Rattled by threats from foreign companies to drag India to international courts over breach of investment promises,the government is planning to erase a key clause in bilateral investment treaties that allows for international arbitration in order to protect itself.
The government is in talks with countries to amend the investment treaties so that any supposed violation of an investment promise through Indian government action can be challenged only in Indian courts. Currently,India has treaties with Singapore and South Korea,among others,that allow companies coming under their ambit to challenge any adverse policy action by New Delhi as a breach of investment promise in international tribunals.
Since January the government has been served a brace of legal notices by multinational companies in the telecom and coal sectors. Telenor of Norway and Russias Sistema have already moved court,while Vodafone has threatened a number of courses of action,both in India and internationally. The Childrens Investment Fund,a UK-based hedge fund,too has asked its lawyers to move against public sector Coal India. India has also recently lost a case involving White Industries of Australia against Coal India in the International Court of Arbitration. All of these are under one or other of the 50-odd bilateral investment treaties that India has signed with its major trading partners.
A government official involved in the process said India is taking a two-level approach on the issue of the dispute resolution clause in these treaties. Where the bilateral investment treaty is part of a free trade agreement (FTA),like the Comprehensive Economic Cooperation Agreement with Singapore,the government has asked the island nation to modify the clause to allow only the jurisdiction of Indian courts in arbitration cases.
Where the FTA is yet to be signed like the one with Australia,the chapter on investment will speak the new language. For the government it is significant that the FTA with Australia should provide for the exclusive right of Indian courts and,correspondingly,that of Australian courts,as a number of mutual investment in the mineral sector is envisaged in future. Significantly,Australia has supported the Indian position on that score. The other major FTA where the Indian government is pushing for similar wording is the one with the European Union. If the FTA was already inked,for instance with the new dispute resolution framework,India would not be facing the prospect of going to courts abroad to defend its change in tax policies vis-a-vis companies like Vodafone. On the anvil is an investment treaty with the US.
Speaking on the subject,trade policy analyst Biswajit Dhar said that despite the negative publicity,it is fair that India should not have to face multiple battles overseas on investment-related concerns. Dhar,the director general of trade policy think tank RISDOC,said: We have been objecting to this clause for a long time,mainly because carelessly drafted arbitration clauses that often do not specify the territory are quite frequent in many of these treaties.
While these bilateral investment treaties have now been reclassified as Bilateral Investment Promotion Agreements,the essential thrust of the policies remain the same.
* Government is in talks with countries to amend treaties so that any supposed violation of an investment promise can be challenged only in Indian courts
* Since January the government has been served a brace of legal notices by multinational companies in the telecom and coal sectors
* Telenor of Norway and Russias Sistema have already moved court,while Vodafone has threatened a number of courses of action