The EU has conveyed to the Finance Ministry that India needs to respond to the bloc’s suggestion on the investor court system as a mechanism for settling disputes under the proposed India-EU Investment Protection Agreement for the negotiations to progress, EU officials have said.

“We already submitted our proposal on the investor court system for dispute settlement, but India has not yet responded. Our team recently had talks with the Indian Finance Ministry and communicated to them that they have to respond. They have agreed to do so at the next negotiating round. We are hopeful that talks will gain pace now,” an EU official told businessline.

EU Trade Commissioner Valdis Dombrovskis, who was recently in India for attending the G20 meeting on trade and investments in Jaipur, met Finance Minister Nirmala Sithraman in Delhi where he discussed a number of economic issues including the proposed India-EU Free Trade Agreement and the Investment Protection Agreement.

FTA talks

India and the EU are simultaneously negotiating an FTA and an investment protection pact and are hopeful that both would be concluded at the same time.

“The problem in the investment negotiations is that the EU has more or less rejected India’s model Bilateral Investment Treaty (BIT) framed by the Finance Ministry as the basis for dispute settlement provisions. Instead it wants its own proposal for an investor court system as a starting point for the negotiations. It is something that India is not comfortable with,” a source tracking the development said.

India wants to retain the `exhaustion of local remedies’ clause that is part of the model BIT in its agreement with the EU as it believes that it would reduce the chance of arbitrary adverse decisions against the government that has cost it dearly in the past, the source said. 

The clause requires an investor to first submit its claim before the relevant domestic courts or administrative bodies and exhaust all judicial and administrative remedies  for at least a period of five years before initiating international arbitration proceedings. 

The EU, on the other hand, is insistent on the investor court system model of dispute resolution, where an independent and international panel or court is to be permanently appointed to decide on an investment-related dispute for which both sides would need to pay.

The bloc has already adopted this model in the four trade and investment agreement it has concluded in the recent years with Canada, Singapore, Vietnam and Mexico and is insistent that this should be the case with India as well.