New BIT model, Pg4

Key Highlights:

• India is revamping its 2016 Bilateral Investment Treaty (BIT) model to make it more investor-friendly and attract sustained Foreign Direct Investment (FDI).
• The proposed new model suggests a minimum two-year timeline for exhausting local remedies before initiating international arbitration.
• Discussions are ongoing to exclude ratcheting or Most Favoured Nation (MFN) clauses and keep taxation separate from investment pacts.
• The Budget for 2025-26 announced the revamping of the existing 2016 model.
• The previous 2016 model mandated a five-year period for local remedies, which was criticized as a hurdle for investors.

Detailed Insights:

• The 2016 BIT model was adopted after several international arbitration proceedings, such as those involving Vodafone and Cairn, highlighted issues with the earlier 1993 model.
• Union Finance Minister Nirmala Sitharaman emphasized that BITs should be negotiated separately from Free Trade Agreements (FTAs) by specialists.
• She also stressed the importance of allowing sufficient time for local remedies before resorting to international arbitration, which is crucial for the host country.
• Economist Surjit Bhalla criticized the five-year local remedies requirement in the 2016 model, comparing it unfavorably to Indonesia's 12-month cooling-off period.
• Indonesia scrapped its existing BITs in 2014 and adopted a new model with a shorter cooling-off period, successfully signing new treaties.
• Some countries, like Australia, have moved away from Investor-State Dispute Settlement (ISDS) to State-State Dispute Settlement (SSDS) mechanisms in their investment treaties.
• Since the 2016 model, India has signed BITs with Belarus, Kyrgyz Republic, UAE, and Uzbekistan, and an Investment Cooperation and Facilitation Treaty (ICFT) with Brazil.
• The BIT with the UAE reduced the window for exhaustion of local remedies to three years from the previous five years.

Key Concepts Involved:

• Bilateral Investment Treaty (BIT): An agreement between two countries for the reciprocal encouragement, promotion, and protection of investments.
• Investor-State Dispute Settlement (ISDS): A mechanism that allows foreign investors to directly sue host governments for alleged breaches of investment treaty obligations.
• Local Remedies Exhaustion: A legal principle requiring investors to pursue all available legal avenues within the host country's domestic legal system before initiating international arbitration.
• Most Favoured Nation (MFN) Clause: A provision in a treaty that ensures a signatory country is treated no less favorably than any other country by the other signatory.