India to Reject Investment Treaty Arbitration Provision in FTA with EU?

A recent news report notes:

Despite a demand by the European Union (EU), India is unlikely to allow a clause in a proposed trade pact with the bloc that permits an overseas investor to sue a host country at an international dispute settlement agency.

India has rejected the EU’s demand on the contentious issue, as a result of which negotiations on the investment chapter of the pact have not moved forward….

I have a few thoughts on this development (as well as the news report):

1. Although several Indian BITs and investment chapters in FTAs contains investor-state dispute settlement (ISDS) provisions, India is not a a party to the ICSID Convention, and has not been an active respondent investment treaty disputes. This is despite India having several BITs with European nations (the UK and the Netherlands, most notably) with ISDS provisions. In light of this, the Indian government’s stand only suggests abundant caution on its part.

2. In April 2011, the Gillard government of Australia issued a trade policy statement, in which it said that it will discontinue the practice of including ISDS provisions in bilateral investment treaties (an ASIL Insight on this by Jurgen Kurtz here). Needless to say, India’s recent stance provides fodder to the opponents of the investment treaty arbitration (ITA) system. Indeed, to the extent that the ITA system remains a public system based on the foundation of state consent, such developments are quite disconcerting for its future by only adding to the growing “backlash.” I wonder though if Australia’s statement, as well as the Indian stance are in any way linked. Did one inspire the other? Or, at least, made India think again.

3. Continuing on from the last point, it would be very nice for the Indian government to actually follow its Australian counterpart’s steps and issue a formal statement that outlines its stance on ITA and provides reasons. As the report referenced above notes, when the Indian commerce secretary was contacted for comments on the matter, he declined to comment and said that “[a]s a matter of principle, India does not negotiate through the media.” Fair enough. Nevertheless, some transparency and a reasoned explanation would certainly be more helpful and will only add to the certainty.

4. As far as the Indian government’s position is concerned, it should only be too mindful of the debate surrounding MFN clauses in investment agreements, which have often been used to expand the scope of dispute settlement provisions in investment agreements based on more favourable provisions in agreements signed with third states. Indeed, as Professor Brigitte Stern noted in her concurring and dissenting opinion, arguing against the majority’s extension of MFN clauses to ISDS provisions, in the recent award of Impregilo v. Argentina, applying MFN clauses to ISDS provisions would theoretically permit the importation of an ICSID (or ITA) clause into a treaty that does not provide for international arbitration at all (Professor Stern’s concurring and dissenting opinion here; a concise Kluwer blog post on the issue here). As such, if India truly wants to reject ITA in all its forms, it should include an express exception in the MFN provision noting that it excludes dispute settlement from the scope of MFN treatment.

5. Finally, I could not help but chuckle at the news report referred to earlier when it noted that “…. customary international law requires foreign investors to sue governments in domestic courts for any claims, or at the World Trade Organization dispute panel ….” Come on now, the WTO definitely does not allow private investors to bring claims against states. A 1L should (hopefully!) be able to tell you that! Admitted the media does not specialize in international law, nevertheless, it wouldn’t have done any harm to run the story past a lawyer/scholar who specialized in international law (my email address is …., just kidding 🙂 ).

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