FDI in Indian economy

The Bilateral Investment Treaties (BITs) to review

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Model BIT

Mains level : Paper 3- Reviev of BITs

Context

The report of the Standing Committee on External Affairs on ‘India and bilateral investment treaties (BITs)’ was presented to Parliament last month.

Factor’s that necessitated the review of India’s BITs

  • Investor’s started suing India frequently: Since 2011, when India lost its first investment treaty claim in White Industries v. India, foreign investors have sued India around 20 times for alleged BIT breaches.
  • This made India the 10th most frequent respondent-state globally in terms of investor-state dispute settlement (ISDS) claims from 1987 to 2019 (UNCTAD).
  • Adoption of new Model BIT: India adopted a new Model BIT in 2016, which marked a significant departure from its previous treaty practice.
  • Negotiating new BITs: 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 U.K.

Recommendations of the Committee

  • 1] Speed of the existing negotiations: India has signed very few investment treaties after the adoption of the Model BIT.
  • It recommends that India expedite the existing negotiations and conclude the agreements at the earliest because a delay might adversely impact foreign investment.
  •  2] Sign more BIT’s in core sector: The committee recommends that India should sign more BITs in core or priority sectors to attract FDI.
  • Generally, BITs are not signed for specific sectors.
  •  It will require an overhauling of India’s extant treaty practice that focuses on safeguarding certain kinds of regulatory measures from ISDS claims rather than limiting BITs to specific sectors.
  • 3] Fine-tune Model BIT: Model BIT gives precedence to the state’s regulatory interests over the rights of foreign investors.
  • The Model BIT should be recalibrated keeping two factors in mind:
  • a) tightening the language of the existing provisions to circumscribe the discretion of ISDS arbitral tribunals.
  • b) striking a balance between the goals of investment protection and the state’s right to adopt bonafide regulatory measures for public welfare.
  • 4] Improve the capacity of government officials: The committee recommends bolstering the capacity of government officials in the area of investment treaty arbitration.
  •  While the government has taken some steps in this direction through a few training workshops, more needs to be done.
  • What is needed is an institutionalised mechanism for capacity-building through the involvement of public and private universities.
  • The government should also consider establishing chairs in universities to foster research and teaching activities in international investment law.

Need to improve poor governance

  • A very large proportion of ISDS claims against India is due to poor governance.
  • This includes changing laws retroactively which led to Vodafone and Cairn suing India.
  • Annulling agreement in the wake of imagined scam which resulted in taking away S-band satellite spectrum from Devas.
  • The judiciary’s fragility in getting its act together (sitting on the White Industries case for enforcement of its commercial award for years).

Suggestions

  • The Committee could have emphasised on greater regulatory coherence, policy stability, and robust governance structures to avoid ISDS claims.
  • The government should promptly assemble an expert team to review the Model BIT.

Consider the question “India is one of the most frequent respondent-state globally in terms of investor-state dispute settlement (ISDS) claims. In context of this, examine the reasons for such frequent disputes and suggest the way forward.” 

Conclusion

The committee’s report on India’s BITs have novel suggestions, but it is lacking in several aspects.

UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)


Back2Basics: ISDS mechanism

  • Investor-state dispute settlement (ISDS) is a mechanism in a free trade agreement (FTA) or investment treaty that provides foreign investors, with the right to access an international tribunal to resolve investment disputes.
  •  ISDS promotes investor confidence and can protect against sovereign or political risk.
  • If a country does not uphold its investment obligations, an investor can have their claim determined by an independent arbitral tribunal, usually comprising three arbitrators.
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments