A STORM IN A CUP OF (T)CHAI

Mauritius-India DTAA

Mauritius has come to terms with the fact that, as it comes out of its cocoon of preferential trade agreements and protectionist tariffs, it has to embrace a more open and competitive global regime

On his return from Davos the Prime Minister made a public statement to the effect that he had conveyed, in no uncertain terms, to the Indian Minister of Finance his frustration about the rate of progress or rather non-progress in the on-going negotiations regarding the Mauritius-India Double Tax Avoidance Agreement (DTAA).

A few days later it was learnt that a meeting of the Joint Negotiating Panel scheduled for the end of January in Delhi had been postponed on request of the Indian party.

Understandably enough this coincidence immediately caused many hackles to be raised among politicians, practitioners, some politicians/practitioners as well as economic observers in different media. A noteworthy feature of the debates was how the various positions expressed cut across strict party lines with the practitioners clearly putting their money where their mouth is. The Leader of the Opposition for his part went overboard in defence of “Mother India” going to the extent of claiming that some, who were obviously taking the interest of Mauritius at heart, were being offensive towards a friendly country.

Let us put to rest here the argument that there is a cause and effect relationship between what happened in Davos and the fact that the proposed meeting was postponed. In New Delhi as we spoke to many people closely associated with the operation of the DTAA and carried out a survey of the press over the past week there was clearly no evidence at all of any suggestion to that effect. It would therefore seem that to the extent that the hue and cry in various media was centred on an association of these two incidents, it was all hugely exaggerated. This of course does not mean that the issues raised by various commentators on the substance of the debate are not relevant and even critical to the future of the Agreement. We shall accordingly attempt to comment on some of those issues from the larger perspective of India-Mauritius relations in general.

The Context

That India and Mauritius have a very privileged relationship based on shared historical and cultural experiences is a moot point. What really matters, going forward, is the ability to grasp the ever-changing dynamics of what constitutes this “special relationship”. It is well known that India’s external policy has undergone a real metamorphosis since 1991 with the adoption of the new economic policy of further opening up to, and integration in, the global economy. It has in the process become much more assertive of its self-interest, shedding much of the ideological baggage on the way. No doubt this must have some implications for its relationship with Mauritius.

Mauritius on the other hand has come to terms with the fact that, as it comes out of its cocoon of preferential trade agreements and protectionist tariffs, it has to embrace a more open and competitive global regime. In the circumstances, economic diplomacy becomes a critical instrument of policy. In short, both India and Mauritius find themselves in a totally new context with new sets of expectations as far as international economic relations are concerned.

Special relationships notwithstanding, the outcome of economic diplomacy is determined by the interplay of structural factors including international structures of power among nations and the structures of influence within national economies on the one hand, and processes – principally the decision making process within governments — on the other. Arguably our special relations with India are characterized by the fact that the diplomatic game, including economic diplomacy, is played almost exclusively in the sphere of processes and much less, if at all, in the realm of power structures. This does not preclude, as some would like to believe, engagement in serious bargaining as each of the two countries’ governments cannot feign to ignore the dynamics of the internal politics of their respective nations.

In this regard those familiar with the history of our negotiations are acutely aware of the sensitivity of the issues such as maintaining a professional working relationship with the Indian negotiating counterparts, including the tax authorities. Stephen Cohen, a veteran observer of Indian negotiating behaviour, writing in a chapter on Indian diplomacy, entitled ‘India which says No’ notes: ‘Indians are intent on establishing the moral and political equality of their side and are especially touchy over ‘status’… they reflect a defensive arrogance and acute sensitivity to real and perceived slights.’

It is no secret that Mauritius is walking on particularly dangerous grounds here in view of some legacy issues resulting from previous encounters. Furthermore one cannot ignore the fact that the DTAA signed in 1983 was initially meant to be a totally different instrument from what Mauritius, under former Finance Minister Rama Sithanen, has cleverly turned it into since 1992. Many of the grievances which have emerged around the DTAA from different quarters in India and some of our competitors can actually be traced to that fateful turn of events and its hugely successful outcomes, not only should we point out, for Mauritius but also for India.

It has been said that no two sets of negotiations are ever carried out in the same spirit and circumstances. To this effect two things are now certain: whatever happened in Davos will impact on the next round of negotiations as will the fact that elections in India are now only a few months away. These circumstantial factors notwithstanding, the issues remain obstinately similar and unresolved after so many rounds of negotiations. It would seem that it is this latter situation which has prompted the ire of the Prime Minister recently.

The Process

In the literature on negotiations, the approaches adopted by the parties are usually characterized as either “distributive” with each party trying to maximize its gains without regard to the other party’s interests or “integrative” where the parties are aiming to create greater value and seeking a shared solution to the problem at hand. The repeated assurances given by successive Indian Prime Ministers of India to the effect that nothing will be done which will cause harm to the interests of Mauritius, although it is India which has set the ball rolling, comfort us in our conviction that the DTAA negotiations are being held in a spirit of value creation where both parties are trying to find mutually satisfactory outcomes.

Mauritius on its part has offered an open book approach and systematically responds to every query emanating from different authorities in India especially concerning purported cases of round tripping. It has also offered, among other things, to take steps to ensure that even more substance is added to operations of third party companies using the Mauritius route to invest in India. The process is ongoing and we are still far from a definitive solution.

The Immediate Way Forward

In view of the special circumstances created by the forthcoming elections and the threat and uncertainty posed by the actual status of the GAAR (General Anti Avoidance Rules) in India, it would not be unreasonable for Mauritius to insist that the parties, with due respect to the special relations between our two countries, should formally agree on the following guiding principles going forward:

  1. a) All efforts to discover the real nature of differences will be undertaken through continual exchange of views and information.
  2. b) Joint efforts will be undertaken to find mutually acceptable solutions.
  3. c) Each party will undertake to trade positions for the sake of finding such solutions.
  4. d) No unilateral decision will be taken until the final shape of trade-offs is clear.

Adoption of this framework will acknowledge the fact that there are still serious questions to be debated but that the timing and present circumstances are less than favourable for finding the most equitable solutions. It will provide the necessary clarity to economic operators and comfort those in Mauritius who trust that India will never deliberately cause us any harm. But above all it will clearly establish the rules of engagement for future negotiations.

New Delhi – 4 Feb 14

 


* Published in print edition on 7 February 2014

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