a bit to review

Report of the Standing Committee on Foreign Affairs ‘India and Bilateral Investment Treaties’ (BIT)’ was introduced in Parliament last month. The report is significant as it comes a decade after India lost its first investment treaty claim in 2011. ,White Industries Vs India,, Loss in this case was considered an ominous sign. This became a turning point for India and changed the trajectory of India’s BIT landscape, leading to massive changes such as the unilateral termination of these treaties.

overall context

The broader context in which the Committee undertakes to review India’s approach to BIT has three main elements. Firstly, since white industry case, foreign investors have sued India nearly 20 times for alleged BIT violations. This made India the 10th most frequent respondent-state globally in terms of investor-state dispute settlement (ISDS) claims from 1987 to 2019 (UNCTAD). Second, India adopted a new model BIT in 2016, marking a significant departure from its previous treaty exercise. Third, 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 UK.

The Committee examined this overall context and made important recommendations for the Government to consider. Firstly, it expressed its dissatisfaction over the fact that India has signed very few investment treaties after adopting the model BIT. It recommends that India expedite the ongoing negotiations and conclude the agreements at the earliest as delays could adversely affect foreign investment.

Second, contrary to the position of policy makers, the committee recognizes the potential of BITs in wooing foreign direct investment (FDI). This aligns with the findings of several empirical studies showing that individual BITs do not affect investment flows, with the cumulative effect of all BITs signed by India positively affecting FDI inflows. In this regard, curiously, the committee recommends that India should sign more BITs in core or priority sectors to attract FDI. Generally, BITs are not signed for specific areas. Asking India to do so would be a new avenue for creating an investment treaty. This would require a change in India’s existing treaty practice that focuses on protecting certain types of regulatory measures from ISDS claims rather than limiting BITs to specific areas.

Third, the committee recommends that India’s model BIT be rectified. This is welcome as the model BIT prioritizes the regulatory interests of the state over the rights of foreign investors. The key question, however, is what trajectory will this fine-tuning take? The model BIT should be recalculated taking into account two factors: strengthening the language of existing provisions to limit the discretion of ISDS arbitral tribunals, which provide broader interpretations, and the goals of investment protection and the de facto regulators of the state. To strike a balance between the right to adopt measures of public welfare. The committee’s report mostly focused on the first factor. If the model BIT is replaced with the sole objective of reducing arbitral discretion, it could result in further lowering of the balance towards the host state’s right to regulate. This will make it difficult for India to persuade its potential treaty partners such as the European Union, which already have doubts about the model BIT.

Fourth, the Committee recommends enhancing the capacity of government officials in the area of ​​investment treaty arbitration. While the government has taken some steps in this direction through some training workshops, more needs to be done. There is a need for an institutional mechanism for capacity building through the participation of competent public and private universities in this area. The government should also consider the establishment of chairs in universities to promote research and teaching activities in international investment law.

missed opportunity

A large part of the ISDS claims against India is due to poor governance. This includes changing laws retrospectively (which led to Vodafone and Cairn suing India), scrapping the agreement in the wake of the supposed scandal (taking S-band satellite spectrum from Dewas), and bringing together the fragility of the judiciary. sit in) white industry The case for implementing your commercial award for years). The committee could have insisted on greater regulatory consistency, policy consistency and stronger governance structures to avoid the claims of ISDS.

The government should immediately assemble an expert team to review the model BIT. This team should include critical voices as plural approaches can add up to an effective policy.

Prabhas Ranjan is Professor and Vice Dean, Jindal Global Law School, OP Jindal Global University. He appeared before the said committee as an expert witness. thoughts are personal