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Analysis: France's economic woes may spell trouble for US corporations in India.
NEW DELHI, India — Leggy Carla Bruni hogged the headlines during French President Nicholas Sarkozy's first visit to India this week, but the flurry of business and defense deals that her husband unveiled suggests that France's economic woes have thrown up an unexpected rival for the United States in New Delhi.
With his popularity at a record low because of dismal economic conditions at home — where he faces protests against pension reform that may spawn a grassroots run on his country's banks — Sarkozy this week inked deals with India worth more than $20 billion in the defense, civil aviation and nuclear industries.
But the impact is likely to be felt as keenly in Washington as it is in Paris, as the apparent willingness of the French to compromise looks set to undercut America's negotiating position on the very nuclear deal that transformed U.S.-India relations in 2008.
"If the French are more accommodating in terms of this liability legislation, then American companies would find it very difficult to tell us [the French can do what they like but] we want what we want," said former Foreign Secretary Kanwal Sibal. "To that extent the closure of the deal with the French would have a bearing on the negotiations with the U.S."
So far, that looks likely. Once regarded as the world leader in nuclear power technology, France is keen to quell concerns about high costs surrounding Areva's European Pressurised Reactors (EPR) — which in October lost a $20 billion contract in the United Arab Emirates to Korea Electric Power — and the ongoing economic woes have only added fuel to the fire.
Perhaps as a result, earlier this week when Anne Lauvergeon, Areva's chief executive, announced the signing of a preliminary agreement to build the first two of six nuclear power plants in India, as well as supply nuclear material to fuel them for 25 years, she found time in her speech to emphasize that the civil liability bill that U.S. firms have been bellyaching about was not a "deal breaker" for the French company.
"All they want is clarification on how India plans to implement the legislation," Sibal said. "Whereas on the U.S. side, the U.S. companies are not willing to accept any liability or any right to recourse."
After the 2008 U.S.-India civil nuclear agreement facilitated the removal of sanctions imposed on India following its 1998 nuclear tests, New Delhi announced plans to add more than 15,000 megawatts of nuclear capacity by 2020, which would mean importing as many as 24 new reactors over the next decade or so.
But a controversial law known as the Civil Liability for Nuclear Damage Bill has so far prevented U.S. firms from benefiting from U.S. moves to open the market. Because the Indian law holds the supplier of the reactor — not only the operator — liable for damages in the event of an accident, U.S. nuclear companies have argued that it makes building nuclear plants in India too risky.
In that context, a little flexibility could help Areva lead the way in fighting the so-called "champagne effect" — high prices that have kept bilateral trade between the France and India in the doldrums despite a special relationship that is in some respects stronger than the U.S.-India alliance.
France's efforts to carve an independent role for itself within NATO appeals to the India of the Non-aligned Movement, helping to stave off the knee-jerk opposition that America faces from India's Left. And even though it lacked the muscle to make it happen, France acted faster than the United States in seeking to free India from nuclear sanctions, bring India into the G8 and grant India a permanent seat on the United Nations Security Council.
And while trade statistics and a host of other measures indicate that Paris will never truly compete with Washington for influence in New Delhi, there's a chance that the shared penchant for non-alignment could throw India and France together more and more as the world lines up to become "strategic partners" with the rising power.
When India and the United States were still dithering over the terms of the nuclear pact, for instance, some pundits made the derogatory suggestion that India could well become an ally "like France" — reluctant to fight and quick to criticize.