A BIT of a reset, with a wider debate

Why in the News

India is revising its model bilateral investment treaty (BIT), and the revised text will soon be placed before the Union Cabinet. The Finance Minister signalled the intention to revamp the 2015 Model BIT in the Union Budget speech of 2025. The 2015 model was itself the product of an appraisal launched after several foreign investors sued India for treaty breaches. That appraisal produced two outcomes: unilateral termination of existing treaties, and a new model text as the basis for fresh negotiations. Debate on the current revision has concentrated almost entirely on what the treaty should say. The process by which the text is written has attracted almost no attention, and that is where the democratic deficit sits.

What is the 2015 Model Bilateral Investment Treaty?

1. What a model treaty is: A model bilateral investment treaty is the template text a country negotiates from when it concludes investment protection agreements with other countries.
2. What such a treaty does: It grants legal protections to investors of one country investing in the other. It also gives those investors a route to bring a claim directly against the host state before an international arbitral tribunal.
3. The two objectives it must balance: Investment treaties sit between investment protection at one end of the spectrum and the state’s right to regulate at the other.
4. When India adopted it: India circulated a draft in 2015 and adopted the revised version in December 2015.

Why has the 2015 model produced so few treaties?

1. The record: India has concluded only a handful of treaties on the basis of the 2015 model in the last decade or so.
2. The imbalance in the text: The model tilts heavily towards the state’s right to regulate and away from the protection of the investment.
3. What capital exporting countries read into it: Countries that export capital to India doubt the legal protection available to their investments under such a text.
4. What compounds the doubt: High regulatory risk, governance models that are not well developed, and a slow judicial system add to that concern.

What legal changes are being proposed, and what is being left out?

1. Easier access to arbitration: Experts have argued for making it easier for a foreign investor to take a treaty claim to international arbitration.
2. Stronger substantive protections: The protections given to foreign investment in the text would be enhanced.
3. Investment facilitation: The revised model would carry more measures aimed at facilitating investment rather than only protecting it.
4. The half of the review that is missing: A treaty review has two components, the substantive and procedural changes to the law, and the process followed to make the outcome robust. Only the first has been deliberated.

What is the democratic deficit in treaty making?

1. The all-affected principle: International economic treaties have a conspicuous impact on citizens, which raises the question whether those affected should have a right to participate in the decision.
2. What the term means: Democratic deficit refers to insufficient oversight of the technocrats, bureaucracies and political executive who negotiate treaty frameworks behind closed doors.
3. Where it originated: The term originated in European debates on the accountability of decision making removed from elected legislatures.
4. The first form the gap takes: Parliamentary supervision of the treaty making process is absent or inadequate.
5. The second form: There is no external consultative process with other stakeholders, including subject matter experts and civil society organisations.

What do other countries do before adopting an investment treaty text?

1. United Kingdom and Australia: Both mandatorily place the text of a negotiated treaty on the floor of Parliament before ratification, so the legislature can express its views on it.
2. Norway: Two rounds of public consultation were held on an updated draft model BIT, in 2008 and in 2015.
3. Colombia: The country released its model BIT for public consultation.
4. What the set demonstrates collectively: Consultation is applied to the model text itself and not only to a concluded treaty, which means the template a country negotiates from is treated as a public policy document rather than an internal instruction.

What did India’s own 2015 consultation produce?

1. The public comment stage: India circulated its draft 2015 model BIT for public comment in March 2015.
2. The expert study it enabled: That opening allowed the Law Commission of India to assemble a team of experts to study the draft text.
3. The report: The Law Commission’s 260th report made recommendations on how to improve the draft model treaty.
4. What was carried through: Not all of the recommended changes were reflected in the version India finally adopted.

What consultative process is proposed for the revision?

1. What has presumably already happened: Intra-governmental deliberation on the model text has been undertaken inside government.
2. A core team of external experts: Form a team outside government of international lawyers and economists drawn from universities, research institutions and think tanks, to act as a sounding board.
3. Wider stakeholder engagement: Invite industry bodies, arbitrators, law firms and other civil society organisations to offer their views on the model text.
4. A public draft: Prepare a draft and place it in the public domain, inviting comments from the public at large.
5. Parliamentary scrutiny: Place the draft model treaty on the floor of Parliament for discussion, and rope in the relevant department related parliamentary committees.
6. The standard the exercise must meet: The process must engage with dissenting views rather than run as a box ticking formality.

Challenges to revising the Model Bilateral Investment Treaty

1. A model text does not bind the counterparty: A model is a negotiating template, so a partner with stronger bargaining power will press its own text and the model’s provisions will be traded away one by one. Eg. Investment provisions have been among the unresolved items in India’s long running negotiations with the European Union.
   The Fix: Publish the provisions treated as non-negotiable separately from those open to trade-off, so a concluded treaty can be judged against a stated position rather than against the template.
2. The local remedies requirement is long relative to the delay it addresses: The 2015 model requires an investor to pursue domestic remedies for five years before starting international arbitration, in a system whose delay is itself the investor’s complaint. Eg. White Industries Australia v Republic of India (2011), the first adverse award against India, arose from delay in Indian courts enforcing a commercial arbitration award.
   The Fix: Tie the domestic remedies condition to a defined procedural stage being reached rather than to a fixed number of years.
3. Termination does not end exposure: A terminated treaty carries a survival clause that keeps protections alive for investments made before termination, so liability continues for years after the instrument goes. Eg. The 2020 Vodafone award was rendered under the India-Netherlands treaty after India had begun issuing termination notices in 2016.
   The Fix: Negotiate replacement treaties with express provisions displacing the survival clauses of the instruments they replace.
4. Taxation is carved out of the model’s scope: The 2015 model excludes taxation measures from treaty protection, which removes the very category of dispute that produced India’s largest awards. Eg. The 2020 Cairn Energy award, made under the India-United Kingdom treaty, concerned a retrospective tax demand.
   The Fix: Bring expropriatory tax measures within the treaty’s scope while keeping bona fide tax policy outside it.
5. Consultation without a legal basis is discretionary: No Indian law requires the executive to lay a treaty text before Parliament, so every consultation depends on the willingness of the government of the day. Eg. Treaties are concluded under executive power and reach Parliament only where implementing them requires a change in domestic law.
   The Fix: Enact a treaty scrutiny statute setting out which categories of treaty must be laid before Parliament and for how long before ratification.

Conclusion

The revision is being handled as a drafting exercise. The gap it does not close is that India has no settled procedure for producing a treaty text at all, so the quality of the next model rests on the discretion of whoever drafts it. A text written without external scrutiny will attract the same legitimacy objection whichever direction it moves the balance in. What to watch is whether the draft reaches the public domain and the floor of Parliament before the Union Cabinet clears it, or only after.

Bilateral Investment Treaties in India

1. What they are: A bilateral investment treaty is an agreement between two countries setting the terms on which each protects investors from the other in its own territory.
2. How disputes under them are settled: Most such treaties allow an investor to bring a claim directly against the host state before an international arbitral tribunal, without routing it through its own government.
3. India’s treaty stock: India signed its first such treaty with the United Kingdom in 1994 and went on to sign more than 80. From 2016 it began terminating them and moved to renegotiate on the 2015 model.
4. What has been concluded since: Treaties concluded on the newer template include those signed with the United Arab Emirates and with Uzbekistan in 2024.

Constitutional Framework Governing Treaty Making

1. Article 246 with Entry 14 of the Union List: Places entering into treaties and agreements with foreign countries, and implementing them, within Parliament’s exclusive legislative field.
2. Entry 13 of the Union List: Covers participation in international conferences and associations, and the implementing of decisions taken at them.
3. Article 253: Empowers Parliament to make law for the whole or any part of India to implement any treaty, agreement or convention with another country.
4. Article 73: Extends the Union executive’s power to every matter on which Parliament may legislate, which is the basis on which the executive concludes a treaty without prior legislative approval.

Back2Basics: Law Commission of India

1. What it is: A non-statutory executive body constituted by the Government of India to advise on law reform.
2. How it is constituted: It is set up for a fixed term by an order of the Ministry of Law and Justice, and is chaired by a retired judge.
3. What it does: It examines existing laws and specific references made by the government, and submits reports carrying recommendations.
4. The weight its reports carry: Its recommendations are not binding, and a change in law follows only where the government accepts them.

Matching Previous Year Question

“[2010] A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why? (a) India has preference, for certain countries as regards receiving FDI (b) India has double taxation avoidance agreement with Mauritius (c) Most citizens of Mauritius have ethnic identity with India and so they feel secure to invest in India (d) Impending dangers of global climate change prompt Mauritius to make huge investments in India ANSWER: (b)”