[CTC] India overhauls its investment treaty regime

[Arthur Stamoulis]

http://blogs.ft.com/beyond-brics/2016/07/15/india-overhauls-its-investment-treaty-regime/ <http://blogs.ft.com/beyond-brics/2016/07/15/india-overhauls-its-investment-treaty-regime/>
India overhauls its investment treaty regime
Kavaljit Singh and Burghard Ilge <http://blogs.ft.com/beyond-brics/author/kavaljitsinghandburghardilge/>
In a surprising recent move, India has served notices to 57 countries including the UK, Germany, France and Sweden seeking termination of bilateral investment treaties (BITs) whose initial duration has either expired or will expire soon.
For the remaining 25 countries with similar treaties whose initial duration will expire from July 2017 onwards, such as China, Finland, Bangladesh and Mexico, India has asked for joint statements to clarify ambiguities in treaty texts, to avoid expansive interpretations by arbitration tribunals.
The Indian government intends to replace existing BITs with a new set of treaties designed to strike a balance between investor rights, regulatory space and investor responsibilities. This move is an outcome of India’s new Model BIT of 2015, which provides a more balanced and coherent policy framework, in tune with domestic investment policies as well as new realities of international investment. It comes as India is faces a record number of claims from foreign investors seeking billions of dollars in compensation for the alleged violation of existing investment treaties.
Most foreign investors have adopted a wait-and-see approach as India embarks on this new path. Their existing investments in India will continue to enjoy treaty protection for the next 10 to 15 years, as most Indian BITs contain a so-called sunset clause. For instance, India’s BIT with the Netherlands extends protection to all qualifying investments (made before the date of termination) for an additional 15 years, so that investments made in India by Dutch companies before December 2016 will continue to benefit from the Treaty’s protections until December 2031.
India’s new Model BIT is a major departure from its earlier models (of 1993 and 2003) as it provides protection to foreign investors in more limited circumstances. Under the new Model, controversial elements such as Most Favoured Nation status have been completely dropped, while the scope of clauses on National Treatment and Fair and Equitable Treatment has been considerably narrowed down.
Investors may still initiate international arbitration proceedings under the Investor-State Dispute Settlement (ISDS) mechanism. However, whereas this has hitherto allowed them to bypass domestic courts entirely, access to the ISDS mechanism has henceforth been made conditional on the exhaustion of local remedies. Foreign investors will have to first approach the relevant domestic courts for the resolution of an investment dispute before turning to arbitration.
The new Model includes an exhaustive list of economic, environmental and social measures to be exempted under the new BITs. This includes matters such as taxation, intellectual property rights and measures to protect macroeconomic stability.
The next big task for India is to negotiate its future treaties as per the new Model text. India is currently negotiating standalone BITs with the US and Canada, and a proposed free trade agreement with the EU includes an investment chapter. Negotiations for the proposed India-EU FTA were launched way back in in 2007.
Since the entry into force of the EU’s Lisbon Treaty of 2009, the competence for international investment agreements has shifted from individual member states to the EU. So it is unlikely that India and the Netherlands will start negotiations for a new BIT without the European Commission in the picture. Perhaps both countries will watch and wait and watch until negotiations on the proposed India-EU FTA are finished.
India is also a major player in the ongoing negotiations for the Asian Regional Comprehensive Economic Partnership <https://aric.adb.org/fta/regional-comprehensive-economic-partnership> – a mega regional FTA being negotiated between 16 countries – which will also cover investment protection issues.
Post-Brexit, there is a renewed push by the UK to forge closer bilateral trade and investment ties with India. On its part, India is also keen to explore a new BIT with the UK as the previous treaty of 1994 has turned out to be problematic.
Sajid Javid, the UK’s Business Secretary before the new government’s cabinet shuffle this week, visited India this month to explore the possibility of an FTA between the two nations in the near future. India was the first destination for such trade talks since the UK voted to leave the EU last month.
Rather than seeking a new standalone BIT, India and the UK may opt for an investment protection chapter under a comprehensive FTA. Given the current deadlock over the India-EU negotiations, India’s chances of entering into a FTA with the UK are far greater than its chances of doing so with the EU.
In the past decade, India’s investment landscape has changed considerably. India is no longer a purely capital-importing nation. Since 2005, Indian companies have increasingly looked to expand their global footprints by investing abroad. Indian investors are increasingly seeking investment protection tools in those jurisdictions that are generally perceived to have greater potential risks and uncertainties related to the regulatory framework and the political climate. So it remains to be seen how New Delhi will strike a balance between such competing claims.
Nor is it yet clear what would be the Indian government’s approach to investment chapters in FTAs. These are fraught with complexity and legal hurdles. As pointed out by Abdulkadir Jailani, an official from Indonesia’s foreign ministry, agreeing an investment chapter of an FTA may not be legally possible unless it is done together with all other chapters of the agreement, or such an option is explicitly mentioned in the agreement.
Needless to say, all these developments on India’s investment treaty regime are being closely watched by foreign investors, policy makers, academia, civil society and media across the world.
Kavaljit Singh is director of Madhyam <http://www.madhyam.org.in/> (New Delhi). Burghard Ilge is a senior policy officer with Both ENDS <http://www.bothends.org/en/> (Amsterdam).
> 
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://lists.citizenstrade.org/pipermail/ctcfield-citizenstrade.org/attachments/20160715/2c804546/attachment.htm>