Opinion India needs a model BIT that balances investment protection with the right to regulate

This suggestion seems reasonable at first glance. If India’s relationship with other countries varies in terms of capital, why should there be a single, uniform model BIT? However, this “horses for courses” approach, which no other country follows, has limitations. The relationship between countries is dynamic. India signed a BIT with the UK in 1994 as a capital importer. However, according to the UK’s Department of International Trade, by 2021-2022, India had become a significant capital exporter to the UK. Likewise, India imports and exports capital to several western European, North American, African and Asian nations. Distinguishing between capital-exporting and capital-importing nations is quite difficult, making two model BITs impractical.

Moreover, countries’ treaty practices should not be seen just as transactional negotiations; they significantly shape state behaviour in international law. If India adopts two different model BITs, it would mean an inconsistent stance on the same legal principles. Consider the investor-state dispute settlement (ISDS) mechanism. In a defensive model BIT, India may require foreign investors to exhaust local remedies for at least five years, as stipulated in the 2015 model BIT, thus granting the host state greater control. In contrast, a foreign investor-friendly BIT may allow foreign investors to access ISDS more quickly, as investors generally prefer international arbitration over litigation in the host country’s courts.

This inconsistent approach will send mixed signals to the international community, suggesting that India lacks a principled stance on ISDS and tailors its approach to fit its specific interests. While this perspective may resonate with legal realists, it could be leveraged against India in BIT negotiations. For instance, if India negotiates with the EU using a defensive model BIT, it will likely highlight India’s inconsistent treaty practice on ISDS in its investor-friendly model BIT favouring foreign investors. This inconsistency would weaken India’s position in bilateral negotiations and multilateral forums, such as the UN Commission on International Trade Law, currently discussing ISDS reforms.

Singh and Kaur also raise an important point about the most favoured nation (MFN) clause in BITs, arguing that it originated from multilateral agreements. However, this is not entirely accurate. Many international lawyers illustrate that MFN clauses were included in commercial treaties as early as the 17th and 18th centuries to protect the preferential treatments accorded in bilateral relationships.

The MFN clause is a fundamental principle of non-discrimination in international economic relations, ensuring that any benefits granted to one country are automatically extended to others. Contrary to Singh and Kaur argue, that the MFN clause undermines the carefully negotiated balance of a BIT, the MFN clause actually supports the treaty’s objectives by creating a level playing field.

To conclude, it is not the number of BIT models that matters but rather the type of model. India needs a model BIT that effectively balances investment protection with the state’s right to regulate, allowing it to attract foreign investors and also safeguard the interests of Indian capitalism abroad.

The writer is professor and vice dean (research), Jindal Global Law School, O P Jindal Global University. Views are personal