View this email in your browser


*Columbia FDI Perspectives*

Perspectives on topical foreign direct investment issues
No. 154   August 17, 2015
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Adrian P. Torres ([log in to unmask])

*Bringing the state back in: India’s 2015 model BIT*
Srividya Jandhyala* <#14f3c24150706cbc__edn1>

On March 24, 2015, India released the latest draft of its Model Bilateral
Investment Treaty (BIT). It reflects India’s recent experiences with
investor-state dispute settlement. It is also a response to treaty claims
faced by other governments in sensitive areas of regulation that have
spurred a backlash in many parts of the world. With substantive changes,
this draft is designed to provide greater protection for host countries and
their ability to regulate investors. This is important as states’ rights
were previously signed away in many treaties without significant
understanding, analysis or debate. However, in an attempt to bring the
state back in, the Indian Model adds significant qualifications for
investor protection, thereby curtailing the usefulness to foreign investors.

The new Model BIT signals a clear shift toward governing the conduct of
foreign investors, whereas previous treaties focused on the protection of
investors. This is evident in two ways:

   - *Developmental/social goals*. Through several articles (e.g. Preamble,
   Articles 5, 9-12), the Model BIT requires foreign investors to contribute
   to the development of the host country and to operate by recognizing the
   rights, traditions and customs of local communities in order to obtain
   treaty benefits. Investors are also required to make long-term commitments,
   hire local employees, avoid corruption, be transparent about financial
   transactions and governance mechanisms, and comply with host country
   taxation policies.
   - *Holding foreign investors accountable*. The Model BIT gives host
   countries the right to initiate counterclaims in international arbitration
   for any violations of obligations imposed on foreign investors. Foreign
   investors may be subjected to civil action in their home countries for
   actions in their home countries that conflict with obligations in the host

The Model BIT is more precise than earlier ones. The treaty is specific
about the definitions of “investor” and “investments”. For example, it
excludes passive holdings of stock or property and does not cover portfolio
investment, brand value, pre-operational expenditures, or holding companies.

Additionally, several articles reinforce the state’s discretion and the
right to regulate. In contrast to standard provisions in earlier BITs,
India has reserved for itself and its treaty partners greater leeway in
managing macroeconomic or balance-of-payment crises and in prioritizing
non-commercial objectives. The draft excludes actions by local levels of
government from challenges by foreign investors. The Model BIT requires
signatories regularly to consult and review the treaty’s effectiveness,
interpret and implement treaty clauses and provide written consent for

While the 2015 Model BIT includes an investor-state dispute-resolution
clause, it departs from traditional treaties:

   - Reflecting a global trend, India’s Model BIT mandates greater
   transparency in tribunal constitution, claims, proceedings, and awards.
   - The Model BIT also provides more direction to arbitration tribunals
   and places restrictions on their discretion when interpreting the Model’s
   substantive obligations. For instance, while the Model provides that
   foreign investors are to be accorded no less favorable treatment than is
   accorded in like circumstances to domestic investors, the factors used by
   the host country in establishing whether foreign and domestic investors are
   “in like circumstances” are to be given substantial deference.

Remarkably, the Model BIT excludes the most-favored-nation and the
fair-and-equitable-treatment clauses. Included, however, is a “denial of
benefits” clause, a relatively new article to Indian practice meant to
counter treaty-shopping.

Some changes in the Model BIT build on existing traditions in international
law. For instance, counterclaims by the state build on provisions already
offered by the International Centre for Settlement of Investment Disputes
(e.g., Article 46) and UNCITRAL (e.g., Article 21) rules and prior practice.
[1] <#14f3c24150706cbc__edn2> Other aspects reflect effective management
practice. Adopting strategies to win stakeholder approval and operating
with developmental and social goals can result in significant financial
returns for investors. However, including such provisions in a BIT could be
challenging in practice, given the difficulty of articulating these
concepts in treaty language.

Two other concerns remain. The investor-state arbitration mechanism appears
biased against small and medium-size investors.[2] <#14f3c24150706cbc__edn3>
The additional burden of exhausting local remedies can deter such firms
from pursuing arbitration. Further, treaty clauses that restrict tribunals
(e.g., Article 5.5. which prevents them from determining whether an
expropriation measure was, in fact, taken for a public purpose or in
compliance with host country law) severely curtail the usefulness of
investment arbitration.

Given that the model treaty deviates in major ways from the positions of
other countries (including the United States with whom a treaty is
currently under negotiation), the extent to which any future treaty will
reflect these changes in India’s position is debatable. Nonetheless, India
would be well-advised to consider balancing provisions for investor
protection, transparency and predictability through more narrowly tailored
clarifications and procedures, while retaining the ability to regulate in
the public interest and defeat frivolous claims.


* <#14f3c24150706cbc__ednref1> Srividya Jandhyala (
[log in to unmask]) is Assistant Professor at ESSEC Business
School. The author is grateful to Axel Berger and two anonymous peer
reviewers for their helpful peer reviews. *The views expressed by the
author of this **Perspective** do not necessarily reflect the opinions of
Columbia University or its partners and supporters. **Columbia FDI
Perspectives** (ISSN 2158-3579) is a peer-reviewed series. *

[1] <#14f3c24150706cbc__ednref2> *See* Jean E. Kalicki, “Counterclaims by
states in investment arbitration”, *Investment Treaty News*, January 14,
2013, available at;
Stephen M. Schwebel, “In defense of bilateral investment treaties”, *Columbia
FDI Perspectives*, No. 135, November 24, 2014.

[2] <#14f3c24150706cbc__ednref3> Srividya Jandhyala and Robert J.
Weiner, “*Institutions
sans frontières*: International agreements and foreign investment”, *Journal
of International Business Studies*, vol. 45 (2014), pp. 649-669.

*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Srividya Jandhyala, ‘Bringing the state back in:
India’s 2015 model BIT,’ Columbia FDI Perspectives, No. 154, August 17,
2015. Reprinted with permission from the Columbia Center on Sustainable
Investment ( <>).” A copy
should kindly be sent to the Columbia Center on Sustainable Investment at
[log in to unmask] <[log in to unmask]>. *

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Maree Newson, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 153, Robert Ginsburg, “Legitimizing expectations in arbitration
   through political risk analysis” August 3, 2015.
   - No. 152, Matthew Hodgson, “Cost allocation in ICSID arbitration:
   theory and (mis)application,” July
   - 20, 2015.
   - No. 151, Karl P. Sauvant, “We need an international support programme
   for sustainable investment facilitation,” July 6, 2015.

*All previous **FDI Perspectives** are available at
<>**. *

*Other relevant CCSI news and announcements*

   - *In June, 2015*, CCSI and the Global Economic Governance Programme at
   Oxford University launched a new online forum on New Thinking on Investment
   Treaties, a series of short presentations by academics, practitioners, and
   civil society on key topics in international investment law. *All
   presentations will be posted **here
   Please subscribe to the channel and visit our website for updates*. *For
   more information and for the schedule of speakers, please visit our
   website *here
   - CCSI’s Fall 2015 International Investment Law and Policy Speaker
   Series, co-sponsored by Crowell & Moring LLP and Baker & McKenzie LLP, will
   kick-off on Thursday, *September 24, 2015* at 12:10pm. The schedule of
   events can be found on our website
   talks will take place at Columbia Law School, Jerome Greene Hall, Room
   TBA (435 W 116th Street, between Amsterdam and Morningside Avenues) from
   12:10pm-1:00pm. Each session will include a short talk followed by a Q&A,
   moderated by Ian Laird (Crowell & Moring LLP) and Kabir Duggal (Baker &
   McKenzie LLP). Pizza will be served. Select presentations will be webcast;
   please check our website
   more details.
   - *On November 10-11, 2015*, CCSI will host the tenth annual Columbia
   International Investment Conference at Columbia University in New York. In
   light of the Sustainable Development Goals (SDGs) and multilateral
   efforts to catalyze Financing for Development, this year's Conference will
   look at steps countries have taken to reshape their International
   Investment Agreements (IIAs). Building on UNCTAD's 2015 World Investment
   Report, the Conference will identify the issues and processes for IIA
   review and reform, and assess the role of the international community
   for supporting such efforts at a national and international level.
   *Please **save* *the** date* and continue to check our website
   more information. CCSI is pleased to welcome UNCTAD as a partner of this
   year’s Conference; we also welcome additional sponsors to support
the Conference;
   please contact us <[log in to unmask]> for more information about
   sponsorship opportunities.

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946

*Copyright © 2015 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
[log in to unmask]

*Our mailing address is:*

Columbia Center on Sustainable Investment (CCSI)

Columbia Law School - Earth Institute, Columbia University

435 West 116th Street

New York, NY 10027

Add us to your address book

unsubscribe from this list
update subscription preferences

[image: Email Marketing Powered by MailChimp]


Not spam
Forget previous vote

AIB-L is brought to you by the Academy of International Business.
For information:
To post message: [log in to unmask]
For assistance:  [log in to unmask]
AIB-L is a moderated list.