PORTER’S GENERIC STRATEGIES

PORTER’S GENERIC STRATEGIES

INTRODUCTION


“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.”
---- Michael E. Porter

Companies the world over are imaginative in conceiving competitive strategies to win customer favour. The aim of most of the companies is to do a better job of providing what buyers are looking for and thereby gain the upper hand over rivals.

A competitive strategy concerns the specifics of management’s game plan for competing successfully and achieving a competitive edge over rivals.

Pitts and Snow define a competitive advantage as “any feature of a business firm that enables it to earn a high return on investment despite counter pressure from competitors”.

A company achieves competitive advantage whenever it has some type of edge over rivals in attracting buyers and coping with competitive forces.

There are many routes to competitive advantage but they all involve giving buyers what they perceive as superior value-
 A good product at a low price,
 A superior product that is worth paying more for,
 Or a best-value offering that represents an attractive combination of price, features, quality, service, and other appealing attributes.

Delivering superior value always requires performing value chain activities differently than rivals and building competencies and resource capabilities that are never matched.

THE FIVE GENERIC COMPETITIVE STRATEGIES

Each company employs varying strategies as the circumstances and variables affecting each company differ widely. Each company uses a strategy that is custom-made to fit in with its own culture, vision, mission, etc. However, when one strips away the details to get at the real substance, the biggest and most important differences among competitive strategies boil down to

 Whether a company’s target market is broad or narrow, and

 Whether the company is pursuing a competitive advantage linked to low costs or product differentiation.

There are five distinct competitive strategy approaches:
1) A low-cost provider strategy: appealing to a broad spectrum of customers by being the overall low-cost provider of a product or service.

2) A broad differentiation strategy: seeking to differentiate the company’s offering from rivals in ways that will appeal to a broad spectrum of buyers.

3) A best-cost provider strategy: giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes.

4) A focused (niche) strategy based on differentiation: concentrating on a narrow buyer segment and out competing rivals by serving niche members at a lower cost than rivals.

5) A focused (niche) strategy based on differentiation: concentrating on a narrow buyer segment and out competing rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals’ products.

The five generic competitive strategies:


Type of competitive advantage being pursued
Lower cost Differentiation
Broad


Target
Market

Narrow




Figure: The Five Generic Competitive Strategies – Each Stakes out a Different Position in the Marketplace



LOW-COST PROVIDER STRATEGIES

A company achieves low-cost leadership when it becomes the industry’s lowest cost provider rather than just being one of several competitors with comparatively low costs.
In striving for a cost advantage over rivals, managers must take care to include features and services that buyers consider essential – a product offering that is too frills-free sabotages the attractiveness of the company’s product and can turn buyers off even if it cheaper than competing products.

For example, Gujarat Cooperative Milk Marketing Federation (GCMMF), the country’s largest cooperative, probably known better by its brand name Amul, operates in the branded ice cream market on the lower –cost platform.
For making the low-cost advantage sustainable, the company must ensure that this advantage was attained in ways that rivals would find difficult to imitate. If rivals find it relatively easy or inexpensive to imitate the leader’s low cost methods, then the leader’s advantage will be too short-lived to yield a valuable edge in the market place.
The low cost leader in any markets gains competitive advantage from being able to produce at the lowest cost. Factories are built and maintained; labour is recruited and trained to deliver the lowest possible costs of production. Examples include low-cost airlines such as Easyjet and Southwest Airlines.
This strategy emphasizes efficiency. By producing high volumes of standardized products, the firm hopes to take advantage of economies of scale and experience curve effects.
Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. The associated distribution strategy is to obtain the most extensive distribution possible. Promotional strategy often involves trying to make a virtue out of low cost product features.

Two major avenues for achieving a cost advantage:
1) Out manage rivals in the efficiency with which value chain activities are performed and in controlling the factors that drive the costs of value chain activities.
2) Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities.

Controlling the Cost Drivers
There are nine major cost drivers that come into play in determining a company’s costs in each activity segment of the value chain. They are discussed below:
1. Economies or diseconomies of scale.
Economies of scale arise whenever activities can be performed more cheaply at larger volumes than smaller volumes and from the ability to spread out certain costs like R&D and advertising over a greater sales volume. This can be a major source of cost savings. Simplifying the product line, scheduling longer production runs for fewer models, and using common parts and components in different models can usually achieve manufacturing economies. In global industries, making separate products for each country market instead of selling a mostly standard product worldwide tends to increase unit costs because of lost time in model changeover, shorter production runs, etc.
2. Learning curve effects.
The cost of performing an activity can decline over time as the experience of company personnel builds. Learning curve economies can stem from debugging and mastering newly introduced technologies, finding ways to improve plant layout and work-flows, and making product design and modifications that streamline the assembly process. Speed and knowledge accrue from repeatedly citing and building new plants, retail outlets, or distribution centers.
3. Cost of key resource inputs
How well a company manages the costs of acquiring key resource inputs is often a big driver of costs. Input costs are a function of four factors:
a. Union versus non-union labour
Avoiding the use of union labour is often a key to keeping labour input costs low, not just because unions demand high wages but also because union work rules can stifle productivity.
b. Bargaining power vis-à-vis suppliers
Many large enterprises (e.g., Wal-Mart, Home Depot) have used their bargaining clout in purchasing large volumes to wrangle good prices on their purchases from suppliers. Having greater buying power than rivals can be an important source of cost advantage.
c. Locational variables
Locations differ in their prevailing wage levels, tax rates, energy costs, inbound and outbound shipping and freight costs, etc. Opportunities may exist for reducing costs by relocating plants, field offices, warehousing, or headquarters operations.
d. Supply Chain Management expertise
Some companies have more efficient supply chain expertise than others and are able to squeeze out savings via partnerships with suppliers that lower the costs of purchased materials and components, e-procurement systems, and inbound logistics.
4. Links with other activities in the company or industry value chain.
When the cost of one activity is affected by how other activities are performed, costs can be managed downward by making sure that linked activities are performed in a cooperative and coordinated fashion. For example, when a company’s materials inventory costs or warranty costs are linked to the activities of suppliers, cost savings can be achieved by working cooperatively with key suppliers on the design of parts and components, quality assurance procedures, JIT, and integrated materials supply. The costs of new product development can often be managed downward by setting up cross-functional task forces (including representatives of suppliers and key customers) to work on R&D, product design, manufacturing plans, materials handling, outbound shipping, and packaging.
5. Sharing opportunities with other organisational or business units within the enterprise.
Different product lines or business units within an enterprise can often share the same order processing and customer billing systems, maintain a common sales force to call on customers, share the same warehouse and distribution facilities, or rely on a common customer service and technical support team. Also, the know-how gained in one division or geographic unit can be used to help lower costs in another.
6. The benefits of vertical integration versus outsourcing.
Vertical integration (both backward and forward) allows a firm to bypass suppliers or buyers with considerable bargaining power. Vertical integration has potential if there are significant cost savings from having a single firm perform adjacent activities in the industry value chain. But more often, it is cheaper to outsource, or hire outside specialists to perform certain functions and activities, since by virtue of their expertise and volume these specialists can perform these functions more cheaply than the company can perform them in-house.
7. First-mover advantages and disadvantages.
Sometimes the first major brand is able to establish and maintain its brand name at a lower cost than later brand arrivals. Examples are eBay, Amazon.com, Yahoo. On other occasions such as when technology is developing is fast, late purchasers can benefit from waiting to install second or third generation equipment that is more cheaper and more efficient; first generation users often incur added costs associated with debugging and learning how to use an immature and unperfected technology.
8. The percentage of capacity utilization.
Capacity utilisation is a big cost driver for those value chain activities associated with substantial fixed costs. The more capital intensive a business is, or higher the percentage of fixed costs as a percentage of total costs, the more important this cost driver becomes because there is such a stiff unit cost penalty for under-utilising existing capacity.
9. Strategic choices and operating decisions.
A company’s costs can be driven up or down by a fairly wide assortment of managerial decisions:
 Adding/cutting the services provided to buyers.
 Incorporating more/fewer performance and quality features into the product.
 Increasing/decreasing the number of channels used in distributing the firm’s product.
 Lengthening/shortening delivery times to customers.
 Putting more/less emphasis than rivals on the use of incentive compensation, wage increases and fringe benefits to motivate employees and boost worker productivity.
 Raising/lowering the specifications for purchased materials.

Revamping the value chain
Dramatic cost advantage can emerge from finding innovative ways to eliminate or bypass cost-producing value chain activities. The primary ways companies can achieve a cost advantage by reconfiguring their value chains include:
1. Making greater use of Internet technology application
Internet has become a powerful and pervasive tool for reengineering company and industry value chains. For instance, Internet technology has revolutionized supply chain management. Using software package from any of several vendors, company procurement personnel can- with only a few mouse click within one seamless system- check material inventories against incoming customer orders, check suppliers stocks, check the latest prices for parts and components at auction and e-sourcing website, and check FedEx delivery schedules.
Electronic data interchange software permits the relevant details of incoming customer orders to be instantly shared with the suppliers of needed parts and components. All this lays the foundation for just-in-time deliveries of parts and components and for the production of parts and components to be matched closely to assembly-plant requirements and production schedules-and such coordination produces savings for both suppliers and manufacturers.
Various e-procurement software packages streamline the purchasing process by eliminating much of the manual handling of data and by substituting electronic communication for paper documents such as requests for quotation, purchase orders, order acceptances, and shipping notices.
2. Using direct to end user sales and marketing approaches
Costs in the wholesale retail portions of the value chain frequently represent 35-40 percent of the price final consumers pay. Software developers are increasingly using the internet to market and deliver their products directly to buyers, allowing customers to download software directly from the internet eliminates the costs of producing and packaging CDs and cuts out the host of activities, costs and markups associated with shipping and distributing software through wholesale and retail channels.
By cutting all these costs and activities out of the value chain, software developers have the pricing room to boost their profit margins and still sell their products below levels that retailers would have to charge.
The major airlines have stopped paying commissions to travel agents on ticket sales, thereby saving hundreds of millions of dollars in commissions. Airlines now sell most of their tickets directly to passengers via their web sites, ticket counter agents, and telephone reservation systems.
3. Simplifying product design
Using computer assisted design techniques, reducing the number of parts, standardizing parts and components across models and styles, and shifting to an easy to manufacture product design can all simplify the value chain.
4. Stripping away the extras
Offering only basic products or services can help a company cut costs associated with multiple feature and options. Stripping extras is a favorite technique of the no-frills airlines like southwest airlines.
5. Shifting to a simpler, less capital- intensive or more streamlined or flexible technological process:
Computer assisted design and manufacture or other flexible manufacturing systems can accommodate both low cost efficiency and product customization.
6. Relocating facilities
Moving plants closer to suppliers, customers both can help curtail inbound and outbound logistics costs.
7. Dropping the “something for everyone” approach
Pruning slow selling items from the product lineup and being content to meet the needs of most buyers rather than all buyers can eliminate activities and costs associated with numerous product versions.
Companies noted for their successful use of low cost provider strategies include Lincoln Electric in arc welding equipment, Briggs & Stratton in small gasoline engines, Bic in ball pint pens, Black &Decker in power tools, Stride Rite in footwear, Beaird- Poulan in chain saws, and General Electric and Whirlpool in major home appliances.

Conditions under which low cost provider strategy is used
A competitive strategy predicated on low cost leadership is particularly powerful when:
 Price competition among rival sellers is especially vigorous:
Low cost providers are in the best position to compete offensively on the basis of price, to use the appeal of lower price to grab sales from rivals, to remain profitable in the face of strong price competition, and to survive price wars.
 The products of rival sellers are essentially identical and supplies are readily available from any of several eager sellers
Commodity- like products and/or ample supplies set the stage for lively price competition in such markets; it is less efficient, higher cost companies whose profits get squeezed the most.
 There are few ways to achieve product differentiation that have value to buyers
When the differences between brands do not matter much to buyers, buyers are nearly always very sensitive to price differences and shop the market for the price.
 Most buyers use the product in the same ways
With common user requirements, a standardized product can satisfy the needs of buyers, in which case low selling price, not feature or quality, becomes the dominant factor in causing buyers to choose one seller’s product over another’s.
 Buyers incur low costs in switching their purchases from one seller to another
Low switching costs give buyers the flexibility to shift purchases to lower priced sellers having equally good products or to attractively priced substitute products. A low cost leader is well positioned to use low price to induce its customers not to switch to rival brands or substitutes.
 Buyers are large and have significant power to bargain down prices
Low cost providers have partial margin protection in bargaining with high volume buyers, since powerful buyer are rarely able to bargain price down past the survival level of the next most cost- efficient seller.
 Industry newcomers use introductory low prices to attract buyers and build customer base
The low cost leader can use price cuts of its own to make it harder for a new rival to win customers; the pricing power of the low cost provider acts as a barrier for new entrants.
As a rule, the more price sensitive buyers are, the more appealing a low cost strategy becomes. A low cost company’s ability to set the industry’s price floor and still earn a profit erects protective barriers around its market position.

Benefits of Cost-Leadership Strategy
 Cost advantage is possibly the best insurance against industry competition.
 The threat of cheaper substitutes can be offset to some extent by lowering prices.
 Cost advantage acts as an effective entry barrier for potential entrants who cannot offer the product/service at a lower price.
 Powerful suppliers possess a higher bargaining power to negotiate price increase for inputs. Firms with low cost can absorb the price increase to some extent.
 Powerful buyers possess a higher bargaining power to effect price reduction. Firms with low cost can offer price reduction to some extent in such a case.

The Pitfalls of low cost provider Strategy
 Perhaps the biggest pitfall of a low cost provider strategy is getting carried away with overly aggressive price cutting and ending up with lower, rather than higher profitability.
 A second pitfall is not emphasizing avenues of cost advantage that can be kept proprietary or that relegate rivals to playing catch-up. The value of a cost advantage depends on its sustainability. Sustainability, in turn, hinges on whether the company achieves its cost advantage in ways difficult for rivals to copy or match.
 A third pitfall is becoming too fixated on cost reduction. Low cost cannot be pursued so zealously that a firm’s offering ends up being too features poor to generate buyer appeal.
 Technological shifts are a great threat to a cost leader as these may change the ground rules on which an industry operate. Technological breakthroughs can upset cost leadership strategies.
Lower Cost is always relative to what the competitors have to offer. Low cost by itself is not absolute. Cost advantage has to come essentially by operational effectiveness. Such a cost advantage should also be sustainable i.e. it should not be easily duplicable by the rivals.

DIFFERENTIATION STRATEGIES

When the competitive advantage of a firm lies in special features incorporated into the product/service, which are demanded by the customers who are willing to pay for those, then the strategy adopted is differentiation strategy.

Differentiation involves creating a product that is perceived as unique. The unique features or benefits should provide superior value for the customer. For Example, Orient fans, a Calcutta based company offers premium ceiling fans based on product innovation and superior technology. The product attributes for differentiation are extra-wide blades, heavy duty motor, high velocity and maximum area coverage.
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. These allow company to focus on values that generate high price and a better margin.
There are additional costs associated with the differentiating product features and this could require a premium pricing strategy. Such extra costs may include high advertising spending to promote a differentiated brand image for the product, which in fact can be considered as a cost and an investment.
There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovate and continuously improve.
Because customers see the product as unrivaled and unequaled, the price elasticity of demand tends to be reduced and customers tend to be more brands loyal. This can provide considerable insulation from competition. In an interesting case, packaging became the differentiator for Parle Agro when, in 1985, it launched Frooti, a nonaerated, natural, fruit-based drink, in a tetra pack. The customer perceived glass-bottled drinks to be synthetic. Frooti went on to become generic to the category of tetra packed fruit drinks.
To maintain differentiation strategy the firm should have:
 Strong Research & Development skills
 Strong product engineering skills
 Strong creativity skills
 Good cooperation with distribution channels
 Strong marketing skills
 The ability to communicate the importance of the differentiated product attributes
 Stress continuous improvement and innovation

For example, McDonalds is differentiated by its very brand name and brand images of Big Mac and Ronald McDonald.

For Achieving Differentiation, a firm can incorporate features that
 Offer utility for the customers and match their tastes and preferences.
 Lower the overall cost for the buyer in using the product/service.
 Raise the performance of the product.
 Increase the buyer satisfaction in tangible or non-tangible ways.
 Can offer the promise of high quality of product/service
 Enable the customers to claim distinctiveness from other customers and enhance their status and prestige among the buyer community.

BMW, Ralph Lauren, and Rolex have differentiation-based competitive advantages linked to buyer desires for status, image, prestige, upscale fashion, superior craftsmanship, and the finer things in life

Types of Differentiation Themes
Companies can pursue differentiation from many angles –
 A unique taste, multiple features
 Wide selection and one-stop shopping
 Superior service, spare parts availability
 Engineering design and performance
 Prestige and distinctiveness, product reliability
 Quality manufacture, technological leadership
 A full range of services, a complete line of products and top-of-the-line image and reputation.

The most appealing approaches to differentiation are those that are hard or expensive for rivals to duplicate. Indeed, resourceful competitors can clone almost any product or feature or attribute. This is why sustainable differentiation usually has to be linked to core competencies, unique competitive capabilities, and superior management of value chain activities that competitors cannot readily match.

Example: Intel uses speed, innovation and manufacturing techniques as basis for uniqueness

Conditions under which differentiation is used
• Large Market: The market is too large to be catered by few firms offering standardized product/service.
• Diversified needs & preferences: The customers’ needs and preferences are too diversified to be satisfied by a standardized product/service.
• Charge Premium Price: It is possible to charge a premium price for differentiation that is valued by the customer.
• Nature of Product/service: The nature of product/service is such that brand loyalty is possible to generate and sustain.
• Scope of increasing sales: There is ample scope for increasing sales for the product/service on the basis of differentiated features and premium pricing.
• Fast-paced Technology change: Rapid innovation and Frequent introductions of next versions help maintain buyer interest and provide space for companies to pursue differentiating paths.

Benefits of Differentiation Strategy
 Command a premium price for its product because of providing the unique features which no other firm in the industry is providing.
 Increase unit sales because additional buyers are won over by the differentiating features
 Gain buyer loyalty to its brand because some buyers are strongly attached to the differentiated features.
 Less Competitive rivalry because the firm following differentiation strategy distinguish themselves successfully and customers are brand loyal.
 Differentiation is a Market and Customer Focused strategy.
 The differentiation strategy acts as Entry Barrier because differentiation is an expensive proposition and the new firms cannot compete with already established firm which is following differentiation strategy.

The Pitfalls of Differentiation Strategy
 Trying to differentiate on the basis of something that does not lower a buyer’s cost or enhances a buyer’s well-being, as perceived by the buyer.
 Trying to charge too high a price premium which customers are not willing to pay.
 Being timid and not striving to open up meaningful gaps in quality or service or performance features vis-à-vis the product of rivals – tiny differences between rivals’ product offerings may not be visible or important to buyers.
 First mover advantages with differentiation are limited because resourceful competitors can copy the differentiated product/service.

 In case of several differentiators adopting similar differentiation strategies, the basis for distinctiveness is gradually lessened and ultimately lost.
The ultimate success of a differentiation strategy lies in its ability to identify a tangible basis for customers to latch on to the product/service a firm offers. Yet, there is a paradox here that the more tangible the basis is, the greater are the chances that a competitor will be able to copy it. So, a firm has to rely on its core or distinctive competencies to offer a not so tangible differentiation which a customer could easily relate to and that could be sustained at a price that he or she is willing to pay.


BEST- COST PROVIDER STRATEGIES

Best- Cost provider strategies aim at giving customers more value for the money. The objective is to deliver superior value to buyers by satisfying their expectations on key quality/service/features/performance attributes and beating their expectations on price.
The firm following Best Cost Strategy has the ability to incorporate attractive attributes at a lower cost than rivals. Best Cost strategy is a middle ground between pursuing a low-cost advantage and a differentiation advantage and between appealing to the broad market and a narrow market niche
Best- Cost strategies are hybrid, balancing a strategic emphasis on low cost against a strategic emphasis on differentiation.
To become a best-cost provider, a company must have the resources and capabilities to
• achieve good-to-excellent quality,
• Incorporate appealing features,
• Match product performance and
• Provide good-to-excellent customer service – all at a lower cost than rivals.

The competitive advantage of a best- cost provider is lower cost than rivals in incorporating good-to-excellent attributes, putting the company in a position to under price rivals whose products have similar appealing attributes.
A best-cost provider strategy can be quite powerful in markets
• where buyer diversity makes product differentiation the norm and
• where many buyers are sensitive to price and value.

Example: Toyota has used a best cost approach with its Lexus models.

Risks of Best- Cost provider strategies
The danger of a best cost provider strategy is that a company using it will
• Squeeze between the strategies of firms using low cost and differentiation Strategies
• Have fewer customers: Low cost leaders may be able to siphon customers away with the appeal of a lower price. High end differentiators may be able to steal customers away with the appeal of the better product attributes
To be successful, a best cost provider
• must offer buyers significantly better product attributes in order to justify a price
• has to achieve significantly lower costs in providing upscale features


FOCUSED (OR MARKET NICHE) STRATEGIES

Focus Business Strategy essentially relies on either cost leadership or differentiation but cater to a narrow segment of the total market. Thus, focus strategies are niche strategies.
Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Competitive advantage is generated specifically for the niche.
Examples of firms that concentrate on a well-defined market niche include eBay (in online auctions); Porsche(in sports cars); Cannondale (in top of the line mountain bikes); Jiffy Lube International (a specialist in quick oil changes and simple maintenance for motor vehicles); Google (a specialist in internet search engine software); Pottery Barn Kids (a retail chain featuring children’s furniture and accessories); and Bandag (a specialist in truck tire recapping that promotes its recaps aggressively at over 1,000 truck stops). Microbreweries, local bakeries, bed-and-breakfast inns, and local owner managed retail boutiques are all good examples of enterprises that have scaled their operations to serve narrow or local customer segments.
The more commonly used bases for identifying customer groups are the demographic characteristics – age, gender, income, occupation; geographic segmentation – rural/urban or Northern/Southern India; or lifestyle – traditional/modern.
For the identified market segment a focused firm uses either the lower cost or differentiation strategy. With a cost focus a firm aims at being the lowest cost producer in the niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment.

Achieving Focus
Focus is essentially concerned with identifying a narrow target in terms of markets and customers. The firm seeking to adopt a focus strategy has to locate a niche in the market where the cost leaders and the differentiators are not operating.
These are the following measures that a focused firm can adopt:
 Choosing specific niches by identifying gaps not covered by cost leaders and differentiators
 Creating superior skills for catering to such niche markets
 Creating superior efficiency for serving such niche markets
 Achieving lower cost/differentiation as compared to the competitors while serving niche markets
 Developing innovative ways to manage the value chain which are different from the ways prevalent in an industry.

A Focused Low Cost Strategy
A focused strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. Cost focus is unachievable with an industry depending upon economies of scale. For Example, Telecommunications.
Focused low cost strategies are common. Producers of private-label goods are able to achieve low costs in product development, marketing, distribution, and advertising by concentrating on making generic items imitative of name brand merchandise and selling directly to retail chains wanting a basic house brand to sell to price sensitive shoppers.
Several small printer-supply manufacturers have begun making low cost clones of the premium priced replacement ink and toner cartridges sold by Hewlett-Packard, Lexmark, Canon and Epson; the clone manufacturers dissect the cartridges of the name-brand companies and then reengineer a similar version that would not violate patents. The components for remanufactured cartridges are acquired from various outside sources, and the clones are then marketed at a price as much as 50 percent below the name brand cartridges. Cartridges remanufactures have been lured to focus on this market because replacement cartridges constitute a billion-dollar business with considerable profit potential given their low costs and the premium pricing of the name-brand companies.

A Focused Differentiation Strategy
A focused strategy based on differentiation aims at securing a competitive advantage by offering niche members a product they perceive as well suited to their own unique tastes and preferences.
Successful use of differentiation strategy depends on the existence of a buyer segment that is looking for special product attributes or seller capabilities and on a firm’s ability to stand apart from rivals competing in the same target market niche.
Companies like Godiva, Chanel, Gucci, Rolex, Rolls-Royce, employ successful differentiation based focused strategies targeted at upscale buyers wanting products and services with world class attributes. Indeed, most markets contain a buyer segment willing to pay a big price premium for the very finest items available, thus opening the strategic window for some competitors to pursue differentiation based focused strategies aimed at the very top of the market pyramid.

Conditions under which focus strategies are used
The following are the conditions where the focus strategy is used:
 There is some type of uniqueness in the segment, which could be geographical, demographic or based on lifestyle. Only specialized attributes and features could satisfy the requirements of such a segment.
 There are specialized requirement for using the products or services that the common customers cannot be expected to fulfill.
 It is costly or difficult for multi segment competitors to put capabilities in place to meet the specialized needs of the target market niche and at the same time satisfy the expectations of their mainstream customers.
 The niche market is big enough to be profitable for the focused firm.
 There is a promising potential for growth in the niche segment.
 The major players in the industry are not interested in the niche as it may not be crucial to their own success.
 The focusing firm has the necessary skill and expertise to serve the niche segment.

Benefits of Focus Strategies
 A focused firm is protected from competition to the extent that the other firms which have a broader target do not possess the competitive ability to cater to the niche markets. In other words, a focused firm provides products/services that the other firms cannot provide or would not find it profitable to provide.
 The competence of the focused firm acts as an effective entry barrier to potential entrants in the niche markets.
 The specialisation that focused firm is able to achieve in serving a niche market acts as a powerful barrier to substitute products/services that might be available in the market.
 Powerful buyers are less likely to shift loyalties as they might not find others willing to cater to the niche markets as the focused firms do.

Risks associated with focus strategy

 Serving niche markets requires the development of distinctive competencies to serve those markets which may be a long-drawn and difficult process.
 Being focused means commitment to a narrow market segment. It may be difficult for the focused firm to move onto other segments of the market.
 The costs for the focused firms are higher as the markets are limited and volume of production and sales small.
 Niches may become attractive enough for the bigger players to shift attention to them which pose a threat to the focused firms.
 Rivals may out focus the focused firms by devising ways to serve the niche markets in a better manner.




CONCLUSION

Porter’s generic strategies framework suggests that a company can maximize performance by striving to be the cost leader in an industry, by differentiating its products or services from those of other companies, and by focusing on a narrow target in the market.

Each of the five generic competitive strategies positions the company differently in its market and competitive environment. Each establishes a central theme for how the company will endeavor to out compete rivals. Each creates some boundaries and entails differences in terms of product line, production emphasis, marketing emphasis and means of sustaining the strategy.

Each of the generic strategies has advantages and inherent risks that should be analysed carefully with respect to the company and its competitors. It is noted that in practice, most successful companies make use of a combination of low cost and differentiation strategies, which is true even in the context of online business.

It is seen that Porter’s generic strategies can be effective in defending against competitive forces in the industry. But, analysts must use the generic strategies analysis as only a part of a broader strategic analysis.

It is important to conduct the analysis with an open mind, and to explore the relative advantages, disadvantages, and risks that the various strategies may offer to a company vis-à-vis the competition and overall business environment.
Having a competitive edge over rivals is the single most dependable contributor to above-average company profitability. Hence, by making a strong and unwavering commitment to one of the five generic strategies, a company can achieve sustainable competitive advantage.

U.S. and India Release Text of 123 Agreement

U.S. and India Release Text of 123 Agreement
The following is the text of the Agreement for Cooperation between the Government of the United States of America and the Government of India concerning peaceful uses of nuclear energy (123 Agreement):
BEGIN TEXT:
AGREEMENT FOR COOPERATION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE
GOVERNMENT OF INDIA
CONCERNING PEACEFUL USES OF NUCLEAR ENERGY (123 AGREEMENT)
The Government of India and the Government of the United States of America, hereinafter referred to as the Parties,
RECOGNIZING the significance of civilian nuclear energy for meeting growing global energy demands in a cleaner and more efficient manner;
DESIRING to cooperate extensively in the full development and use of nuclear energy for peaceful purposes as a means of achieving energy security, on a stable, reliable and predictable basis;
WISHING to develop such cooperation on the basis of mutual respect for sovereignty, non-interference in each other's internal affairs, equality, mutual benefit, reciprocity and with due respect for each other's nuclear programmes;
DESIRING to establish the necessary legal framework and basis for cooperation concerning peaceful uses of nuclear energy;
AFFIRMING that cooperation under this Agreement is between two States possessing advanced nuclear technology, both Parties having the same benefits and advantages, both committed to preventing WMD proliferation;
NOTING the understandings expressed in the India - U.S. Joint Statement of July 18, 2005 to enable full civil nuclear energy cooperation with India covering aspects of the associated nuclear fuel cycle;
AFFIRMING their support for the objectives of the International Atomic Energy Agency (IAEA) and its safeguards system, as applicable to India and the United States of America, and its importance in ensuring that international cooperation in development and use of nuclear energy for peaceful purposes is carried out under arrangements that will not contribute to the proliferation of nuclear weapons or other nuclear explosive devices;
NOTING their respective commitments to safety and security of peaceful uses of nuclear energy, to adequate physical protection of nuclear material and effective national export controls;
MINDFUL that peaceful nuclear activities must be undertaken with a view to protecting the environment;
MINDFUL of their shared commitment to preventing the proliferation of weapons of mass destruction; and
DESIROUS of strengthening the strategic partnership between them;
Have agreed on the following:
ARTICLE 1 - DEFINITIONS
For the purposes of this Agreement:
(A) "By-product material" means any radioactive material (except special fissionable material) yielded in or made radioactive by exposure to the radiation incident to the process of producing or utilizing special fissionable material. By-product material shall not be subject to safeguards or any other form of verification under this Agreement, unless it has been decided otherwise by prior mutual agreement in writing between the two Parties.
(B) "Component" means a component part of equipment, or other item so designated by agreement of the Parties.
(C) "Conversion" means any of the normal operations in the nuclear fuel cycle, preceding fuel fabrication and excluding enrichment, by which uranium is transformed from one chemical form to another - for example, from uranium hexafluoride (UF6) to uranium dioxide (UO2) or from uranium oxide to metal.
(D) "Decommissioning" means the actions taken at the end of a facility's useful life to retire the facility from service in the manner that provides adequate protection for the health and safety of the decommissioning workers and the general public, and for the environment. These actions can range from closing down the facility and a minimal removal of nuclear material coupled with continuing maintenance and surveillance, to a complete removal of residual radioactivity in excess of levels acceptable for unrestricted use of the facility and its site.
(E) "Dual-Use Item" means a nuclear related item which has a technical use in both nuclear and non-nuclear applications.
(F) "Equipment" means any equipment in nuclear operation including reactor, reactor pressure vessel, reactor fuel charging and discharging equipment, reactor control rods, reactor pressure tubes, reactor primary coolant pumps, zirconium tubing, equipment for fuel fabrication and any other item so designated by the Parties.
(G) "High enriched uranium" means uranium enriched to twenty percent or greater in the isotope 235.
(H) "Information" means any information that is not in the public domain and is transferred in any form pursuant to this Agreement and so designated and documented in hard copy or digital form by mutual agreement by the Parties that it shall be subject to this Agreement, but will cease to be information whenever the Party transferring the information or any third party legitimately releases it into the public domain.
(I) "Low enriched uranium" means uranium enriched to less than twenty percent in the isotope 235.
(J) "Major critical component" means any part or group of parts essential to the operation of a sensitive nuclear facility or heavy water production facility.
(K) "Non-nuclear material" means heavy water, or any other material suitable for use in a reactor to slow down high velocity neutrons and increase the likelihood of further fission, as may be jointly designated by the appropriate authorities of the Parties.
(L) "Nuclear material" means (1) source material and (2) special fissionable material. "Source material" means uranium containing the mixture of isotopes occurring in nature; uranium depleted in the isotope 235; thorium; any of the foregoing in the form of metal, alloy, chemical compound, or concentrate; any other material containing one or more of the foregoing in such concentration as the Board of Governors of the IAEA shall from time to time determine; and such other materials as the Board of Governors of the IAEA may determine or as may be agreed by the appropriate authorities of both Parties. "Special fissionable material" means plutonium, uranium-233, uranium enriched in the isotope 233 or 235, any substance containing one or more of the foregoing, and such other substances as the Board of Governors of the IAEA may determine or as may be agreed by the appropriate authorities of both Parties. "Special fissionable material" does not include "source material". Any determination by the Board of Governors of the IAEA under Article XX of that Agency's Statute or otherwise that amends the list of materials considered to be "source material" or "special fissionable material" shall only have effect under this Agreement when both Parties to this Agreement have informed each other in writing that they accept such amendment.
(M) "Peaceful purposes" include the use of information, nuclear material, equipment or components in such fields as research, power generation, medicine, agriculture and industry, but do not include use in, research on, or development of any nuclear explosive device or any other military purpose. Provision of power for a military base drawn from any power network, production of radioisotopes to be used for medical purposes in military environment for diagnostics, therapy and sterility assurance, and other similar purposes as may be mutually agreed by the Parties shall not be regarded as military purpose.
(N) "Person" means any individual or any entity subject to the territorial jurisdiction of either Party but does not include the Parties.
(O) "Reactor" means any apparatus, other than a nuclear weapon or other nuclear explosive device, in which a self-sustaining fission chain reaction is maintained by utilizing uranium, plutonium, or thorium or any combination thereof.
(P) "Sensitive nuclear facility" means any facility designed or used primarily for uranium enrichment, reprocessing of nuclear fuel, or fabrication of nuclear fuel containing plutonium.
(Q) "Sensitive nuclear technology" means any information that is not in the public domain and that is important to the design, construction, fabrication, operation, or maintenance of any sensitive nuclear facility, or other such information that may be so designated by agreement of the Parties.
ARTICLE 2 - SCOPE OF COOPERATION
1. The Parties shall cooperate in the use of nuclear energy for peaceful purposes in accordance with the provisions of this Agreement. Each Party shall implement this Agreement in accordance with its respective applicable treaties, national laws, regulations, and license requirements concerning the use of nuclear energy for peaceful purposes.
2. The purpose of the Agreement being to enable full civil nuclear energy cooperation between the Parties, the Parties may pursue cooperation in all relevant areas to include, but not limited to, the following:
a. Advanced nuclear energy research and development in such areas as may be agreed between the Parties;
b. Nuclear safety matters of mutual interest and competence, as set out in Article 3;
c. Facilitation of exchange of scientists for visits, meetings, symposia and collaborative research;
d. Full civil nuclear cooperation activities covering nuclear reactors and aspects of the associated nuclear fuel cycleincluding technology transfer on an industrial or commercial scale between the Parties or authorized persons;
e. Development of a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India's reactors;
f. Advanced research and development in nuclear sciences including but not limited to biological research, medicine, agriculture and industry, environment and climate change;
g. Supply between the Parties, whether for use by or for the benefit of the Parties or third countries, of nuclear material;
h. Alteration in form or content of nuclear material as provided for in Article 6;
i. Supply between the Parties of equipment, whether for use by or for the benefit of the Parties or third countries;
j. Controlled thermonuclear fusion including in multilateral projects; and
k. Other areas of mutual interest as may be agreed by the Parties.
3. Transfer of nuclear material, non-nuclear material, equipment, components and information under this Agreement may be undertaken directly between the Parties or through authorized persons. Such transfers shall be subject to this Agreement and to such additional terms and conditions as may be agreed by the Parties. Nuclear material, non-nuclear material, equipment, components and information transferred from the territory of one Party to the territory of the other Party, whether directly or through a third country, will be regarded as having been transferred pursuant to this Agreement only upon confirmation, by the appropriate authority of the recipient Party to the appropriate authority of the supplier Party that such items both will be subject to the Agreement and have been received by the recipient Party.
4. The Parties affirm that the purpose of this Agreement is to provide for peaceful nuclear cooperation and not to affect the unsafeguarded nuclear activities of either Party. Accordingly, nothing in this Agreement shall be interpreted as affecting the rights of the Parties to use for their own purposes nuclear material, non-nuclear material, equipment, components, information or technology produced, acquired or developed by them independent of any nuclear material, non-nuclear material, equipment, components, information or technology transferred to them pursuant to this Agreement. This Agreement shall be implemented in a manner so as not to hinder or otherwise interfere with any other activities involving the use of nuclear material, non-nuclear material, equipment, components, information or technology and military nuclear facilities produced, acquired or developed by them independent of this Agreement for their own purposes.
ARTICLE 3 - TRANSFER OF INFORMATION
1. Information concerning the use of nuclear energy for peaceful purposes may be transferred between the Parties. Transfers of information may be accomplished through reports, data banks and computer programs and any other means mutually agreed to by the Parties. Fields that may be covered include, but shall not be limited to, the following:
a. Research, development, design, construction, operation, maintenance and use of reactors, reactor experiments, and decommissioning;
b. The use of nuclear material in physical, chemical, radiological and biological research, medicine, agriculture and industry;
c. Fuel cycle activities to meet future world-wide civil nuclear energy needs, including multilateral approaches to which they are parties for ensuring nuclear fuel supply and appropriate techniques for management of nuclear wastes;
d. Advanced research and development in nuclear science and technology;
e. Health, safety, and environmental considerations related to the foregoing;
f. Assessments of the role nuclear power may play in national energy plans;
g. Codes, regulations and standards for the nuclear industry;
h. Research on controlled thermonuclear fusion including bilateral activities and contributions toward multilateral projects such as the International Thermonuclear Experimental Reactor (ITER); and
i. Any other field mutually agreed to by the Parties.
2. Cooperation pursuant to this Article may include, but is not limited to, training, exchange of personnel, meetings, exchange of samples, materials and instruments for experimental purposes and a balanced participation in joint studies and projects.
3. This Agreement does not require the transfer of any information regarding matters outside the scope of this Agreement, or information that the Parties are not permitted under their respective treaties, national laws, or regulations to transfer.
4. Restricted Data, as defined by each Party, shall not be transferred under this Agreement.
ARTICLE 4 - NUCLEAR TRADE
1. The Parties shall facilitate nuclear trade between themselves in the mutual interests of their respective industry, utilities and consumers and also, where appropriate, trade between third countries and either Party of items obligated to the other Party. The Parties recognize that reliability of supplies is essential to ensure smooth and uninterrupted operation of nuclear facilities and that industry in both the Parties needs continuing reassurance that deliveries can be made on time in order to plan for the efficient operation of nuclear installations.
2. Authorizations, including export and import licenses as well as authorizations or consents to third parties, relating to trade, industrial operations or nuclear material movement should be consistent with the sound and efficient administration of this Agreement and should not be used to restrict trade. It is further agreed that if the relevant authority of the concerned Party considers that an application cannot be processed within a twomonth period it shall immediately, upon request, provide reasoned information to the submitting Party. In the event of a refusal to authorize an application or a delay exceeding four months from the date of the first application the Party of the submitting persons or undertakings may call for urgent consultations under Article 13 of this Agreement, which shall take place at the earliest opportunity and in any case not later than 30 days after such a request.
ARTICLE 5 - TRANSFER OF NUCLEAR MATERIAL, NON-NUCLEAR MATERIAL, EQUIPMENT, COMPONENTS AND RELATED TECHNOLOGY
1. Nuclear material, non-nuclear material, equipment and components may be transferred for applications consistent with this Agreement. Any special fissionable material transferred under this Agreement shall be low enriched uranium, except as provided in paragraph 5.
2. Sensitive nuclear technology, heavy water production technology, sensitive nuclear facilities, heavy water production facilities and major critical components of such facilities may be transferred under this Agreement pursuant to an amendment to this Agreement. Transfers of dual-use items that could be used in enrichment, reprocessing or heavy water production facilities will be subject to the Parties' respective applicable laws, regulations and license policies.
3. Natural or low enriched uranium may be transferred for use as fuel in reactor experiments and in reactors, for conversion or fabrication, or for such other purposes as may be agreed to by the Parties.
4. The quantity of nuclear material transferred under this Agreement shall be consistent with any of the following purposes: use in reactor experiments or the loading of reactors, the efficient and continuous conduct of such reactor experiments or operation of reactors for their lifetime, use as samples, standards, detectors, and targets, and the accomplishment of other purposes as may be agreed by the Parties.
5. Small quantities of special fissionable material may be transferred for use as samples, standards, detectors, and targets, and for such other purposes as the Parties may agree.
6.
(a) The United States has conveyed its commitment to the reliable supply of fuel to India. Consistent with the July 18, 2005, Joint Statement, the United States has also reaffirmed its assurance to create the necessary conditions for India to have assured and full access to fuel for its reactors. As part of its implementation of the July 18, 2005, Joint Statement the United States is committed to seeking agreement from the U.S. Congress to amend its domestic laws and to work with friends and allies to adjust the practices of the Nuclear Suppliers Group to create the necessary conditions for India to obtain full access to the international fuel market, including reliable, uninterrupted and continual access to fuel supplies from firms in several nations.
(b) To further guard against any disruption of fuel supplies, the United States is prepared to take the following additional steps:
i) The United States is willing to incorporate assurances regarding fuel supply in the bilateral U.S.-India agreement on peaceful uses of nuclear energy under Section 123 of the U.S. Atomic Energy Act, which would be submitted to the U.S. Congress.
ii) The United States will join India in seeking to negotiate with the IAEA an India-specific fuel supply agreement.
iii) The United States will support an Indian effort to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India's reactors.
iv) If despite these arrangements, a disruption of fuel supplies to India occurs, the United States and India would jointly convene a group of friendly supplier countries to include countries such as Russia, France and the United Kingdom to pursue such measures as would restore fuel supply to India.
(c) In light of the above understandings with the United States, an India-specific safeguards agreement will be negotiated between India and the IAEA providing for safeguards to guard against withdrawal of safeguarded nuclear material from civilian use at any time as well as providing for corrective measures that India may take to ensure uninterrupted operation of its civilian nuclear reactors in the event of disruption of foreign fuel supplies. Taking this into account, India will place its civilian nuclear facilities under India-specific safeguards in perpetuity and negotiate an appropriate safeguards agreement to this end with the IAEA.
ARTICLE 6 - NUCLEAR FUEL CYCLE ACTIVITIES
In keeping with their commitment to full civil nuclear cooperation, both Parties, as they do with other states with advanced nuclear technology, may carry out the following nuclear fuel cycle activities:
i) Within the territorial jurisdiction of either Party, enrichment up to twenty percent in the isotope 235 of uranium transferred pursuant to this Agreement, as well as of uranium used in or produced through the use of equipment so transferred, may be carried out.
ii) Irradiation within the territorial jurisdiction of either Party of plutonium, uranium-233, high enriched uranium and irradiated nuclear material transferred pursuant to this Agreement or used in or produced through the use of non-nuclear material, nuclear material or equipment so transferred may be carried out.
iii) With a view to implementing full civil nuclear cooperation as envisioned in the Joint Statement of the Parties of July 18, 2005, the Parties grant each other consent to reprocess or otherwise alter in form or content nuclear material transferred pursuant to this Agreement and nuclear material and by-product material used in or produced through the use of nuclear material, non-nuclear material, or equipment so transferred. To bring these rights into effect, India will establish a new national reprocessing facility dedicated to reprocessing safeguarded nuclear material under IAEA safeguards and the Parties will agree on arrangements and procedures under which such reprocessing or other alteration in form or content will take place in this new facility. Consultations on arrangements and procedures will begin within six months of a request by either Party and will be concluded within one year. The Parties agree on the application of IAEA safeguards to all facilities concerned with the above activities. These arrangements and procedures shall include provisions with respect to physical protection standards set out in Article 8, storage standards set out in Article 7, and environmental protections set forth in Article 11 of this Agreement, and such other provisions as may be agreed by the Parties. Any special fissionable material that may be separated may only be utilized in national facilities under IAEA safeguards.
iv) Post-irradiation examination involving chemical dissolution or separation of irradiated nuclear material transferred pursuant to this Agreement or irradiated nuclear material used in or produced through the use of non-nuclear material, nuclear material or equipment so transferred may be carried out.
ARTICLE 7 - STORAGE AND RETRANSFERS
1. Plutonium and uranium 233 (except as either may be contained in irradiated fuel elements), and high enriched uranium, transferred pursuant to this Agreement or used in or produced through the use of material or equipment so transferred, may be stored in facilities that are at all times subject, as a minimum, to the levels of physical protection that are set out in IAEA document INFCIRC 225/REV 4 as it may be revised and accepted by the Parties. Each Party shall record such facilities on a list, made available to the other Party. A Party's list shall be held confidential if that Party so requests. Either Party may make changes to its list by notifying the other Party in writing and receiving a written acknowledgement. Such acknowledgement shall be given no later than thirty days after the receipt of the notification and shall be limited to a statement that the notification has been received. If there are grounds to believe that the provisions of this sub-Article are not being fully complied with, immediate consultations may be called for. Following upon such consultations, each Party shall ensure by means of such consultations that necessary remedial measures are taken immediately. Such measures shall be sufficient to restore the levels of physical protection referred to above at the facility in question. However, if the Party on whose territory the nuclear material in question is stored determines that such measures are not feasible, it will shift the nuclear material to another appropriate, listed facility it identifies.
2. Nuclear material, non-nuclear material, equipment, components, and information transferred pursuant to this Agreement and any special fissionable material produced through the use of nuclear material, non-nuclear material or equipment so transferred shall not be transferred or re-transferred to unauthorized persons or, unless the Parties agree, beyond the recipient Party's territorial jurisdiction.
ARTICLE 8 - PHYSICAL PROTECTION
1. Adequate physical protection shall be maintained with respect to nuclear material and equipment transferred pursuant to this Agreement and nuclear material used in or produced through the use of nuclear material, non-nuclear material or equipment so transferred.
2. To fulfill the requirement in paragraph 1, each Party shall apply measures in accordance with (i) levels of physical protection at least equivalent to the recommendations published in IAEA document INFCIRC/225/Rev.4 entitled "The Physical Protection of Nuclear Material and Nuclear Facilities," and in any subsequent revisions of that document agreed to by the Parties, and (ii) the provisions of the 1980 Convention on the Physical Protection of Nuclear Material and any amendments to the Convention that enter into force for both Parties.
3. The Parties will keep each other informed through diplomatic channels of those agencies or authorities having responsibility for ensuring that levels of physical protection for nuclear material in their territory or under their jurisdiction or control are adequately met and having responsibility for coordinating response and recovery operations in the event of unauthorized use or handling of material subject to this Article. The Parties will also keep each other informed through diplomatic channels of the designated points of contact within their national authorities to cooperate on matters of out-of-country transportation and other matters of mutual concern.
4. The provisions of this Article shall be implemented in such a manner as to avoid undue interference in the Parties' peaceful nuclear activities and so as to be consistent with prudent management practices required for the safe and economic conduct of their peaceful nuclear programs.
ARTICLE 9 - PEACEFUL USE
Nuclear material, equipment and components transferred pursuant to this Agreement and nuclear material and by-product materialused in or produced through the use of any nuclear material, equipment, and components so transferred shall not be used by the recipient Party for any nuclear explosive device, for research on or development of any nuclear explosive device or for any military purpose.
ARTICLE 10 - IAEA SAFEGUARDS
1. Safeguards will be maintained with respect to all nuclear materials and equipment transferred pursuant to this Agreement, and with respect to all special fissionable material used in or produced through the use of such nuclear materials and equipment, so long as the material or equipment remains under the jurisdiction or control of the cooperating Party.
2. Taking into account Article 5.6 of this Agreement, India agrees that nuclear material and equipment transferred to India by the United States of America pursuant to this Agreement and any nuclear material used in or produced through the use of nuclear material, non-nuclear material, equipment or components so transferred shall be subject to safeguards in perpetuity in accordance with the India-specific Safeguards Agreement between India and the IAEA [identifying data] and an Additional Protocol, when in force.
3. Nuclear material and equipment transferred to the United States of America pursuant to this Agreement and any nuclear material used in or produced through the use of any nuclear material, non-nuclear material, equipment, or components so transferred shall be subject to the Agreement between the United States of America and the IAEA for the application of safeguards in the United States of America, done at Vienna November 18, 1977, which entered into force on December 9, 1980, and an Additional Protocol, when in force.
4. If the IAEA decides that the application of IAEA safeguards is no longer possible, the supplier and recipient should consult and agree on appropriate verification measures.
5. Each Party shall take such measures as are necessary to maintain and facilitate the application of IAEA safeguards in its respective territory provided for under this Article.
6. Each Party shall establish and maintain a system of accounting for and control of nuclear material transferred pursuant to this Agreement and nuclear material used in or produced through the use of any material, equipment, or components so transferred. The procedures applicable to India shall be those set forth in the India-specific Safeguards Agreement referred to in Paragraph 2 of this Article.
7. Upon the request of either Party, the other Party shall report or permit the IAEA to report to the requesting Party on the status of all inventories of material subject to this Agreement.
8. The provisions of this Article shall be implemented in such a manner as to avoid hampering, delay, or undue interference in the Parties' peaceful nuclear activities and so as to be consistent with prudent management practices required for the safe and economic conduct of their peaceful nuclear programs.
ARTICLE 11 - ENVIRONMENTAL PROTECTION
The Parties shall cooperate in following the best practices for minimizing the impact on the environment from any radioactive, chemical or thermal contamination arising from peaceful nuclear activities under this Agreement and in related matters of health and safety.
ARTICLE 12 - IMPLEMENTATION OF THE AGREEMENT
1. This Agreement shall be implemented in a manner designed:
a) to avoid hampering or delaying the nuclear activities in the territory of either Party;
b) to avoid interference in such activities;
c) to be consistent with prudent management practices required for the safe conduct of such activities; and
d) to take full account of the long term requirements of the nuclear energy programs of the Parties.
2. The provisions of this Agreement shall not be used to:
a) secure unfair commercial or industrial advantages or to restrict trade to the disadvantage of persons and undertakings of either Party or hamper their commercial or industrial interests, whether international or domestic;
b) interfere with the nuclear policy or programs for the promotion of the peaceful uses of nuclear energy including research and development; or
c) impede the free movement of nuclear material, non nuclear material and equipment supplied under this Agreement within the territory of the Parties.
3. When execution of an agreement or contract pursuant to this Agreement between Indian and United States organizations requires exchanges of experts, the Parties shall facilitate entry of the experts to their territories and their stay therein consistent with national laws, regulations and practices. When other cooperation pursuant to this Agreement requires visits of experts, the Parties shall facilitate entry of the experts to their territory and their stay therein consistent with national laws, regulations and practices.
ARTICLE 13 - CONSULTATIONS
1. The Parties undertake to consult at the request of either Party regarding the implementation of this Agreement and the development of further cooperation in the field of peaceful uses of nuclear energy on a stable, reliable and predictable basis. The Parties recognize that such consultations are between two States with advanced nuclear technology, which have agreed to assume the same responsibilities and practices and acquire the same benefits and advantages as other leading countries with advanced nuclear technology.
2. Each Party shall endeavor to avoid taking any action that adversely affects cooperation envisaged under Article 2 of this Agreement. If either Party at any time following the entry into force of this Agreement does not comply with the provisions of this Agreement, the Parties shall promptly hold consultations with a view to resolving the matter in a way that protects the legitimate interests of both Parties, it being understood that rights of either Party under Article 16.2 remain unaffected.
3. Consultations under this Article may be carried out by a Joint Committee specifically established for this purpose. A Joint Technical Working Group reporting to the Joint Committee will be set up to ensure the fulfillment of the requirements of the Administrative Arrangements referred to in Article 17.
ARTICLE 14 - TERMINATION AND CESSATION OF COOPERATION
1. Either Party shall have the right to terminate this Agreement prior to its expiration on one year's written notice to the other Party. A Party giving notice of termination shall provide the reasons for seeking such termination. The Agreement shall terminate one year from the date of the written notice, unless the notice has been withdrawn by the providing Party in writing prior to the date of termination.
2. Before this Agreement is terminated pursuant to paragraph 1 of this Article, the Parties shall consider the relevant circumstances and promptly hold consultations, as provided in Article 13, to address the reasons cited by the Party seeking termination. The Party seeking termination has the right to cease further cooperation under this Agreement if it determines that a mutually acceptable resolution of outstanding issues has not been possible or cannot be achieved through consultations. The Parties agree to consider carefully the circumstances that may lead to termination or cessation of cooperation. They further agree to take into account whether the circumstances that may lead to termination or cessation resulted from a Party's serious concern about a changed security environment or as a response to similar actions by other States which could impact national security.
3. If a Party seeking termination cites a violation of this Agreement as the reason for notice for seeking termination, the Parties shall consider whether the action was caused inadvertently or otherwise and whether the violation could be considered as material. No violation may be considered as being material unless corresponding to the definition of material violation or breach in the Vienna Convention on the Law of Treaties. If a Party seeking termination cites a violation of an IAEA safeguards agreement as the reason for notice for seeking termination, a crucial factor will be whether the IAEA Board of Governors has made a finding of non-compliance.

4. Following the cessation of cooperation under this Agreement, either Party shall have the right to require the return by the other Party of any nuclear material, equipment, non-nuclear material or components transferred under this Agreement and any special fissionable material produced through their use. A notice by a Party that is invoking the right of return shall be delivered to the other Party on or before the date of termination of this Agreement. The notice shall contain a statement of the items subject to this Agreement as to which the Party is requesting return. Except as provided in provisions of Article 16.3, all other legal obligations pertaining to this Agreement shall cease to apply with respect to the nuclear items remaining on the territory of the Party concerned upon termination of this Agreement.
5. The two Parties recognize that exercising the right of return would have profound implications for their relations. If either Party seeks to exercise its right pursuant to paragraph 4 of this Article, it shall, prior to the removal from the territory or from the control of the other Party of any nuclear items mentioned in paragraph 4, undertake consultations with the other Party. Such consultations shall give special consideration to the importance of uninterrupted operation of nuclear reactors of the Party concerned with respect to the availability of nuclear energy for peaceful purposes as a means of achieving energy security. Both Parties shall take into account the potential negative consequences of such termination on the on-going contracts and projects initiated under this Agreement of significance for the respective nuclear programmes of either Party.
6. If either Party exercises its right of return pursuant to paragraph 4 of this Article, it shall, prior to the removal from the territory or from the control of the other Party, compensate promptly that Party for the fair market value thereof and for the costs incurred as a consequence of such removal. If the return of nuclear items is required, the Parties shall agree on methods and arrangements for the return of the items, the relevant quantity of the items to be returned, and the amount of compensation that would have to be paid by the Party exercising the right to the other Party.
7. Prior to return of nuclear items, the Parties shall satisfy themselves that full safety, radiological and physical protection measures have been ensured in accordance with their existing national regulations and that the transfers pose no unreasonable risk to either Party, countries through which the nuclear items may transit and to the global environment and are in accordance with existing international regulations.
8. The Party seeking the return of nuclear items shall ensure that the timing, methods and arrangements for return of nuclear items are in accordance with paragraphs 5, 6 and 7. Accordingly, the consultations between the Parties shall address mutual commitments as contained in Article 5.6. It is not the purpose of the provisions of this Article regarding cessation of cooperation and right of return to derogate from the rights of the Parties under Article 5.6.
9. The arrangements and procedures concluded pursuant to Article 6(iii) shall be subject to suspension by either Party in exceptional circumstances, as defined by the Parties, after consultations have been held between the Parties aimed at reaching mutually acceptable resolution of outstanding issues, while taking into account the effects of such suspension on other aspects of cooperation under this Agreement.
ARTICLE 15 - SETTLEMENT OF DISPUTES
Any dispute concerning the interpretation or implementation of the provisions of this Agreement shall be promptly negotiated by the Parties with a view to resolving that dispute.
ARTICLE 16 - ENTRY INTO FORCE AND DURATION
1. This Agreement shall enter into force on the date on which the Parties exchange diplomatic notes informing each other that they have completed all applicable requirements for its entry into force.
2. This Agreement shall remain in force for a period of40 years. It shall continue in force thereafter for additional periods of 10 years each. Each Party may, by giving 6 months written notice to the other Party, terminate this Agreement at the end of the initial 40 year period or at the end of any subsequent 10 year period.
3. Notwithstanding the termination or expiration of this Agreement or withdrawal of a Party from this Agreement, Articles 5.6(c), 6, 7, 8, 9, 10 and 15 shall continue in effect so long as any nuclear material, non-nuclear material, by-product material, equipment or components subject to these articles remains in the territory of the Party concerned or under its jurisdiction or control anywhere, or until such time as the Parties agree that such nuclear material is no longer usable for any nuclear activity relevant from the point of view of safeguards.
4. This Agreement shall be implemented in good faith and in accordance with the principles of international law.
5. The Parties may consult, at the request of either Party, on possible amendments to this Agreement. This Agreement may be amended if the Parties so agree. Any amendment shall enter into force on the date on which the Parties exchange diplomatic notes informing each other that their respective internal legal procedures necessary for the entry into force have been completed.
ARTICLE 17 - ADMINISTRATIVE ARRANGEMENT
1. The appropriate authorities of the Parties shall establish an Administrative Arrangement in order to provide for the effective implementation of the provisions of this Agreement.
2. The principles of fungibility and equivalence shall apply to nuclear material and non-nuclear material subject to this Agreement. Detailed provisions for applying these principles shall be set forth in the Administrative Arrangement.
3. The Administrative Arrangement established pursuant to this Article may be amended by agreement of the appropriate authorities of the Parties.
IN WITNESS WHEREOF the undersigned, being duly authorized, have signed this Agreement.
DONE at , this day of , 200 , in duplicate.
FOR THE GOVERNMENT OF THE
UNITED STATES OF AMERICA:
FOR THE GOVERNMENT
OF INDIA:
AGREED MINUTE
During the negotiation of the Agreement for Cooperation Between the Government of the United States of America and the Government of India Concerning Peaceful Uses of Nuclear Energy ("the Agreement") signed today, the following understandings, which shall be an integral part of the Agreement, were reached.
Proportionality
For the purposes of implementing the rights specified in Articles 6 and 7 of the Agreement with respect to special fissionable material and by-product material produced through the use of nuclear material and non-nuclear material, respectively, transferred pursuant to the Agreement and not used in or produced through the use of equipment transferred pursuant to the Agreement, such rights shall in practice be applied to that proportion of special fissionable material and by-product material produced that represents the ratio of transferred nuclear material and non-nuclear material, respectively, used in the production of the special fissionable material and by-product material to the total amount of nuclear material and non-nuclear material so used, and similarly for subsequent generations.
By-product material
The Parties agree that reporting and exchanges of information on by-product material subject to the Agreement will be limited to the following:
(1) Both Parties would comply with the provisions as contained in the IAEA document GOV/1999/19/Rev.2, with regard to by-product material subject to the Agreement.
(2) With regard to tritium subject to the Agreement, the Parties will exchange annually information pertaining to its disposition for peaceful purposes consistent with Article 9 of this Agreement.
FOR THE GOVERNMENT OF THE
UNITED STATES OF AMERICA:
FOR THE GOVERNMENT
OF INDIA:
END TEXT





2ND
NEW DELHI: In the midst of the largest financial crisis in recent times, India and the US triumphantly signed the 123 agreement ending India’s nu

clear isolation and capping the three-year dramatic journey of the nuclear deal.

With promises of more to come in the bilateral relationship, external affairs minister Pranab Mukherjee and US secretary of state Condoleezza Rice inked the agreement at a ceremony at the Benjamin Franklin Room of the State Department in Washington with a mention of the domestic difficulties faced by both Prime Minister Manmohan Singh and US President George W. Bush in the last three years.

“Prime Minister Singh literally risked his political future for this agreement and then remade his government to gain the support that he needed,” said Ms Rice after the signing.

With an eye on the domestic constituency, Mr Mukherjee also made it a point to clarify that the 123 agreement was “legally binding” on both India and the US and that it “reflects a careful balance of rights and obligations”.

“Its provisions are now legally binding on both sides once the agreement enters into force,” said he said at the signing. He further elaborated on the point. “We intend to implement this agreement in good faith and in accordance with the principles of international law and I am confident that the US will also do the same,” he said, adding that India and the US trusted each other.

His statements were an attempt to clear the confusion created by Mr Bush’s letter to the US Congress that said the provisions in the 123 agreement were “political commitments” and not “legally binding.” However, the US side remained silent on the issue. With the deal now sealed, signed and delivered, the two sides did not hesitate in having the last word. “Many thought this day would never come. But doubts have been silenced now,” said Ms Rice who described the 123 agreement as "unprecedented".

This deal, which is the centrepiece of India-US ties, is also expected to rejuvenate India-US ties in other sectors also. Ms Rice called the deal “a diplomatic triumph for both our nations” and said that the agreement would lead to “a new and far broader world of potential for our strategic partnership in the 21st century, not just on nuclear cooperation but on every area of national endeavour.”

But the journey has been full of twists and turns. Even the last steps of the deal were dogged with drama. Ms Rice was unable to sign the agreement last Saturday as Indian negotiators wanted further assurances from Mr Bush on key provision in the agreement. In the subsequent signing statement Mr Bush reiterated fuel supply assurances and gave India the advance consent to reprocess fuel. Even though this was not enough to silence domestic critics, the Indian establishment was satisfied with the assurances.

The deal will now allow US companies, which have already started negotiations with NPCIl, to sell nuclear technology and fuel to India after a gap of over three decades. “We look forward to working with the US companies on the commercial steps that will follow to implement this landmark agreement,” said Mr Mukherjee.

With the NSG approval already in the bag and now the 123 deal, there is now nothing holding India back from sourcing fuel and technology from the international nuclear market. A few formalities still remain including the formalisation of the IAEA safeguards agreement and the negotiation of the additional protocol with the IAEA.

Mr Mukherjee, who thanked Mr Bush, Ms Rice, the US Congress and the Indian American community for the nuclear deal, said “By reinforcing and including the nuclear element in our country's energy needs, which is so vital to sustain our growth rate, nuclear power will directly boost industrial growth, rural development, and help us to expand every vital sector of our economy.”

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A brief note on a few concerns with the 123 Agreement Prachi Shrivastava
The Indo-US nuclear agreement announced on July 18, 2005 by President George Bush and Prime Minister Manmohan Singh regarding the establishment of a U.S.-India global partnership could dramatically increase nuclear and nuclear-related commerce with India. In Indias interpretation of the text of the agreement[1], it expects to be treated like a Nuclear Weapons State (NWS) with regard to assuming responsibilities and obligations under international non-proliferation regimes, namely, International Atomic Energy Agency (IAEA) nuclear full-scope safeguards (FSS), and the Guidelines of the 45-member Nuclear Suppliers Group (NSG) for nuclear trade.[2] Thus India will come to enjoy a unique status, shared only by Israel and Pakistan: a nuclear weapons state that is a non-NNPT signatory. Every other non-nuclear weapons state that is a signatory to the Nuclear Non Proliferation Treaty (NNPT), including Iran, must abide strictly by the terms of the document of structure and content of agreements between the agency and states required in connection with the treaty on the non-proliferation of nuclear weapons[3]. The deal treats India for what it is, i.e. a de facto NWS.
But for the agreement to materialize, what is required to be bartered is, an Indian commitment to
1. Separate its civil and military nuclear programs and put declared civil facilities under international safeguards.
2. Enter into an IAEA safeguards agreement in perpetuity and an IAEA Additional Protocol.
3. Never test nuclear weapons again.
The Safeguards System
IAEA board of Governors has proposed to India, a safeguards agreement based on The Agencys Safeguards System (1965, as Provisionally Extended in 1966 and 1968)[4], which is a revised system with further additional provisions for safeguarded nuclear material in conversion plants and fabrication plants.
The principal purpose of this system of controls is to enable the Agency to comply with the statutory obligations under Article 2 of the IAEA statute, with respect to the activities of Member States in the field of the peaceful uses of nuclear energy, as provided in the Statute. The said statutory obligation refers to the task of the Agency of seeking to accelerate and enlarge the contribution of atomic energy to peace, health and prosperity throughout the world. Since the technology of nuclear energy for peaceful purposes is closely linked with that for the production of materials for nuclear weapons, the same article of the Statute provides that the Agency shall ensure, as far as it can, that assistance provided by it or at its request or under its supervision or control is not used in such a way as to further any military purpose. Safeguarded nuclear material should not co-mingle with unsafeguarded nuclear material in any facility, unless this unsafeguarded nuclear material also comes under safeguards. This latter condition is an example of contamination, a key principle of safeguards. Although these conditions do not appear to have been accepted by India, they are necessary to prevent civil nuclear cooperation from benefiting Indias nuclear weapons program[5].
Article 5 of the Statute authorizes the Agency to apply safeguards, at the request of the parties, to any bilateral or multilateral arrangement in the field of atomic energy. Provisions of the statute that are relevant to a particular project, arrangement or activity in the field of nuclear energy will only become legally binding upon the entry into force of a safeguards agreement and to the extent that they are incorporated therein.[6]
While the IAEA applies safeguards to select facilities in the USA, Russia and China, France and the United Kingdom have separated their civilian and military programs, applying Euratom/IAEA safeguards to all civilian programs. This is the precedent that comes closest to the deal with India. Safeguards on all civilian facilities have the additional advantage of facilitating Indian participation in an international cut-off agreement.[7]
In the Indian debate, some participants criticize the deal on national security grounds, arguing that it will constrain the weapons programme and, specifically, that the fast breeder reactor at Kalpakkam must be placed on the military side of the separation line[8]. It is unsafeguarded and lends itself to production of fissile materials, but has hardly been used for weapons purposes so far. Several former heads of Indias nuclear industry have suggested that IAEA safeguards should only be applied to facilities that receive nuclear assistance from abroad.[9] However, India''s nuclear record is far from perfect. Indias history of using a civilian nuclear facility for the 1974 Pokharan test places a question mark over whether India can be trusted with such assistance. The only way this trust can be guaranteed is for the US and the international community to insist on broad and robust IAEA safeguards.
Agreement in-perpetuity
The IAEA policy with regard to perpetuity is that the primary effect of termination of the agreement, either by act of the parties or affluxion of time, would be that no further supplied nuclear material, equipment, facilities or non-nuclear material could be added to the inventory. On the other hand, the rights and obligations of the parties, as provided for in the agreement, would continue to apply in connection with any supplied material or items and with any special fissionable material produced, processed or used in or in connection with any supplied material or items which had been included in the inventory, until such material or items had been removed from the inventory.[10]Safeguards should apply in perpetuity, with minor, standard exceptions that do not include use in nuclear explosives or weapons. India cannot negotiate a provision for removing a facility from safeguards that is, moving from civilian to military category under a national security clause. Under the Regime, withdrawal of safeguarded material to an unsafeguarded or military facility will not be permitted even after a notice period for national security reasons.
However, India has bargained for the freedom of designation of its own nuclear facilities as civilian or military, including the freedom to shift these facilities from one category to another, in line with National security considerations. It will hear of no discrimination between India and other NWSs. Nuclear weapon states, including the US, have the right to shift facilities from civilian category to military and there is no reason why this should not apply to India.
IAEA Additional Protocol
An analysis of Baghdads success in circumventing IAEA safeguards showed that Iraq had exploited the agency''s system of confining its inspection and accounting activities to facilities or materials explicitly declared in a countrys safeguards agreement with the agency. To close the undeclared facilities loophole, the IAEA drafted a safeguards improvement program known as Program 93+2. The program has subsequently been implemented in two parts.
The second part of Program 93+2, which substantially expands the scope of the IAEAs safeguards regime, required a formal expansion of the agencys legal mandate in the form of an additional protocol[11] to be adopted by member states to supplement their existing safeguards agreement with the IAEA.
The essence of the additional protocol is to reshape the IAEAs safeguards regime from a quantitative system focused on accounting for known quantities of materials and monitoring declared activities to a qualitative system gathering a comprehensive picture of a states nuclear and nuclear-related activities, including nuclear-related imports and exports. The additional protocol also substantially expands IAEA''s ability to check for clandestine nuclear facilities by providing the agency with authority to visit any facility -declared or not - to investigate questions or inconsistencies in a states nuclear declarations.
India agreed to apply an additional safeguards protocol (AP) to its civilian facilities. This is welcome from the point of view of making such protocols an integral part of new, enhanced international safeguards standard. However, the Model AP was adopted in order to better detect undeclared activities in NPT member states, so the value of this undertaking is limited. Since India would have undeclared nuclear weapons programmes, and since the AP is meant to uncover undeclared programmes, it would have limited utility in the Indian context, just as it is in the NWSs. So India should, one would imagine, be able to negotiate a reasonably acceptable AP.
Never Testing Nuclear-Weapons Again
It is clear from the sequence of events that the Nuclear Suppliers Group wishes to see India firmly fixed in a system of commitment in perpetuity with IAEA by initialing and then unleash their own conditions for making changes in their guidelines. In all probability, the NSG will prominently demand no testing by India in future as a precondition. There could be other conditions as well. To forestall these dangers, India while finalizing the safeguards agreement with IAEA should proactively avoid getting into a trap by insisting on clear unambiguous language.
Some Indian concerns
Separation seems to be a feasible proposition but Indias strategic needs have to be clear in quantitative terms.
We are looking at a scenario where even those facilities wholly designed and built by India and the R&D institutions as listed in the separation plan which were hitherto outside the scope of safeguards, as well as all the future civil facilities which will grow substantially in numbers, will be included in the safeguards agreement compulsorily with all the implications. The separation plan document, which states that the facilities which are to come under civil list will be decided solely by India, is a paper tiger.
Properly negotiated INFCIRC/66-type safeguards agreements and the AP can be arrived at without compromising on strategic programmes and national security.
The AP is a document, which cannot be taken lightly as it will include all the intrusive provisions of safeguards inspections. There is a possibility this could be under wraps or deferred to avoid immediate stalemate. This needs to be gone into in detail before taking any decision to go forward.
India is more likely to be treated by the IAEA like an NWS
Though technically not an NWS, and a Voluntary Offer Agreement may not be acceptable, but it is likely to be treated so because of the accepted fact of Indias weapons programme and undeclared military facilities. So, the IAEA is likely to apply safeguards selectively so as not to unduly burden its scarce funds and skilled human resource. Even though there is a small budgetary increase, the IAEA expects that individual states would contribute to meeting the expenses towards implementing the respective APs. In Indias case, it would be a major jump the standard safeguards plus the AP on Indias declared civilian facilities. If India has to meet part of this expenditure at least by increasing its contribution to the IAEA, this is also a factor that needs to be taken into account.
Wary of the Hyde Act
The 123 Agreement is bereft of an arbitration clause. This concern is relevant because in the 123 Agreement, India has initialed a blank cheque by agreeing to abide by the US national laws without any qualification by which it gets exposed to any future damaging changes in law. What will hang in air is the fate of safeguards agreement when the cooperation agreement gets abrogated or terminated for any reason enumerated in the Hyde Act or any changes, revisions or new Acts passed by the US in future as it happened in the case of the Tarapur agreement when the 1963 Indo-US bilateral agreement was unilaterally dumped by the US when a new nuclear non-proliferation system (NNPA) was promulgated in 1978 in the aftermath of the 1974 nuclear test by India.
The 123 Agreement provides India with generous opportunities to hold bilateral consultations to resolve disputes with no leverage, leaving the ultimate decision to US to be taken as per their national laws. Unfortunately, India does not have laws to match the one like the Hyde Act, which surely will dominate the operation of the agreement from behind with 123 staying in front.
(The author is a student of Amity Law School, New Delhi.)


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India will be allowed to reprocess US-origin used nuclear fuel under the terms of the 123 Agreement text it has negotiated with the USA, the full text of which has been released.

Under the agreement India will be able to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of its nuclear power reactors. It will also be able to reprocess US-origin nuclear fuel at a special facility under International Atomic Energy Agency (IAEA) safeguards.

This would make India the third region unrestricted in that respect by US lawmakers - after the European Union and Japan - and the first to host such a facility under such international safeguards arrangements.

Indian negotiators had insisted on reprocessing, which had been central in their plans for nuclear energy development until now, albeit with non-US fuel. Reprocessing liberates unused fissile uranium and produced plutonium from used nuclear fuel to be recycled into fresh fuel. This is a sensitive technology because the separated plutonium could be used to fuel nuclear weapons.

Mohamed ElBaradei, director general of the IAEA said: "By bringing multinational control to any operation that enriches uranium or separates plutonium, we can lower the risk of these materials being diverted to weapons."

The other stumbling block in negotiations was language agreed in the US in December 2006 that would see the entire deal scrapped if India tested a new nuclear weapon. Many Indian leaders were unhappy with this and said it infringed on Indian sovereignty. However, the Indian cabinet has approved the renegotiated text and will shortly put it before parliament as a whole. Foreign minister Pranab Makherjee said that "all concerns of India have been reflected and have been adequately addressed," but US politicians have warned that their approval could be difficult to gain if too many concessions have been made to India on this matter.

The text of the agreement was made public on 3 August, but most of the details had already been disclosed by US and Indian officials. The agreement does not specify what would happen should India conduct a new nuclear weapons test. However, its states that should the nuclear fuel supply from the USA be cut for any reason - possibly because of an Indian test - Washington would help find third countries to supply alternative nuclear fuel. The agreement will initially remain in force for 40 years, but can be renewed for subsequent ten-year periods. The agreement also provides for the termination of nuclear cooperation between India and the USA with one-year notice period.

The process to find a way for the two countries to cooperate in nuclear energy has been progressing slowly since a July 2005 meeting between President George Bush and prime minister Manmohan Singh. So far India has split its large nuclear industry into a civil sector and a military one, which includes some power-producing reactors, and agreed to IAEA safeguards and inspections in its civil sector much like those non-nuclear weapons states agree to under the Nuclear non-Proliferation Treaty (NPT). The details of this oversight regime remain to be agreed with the IAEA, but ElBaradei said: the US-India agreement "is a creative break with the past."

The USA sought to bring India into the mainstream of the global nuclear industry, which it has been largely excluded from since refusing to sign the NPT. As a non-signatory, India was subsequently excluded arrangements made by the Nuclear Suppliers Group (NSG) and forced to develop nuclear energy alone.

The objectives of the NPT and NSG were to stop nuclear materials and technology passing between civil and military programs. With respect to those aims, India's behaviour is generally deemed to have been excellent: While generating nuclear electricity it has also developed and maintained its own weapons systems, but, crucially, has not passed on any technologies to other countries. The NSG is expected to rethink its guidelines if US-India nuclear trade becomes a fact.