What do Investors want?
Are BITs the answer?
Budget 2025
▪ Bilateral Investment Treaties: Revamping of current model
▪ Regulatory reforms
▪ HLC to review regulations, licenses, permissions for Ease of Doing
Business
▪ Investment Friendliness Index of States
At a fundamental level
•IIAs/BITs: State to State Agreements
•IF: Investment Facilitation
•Dispute Settlement:
•ISDS: Ability of a private foreign investor to sue a sovereign
government before an Arbitral Tribunal.
•SSDS: State to State Dispute Settlement
Why do we need BITs/IF/Trade Agreements?
▪ Signaling instruments
▪ Investor Protection
▪ NT, MFN, FET/ MST, Rights against Expropriation
Investment Agreements
▪ Pre & Post-establishment BITs
▪ Regulatory changes
▪ Domestic remedies
▪ ISDS/ SSDS
Indian Experience
▪ BITs since 1990s
▪ En masse terminations between 2014 to 2016
▪ New Model BIT: 2016
▪ Not many takers
▪ Budget 2025: Rethink & Reshape BITs;
- Also address Ease of Doing Business
Rethinking BITs: An Opportunity to Reimagine
▪ Enabling of investments: Streamlining approvals, regulatory loops,
access to land and infrastructure
▪ Addressing Grievances/ Dispute Prevention
▪ Specific focus on vulnerable sectors
▪ Balance between: Right to Regulate & Right of Investors to protect
investments
Regulatory action susceptible to BIT Arbitration
▪ Cancellations, Modifications of Concessions/ Licenses/ any permits
▪ Change in Law
▪ Arbitrariness in decision making
▪ Fact-specific Test: Whether this amounts to “expropriation”; or
MST/FET violation
Some examples
Global Telecom Holdings vs. Canada:
▪ Canada’s 2013 “Transfer Framework policy” under which Govt.
conducted reviews of license transfers to prevent concentration of
spectrum in hands of a single market player, to ensure efficiency
and competitiveness of Canadian telecommunications market.
▪ Prevents “hoarding” of spectrum
▪ GTH said this violates Canada-Egypt BIT (since it could not sell its
subsidiary to an incumbent player)
▪ Tribunal: No violation.
▪ “Rising use of smartphones… made it critical for the Govt. to control
spectrum concentration.
▪ Law has to keep pace with “market evolution”. So long as policy is
NOT arbitrary, there is no violation of the Fair & Equitable treatment
standard.
Indonesia Mining experience
▪ 2009: New Mining law in Indonesia that:
- Downstreaming to be done within 5 years
- Restrictions on exports of semi-finished products
- Export tax
- Mandatory dilution of foreign shareholding
Threat of ISDS claims, followed by concessions and settlement.
Security reasons
▪ Essential Security Interests: Huawei case against Sweden under China-
Sweden BIT
▪ Swedish telecom regulator “Swedish Post & Telecom Agency”:
(a) that Sweden’s 5G spectrum auction applicants CANNOT use telecom
equipment of Huawei and ZTE
(b) All existing Huawei and ZTE equipment to be phased out by 2025
Rationale: Huawei and ZTE products “may harm Swedish security”.
Ongoing arbitration proceedings
Which sectors more vulnerable?
Sectoral
Sectors with PPP, Concession/ Licensing
Energy/ Electricity
Water and sanitation
Construction
Transportation
Mining
Telecom
Impact of technology
❑Rapid change in market for “Telecommunication” & services that
use Telecommunications:
❑Mobile money;
❑Payment platforms;
❑E-commerce;
❑IOT;
❑Telehealth;
❑Metaverse;
❑M2M
❑Business diversification; Regulatory changes; new laws
❑Diversification of disputes, need for preparedness.
Points to ponder
• BITs that are more on Investment Facilitation
• Domestic remedies: GRC; Ombudsmen; Mediation; Resolution
• No ISDS, only SSDS
Preventive steps: Design of BITs/Investment Chapters
• Great care and precaution especially if commitments o Market
Access & Performance Requirements are taken
Adequate policy space to be carved out.
• No blanket protection in subsequent technological leaps if law
evolves.
• Obligation should be placed on Investor to account for regulatory
risks.
When a Dispute happens…
Active Management from the very start
• Guidelines for Case Management Strategy
• Use the Consultation phase meaningfully
• Legal analysis & Cost-benefit analysis
