Modi set for US, sans key treaty
New Delhi, Sept. 20: A bilateral investment treaty between India and the US is unlikely to be finalised before Prime Minister Narendra Modi’s visit to America later this week. Both Modi and US President Barack Obama have been pushing their respective bureaucracies to prepare the pact.
Modi will be in the US from September 26-30.
Top officials have briefed the Prime Minister’s Office that key differences remained between the two countries over the treaty, which could be bridged only through high-level political intervention.
The briefing is part of the consultations ahead of Modi’s visit to the US as well as an India-US strategic and commercial dialogue.
Officials said the main differences were over three issues – Indian courts’ jurisdiction over arbitration proceedings, US attempts to bring in labour and environmental standards and whether the treaty will include just foreign direct investment and stock investment flows or also intellectual property rights.
India’s new model bilateral investment protection agreement, which it is using as a reference for all treaty negotiations, states that international arbitration will follow only after all legal remedies have been exhausted in the domestic legal courts. It also makes it clear that international arbitration courts cannot re-examine any legal issue settled by the Indian courts.
The US wants arbitration to be settled only in an international court as it considers the Indian legal system as time-consuming which fails to resolve differences.
The US negotiators also do not accept an Indian clause that potentially blocks attempts to drag India into tax-related arbitration. The clause states: “This treaty shall not apply to any taxation measure. Where a host state asserts as a defence that conduct alleged to be a breach of its obligations under this treaty is a subject matter of taxation… is excluded by this article from the scope of this treaty.”
India has been facing a spate of tax disputes where bilateral investment promotion and protection agreements (Bipa) have been brought into play. Finnish mobile manufacturer Nokia invoked a bilateral treaty to try to resolve claims of tax liability, both existing and anticipated, for seven years since 2006-07.
Recently, Cairn Energy demanded compensation under the India-UK Bipa from Indian authorities for the Rs 10,200-crore tax notice slapped on its Indian arm.
The US has also objected to another Indian clause in India’s model Bipa, which states any treaty shall not apply to “government procurement; subsidies and grants”. This has been done to prevent foreign companies from taking part in Indian government procurement meant for the small scale sector as well as from gaining benefits of grants and subsidies meant specifically for certain categories of Indian firms.
The US wants national or most-favoured nation treatment for its investors.
The US demand for introducing labour and environmental standards is seen by India as an attempt to sneak in American policies outside the specific international treaties being negotiated on environmental issues.
Indian investors also do not want to bring in intellectual property rights (IPR) within the ambit of the bilateral treaty. Ideally, they would like it to be confined to just FDI, but are willing to allow portfolio investments into the negotiations.
According to officials, a solution could be arrived at through political intervention. For instance, Indian tax authorities worked in tandem with the US internal revenue department to resolve the issue of advance transfer pricing pacts with US firms by jointly vetting such pacts.
