India resents U.S. policy supporting
a global ban on further transfers of enrichment and
reprocessing technology being pursued in the Nuclear
Suppliers Group. India regards this ban as a matter of
policy, not of law, and therefore subject to revision.


9. (C) U.S. firms say they need liability protection in the
form of ratification of the Convention on Supplementary
Compensation for Nuclear Damage to do business in India.
Indian officials tell us the Convention awaits Cabinet
approval and then a decision by the new Parliament, perhaps
in June. While U.S. firms are clear they need the Convention
ratified, Indian officials are aware that they have made
exceptions in the past. Westinghouse made the strategic
decision to enter into a commercial deal and
begin construction on a nuclear reactor in China, presumably
in the hope that China would ratify the
Convention before the plant becomes active.

-------------- Defense Cooperation and End Use Monitoring --------------


10. (C) Post sees an excellent opportunity to use the Menon
visit to advance and potentially resolve the issue of End-Use
Monitoring (EUM). In recent weeks, the Indian Navy signed
the DSP-83 for the sale of the P-8 maritime reconnaissance
aircraft, and positive discussions regarding the newly
rediscovered 1951 Mutual Defense Agreement seem to augur well
that questions over "use" conditions of the EUM could be
quickly resolved, leaving only differences over "physical
inspections." But it may not be that straightforward. The
Americas Director of the External Affairs Ministry, Vani Rao,
told Post on March 6 that MEA believes the draft EUM language
India submitted to Admiral Wierenga at Aero India in February
should be the starting point for continued discussions on the
issue. Regardless, Menon, who has the authority to negotiate
this deal (although Post believes the final text will need
Cabinet Committee on Security approval),has promised
numerous American interlocutors that he hoped to resolve EUM
"soon." On February 28, he told Charge that the MOD and MEA
were working hard on coming up with useful language. Post
believes Under Secretary Burns -- in conjunction with a
senior DoD counterpart -- could take advantage of this
meeting to have a heart-to-heart with Menon on EUM, clearly
laying out U.S. redlines, the negative consequences of
letting this issue fester, and pressing Menon on what the
GOI,s plan is to get EUM resolved. Post does not believe
that Indian restrictions on major policy initiatives during
elections precludes resolution of EUM during this election
time.

-------------- New York tax case/new Mumbai Consulate --------------


11. (C) We expect Menon to raise the New York tax case, and
suggest that we in turn raise our issues regarding
construction of the new Mumbai Consulate General. GOI
concerns about potential tax liabilities has led the Indian

NEW DELHI 00000441 004.2 OF 004


government to take steps that have delayed construction of
the Mumbai consulate and have cost us money. The State
Department has been working diligently to lay the foundation
for a resolution to the New York tax case. The process has
begun and is a management priority, but it must now be vetted
with the new administration before it can move further. It
is premature to speculate on how long the process will take.
At the same time, in order to resolve United States
government objections to various utility bills and cesses
levied on the new consulate site (NCC) in Mumbai which are
based on a percentage of the rateable value of the property,
State Department legal experts have been studying worldwide
utility rates and billing procedures in an effort to identify
rate structures and methodologies that are agreeable to the
governments of India and the United States for diplomatic
missions. This study was agreed to by both sides in June,

2008.


12. (C) The GOI has stated that until the New York City tax
case is resolved, it is invoking reciprocity by impeding
completion of the NCC in Mumbai. Until the Government of
India tries to sell the government-owned building in New
York, there will be no cost to the Government of India from
the New York City tax case. The New York City tax issue is
causing no operational impact on the Government of India in
New York or Washington, and on principle, the Indians will
never pay the taxes due. Here in India, however, the
Ministry of External Affairs is actively impeding completion
of the NCC in Mumbai by instructing municipal authorities not
to cooperate in the inspection and permit issuance process
until we pay contested utility and municipal bills and
cesses, and until the New York tax case
is settled. Our prime contractor has filed claims of $21
million due to delays and extra work associated with the tax
dispute and the non-issuance of building permits. If the
permits are not issued in the next week, costs will continue
accruing at an estimated eight hundred thousand dollars per
month until the MEA obstruction is lifted. Charge sent a
letter to Menon on the tax issue on March 6.


13. (C) Post believes we should tell Menon directly that we
find the "reciprocal" actions of the GOI to be uneven and
unfair. Menon promised the Charge on February 28 that he
would see about whether progress was possible, but
footdragging has become very costly for us and is impeding
operations.
WHITE