INTRODUCTION: India's IIA Landscape
India is one of the world's first destinations for international investment.1 Since India's independence in 1948, foreign investment has played a major role in its economic development.2 While India first depended on export substitution and debt-financed development,3 it liberalised its economy in the early 1990s and began to rely on Bilateral Investment Treaties (BITs) to stimulate the entry of international investment.4
Evolution of India's Investment Policy
The first BIT was signed in 1994 between India and the United Kingdom.5 Based on its 1993 Model BIT,6 and 2003 Model BIT,7 India signed over 80 IIAs to stimulate foreign investment by providing protection to international investors and their enterprises.8 These early Indian IIAs' structure and regulatory regions are essentially comparable and follow the overall pattern of traditional European IIAs.9
Traditional Indian IIAs cover three regulatory areas. First, they define the extent of the IIA's protection by specifying the investors and investments that are covered by the BIT's substantive and procedural assurances.10 Second, they define substantive norms of treatment for lawfully accepted foreign investors and their investments that India, as a host country, must adhere to. These principles apply to any action by India as a host country that impacts foreign investors and their interests, including legislative acts, administrative acts, judicial rulings, and factual behaviour.11 The regulations on expropriation12 and FET are the most important benchmarks for sustainable development strategies.13 If a sustainability measure has a significant impact on the property or usage of foreign investors, it may constitute compensable expropriation.14 Even if the action does not amount to expropriation, it may contravene with the FET norm, which governs how host countries handle foreign investors.15 It safeguards foreign investors' reasonable expectations in a stable legal framework16 and may be infringed if sustainability initiatives including a change in the host state's legal framework or administrative practises impact the foreign investors' operations. Third, IIAs often include an ISDS mechanism that allows foreign investors to use international arbitration to enforce substantive IIA guarantees against the host state and collect indemnity for losses caused by host state actions that violate substantive IIA duties.17 While conventional IIAs are intended to encourage international investment and economic growth, they have been increasingly criticised for their potentially negative consequences on the host country's regulatory sovereignty in general and the SDGs in particular.18 Foreign investors have often challenged host-state sustainability initiatives impacting their enterprises as infringing their rights under IIAs,19 and arbitral tribunals have awarded compensation if they believed the measures violated substantive IIA requirements.20 The problem is that conventional IIAs' thin provisions provide arbitral courts broad latitude in interpreting the scope of IIA protection and foreign investors' substantive and procedural rights. Because traditional IIAs merely promote and protect foreign investment while providing guidance to arbitral tribunals to consider other host state interests, such as SDG implementation, it is unclear whether and how arbitral tribunals take sustainable development into account in the application and interpretation of IIA provisions. As a result, the outcome of a case involving sustainability policy and the amount of compensation is difficult to forecast, implying that host countries are unaware of the potential 'costs' of their sustainability initiatives.
India's Approach to IIAs: The 2015 Model IIA
India is currently revamping its IIAs in order to combine investment protection and long-term growth. Despite the fact that India has terminated the majority of its traditional IIAs and developed a new Model IIA in 2015 that expressly includes sustainable development as one of its objectives, India's IIA landscape as it stands today is not adequately equipped to promote the sustainable foreign investment required to implement the SDGs. Traditional Indian IIAs, which continue to regulate investment disputes for several years owing to sunset clauses, include no mention of sustainable development, host state rights, or investor commitments. The broad area of applicability and the few substantive provisions provide arbitral tribunals a lot of leeway in deciding whether and how to consider sustainable development in their findings. Similarly, the lack of guidelines on procedural issues and indemnity raises concerns about the time and cost of arbitral processes. As a result, it is difficult for India to predict how arbitral tribunals will handle investment disputes involving sustainable development issues, such as whether arbitral tribunals will accept sustainability measures challenged by foreign investors or require India to compensate foreign investors for losses or additional costs incurred as a result of such sustainability measures. The 2015 Model IIA takes a more balanced approach to host state and investor rights and duties, and incorporates various measures linked to sustainable development. However, the incorporation of the sustainable development goal into the 2015 Model IIA and the IIAs negotiated on its basis has been sporadic. The 2015 Model IIA addresses concerns about sustainable development in a way that demonstrates that the modifications were primarily a response to White Industries rather than a broader effort to reform IIAs to balance investment protection and sustainable development. The mere mention of sustainable development in the preamble, the limited mention of the host state's right to regulate public policy interests, and the merely voluntary corporate social responsibilities of foreign investors are insufficient to guide arbitral tribunals on how to take India's sustainable development interests into account when applying and interpreting IIA obligations. Uncertainties that give arbitral tribunals undesirable discretion include the fact that not all policies relevant to the implementation of the SDGs are mentioned in the exception clauses, that the legal effects of sustainable development and related investor obligations on other IIA provisions are not specified, and that the rules on indemnification lack clarity on how to take sustainable development considerations into account. As a result, arbitral tribunals continue to have broad discretion in incorporating sustainable development into their judgements, making it impossible for India to foresee the permissibility or potential "costs" of their sustainable development initiatives.
CONCLUSION
The Indian IIA reform process must be continued in order to properly integrate investment promotion and protection with long-term development. To ensure that Indian IIAs contribute to the promotion of foreign investment required to implement India's SDGs, sustainable development must be thoroughly integrated into the substantive and procedural IIA provisions by incorporating all aspects of sustainable development into general exceptions and clarifying the impact of sustainable development on the rules of jurisdiction over investment claims, the substantive IIA provisions, and the rules on indebtedness. Similarly, the legal impacts of the host state's authority to regulate, as well as the function of the so far voluntary investor duties for admission, substantive IIA regulations, or indemnity calculation, must be specified. While certain JIDs to the surviving conventional IIAs address these problems more extensively, the 2015 Model IIA requires changes to effectively address these concerns. When revamping India's IIA policy, it is critical to remember that the balance between host state and investor rights and duties is a necessary requirement for effectively balancing investment protection with sustainable development. While foreign investment is critical to achieving India's SDGs, only a legislative framework that effectively balances host state and investor rights and duties can attract international investment. As a result, Indian IIAs must include, on the one hand, enough flexibility to allow India to execute its sustainability goals, and on the other, enough protection for foreign investors from unfair host-state behaviour that disproportionately impacts international investors. Finding a balanced strategy benefits not just international investors, but also India, which is rapidly becoming a source of foreign investment rather than just a capital importing state.
Footnotes
1. ADC Affiliate Limited and ADC & ADMC Management Ltd v Republic of Hungary, (Award, 2006) ICSID Case No ARB/03/16 (ADC) [423f]; Técnicas Medioambientales Tecmed v United Mexican States (Award, 2003) ICSID Case No ARB(AF)/00/2 (Tecmed) [120f].
2. Aniruddha Rajput, Protection of Foreign Investment in India and Investment Treaty Arbitration (Wolters Kluwer 2018); Ranjan and Anand (2017), 2; Ranjan/Singh/James/Singh; Kavakjit Singh, 'An Analysis of India's New Model Bilateral Investment Treaty' in Kavaljit Singh and Burghard Ilge (eds), Rethinking Bilateral Investment Treaties: Critical Issues and Policy Choices (Both Ends, Somo 2018), 14.
3. Aniruddha Rajput, Protection of Foreign Investment in India and Investment Treaty Arbitration (Wolters Kluwer 2018); Ranjan and Anand (2017), 9-10.
4. Id. at 9-26.
5. Id. at 26-30
6. Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Promotion and Protection of Investments, London 14 March 1994, in force 6 January 1995, India Treaty Series No 27 (1995) (BIT India-United Kingdom (1994)); all IIAs cited are available at, https://investmentpolicy.unctad.org/international-investment-agreements/countries/96/india?- type=bits, accessed 1 May 2023.
7. This BIT is not publicly available, but reportedly closely resembles the first Indian BIT concluded with the UK, Aniruddha Rajput, Protection of Foreign Investment in India and Investment Treaty Arbitration (Wolters Kluwer 2018); Ranjan and Anand (2017), 27.
8. See 2003 Indian Model Text of BIPA, https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2871/download accessed 1 May 2023 (2003 Model BIT). For a survey of its content see Anujay Shrivastava and Kaustubh Kapoor, 'Significance of International Investment Arbitration in India's Efforts Toward Instituting a Robust Regulatory Regime' (2019) Indian Journal of International Economic Law XI:82- 111, 84-86 (Shrivastava and Kapoor).
9. For the IIA policy during that period see Rajput, 26-30; for Indian IIAs concluded during that time see https://investmentpolicy.unctad.org/international-investment-agreements/countries/96/india?type=bits accessed 1 May 2023.
10. See Shrivastava and Kapoor, 84-86; Prabhash Ranjan, 'India's Bilateral Investment Treaty Programme – Past, Present, Future' in Kavaljit Singh and Burghard Ilge (eds), Rethinking Bilateral Investment Treaties: Critical Issues and Policy Choices (Both Ends, Somo 2018), 101-112, 103-106; for the content of traditional IIAs generally see Salacuse, 141-154; Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Martinus Nijhoff, 1995) 56-118 (Dolzer and Stevens); for a general overview of traditional BITs see Dolzer and Stevens.
11. Eg 2003 Model BIT, arts 1 and 2; BIT India-United Kingdom, arts 1 and 2; BIT IndiaPhilippines, arts 1 and 2; cf generally Salacuse, 174-212; Dolzer and Stevens, 25-47; Katia Yannaca-Small and Dimitrios Katsikis, 'The Meaning of Investment in Investment Treaty Arbitration' in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements. A Guide to Key Issues (2nd edn, Oxford University Press 2018), 266-301, 11.06-11.09.
12. Dolzer and Stevens, 58.
13. Cf eg 2003 Model BIT, art 5; BIT India-United Kingdom, art 5, BIT India-Philippines, art 5; for details Dolzer and Stevens, 97; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press 2012) 98-117; Salacuse, 313-357; for an in-depth discussion see ch 3.b.
14. Cf 2003 Model BIT, art 3(2); BIT India-United Kingdom, art 3(2), BIT India-Philippines, arts III.2 and IV.1; for details Dolzer and Schreuer, 58-60; Salacuse, 241-269; Katia Yannaca-Small, 'Fair and Equitable Treatment. Have its Contours Fully Evolved?' in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements. A Guide to Key Issues (2nd edn, Oxford University Press 2018) (Yannaca-Small, Fair and Equitable Treatment), 501-531, 20.01-20.105; Marc Jacob and Stephan Schill, 'Fair and Equitable Treatment: Content, Practice, Method' in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law (Beck, Hart, Nomos 2015), 700- 763; see for an in-depth discussion ch 3.c.
15. Eg Biwater, [451-452]; Metalclad, [102-113]; Tecmed, [115]; Glamis Gold, Ltd v United States of America, UNCITRAL Award, 8 June 2009 (Glamis), [357]; for further discussion see Katia Yannaca-Small, 'Indirect Expropriation and the Right to Regulate' in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements. A Guide to Key Issues (2nd edn, Oxford University Press 2018) (Yannaca-Small, Indirect Expropriation), 562-593, 22.49-22.118.
16. Cf eg El Paso Energy International Co v Argentine Republic, (Award, 2011), ICSID Case No ARB/03/15) (El Paso), [227].
17. Cf for relevant case-law Yannaca-Small, Fair and Equitable Treatment, 22.52-22.70.
18. Cf 2003 Model BIT, art 9; BIT India-United Kingdom, art 9, BIT India-Philippines, art IX; see generally Dolzer and Stevens, 119-164; Dolzer and Schreuer, 235; Salacuse, 411; Michael Waibel, 'Investment Arbitration: Jurisdiction and Admissibility' in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law (Beck, Hart, Nomos 2015), 1212-1287; Ucheora Onwuamaegbu, 'International Investment Dispute Settlement Mechanisms' in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements. A Guide to Key Issues (2nd edn, Oxford University Press 2018), 57-80, 3.01-3.86; for an in-depth discussion see ch 4.
19. Mann, 532-535; Newcombe, 464-467.
20. Eg Philip Morris; Urbaser SA and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v Argentine Republic (Award, 2016) ICSID Case No ARB/07/26 (Urbaser); Biwater; Cortec.
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