Ministries for scrapping of bilateral investment pacts

Jul 14 2014, 01:01 IST
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SummaryThe commerce and industry ministry, backed by the ministries of coal and telecom, has categorically stated that the government must invoke the ‘sunset’

The commerce and industry ministry, backed by the ministries of coal and telecom, has categorically stated that the government must invoke the ‘sunset’ clause in all the 83 Bilateral Investment Promotion and Protection Agreements (BIPPA) with other countries and unilaterally exit from them. This is in the context of MNCs suing India for alleged violations of these treaties, in what is felt are instances of treaty shopping.

Of the 83 BIPPAs signed with partner countries, 72 have been enforced.

These wings of the Centre have suggested that all future BIPPAs, Bilateral Investment Treaties (BITs) and the investment clauses in Comprehensive Economic Cooperation / Partnership Agreements

(CECAs/CEPAs) should only be focused on

“investment promotion”, official sources told FE.

They cited the examples of South Africa and Indonesia seeking to terminate these treaties on finding them against their domestic interests.

Given the current thrust on “investment promotion and protection” in BIPPAs, foreign investors can sue the government for alleged violations of the pacts, push for settlement under international arbitration and conciliation norms (and not just under a domestic forum), and seek compensation for losses suffered by them.

Since these private investors are multinationals they resort to ‘treaty shopping’, where they cherry-pick the treaty that suits them most to ensure they win compensation for any loss incurred, the sources added. This, in turn, impinges upon the policy space available to the government to not only regulate but also challenge the nature of some of the investments made as well as impose certain performance obligations on foreign companies, sources said.

They added that the department of industrial policy and promotion has circulated a note on the perils of such BIPPAs, BITs and CEPAs/CECAs to all ministries.

This development comes even as the government has put on hold all further BIPPAs and is reviewing the BIPPA ‘Model Text’ after it got several arbitration / dispute notices where private investors have issued notices to the government citing the BIPPAs.

However, in the case of all the BIPPAs in force, it is not so easy to walk away. The current Model Text says once entered into, the BIPPA will be in force for 10 years and thereafter it shall be deemed to have been automatically extended unless either country gives the partner country a written notice of its intention to terminate the agreement.

The agreement then will be terminated only one year from the date of receipt of such

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