Book Review – India and Bilateral Investment Treaties: Refusal, Acceptance, Backlash by Prabhash Ranjan

As per UNCTAD’s World Investment Report 2019, India was the 4th most attractive destination in Asia for foreign capital in 2018 with FDI inflow of USD 42.3 billion. She was preceded by China, Hong Kong and Singapore that received USD 139 billion, USD 115.7 billion and USD 77.6 billion, respectively. Presumably, India’s economic policy towards foreign investment as well as its approach to International Investment Law (‘IIL’) is of interest to foreign investors. Prabhash Ranjan’s book on ‘India and Bilateral Investment Treaties’ is an important addition to the discourse. The author has examined the subject comprehensively and in significant detail (the discussion starts from India’s foreign investment policy under Nehru). Also, importantly, the book is not merely descriptive as Prabhash offers a critical appraisal of India’s Bilateral Investment Treaty (‘BIT’) programme, by discussing implications of the current approach of the Indian Government as well as suggesting how it may be recalibrated to contribute more effectively to the proclaimed agenda of balancing investor protection with regulatory freedom of host State. As a result, the book is recommended reading for any person who wishes to understand India’s investment treaty practice. Policy advisors to and decision makers within the Government of India would also do well in paying heed to the author’s analysis and suggestions.

The stated purpose of the author is to ‘study closely India’s approach towards investment treaties by tracing the origin, evolution, and the current state of play’. The book characterizes the years 1947 to 1990 as a period of ‘economic nationalism’ because India’s ‘development strategy focused on industrialization dominated by the public sector and state control’, and as a period of ‘refusal’ because India did not enter into any BITs during this phase. However, it also details the manner in which India tried to shape the content of IIL multilaterally (through UN, ILC, ICSID Convention negotiations) and promote investment bilaterally (through investment guarantee agreements signed with USA and West Germany) during this period.

The years 1991-2010 are characterised as a period of ‘economic liberalism’ because of economic reforms adopted by Indian Government that embraced foreign investment, and as a period of ‘acceptance’ because India signed many BITs during this phase. The book highlights marginal involvement of India with Investor State Dispute Settlement (‘ISDS’) mechanism and negligible discussion about the impact of newly signed BITs on regulatory freedom of the State, during this period. Further, it dissects India’s BITs to establish that they incorporate ‘broad, vague, and indeterminate normative content’ which would provide ‘unfettered arbitral discretion’ which in turn creates the possibility that in the event of a dispute, investment protection will be given precedence over regulatory freedom of host State. It equally dissects investment chapters of India’s FTAs and concludes that they strike a better balance between investment protection and regulatory freedom.

The book also discusses the ISDS claims filed against India and observes that they represent failure of the State (executive, legislature and judiciary) to acknowledge, understand and internalize investment protection obligations. It further observes that ‘most of these cases are outcome of central and state regulation, that prima facie, appear to be abusive and arbitrary’ and not an encroachment by foreign investors on the State’s public policy space. The years 2011 till present are characterised as a period of ‘backlash’ because faced with financial repercussion (potential as well as actual) of ISDS claims, Indian Government undertook a review of BITs, developed the 2016 Model BIT, terminated over 50 BITs, and sought to issue pro-host State joint interpretative statements with respect to the other BITs. The book evaluates provisions of the 2016 Model BIT and discusses implications of the manner in which the same are drafted. It deduces that the Model BIT tilts the scale in favour of the host State and provides limited protection to foreign investors, so much so that the purpose appears to be merely to protect India from being held accountable by international arbitral tribunals. Considering that India wants to position itself as a destination for FDI and it is also emerging as a capital exporter, the book finally advises that India needs to recalibrate its approach to investment treaties to strike a genuine balance between investment protection and regulatory freedom of host State. It suggests that the EU-Canada Comprehensive Economic and Trade Agreement presents a good model for the same.

 In dividing post-colonial India’s engagement with IIL into three phases – refusal, acceptance and backlash – the book gives a structure to India’s investment treaty practice that enables ease of understanding. Prabhash adequately supports his arguments. For instance, his claims regarding the content of India’s early BITs, subsequent FTA investment chapters and the 2016 Model BIT are backed by a discussion on the major components of an investment treaty – investment definition, FET, MFN, FPS, expropriation, general exceptions, monetary transfers and ISDS mechanism. He discusses the manner in which India’s obligations with respect to each of the above is framed and the implications thereof, based on investment arbitration jurisprudence including the four ISDS awards that interpret BITs signed by India – Flemingo Duty Free Shop v. Poland, White Industries v. India, Deutsche Telekom v. India and Devas v. India – as well as the work of other scholars in this area. Prabhash’s narrative is credible because it avoids the unidimensional rhetoric against ISDS and transnational capitalism that seems to affect scholars from developing States in their discussion on protection of investor rights in investment treaties. A possible reason for such an approach in existing literature may be due to conflation of State action with that of its citizenry that is unsurprisingly absent from other discourses such as human rights.

The author signs-off with expressing the need for reconciling investment protection with host State’s regulatory rights, for ‘compelling public policy reasons such as protection of public health and environment’, while continuing to ‘hold host State’s accountable for the exercise of public power’ through an international dispute settlement mechanism (ISDS or other). Achieving this balance, however, is a tough ask. The experience of developing States with IIL has resulted in policy learning that in turn has led to demands for reconciling investment protection and promotion with multiple objectives. These include not just public health and environment, but also, larger goals of human rights protection, sustainable development and not adopting TRIPS-plus standards of intellectual property rights protection (that goes far beyond compulsory licensing). Any investment treaty that seeks to achieve all of these goals is necessarily going to afford weaker protection to investors than they would prefer. States are competing for FDI, which may motivate grant of immediate concessions; however, they are also facing populist pressure to assert control over international law principles and institutions. More work needs to be undertaken on convincing States, on either side of the negotiating table, as to how their respective objectives may be achieved harmoniously.