Bilateral Investment Treaty (BIT)

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Context:

The Bilateral Investment Treaty (BIT) between India and Uzbekistan was signed at Tashkent.

Features of the India and Uzbekistan BIT

The BIT assures appropriate protection to Uzbekistan investors in India and Indian investors in Uzbekistan, in light of relevant international precedents and practices.

It will boost the confidence of investors by assuring a minimum standard of treatment and non-discrimination.

The BIT provides an independent forum for dispute settlement through arbitration.

It also provides for protection to investments from expropriation, provides for transparency, transfers and compensation for losses.

While providing investor and investment protection, the balance has been maintained about the State's right to regulate.

Expropriation It is the act of taking away money or property, especially for public use without payment to the owner, or for personal use illegally.

What is BIT?

A bilateral investment treaty (BIT) is an international agreement between two countries that protects foreign investments and promotes investment flows.

The BIT program's basic aims are:

• To protect investment abroad in countries where investor rights are not already protected through existing agreements (such as modern treaties of friendship, commerce, and navigation, or free trade agreements);
• To encourage the adoption of market-oriented domestic policies that treat private investment in an open, transparent, and non-discriminatory way; and
• To support the development of international law standards consistent with these objectives.

Benefits of BITs:

• The BITs require that investors be treated as favourably as the host party treats its investors and their investments or investors and investments from any third country. It generally provides the better of national treatment or most-favoured-nation treatment for the full life-cycle of investment -- from establishment or acquisition, through management, operation, and expansion, to disposition.
• BITs establish clear limits on the expropriation of investments and provide for payment of prompt, adequate, and effective compensation when expropriation takes place.
• BITs provide for the transferability of investment-related funds into and out of a host country without delay and using a market rate of exchange.
• It restricts the imposition of performance requirements, such as local content targets or export quotas, as a condition for the establishment, acquisition, expansion, management, conduct, or operation of an investment.
• It also gives investors the right to engage the top managerial personnel of their choice, regardless of nationality.
• BITs give investors from each party the right to submit an investment dispute with the government of the other party to international arbitration. There is no requirement to use that country's domestic courts.

For further study on BITs please refer:

https://www.iasgyan.in/daily-current-affairs/bilateral-investment-treaty-bit-in-india 

Status of BITs in India

India has signed Bilateral Investment Treaties (BITs) with 83 countries until 2015, based on the Indian Model BIT of 1993.

India revised its Model BIT text in 2015. Since then, India has:

(i) signed new BITs/Investment Agreements with only four countries and is negotiating with 37 countries/blocks, and

(ii) terminated its older BITs with 77 countries (i.e., older BITs with only six countries are in force).

India is currently negotiating new BITs with several countries, incorporating updated provisions on issues like intellectual property, environment, and corporate social responsibility. 

Challenges:

The number of BITs/Investment Agreements signed by India after 2015 and the number under negotiation are inadequate.

There have been 37 notices of dispute or letters intending to raise a dispute against India under various BITs. Although only one case resulted in India paying an arbitral award, the said award resulted in a significant cost to the exchequer.

Since India does not have a sufficient number of lawyers/judges with the requisite expertise and experience, huge fees are paid to foreign lawyers and law firms engaged to represent India in investment arbitration. This again leads to higher costs to investors.

Way ahead:

BITs have the potential to attract foreign direct investment (FDI) by providing prospective investors with a higher degree of confidence in their investments.  BITs should be signed selectively in identified priority sectors.

There is a need for signing new BITs with countries with which India had such treaties in the past.

Early completion of treaty negotiations should be provided by the Ministry of External Affairs in coordination with other Ministries/Department.

To avoid significant losses in the future to the investors in the arbitration process, there is a need for timely settlement of investment disputes through pre-arbitration consultation or negotiations.

Conclusion

The signing of the BIT reflects both nations’ shared commitment towards enhancing economic cooperation and creating a more robust and resilient investment environment. The BIT is expected to pave the way for increased bilateral investments, benefiting businesses and economies in both countries.

Sources:

https://pib.gov.in/PressReleasePage.aspx?PRID=2059459

https://investmentpolicy.unctad.org/international-investment-agreements/model-agreements

https://prsindia.org/policy/report-summaries/india-and-bilateral-investment-treaties

PRACTICE QUESTION Q.Consider the following statements about the “bilateral investment treaty (BIT)” recently seen in the news: They are an international agreement between two countries that provides for protection to investments from expropriation. The BITs require that investors be treated as favourably as the host party treats its investors. India has signed Bilateral Investment Treaties (BITs) only with the neighbouring countries in South Asia. How many of the above statements is/are correct? A. Only one B. Only two C. All Three D. None Answer: B Explanation: Statement 1 is correct: A bilateral investment treaty (BIT) is an international agreement between two countries that protects foreign investments and promotes investment flows. It also provides for protection to investments from expropriation, provides for transparency, transfers and compensation for losses. Statement 2 is correct: Benefits of BITs: The BITs require that investors be treated as favourably as the host party treats its investors and their investments or investors and investments from any third country. It generally provides the better of national treatment or most-favoured-nation treatment for the full life-cycle of investment -- from establishment or acquisition, through management, operation, and expansion, to disposition. BITs establish clear limits on the expropriation of investments and provide for payment of prompt, adequate, and effective compensation when expropriation takes place. BITs provide for the transferability of investment-related funds into and out of a host country without delay and using a market rate of exchange. Statement 3 is incorrect: India has signed Bilateral Investment Treaties (BITs) with 83 countries until 2015, based on the Indian Model BIT of 1993. India revised its Model BIT text in 2015. Since then, India has: (i) signed new BITs/Investment Agreements with only four countries and is negotiating with 37 countries/blocks, and (ii) terminated its older BITs with 77 countries (i.e., older BITs with only six countries are in force).