For a better deal

India is poised to play a crucial role in steering the G20 in a new direction while also building on the significant achievements of the previous 17 presidencies. Importantly, the first Trade and Investment Working Group (TIWG) meeting was convened from 28 -30 March 2023.

Presently, the G20 accounts for roughly 28% of India’s inward FDI; whereas the total amount of outward FDI from January 2022-February 2023 is $10.2 billion. The TIWG was established during the Chinese Presidency in 2016 to coordinate efforts in strengthening trade and investment. In the same year, the G20 also adopted a set of non-binding guiding principles for Global Investment Policymaking to serve as a reference for national and international investment policymaking. The topics under consideration in India include the increasing trade gap, access to trade finance, resilient global value chains, integrating MSMEs in worldwide trade, and efficient logistics.

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As the world witnessed a drastic increase in cross-border activities, there was a need to protect investors and ensure certainty for investments made in a foreign state. As a result, states attempted to create a global regime to safeguard their assets and provide certainty. But due to the differences regarding some crucial aspects of international investment law, a global regime to regulate the protection of investments has remained elusive. Instead, the current framework is characterised by bilateral investment protection agreements (BIPAs) between two countries and multilateral or regional trade agreements. There are currently 2217 BIPAs in force, out of which 1,809 have been signed by G20 countries with other states, including non-G20 members. Hence, the discussions at the G20 could significantly impact shaping the international architecture to protect investments and provide certainty to investors.

However, there is an increasing trend of states terminating BIPAs. For example, in 2021, a minimum of 393 terminations came into effect, while the number of BIPAs that were signed remained less than 30. A significant source of concern for states is the steady increase in the number of ISDS cases brought by investors against states in response to regulatory measures viewed inconsistently with the BIPAs. Such rising claims have led to a ‘regulatory chill’, where states find it challenging to achieve socially desirable goals as it may go against the provisions of the BIPAs. Moreover, the independence and impartiality of ISDS mechanisms under BIPAs are also questioned, as it is up to the parties to the dispute to nominate an arbitrator of their choosing. In addition, the ambiguity regarding primary rules of international investment law is another cause of worry for states—there is no consensus on the definition of an investment; the standard of treatment which needs to be accorded to the investors remains ambiguous; and investors have used the most favoured nation clause for treaty benefits—a process of importing favourable clauses from other treaties for the most advantageous protections. Due to these reasons, countries such as Bolivia, Ecuador, South Africa and Venezuela have terminated their BIPAs. India has also joined these countries.

India’s involvement with BIPAs began in the 1990s when it started entering into agreements with more than 80 countries to protect investments. But India’s experience ended on a bitter note when an international tribunal held it responsible for failing to provide an effective means to assert the claims and enforce the rights of an investor under a BIPA in the White Industries Case. The government commenced a process of revisiting its existing BIPAs. As a result, India started adopting a revised Model BIPA (a draft version based on which states negotiate BIPAs). As a result, it terminated 77 BIPAs on March 31, 2017. However, the recent Parliamentary Committee on External Affairs reports have recommended that India take more proactive measures in negotiating BIPAs in identified priority areas.

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India’s 2015 Model BIPA has been criticised for being state-centric, placing an added burden on investors to exhaust local remedies before approaching an ISDS tribunal, and being ambiguous on some issues. But this is an attempt to maintain sovereignty over regulations for public interests while also protecting investors’ interests. The definition of key terminologies has been narrowed down to cover only those investors who have an actual presence in India. Some controversial provisions related to the treatment of investors have been removed from the Model BIPA, and the conditions of expropriation have been explained in detail.

In protecting its interests, India has introduced general exceptions such as environment, national treasure, public order, and public health; and security-related exceptions dealing with critical public infrastructure, actions pertaining to arms, ammunition and war, and nuclear weapons. Another crucial exception introduced after the Cairn and Vodafone Cases is tax carveout, which excludes the application of BIPA protections, including an ISDS arbitration.

India is not alone in raising concerns over BIPAs. Twenty-three members of the European Union have agreed to end all intra-EU BIPAs as they were in violation of the EU’s fundamental principle of autonomy and incompatible with EU law. With the G20 presidency, India has an opportunity to bring clarity to pressing issues under the international investment regime to smoothen negotiating BIPAs. It is thus time for investment agreements to take their place back on the high table.

Writers are respectively, managing partner and research associate, BMR Legal