Home Ashgabat Agreement All you need to know about the Ashgabat Agreement

All you need to know about the Ashgabat Agreement

February 14, 2022

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This article is authored by Ms. Kishita Gupta, a student of Unitedworld School of Law, Karnavati University, Gandhinagar. The article is a summary of the Ashgabat Agreement which India became a part of on 1st February, 2018. The article will further analyse the Agreement’s impact and significance for India.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The Islamic Republic of Iran, Turkmenistan, the Sultanate of Oman, and the Republic of Uzbekistan entered into an agreement on April 25, 2011, regarding the establishment of an international transport and transit corridor. India was later added to the Agreement which is known as the Ashgabat Agreement on 1st February 2018. On 23rd March 2016 the Union Cabinet, chaired by the Prime Minister of India Shri Narendra Modi, approved India’s accession to the Ashgabat Agreement, an international trade and transit corridor that will ease the movement of goods between Central Asia and the Persian Gulf.

In this article, the author has analysed the significance of India’s joining the Ashgabat Agreement along with its key provisions.

Background of the Ashgabat Agreement

The Ashgabat Agreement, which envisions the development of an International Transport and Transit Corridor between Central Asia and the Persian Gulf, was recently signed by India in the year 2018. The Gulf countries and Central Asian Republics (CARs) will be benefited from this corridor, which is said to improve communication, cargo, trade, and transit. India has taken a step further in its efforts to improve connectivity with Eurasia by joining the Agreement.

Since Central Asia is a landlocked territory, all five CARs must pass through at least one state to reach the open seas. Because most of the old trade routes travelled through this territory, it played a crucial role in ancient trade and commerce. CARs, on the other hand, began to fall behind with the introduction of maritime trade. During the Soviet era, and even after the CARs gained independence in 1991, the majority of their trade was routed through the borders of their neighbours, such as Russia and China, which was time-consuming, inconvenient, and expensive.

The CARs gradually realised that Iran and the Persian Gulf could play an important role in easing access to the free seas. The proposal for a transit corridor connecting Central Asia and the Gulf dates back to a bilateral meeting in October 2010 between the then Uzbek President Islam Karimov and his Turkmen colleague Gurbanguli Berdimuhamedov. As a result, in November 2010, delegates from Uzbekistan, Turkmenistan, Iran, and Oman convened in Tehran to form a working group to examine the creation of such a corridor.

Nature of the Ashgabat Agreement

On April 25, 2011, in Ashgabat, Turkmenistan’s capital, an agreement was signed between Turkmenistan, Iran, Uzbekistan, Oman, and Qatar to build a new international trade and transit corridor. The ‘Ashgabat Agreement,’ as it is called, laid the groundwork for the development of the shortest commercial route which connects the CARs with Iranian and Omani ports. A Memorandum of Understanding (MoU) on various components such as the legal, procedural, and infrastructural of the agreement, was signed on August 6, 2014, in Muscat.

Kazakhstan applied for membership in the same year that Qatar withdrew from the pact. In 2015, the Coordination Council Meeting in Tehran authorised its membership. The agreement’s importance was boosted by Kazakhstan’s membership, as it is the region’s largest economy. Pakistan’s desire to join the Agreement was also announced by Prime Minister Nawaz Sharif, who appealed to the member-states for approval of Pakistan’s participation at the Global Sustainable Transport Summit in Ashgabat in November 2016. It has not, however, been able to secure the agreement of all four original members.

During Prime Minister Modi’s visit to the five CARs in July 2015, India’s ambition to join the Ashgabat Agreement received a boost. On March 23, 2016, the Union Cabinet approved India’s accession to the Ashgabat Agreement. “Accession to the agreement would enable India to use this existing transport and transit corridor to shoot trade as well as commercial interaction with the Eurasian region,” said an official statement from the Cabinet Meeting. Additionally, this would align with our attempts to establish the International North-South Transport Corridor (INSTC) for improved connectivity.”

Turkmenistan, as the repository state of the Ashgabat Pact, informed India on February 1, 2018, that “all four original members have accepted India’s admission (to the agreement).” India will now provide the Coordinating Committee with all relevant information on taxes, fees, tariffs, and other payments assessed at ports and checkpoints. Following that, in April 2016, India deposited the Instrument of Accession. India’s admission to the Ashgabat Agreement went into effect on 3 February 2018 after getting approval from all four founding countries.

Key highlights of the Ashgabat Agreement

Article 1 – Definitions

Article 1 of the Agreement gives the definitions of certain terms that were used in the Agreement for a better understanding. Some of them are as follows:

The term ‘investment’ as per Article 1 of the Ashgabat Agreement refers to any type of asset established or acquired in compliance with the national laws of the Contracting Party on whose territory the investment is made, including changes in the form of such investment, and in particular, but not exclusively, includes:

Movable and immovable property, along with various other rights such as mortgages, liens, or pledges;
Shares, stock, and debentures, as well as any other equivalent types of company participation;
Rights to money or any other form of performance under contract with a financial value;
Intellectual property rights, goodwill, technological processes, and know-how, in line with the relevant laws of the respective contracting party;
Concessions granted by legislation or by contract to businesses, such as concessions to search for and extract oil and other minerals;

The article defines nationals in relation to India as those who derive their status as Indian citizens from Indian law. In Turkmenistan, on the other hand, nationals are physical beings who are citizens of Turkmenistan in line with the country’s current legislation.

Further, territories are defined in Article 1 with respect of India as the Republic of India’s territory, including its territorial waters and airspace above them, as well as other maritime zones, such as the Exclusive Economic Zone and continental shelf, where the Republic of India has sovereignty, sovereign rights, or exclusive jurisdiction as per India’s current laws, the international law and the 1982 United Nations Convention on the Law of the Sea, and, whereas, with respect to Turkmenistan, its State territory along with the Exclusive Economic Zone and Continental Shelf, that is beyond the limits of its territorial waters, over which Turkmenistan’s sovereign powers and authority are recognised by international law, inter-state agreements, and national laws.

Article 2 – Scope of the Agreement

Article 2 of the Ashgabat Agreement mentions the scope of this agreement. It mentions that the Agreement applies to any investments made in the territory of the other Contracting Party by investors of either Contracting Party, acknowledged as such in accordance with the other Contracting Party’s laws and regulations, whether made before or after the Agreement’s entry into effect.

Article 3 – Promotion and protection of investment

This Article is basically the objective of the Agreement. It is about the promotion and protection of investment. It requires each contracting party to encourage and create a favourable environment for the other contracting party regarding investments in its territories as per the law. Further, each contracting party’s investments and returns shall be treated fairly and equally in the territory of the other contracting party at all times.

Article 4 – National treatment and Most-Favoured-Nation treatment

This Article is very important from the International Trade Law point of view. Members must grant the most favourable tariff and regulatory treatment to any one Member’s product when importing or exporting ‘similar products’ to all other Members under ‘Most-Favoured-Nation’ (MFN) treatment. This is one of the WTO’s founding principles.

The WTO’s national treatment principle ensures that foreigners and locals are treated equally. Imported and domestically manufactured commodities should be treated similarly, at least after they have entered the market. Foreign and domestic services, as well as foreign and domestic trademarks, copyrights, and patents, should all be treated the same.

Article 4 of the Ashgabat Agreement mentions the following with respect to National treatment and Most-Favoured-Nation treatment:

Each contracting party must regard investments made by investors from the other contracting party in the same way that it treats investments made by its own investors or investments made by investors from any third country.
Furthermore, each contracting party must treat investors from the other contracting party in the same way that investors from any third country are treated, including in terms of investment returns.
The provisions of paragraphs 1 and 2 above are not intended to obligate one contracting party to extend to the investors of the other any treatment, preference, or privilege resulting from any existing or future customs union or similar international agreement to which it is or may become a party, or any matter relating solely or primarily to taxation.

Article 5 – Expropriation

Article 5 deals with expropriation. In law, it means taking over private property or assets by the government for compensation only when it is for a public purpose. As per the agreement, Investments of either Contracting Party’s investors in the territory of the other Contracting Party shall not be nationalised, expropriated, or subjected to measures having the effect of nationalisation or expropriation (hereinafter referred to as “expropriation”) unless for a public purpose in accordance with the law, on a non-discriminatory basis, and against fair and equitable compensation.

The agreement also gives the affected investor the right, under the law of the contracting party making the expropriation, to have his or her case and the valuation of his or her investment reviewed by a judicial or other independent authority of that party in accordance with the principles set forth in this paragraph.

Later, the contracting party expropriating the assets has to ensure that the provisions of paragraph (1) of this Article are applied to the extent necessary to ensure fair and equitable compensation in respect of their investment to such investors of the other Contracting Party who are owners of those shares.

Article 6 – Compensation for Losses

According to Article 6, investors from one contracting party whose investments in the territory of the other contracting party suffer losses due to war or other armed conflicts, a state of national emergency, or civil disturbances in the latter contracting party’s territory receive treatment no less favourable than that which the latter contracting party accords to its own investors or to investors from any third country in terms of restitution, indemnification, compensation, or other remedies. As a result of the procedure, payments will be freely transferable.

This article will ensure that there is fair and equitable treatment of both the contracting parties’ investors and they don’t suffer losses due to internal disturbances in either of the party’s nations.

Article 7 – Repatriation of investment and returns

This Article ensures free and fast transfer of funds between the contracting parties. The funds can be of the following categories:

Amounts of capital and more capital used to maintain and grow investments;
In proportion to their holdings, net operational profits, including dividends and interest;
Repayments of any loan connected to the investment, including interest;
Royalties and service fees related to the investment are paid;
Profits on the selling of their stock;
Investors’ proceeds in the event of a sale, partial sale, or liquidation;
Earnings of people of one Contracting Party who work in connection with an investment in another Contracting Party’s territory.

Article 8 – Subrogation

When one Contracting Party or its designated agency has assured indemnification against non-commercial risks in relation of investment by any of its investors in the territory of the other Contracting Party and has paid such investors in relation of their claims under this agreement, the other Contracting Party or its designated agency is empowered to enforce the rights and assert the claims of those investors by virtue of subrogation. The subrogated rights or claims cannot exceed the investors’ original rights or claims.

Article 9 – Settlement of disputes between an investor and a contracting party

Whenever a dispute arises between an investor and a contracting party, it is encouraged that the dispute is settled amicably by resorting to negotiations between the two parties.
But if in case, amicable negotiation fails within six months of its starting date, then with the consent of both the parties, international conciliation or a resolution can be adopted.
If the dispute procedure mentioned in para 2 also fails, then the parties have an option to choose arbitration.

Article 10 – Disputes between contracting parties

The disputes arising between the contracting parties over the interpretation or application of this Agreement should be resolved through negotiation as much as feasible.
If negotiation also doesn’t solve the problem then within 6 months, the parties can choose arbitration through an arbitral tribunal.
The contracting parties, within two months of the receipt of the request for arbitration, shall appoint one member each, who will then choose a third member from a different State within 2 months.
But if the arrangement mentioned in para 3 is not made then, either of the contracting parties may, in the absence of any other agreement, invite the President of the International Court of Justice to make any necessary appointments.
By a majority of votes, the arbitral tribunal will make a ruling that is binding on both Contracting Parties.

Article 11 – Entry and sojourn of personnel

A Contracting Party shall permit natural persons and personnel employed by companies of the other Contracting Party to enter and remain in its territory for the purpose of engaging in activities related to investments, subject to its laws governing the entry and sojourn of non-citizens as they apply from time to time.

Article 12 – Applicable laws

Unless otherwise specified in this Agreement, all investments will be regulated by the laws in force in the Contracting Party’s territory where they are made.

Article 13 – Application of other rules

If there are provisions of either Contracting Party’s law or obligations under international law currently in effect or to be established between the Contracting Parties that oblige investment by investors of other Contracting Party towards a more favourable treatment than what is provided for by the present Agreement, such rules shall, to the degree that they are more favourable, prevail over the present Agreement.

Article 14 – Entry into force

This Article mentions that the present Agreement is subject to ratification and will take effect on the date of the exchange of Ratification Instruments.

Article 15 – Duration and termination

This Agreement will be in effect for ten years, after which it will be automatically extended unless either Contracting Party gives the other a written notice of its decision to cancel the Agreement. The Agreement will be cancelled one year after such notification is received. Regardless of whether this Agreement is terminated pursuant to the condition above, the Agreement will remain in effect for a period of fifteen years from the date of termination in respect of investments made or acquired prior to the date of termination.

Importance of the Ashgabat agreement to India

International North-South Transport Corridor (INSTC) and the Central Asian Regions

India’s participation in the Ashgabat Agreement will allow it to take advantage of the existing transportation and transit corridor to facilitate trade and commercial relations with the Eurasian region. This will also be in line with India’s efforts to build the International North-South Transport Corridor (INSTC), a multi-modal trade transportation network that runs from Mumbai, India, through Bandar Abbas, Iran to Moscow, Russia. The INSTC would lower the cost of shipping commodities from India to Eurasia and the neighbouring regions significantly.

The Ashgabat Agreement aims to establish a commerce and transportation corridor connecting the CARs and the Persian Gulf. The corridor will be multi-modal, with road, rail, and sea transit options. It must also involve the removal of trade obstacles and the establishment of simplified processes for the transfer of commodities between member countries. Rail links go via Kazakhstan, Uzbekistan, Turkmenistan, and Iran as part of the agreement’s land transport component. The Iran-Turkmenistan-Kazakhstan (ITK) railway line, which opened in December 2014, is a crucial link in this corridor. It will also establish a connection with the Omani ports of Salalah, Duqm, and Sohar, as well as the Iranian ports of Bandar Abbas, Jask, and Chabahar. The region’s current transportation and connectivity linkages will be beneficial to India’s trade.

CARs have the potential to serve as a land bridge between Europe and Asia, as well as between Asia’s diverse regions. These countries’ strategic locations can further help India’s land connectivity with the rest of the Eurasian area. Direct access to CAR will help India establish itself as a major participant in the region while also undermining China’s much-hyped Belt and Road Initiative flagship projects.

India’s decision to join the Ashgabat Agreement was motivated by a desire to align India’s Look West policy with its Connect Central Asia agenda. India’s ratification of the Agreement would broaden India’s connectivity choices with Central Asia and have a significant positive impact on India’s trade and commercial connections with the area.

Connection with the Chabahar port

India’s inclusion into the Ashgabat Agreement comes a month after the first phase of the Shahid Beheshti terminal at Chabahar port, which is financed with $85 million, was inaugurated on December 3, 2017. With the completion of the Shahid Beheshti terminal and India’s joining of the Ashgabat Agreement, the possibility of expanding Chabahar’s operational and practical scope to become a vital gateway and the shortest land route to Central Asia has increased.

India has relied on Chabahar to connect to Afghanistan, and it has already transferred wheat shipments to the country through the port. India’s proposal to build a 610 km north-south railway from Chabahar to Zahedan, as well as the operation of a multi-purpose terminal at Chabahar, could not have been achieved unless India joined a Central Asian-led transport network.

Conclusion

This Agreement comes as a ray of hope to India which wishes to improve the trade policies of the region with the nearby countries. Since India did not have direct access to the Eurasia region, being a member of the Ashgabat Agreement, India has opened gates to get a clear rail and road route for trade to the Eurasian nations.

References

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