India has discontinued bilateral investment treaties (BITs) with most of its prominent trading partners, with termination notices given to as many as 58 countries, including EU states. All the BITs expired on April 1. According to sources, just a handful of countries — Tajikistan, Turkmenistan, Kyrgyz Republic, Switzerland, Oman, Qatar, Belarus, Thailand, Armenia, UAE and Zimbabwe — have agreed to renegotiate the treaties after the draft model BIT was approved by the Union Cabinet in December 2015. “Negotiations are still on with almost all countries on how to move forward with the new BITs,” an official said, adding that it is too early to write off the whole exercise. But, with most of these nations unwilling to renegotiate a new treaty based on the draft model, which they claim is against investors’ interest, the fate of flow of foreign investments into India hangs in balance. “The 58 countries wanted the pacts to be extended, but were not willing to follow the provisions in the Finance Ministry’s model draft in the new agreements,” another official told BusinessLine.
EU’s stricture. In fact, the EU has put in place a condition that it will continue negotiations on its free trade pact with India only when a BIT is signed. It had requested an extension of termination notice period pending the finalisation of the India-EU Bilateral Trade and Investment Agreement. However, India has not agreed to extend it. India’s partner nations argue that with the existing BITs lapsing, investments into the country could dry up. The lack of a BIT adds to the risk premium and increases the cost of funds for investors. This would also result in European companies deciding to invest lesser in India, EC Vice-President Jyrki Katainen had said. But, India is not worried. “Investments made by foreign companies before the termination of the 58 treaties will be protected for some years under the ‘sunset’ clauses. Even if there is no BIT in place, the country’s laws will continue to protect all the investments. Foreign companies need not be worried about discrimination especially since the government has launched the ‘Make in India’ drive to attract investments,” the official said. Of the 83 BITs that India had entered into with various countries, 25 — with countries such as Mexico, China and Finland — have not completed their initial term and will start expiring only from July. India has circulated a proposed joint interpretative statement to the counterparties to these BITs, seeking to align the ongoing treaties with the 2015 Model BIT. “The problem is that none of these countries, except one or two, are interested in negotiating new treaties based on the 2015 Model BIT. There is a universal feeling that it would put their investors at a disadvantage,” the official said. Amid the concerns in the 2015 Model BIT are the provisions related to Investor State Dispute Settlement (ISDS) and Most Favoured Nation (MFN). Under ISDS, countries can only seek the option of international arbitration when all domestic legal routes have been exhausted. The provision was introduced after MNCs such as Vodafone and Cairn sought international arbitration to settle tiffs here. Countries such as the US and Canada, too, have problems with these provisions and are unwilling to go ahead with a pact on these terms.
Pointing out that India and the US have not signed a BIT but the latter is still the largest foreign investor in the country, analysts said that such a pact adds to the comfort of foreign investors. “BITs are helpful in reassuring foreign investors. But there may not be any immediate impact on investments due to termination of the old pacts as investors have built comfort in the Indian system over the years,” said Abhishek Goenka, Partner, PwC.
Source: Business Line