Reimagining India’s Bilateral Investment Treaty (BIT) Framework

Context:

• The Union Budget 2024-25 proposes revamping the 2015 Model BIT to attract more foreign investment.
• Experts suggest a dual-model BIT strategy tailored to India's varying relationships with capital-exporting and capital-importing countries.

The 2015 Model BIT - A Decade of Defensiveness:

• India’s 2015 Model BIT emphasized sovereignty and regulatory autonomy.
• Included clauses such as:
  • Mandatory exhaustion of local remedies (for at least 5 years) before invoking international arbitration.
  • Narrow definition of investment.
• Result: Failed to gain traction globally and deterred potential investors.

Dual BIT Models - “Horses for Courses” Approach:

• Proposal:
  • Defensive BIT for capital-importing relationships (e.g., with African nations).
  • Investor-friendly BIT for capital-exporting ties (e.g., with countries where Indian companies invest heavily).
• Objective: Maximize benefits by aligning treaty terms with economic roles.

Flaws in the Dual BIT Approach:

• Dynamic economic relations:
  • Countries’ capital relationships evolve—India was a capital importer in 1994 with the UK, but now is a capital exporter.
  • Challenge: Difficult to permanently categorize countries as capital importers/exporters.
• Legal inconsistency:
  • Different BIT models imply divergent stances on legal norms (e.g., investor-state dispute settlement [ISDS] mechanism).
  • Undermines India’s credibility in international negotiations and multilateral forums such as the UN Commission on International Trade Law (UNCITRAL), currently discussing ISDS reforms.

Most Favoured Nation (MFN) Clause - Misunderstood Origins and Role:

• Clarifying MFN history:
  • Experts claim: MFN is rooted in multilateral treaties.
  • Historical fact: MFN clauses existed in bilateral commercial treaties since the 17th century.
• Importance in BITs:
  • The MFN clause ensures non-discriminatory treatment among treaty partners.
  • Contrary to claims, MFN clauses enhance treaty fairness and uphold the principle of equality.

Towards a Balanced BIT Framework:

• One model, better design: The key lies not in multiple models, but in creating a single, balanced BIT that:
  • Ensures investment protection.
  • Retains sovereign regulatory space.
  • Projects a principled and predictable stance in international law.

Conclusion:

• India must craft a BIT model that adapts to changing global investment patterns while maintaining consistency and legal credibility.
• A strategic, balanced, and investor-conscious model is vital for securing both foreign investments and the interests of Indian investors abroad.

Q1. What are the key features of India’s 2015 Model Bilateral Investment Treaty (BIT)?

Ans. India’s 2015 Model BIT emphasizes state sovereignty and includes provisions such as mandatory exhaustion of local remedies before invoking international arbitration.

Q2. Critically examine the proposal to adopt dual-model BITs based on India’s capital relationship with other countries.

Ans. While dual BITs aim to align with India’s capital flow dynamics, they risk inconsistency in legal commitments and weaken India’s credibility in global treaty negotiations.

Q3. How does the Most Favoured Nation (MFN) clause function in bilateral investment treaties?

Ans. The MFN clause ensures non-discriminatory treatment by extending any favorable terms given to one country to all other treaty partners.

Q4. Why is the investor-state dispute settlement (ISDS) mechanism controversial in the context of BITs?

Ans. ISDS allows foreign investors to bypass domestic courts, raising concerns over national sovereignty and uneven power dynamics in international arbitration.

Q5. Why is it important for India to adopt a consistent and balanced BIT model in the current global investment climate?

Ans. A consistent and balanced BIT model promotes legal predictability, protects Indian and foreign investors, and strengthens India’s position in multilateral economic negotiations. 

Source:IE