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  1. Nirmala Sitharaman cracks whip as EU nations fail to sign new investment pact

Nirmala Sitharaman cracks whip as EU nations fail to sign new investment pact

With the European Union delaying its response to India’s request for a renegotiation of the BIPA its member-nations had entered into with New Delhi earlier, uncertainties loom over protection to fresh investments made by companies in each other’s territories after April 1.

By: | New Delhi | Published: January 11, 2017 6:00 AM
According to Nirmala Sitharaman, India had informed the EU a year in advance about the expiry of the old pacts by the end of March 2017. (PTI) According to Nirmala Sitharaman, India had informed the EU a year in advance about the expiry of the old pacts by the end of March 2017. (PTI)

With the European Union delaying its response to India’s request for a renegotiation of the Bilateral Investment Promotion and Protection Agreements (BIPA) its member-nations had entered into with New Delhi earlier, uncertainties loom over protection to fresh investments made by companies in each other’s territories after April 1.

India has made it clear that all such bilateral investment agreements with other nations modelled after the earlier text will become null and void on April 1, 2017 and that both existing and fresh pacts have to be based on the new model text approved by the Cabinet, commerce and industry minister Nirmala Sitharaman said on Tuesday.

According to Sitharaman, India had informed the EU a year in advance about the expiry of the old pacts by the end of March 2017, and the need for re-negotiating the investment agreements on the basis of the model investment text approved by its Cabinet in December 2015.

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Still, India is yet to get a date from the EU for starting the renegotiation process, she said. Under the European Commission (EC) framework of law, the EU members have delegated their power to the EC in Brussels to negotiate on trade or investments on their behalf.

Analysts said while existing investors will enjoy protection for an additional 10-15 years even after the expiry of the agreement due to a sunset clause attached to these pacts (for instance, the agreement with the Netherlands extends protection to investments made before the date of termination for 15 years more), fresh investments from April this year will not have such protection until the two sides renegotiate the pacts. Last year, EU had expressed concern on the fate of investment treaties between some of its members and India after the finance ministry had written to various countries, seeking a review of all such pacts within a year using the new investment text.

India had signed a total of 83 bilateral investment treaties (BITs) since 1994, including those with some of the EU members. Separately, India also recently revised its Double Taxation Avoidance Agreement (DTAA) with Singapore, having tweaked its tax treaties with Mauritius and Cyprus earlier last year. These revisions are mainly aimed at curbing misuse of the provision for avoiding double taxation.

The modified treaties with Mauritius, Singapore and Cyprus confer New Delhi the right to tax capital gains and thwarts round tripping by Indian investors.

EU nations like Germany, France and the Netherlands are among the top ten foreign direct investment sources for India since April 2000, while the UK – which has decided to exit the EU – is the third-largest source. Analysts have said India can have a separate pact with the UK now that the latter has decided to pull out of the Union.

New issues at WTO only

after consensus

After meeting officials to review the country’s strategy for the WTO, Sitharaman said India wants new issues such as e-commerce and government procurement be incorporated in the WTO’s agenda only after member-countries gather a consensus on them. When told that developed nations, including the US, are pitching for the inclusion of such new issues at the WTO, the minister said no consensus has emerged so far on them.

“New issues have to come in agenda only after consensus emerges on those. I do not think there is a consensus. Discussions are on but it is not in the agenda,” she said. Key WTO members, including India, the US and some others, would meet on the sidelines of the World Economic Forum meeting in Davos later this month. The next WTO ministerial is also scheduled to take place in Argentina in December.

The minister ssaid that her ministry has already worked on the text of a trade facilitation agreement on services at the WTO and has also taken a legal vetting. “We will certainly want to put TFA in services for discussion. We would take it up as an agenda as we approached the ministerial meeting.”

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