Model BIT

To what extent, the new model BIT has removed the problems of old draft?

There were several problems of the earlier draft as discussed in salient features above. It had not much emphasis on protection; had vague definitions and posed problems for India. It was also considered a pro-State document, heavily favouring the host state. Due to this, it created a problem for India to renegotiate the existing BITs with 73 different countries. Further, the language of the earlier draft was  that it inhibited India to negotiate BITs favourable to its own investors.

The recently released draft has made a balanced approach, is clear and tries to take care of not only foreign but also domestic investors. It also gives a fair amount of room to India to negotiate BITs with different countries on different terms.  It has done away with the vague norms of ‘fair and equitable treatment’ and replaced the same with clear and transparent standards of treatment, leaving no room for arbitration in future. It also inserts new concepts, like requiring arbitrators to be impartial, independent, and free from conflict of interest; transparency in arbitral proceedings; and acknowledges the possibility of setting up an appeals mechanism to review tribunal awards.

Does the new model suffer with some drawbacks?

Despite having accommodated positive changes, it suffers from certain fundamental drawbacks, for instance:

It restores its unconditional support of the Indian judicial system. It repeatedly refers to the need for “exhaustion of local remedies.” It is prescribed in the Model that foreign investors can raise a treaty dispute with India and similarly, an Indian investor can claim against a foreign state only after approaching local courts and eliminating the possibility of domestic resolution. The model also recalibrates the limitation period for such disputes, requiring that cases be filed before local courts within one year of acquiring knowledge of the disputed claim. The investor must then wait five years for that process to play out before seeking an arbitrated solution. Restoration of such traditional faith of the Model in the India judicial system – characterised with inordinate delays and systemic problems of quality of adjudication – sounds a utopian blare defeating the purpose of unlocking BIT-related deadlocks.

The removal of ‘most favoured nation’ clause – a standard element of typical BIT basket and which is expected by the USA to be an integral feature of BITs in India looks a intransigent approach of the Model.

Exclusion of taxation from its purview is a clear indication of the Government’s reaction to various disputes with firms like Vodafone, Nokia,andCairn on tax-related matters. As a response to the multifarious disputes India faces under the prevalent BITs, the Model has put in place an unbending grievance redressal mechanism (local remedies, lesser limitation, mandatory waiting period, etc.).

What is Investor-state dispute settlement (ISDS)? What role does it play?

Investor-state dispute settlement (ISDS) or investment court system (ICS) is an instrument of public international law that grants an investor the right to use dispute settlement proceedings against a country’s government.

The ISDS’s focus on weak access to justice for the host state’s local investors and a viable one for the foreign investors has drawn flares of objection from all quarters. Its self-imposed faith in the competence of the host country’s judicial system without considering the fact that the delicate issues of bilateral trade and commerce.  Like these the ISDS contains a substantially flexibility which affects justice delivery process in case of bilateral investment issues.