16 April 2025 : Indian Express Editorial Analysis

1. The BIT model India needs

(Source – Indian Express, Section – The Editorial Page – Page No. – 12)

Topic: GS3 – Economy

Context

The Finance Minister proposed revamping India’s 2015 model Bilateral Investment Treaty (BIT) to make it more investor-friendly, prompting a debate on adopting dual BIT models

Welcoming Reform in India’s BIT Approach

• The Indian finance minister’s proposal to revamp the 2015 model Bilateral Investment Treaty (BIT), which had struggled to gain international acceptance, is commendable.
• Their acknowledgment reflects a crucial shift in the government’s stance, implicitly admitting to flaws in the current BIT framework.
• Over the last decade, India’s inability to attract treaty partners under its existing model underscores the need for a more pragmatic and investor-friendly approach.

Dual BIT Models: A Novel but Flawed Proposition

• Experts’ suggestion to adopt two separate BIT models—one investor-friendly and the other host-state-friendly—based on India’s role as a capital exporter or importer, is initially appealing.
• It acknowledges the fluidity of international economic relations and seeks to tailor India’s treaty commitments accordingly.
• The idea aims to maximize India’s strategic flexibility by aligning investment protections with its economic role in a given bilateral context.

Dynamic Capital Flows Undermine the Two-Model System

• However, the practical implementation of two distinct BIT models is fraught with challenges.
• The categorization of nations into capital exporters or importers is neither static nor easily discernible.
• For example, while India signed a BIT with the UK in 1994 as a capital importer, it has since evolved into a capital exporter to the UK. Similar dynamics exist with many nations across continents.
• This fluidity renders the proposed two-model framework impractical, as the economic relationship with a country may shift over time, leading to ambiguity and administrative complexity.

Legal Inconsistency and International Perception

• Beyond practicality, the two-model approach risks legal inconsistency. BITs not only serve as economic tools but also reflect a country’s broader commitment to legal norms in international law.
• A bifurcated approach could suggest that India lacks a principled stance, particularly on contentious issues such as Investor-State Dispute Settlement (ISDS).
• If India requires foreign investors to exhaust domestic remedies in one model but permits direct international arbitration in another, it sends mixed signals.
• This inconsistency may erode India’s credibility in international negotiations and weaken its influence in forums like the United Nations Commission on International Trade Law (UNCITRAL), where global ISDS reforms are being discussed.

Misinterpretation of the MFN Clause

• Experts’ interpretation of the Most Favoured Nation (MFN) clause is also contested.
• They argue that the MFN clause undermines the negotiated balance of BITs, but this view overlooks the clause’s historical and functional context.
• MFN provisions predate multilateral agreements and have long been a cornerstone of bilateral trade treaties, fostering non-discrimination and equal treatment.
• Rather than disrupting treaty balance, the MFN clause enhances fairness by ensuring that no country receives preferential treatment unless extended to all treaty partners.

Conclusion

• Ultimately, the article highlights that the issue is not the quantity but the quality of BIT models.
• India needs a single, coherent BIT framework that carefully balances the protection of foreign investments with the government’s right to regulate in public interest.
• This balanced approach can help India attract foreign capital while also defending the global interests of Indian investors.
• A principled, consistent, and well-calibrated model BIT will better serve India’s long-term economic and diplomatic goals than a fragmented or opportunistic approach.

Practice Question: India’s approach to Bilateral Investment Treaties (BITs) must balance investor protection with the sovereign right to regulate. Critically examine the proposal for adopting dual BIT models based on capital flow dynamics.  (250 Words /15 marks)

Read more – 15 April 2025 : Indian Express Editorial Analysis