Why India pushed for sovereign guarantee on Rafale; and how the cabinet decided to do without one

By Ajai Shukla

Business Standard, 28th Nov 18

The Ministry of Defence’s (MoD’s) negotiators for the purchase of 36 Rafale fighters from French vendor Dassault during September 2016 were unable to obtain “sovereign guarantees” from Paris that would have bound the French government to always support the deal.

Instead, as Attorney General KK Venugopal admitted before the Supreme Court on November 14, New Delhi contented itself with a “Letter of Comfort” from the French prime minister (PM).

Aletter of comfort amounts to a non-binding intention to support the contract. It is not a legally enforceable contract, like a sovereign guarantee.

This shortcoming was also flagged by the Ministry of Law and Justice (MoL&J), in its pre-review of the contract documents. 

Government officials tell Business Standard that a key reason New Delhi saught sovereign guarantees was to prevent Paris from ever citing international instruments, such as the Arms Trade Treaty of 2013 (ATT), to interrupt, modify or cease delivery of the Rafale fighter at any stage.

Contacted via email for comments, the MoD did not respond.

The ATT is a multilateral treaty that regulates international trade in conventional arms. France has signed the ATT, but India has consistently rejected it as discriminatory.

The ATT allows weapons exporting countries to deny or cancel export permissions at any stage. In such an event, the treaty’s provisions relieve the exporting country and its defence manufacturers from any contractual liability.

On the other hand, a sovereign guarantee is a pledge that supersedes the ATT. Had Paris provided a sovereign guarantee in the Rafale contract, it would not have been able to cite the ATT to explain any lapse in its execution. 

An MoD file noting dated August 22, 2016, which Business Standard has reviewed, explains how India climbed down from its demand for a sovereign guarantee. Despite resistance from French negotiators the law ministry insisted on sovereign guarantees. Eventually, the decision was left to the Cabinet Committee on Security (CCS).

“MoL&J had brought out that Government/Sovereign Guarantees should be requested for, in view of the Contract involving huge payouts value… The French side responded by stating that the letter to be signed by the French Prime Minister (the Letter of Comfort) along with the guarantees being provided through the IGA (Inter-Governmental Agreement) constitute a unique and unprecedented level of involvement of the French government… and therefore the French side does not accept inclusion of additional wording regarding guarantees,” says the MoD noting.

The noting continues: “This aspect was discussed in DAC (Defence Acquisition Council) on 11 January 2016. The DAC directed that the decision on the final acceptance of the ‘Letter from French PM along with the outstanding guarantees provided through [the IGA]’ in lieu of Government/Sovereign Guarantees shall be that of the CCS.” 

The note describes then-Defence Minister Manohar Parrikar’s ruling that the French insistence on providing only a “Letter of Comfort” in lieu of sovereign guarantees should be considered by the CCS, taking into account the MEA’s (ministry of external affairs) and NSA’s (national security advisor’s) views on the subject – which are not stated. Parrikar pointed out that sovereign guarantees were waived for Russia, which provided only corporate guarantees, backed by a Letter of Comfort; and for the US, where purchases were made via the Foreign Military Sales (FMS) programme.

Just days before the Rafale contract was signed on September 22, the CCS – chaired by Prime Minister Narendra Modi – chose to proceed without a sovereign guarantee from France.

The ATT was adopted by the UN General Assembly (UNGA) on 2 April 2013 and it entered into force on 24 December 2014.Currently, 190 countries have signed, and 89 of them have ratified the treaty.

The ATT covers all conventional arms, including tanks, armoured vehicles, artillery, combat aircraft, attack helicopters, warships, missiles, small arms and light weapons.

The ATT’s stated aims are: “Regulating or improving the regulation of the international trade in conventional arms; [and to] prevent and eradicate the illicit trade in conventional arms and prevent their diversion.” 

Informing the UNGA that India was abstaining from the ATT, India’s Permanent Representative to the Conference of Disarmament in Geneva, Sujata Mehta, stated:“India cannot accept that the Treaty be used as an instrument in the hands of exporting states to take unilateral force majeure measures against importing states parties without consequences. The relevant provisions in the final text do not meet our requirements.”

But now, on the Rafale deal, India remains exposed to the ATT.