India on collision course with EU over trade treaty

New Delhi may reject EU offer to start talks for bilateral investment treaty


European trade commissioner Cecilia Malmström had proposed EU and India first negotiate a bilateral investment treaty before they restart talks for the free trade agreement. Photo: Reuters
European trade commissioner Cecilia Malmström had proposed EU and India first negotiate a bilateral investment treaty before they restart talks for the free trade agreement. Photo: Reuters

New Delhi: As India’s 31 March deadline to unilaterally terminate all existing investment treaties with partner countries draws closer, New Delhi is likely to reject an offer from the European Union (EU) to start negotiations for a stand-alone bilateral investment treaty (BIT) while negotiations for the comprehensive bilateral trade and investment agreement (BTIA) remain in limbo.

European trade commissioner Cecilia Malmström, in a meeting with commerce minister Nirmala Sitharaman on the sidelines of the World Economic Forum at Davos last month, had proposed EU and India first negotiate a BIT before they restart talks for the free trade agreement (FTA).

India wants to follow the middle path and sign a toned-down version of BTIA which would include an investment chapter and leave aside contentious issues for the time being. However, EU hasn’t agreed to the offer so far.

“Once we have started the process of negotiation for a comprehensive trade and investment treaty, our policy is that we can only do it as part of BTIA. Last July, we had offered EU to do an early harvest of BTIA; they have not responded or accepted it so far. If they want to go for comprehensive BTIA, we have also expressed our willingness to restart negotiations. The ball is in EU’s court, not in our court,” a commerce ministry official said speaking under condition of anonymity.

“They knew existing investment treaties are coming to an end two years back; so now, it is up to them how they want to take it forward. We have acted in a transparent manner in this matter and have given countries enough time to restart negotiations for fresh BITs. They can still allow individual EU countries to sign BITs with India and we have conveyed it to them. But it is their policy problem that they don’t allow it,” the official added.

India is looking at a situation where it may not have a bilateral investment treaty with a large number of countries, including those in the EU, on 1 April 2017.

It would unilaterally terminate all such existing treaties on 31 March, having given one year’s time to countries to renegotiate the treaties based on the model Bilateral Investment Treaty (BIT) passed by the cabinet.

India brought out a new model BIT in December 2015, intending to replace its existing Bilateral Investment Promotion and Protection Agreements (BIPAs) and future investment treaties, after being dragged into international arbitration by foreign investors who sued for discrimination, citing commitments made by India to other countries in bilateral treaties.

The model BIT approved by the cabinet excludes matters relating to taxation. Controversial clauses such as most favoured nation (MFN) have been dropped while the scope of national treatment, and fair and equitable treatment clauses, have been considerably narrowed down.

In the recent past, many multinationals including Vodafone Group Plc and Sistema have dragged India to international arbitration, citing treaty violations. In the case of White Industries versus the government of India, for instance, the Australian investor cited a favourable substantive MFN provision in the India-Kuwait BIT that it said was absent in the India-Australia BIT. The Australian company, which argued for including the provision in the India-Australia BIT, won the case in 2012.

India has served termination notices to as many as 57 countries, including European nations, with whom the initial term of the treaty has either expired or will expire soon.

Geoffrey Van Orden, a member of the European Parliament and part of the European parliamentarians currently visiting India, told reporters on Monday the EU has said it would be very helpful if India could extend the existing BIPAs for six months to enable new mechanisms to be put in place.

“The EU has consistently wanted to have an ambitious agreement whereas I think on the Indian side, there’s more of an aim towards picking and choosing. I think we need to work hard if we agree to a FTA; it would do enormous good to both sides,” he added.

Elizabeth Roche contributed to this story.

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