|Thursday, 05 April 2012 00:00|
Treaty overhaul preferred to genuine governance
With at least four companies threatening to take the government to international arbitration, it’s not surprising the government is looking for a solution. What is surprising, though, as FE reported, is the solution envisaged is India removing the arbitration clause and subjecting disputes to the jurisdiction of local courts in both countries who are party to the bilateral investment treaty (BIT)—all the four firms are looking at solutions under the BIT. Given the average length of time it takes to get past the courts, effectively this reduces the arbitration clause to virtually nothing.
While the government wanting to avoid litigation in different parts of the world is understandable, the purpose of the arbitration clause, and at international fora instead of just in India, was to instil confidence in investors. The proposed change in the BIT does the reverse by removing this vital clause. Though it is not clear how many countries will accept the new formulation as it will hurt their businessmen, this is unlikely to affect the current cases as they are all filing, or threatening to file, under existing BITs.
What is more worrying, of course, is that instead of examining the reasons for the dispute and trying to address that, the government is aiming to curb the freedom of investors. In the TCI case, the issue is of the freedom of companies to run their businesses while the coal minister has pretty much said this is not going to happen in a poor country! In the case of the telecom firms MTS and Telenor, the issue is of investments being made on the basis of government clearances and the government’s responsibility for this. In Vodafone, it is about legitimate expectations of taxation policy not being changed arbitrarily. All are legitimate concerns and, sadly, the government isn’t addressing the real issues.