Lakshmi Niwas Mittal's takeover bid for Arcelor is turning out to be a serious diplomatic row between India and the European Union.
Even as Commerce and Industry Minister Kamal Nath shot off a strongly worded letter to the EU Trade Commissioner Peter Mandelson on Wednesday, raising doubts over EU's commitments to World Trade Organisation, Luxembourg Prime Minister Jean-Claude Juncker said India had threatened not to ratify a double-taxation accord with the Grand Duchy.
"The [Indian] government, although full of wise men, has just threatened the Grand Duchy with not ratifying a double-taxation agreement between India and Luxembourg," he said.
The state of Luxembourg is Arcelor's single biggest shareholder with a 5.6 per cent stake and Juncker has been one of the most vocal opponents of the bid. Days after Mittal announced the bid in January, Juncker toured European capitals to try and build a political defence against it. He has described the bid as hostile and Mittal's industrial plan for a merged company as lacking in details.
At a business luncheon in Luxembourg, Juncker rejected accusations of racism. "The fact that it concerns an Indian industrialist... is not, for me, something to worry about," he said. "It does not matter whether he is Indian, Portuguese, or Belgian."
Luxembourg has hired investment banker JP Morgan for advice, saying it wanted an independent and professional opinion about the bid.
On his part, Nath warned Mandelson that ongoing trade talks in the WTO could be 'adversely impacted' if the principle of national treatment (that requires foreigners to be treated like locals in various matters of trade) was not applied to Mittal's takeover bid.
"Anything that vitiates the principle of national treatment, could adversely impact the ongoing trade talks. This is one of the basic principles of the WTO multilateral trading system. It requires that equal treatment be extended to all cross-border investments," official sources told Business Standard.
This is the second time this month that Nath has raised the issue with Mandelson. The minister is also understood to have written a letter to Prime Minister Manmohan Singh ahead of French President Jacques Chirac's visit.
The national treatment clause is an obligation on members and is enshrined in Article III of GATT 1994. It condemned discrimination between foreign and national investment, and products and services, the sources added.
The EU had requested India that this sort of national treatment for cross-border investments should be provided on a reciprocal basis.
Nath said in the letter, "This does not seem to be happening in letter and spirit. It impinges upon ongoing WTO services negotiations. We view it with serious concern. What is happening seems to be not in consonance with letter and spirit as India will like to see that national treatment is accorded to all cross-border investments."
Nath, a key player in the Doha round of WTO talks, has also said that governments should allow shareholders to determine the bid's outcome.
Advising countries to wake up to the new economic architecture, Nath has also mentioned the experience of French cement major Lafarge, which acquired Indian cement plants without any problems of the kind faced by Mittal in the Arcelor bid.