Bilateral investment treaty policy needs overall review, not a limited reform of substantive provisions

The government informed Parliament that India has imposed a moratorium on all its Bilateral Investment Treaty (BIT) negotiations. BITs are treaties aimed at protecting foreign investment. BIT negotiations have been put on hold because India wishes to review its BITs. An adverse BIT ruling against India in 2011 in White Industries vs India and issuance of BIT notices in 2012 by many foreign corporations, ranging from telecom companies to hedge funds, has rattled India. All these notices challenge India?s sovereign action as transgressions of BITs. This made India realise that BITs expose India?s sovereign conduct to challenge internationally.

India has decided to put all BIT negotiations on hold, for the first time, although India?s BIT voyage began in 1994. The decision to review India?s BITs raises many questions. Who will review India?s BITs?civil servants who lack domain expertise? Likewise, how will the review of BITs be carried out?whether through open stakeholder meetings or will it be an opaque closed-door review shrouded in bureaucratic red-tape?

The decision to review BITs has brought these treaties and India?s ambivalent BIT policy under spotlight. Chiefly, Indian government needs to explain why India waited for notices from half a dozen transnational corporations to learn lessons about problems related to BITs? Did the government lack the competence to comprehend the pith and substance of such treaties? As part of the BIT review process, the South African government publicly admitted that it had entered into investment agreements without fully comprehending the import of such treaties. Is this true of India as well? If yes, will the Indian government, like the South African government, be bold enough to publicly admit this?

Assuming India didn?t anticipate the kind of challenges that BITs may pose at the time of entering into such treaties, what precluded India to learn from the experiences of other countries and modify its BITs accordingly? Overwhelming global evidence on the interface between BITs and sovereign policy space of the host state has been before us ever since US investors brought BIT cases against Argentina in 2001. These cases questioned Argentina?s sovereign actions to safeguard itself from a severe economic crisis. After 2001, there has been mounting evidence showing global contestation against BITs in many developed and developing countries. Indian academicians, based on this global evidence, have been demanding a review of Indian BITs. However, till very recently, such calls fell on deaf ears in the North and South Blocs. Absence of arbitral cases against India was often cited as proof of no conflict between Indian BITs and India?s sovereign policy space even if treaties of the same nature resulted in regulatory chill in other countries. This makes one wonder, had the BIT notices not been issued against India, India would not have decided to pause its BIT programme.

Future course of action

The review process on BITs needs to be clear about the problem at hand. In other words, is India?s sovereign policy space under siege because of BITs or because of the kind of BITs that India has signed? The future course of action on BITs hinges on the answer to this question. If the answer is that BITs, as a legal instrument, are the problem, then India should terminate its BITs. South Africa reached this conclusion and, as a result, has started terminating its BITs. However, one needs to carefully weigh and balance the pros and cons of such a radical step. While one major gain of terminating BITs is that it will make India?s sovereign measures absolutely immune from any challenge under BITs, the minuses far outweigh this limited benefit. BITs increase the comfort level of foreign corporations operating in turbulent global conditions. It won?t be sagacious for India to remove a viable and important international law protection available to foreign corporations. This might further deter investors from investing in India, thus dulling the already gloomy investment climate. More importantly, any such step might also jeopardise the interests of Indian investment abroad, which has risen in recent years. FDI from India in the year 2010-11 stood at $17.2 billion and in 2011-12 at $10.9 billion. The recent instances of skirmishes between Indian companies like GMR with the Maldivian government and Jindal Steel with the Bolivian government reveal the significance of BIT protection for Indian companies in choppy overseas markets. Likewise, protection of Indian investment in Nepal has been an important motivating factor behind India entering into a BIT with Nepal.

BITs, themselves, are not a problem. The problem is the expansive and nebulous BIT provisions, which can be easily stretched to give precedence to foreign investor?s rights over host country?s policy space. Such ambiguous and broad treaty provisions are a characteristic of ?one-dimensional-investor-centric? BITs having scant regard for the policy space of the host country. Such BITs were initially developed by Western Europe and the US to further their economic hegemony and protect their investments in developing and least-developed countries. A country like India cannot base its BITs on such ?one-dimensional-investor-centric? BIT model. Thus, India should launch an arduous programme of renegotiating its existing one-dimensional BITs to mould them into new treaties that balance investment protection with policy space. Such constructive engagement with the BIT regime is a reasonable option because it addresses the concerns related to preserving India?s policy space without compromising on the international legal regime for the protection of foreign investment.

The decision to review BITs should not just limit itself to reforming substantive treaty provisions but should also be used to re-examine India?s overall BIT policy. Mighty little is available on India?s BIT policy in the public domain mainly due to meagre proficiency on this topic within the government. Indian policy on BITs should spell out the processes India should follow before and during negotiating BITs. India should give reasons for entering into a BIT with a particular country by conducting feasibility studies? These studies should be posted on the website of the ministry of finance, the nodal body that deals with BITs. Members from academia, non-governmental organisations and civil society at large should be called upon to review these studies. Conducting open consultative meetings with all stakeholders should follow this. Parliament should also be informed about BIT negotiations, notwithstanding the fact that treaty-making is within executive purview. The task of negotiating BITs should not be left to bureaucrats alone but should involve non-governmental subject experts. India needs to develop a robust policy framework on BITs where institutionalised processes replace ad hocism to ensure India?s sovereignty is not compromised by chance.

The author is an associate professor at the National Law University, Jodhpur. Email: pranjan1278@gmail.com