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SINGAPORE (Reuters) - A 2008 civilian nuclear energy pact between the United States and India was meant to lift a 34-year-old embargo on nuclear trade despite New Delhi's longstanding weapons programme, a move seen as bolstering it as a counterweight to China.
It was also aimed at unlocking the energy-starved country's nuclear industry market, estimated at $150 billion, at a time when nuclear power is undergoing a nascent renaissance worldwide as a more environment-friendly alternative to fossil fuels.
But China and Pakistan are threatening to disrupt India's nuclear aspirations by stepping up collaboration of their own, a prospect that has raised international misgivings and revived concern about the wisdom of making a special case for India.
The renewed risk of nuclear proliferation in one of the world's most unstable regions is the latest hurdle for companies including U.S.-based firms GE-Hitachi and Westinghouse Electric, a subsidiary of Japan's Toshiba Corp, trying to enter India's nuclear energy sector.
"We would like to provide good material, but we cannot think about that unless peaceful use (of nuclear power) can be assured," said Takahisa Okuyama, a spokesman at Japan Steel Works, which would be a key player in the construction of nuclear reactors.
"If the agreement goes through, the range of supply for our good materials would widen, and it (India) is attractive as a market," Okuyama said, referring to talks that the governments of Japan and India opened late last month to explore the possibility of nuclear commerce.
Japan, having suffered the world's only nuclear attack, is sensitive to any dealings with states that possess nuclear arms.
India and Pakistan have both refused to sign the Nuclear Non-Proliferation Treaty (NPT) that bars nuclear trade with states that have developed weapons. Both have built a modest nuclear arsenal with India believed to hold about 100 warheads and Pakistan 70 to 80, according to the Washington-based Arms Control Association.
But while Washington brought India out of nuclear isolation with a bilateral deal, and then strong-armed the 46-nation Nuclear Suppliers Group (NSG) into following suit, it baulked at Pakistan's request to be given the same privileges.
Pakistan, tainted by revelations that disgraced top scientist A.Q.Khan had run a nuclear smuggling ring that helped Iran, North Korea and Libya, turned to long-term ally China for help.
China is now proposing to build two reactors at Pakistan's Chashma complex, a move based on the logic that if the United States can secure a deal for India, then China should be allowed to do the same for Pakistan.
"We all knew at the time that an agreement such as the India-U.S. one would have consequences for the non-proliferation regime and that's what you are seeing now," said Brad Glosserman, executive director, Pacific Forum Center for Strategic and International Studies.
"The India-U.S. deal was a bad, troubling example to set, for proliferators, however justified the desire in Washington to improve ties with India."
Under the ground-breaking accord, India won access to U.S. nuclear technology and fuel that had been denied to it since it first conducted a nuclear explosion in 1974. In return, it accepted international inspections of some of its facilities.
While 14 of India's 22 reactors as well as new plants built to generate power will be opened for inspections by the International Atomic Energy Agency, military facilities and stockpiles of nuclear fuel that it has produced up to now will be exempt from inspections or safeguards.
In effect, India can enjoy the privileges that members of the NPT enjoy without accepting the conditions attached to it - the main one being a renunciation of nuclear weapons, say experts.
Indeed, both the India-U.S. deal and Chinese nuclear help to Pakistan help the two rivals expand their weapons programme by providing vital fuel, says Daryll G. Kimball, executive director of the Arms Control Association, a Washington-based think tank.
"Nuclear trade with either country would indirectly contribute to their weapons programs by freeing up domestic uranium reserves for the production of enriched uranium and plutonium for weapons purposes."
India is believed to use plutonium for its weapons, while Pakistan is thought to have taken the uranium route.
Kimball called for a renewed push by individual members to stop nuclear trade with India even if the NSG, the suppliers' group, had been railroaded into giving its seal of approval.
While Russia, France and Britain strongly backed nuclear transfers to India, several countries such as Austria, New Zealand and Ireland had protested against such special treatment.
"Notwithstanding the 2008 NSG exemption for India, states such as Australia and Japan should resist commercial and political pressures for engaging in nuclear trade with India," Kimball said, adding India must be compelled to sign the nuclear test ban treaty as well as stop producing fissile material.
Rhetoric of this sort is likely to be shrugged off by India's security establishment, but could further delay the entry of foreign players into the Indian market, already weighed down by a row over a nuclear liability legislation that U.S. firms insist must be in place to give them immunity from third-party lawsuits.
"In the long term, the U.S.-India nuclear reactor-related commerce is surely a possibility. In the short term, it is not," said Ramtanu Maitra, a U.S.-based independent nuclear expert.
(Additional reporting by Yoko Kubota in Tokyo; editing by David Fox and Ron Popeski)
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