India FTAs: Don’t Let Atmanirbhar Bharat Cripple Dispute Settlement Negotiations

→ If India seeks to promote the rule of law across the Indo-Pacific region, and thereby help its businesses and expand its influence, then it should negotiate robust dispute settlement chapters in its FTAs.

Rethinking Atmanirbhar Bharat

Notwithstanding India’s distinction as the world’s largest democratically-governed market economy and most religiously pluralist country, Indian international trade policy suffers from Atmanirbhar Bharat. ‘Self-Reliant India’ is defined by protectionism, avoidance of free trade agreements, and subsidisation.

Thus, India has hiked tariffs on selected imports and handicapped operations of foreign multinational corporations. It’s withdrawn from the Regional Comprehensive Economic Partnership and dismissed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It touts ‘Make in India’ and champions local monopolies and oligopolies, while abandoning agricultural reforms.

Thankfully, the drive to Self-Reliant India may be slowing, and the journey toward Internationalist India may be accelerating. The evidence is India’s current pursuit of free trade agreements, including the new, 881-page FTA India signed with the United Arab Emirates on Feb. 18, 2022, that takes effect in early May. India appears to realise Atmanirbhar Bharat either will doom India or is doomed.

Why ‘thankfully’?

Raisina Hill and India, Inc. operate in the post-1986-94 Uruguay Round world of an atrophying World Trade Organization dispute settlement mechanism (to which India has brought 25 complaints and responded to another 32 since its 1995 inception), and a dead WTO Appellate Body (on which distinguished Indians have sat).

Though this first-best multilateral mechanism is cancelled out, India’s disputes won’t end, whether over market access, non-discriminatory treatment, customs rules, dumping, subsidies, safeguards, technical barriers, sanitary and phytosanitary measures, intellectual property rights, procurement, e-commerce, or any one of a gazillion crore controversies that arise with cross-border flows of goods, services, and foreign direct investment. Not unless those flows cease.

But India won’t stop those flows, because India can’t modernise through autarky. And they shouldn’t stop, because through them India extends its geopolitical influence across the Indo-Pacific region.

So, where will the government and businesses seek recourse in those disputes? The answer is dispute settlement provisions in FTAs.

Also Read: The Death Of The Supreme Court Of International Trade

Enter FTAs!

Atmanirbhar Bharat leaves Raisina Hill and India, Inc., and all foreign traders and investors that do business with India, to the mercy of India’s judicial system. They are to rely on Indian courts to resolve their cross-border trade and investment disputes.

That won’t work.

Amidst flashes of brilliance, and despite its valuable inheritance of English common law, judicial independence, and separation of powers, India’s courts suffer from well-known, unresolved blights: bureaucracy, poor physical and digital infrastructure, and corruption. On the list of adjudicatory forums in which traders and investors prefer to bring or defend a case with an Indian public or private body, domestic courts are far from the top.

India’s UAE FTA could be the first of several, possibly with Australia, European Union, Thailand, and United Kingdom.

Indian Commerce Minister Piyush Goyal and UAE Minister of Economy Abdulla bin Touq Al Marri sign the India-UAE CEPA, in New Delhi, on Feb. 18, 2022. (Photograph: Piyush Goyal/Twitter)

No ambitious FTA is without a dispute settlement chapter

Many, such as the United States-Mexico-Canada Agreement, have several such chapters, with mechanisms tailored for state-to-state, investor-state, trade remedies, labour, and environmental disputes. Such mechanisms allow complainants and respondents to bypass local courts in favour of arbitral panels consisting of neutral panels.

So, to provide a preferred adjudicatory forum and thus attract trade and investment, while also containing China’s exportation of illiberal adjudication (more about that later), India needs to ensure any FTAs it signs contain robust dispute settlement provisions.

‘Robust’ means India’s negotiating position on the dispute settlement chapter should achieve three goals. Here they are, why they’re important, and how to achieve them.

Goal 1: Solve Disputes Swiftly And Justly

Fundamentally, any FTA dispute settlement mechanism is supposed to resolve substantive claims, counterclaims, and defenses of the petitioner and respondent, based on expeditious procedural deadlines and reasoned legal doctrines. That mechanism is all that stands between civilised adversarial discourse and a Hobbesian-Nietzschean world in which the nasty, brutish law of might dominating over right prevails. That was the world before October 1947, when the General Agreement on Tariffs and Trade spawned the first multilateral mechanism, and on which Uruguay Round negotiators improved with the now-failing WTO Dispute Settlement Understanding.

To achieve this goal, India should advocate for FTA dispute settlement provisions that:

Do not allow a complainant or respondent to block the formation of an adjudicatory panel or adoption of a panel report.
Circumscribe the ability of the parties to challenge the selection of individual panelists.
Result in binding panel decisions with specific rulings the losing party is obliged to implement.
Yield published panel reports, with the official text in English (to avoid delays in translation from what is the international business language to local languages), limited to 50, clear, well-written pages (also to cut time, plus avoid interpretative conflicts).
Provide for retrospective remedies to compensate the injured petitioner (not merely prospective ones, which don’t redress past damage), and achieve specific and general deterrence (against the losing respondent and any other FTA party).
Are exhausted within six months, for example, by limiting claims and counterclaims to three each (with attendant limits on filings), and allowing for rapid dismissal of unsubstantiated or frivolous claims (thus clamping down on the kind of tit-for-tat litigation China has launched against governments and companies that dare to challenge it or its enterprises).
Give the losing respondent no more than six months for compliance, and thereafter, in the event of non-compliance, permit the winning petitioner to take proportionate remedial action (without having to undergo protracted litigation over whether “compliance” occurred or what retaliatory tariff or fine is “proportionate”).
Embody a straightforward appellate mechanism to deal with clearly erroneous legal interpretations by a panel, with the power to remand a case to the panel (not just affirm or deny the panel’s judgment), but which adds no longer than three months to the entire process.

As WTO aficionados will recognise, such provisions in an Indian FTA would rectify several defects in the Dispute Settlement Understanding from which India has suffered.

The WTO headquarters in Geneva, Switzerland. (Photographer: Stefan Wermuth/Bloomberg)

Goal 2: Develop A Common Law Of International Trade

Unless an FTA dispute settlement mechanism is purely arbitral, it should generate a respected body of jurisprudence among the FTA parties. That corpus helps avoid future disputes because it presents governments and businesses with certain, predictable rules to follow. They need not re-litigate an issue that has been decided; rather, they can proceed with their contracts under a stable rule of law framework. In turn, this corpus incentivises further trade and investment among the parties – a benefit evidenced by the EU customs union and USMCA.

India can achieve this goal by championing FTA dispute settlement rules that:

Allow for the application of precedent, that is, stare decisis, at least in a loose sense, so the holding from a previous case of A versus B guides the outcome of the next case of C versus D, unless the facts and issues in the second case are convincingly distinguished from the first case.

Additionally, those rules:

Promote transparency, should mandate the publication of panel reports, and underlying briefs the litigants submit, plus open proceedings to the public.
Promote participation from civil society in the parties, should not exclude amicus curiae (friend of the court) briefs.
Avoid subject matter jurisdiction disputes, and ensure cases are heard, should be comprehensive, meaning a panel can adjudicate all disputes directly related to the FTA, with no issue-specific or sector-specific carve-outs (e.g., energy or currency manipulation).

Achieving this goal is facilitated further via openness to the interpretative methodologies a panel uses to render its decision. India should reject the parochial American obsession with textualism, and allow panels the flexibility to use contextual and pragmatic ways to understand and apply rules when strict dictionary definitions don’t work.

Trucks transporting shipping containers enter JNPT in Navi Mumbai, on Nov. 14, 2021. (Photographer: Dhiraj Singh/Bloomberg)

Goal 3: Enhance The Rule Of Law across The Indo-Pacific Region

FTA dispute settlement mechanisms should bolster the reputation of the Indo-Pacific region as one governed by the rule of law.

It’s to India’s disadvantage that the Chinese Communist Party of Xi Jinping writes the rules of regional trade, including the rules of dispute settlement. That’s a threat, given China sealed RCEP and lodged its CPTPP accession bid.

To allow a regime looking ever-more totalitarian than authoritarian to define the terms of how Indo-Pacific governments and private parties resolve disputes would be Kafkaesque and Orwellian.

Moreover, India’s national security isn’t enhanced by neighboring failing and/or fanatical rule of man regimes. Is India not now experiencing those dangers to the northwest following the August 2021 fall of Afghanistan to the Taliban and knock-on effects in Kashmir and Pakistan, and to the northeast with the February 2021 military coup d’état in Burma and knock-on effects in its five bordering provinces of Arunachal Pradesh, Nagaland, Manipur, Mizoram, and Tripura?

India’s countermove should be to promote throughout the Indo Pacific region strong legal regimes inspired by its own FTA networks. Call it containment of outlaw regimes by bolstering neighborhood legal capacity, which India can achieve by:

Leveraging its excellent law schools to train lawyers from across the region, and export them back, post-graduation, to their home countries, to ‘spread the gospel’ about dispute settlement, much as Britain once did for India, and America does for India.
Promoting codes of ethical conduct that govern lawyers and judges on transparency, conflicts of interest, and safekeeping of client funds.
Regularly monitoring, correcting, and upgrading the operation of FTA dispute settlement mechanisms.

India should agree with fellow FTA parties to incorporate these points into their FTAs dispute settlement chapters. Not only will the parties implement them as obligations, but also non-parties will aspire to them in the hopes of joining those FTAs. That’ll be a healthy ‘race to the top’ catalysed by Indian-led standard-setting.

Richard II’s Remark

Though hardly a model King, what Shakespeare’s Richard II says to his cousin, Henry, is useful advice for India:

they well deserve to have,

That know the strong’st and surest way to get.

- (Richard II, Act III, Scene 3)

So it is for India: If India ‘knows’ the ‘strongest and surest way’ to ‘get’ what it needs in FTA dispute settlement then, then India will ‘well deserve to have’ them.

At a Feb. 10, 2022, Conference on Settling Disputes in International Trade Law, sponsored by the Center for Trade and Investment Law, New Delhi, Raj Bhala was honoured to present the above views alongside Shri Dr. Anup Wadhawan, Secretary of Commerce. He thanks Dr. Anup, and CTIL’s Director, Dr. James Nedumpara. These views do not necessarily represent theirs.

Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.