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Book review ‘India and Bilateral Investment Treaties’ ; By K. Subramanian

CAS Article No. 28/2019

September 9, 2019

Courtesy: The Hindu

India and Bilateral Investment Treaties; Prabhash Ranjan, Oxford University Press, ₹1,495

Why India’s approach towards investment treaties needs a rethink

Bilateral Investment Treaties (BITs) may be traced to policies governing foreign direct investment (FDI). For a long time, the link was invisible and seamlessly embedded. In recent years, however, the nexus of goodwill appears to have broken and conflicts are out in the open. In July 2016, the NDA government informed the Lok Sabha that it planned to terminate BITs with 58 countries. India is not alone. There are others such as South Africa, countries in South America, Pakistan, Australia and Indonesia which have either terminated or are modifying their BeITs.

This shift in the approach to BITs can be related to approaches to globalisation and, especially, to FDI. This book brings out the growing tensions between FDI policies and the compulsions of BITs. Prof. Ranjan’s perspective suggests how studies of policy and law may be conducted by combining a focus on the law in force while paying attention to its evolution over time and offers explanations for their changes in the backdrop of the economic and foreign policies of a particular country.

He divides the evolution of India’s policy towards BITs into three phases. The first or the Nehruvian (1947-90) era was the ‘refusal’ phase. It was firmly rooted in economic nationalism, socialism, self-reliance, preference for public sector. The author handles the Indira Gandhi years deftly. He narrates India’s stand on investment guarantees in various forums like the UN General Assembly, International Law Commission and the International Centre for Settlement of Investment Disputes (ICSID) and takes the view that India’s rejection of ICSID was primarily due to its preference for the socialist pattern of economy and the desire for a new international economic order.

The ‘acceptance’ phase began in 1991 with the advent of economic reforms and India’s decision to get integrated with the global economy in a calibrated manner. Chapters 3 to 5 narrate how India began to ‘embrace’ BITs. “India, in this phase, was a ‘rule taker’ in international investment laws and adopted the ‘exporting country’ BIT as its model,” he writes, adding, “...India primarily signed BITs... on the presumption that BITs promote investment.” India’s BITs were also vague and imprecise and led to arbitration.

The watershed year was 2011 when India lost its case in White Industries v. India. Many other cases followed and India’s attitude began to change. Data suggest that while India signed 79 BITs from 1994 to 2010, from 2011 onwards it signed only 4 BITs. India formulated a Model BIT in 2016 after consulting the Law Commission, etc.

Prof. Ranjan has been a vocal critic of the Model BIT, criticising it for lack of balance between host country and investors. He avers that the Model “aim(s) to protect the host state’s accountability by independent international tribunals,” and also “to immunize India from future BIT claims for protectionist purposes,” rather covertly.

This is where the policy divide between developing and developed countries creeps in. There is a growing body of thought known as ‘third world approaches to international law’ (TWAIL). It attempts to tilt the balance in favour of developing (host) countries. Prof. Ranjan is critical of this view. Unless and until BITs safeguard the ‘policy space’ for developing countries, the area will remain fractious. Even though he is against TWAIL, his own ideas such as inclusion of local communities and civil society as stakeholders, and of greater transparency in ISDS, etc. are what TWAIL scholars and host countries hope for while formulating new models of BITs.

(Mr. K. Subramanian is a Former Joint Secretary (Retd.), Ministry of Finance, Government of India; Member of C3S)

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