Need for a balanced approach on ‘Bilateral Investment Treaty’ for India

Synopsis: Sri Lanka’s revoked the East Container Terminal (ECT) agreement without any valid reason. However, Indian investors can’t oppose this decision under International Law, due to India’s withdrawal from Bilateral Investment treaties (BIT). This calls for adopting a balanced approach towards BITs. 

Background: 

• An agreement to jointly develop ECT at Colombo port was signed between Sri Lanka, Japan and India in 2019. 
• In February 2021, the Sri Laken government pulled out from the agreement.  
• This hampered the interest of Indian investors as they can’t approach international tribunal for protecting their interest under India-Sri Lanka BIT. 

Read more – Sri Lanka Writes Off Strategic Colombo Port Deal With India & Japan|ForumIAS Blog 

India-Sri Lanka Bilateral Investment Treaty: 

• It governs the treatment of foreign investment between two countries on the basis of International Law. India-Sri Lanka Bilateral Investment Treaty was signed in 1997. 
• It has a provision of Investor-State Dispute Settlement (ISDS). It allows individual foreign investors to sue host states in international tribunals if treaty obligations are violated. 
• It calls for giving Fair and Equitable Treatment (FET) to foreign investments in the host state under Article 3(2). 
  • A core component of FET is the protection of legitimate expectations of investors. 
  • In International Thunderbird Gaming Corporation v Mexico Case, the concept of legitimate expectations got clarified. 
• It is a situation in which the act of the host state creates a reasonable expectation in the mind of the investor to act in line with such expectation. Failure to fulfil such expectations would cause damage to investors. 
• India- Sri Lanka BIT also has a survival clause under Article 15(2). It protects investors interest for 15 years if the treaty is unilaterally withdrawn by either party. 
• India withdrew from the treaty in 2017 due to a high number of ISDS cases filed against it. But survival clause assures protection to Indian and Sri Lanka investors till 2032. 

Why can’t Indian investors sue the Sri Lankan Government for revoking 2019 agreement? 

• Although the act of Sri Lanka to withdraw from 2019 agreement is a clear breach of the principle of legitimate expectation. But the Indian investors can’t appeal for protection. 
• Survival clause gave protection to investments made before India’s withdrawal from the treaty in 2017 and not to investments after that. It is due to this cut-off date that investors of 2019 ECT agreement can’t do much regarding Sri Lanka’s withdrawal from the agreement. 

 Way Forward: 

• India must understand the reciprocal nature of BITs. The withdrawal will save it from ISDS claims but would also hamper the interest of Indian investors abroad. 

• Decisions of withdrawal need to be taken with greater caution in a post-Covid world where the probability of taking arbitrary actions by foreign governments is quite high. 
• The need is to adopt a balanced approach towards BITs that doesn’t subject India to multiple ISDS claims nor harm the interests of Indian investors in foreign countries.