The Finance Ministry does not want Bilateral Investment Treaties (BITs) to be negotiated as part of Free Trade Agreements (FTAs) that India is working on with partner countries and has suggested to the Commerce & Industry Ministry that the two be kept separate, sources have said.

“The Commerce & Industry Ministry has been in talks with the Department of Economic Affairs on the issue of investments. The DEA does not want BIT to be part of FTAs. It wants that investment chapters in FTAs should only include general issues related to investment promotion and facilitation and not issues related to protection or arbitration,” a source tracking the matter told businessline.

BITs are agreements between two countries for the protection of investments in each other’s territories and assures a minimum standard of treatment and non-discrimination.

Model BIT

The Finance Ministry formulated a model BIT in 2016 mostly to guard against multinational companies filing cases against India based on past BITs signed with their respective countries at international arbitration courts. These resulted in several unfavourable rulings for the country and led to payments of substantial amounts as damages to the companies.

After termination of a host of BITs in 2017, the Finance Ministry wants all new BITs signed with partner countries to be modelled on the model BIT of 2016.

While many countries have been finding it difficult to negotiate on the basis of the model treaty which they found too stringent, India has managed to sign a few pacts recently with countries such as Belarus, Taiwan, Kyrgyzstan, Brazil and most recently, the UAE.

The biggest problem that has been cited by many countries is related to provisions on Investor State Dispute Settlement (ISDS) in the model BIT which requires investors to attempt to resolve disputes through India’s legal system for at least five years before seeking international arbitration.

“There is a realisation that the FinMin may have to make some concessions in the model BIT provisions while finalising the pacts with various countries. It has already been doing so in case of countries such as the UAE. But it wants decisions on BITs to happen independently of the give-and- take of FTAs,” the source added.

Portfolio investments

The conditions eased by India for UAE in the BIT includes the coverage of portfolio investments, such as stocks and bonds, and reduction in the local remedies exhaustion period from five years (in the model BIT) to three years in the actual pact.

At present, India is negotiating FTAs with a number of partners, including the UK and the EU. Interestingly, the investment chapter in the India-EFTA FTA, signed recently, deals only with investment promotion and facilitation and does not contain investment protection features and ISDS. The EFTA includes Iceland, Liechtenstein, Norway and Switzerland.

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