BIT(s) by bit

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In October this year, Commerce and Industry Minister Anand Sharma said that India was in the final stage of concluding a comprehensive free trade agreement with the European Union. Illustration above is by Aparajita Das for | November 09, 2011

BIT(s) by bit

by Shalini Bhutani

Bilateral investment treaties (“BITs”) and other free trade agreements (“FTAs”) have emerged as the way forward for countries to craft their trade and economic relations. BITs are intended to facilitate the entry and operation of private nationals and companies of one state in another. Such agreements, as practice has shown, often go beyond what the World Trade Organization (“the WTO”) requires its member countries to do. The “WTO-plus” element of such BITs help the ‘free’ trade advocates to yank up the level and speed of their demands. The international obligations under BITs can also shape and re-define the domestic policy space. Law making can then become driven by what the BITs require in compliance, rather than what local constituents need from their legislators.

The proposed bilateral trade and investment agreement (“the BTIA”) between the European Union (“the EU”) and India has drawn much attention. Yet it is not without precedent. Even before talks for a BTIA with all the twenty-seven member states of EU, the Government of India (“the GoI”) has been signing bilateral investment protection agreements (“BIPAs”) individually with EU member states since 1995. This in part explains the reaction of the GoI to those opposing the current BTIA. The first Indian BIPA (the U.K.-India BIT) was signed in 1995. Since then, the twenty-seven EU member states which have signed BIPAs with India include Germany, Denmark, the Netherlands, Italy, Poland, the Czech Republic, France, Spain, Belgium and Luxembourg together, Romania, Bulgaria, Austria, Portugal, Sweden, Cyprus, Finland, Hungary, the Slovak Republic, Greece, and Latvia. Negotiations are underway with Lithuania and Slovenia. Most of these are precursors to the new-generation BITs that are currently being negotiated. The question is how these BIPAs are different from the new generation of BITs being talked of today. For a start, one single BTIA with all the EU members will, in harmonising, go for higher standards of investor protection than is given by any one of the above twenty-one BITs.

Nonetheless, wanting higher investment protection measures is not one-sided. Through the BTIA, investors on both sides seek reciprocal treatment in trade and investment. It was in 2007 that the negotiations for the EU-India BTIA were launched. By this particular BTIA, the EU is taking forward the idea of single common investment policy for the EU, which would cover both market access and investment protection. Yet EU investors are not the only ones seeking ‘protection’ in India.

It is important to understand that the pressure of BITs notwithstanding, the GoI has also unilaterally been pushing economic liberalisation. In fact one of the first things the GoI did after 1991 was to develop a template BIPA as part of the Economic Reforms Programme. As per the Finance Ministry itself, India has already signed over eighty-two BIPAs as of October 2011. In sync, the Department of Industrial Policy and Promotion (“the DIPP”) under the Ministry of Commerce and Industry announced a new F.D.I. Policy in September 2011, which was to come into effect from October 1, 2011. The Union Government has also set up the Foreign Investment Implementation Authority (“the FIIA”) to facilitate quick translation of Foreign Direct Investment (“FDI”) approvals into implementation.

Many big players are in the fray to invest in India. Just this month, the United States announced that it would soon resume technical level discussions on a new BIT with India. And the U.S. usually comes in very strongly with a model BIT that it pushes with its trading partners. It has a vested interest in setting the standards of international law on the subject of investments in this manner. Meanwhile, Japan in its strategic dialogue meetings with India this month also sought deeper economic ties. Already, India and Japan have signed a bilateral Comprehensive Economic Partnership Agreement that has been in force since August 1 this year.

India’s decision-makers however, need to recall the negotiating history to realise why the country had opposed the inclusion of investment provisions in the WTO. It might be useful for peoples’ groups to revisit the concerns that were highlighted during the negotiations of the Multilateral Agreement on Investment (“the MAI”). Many of the investor protections envisaged in that proposed text are being resurrected through such BITs. These BITs further, are only one amongst many continuous efforts that investors seek for more protection and privileges. These cannot be at the cost of people and the planet. Hence, provisions in BITs that expressly state that public policy decisions taken by governments cannot be inconsistent with the provisions of the (investment) chapter need to be seriously re-thought before being agreed to.

Proponents of the proposed MAI in the late nineties, including countries like the United States and Canada in the lead, were keen to get entry and pre-establishment rights to investors by foreign countries. The usual practice in BITs before that has been to only grant rights, after investment has been established. But for example, both the United States and Canada in their BITs today, ask for rights during the entry and pre-establishment phase of investment. This means they require their treaty partner to liberalise investment and the economy in general. Another MAI-like quality in the current BITs is that in their broad definitions of ‘investment’ itself, they include intellectual property. And in doing so, they may ask for more than what the WTO TRIPS Agreement requires. Another problematic feature that the MAI pushed was the possibility of an investor-state mechanism for dispute settlement. The new generation BITs, such as the EU-India BIT, thus talk of investor-state arbitration. This allows the foreign investor to circumvent national processes. Moreover, arbitration proceedings are closed, which severely limit the participation of ordinary people who may be affected by the investor’s conduct of business.

In fact the developed countries had mooted the MAI idea at the OECD knowing that at the WTO, the developing countries would oppose it as a negotiating block. But the strategy now is to raise the worldwide standards for investor protection bilaterally one country at a time through BITs. Mexico, having agreed to the investor protection provisions of the North American Free Trade Agreement (“NAFTA”), landed up having to give similar treatment to others as its NAFTA partners, the U.S. and Canada. (Ironically, India was amongst the countries that was opposed to a multilateral investment agreement to be negotiated under the auspices of the WTO. But the GoI is now much more open to considering BITs!) In fact there is now talk of a likely BIT between India and the United States.

It is obvious that BITs have ramifications for ordinary peoples at both ends. Moreover, BITs also have a global impact. What both sides agree to in such negotiations with India may set a template that developed countries may follow with other less powerful economies. This will set off an upward spiral of such BITs. Bit by bit, people’s real concerns may be traded for more investors.

Shalini Bhutani is a Delhi-based lawyer working independently on issues of trade, agriculture, and biodiversity.