NEW DELHI: To create a more investor-friendly climate, the government has decided to revisit its approach to bilateral investment treaties (BITs). The move is triggered by the fact that the BIT text adopted by India after comprehensive review in 2016 has found few takers among key trading partners.
According to official sources, the prime minister’s office has given the task of reviewing the 2016 BIT model to the ministry of commerce and industry. The ministry will kick-start wider consultations on the subject, with a meeting with lawyers and other experts on Monday, a senior official said.
While the 2026 model sought to plug the loopholes in the previous text, especially on the taxation front, the ministry has been specifically asked to examine the concerns of investors in the current review.
Experts cite longer period mandated under the current text for dispute resolution through locally available means, before seeking international arbitration, as one of the turn-offs for global investors. Also, the BIT text does not provide redress on matters of taxation, which could put investments in jeopardy.
Only 7 BITs have been signed on the basis of revised BIT text, while New Delhi is seeking such pacts with at least another three dozen countries. The contours of India’s BIT text have also become an impediment during the country’s FTA negotiations in recent months, including with the UK.
BIT are designed to give protection to investors from signatory countries in each others’ jurisdictions, and typically include mechanism for settling disputes between investors.
“To encourage sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners,” Finance Minister Nirmala Sitharaman had said in her interim-budget speech. Secretary in the Department for Promotion of Industry and Internal Trade Rajesh Kumar Singh has said in a recent interview that India aims to attract $100 billion gross Foreign Direct Investment (FDI) per year in the next five years. Maximum FDI that India has received in a year is $ 59.6 billion in 2020-21.
As per the Allocation of Business rules the investment treaties are in the domain of the department of economic affairs in the ministry of dinance, but the task of reexamining the text has been given to a ‘third party’, in this case, the commerce ministry.
The commerce ministry deals with trade agreements, and in the process, has to confront investment issues in negotiations. Sometimes investment agreements become part of Free Trade Agreements though provisions on investment facilitation.
“There will be a presentation at (Monday’s meeting). We are doing an internal discussion on the issue. The Prime Ministers’ Office is looking into it and has asked the commerce ministry to provide a third party perspective on the model text,” the official said.
The 2016 model treaty had replaced earlier approaches to BIT where emphasis was on protection of foreign investment rather than regulatory powers of the state. The revised model text was in response to the several cases filed against India between 2011 and 2016. As a result of the growing surge of BIT claims, India unilaterally terminated 68 of the 74 treaties it had signed till 2015 and sought renegotiations on the basis of the revised text. The countries which signed BITs with India under the revised text include United Arab Emirates (UAE), Belarus, Brazil, Kyrgyz Republic, Uzbekistan. Barring UAE, none of the big FDI-source countries are on the list. One other promising treaty is the Bilateral Investment Agreement between India Taipei Association (ITA) in Taipei and Taipei Economic and Cultural Center (TECC) in India.
India is currently discussing and negotiating BITs at various stages with the UK, European Union, Australia, Switzerland, Oman, Israel, Qatar, Tajikistan, Russia, Saudi Arabia, Mexico, Hong Kong, Mauritius and a few other countries.
The officials say that the European Free Trade Association (EFTA) with which India has signed an agreement for $100 billion investment in 15 years may also be asking for a BIT.
According to experts, the model BIT demands investors seek local solutions for at least five years before arbitration, making new BITs challenging for other countries. This contrasts with BITs that other countries enter into. There are no restrictions on taking disputes to international arbitration in BIT models elsewhere and some even go to the extent of offering stability in the direct tax regime to protect investor interest. The predictability of direct taxes is sought by some countries in BITs as frequent changes can upset the entire supply chains if costs go up in one country.
Experts also cite “narrow definition of ‘investment, vague terms, omission of principles like ‘fair and equitable treatment, and Most-Favoured Nation status as other flaws of the BIT text.
Source: The Financial Express