New Delhi, Sept. 22: Finance ministry mandarins are busy trying to resolve a three- year deadlock over an investment protection treaty between New Delhi and Washington ahead of Prime Minister Manmohan Singh’s visit to the US later this month.
India may agree to conditional international arbitration of commercial disputes and clauses prohibiting direct and indirect expropriation of the assets of US firms.
The treaty has got delayed because of New Delhi’s insistence that arbitration should be in Indian courts, which the US is unwilling to accept.
The US says it cannot ask its firms to move ahead in sensitive areas such as defence without guarantees on the investment if an Indian court, which may be biased, is the final arbiter.
The finance ministry now seems willing to concede the settlement of commercial disputes by a third party globally, if the two sides so decide. However, it maintains that tax disputes will be settled in the courts of the countries where the joint ventures are set up.
Sources said the US negotiators would like clauses to protect investment against retroactive taxes.
India’s investments in the US have risen to $11 billion in 2012 from just $5 billion in 2010. American investment in India stands at a far larger $29 billion.
India and the US have emerged as major trade partners; the two-way trade, which was $63 billion last year, is slated to touch $80 billion this year.
Usually, nations which sign investment protection treaties include a dispute settlement provision, which involves international arbitration clauses.
India, too, has in the past signed deals with such clauses in treaties. India has signed bilateral investment protection agreements (Bipa) with 82 countries, including the UK, Germany, Russia and China.
Of late, New Delhi has been wary of bringing in such clauses after every tax demand made by it has attracted investment protection clauses by the MNCs.
However, with India announcing liberal safe harbour rules for MNCs in many key industries, the insistence on a blanket arbitration clause may be lifted by US negotiators in favour of selective clauses, said sources.
The investment agreement with the US will assure the Americans that no proactive steps will be taken to take over the Indian assets of US firms to pay for any uncontracted liability.
Besides the removal of the clause on expropriation of investments, except under due process of law and accompanied by full compensation, the US wants that indirect expropriation by measures that “tantamount to expropriation” should be prohibited.
The US is particularly keen on this clause as Westinghouse is set to sign a deal with the Nuclear Power Corporation of India to supply reactors to its Bhavnagar plant in Gujarat this month.
Both Washington and New Delhi are keen that this deal be pushed through despite the former’s reservations over the country’s nuclear liability law.
Officials said Narendra Modi’s Gujarat government was also pushing for the deal.
NPCIL and Westinghouse had signed a memorandum of understanding for the first of the six units of a 1000MW facility at Bhavnagar.
The cost for the entire plant, once it comes fully onstream, will be around $10 billion.
Working out a Bipa is crucial as India seeks US investment and transfer of technology, besides joint research and development not only in nuclear energy but also in defence and avionics.