Issues associated with India Bangladesh BIT

Source: This post Issues associated with India Bangladesh BIT is based on the article “Protecting Indian capital in Bangladesh”, published in The Hindu on 20^th August 2024.

UPSC Syllabus: GS paper 2 – International Relations – India and its neighborhood

Context: The article discusses the potential risks and challenges faced by Indian companies operating in Bangladesh following the resignation and fleeing of Sheikh Hasina. It also highlights the legal frameworks available to protect these investments, with a focus on the India-Bangladesh Bilateral Investment Treaty (BIT).

Presently, Indian companies that have heavily invested in various sectors like edible oil, power, infrastructure, and pharmaceuticals face the risk of adverse regulatory changes that could harm their investments.

What are the legal Protections that are available for Indian Investors?

Indian companies operating in Bangladesh can rely on three broad legal frameworks to protect their investments:

1) Domestic laws of Bangladesh,

2) Contracts between the investor and the government or local companies, and

3) International law, particularly the India-Bangladesh BIT.

What is the level of protection provided by the Domestic and international Laws?

Domestic laws: While domestic laws, even of Bangladesh also, provide some level of protection, these laws can be unilaterally changed by the state.

International Law: International law, especially the BIT, plays a crucial role in protecting foreign investments by imposing conditions on the host state’s regulatory behavior. The BIT prevents unlawful expropriation and ensures fair and equitable treatment (FET) of investments. It also allows foreign investors to sue the host state in international tribunals if their rights are violated, known as investor-state dispute settlement (ISDS).

How India-Bangladesh Bilateral Investment Treaty (BIT) can be useful?

The India-Bangladesh BIT, signed in 2009, contains broad investment protection features, including an unqualified FET provision that can help Indian companies challenge adverse regulatory actions by Bangladesh.

However, in 2017, on India’s insistence, India and Bangladesh adopted Joint Interpretative Notes (JIN) to clarify various terms in the BIT. It diluted some of the investment protection features. For instance,

1) Taxation measures were excluded from the BIT’s ambit,

2) FET provision was linked to customary international law, which requires a higher threshold to prove a treaty violation.

While this JIN was designed to safeguard the regulatory powers of capital-importing countries like Bangladesh, it may prove disadvantageous for Indian investors in Bangladesh.

Conclusion

India’s outbound foreign direct investment (FDI) has grown significantly, with the country ranking among the top 20 capital-exporting nations. Therefore, it is essential for India to evolve its investment treaty practices to protect its interests as both a capital exporter and a host country.