New investment treaties may include qualified most-favoured nation rule, Pg13

Key Highlights:

• India is proposing a re-modelling of its Bilateral Investment Treaties (BITs) to attract foreign investment.
• The new framework may include a qualified Most-Favoured Nation (MFN) rule, differing from the full MFN rule rescinded a decade ago.
• This aims to address investor concerns from major trading partners like the European Union and ensure reciprocal treatment for Indian investors abroad.
• The Finance Ministry has circulated a Draft Cabinet note outlining proposed changes to the BIT framework.
• Proposals include reducing the Investor-State Dispute Settlement (ISDS) window to one year and doubling investor protection post-treaty expiry to 10 years.
• The definition of 'investment' will be widened to include portfolio investments and other financial assets.

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Detailed Insights:

• The qualified MFN provision is designed to offer investors greater policy certainty without opening the door to broader claims based on provisions in treaties signed with third countries.
• This strategic move is considered essential for both attracting foreign capital and enabling Indian investors to receive similar treatment in major economies like the US and EU.
• An open approach to granting qualified MFN status could also provide significant leverage in bilateral negotiations.
• The Draft Cabinet note further proposes banning third-party funding of litigation in investment disputes.
• The 2015 BIT rule, which did not grant open-ended MFN or full Fair and Equitable Treatment (FET) standards, will be retained.
• This cautious approach reflects India's concerns stemming from the legacy of past investment disputes.

Key Concepts Involved:

• Bilateral Investment Treaties (BITs): Agreements between two countries for the reciprocal promotion and protection of investments by investors in each other's territories.
• Most-Favoured Nation (MFN) Rule: A principle requiring a country to provide the same favorable treatment to all its trading partners as it gives to its "most favored" one.
• Qualified MFN Rule: A restricted form of MFN treatment, offering specific benefits without extending all provisions from other treaties.
• Investor-State Dispute Settlement (ISDS): A mechanism allowing foreign investors to sue host governments directly for alleged breaches of investment treaty obligations.
• Fair and Equitable Treatment (FET): A common standard in BITs requiring host states to treat foreign investors justly and equitably, often a source of broad claims.
• Portfolio Investments: Investments in financial assets such as stocks and bonds, rather than direct investment in productive assets.