Rafale twist: Why did France refuse to give India a sovereign guarantee?

Documents reveal how two core conditions of a government-to-government contract were diluted in the run-up to purchasing 36 Rafale jets.

The Narendra Modi government has consistently claimed that the Rafale aircraft deal was between two governments – India and France – and therefore there was hardly any possibility of India’s interests being compromised in any way.

However, government documents accessed by The Wire reveal the Ministry of Law and Justice had opined that the “core elements of Government-to-Government (G-to-G) character” of the Rafale deal were not acceptable to France and consequently had to be diluted and waived in the final inter-governmental agreement (IGA) signed between the two governments in September 2016.

So what were the two core G-to-G elements that France did not accept? The law ministry gave a clear view to the Ministry of Defence that in G-to-G contracts, “the responsibility for the supply of equipment and related industrial services and performance of the entire contract remains with the foreign government”.

The second condition cited by the law ministry was that “the dispute resolution mechanism remained at Government-to-Government level only”.

However, in the course of negotiating the IGA, certain sensitive issues arose whereby the French government sought to transfer its own direct responsibilities and obligations to the industrial supplier – in this case Dassault Aviation.

For instance, in the event of a future breach of contract or any other dispute, France insisted India would have to enter arbitration proceedings with the equipment-supplying company, Dassault. Consequently, the French government shied away from providing a direct sovereign guarantee for the performance of the contract. The law ministry saw a direct sovereign guarantee from France as core to the G-to-G character of the deal to purchase 36 Rafale fighter aircraft. This sovereign guarantee was, however, not forthcoming.

The law ministry, though, managed to have one fresh clause introduced in the IGA which mentioned “joint and several responsibility” of the French government and the industrial supplier.

But this too fell way short of its advice that the French government take direct responsibility for its future obligations on the performance of the contract by providing a sovereign guarantee.

The French government eventually agreed to provide a letter of comfort which, in legal terms, is much weaker than a sovereign guarantee.

The defence ministry’s main concern was whether the proposed international arbitration in Geneva under the rules of UNCITRAL (United Nations Commission on International Trade Laws) was legally tenable because there was no direct contract between the government of India and the French supplier Dassault... Read More

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