Long way to go for India-US investment treaty, says Kirk

India might have to wait longer to sign a Bilateral Investment Treaty or BIT with the US than what its officials believe. Commerce Minister Anand Sharma was quoted in the Indian and the US media last month, saying negotiations between the two countries on the treaty were nearly complete.

However, a US trade official who asked, requesting anonymity, told Business Standard that Sharma’s description of the status of BIT negotiations was “not accurate”. The official said the US-India BIT negotiations were started in 2008 and the first round of talks were held in August 2009. “We look forward to resuming technical discussions of the BIT shortly.”

In an exclusive interview, US Trade Representative Ron Kirk also sounded cautious on the prospects of a speedy conclusion. He said the two countries had agreed at the ministerial level to resume technical discussions on the “possibility” of a BIT and expected to begin talks in the “very near future”.

In an interview during his visit to Washington, DC, last month, Sharma had told this correspondent that two rounds of talks on the BIT would be completed before the next round of the bilateral Trade Policy Forum to be co-chaired by him and Kirk next January.

The BIT is expected to protect US investments abroad and provide incentives for investments from partner countries coming to the US. The US has BITs in force with 40 countries.

US President Barack Obama’s administration is currently engaged in an open-ended internal review of its model BIT text, last updated in 2004. Officials at the USTR and the State Department, which co-lead the BIT programme, did not say when the review would be completed or whether the US could sign a new BIT before the review process was over.

The US trade official, said on the condition of anonymity that the administration was working to complete an update of the US model BIT, which would serve as a framework for future treaties. “In the meantime, the state department and the office of the US trade representative continue technical talks with current negotiation partners, including India,” the official added.

Kirk suggested in the interview that the completion of the review might not be imminent. He acknowledged the “importance of moving forward with the BIT review and programme,” but pointed out: “The Administration has received a large amount of input from the full range of stakeholders regarding many important issues in the model BIT. We want to ensure that we have a full opportunity to carefully consider all such input before completing the review.”

American trade officials acknowledge that a BIT with India would “deepen our economic relationship and improve investor confidence for both US and Indian investors”. The US India Business Council or USIBC has been strongly lobbying for a BIT with India on these grounds.

However, as USIBC President Ron Somers pointed out, Free Trade Agreements with South Korea, Colombia and Panama are already waiting for approval on Capitol Hill. The BIT review is unlikely to take precedence over these FTAs, which have been opposed by some labour groups, but are expected to be cleared by the US House and Senate later this month.

It is believed the White House is also holding back on submitting a revised model BIT with recommended changes due to concerns about disrupting progress of the three FTAs. Somers said

it was possible that the new text for the model BIT could be approved after the three FTAs were passed. “However,” he added, “a worst-case scenario could halt model BIT approval until after the 2012 elections” in the US.

The USIBC is urging quick action from the US government, pointing out that India is moving forward on trade agreements with other countries. “US firms will find themselves competitively disadvantaged unless we move forward with India also,” said Somers. “With a flagging world economy exhibiting sluggish growth, time is of the essence.”

He also believes the needs of the India-US economic relationship have already outgrown the framework of a BIT, and argues the two countries should develop an economic cooperation arrangement that leapfrogs the treaty. “Is a BIT ambitious enough?” asks Somers.

But it appears even the BIT may prove too ambitious at the current pace of progress.