Bilateral Investment Treaty

Bilateral Investment Treaties (BITs) are reciprocal agreements between two countries to promote and protect foreign private investments in each other’s territories. The Agreements establish minimum guarantees between the two countries regarding the treatment of foreign investments, and protect them from arbitrary decisions of national Governments.

Benefits of Bilateral Investment Treaties (BITs)

• BITs have a potential to attract Foreign Direct Investment (FDI).
• BITs generally provide a mechanism for settling disputes between investors and the country of investments.
• BITs encourage the adoption of market-oriented domestic policies that treat private investment in an open, transparent, and non-discriminatory manner.
• BITs support the development of international law standards consistent with the objectives of trade and investment promotion.

Issues with India’s approach to Bilateral Investment Treaties (BITs)

• Hurdle to promote foreign investment.
• The Model BIT of 2016 has a very narrow definition of ‘investment’ and creates high thresholds for what can be considered as breach. There are several ‘vague’ phrases.
• Model BIT has omitted the well-recognized doctrines of ‘fair and equitable treatment’ standard and Most-Favored Nation (MFN), etc.
• The Model BIT insists that investor must exhaust domestic remedies (for at least 5 years) before commencing arbitration under the BIT.
• Indian companies investing abroad will also have similar limitations on protections and be subjected to the local judicial bottlenecks.
• BITs signed prior to 2015 were asymmetric in the sense that they didn’t impose much obligations on foreign investors.

Recommendations

Parliamentary Standing Committee on External Affairs had reviewed India’s Model BIT 2016 and BIT Agreements with other nations and submitted its recommendation:

• It recommended timely settlement of investment disputes through pre-arbitration consultation or negotiations.

New Model of BIT should:

• Be suitably amended in light of new experience gained in disputes arising out of BITs;
• Be reviewed continuously to ensure that it is balanced and comprehensive;
• Incorporate best practices and provisions from BITs adopted by advanced countries after studying in detail the implementation and outcome of such treaties.

New BITs should be drafted without any ambiguity, so as to avoid:

• Overbroad interpretation by arbitrators and tribunals;
• Investment disputes or claims against India; and
• The abuse of certain provisions by investors.