India and Bilateral Investment Treaties

India and Bilateral Investment Treaties

News: The report of the Standing Committee on External Affairs on ‘India and bilateral investment treaties (BITs)’ was presented to Parliament last month.

Background:
• Since 2011, when India lost its first investment treaty claim in White Industries v. India, foreign investors have sued India around 20 times for alleged BIT breaches.This made India the 10th most frequent respondent-state globally in terms of investor-state dispute settlement (ISDS) claims from 1987 to 2019 (UNCTAD).
• India adopted a new Model BIT in 2016, which marked a significant departure from its previous treaty practice.
• India is in the process of negotiating new investment deals (separately or as part of free trade agreements) with important countries such as Australia and the U.K.

Recommendations of the Committee
• India has signed very few investment treaties after the adoption of the Model BIT.It recommends that India expedite the existing negotiations and conclude the agreements at the earliest because a delay might adversely impact foreign investment.
• The committee recommends that India should sign more BITs in core or priority sectors to attract FDI.Generally, BITs are not signed for specific sectors.t will require an overhauling of India’s extant treaty practice that focuses on safeguarding certain kinds of regulatory measures from ISDS claims rather than limiting BITs to specific sectors.
• Model BIT gives precedence to the state’s regulatory interests over the rights of foreign investors.The Model BIT should be recalibrated keeping two factors in mind:
o tightening the language of the existing provisions to circumscribe the discretion of ISDS arbitral tribunals.
o striking a balance between the goals of investment protection and the state’s right to adopt bonafide regulatory measures for public welfare.
• The committee recommends bolstering the capacity of government officials in the area of investment treaty arbitration.While the government has taken some steps in this direction through a few training workshops, more needs to be done.
• What is needed is an institutionalised mechanism for capacity-building through the involvement of public and private universities.The government should also consider establishing chairs in universities to foster research and teaching activities in international investment law.

Way Forward:
• A very large proportion of ISDS claims against India is due to poor governance.This includes changing laws retroactively which led to Vodafone and Cairn suing India.Annulling agreement in the wake of imagined scam which resulted in taking away S-band satellite spectrum from Devas.
• The judiciary’s fragility in getting its act together (sitting on the White Industries case for enforcement of its commercial award for years).The Committee could have emphasised on greater regulatory coherence, policy stability, and robust governance structures to avoid ISDS claims.
• The government should promptly assemble an expert team to review the Model BIT.