As the presidential-campaign season draws to a close, President-elect Trump and Secretary Clinton devoted a large amount of the 2016 campaign arguing that China, India and other U.S. trading partners must play by the rules. For more than 30 years, as a statesman and diplomat, I have worked to bring nations together and encouraged all sides to play by the rules by adhering to basic internationally accepted values, such as respecting the rule of law.
While China gets most of the heat for not enforcing international law, India's reluctance to enforce basic international laws should not to be ignored by U.S. investors looking at entering the Indian market. In recent days, the World Bank released its 2017 Doing Business report, and once again, India performed at the bottom of the pack -- settling in at 130 out of 190 countries, trailing behind Brazil, Malaysia, Turkey, and El Salvador. They were ranked 172 for enforcing contracts. This last fact will come as no surprise to those that have followed the challenges faced by Vodafone in its public dispute with India, and Japanese mobile-phone carrier NTT Docomo, in its private dispute with India's Tata Sons.
Last week, Indian Prime Minister Modi called for India to become a global arbitration hub. Businesses often choose arbitration to resolve their disputes, as it is supposed to provide legal certainty, with countries having the obligation to enforce arbitral rulings under the New York Convention. At India's first ever conference on "National Initiative Towards Strengthening Arbitration and Enforcement," Modi said: "Businesses seek assurance of the prevalence of rule of law in the Indian market. They need to be assured that the rules of the game will not change overnight, in an arbitrary fashion."
These ambitions reflect the progressive mandate on which Mr. Modi was elected, and should be welcomed by the international business community. But sadly, India's record of changing the rules mid-game has meant a muted reaction. While India is doing many things right, a disconnect exists between Prime Minister Modi's comments and the challenges being faced by international investors in India. One of the starkest examples of this is the NTT Docomo dispute with India's Tata Sons, a battle that has Docomo out $1.2 billion.
In 2009, NTT Docomo acquired a 26.5% stake in Tata Teleservices for $2.6 billion. Tata's failure to meet specific performance targets -- as envisaged in the shareholder's agreement -- 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 by December 2014 for the higher of 50% of the acquisition price or fair-market value. With 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 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. When the December 2014 deadline came and went without Tata finding a buyer, Docomo invoked the dispute-resolution clause and enlisted the London Court of International Court of Arbitration (LCIA). The independent legal body ruled in their favor and directed Tata to pay Docomo the USD $1.2 billion, which is half of their initial investment converted from Indian Rupees.
Jump forward to today, and Tata Sons is refusing to pay, citing impediments from the RBI. The RBI, in turn, rejected a subsequent request by Tata Sons to buy Docomo's shares and pay the $1.2 billion awarded by the LCIA. The issue is now before the Indian courts, but in the meantime, where does that leave Docomo and dozens of large international investors that find themselves in similar contractual disagreement with India?
Everyone wins if India enacts reform and becomes a true international-arbitration hub, and of course, we are all happy to see Prime Minister Modi discussing the need for change. But reform starts with India itself playing by the rules, respecting the sanctity of contracts and enforcing basic international law.
As a former diplomat and mediator, it's clear to me that the ongoing $1.2 billion arbitration dispute between Docomo and Tata sends a signal to international investors that India is not a good place to do business. Yes, India is the world's fastest-growing economy and was the number one destination for FDI in 2015; but in light of the Docomo-Tata arbitration dispute, international investors will certainly think twice before investing in India.
If the next President of the United States is to further enhance economic and political relations with India, Prime Minister Modi's government must create a pro-business environment where the rule of law is enforced and all Indian-government agencies play by the rules.
Bill Richardson, former governor of New Mexico and member of the U.S. House of Representatives, served as secretary of energy and ambassador to the United Nations during the Clinton administration.