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Bilateral Investment Treaties (BITs)

Bilateral Investment Treaties

Why in News?

India is negotiating Bilateral Investment Treaties with trade partners to boost the inflow of foreign direct investments (FDI).


Before 2015, India had BITs with 83 countries or regions but India suspended BITs with 68 countries/regions with a request to re-negotiate based on the model 2016 BIT. Six BITs are still in force. The suspension was triggered by several high profile defeats in investor-state disputes.

About Bilateral Investment Treaties (BITs):

  • They are reciprocal agreements between two countries to promote and protect foreign private investments in each other’s territories.
  • India had signed BITs with 83 countries of which 74 were in force till 2015.
  • India revised its Model BIT in 2016. Since 2015, India has signed new BITs only with four countries is negotiating with 37 countries, and terminated its older BITs with 77 countries.

Key features of Model Bilateral Investment Treaties 2016:

  • Enterprise” based definition of investment means an enterprise that has been constituted, organised, and operated in good faith by an investor in accordance with the domestic laws of the country.
  • Non-discriminatory treatment through due process as each party shall accord full protection and security to the investments and investors.
  • National treatment and protections against expropriation as neither party may nationalize or expropriate an investment of an investor directly or through measures having an effect equivalent to expropriation.
  • A foreign investor should first exhaust local remedies at least for a period of five years before going for the Investor-State Dispute Settlement (ISDS) mechanism.
Bilateral Investment Treaties (BITs)

Existing issues/concerns with Model BIT:

  • Experts suggest that India brought in Model BIT 2016 in reaction to a series of notices that India received. It has too many exceptions which limit the liability of the host state and raise the bar required to bring a claim under the BIT.
  • The Arbitration Mechanism insists that investors must exhaust domestic remedies for at least five years before starting arbitration under the BIT, making it the most contentious issue.
  • Enterprise-based definition of investment narrows down the definition of investment. Furthermore, people consider it to have unclear qualifications like “a specific duration” and “importance for the growth of the party in whose territory the investment is made.”
  • Omission of “fair and equitable treatment” standard. It has been replaced with protections that require steep thresholds to be triggered and/or invoked. Moreover, the doctrines of Most-Favoured Nation and “legitimate expectation” are also absent.
  • Exemption of taxation measures from the protections offered under BIT seems to be a restatement of sovereignty rather than a treaty meant to protect cross-border commercial transactions.
  • Lack of professionals as India does not have a sufficient number of lawyers/judges with the requisite expertise and experience. Thus, huge fees are paid to foreign law firms that represent India in investment arbitration.

Read also: Previous Year Paper: International Relations

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