Bilateral Investment Treaties: A BIT to review

News: Recently, the standing committee on external affairs presented its report on India and Bilateral Investment Treaties (BITs). It is important as it comes a decade after India lost the first investment treaty claim in 2011 (White industries vs India).

Note: In November 2011, an arbitral tribunal found the Republic of India guilty of violating the India-Australia bilateral investment treaty (BIT). It is the first known investment-treaty ruling against India.

In this case, an Australian mining company, White Industries Ltd. complained that the Indian court failed to enforce an ICC award rendered in its favour in 2002 in a commercial arbitration between White and its local partner, Coal India Limited.

Why such changes were needed?

First, since the White industries case, foreign investors have sued India around 20 times. This made India the 10th most frequent respondent state globally in the investor-state dispute settlement (ISDS) claims from 1987 to 2019 (UNCTAD).

Read more: Cairn Energy dispute and Government disputes with private entities – Explained, pointwise

Second, India adopted a new model BIT in 2016 which was a significant departure from its previous treaty practice.

Third, India is in the process of negotiating new investment deals with countries like Australia and the UK.

Read here: Need for a balanced approach on ‘Bilateral Investment Treaty’ for India
What are the recommendations made by the standing committee on external affairs?

First, it showed its discontentment at the fact that India has signed very few investment treaties after the adoption of model BIT. It recommended that India should expedite the existing negotiations.

Second, the committee recognizes the potential of BITs in attracting foreign direct investment. The committee recommended that India should sign more BITs in core or priority sectors.

Third, the committee recommended fine-tuning of BIT. Model BIT should keep two things in mind. a) It should tighten the provisions to curtail the discretion of ISDS arbitral tribunals. b) It should strike a balance between goals of investment protection and state’s right to adopt regulatory measures for public welfare.

Fourth, the Committee recommended strengthening the capacity of government officials in the area of investment treaty arbitration.

What more should have been done?

Most of the ISDS claims against India are due to poor governance. For example, retro respective laws lead to the Vodafone issue, an element of agreements for imagined scams lead to Devas, and judicial delays lead to white industries cases.

Thus, the committee should have emphasized on greater regulatory synergy, policy stability and good governance.

Source: This post is based on the article “A BIT to review” published in The Hindu on 11th January 2022.

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