According to an official press release, the core of agreement lies in its positive assertion of principles of Most Favoured Nation (MFN) and National Treatment. MFN requires each government to accord treatment no less favourable than that accorded to investors of any other third state, for the operation, management, maintenance, use, enjoyment or disposal of investment. National treatment shall also be extended to investments.

The release said that departure from MFN will be permissible in connection with participation in common market, free trade area, customs union or economic union and on matters concerning taxation. Further the agreement provides that nationalisation or exploration shall not be restored to except in the public interest, by laws and on a non-discriminatory basis, and against compensation. Nationalisation or expropriation shall also besubject to review by a judicial or other independent authority. There are also special conditions under which compensation for the losses can be paid. Each country shall grant to investors of the other country the free transfer of investments and returns.

Also there is a subrogation article which requires each government to recognise rights and claims which may have been subrogated by investors of the other country to its government or designated agency.

The agreement was signed in Bonn on Monday by the foreign secretary K Ragunath and the state secretary in German foreign office, Peter Hartmann. The agreement provides to elaborate dispute resolution mechanism to guide disputes between an investor and the host government, as well as between the two governments. For settlement of disputes between an investor and the host government, provisions have been incorporated for prior negotiations to resolve disputes as well as for conciliation and international arbitration.

The agreement shall remain in forcefor a period of ten years, it shall thereafter continue in force until the expiry of 12 months from the date on which either government gives written notice of termination to the other. In the formal course this agreement is perpetual in character as it applies to all investments made either before or after the entry into force of the agreement.

It is hoped that the agreement will serve as a major catalyst for investment flows from either country. Germany today ranks among the top five investors in India.