Nepal Sup. Ct. on India-Nepal BIT

As noted previously, the India-Nepal BIT had run into early trouble with a challenge being mounted against it before the Supreme Court of Nepal. As per the latest reports, the Supreme Court of Nepal issued an interim order in the case yesterday (28 November). Essentially, it seems the Court has stayed the “implementation” of Article 15 the BIT till the Agreement is ratified by the Nepalese legislature. Article 15, on the “Entry into Force” of the Agreement, reads:

This Agreement shall come into force on the date of exchange of diplomatic notes confirming that the legal requirements of the Contracting Parties have been fulfilled for the entry into force of this Agreement.

In effect, it seems that by staying the implementation of Article 15 the court stayed the exchange of diplomatic notes, till the BIT is not ratified by the Nepalese legislature, as required by the Constitution. An unofficial tranlsation of the operative paragraph of the Order reads:

The bench hereby orders the government not to implement the provision incorporated in Article 15 of the Agreement until it completes procedures as per the Article 156 of the Interim Constitution.

Article 156 of the Constitution, titled “Ratification of, Accession to, Acceptance of or Approval of Treaty or Agreements” provides that:

(1) The ratification of, accession to, acceptance of or approval of treaties or agreements to which the State of Nepal or the Government of Nepal is to become a party shall be as determined by the law.

(2) The laws to be made pursuant to clause (1) shall, inter alia, require that the ratification of, accession to, acceptance of or approval of treaty or agreements on the following subjects be done by a two-thirds majority of the total number of members of the Legislature-Parliament present in the House:-

(a) peace and friendship;

(b) security and strategic alliance;

(c) the boundaries of Nepal; and

(d) natural resources and the distribution of their uses.

The Court, however, refused to grant a stay against the implementation of the BIT as a whole, noting that:

“Issuing a stay order that asks the government authority to completely halt the implementation process of entire BIPPA is inappropriate from the point of view of balance of convenience,”  

 “The bench, however, hereby orders the government not to implement the provision incorporated in Article 15 of the Agreement until it completes procedures as per the Article 156 of the Interim Constitution.”

Importantly, the Court refused to draw the conclusion that the BIT undermined Nepal’s sovereignty, as had been claimed by the petitioner (see previous post). A news report notes:

The bench made it clear that the order shall exist till parliamentary process or a final decision in the case by the apex court and declined to stay the process of parliamentary approval, saying BIPPA was of utmost importance as it aimed to protect and promote bilateral investment and that a stay order would create adverse impact on the objectives of the agreement. “Parliament can examine whether any provision of the agreement contradicts the Interim Constitution as per Article 156, henceforth it would be wrong to draw a conclusion that the agreement undermined country’s sovereignty and integrity, as claimed by the writ petitioner,” reads the order. “It will be improper to raise doubts on legislative wisdom.”

The Court’s decision is quite unsurprising. In fact, it doesn’t really say anything that cannot be inferred from a logical reading of Article 15 of the BIT, which itself notes that diplomatic notes shall be exchanged only once the domestic legal requirements in each state have been met. For Nepal, this clearly means ratification by the legislature under Article 156 of the interim constitution. Basically, the Court seems only to have spelled out and related the requirements under Article 15 of the BIT and Article 156 of the interim constitution.

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India-Nepal BIT

During the Nepalese Prime Minister’s recent state visit to India, Nepal’s Minister for Industries and India’s Minister of Finance signed a bilateral agreement for the promotion and protection of investments between the two countries (“Nepal-India BIT”/”BIT”/”BIPPA”).

Possible Motivations

The underlying objective behind the BIT seems to be the belief that the treaty would serve as a catalyst in boosting investment flows between the two countries. India’s motivations, however, may well have been influenced by the problems faced by Indian investors in the recent past. For example, Colgate-Palmolive India was forced to shut shop and sell its Nepalese subsidiary following harassement and extortion demands by rebels and Maoists. The company claimed that the local government officials in Nepal provided little support in response to its requests for greater security. In fact, a leaked US Embassy cable from Kathmandu notes that:

when he [the Colgate-Palmolive factory manager] told the local Chief District Officer (CDO) (the civil servant responsible for security in the district) that Colgate-Palmolive was considering closing the plant, the CDO responded, ‘Maybe you should.’

Drawing from the Colgate-Palmolive incident, on the general climate for foreign investment in Nepal, the cable goes on to conclude:

This is not the first time that a major high-profile foreign investor has been targeted by the Maoists. Extortion is commonplace, but many businesses choose to pay for “security.” Those who refuse to pay, like Coca-Cola and Colgate-Palmolive, complain that they receive inadequate support from the GON [Govt. of Nepal] in protecting their security and investment. During a period of economic and political instability and declining business activity in Nepal, this does not bode well for the future of foreign investment here.

In a region marred by security and stability concerns, considering India’s economic growth and physical proximity to Nepal, such fears may well have precipitated India’s desire for an investment agreement.

Is Nepal Warming up to the use of BITs?

Historically, Nepal has not been overly active in negotiating BITs with other states. It signed a BIT with France in 1983, followed by one with Germany in 1986, the United Kingdom in 1993, and Mauritius in 1999. This was followed by a lull, broken only by the signing of a BIT with Finland in 2009. The Nepal-India BIT makes it two treaties in less than three years. I am no expert on Nepal’s economic and trade policy and, as such, wonder if these recent BITs suggest that Nepal has come to see BITs as a means of attracting foreign investment, or, at the very least, improving its global image as a host state. Comments welcome.

Early Trouble for the BIT?

Meanwhile, the baby seems to have developed complications even before its birth (the BIT has only been signed, and not yet ratified, by the two countries). News reports indicate that a senior Nepalese lawyer, Balkrishna Neupane, has filed a writ at the Supreme Court of Nepal, challenging the the India-Nepal BIT. The gist of the challenge seems to be that the agreement is unequal and give undue benefits to India. Specifically, the report indicates that the challenge raises three issues:

While the agreement mentions the “air space” of India, it does not mention that of Nepal, which, Neupane argues, is incorrect as Nepal seems not to have taken into account its own air space while signing the agreement. The deal, the writ contends, has given India the right of uninterrupted use of Nepali air space while Nepal clearly does not have such rights.

Similarly, the petitioner mentions that the term “republic” has been obliterated from the accord unlike in the case of India. This, Neupane affirms, might have happened either because India has not been able to take note of the changes–republican set up in Nepal–or the Nepali side could not clarify it to India.

Neupane has taken serious exception to the provision in the BIPPA that would allow Indian companies to bring in their own workers and staff. This will not create additional job opportunities, as envisaged, for the Nepalis but will have an opposite effect.

The deal is against Labour Act, which doesn’t permit non-Nepalis to work, the writ argues. The petitioner has also challenged the compensatory provision in the agreement in case the Indian companies incur non-commercial losses.

Apparently, the hearings will commence on Wednesday (November 2, 2011).

At least one Nepalese author (Sapkota), however, suggests that the opposition to the BIT is based on “misinformation and faulty comprehension of the scope and depth of the agreement”, and is politically motivated. In his opinion:

While the private sector has openly welcomed BIPPA, selfish political leaders are politicizing it just to make themselves heard. For instance, former Prime Minister Jhalanath Khanal rebuked the government for signing BIPPA, which he thinks is not in our national interest. He seems to be so lost in the dirty political game that he forgot what was mentioned in Economic Survey 2009/10 published by the Ministry of Finance during his tenure as PM.
It stated that “a Bilateral Investment Promotion and Protection Agreement is signed with India to promote Indian Investment in Nepal, while preparation is being made to continue such agreements with other countries as well” (page 187). This shows how poor our leaders like Khanal are in understanding economic issues and also remembering what they officially endorsed while at the helm of power. Similarly, some influential leaders have been arguing that BIPPA is against the interest of our country and the workers. Their argument is that BIPPA will increase Indian dominance and erode rights of domestic workers.
These arguments are senseless, baseless and outright illogical. If BIPPA is against our national interest, why did we not hear loud outcry of this intensity when Nepal signed BIPPA with other countries? Importantly, the self-centered leaders opposing BIPPA should explain how exactly Nepal was dominated and workers’ rights eroded by signing such agreement with five countries before it was done with India. In our investment strapped economy, more investment is definitely a good thing and is in our national interest because it will lead to more jobs, revenue and potentially stimulate growth.

I will try to post an analysis of the BIT itself soon, but in the meanwhile would love to hear more on this from our Nepalese readers.

The text of the India-Nepal BIPPA is available here.