Bilateral Investment Treaty (BIT)

What is BIT?

• Bilateral Investment treaty
• It is signed between two nations.
• It provides for the terms and conditions for private investment by nationals and companies of one state in another state.  
• It gives the foreign investors the right to prosecute their claims against the host country’s actions, in a BIT investment tribunal.
•  i.e. If Vodafone (a Netherland based company), is unhappy with Indian Government’s action, it can drag India to a separate tribunal under BIT to settle the dispute.
• Thus, BIT provides real protection to foreign investment.

Why is it in news?

• When Supreme Court of India cancelled the 2G telecom licences- Sistema, a Russian corporation was also affected. It plans to sue Indian Government in under the BIT, in an investment treaty tribunal.
• Telenor and Vodafone are also planning to do the same.

Indian Government’s response?

• Some folks in the Indian government think that we should simply renegotiate with those nations and delete the investor-state dispute settlement clause from BIT so no company can sue us!
• But they forget that it is a two way street.  Deleting the investor-state dispute settlement provisions in BITs will negatively affect many Indian companies who have invested majorly in Africa, Latin America and other countries like Nepal. Because our companies won’t be able to drag their Governments in tribunals if things go wrong.

#1: Judiciary is part of the state

• Some people believe that Government of India (executive) did not cancel the 2G licences, it was done by Supreme court. Hence, the matter is outside the jurisdiction of a BIT tribunal.
• But a decision of any organ of the state, including the judiciary, can be challenged under a BIT.
• In addition to the executive, sovereign actions of the judiciary and the legislature can also violate international law contained in a BIT, for which India, as a country, will be liable in the BIT tribunal.

#2: More than just FDI treaty

• Some people believe only foreign direct investment (FDI) falls under the ambit of BITs.
• But the definition of “investment” in all Indian BITs covers investment, portfolio investment, intellectual property rights, rights to money or to any performance under contract having a financial value or business concessions conferred under law or contract.

#3: BIT deals with taxation

• The Inter-ministerial group formed in response to Vodafone’s notice to the Indian government under the India-Netherlands BIT reportedly feels that taxation matters are outside the ambit of BITs.
• But the fact is Taxation issues are also a part of the host state’s sovereign regulatory functions and hence fall within the ambit of BITs, unless explicitly excluded.