Revised Model Text For The Indian Bilateral Investment Treaty

The Cabinet approved the revised model text for the Indian Bilateral Investment Treaty (BIT), which will replace the existing Indian Model BIT, a move which is expected to provide protection to both Indian and foreign investors.

Bilateral investment Treaties (BITs) are agreements between two Countries   for the reciprocal promotion and protection of investments in each other's territories by individuals and companies situated in either State. The following are the essential clauses covered under BITs

1. Applicability

2. Fair and Equitable Treatment and Full Protection & Security

3. National treatment and Most –favored -nation treatment,

4. Expropriation,

5. Dispute settlement mechanisms, both between States and between an investor and a State. BITs encourage foreign investors to invest in a State and there by contributing towards overall developments and advancements of the economy

• The first BIT was signed by India on March 14, 1994 with U.K. For example, the India - Singapore Comprehensive Economic Cooperation Agreement (CECA) provides for exemption on import duties for investment in infrastructure sector, which would eventually attract the investors from a broad to invest in the growing economy of India with enhanced securities against adverse changes, thus promoting investment inflow.
• Since then, till date, the Government of India has signed BITs with 83 countries. These BITs were largely negotiated on the basis of the Indian Model BIT of 1993.
• Considerable socio-economic changes have taken place since 1993 when the Model text of BIT was first approved. The nature of government regulation concerning foreign investment has evolved. A wide variety of laws now regulate investments both at the central and the state levels. During the last few years, significant changes have occurred globally regarding BITs, in general, and investor-state dispute resolution mechanism in particular.

What is in Revised Bilateral Treaty?

• It will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs).
• It will provide appropriate protection to foreign investors in India and Indian investors in the foreign country, in the light of relevant international precedents and practices, while maintaining a balance between the investor’s rights and the Government obligations.
• A BIT increases the comfort level and boosts the confidence of investors by assuring a level playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration.
• The essential features of the model BIT include an “enterprise” based definition of investment, non-discriminatory treatment through due process, national treatment, protections against expropriation, a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration, and limiting the power of the tribunal to awarding monetary compensation alone.
• The model excludes matters such as government procurement, taxation, subsidies, compulsory licenses and national security to preserve the regulatory authority for the Government.

Analyze:

• A BIT increases the comfort level and boosts the confidence of investors by assuring a level-playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration. In turn, BITs help project India as a preferred foreign direct investment destination and protect outbound Indian FDI
• India cannot maximize its economic growth, particularly in the infrastructure sector, without foreign investment and the bilateral investment treaties play a significant role in inducing foreign investors by the guarantees afforded therein.
• BITs results in increased investments inflows, encourages transfer of technology and modern management skills.
• The definition of “investment” in the Draft Model BIT is restrictive beside  excluding Indian holding companies and foreign portfolio investments from the definition of “investment”.
• “The enterprise will be considered owned by the Investor only if more than 50% of the capital is held by the investor”, this definition excludes all minority investments unless they are controlled by the investor through voting agreements or any other agreements of similar nature.
• The complete exclusion of taxation measures from the scope of the treaty is likely to be frowned upon by the other countries while negotiating the treaty as being evidently detrimental to the investor’s interest.
• Model BIT takes away the authority of the Arbitral Tribunal to determine whether a measure is a tax measure or not and gives autonomy to the host state to determine it.

Dialing…………mains( Geneal Study paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.)

• Question:
• Bilateral Investment Treaty (BIT) is supposed to increase the capital inflow in the country, but revised bilateral investment treaty proposed by India is doing the opposite. Critically examine.

By: Vishal