February 12, 2009 / 12:24 PM / 9 years ago

India, U.S. in talks ahead of fighter deal contract

NEW DELHI, Feb 12 (Reuters) - India is talking to the United States to resolve a legal clause that allows its inspectors to monitor arms it sells to New Delhi, a major obstacle for U.S. companies bidding for a $10-billion fighter jet contract.

Last year, six international companies submitted bids to supply India with 126 multi-role fighter jets in one of the biggest arms deals in the world.

Two U.S. companies, Lockheed Martin Corp (LMT.N) and Boeing Co. (BA.N), are competing with Russia’s MiG-35, France’s Dassault Rafale, Sweden’s Saab (SAABb.ST) KAS-39 Gripen and the Eurofighter Typhoon, a consortium of British, German, Italian and Spanish companies.

India has not yet agreed to a U.S. clause of “end-use monitoring” under which the United States reserves a right to make sure U.S. arms sold abroad are used for their intended purpose and that the technology does not leak to third countries. Indian officials said talks are underway with the United States to ensure that Boeing and Lockheed can continue to remain in the race, without India seen compromising.

“The two countries are discussing on issues like logistic support and on monitoring at the moment,” Sitanshu Kar, the defence ministry spokesman, told Reuters.

“We are making progress on this issues,” Kar said from Bangalore, where India is holding an air show.

A senior defence official told Reuters that the U.S. could satisfy India by not implementing a provision that allows physical verification of equipment.

India’s opposition parties, especially the left, have objected to India opening its defence equipment to foreign weapons inspectors for scrutiny, saying it compromises the country’s security.

Defence experts said it was unlikely that the legal clause would turn out to be a stumbling block in the deal.

    “If India does not agree to the monitoring accord, it will not have access to the U.S. market, and the U.S. wants to make inroads in the defence market which means interest of both parties are at stake,” security analyst Uday Bhaskar said.

    What may help U.S. companies is the signing of a landmark civil nuclear deal with Washington last year, overturning a 30-year ban on global nuclear commerce with India.

    The deal will allow India to procure nuclear technology and fuel for its reactors from the international market.

    “Lockheed would very much like to see the EUM (end use monitoring clause) issue reaches a conclusion. The sooner the better,” Douglas Hartwick, CEO of Lockheed Martin’s India operation, told Reuters.

    India’s defence ministry is now evaluating the contract before field trials begin by June this year. (Editing by Alistair Scrutton)

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