DTAA Protocol: Why It’s Not All Lost Yet

The outcome of the Protocol having failed to gather consensus among the national constituents, there is space and time for government to press on the Indian party not to ratify the document

It would be futile and even irresponsible to continue into a blame game as far as the recent developments concerning the Double Taxation Avoidance Agreement (DTAA) with India are concerned. The fact of the matter is that the protocol has been signed and all those concerned have to come to terms with the fact that a totally new situation has been created. Which does not mean that we have to accept this new situation but simply that there is no way of going back to the” status quo ante”.

Accepting such a premise would allow the parties to future negotiations to focus on achievable and realistic options that would ensure a more balanced outcome to these discussions between India and Mauritius. Everyone who genuinely has the interest of Mauritius and those of the thousands of employees of this significant pillar of our national economy at heart should bring themselves to understand the above. It is postulated here that the game is not over. There is still time and space for negotiations not with a view to “reverse” the course of events but to look forward and find an alternative solution which is a real win/win for both protagonists. For let it be said that what is wrong with the present situation is that Mauritius leaves the table with no real gains to show for.

The outcome of this protocol is nothing but the unilateral imposition of the arguments of the most ferocious anti-Mauritian lobbies in India and elsewhere and runs counter to the basic premise of the special relationship which our two countries are purported to entertain. The issues here go much beyond the transactional flavour which transpires from the present outcome. The political leaders of India – including Prime Ministers from late Indira Gandhi to Mr Modi – and of different political parties have always maintained that India would never undertake any action which would in any way hurt the interests of Mauritius. No Mauritian in his right mind would even dare to think that these were merely reassuring statements with no real intent. And yet however much the Indians may protest, it is obvious that they have finally come out of this tussle as the undisputed winners and that the interests of Mauritius in this particular instance could be badly damaged.

So, how did we end up where we are now?

Our chief negotiator, the Minister of Financial Services, has clearly stated that he was under duress through this whole process, acting under the threat of what he believed would be a Termination Notice from the Government of India if matters were not settled – presumably in the form that they have been. The High Commissioner of India’s post facto denial of such a state of affairs is probably genuine but of very little comfort under the circumstances. The fact remains that the Mauritius party has clearly been “misguided” and unfavourably conditioned by this all through the “negotiations”. This was the stick.

And what about the carrot. If there is no cause and effect relationship between the 12.7 Billion rupees grant extended by India to Mauritius and the signing of the Protocol to end the most critical benefits enjoyed by Mauritius under the DTAA, then it was very stupid of the Indians to have made the announcement at this particular juncture. We have too much respect for the Indian officials to believe that this was the case.

Furthermore, as a few former Mauritian Ministers of Finance would surely testify, there have been many attempts to have such a quid pro quo in the past with India offering financial compensation against the “re-negotiation” of our DTAA. We can however understand the reticence under the circumstances for the Indian party to acknowledge this aspect of the whole “deal”. For if this is indeed the case then Mauritius has extracted mere pittance from the transaction.

But where it gets worse is that this would indicate that the astute Indian negotiators have played on the weakness of the country as they are acutely aware of the ravages which the BAI affair has and will cause to local public finances.

Bilateral negotiations around an agreement between sovereign states and with such huge financial and geo-political implications for both parties constitute the essence of Economic Diplomacy. Given the stakes one would have expected that the Ministry of Foreign Affairs would be closely involved in the proceedings. For reasons which are quite obvious to all political observers, the deafening silence which has preceded and followed the announcement of the signature of the Protocol is an indication that this Ministry does not seem to have been involved in the proceedings.

This is indeed a real pity for it is known that the few and rare trained and experienced professional negotiators of the public sector are all posted in the International Trade Division of that ministry. In international negotiations terminology, the issue of renegotiation of the DTAA with India would be considered a “high politics” issue which would therefore require the attention of the highest authority (the Prime Minister in this case) but also that the views of those impacted the most by the decision be taken on board.

From what we are hearing there has been to say the least a “deficit in communication” between the Ministry and the operators, and the Ministry of Foreign Affairs has not been an active actor.

The way forward

As has been said earlier, there is scope to move forward in this matter – not backwards. The actors involved would be the government, represented by the Ministry of Financial Services, the Ministry of Foreign Affairs and the Prime Minister’s Office and Ministry of Finance looking at the broader national interest and the representatives of the operators of the global business sector. There is absolutely no room for “ego trips” coming from any of the parties involved, if anything modesty and open-mindedness should be the order of the day. In short every actor needs to go the extra mile in making necessary concessions to create the right conditions for a shared, rational and realistic national platform to emerge.

International negotiations are successful to the extent that their outcomes maximize support among local constituents while minimizing the adverse international consequences. Clearly the protocol that has been signed between the two parties has failed to create the requisite consensus among operators and most importantly among the public at large and can therefore be damaging to government especially if some of the worst fears about the future do materialize.

A distinction needs to be made between negotiations – the outcome of which lies in the Protocol which has been signed – and ratification. The outcome of the Protocol having failed to gather consensus among the national constituents, there is space and time for government to press on the Indian party not to ratify the document. We should have the modesty to plead that the negotiations were carried out under “abnormal” conditions and the Prime Minister should take the lead in initiating conversations with the highest authority in India – Prime Minister Narendra Modi.

Without pre-empting what would be decided by the eventual national platform at this point, there are two principal suggestions regarding what should be reviewed in a forward looking manner starting from the post Protocol situation.

First, the delay for implementation of the decisions should be further extended, say to 2025. This would definitely allow the global business sector to absorb the consequences and re-orient its strategic thrust accordingly.

Second, Mauritius should agree to make a concession which would somehow placate the demands of the tax officials of India regarding the shared 50/50 taxing rights but that this should be an integral part of the new version of the DTAA without any extinction date.

Such a resolution would be more in the spirit of the special relations between our two countries. It will meet the demands of some of the most vociferous anti-DTAA arguments while giving substance to our special relationship. It should also create the right kind of national consensus both in India and Mauritius.

* Published in print edition on 20 May 2016