As President Trump remarked at the United Nations, a deal to end the 15-month trade war with China could happen sooner than people think. Chinese importers purchased roughly 600,000 tons of U.S. soybeans after deputy-level trade discussions between the U.S. and China, which is a positive development for U.S. trade with China.
While China deservedly gets most of the heat for not playing by the rules, India and other countries which are presenting themselves as counterweights to China are falling short when it comes to protecting international investors. Under Prime Minister Narendra Modi, India has worked hard to reduce extreme poverty and has emerged as a global economic powerhouse.
While India continues to develop economically, Modi has repeatedly called for making India a global “arbitration hub.” In reality, the Indian investment climate is failing many foreign direct investors.
For instance, NTT Docomo, the Japanese telecom giant, entered an agreement to buy a 26.5 percent stake in Tata Teleservices in India for $2.6 billion. Tata’s failure to meet performance targets resulted in Docomo’s decision to exit the agreement in April 2014. The original contract stipulated that Tata Sons was responsible for finding a buyer for the higher of 50 percent of the acquisition price or fair-market value.
As a result of Tata Teleservices’ poor financial performance and no buyer, Tata Sons submitted a request to the Reserve Bank of India (RBI) to permit Tata Sons to purchase Docomo’s shares itself for more than half of the initial purchase price. The RBI refused, referring to new rules prohibiting an Indian company from buying back shares at a price above their fair-market value. After a long court battle, the two companies settled and Docomo was awarded $1.2 billion after initially investing $2.2 billion.
Docomo was not alone among telecommunications companies. Vodafone, the United Kingdom-based carrier, acquired a majority stake in Hutchinson Essar, a branch of an Asia-based cellular carrier. Despite the transaction not taking place in India, the Indian government decided that Vodafone owed them $5 billion in retroactive taxes on the transaction. When the Indian Supreme Court ruled that the government could not collect, the government changed its tax law to allow the retroactive collection of taxes.
This dispute is just another clear example in a long-documented pattern of sharp business practices by government agencies in India. The reality is that foreign direct investors in India cannot have confidence that their investments will be treated fairly and that all parties will adhere to the rule of law.
Nissan entered a deal in India with the government of the province of Tamil Nadu to construct an automobile manufacturing park which included tax incentives for Nissan. While the agreement would have helped both parties, the province was set to gain thousands of jobs. In the end, Nissan was forced to send a legal notice to Indian Prime Minister Narendra Modi’s administration claiming more than 50 billion rupees ($720 million) in a dispute over incentives it said were due from Tamil Nadu as part of the legally binding agreement to set up a car manufacturing plant in the southern state.
The Japanese car-maker brought the case against India for violating Comprehensive Economic Partnership Agreement (CEPA) the country has with Japan. The Indian side argued that the Permanent Court of Arbitration in Singapore does not have the jurisdiction to rule on these matters, including that it was a tax issue outside the scope of the CEPA with Japan. The case is just one that a long list of international companies such as Vodafone Group, Cairn Energy and Deutsche Telekom been forced to take in proceedings against India over issues ranging from retrospective taxation to payment disputes, which should be of great concern to international investors.
While trade relations with China continue to dominate the headlines, India has the potential to be an even stronger destination for FDI. The reality is that if U.S. and our allies are to invest in India, Prime Minister Modi’s government must ensure that international arbitration rulings are respected, the rule of law is enforced and that all Indian-government agencies play by the rules.
Matt Mowers (@Mowers) served as a senior White House adviser in the Trump administration and as chief of staff and chief policy adviser at the State Department. He is the president of Matt Mowers LLC, which advises organizations and companies, but does not lobby for any of the organizations named in this column.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.