Bilateral Investment Treaty (BIT)

Context:

• The Union Cabinet has approved the Bilateral Investment Treaty between India and the United Arab Emirates.
• In May 2022, the two countries established a free trade agreement. India attracted a total foreign direct investment of $16.7 billion from April 2000 to September 2023.

Bilateral Investment Treaty:

• BITs are international agreements that establish the terms and conditions for private investment by individuals and companies from one country in another country.
• These agreements provide guarantees that ensure fair treatment and protection for foreign investors.
• The guarantees include national treatment, which means that foreign investors are treated the same as domestic companies.
• Additionally, fair and equitable treatment is provided in accordance with international law. BITs also protect against expropriation, limiting a country’s ability to take over foreign investments within its territory.
• Furthermore, BITs offer an alternative dispute resolution mechanism, where investors can seek recourse through international arbitration, often facilitated by organisations such as the ICSID.

India’s involvement with BITs:

• The Indian government started realising its vision on BITs in 1994 with UNITED KINGDOM to be the first country to sign a BIT.
• As of today, India has signed BITs with 83 countries, prepared several of which have already entered into force, namely 75.
• But there have been a number of challenges or cases against India that caused the creation of a new model for BITs.
• One year later, an important case was lost by India when Australia brought charges on contractual obligations to which India had violated.
• In 2015 a revised model aimed at ensuring enhanced protection for foreign investors but still leaving a balance in line with UK obligations, was henceforth developed.
• At present, 4 new BITs are signed by India and it is negotiating with 37 signing countries.
• In addition, old BITs containing 77 countries have been declassified.
• New model is credited to be a significant leap as it is expected to restore investor confidence, encourage investments in India, and support national self-reliance initiatives aimed at developing inland manufacturing and lowering import reliance.

Obstacles:

• Investor obligations in the Bilateral Investment Treaties (BITs) do not require host states to raise counterclaims against investors who violate local law, human rights obligations, or environmental obligations without a legal basis.
• Disputes in investment are not resolved in a timely manner, leading to significant costs for the government.
• The wording of the BITs is ambiguous, leading to broad interpretations by arbitrators and tribunals, resulting in disputes and misuse of certain provisions by investors.
• The government is not transparent in the International Centre for Settlement of Investment Disputes (ISDS) proceedings, disregarding domestic legal obligations and denying information under the Right to Information Act.
• India lacks enough lawyers and judges with expertise in arbitration, resulting in high fees paid to foreign legal representatives.

Conclusion:

• India should focus on signing new BITs with its existing partner countries, selectively signing BITs in priority sectors, and completing treaty negotiations early.
• The Ministry of External Affairs should ensure the implementation of the agreement with the Permanent Court of Arbitration, allowing for arbitration to be conducted in India.
• Additionally, India should promote the New Delhi International Arbitration Centre as a top-notch arbitration centre.
• It is also important to develop a pool of domestic lawyers and law firms with expertise in investment arbitration and investment treaty law to represent India and train government officials in this field.

Source: The Hindu

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