MOVEMENT OF NATURAL PERSONS UNDER THE GATS IN COMPUTER AND RELATED SERVICES

Navigating the Way Forward:

An analysis of the Investor State Dispute Settlement Framework and the recent developments in India's Investment Arbitration Regime TABLE OF CONTENTS

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1.Research Methodology and Scope of the Study

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Introduction: background to Indian International Investment Agreement Regime

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Indias Experience With International Investment Arbitration

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Indias Response To ISDS Claims Threats To Its Policy Space16

5.Analyzing The Changes In The New Model Bit Draft

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Conclusion

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Bibliography26

RESEARCH METHODOLOGY

This is a desk and library based research. The main domain of my paper takes the form of a literature review and analysis. Many commentators have written on the subject, and therefore, it will require an analysis of the available literature to come up with my own conclusion. Both primary and secondary sources have been explored and as to the current debate on the topic of the new Model BIT draft of 2015, reference has been made to available internet sources and newspaper articles.

Model BIT of 1993, the new Model BIT draft of 2015 and a few of the BITs concluded by India with other countries have been explored as primary sources. Relevant books, scholarly articles and working papers have also been examined as secondary sources with the view to assess changes in Indian ISDS framework. SCOPE OF THE STUDYThe present study is restricted to the Indian investment arbitration framework which includes 86 BITs concluded by India and also the old Model BIT of 1993 and new Model BIT draft of 2015 which was released recently by the Government of India for public comments.

The paper begins by giving an overview of Indias International Investment Agreement Regime. Then it looks into the key features of Indias 1993 Model BIPA. The next chapter examines various BIT claims that have been brought against India and discusses the White Industries arbitration. The next chapter proceeds to examine Indias response to ISDS threats to its policy space. In this chapter, the new Model BIT draft is analyzed from the ISDS context. The last chapter then critically analyses and comments on the changes brought about in the new Model BIT draft. I. INTRODUCTION: BACKGROUND TO INDIAN INTERNATIONAL INVESTMENT AGREEMENT REGIMEBilateral investment treaties (BITs) are often between two countries aimed at protecting investments made by investors from either country in the territory of the other. BITs protect investments by imposing conditions on the regulatory behavior of the host state, which prevents undue interference with the rights of the foreign investor. These conditions include restrictions on the host states power to expropriate the investment; imposition of obligations on the host state to treat foreign investment fairly and equitably and not to discriminate against foreign investment; allowing for repatriation of profits subject to conditions to which the two countries agree; and, most importantly, allowing individual investors to bring cases against host state if the latters sovereign regulatory measures are inconsistent with the BIT. This procedure is known as the investor-state dispute settlement system (ISDS) often referred to as investment treaty arbitration (ITA). Thus, to put it differently, ISDS is a legal instrument in BITs, or BIT-like bilateral and international agreements such as the Energy Charter Treaty, that grants investors the right to call for arbitration in the event they believe that a government has violated such an agreement. A. History and evolution of Indian BIT regime

It was in mid-90s that the BITs were initiated by the Government of India. India refers to such BITs as Bilateral Investment Promotion and Protection Agreements (BIPAs). The pretext was to offer favorable conditions and treaty based protection to the foreign investors and investments. Conventionally, every BIPA defines what constitutes an investment and, accordingly, the sets forth certain minimum protections to be accorded by the host state to an investment made in accordance with the BIPA concerned.

India entered into its first BIPA with the United Kingdom on 14 March 1994. Since then India has signed BIPAs with 83 countries, of which 72 agreements have already come into force. Additionally, Indias comprehensive economic partnership agreements (CEPAs) with Japan and South Korea and its comprehensive economic co-operation agreements (CECAs) with Malaysia and Singapore include investment chapters that are similar to BIT agreements. India is also negotiating a BIT with Canada. Moreover, India started negotiating a BIT with the United States in 2009.

Although these BIPAs were based on an OECD model text of 1991, an overview of these BITs will make it clear that each BIT is different from the other since the negotiating strategy varies from country to country, and in some cases, provisions allow for unintended treaty shopping, however; these differences are not major and most of the BITs share common features. These common features are in the nature of specific rights. Such standard protections which the host state provides to an investment under a BIT are: no expropriation without compensation; fair and equitable treatment (FET); full protection and security; no arbitrary or discriminatory measures impairing the investment; free transfer of funds related to investment; and national and most favored nation (MFN) treatment. The basic premise is that the government will not put the investors and their investments to risks which are either unreasonable or inappropriate. BITs have become essential tools in managing foreign investment risks because they provide safeguards to foreign investments and typically enable foreign investors to remove investment disputes from the jurisdiction of local courts of the host state.

At the time of signing them, BITs were generally hailed as a means to increase foreign investor confidence during the liberalization of Indias economy. Though it is difficult to calculate the benefits of BITs, it is generally presumed that it invariably results in increased investments inflows, increased employment, and encourages transfer of technology and modern management skills.

B. The controversial Investor State Dispute Settlement provision

The most controversial aspects of IIAs, including BIPAs, are the Investor State Dispute Settlement (ISDS) provisions that allow investors to subject host foreign governments to international arbitration if they believe that they have been subject to expropriation or discriminatory treatment in that country, among other grounds. However; it is also the most important factor that makes BIT very important in the eyes of investors since under a BIT an investor can directly initiate arbitral proceeding against a State without approaching its own government. Therefore, Investor-state dispute settlement is one of the key features of the BITs worldwide and Indian BIPAs are no exception. In Indian BITs, the investors have an option of approaching ICSID or initiating arbitration under the UNCITRAL rules. However, it is an important concern that India is not party to the ICSID convention. Though there is a possibility of having arbitration under the Additional Facility Rules of ICSID, it still remains different from a typical ICSID arbitration and a party will nevertheless have to enforce the award under the New York Convention.

The ISDS mechanism was originally designed to depoliticize investment disputes and allow foreign investors a fair hearing before an independent, neutral and qualified tribunal. However, controversies around ISDS have gained momentum more recently with the mechanism being widely criticized as unethical, unfair, undemocratic, unsustainable and even unconstitutional, giving undue power and benefit to multinational corporations (MNCs) over host governments and public policy, thereby placing profit before people and the environment. Some of the serious concerns that have been raised about the ISDS mechanism include lack of legitimacy and transparency; contradictions between arbitral decisions; difficulties in correcting erroneous arbitral decisions; questions about the independence and impartiality of the arbitrators; and costs and time of arbitral procedures.

Over the past few years, India has been involved in a number of disputes with foreign investors pertaining to its obligations under these BIPAs. In the light of these claims against the government, the Department for Industrial Policy and Promotion called for a review of all BITs signed by India and recently published a draft Model Text for the Indian Bilateral Investment Treaty (Model BIT) to revise Indias model bilateral investment treaty of 1993 and to serve as a framework for the renegotiation of Indias over 80 bilateral investment treaties (BITs). Against this background, this paper attempts to understand Indias investment regime, particularly from the dispute settlement perspective. It begins by giving an overview of Indias ISDS framework in its BITs and then proceeds to analyze investment disputes that have been initiated against India over last few years, with a particular focus on White Industries case. The paper also looks into the impact these disputes have had on Indias ISDS framework and critically examines changes that India is trying to bring about in its Model BIT. 2. INDIAS EXPERIENCE WITH INTERNATIONAL INVESTMENT ARBITRATIONAlthough India has been entering into BITs since 1994, it did not face disputes from investors till 2011. Indias real tryst with International Investment Arbitration came in November 2011 with the first published investment treaty award against India in White Industries Australia Limited v. The Republic of India. Following White Industries case as many as seventeen companies or individuals, including Germany's Deutsche Telekom, Netherlands-based Vodafone International Holdings BV, Sistema, Children's Investment Fund and TCI Cyprus Holdings have served notices of intent under different BIPAs, challenging various court rulings and policy measures initiated by the Government of India.

A. White Industries Case

In 2011, India lost a BIT dispute to an Australian company in White Industries v. Republic of India. This case involved challenging judicial delays in enforcing an international commercial arbitration award as a violation of the India-Australia BIT. White Industries had obtained an arbitral award, under the arbitration rules of the International Chamber of Commerce (ICC), in its favor in a contractual dispute with Coal India, an Indian public sector company, and sought enforcement of the award before the Delhi High Court in India. Simultaneously, Coal India approached the Calcutta High Court to have the award set aside, and the court granted the request. White Industries appealed to the Supreme Court in 2004 and the final decision is still pending. After the appeal to the Supreme Court remained pending for a period of seven years (that is, nine years after the ICC award), White Industries initiated a BIT arbitration against India in 201099 under the India-Australia BIT. They claimed, inter alia, that the delay on the part of the Indian courts to enforce the ICC award amounted to a violation of the fair and equitable treatment standard on account of two factors: (1) a denial of justice, and (2) a breach of White Industries legitimate expectation that India would adhere to the New York Conventions standards on enforcement of foreign arbitral awards.101 Relying on the Most Favored Nation (MFN) clause in the India-Australia BIT, White Industries also claimed that it was entitled to effective means of asserting claims and enforcing rights, a guarantee found in the India-Kuwait BIT, and that the conduct of the Indian courts had breached that standard. White Industries also alleged that the delay on the part of the Indian courts amounted to an expropriation of its rights under the award.

The tribunal, after examining prior investment arbitration jurisprudence, concluded that the ICC award represented a crystallization of White Industries rights under a contract and hence could be characterized as part of White Industries original investment in India. The tribunal dismissed White Industries claim of a legitimate expectation about Indian courts not entertaining an application to set aside a foreign award, noting that entertaining an application to set aside a foreign award was a regular practice in the Indian legal system, one of which White Industries should have been aware. The tribunal also dismissed White Industries claim of legitimate expectation that an award would be enforced without delay, citing the Report of the Law Commission of India on delays in the Indian judicial system. The tribunal also dismissed White Industries allegation of denial of justice after examining all the factors, including Indias assertion that the Indian judiciary was overextended due to its large population. In this regard, the tribunal held that while the delays were unsatisfactory, they did not meet the high standards required for establishing a claim of denial of justice. After agreeing with White Industries that it was entitled to effective means of asserting claims and enforcing rights at par with Kuwaiti investors by virtue of the MFN clause in the India-Australia BIT, the tribunal held that the conduct of Indian courts, manifested in the inordinate delay in enforcing the arbitral award, had failed to meet this standard. In determining the content of the effective means standard, the tribunal relied heavily on Chevron Texaco v. Ecuador. Additionally, the tribunal rejected White Industries claim of expropriation, noting that the award had not yet been taken or set aside.

This award is significant on two levels for investors in India. First, it opens up another route for investors outside of the Indian courts. If investors face many years' delay in enforcing arbitral awards, they may pursue the Government of India directly. Of course, in order to do this the investors would need to have access to a similar BIT as the Australia-India BIT, or the Kuwait-India BIT. Secondly, the award puts additional pressure on the Government of India to reform the court system in order to make enforcement of arbitration awards in India more effective.

B. The Dabhol Case

In this case, Enron had made an investment in India through its Dutch subsidiary to build, own and operate a power plant in India in order to sell power in India thereafter. The Government of Maharashtra thereafter tried to terminate the project claiming that non-competitive bidding procedure was used and Enron invoked arbitration under the India-Dutch BIT. India. While India paid a significant sum and settled this dispute one investor successfully received an award by invoking the BIT arbitration clause against the Maharashtra State Electricity Board.

C. The Rise of ISDS Cases against IndiaSince the White Industries case, a series of investor claims have been emerging against the Government of India, with many foreign investors threatening to sue under different provisions of various Indian BITs: i. Different foreign telecommunication companies have issued many of these ITA notices due to the cancellation of their licenses by the Indian Supreme Court. This relates to the grant of Unified Access Service License (UAS) with second-generation (2G) spectrum to telecommunication companies, of both Indian and foreign origin, by the Department of Telecommunication of the Indian Government. The government employed a first-come first-served policy, rather than an auction, for the allocation of these licenses. A writ petition was filed in the Supreme Court of India, however, arguing that the granting of licenses following the first-come-first-served policy was arbitrary and unconstitutional. The Supreme Court agreed with the petitioners and held that [t]here is a fundamental flaw in the first-come-first-served-policy because it allows people with access to the power-corridor to benefit over those who do not have such access. The Court held that the 2G licenses granted by the Indian government were arbitrary and unconstitutional, and hence all the licenses were illegal. As a result, the Supreme Court quashed each of the 122 2G licenses granted on or after January 20, 2008, by the Department of Telecommunication. Arguably, the cancellation of these telecommunication licenses will adversely affect the investments of many foreign companies who claim that they invested in India based on the issuance of these licenses and after getting all the due approvals and clearances from the Indian state. For example, according to the Norwegian company, Telenor, one of the companies whose licenses have been cancelled, it bought these licenses from an Indian company, Unitech, and it played no role either in the policy of allocating licenses or in the license-awarding process. Thus, Telenors argument is that its investment should not be jeopardized by the arbitrariness of the Indian state.

Subsequent to the cancellation of the 2G licenses, Telenor issued an ITA notice to India alleging that cancellation of its licenses by the Supreme Court violates the investment chapter of the India-Singapore FTA. Sistema, a Russian firm, whose twenty-one licenses were also among the 122 licenses that the Supreme Court cancelled, has also served a notice to India to commence the ITA proceedings under the India-Russia BIT. In the notice, Sistema argued that cancellation of its licenses following the investment of billions of dollars in the Indian telecommunication sector is contrary to Indias obligations under the India-Russia BIT, including obligations like the non-expropriation of investments and the provision of full protection and security for the investment. Khaitan Holdings Mauritius Limited (KHML), another foreign investor whose twenty-one licenses were cancelled by the Supreme Court, issued an arbitration notice to the Union of India challenging the cancellation of its telecommunication licenses.

ii. Vodafone Plc, a UK-based company and the worlds largest telephone service provider, has sent a notice invoking the provisions of India-Netherlands BIPA through its Dutch subsidiary Vodafone International Holdings BV, against the retrospective application3 of capital gains tax included in the Finance Act, 2012. The proposal in the Finance Act, 2012 is aimed at plugging a loophole in the Income Tax Act, 1962, which, according to the government, allowed Vodafone to avoid its tax liability arising from the acquisition of Indian telecom company Hutchison Essar in 2007 merely because the transaction took place in the Cayman Islands. Since the takeover deal was carried out from a tax haven, Vodafone did not have to pay the capital gains tax of $2.2 billion, which it would have had to pay if the deal was conducted in India. The justification used by the Government of India has been that although the deal was concluded in a foreign territory, the assets involved in the deal were located in the territory of India. In response to the move of the Government of India, Vodafone has argued that the tax liability that the firm would incur as a result would violate a number of provisions of the India-Netherlands BIPA including fair and equitable treatment, full protection and security and indirect expropriation of investment.

iii. Deutsche Telecom (DT) has filed notice of arbitration against India under the Germany-India BIT whereas three separate Mauritius investors have filed claims under the India-Mauritius BIT, being aggrieved from the cancellation of its contract with the marketing arm of Indian space agency; Antrix Corporation Limited for leasing capacity on satellite based electromagnetic spectrum for providing multimedia services to Indian consumers.

iv. In March 2012, the Childrens Investment Fund (CIF) filed a notice of dispute in a letter addressed to the Minister of Finance, invoking both the India-UK BIT and the India-Cyprus BIT in response to the seriously impaired business activities and operations of the company by virtue of their investment in Coal India. They alleged that Coal Indias sale of assets to private companies at below-market price, on the directive of the Government, has caused a huge loss to the Coal India and in effect, to the companys share value. This claim is unprecedented as CIF is a minority shareholder essentially suing Coal India for greater dividends. CIF has since sold almost 20% of their shareholding in Coal India.

v. The latest in line to put India in the BIT arbitration spotlight is South Koreas threat to invoke arbitration under the BIT for adversely impacting the Samsung Electronic investments, pursuant to a Supreme Court order directing its chairman, Len Kun-Hee to appear before a Ghaziabad trial court in a $1.4 million cheating case filed against him by JCE consultancy. The Centre is concerned over the Supreme Courts order as it is bound to adversely impact the business and investment climate in the country.

From the perspective of the Indian authorities, these developments give rise to concerns on the following counts:

i. Bilateral investment agreements are based on a country-specific strategic give-and take. This intent is undermined by MFN provisions which allow for treaty-shopping.

ii. Perceived imbalance between host country judicial sovereignty, regulatory space, public interest, sovereign policy goals, investor responsibilities and level playing field between domestic and foreign investors on the one hand and investor rights based on internationally driven investor protection on the other.

The proposed arbitration cases would also test Indian Government's stance that BIPA does not provide for compensation for the loss of foreign direct investment (FDI) due to Supreme Court's (SC's) judgments on policy and regulatory issues. This stance has been taken in the cases relating to SC verdict on 2G scam that led to cancellation of over hundred mobile phone licenses owned by joint ventures. It is not merely the provisions of BITs but also their interpretation by arbitration bodies which are being seen as a problem by India. If such decisions curb the sovereign power of the nation under fair and equitable treatment clauses, leaving little or no scope for governmental decision making and regulation in public interest, it believes that BITs can end up restricting all prospective powers of sovereign states. According to legal experts, the real challenge posed by BIPA commitments does not stem from the investor-state dispute settlement provision, but from the broad substantive protections covered in the treaty, which do not balance investor protection with Indias right to regulate. Therefore, India realized that it needs to focus on renegotiating such provisions and narrowing the scope as per its developmental priorities.

Therefore, this has made it necessary for the Indian government to consider a broad review of its BIT strategy to remedy existing imbalances, including through:

i. Re-negotiation of BIPAs

ii. Clarifications on broad, open-ended provisions like creating favorable conditions for investors, fair and equitable treatment, free transfer of capital etc.

iii. Incorporation of domestic policy objectives and suitable exception clauses.

4. INDIAS RESPONSE TO ISDS CLAIMS THREATS TO ITS POLICY SPACESince the White Industries decision and the series of potential investor claims against India, there have been increased calls for a critical review or renegotiation of Indias investment treaties. Moreover, a review of existing Indian investment treaties has been deemed imperative in light of Indias deepening integration with the global economy and increasing number of new trade and investment agreements, such as the India-EU FTA and a BIT with the Unites States. India, therefore, decided to revisit its BIT practice and develop a new model BIT. Indian Government very recently put the draft text of Indias new model BIT in the public domain for comments. i. Changes in the Model Draft affecting ISDS framework First, the new model BIT adopts an enterprise based definition of investment. Thus, only enterprises constituted in India that have real and substantial business operations in India can bring BIT claims. This means that entire foreign portfolio investment is outside the ambit of the BIT no matter how significant this investment might be for the Indian economy. Further, for an enterprise to have real and substantial business operations in India (Art 1.9) it should engage a substantial number of employees a phrase that is not defined. Consequently, foreign corporations, even if constituted in India, who only have a few hundred employees, will be denied treaty protection notwithstanding the fact that this investment may have made substantial contribution such as bringing new technology. Investment is also restrictively defined and explicitly excludes interests in government issued debt, court judgments or arbitral awards, and holding companies or investment companies (Arts 1.6-1.8). Second, the new model BIT does not contain the MFN provision, which is a core non-discrimination principle in international economic relations. Perhaps, to stop treaty shopping by foreign investors. However, the objective to disallow treaty shopping can be achieved by restricting MFNs applicability to actual cases of discrimination in application of domestic measures.

Third, the model BIT provides an exhaustive general exceptions clause that allows host state to deviate from the obligation of protecting foreign investment in order to meet other compelling public policy objectives such as public health. While the inclusion of such general exception clause is a good step, the model BIT has made this provision self-judging, which is quite bizarre. Thus, arbitral tribunal will not be able to undertake full review of any such regulatory measure, which could result in misuse of this provision by host state.

It limits acts of Government that may be impugned only to acts of Central and State Governments (Art 1.3), and excluding any claims based on measures by local bodies (Art 16.3). Even the protection of National Treatment is stated not to apply to laws or measures of regional or local government (Art 4.3).

It explicitly excludes from the scope of the Model BIT any taxation measure (Art 2.6(iv)), as well as services supplied in the exercise of governmental authority which [are] supplied neither on a commercial basis nor in competition with one or more service suppliers (Art 2.6(iii)), which presumably includes a national court system. Also excluded are any disputes under investment agreements entered directly between the Investor and the Host State; claims under those agreements may not be brought as breaches of the Model BIT (i.e. excluding umbrella claims).

The Standard of Treatment qualifying investments can expect to receive is limited to protection from (i) Denial of justice under customary international law, (ii) Un-remedied and egregious violations of due process, and (iii) Manifestly abusive treatment involving continuous, unjustified and outrageous coercion or harassment (Art 3.1). The Model BIT avoids the more traditional and general protections of fair and equitable treatment and full protection and security found in many other BITs.

National treatment protection is afforded such that Investors are to be treated no less favorably than domestic investments in like circumstances; thus intentional and unlawful discrimination is prohibited on the basis of nationality (Arts 4.1-4.2), although this does not apply to acts of regional or local government (Art 4.3), or to any exercise of discretion regarding whether and how to enforce, or not enforce, a particular law against a foreign or domestic investor (Art 4.4).

Expropriation is prohibited save for reasons of public purpose and where that expropriation is in accordance with the law, and payment of adequate compensation is made (Art 5.1). The Model BIT sets out in some detail what may amount to expropriation, and how any tribunal should assess appropriate compensation and take account of mitigating factors in its calculation.

Express obligations on Investors are set out in the Model BIT regarding corruption (Art 9), disclosures and maintenance of records (Art 10), payment of taxes (Art 11) and compliance with the law of the Host State (Art 12). All such obligations are conditions precedent to claiming benefit under the Model BIT (Art 9), and investors are required to demonstrate compliance with the provisions in any Notice of Dispute served under the ISDS provisions (Art 14.3(iii)).

B. Changes in the ISDS provisions

Significant features of the ISDS provisions of the Model BIT include:- The new model retains the ISDS but it requires an investor to exhaust all local remedies (judicial and administrative) before initiating international arbitration. In other words, an investor will have to first submit its claim before the domestic courts in the host country. Article 14.3 of the Draft talks about Exhaustion of local remedies which must be commenced within 1 year of the date the Investor knew, or should have known, of the Measure in question and knowledge of the damage to the Investment. It is worth noting that the current draft does permit the abandonment of local remedies where to continue to pursue them would be futile (such as where no domestic remedies are available, or there is no reasonable possibility of a remedy within a reasonable period of time).

A detailed Notice of Dispute to be served within 18 months of the conclusion or abandonment of domestic proceedings, or 3 years from the claim arising (Arts 14.3(iii) & 14.4), followed by a 1 year cooling-off period during which the parties must use their best efforts to try to resolve the dispute amicably through meaningful consultation, negotiation or continued pursuit of any available domestic remedies or solutions (Art 14.3(iv)).

90 days before submitting any claim to arbitration, the Investor must serve a detailed Notice of Arbitration including an identification of the specific breaches of the treaty protections alleged, and a calculation of the amount of damages claimed as a result (Art 14.4(i)(B)).

Arbitration before a 3 person tribunal under UNCITRAL Rules, where the tribunal shall give special consideration to a seat in the capital city of the Host State (Art 14.7).

A presumption of Transparency whereby the Respondent state shall make available to the public the Notice of Arbitration, and all pleadings, transcripts, orders and awards, save where specific steps are required to protect confidential information (Art 14.8). This presumption extends to holding hearings for argument and the presentation of evidence in public (Art 14.8(ii)).

The model includes a provision at Art 14.11 allowing for the state party to make a counterclaim against an Investor for breach of Articles 9, 10, 11 or 12 (Corruption, Disclosure, Taxation and compliance with Host State Laws). The question of tribunal jurisdiction over state counterclaims under BITs has been a matter of debate and disagreement in a number of treaty cases (such as in Spyridon Roussalis v. Romania, Goetz v. Burundi and Al Warraq v Indonesia) and it is interesting to see it being explicitly addressed through drafting.

5. ANALYZING THE CHANGES IN THE NEW MODEL BIT DRAFTThe disputes with foreign investors signal the emerging struggle between foreign investors and sovereign states in the economic spaces, which are looking constricted in the face of the uncertain economic prospects. In the post-crisis world, governments have increasingly been called upon to manage the economies, but their ability to formulate policies has run contrary to the rights granted to foreign investors. This has forced several governments in the developed world, most notably the United States (US), to have a relook at their bilateral investment treaties (BITs) and other agreements guaranteeing investor rights. The latest UNCTAD report on trends in investment disputes says that last year saw 58 claims filed against various states, including Australia ad Germany. This brings the total number of known treaty based cases to 518. The more worrying trend, which lends credence to the calls for reform, is that roughly 66 per cent of these claims were against developing or transition economies. With as many as seven investors reportedly filing claims against India in 2012, it ranks second only to Venezuelas nine.

A. Changes only symptomatic of the global trend

Against this context, some commentators argue that the changes in the new Model BIT are only symptomatic of the larger global backlash against Investment Treaty Arbitration. Australia, for example, has stopped signing BITs, which have arbitration provisions even though White Industries award was granted in favor of an Australian investor. South Africa has also decided to review its existing BITs with a view to terminating and possible renegotiation on the basis of a new Model BIT. Further, Venezuela, along with Ecuador and Bolivia, before it, have denounced the ICSID Convention to stem the investment arbitration cases against it.

The subject of investor-state dispute settlement (ISDS) has occupied the center stage in the expropriation discourse due to a spate of recent developments across the globe. There are also concerns about bias in ISDS cases in internationally arbitrated disputes. Of the fifteen lawsuits filed against the US Government under the ISDS clause in FTAs with various nations, the US has won every time. This has, for example, led to concerns in South Korea on two counts:

Infringement of national/judicial authority: By challenging policies of host nations, US investors could distort public policies.

Reverse discrimination against citizens of host nation: If rulings go in the US investors favor, it would create an unfair advantage for the investor over local firms by exempting the former from certain policies.

This signaled the need for redefinition of major elements of ISDS mechanism to factor in recent disputes that turned focus on ambiguities or deficiencies in ISDS system as mentioned in the bilateral or global investment protection agreements. UNCTAD, which has analyzed arbitral interpretation processes involving international investment agreements (IIAs), has also provided valuable insights for balancing investor protection and developmental imperatives. UNCTADs advice is summarized in the following paragraphs:

Countries and negotiators are learning from their experiences and new challenges lie ahead as the first generation of treaties comes up for renewal and renegotiation. Specifically, given the kinds of interpretations the scope and definition clauses have had in recent years, concern has grown over the actual coverage of IIAs and whether they are offering too wide a field of support for investors and the various categories of investments that specific treaties have been found to protect

Such concerns result in a changing environment for negotiators and a change in negotiating objectives. In particular, it is now open to discussion whether IIAs have become too one-sided in that expansive interpretations of the scope of coverage and protection offered by such agreements have led to fears that the host countrys national policy space and right to regulate have been unduly curtailed in ways that might adversely affect genuine development policy objectives (UNCTAD 2003, chapters V and VI). In addition, given the emphasis placed by host countries on investor and investment promotion, it may be useful for protection to be more targeted covering not all investments, but only investments that can contribute to development

This entails two objectives in particular. First, IIAs should be focused on investment that generates development benefits and, secondly, that the stability and predictability of the legal system, required by investors and their investments, is enhanced by clear and focused rules.

All this background gives a strong and reasonable indication that while preparing the model BIT, Indian negotiators were aware of this global trend and knew that the host states sovereign regulatory functions whether of the executive, legislature or judiciary can fall under the ambit of BITs unless specifically excluded. Therefore, an attempt has been made to strike a balance between the costs and benefits of ISDS. Recent claims against India had made it amply clear that the existing BITs could potentially constrain Indias regulatory discretion in the future. The policy makers also seem to have questioned the assumption that BITs help attract overseas investors. Indeed the experiences of countries such as Brazil and China show that neither Brazils failure to ratify BITs nor the restrictive terms in Chinas investment treaties have dissuaded foreign investors from entering the country. Therefore, India focused on renegotiating its investment treaty provisions and narrowing the scope of its provisions according to its developmental priorities.There are a number of significant features in the Model BIT that appear to be reactions to the BIT claims that India has been faced with over the last few years. These include the White Industries award of 2012, the Vodafone case. In this regard, and perhaps unsurprisingly, many parts of the Model BIT appear to be framed as an attempt to limit protections afforded to inbound investors into India, rather than ensuring the protection of outbound Indian investors into overseas markets. Several of the provisions appear to be squarely aimed at preventing repeats of these previous claims; for example, the absence of an MFN clause, and specific exclusions of claims based on taxation or the provision of non-commercial services by the host state. On the other hand, various portions of the lengthy draft, such as the detailed provisions prescribing the contents of a Notice of Claim and Notice of Arbitration under the Investor-State dispute settlement (ISDS) provisions, and the provisions on arbitrator independence and challenge, appear to be attempts to incorporate aspects of the current debate around ISDS in the TPP (Trans-Pacific Partnership) and TTIP (Transatlantic Trade and Investment Partnership) as a template for more explicit treatment of such matters in future BITs.

B. Risk of going overboardSome scholars argue that Indias new model BIT, far from striking this critical balance, is a knee-jerk reaction to foreign corporations suing India under BITs. Indias guiding philosophy behind the new model BIT appears to be completely immunizing her from BIT claims. One concedes that the role of BITs in attracting foreign investment should not be exaggerated. Nevertheless, BITs act as a signaling device to foreign investors about congenial investment environment. This is more so for a country like India, which is ranked abysmally low at 142, out of 189 economies, in the World Banks index of ease of doing business. Also, it has been conveniently forgotten that the same unworkable BIT will be relied by Indian companies to safeguard their investment when subjected to arbitrary state action overseas.

It would be nave to argue that BIPAs dont play any role in influencing the flow of foreign investment. Leaving aside resource rich countries such as Brazil or Venezuela - which will attract foreign investment irrespective of whether they have investment treaties or not - investors (of domestic or foreign origin) do look for predictability of the regulatory environment that is ensured by investment protection treaties. Besides, investment treaties provide an extra layer of protection to foreign investors over and above what is possible under the domestic legislative framework. BIPAs also have sentimental effects on foreign investors, and dwell on the overall investment climate that India can ignore at its own peril given its dismal ranking (142 out of 189) on the ease of doing business according to the World Bank. Indias image has already taken a hit because of a series of tax disputes involving MNCs, such as Vodafone and Nokia. The absence of investment protection treaties would also imply that aggrieved Indian businesses, many of which have substantial overseas presence, will not be able to successfully challenge unfavorable regulatory changes or seek international arbitration for damage.

CONCLUSION

While the reasoning behind the review of BIPA is well understood, and their intention of safeguarding Indias interests to ensure avoiding any undue liability is reasonable, the new Model BIT draft undermines the fundamental purpose of the BIT to promote and protect investments. ISDS is the essential element in any investment agreement which grants foreign investors the right to take legal action against the sovereign regulatory measures of the host state. Although this may restrict the regulatory space available to the States, the new radical changes to ISDS provisions will most certainly have an adverse impact on Indias investment climate, as well as place growing Indian investments abroad at risk. The self-judging general exception clause and the local remedies exhaustion clause seem to be the major problems in the new Model BIT draft. Indian courts have gained the notoriety of having a gigantic backlog of cases along with a complicated and time-consuming court procedures. In this context, the new provision mandating exhaustion of local remedies would act as a major disincentive to foreign investors. BITs offer an important protection to foreign investors, particularly by increasing their confidence in uncertain global economic circumstances. In recent years, several foreign investors have been struggling to establish and grow in India, mainly owing to regulatory hurdles, poor infrastructure, difficulties in land acquisition. Against this background, the changes in ISDS clauses could further add to foreign investors worries. Moreover, recent investment trends suggest that India is fast becoming an exporter of capital and a move to render ISDS clauses futile could jeopardize the interests of Indian investment abroad, which has risen in recent years. Reform is a gradual process, and the new Model BIT draft is merely a first major step in the reformation of the entire system. Instead of only depending on reforms in BITs, India should initiate domestic policy changes such as strengthening the domestic arbitration environment, boosting judicial proceedings and easing procedures of issuing business visas or visa on arrival to attract foreign investments. BIBLIOGRAPHYCasesCapital India Power Mauritius I and Energy Enterprises (Mauritius) Company v. India (Award, 27 Apr. 2005).11

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Rudolf Dolzer & Christoph Schreuer, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 1314 (2d ed. 2012) TA \l "RUDOLF DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 1314 (2d ed. 2012)" \s "RUDOLF DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 1314 (2d ed. 2012)" \c 12 .

Ranjan 2014, supra note 1.

Roderick Abbott et al., Demystifying Investor-State Dispute Settlement (ISDS), ECIPE OCCASIONAL PAPER, No. 5/2014, p.3, available at: http://www.ecipe.org/app/uploads/2014/12/OCC52014__1.pdf TA \l "Roderick Abbott et al., Demystifying Investor-State Dispute Settlement (ISDS), ECIPE OCCASIONAL PAPER, No. 5/2014, p.3, available at: http://www.ecipe.org/app/uploads/2014/12/OCC52014__1.pdf" \s "Roderick Abbott et al., Demystifying Investor-State Dispute Settlement (ISDS), ECIPE OCCASIONAL PAPER, No. 5/2014, p.3, available at: http://www.ecipe.org/app/uploads/2014/12/OCC52014__1.pdf" \c 11 .

NDA, Bilateral Investment Treaties and India, available at: http://www.nishithdesai.com/fileadmin/user_upload/ pdfs/Bilateral_Investment_Treaties_and_India.pdf TA \l "NDA, Bilateral Investment Treaties and India, available at: http://www.nishithdesai.com/fileadmin/user_upload/ pdfs/Bilateral_Investment_Treaties_and_India.pdf" \s "NDA, Bilateral Investment Treaties and India, available at: http://www.nishithdesai.com/fileadmin/user_upload/ pdfs/Bilateral_Investment_Treaties_and_India.pdf" \c 11 .

Id.

Souvik Ganguly & Shantanu Kanade, Revisting India's Stance on Investor-State Dispute Settlement, available at: http://indianlawyer250.com/features/article/223/revisiting-indias-stance-investorstate-dispute-settlement/ TA \l "Souvik Ganguly and Shantanu Kanade, Revisting India's Stance on Investor-State Dispute Settlement, available at: http://indianlawyer250.com/features/article/223/revisiting-indias-stance-investorstate-dispute-settlement/" \s "Souvik Ganguly and Shantanu Kanade, Revisting India's Stance on Investor-State Dispute Settlement, available at: http://indianlawyer250.com/features/article/223/revisiting-indias-stance-investorstate-dispute-settlement/" \c 8 [Hereinafter Ganguly and Kanade]

Government of India, Ministry of Finance, Bilateral Investment Promotion and Protection Agreements (BIPA), available at: finmin.nic.in/bipa/bipa_index.asp?pageid=1 TA \l "Government of India, Ministry of Finance, Bilateral Investment Promotion and Protection Agreements (BIPA), available at: finmin.nic.in/bipa/bipa_index.asp?pageid=1" \s "Government of India, Ministry of Finance, Bilateral Investment Promotion and Protection Agreements (BIPA), available at: finmin.nic.in/bipa/bipa_index.asp?pageid=1" \c 3 .

Id.

H K Sing and Tincy Solomon, BIT and Beyond: Advancing India-Us Economic Relations, p. 9, available at: http://icrier.org/pdf/bitandbeyond.pdf TA \l "H K Sing and Tincy Solomon, BIT and Beyond: Advancing India-Us Economic Relations, p. 9, available at: http://icrier.org/pdf/bitandbeyond.pdf" \s "H K Sing and Tincy Solomon, BIT and Beyond: Advancing India-Us Economic Relations, p. 9, available at: http://icrier.org/pdf/bitandbeyond.pdf" \c 11 .

Prabhash Ranjan & Kajal Bhardwaj, Stephen Harper Left India with No FIPA. Heres Why, TROY MEDIA (Dec. 17, 2012), available at: http://www.troymedia.com/2012/12/17/stephen-harper-leftindia-with-no-fipa-heres-why TA \l "Prabhash Ranjan & Kajal Bhardwaj, Stephen Harper Left India with No FIPA. Heres Why, TROY MEDIA (Dec. 17, 2012), available at: http://www.troymedia.com/2012/12/17/stephen-harper-leftindia-with-no-fipa-heres-why" \s "Prabhash Ranjan & Kajal Bhardwaj, Stephen Harper Left India with No FIPA. Heres Why, TROY MEDIA (Dec. 17, 2012), available at: http://www.troymedia.com/2012/12/17/stephen-harper-leftindia-with-no-fipa-heres-why" \c 8 .

Joint Statement by President Barack Obama & Prime Minister Manmohan Singh of India on Summit Meeting in Washington, D.C. (Sept. 27, 2013), available at: http:// www.mea.gov.in/bilateral-documents.htm?dtl/22265 TA \l "Joint Statement by President Barack Obama & Prime Minister Manmohan Singh of India on Summit Meeting in Washington, D.C. (Sept. 27, 2013), available at: http:// www.mea.gov.in/bilateral-documents.htm?dtl/22265" \s "Joint Statement by President Barack Obama & Prime Minister Manmohan Singh of India on Summit Meeting in Washington, D.C. (Sept. 27, 2013), available at: http:// www.mea.gov.in/bilateral-documents.htm?dtl/22265" \c 3 .

Ganguly & Kanade, supra note 7.

NDA, supra note 5.

Jyoti Singh et al. Alternative Dispute Resolution, Legal Era, (May 2014), available at: http://www.phoenixlegal.in/manage/ArticlesPdf/900990May-_2014.pdf TA \l "Jyoti Singh et al. Alternative Dispute Resolution, Legal Era, (May 2014), available at: http://www.phoenixlegal.in/manage/ArticlesPdf/900990May-_2014.pdf" \s "Jyoti Singh et al. Alternative Dispute Resolution, Legal Era, (May 2014), available at: http://www.phoenixlegal.in/manage/ArticlesPdf/900990May-_2014.pdf" \c 11 [Hereinafter Jyoti Singh]

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Id.

NDA, supra note 5.

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Nicholas Peacock et al., Indian Government seeks comments on a proposed draft Model Text for the Indian Bilateral Investment Treaty, April 2, 2015, available at: http://hsfnotes.com/publicinternationallaw/ 2015/04/02/indian-government-seeks-comments-on-a-proposed-draft-model-text-for-the-indian-bilateral-investment-treaty/ TA \l "Nicholas Peacock et al., Indian Government seeks comments on a proposed draft Model Text for the Indian Bilateral Investment Treaty, April 2, 2015, available at: http://hsfnotes.com/publicinternationallaw/2015/04/02/indian-government-seeks-comments-on-a-proposed-draft-model-text-for-the-indian-bilateral-investment-treaty/" \s "Nicholas Peacock et al., Indian Government seeks comments on a proposed draft Model Text for the Indian Bilateral Investment Treaty, April 2, 2015, available at: http://hsfnotes.com/publicinternationallaw/2015/04/02/indian-government-seeks-comments-on-a-p" \c 8

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Id., at 45.

Id., at 17-23.

Agreement Between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, Austl.-India, Feb. 6, 1999, 2116 U.N.T.S. 145 TA \l "Agreement Between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, Austl.-India, Feb. 6, 1999, 2116 U.N.T.S. 145" \s "Agreement Between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, Austl.-India, Feb. 6, 1999, 2116 U.N.T.S. 145" \c 3 [hereinafter Austl.-India BIT Agreement].

Ranjan, supra note 1.

Id.

Chevron Corp. (U.S.) v. Ecuador, Case No. 2009-23, Partial Award on Merits (UNCITRAL 2010), http://www.italaw.com/sites/default/files/case-documents/ ita0151.pdf. TA \l "Chevron Corp. (U.S.) v. Ecuador, Case No. 2009-23, Partial Award on Merits (UNCITRAL 2010), http://www.italaw.com/sites/default/files/case-documents/ ita0151.pdf." \s "Chevron Corp. (U.S.) v. Ecuador, Case No. 2009-23, Partial Award on Merits (UNCITRAL 2010), http://www.italaw.com/sites/default/files/case-documents/ ita0151.pdf." \c 1

Id.

Ashurst Singapore, Successful BIT claim against India for court delays, Feb, 2012, available at: https://www.ashurst.com/doc.aspx?id_Content=6897. TA \l "Ashurst Singapore, Successful BIT claim against India for court delays, Feb, 2012, available at: https://www.ashurst.com/doc.aspx?id_Content=6897." \s "Ashurst Singapore, Successful BIT claim against India for court delays, Feb, 2012, available at: https://www.ashurst.com/doc.aspx?id_Content=6897." \c 11

Id.

B. Choudhary & P. Kulkarni, Bilateral Investment Treaties: Understanding New Threats to Development in a Comparative Regional Perspective, at 12, (2006), available at: www.policyinnovations.org/ideas/policy_library/dat TA \l "B. Choudhary & P. Kulkarni, Bilateral Investment Treaties: Understanding New Threats to Development in a Comparative Regional Perspective, at 12, (2006), available at: www.policyinnovations.org/ideas/policy_library/dat" \s "B. Choudhary & P. Kulkarni, Bilateral Investment Treaties: Understanding New Threats to Development in a Comparative Regional Perspective, at 12, (2006), available at: www.policyinnovations.org/ideas/policy_library/dat" \c 8 .

Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company v. India (Award, 27 Apr. 2005). TA \l "Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company v. India (Award, 27 Apr. 2005)." \s "Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company v. India (Award, 27 Apr. 2005)." \c 1

Prabhash Ranjan, Can BIT Claims Be Made Against India for the Actions of the Indian Judiciary?, 1 NATL L. U. JODHPUR L. REV. 87, 8792 (2013). TA \l "Prabhash Ranjan, Can BIT Claims Be Made Against India for the Actions of the Indian Judiciary?, 1 NATL L. U. JODHPUR L. REV. 87, 8792 (2013)." \s "Prabhash Ranjan, Can BIT Claims Be Made Against India for the Actions of the Indian Judiciary?, 1 NATL L. U. JODHPUR L. REV. 87, 8792 (2013)." \c 8

COMPTROLLER & AUDITOR GEN. OF INDIA, PERFORMANCE AUDIT REPORT ON THE ISSUE OF LICENCES AND ALLOCATION OF 2G SPECTRUM (2010).

Ctr. for Pub. Interest Litig. v. India, Writ Petition (Civil) No. 423/2010, at 5759 (S. Ct. 2010). TA \l "Ctr. for Pub. Interest Litig. v. India, Writ Petition (Civil) No. 423/2010, at 5759 (S. Ct. 2010)." \s "Ctr. for Pub. Interest Litig. v. India, Writ Petition (Civil) No. 423/2010, at 5759 (S. Ct. 2010)." \c 1

Ranjan, supra note 1, at 813.

Id., at 814.

Biswajit Dhar, India's Bilateral Investment Agreements: Time to Review, available at: ris.org.in/images/RIS_ images/pdf/Indias_Bilateral_Investment_Agreements%20EPW.pdf TA \l "Biswajit Dhar, India's Bilateral Investment Agreements: Time to Review, available at: ris.org.in/images/RIS_images/pdf/Indias_Bilateral_Investment_Agreements%20EPW.pdf" \s "Biswajit Dhar, India's Bilateral Investment Agreements: Time to Review, available at: ris.org.in/images/RIS_images/pdf/Indias_Bilateral_Investment_Agreements%20EPW.pdf" \c 8

Id.

Sam Jones, TCI initiates legal action against India, Financial Times, Mar. 27, 2013 TA \l "Sam Jones, TCI initiates legal action against India, Financial Times, Mar. 27, 2013" \s "Sam Jones, TCI initiates legal action against India, Financial Times, Mar. 27, 2013" \c 8 .

Debjoy Sengupta, UK-based The Children's Fund demands higher dividend from Coal India, The Economic Times, Feb 19,2013 TA \l "Debjoy Sengupta, UK-based The Children's Fund demands higher dividend from Coal India, The Economic Times, Feb 19,2013" \s "Debjoy Sengupta, UK-based The Children's Fund demands higher dividend from Coal India, The Economic Times, Feb 19,2013" \c 8 .

Sujay Mehdudia, Move to rework bilateral treaties, THE HINDU (May 15, 2012) available at: http://www.thehindu.com/business/article3422322.ece TA \l "Sujay Mehdudia, Move to rework bilateral treaties, THE HINDU (May 15, 2012) available at: http://www.thehindu.com/business/article3422322.ece" \s "Sujay Mehdudia, Move to rework bilateral treaties, THE HINDU (May 15, 2012) available at: http://www.thehindu.com/business/article3422322.ece" \c 8 .

Jyoti Singh, supra note 15, at 4.

Khullar, Rahul, India-US Economic Partnership: BIPA/BIT and Beyond, Presentation at ICRIER on May 1, 2012 TA \l "Khullar, Rahul, India-US Economic Partnership: BIPA/BIT and Beyond, Presentation at ICRIER on May 1, 2012" \s "Khullar, Rahul, India-US Economic Partnership: BIPA/BIT and Beyond, Presentation at ICRIER on May 1, 2012" \c 11 .

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Id.

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Id.

Prabhash Ranjan, A BIT of an overreaction, available at: www.financialexpress.com/article/fe-columnist/column-a-bit-of-an-overreaction/60348 TA \l "Prabhash Ranjan, A BIT of an overreaction, available at: www.financialexpress.com/article/fe-columnist/column-a-bit-of-an-overreaction/60348" \s "Prabhash Ranjan, A BIT of an overreaction, available at: www.financialexpress.com/article/fe-columnist/column-a-bit-of-an-overreaction/60348" \c 8 /.

Peacock, supra note 21.

Ranjan, A BIT of an overreaction, supra note 52.

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Peacock, supra note 21.

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