German Elections & India’s Bilateral Investment Treaty

Image: Public Domain
After 12 years of Angela Merkel, India stands to gain by fast tracking key trade with her key project - the European Union.

By cursory analysis, the longer you hold power over your state the more likely you are to win the Jawaharlal Nehru Award for International Understanding. Former recipients include Robert Mugabe of Zimbabwe (37 years in power), Hosni Mubarak of Egypt (29 years), Helmut Kohl of Germany (16 years) and most recently, Angela Merkel, also of Germany (12 years…and potentially four more).

Political longevity is key to understanding the fast-changing fortunes of political office in India. When Angela Merkel came to power in 2005, Manmohan Singh was beginning his first term as India’s prime minister, running a ‘dream team‘ of financial reformists. When she returned to office again in 2009, Singh had won again, becoming the first prime minister since Nehru to return for a second term. Then, Singh and Merkel were both seen as world leaders who pulled their countries through the international financial crisis.

In 2013, when Merkel won by a landslide for the third time, Singh and his party were on their way out. Merkel picked up another award from India – this time, the Indira Gandhi Peace Prize. In 2014, Narendra Modi came to power – and is the face of the administration Merkel will have to deal with if she returns to power in 2017.

Of course, three years have passed and Modi and Merkel are familiar with each other. Germany is India’s largest trading partner in the European Union – and the EU is India’s largest trading partner overall. But there is a slight awkwardness in the relationship – best explained in terms of two faux-pas between the leaders.

The first, in 2015, saw Modi approach Merkel at the end of a press conference with hand outstretched for a handshake. Merkel walked right past it prompting Modi to awkwardly put his hand in his pocket – only to be led to a different location for the shake. At the time, Twitter was set afire with this captured ‘snub’. Except Merkel was only leading Modi to a better photo-op in front of both nation’s flags.

This might not be relevant, had it not happened again in 2017. Once again, Modi’s hand was left waiting by the German Chancellor – who has made it a point to be photographed in the appropriate time and place alone.

The need for Free Trade

The game of handshakes is gestural and fit for Twitter at best – but it highlights a long-running issue between India, Germany and the EU. For since 2006, India and the EU have been deliberating, discussing and stalling a Free Trade Agreement. Barring this, Indo-Germanic ties will have little room to grow further.

It’s an agreement made urgent by India’s recent action on its bilateral investment agreements with EU member states; a move prompted by India’s past experiences with international arbitration on its bilateral deals. On March 31, 2017, the deadline expired for nations to renegotiate their deals with India under a new Bilateral Investment Treaty (BIT). Since then, India has terminated existing arrangements with 58 countries – including numerous EU states.

There are two primary contentions. One is the allotment of ‘Most-Favoured Nation’ status, a tag India has done away with after a deal went sour with Australia. Then, investors had argued that Australia had been discriminated against by not being allotted MFN status along the lines of what Kuwait earlier received. The other is the treatment of tax disputes; the new BIT stipulates that taxation-related disputes may only be taken to international courts once domestic options are exhausted.

It spells bad blood for future investments in India; contradictory to the Modi administration’s vaunted push for Foreign Direct Investment (FDI). Investors will receive no protection under a BIT until the European Union can negotiate its Free Trade Agreement (FTA) with India. Prior to Merkel’s visit to India in May, the German ambassador to India had urged the two to sign an FTA as soon as possible.

If you want to shape globalization, you do it by writing it into treaties as international law… This (the India-EU bilateral FTA) is an instrument by which you shape globalization…If you don’t do it (shape globalization), you leave it to other countries to do it.

Like any nation vying for another’s attention, India has to keep in mind Germany’s other trade opportunities. The big foreign policy move of the year – staying out of China’s One Belt One Road (OBOR) initiative – has made India’s position clear on the new silk road. The German ambassador may have supported India’s move, but German companies are already lined up to benefit form OBOR.

If India doesn’t find something to offer Germany in terms of trade, it might see the momentum fade between the two. But as far as Merkel is concerned, the EU’s gain is Germany’s win.

For many years, Angela Merkel has been considered the de facto leader of the EU. Germany is the leading economic power within the EU; a position that has propelled Merkel to the number two position in Forbes’ list of the ‘most powerful’ world leaders.

Merkel is, by any metric, the most powerful woman in the world – a position she had held for 11 years. And the world is now a drastically different place than what it was when she took power. Brexit and Donald Trump have together dented the inter-dependence of the Western powers. After a disastrous NATO meeting with Trump, Merkel was prompted to admit that “The times in which we can fully count on others are somewhat over.”

The EU needs trade with both India and China if it’s to maintain its economic might. It’s a position that even Merkel’s chief political opponent, Martin Schulz, would agree with. Schulz is a strong believer in the EU. If anything, Schulz is a greater hardliner than Merkel – he has pushed for the ‘hardest’ possible Brexit deal for the United Kingdom.

The outcome of the German election, scheduled for September 24, will determine the future of both Germany and the European Union. With either candidate, we know it’s an intertwined future. For India to capitalize on either, a trade deal will need to be reached with the EU before the OBOR gathers steam in Europe. In May, Modi said that India was ‘waiting with open arms‘ for German investment and partnership. Unless India can soften its stance on bilateral investments, its open arms bear clenched fists to potential investors.

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