Just read a great new FT blog from Kavaljit Singh on Indiaâ€™s radical redesign of its investment treaty model. The main points are below [the FT article is entombed in a paywall], but first, hereâ€™s a quote from a report I co-wrote last year, which helps explain why bilateral investment treaties (or BITs) are becoming a battleground in developing countries:
In 2012 there were 3,196 investment treaties globally, many of them affecting developing countries. There are also important investment chapters in free trade agreements. While these treaties and agreements are supposed to both protect foreign investors and benefit recipient countries, the growing number of investment disputes and â€˜persistent concerns about the [investment arbitration] regimeâ€™s systemic deficienciesâ€™ indicate that the balance may be tilted against developing countries. 2012 saw the highest number of international claims filed against states by foreign companies, with 66 % filed against developing countries.
Despite this plethora of treaties, as Kavaljit notes:
There is no conclusive evidence to show that BITs result in greater [Foreign Direct Investment] inflows. Since 1994, India has signed BITs with countries such as Mongolia, Serbia, Macedonia and Iceland but the two-way investment flows between India and these countries remain negligible. On the other hand, India receives substantial foreign investments from the US and Canada without any BIT.
For any foreign investor, there are other determinants â€“ especially market size, infrastructure, tax policy, labour laws and the business environment â€“ that influence the investment decision more than a BIT between the home and host countries.
There is a plenty to learn from the other Brics countries. Brazil is not a party to any BITs but still receives substantial amounts of foreign investment.
So, the serious drawbacks, and inconclusive evidence of any development benefit, meant that:
New Delhi launched a review of its investment treaties in mid-2012 in the wake of public outcry over arbitration notices served by 17 foreign companies (including Vodafone and Sistema) challenging various policy measures and demanding billions of dollars in compensation for the alleged violation of Indiaâ€™s BITs.
Here are the main changes envisaged by the new â€˜model investment treatyâ€™ that India has drafted as it prepares to resume negotiations with the USA [Kavaljit in italics, me without]. The new model:
Trade and investment treaties have exploded back on the agenda in Europe, thanks to a mass campaign against the proposed Transatlantic Trade and Investment Partnership (TTIP), but the public outcry against BITs has exploded in India and other developing countries too. As Kavaljit notes, however, itâ€™s not easy for developing countries to insist on the provisions they want when negotiating with powerful rich countries. Perhaps a better approach is to follow the lead of South Africa, which has terminated all its BITS, replacing them with domestic legislation