At the recent CII partnership summit in Mumbai, commerce minister Anand Sharma said that India is likely to sign a comprehensive economic partnership agreement (CEPA) with Japan and Malaysia soon, and also looks forward to concluding an FTA with the EU. In the recent past, India has signed CEPAs with Singapore and Korea. Apart from this, India has signed more than 70 Bilateral Investment Treaties (BITs) and is in the process of signing many more with countries like the US. India has an ambitious plan to enter into FTAs with Australia and New Zealand covering not just trade liberalisation but also investment, IP and competition policy.
These treaties impose onerous obligations on India, requiring changes in domestic policies and laws. It was because of WTO obligations that India amended its IP laws and introduced a mandatory product patent system for drugs in 2005, which can have an adverse impact on cheap access to medicines. Fears have also been expressed that many FTAs can have an adverse impact on domestic sectors. The Kerala government has expressed concern over the adverse impact that the India-Asean FTA can have on plantations and fisheries in the state. Public health groups are concerned over the adverse impact that a stringent IP provision in the proposed India-EU FTA can have on public health.
Further, almost all BITs entered by India give foreign investors certain guarantees like national treatment, protection from expropriation, the right to freely transfer funds related to investment, and the right to be treated in a fair manner. India?s exercise of sovereign regulatory power might violate these broad guarantees of investment protection in BITs. The Dabhol power project case is a clear pointer. Mauritius-based subsidiaries of GE and Bechtel, relying on the India-Mauritius BIT, challenged India?s regulatory decisions, including the issue of anti-arbitration injunctions by courts, as violations of BIT provisions; later a mutual settlement was reached, awarding mammoth compensation to foreign investors.
Many of these treaties contain strong enforcement mechanisms like a financial cost for treaty violation. For instance, India removed Quantitative Restrictions (QR) on imports in 2001-02, ahead of the scheduled phase-out, because it lost a dispute to the US in the WTO. Had India not removed the QRs on imports, the US, under WTO rules, could have imposed trade sanctions equivalent to the trade loss it suffered in India. In another instance, India amended its Patent Act in 1997 after losing a WTO dispute to the US and the EC. There are many instances where ad-hoc international arbitration tribunals have held sovereign nations? public regulatory measures as violations of BIT obligations and awarded financial damages to foreign investors.
So it is imperative to revisit the issue of how India enters global economic treaties and whether Parliament has any role in the process. According to the current legal position, the executive has the power to negotiate, sign and ratify all types of global treaties. There is no system of parliamentary ratification or even effective parliamentary supervision of global treaties. This is despite the fact that ?entering into treaties and agreements with foreign countries…? is a subject in the Union list and thus Parliament is competent to legislate on matters related to treaty-making. But, so far, Parliament has not passed any law on this subject; its role comes in only if a binding treaty requires changes in India?s domestic law. In such a situation, Parliament does not debate whether India should or should not accept international obligations; it only debates how the binding obligations, already accepted by the executive, should be implemented. Even if Parliament decides not to amend or make domestic laws required by the treaty, the treaty will continue to bind India. A case in point is India?s WTO dispute with the US and the EC in 1997 for not honouring WTO obligations, since Parliament had failed to amend the Indian Patent Act to implement the obligations.
The issue is not whether or not India ought to enter into these treaties. Rather, given the profound impact of these treaties on the Indian economy and hence on the people of India, the executive alone should not be entrusted with the job of both negotiating and ratifying them. Parliament?s substantive involvement might not be needed for all treaties; but it should certainly be required for treaties that have a significant impact on the economy. Different models can be considered in this regard. In the US model, important treaties signed by the US President have to be ratified by the Senate for them to internationally bind the US. In the Australian model, the executive has to table a ?national interest analysis? of the treaty it wishes to sign in Parliament and then this ?national interest analysis? is examined by a joint standing committee on treaties. This model provides ample parliamentary supervision and acts as a check on the otherwise unabated power of the executive. No constitutional amendment is needed for this; Parliament exercising its law-making power under Entry 14 to enact a law on this will serve the purpose. Effective parliamentary supervision will increase the domestic acceptance and legitimacy of economic treaties, which are often critiqued for imposing undue restraints on India?s economic sovereignty.
The author is an assistant professor at NUJS, Kolkata, and PhD Candidate at King?s College, London