Between capital and State: The model BIT - Hindustan Times

Between capital and State: The model BIT

Nov 07, 2023 10:41 PM IST

An investment treaty with countries like the UK will further boost the confidence of foreign investors and attract even higher levels of investments to India

It’s widely reported that India and the United Kingdom (UK) will soon clinch a bilateral investment treaty (BIT) along with the signing of the free trade agreement. The prime ministers of both countries, in a recent telephone conversation, reiterated the commitment to strengthen bilateral relationships in all areas, including trade and investment. An India-UK BIT, which will give a considerable impetus to bilateral investment flows, might be possible because both sides are showing much-needed flexibility.

A balanced Model BIT will also help Indian corporations when they invest in choppy jurisdictions abroad. PREMIUM
A balanced Model BIT will also help Indian corporations when they invest in choppy jurisdictions abroad.

From an Indian standpoint, this indicates a willingness to depart from the 2016 Model BIT. This will be a significant development that may have wide ramifications for India’s practice of international law on foreign investment. Because of being hit by a spate of BIT arbitration claims in the early 2010s, India decided to overhaul its investment treaty practice completely. India unilaterally terminated most of its investment treaties and adopted a new Model BIT. The new Model significantly reduced substantive protection to foreign investors by not including critical provisions like most favoured nation (MFN) and fair and equitable treatment (FET) and made issues like taxation non-justiciable.

India endeavoured to sign new treaties based on the 2016 Model BIT but with limited success. It managed to sign merely four BITs in the last seven to eight years, with countries like Belarus and Kyrgyzstan that are not major capital exporters to India. The parliamentary committee on external affairs, in its 2021 report, also expressed dissatisfaction over the pace at which India was signing BITs. One of the critical reasons for this slow pace is that there are very few takers for the 2016 Model BIT.

Seemingly, one of the contentious issues between India and the UK has been how to settle disputes between foreign investors and the host State. Specifically, the issue is whether the foreign investor should exhaust local remedies before challenging a State’s conduct in international arbitration. Although the 2016 Indian Model BIT does not require the exhaustion of local remedies, it does mandate a foreign investor to exhaust judicial and administrative remedies for a minimum period of five years before pursuing claims under international law. Given the frustratingly slow pace at which the wheels of justice move in Indian courts, most capital-exporting countries desirous of signing BITs with India are uncomfortable with this requirement. India has now apparently agreed to move away from this requirement. If this is indeed the case, one should welcome India’s decision to depart from its Model BIT. However, one still does not know whether other contentious issues such as MFN, FET provision, and taxation matters have been resolved or not.

The larger normative question is whether India is making a temporary or a permanent departure from the Model BIT. That is, whether this shift is restricted to the ongoing negotiations with the UK or marks a break from India’s existing investment treaty practice. As I have argued in these pages, India needs to revisit and overhaul its Model BIT. The story of international investment law is one of a continuum.

On the one end of this continuum is the goal of investment protection, and on the other, the State’s sovereign regulatory power. India’s 1993 Model BIT, which India rightly junked in 2016, was significantly closer to the end of foreign investment protection, thus epitomising the neoliberalism of the 1990s. India needed to move from a neoliberal model to embedded liberalism that balances investment protection and the State’s regulatory power. Instead, the 2016 Model BIT went too far toward the pole of the State’s regulatory power. The time has now come to withdraw from this extreme position and move to the centre of the continuum. Thus, the shift away from the Model BIT should not be transient but permanent to herald a new investment treaty practice, which will serve foreign investors well without compromising India’s policy space.

Moreover, a balanced Model BIT will also help Indian corporations when they invest in choppy jurisdictions abroad. India is a bright spot in the ominous global economy. An investment treaty with countries like the UK and entities like the European Union will further boost the confidence of foreign investors and attract even higher levels of investments to India, accomplishing the goal of becoming a $10 trillion economy by 2030.

Prabhash Ranjan teaches at the Faculty of Legal Studies, South Asian University. The views expressed are personal

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