The flag of the European Union (Representative image)
The European Union (EU) has finally given its assent to conclude a proposed investment facilitation deal with India, separate from the free trade agreement (FTA) also being negotiated between the partners.
The EU had until now insisted on both pacts being signed together, a conditionality that had complicated the process. Sources said it had also led to talks on the easier-to-conclude investment pact being dragged out. Decoupling the talks had been a key ask from New Delhi.
The latest thaw was communicated to India at the 3rd Strategic Partnership Review meet held on October 19, sources said. “From a diplomatic angle, the decision to launch negotiations on a standalone investment protection agreement and another deal to recognise each other’s geographical indications, was the most important,” an official said.
Back in May, both partners had agreed to launch negotiations for these two key pacts. But movement had been slow owing to the EU position of running FTA negotiations simultaneously, a senior official said.
The investment deal is expected to open India up to more Foreign Direct Investment (FDI) from the EU and ensure that European companies enjoy legal protection in India. A case in point: despite the exit of the United Kingdom, EU members Netherlands and Germany are the fourth- and seventh-largest global investors in India.
The way forward
However, the first few rounds of talks may again see old fissures on investment protection reappear, sources admit.
From 2016, the Centre had terminated every bilateral investment treaty it had inked with various countries. New Delhi now maintains that all future investment pacts will be negotiated under the framework of the model BIT issued by the government in 2015.
But most of those negotiations are not time-bound, and global investors — many of them from major investing nations, including EU members — have complained of a legal vacuum.
The EU, along with most developed economies, also has reservations about the BIT allowing foreign companies and related aggrieved parties to seek international arbitration only after exhausting all domestic redressal options.
“The EU’s prime concern with the BIT is with the clause stipulating that if an investor-state dispute arises, a foreign investor can only seek the option of international arbitration when all domestic legal routes have been exhausted. While India feels this is required to keep control on litigation and reduce the chances of extremely high penalties from international tribunals, the EU calls the Indian legal system slow and corrupt,” a senior Delhi-based trade expert said.
On the other hand, the BIT assures foreign entities that dispute-resolution tribunals, including foreign tribunals, can question ‘public purpose’ and re-examine a legal issue settled by Indian judicial bodies.
It also states that India or any other country cannot nationalise or expropriate any asset of a foreign company unless the law is followed, it is done for a public purpose, and fair compensation is paid. Public purpose is not defined in any treaty India has signed with other nations.
Both sides have, however, decided to move forward on the FTA talks, which are set to resume shortly, eight years after they were suspended.
They have decided that introductory talks will be predicated on initial recommendations from industry groups. Most industry bodies, including the Trade Policy Council of India and Confederation of Indian Industry, have said the deal will be beneficial to the country.
In early 2020, before the global COVID-19 pandemic changed priorities, India had reached out to the EU to restart the stalled talks, signalling its willingness to slash tariffs on wines and automobiles.
New Delhi had been keen on signing the pact after it decided not to join the proposed Regional Comprehensive Economic Partnership (RCEP) in November 2019.
After being proposed in 2007, the trade negotiations saw 16 formal rounds of talks till 2013. But they hit a wall after India decided to terminate existing bilateral investment treaties with 23 European countries in 2016.