‘EU for investment court system for dispute resolution under BIT’

EU officials plan to discuss the proposal with finance minister Nirmala Sitharaman on Saturday, Dombrovskis said in an interview.

In a sign of easing trade tensions, the EU trade chief said that settlement of outstanding disputes at the World Trade Organization (WTO) is also on the agenda. The move gains significance as the WTO dispute settlement body is dysfunctional due to the US’ block on the appointment of judges.

An investment court system, however, runs counter to India’s favoured method of resolving investment-related disputes under the so-called Model BIT. After several disputes led to adverse rulings and substantial monetary awards against India, the government in 2017 scaled back BITs it had signed and called for their renegotiation using a template from a model treaty that emphasizes state rights over investor rights, emphasizing the exhaustion of local remedies.

“India has an ambition to become a manufacturing hub and integrate itself with the global value chains, which requires a lot of investment. For this investment to come, there also needs to be proper investment protection and a proper mechanism to solve disputes as they arise. EU’s proposal of an investment court system is similar to what we had in a couple of other agreements. We are awaiting India’s proposal on this," Dombrovskis said.

“We have this arrangement in some of the more recent agreements. It’s a change of EU approach. Instead of relying on arbitrations, where sometimes it was not transparent, we want a more streamlined, more transparent system, which is protecting investments and also protecting a country’s right to regulate."

Dombrovskis said India and the EU have had five rounds of negotiations. And while progress has been made in several areas, there are still many important areas to work on.

“More effort and political push on both sides will be necessary…we need a political steer from both sides to get the right calibration," he added.

Addressing trade irritants between the two partners, Dombrovskis noted the increasing practice of setting India-specific standards and “quality control orders that often end up complicating the testing, assessment requirement and act as non-tariff barriers".

On the controversial carbon border adjustment mechanism (CBAM), Dombrovskis said the EU is committed to achieving carbon neutrality by 2050. Consequently, it will not be able to offer free emission allocations to carbon-intensive industries.

“If we’re decarbonizing our industry and if we want to reduce carbon emissions, it will not make sense to replace our lower carbon producing production with high carbon production in other countries because that defies the very a im of reducing emissions," he said.

“And that’s why an important element is preserving a level-playing field, and this level-playing field can be preserved by putting the same price on carbon. This is a topic that we are discussing with India and with other countries. CBAM is limited to five specific sectors, which I mentioned are typically not dominated by SMEs (small and medium enterprises). And at this stage, we’re not extending CBAM to sub-sectors," he added.

On India’s growing exports of refined Russian oil, the trade chief said: “If we restrict oil imports but then end up buying refined products from Russian oil from other countries, that defeats the purpose. We know that almost all countries are aligned, and India understands that. But then, of course, we need to see that at least the EU market is not contributing to Russia’s financing."