India’s Bilateral Investment Treaties 2.0: Perceptions, Emerging Trends, and Possible Architecture

This chapter empirically examines the effect of bilateral investment treaties (BITs) and double taxation treaties (DTTs) on foreign direct investment. This chapter is structured as follows: firstly it describes bilateral investment and tax treaties, and reviews existing empirical studies on both BITs and DTTs. It then describes the methodology and data, and discusses the estimation technique and results, and conclusions. The chapter shows that transition countries that have BITs with developed countries receive more FDI inflows from these countries. It also provides evidence that BITs function to some extent as substitutes for institutional quality. There was no robust effect of tax treaties on FDI.

The state-led-economy provisions in the U.S. model BIT, which was released in April 2012, aims to impose strict regulations on the SOEs and exert great influence on state-led economy model. China and the U.S. are now in the midst of negotiating a BIT, and the U.S. government insists on negotiating on the basis of its 2012 model BIT. If China is to accept the 2012 U.S. model for the proposed BIT between the two nations, unprecedented international obligations will be placed in the field of international investment. In this context, in order to provide a reference for the BIT negotiation, the author will analyze, from the perspective of normative jurisprudence, which economic activities are included in the scope of state-led economy provisions, whether China should accept the clauses and the possible impact of accepting it. China’s economy has indivisible relationship with State-owned enterprises (SOEs). At present, most of these SOEs have clustered in those sectors that play crucial roles in the national economy such as energy, telecommunication and finances. Despite several rounds of reform on the SOEs aiming at a separation of governmental functions from corporate management, and a modern market-oriented governance structure, Chinese SOEs remain monopolies or de facto monopolies with exclusive access to many important industries relevant to national economy and people’s livelihood. Further, SOEs can enjoy a lot of privileges in their operation, some even have certain regulatory authority which is supposed to be exercised by the government. This kind of economic model is called State-led economy. The 2012 U.S. model for bilateral investment treaties (BIT) is characterized by the inclusion of the state-led economy provisions, which means that there are more restrictive regulations governing SOEs and their special treatment, and countervailing their competition implication in the host country and their home country. Apart from creating a fair and impartial environment for the investors, this international investment regime, represented by 2012 U.S. BIT model, is in some way, intended to alter the host country’s economic governance regime. In accordance with the decision of the 5th round of the U.S.–China Strategic and Economic Dialogue, both parties are dedicated to proceeding the BIT negotiations (The 5th Round of the U.S.–China Strategic and Economic Dialogue: broad consensus achieved and positive progress made, People’s Daily, p 3, 2013). The U.S. government has insisted that they would base its 2012 model as a blueprint of BIT text negotiation. Seemingly to illustrate, the 6th round of the U.S.–China Strategic and Economic Dialogue has reached a consensus that an earlier launch of negotiation on the negative list will be expected in 2015 (The 6th Round of the U.S.–China Strategic and Economic Dialogue: broad consensus achieved and positive progress made, People’s Daily, p 3, 2014; Ministry of Commerce of the People’s Republic of China, The 14th Round of the U.S.–China Investment Treaty Negotiation is Held in Washington, D.C., 2014). If China is to accept the new BIT model, it will bring China a bundle of increasing obligations under this system and an unprecedented impact on China’s mode for economic development. As a contracting party, China will have to carry out a comprehensively economic reform to comply with the disciplines specified in the BIT. It is also understandable that the incorporation of the state-led economy provision in the China–U.S. BIT will in turn accelerate the domestic economic reforms. In this context, research on the issue of state-led economy in the BIT negotiation will be of significance to China’s dealing with the core issue in the BIT, China’s fulfillment of treaty obligations and its promotion of domestic economic reform via BIT negotiations. In order to provide a reference for the BIT negotiation, the author will identify from the perspective of normative jurisprudence, the economic activities that fall within the scope of state-led economy provisions, project the possible impact of state-led economy provisions and how China should handle negotiation surrounding the state-led economy issue.

States have the practice of protecting foreign investments through investment treaties, designated variously as bilateral investment treaty (BIT); foreign investment protection and promotion agreement; multilateral agreement of investment (MAI), in English; Traité bilatéral d’investissement, in French; and Tratado Bilateral de Inversión, Acuerdo para Promoción y Protección Recíproca de Inversiones, in Spanish. Currently, BITs are an important source of investment protection. A BIT is an agreement executed between two states whose purpose is to promote and protect investments in the territory of one contracting state (the “host state”) made by investors from the other contracting state while furthering the development of both states. Although not all BITs have the same content, most of them contain—inter alia—provisions concerning the definition of investments and investors under the protection of the treaty and the standards of treatment and mechanisms for the settlement of disputes between states or between foreign investors and states. The first BIT was signed between Germany and Pakistan in 1959. At present, there are more than 2,700 BITs in force, concluded not only between developed and developing states, as was their original intent, but also between developing states or between developed states. Some states have a Model BIT, which is used as a basis in investment treaty negotiations. For example, in the last decade the following examples can be mentioned: India 2003 Model BIT, Canada 2004 Model BIT, France 2006 Model BIT, Colombia 2007 Model BIT, Norway 2007 Draft Model BIT, Germany 2008 Model BIT, and United States 2012 Model BIT. Apart from BITs, there are some regional treaties, treaties of commerce, or free trade agreements, that contain a chapter referred to as the protection of foreign investment. For the time being, there is no general multilateral agreement for the protection (and promotion) of foreign investment, despite the attempts to adopt a MAI within the Organisation for Economic Co-operation and Development.

Reconciling the Conflict between International Investment Arbitration and Protection of Human Rights: Way Out

India is the highest importer of foreign capital. The rights of foreign investors are protected through investment treaties, most of which are bilateral. India has recently issued a model bilateral investment treaty (BIT), which would form the basis for negotiating all future BITs. Model BIT is therefore an important statement about state practice. The recently issued Model BIT of 2015 introduces drastic changes in comparison to the 2003 Model BIT. The circumstances of the 2015 Model BIT are very different from the 2003 Model BIT and the change in circumstances has been accounted for the changes that have taken place in the 2015 Model BIT as compared to the 2003 Model BIT. The 2003 Model BIT followed a capital exporting country model, as India was still predominantly a capital exporting state. The 2015 Model BIT aims to protect India’s regulatory space while allowing protection to foreign investors under the BIT. This article analyses the shift in the treaty practice. This Model BIT brings about changes in the definition, jurisdiction, and the scope of protection, access to dispute resolution and introduction of exceptions and carve out provisions. The 2015 Model BIT seeks to reduce India’s exposure to potential investment claims. This shift in treaty practice is important since it has tendency to influence interpretation of treaties.

As an important legal document signed between two countries to promote and protect investment, bilateral investment treaties play an important role in bilateral international investment. This paper intends to answer the following questions: What is the impact of bilateral investment treaties on Chinese companies’ overseas mergers and acquisitions（M&A）? What is the impact mechanism? How should Chinese companies take advantage of the effect of bilateral investment treaties on overseas M&A, so as to expand the scale and scope of overseas M&A while promoting the success of M&A?Based on the progressive difference-in-difference model, this paper delves into the theoretical mechanism and impact of bilateral investment treaties on Chinese companies’ overseas M&A by using bilateral investment treaties as a quasi-natural experiment with the country panel data of 140 countries from 2004 to 2018. It comes to the following conclusions: Firstly, compared with countries that have not signed bilateral investment treaties, bilateral investment treaties have a significant positive effect on Chinese companies’ willingness to acquire overseas and successful M&A. Secondly, in terms of dynamic effects, bilateral investment treaties have a long-term effect on the promotion of Chinese companies’ overseas M&A, and their volatility has increased. Thirdly, the promotion effect of bilateral investment treaties is significantly heterogeneous. The promotion effect of bilateral investment treaties is more significant in Asia and Africa, stronger in high-quality countries and developed countries, and stronger in non-state-owned companies. Fourthly, the expansibility test shows that the quality of the text of bilateral investment treaties have a significant promoting effect on China’s overseas M&A. Fifthly, through the decomposition and quantification of the specific provisions of investment treaties, “Definition and Scope of Investment”“Fair and Equitable Treatment” and “Most Favored Nation Treatment” are the key provisions that affect the promotion of China’s overseas M&A in bilateral investment treaties. This paper enriches the research theory in the field of bilateral investment treaties and overseas M&A relations, provides policy revelations for Chinese companies’ overseas M&A and the new round of bilateral investment treaty practices, and contributes Chinese wisdom to global economic governance.In short, this paper contributes to the existing research in the following three perspectives: Firstly, it specifically examines the impact of bilateral investment treaties on the number of Chinese companies’ M&A cases and successful M&A cases in a more in-depth way. Secondly, it uses bilateral investment treaties as a quasi-natural experiment, and conducts an empirical research based on the progressive difference-in-difference model. It also explores the impact of the text quality of investment treaties, and examines the internal mechanism of bilateral investment treaties from the dimensions of investment definition and scope, fair and equitable treatment, national treatment, most-favored-nation treatment, expropriation compensation, umbrellas, and investment dispute settlement based on the specific terms of investment treaties. Lastly, it lays an important empirical foundation for deepening bilateral investment treaties and promoting overseas M&A by Chinese companies, as well as for building a scientific and reasonable bilateral investment treaty system and promoting the formation of a new pattern of comprehensive opening.

Since China and the European Union (EU) announced their decision to negotiate a bilateral investment treaty (BIT) at the 14th China–EU Summit in February 2012,3 the two sides have engaged in two rounds of negotiations.4 As the first standalone BIT that the EU has attempted to negotiate and a treaty between two of the world’s largest economies, the China–EU BIT is bound to occupy a unique place in the world history of BIT negotiations.5 This note attempts to assess the key issues that are likely to be involved in the negotiations of the BIT and its global implications. It concludes that, while there are many tough issues to tackle in the negotiations, a successful China–EU BIT is likely to become a symbol for the emerging ‘Global BIT 2.0’.6 Although there are currently BIT arrangements between China and all but one Member State of the EU, the China–EU BIT negotiations would involve far more work than simply consolidating or streamlining ‘the existing BITs between China and the EU Member States into a single and coherent text’.7 Indeed, it can be expected that the two sides will seize this opportunity to update and upgrade their investment treaty arrangements, taking into account the recent world investment treaty practices in general and those of the two sides in particular.

The significant and rapid increase of bilateral and multilateral investment treaties entered into by countries have changed the landscape of investor protection. Since China signed the International Centre for Settlement of Investment Disputes (ICSID) Convention the types of bilateral investment treaties (BITs) being negotiated have also changed. One clear example is the move towards accepting international arbitration for all investment disputes arising under a treaty. It was not just China that moved towards this more liberal approach but many other states including Russia, the former Soviet bloc nations and Latin America. The increased protection of foreign investment combined with direct access for an aggrieved investor to international arbitration in these treaties seemed to revolutionise the older system overnight. It has been asserted that this arbitration entitlement is one of the most progressive developments in the procedure of international law of the past fifty years. Keywords: bilateral investment treaties (BITs); China; ICSID Convention; international arbitration; international law; Latin America; Russia

PurposeThe purpose of this paper is to analyze the effect of the duration of free trade agreement (FTA) and bilateral investment treaty (BIT) on the foreign direct investment (FDI) flows between OECDs and different level of income countries such as upper- and lower-middle-income countries.Design/methodology/approachThe authors applied the gravity model by adding more variables of interest such as trade openness, export volume, dummy and cumulative variables of FTA and BIT to find out the proper determinants of FDI attraction. Through Hasuman test, the authors find the fixed model is appropriate methodology. Hence, the authors basically use the fixed models to find the effect of the duration of FTA and BIT on FDI flows between different groups of countries.FindingsThe main results of the study are briefly summarized briefly as follows. First, the effects of FTA dummy variables and its cumulative variables are greater than those of BIT dummy variables and cumulative variables. If an FTA signifies attracting FDI as well as bilateral trade, and contains an investment agreement provision in it is included in the FTA, it can be seen that the FTA is more effective way of attracting FDI than BIT because FTA is more comprehensive agreement dealing with not only investment issues but also non-investment ones. Second, the BIT effect on FDI is only meaningful when developed countries invest in developing countries. In other words, when a country decides to invest in a developing country with a relatively poor investment environment, whether to enter into a BIT will provide investors with investment stability to gage the investment climate of the host country. Third, the BIT cumulative year effect showed a positive and significant results on FDI inflow and outflow of all cases, unlike the BIT effect. While the fact that BIT cumulative effect has a relatively less positive effect than the BIT dummy effect, implying that BIT effect was evident as time elapsed after fermentation.Originality/valueThe main contribution of this study is that we consider the duration of FTA and BIT explicitly in the model. Previous related studies tried to find out the effects of FTA and BIT on FDI by simply applying dummy variables of them. In this paper, by applying both dummy variables and cumulative variables of FTA and BIT that capture the duration effect, we can deeply understand the effects of national agreements dealing with investment clauses on FDI more dynamically.

A. Setting the Scene Over the past fifty years, States have signed and ratified more than 3,300 investment treaties – either in the form of bilateral investment treaties (BITs) or free trade agreements (FTAs) with an investment protection chapter. With the exception of the very early BITs (e.g. the Germany–Pakistan BIT of 1959 and the Netherlands–Cameroon BIT of 1966) and the famous US–Australia FTA (which entered into force in 2005), most of the more than 3,300 existing investment treaties contain some form of dispute settlement rules, usually including investor-State dispute settlement (ISDS). By signing and ratifying investment treaties, States have consciously consented to the possibility that investors could bring a claim against them. Apparently, there was and is consensus that concluding investment treaties is beneficial for both Contracting Parties. In fact, States continue to negotiate, sign and ratify investment treaties. Indeed, recent studies show that after ratification of a BIT, foreign direct investment (FDI) flows increase on average by about 30 per cent. However, as the United Nations Conference on Trade and Development (UNCTAD) and the European Commission repeatedly have noted, it cannot be denied that an increasing uneasiness is felt within States, governments, parliaments and certain non-governmental organisations (NGOs) about ISDS and investment treaties. The public debate, though based largely on misperceptions and misrepresentations, has triggered a drive to reform the current ISDS system. In this context, it is important to note that this drive to reform is not limited to Europe but is also taking place in some of the BRICS (Brazil, Russia, India, China and South Africa) countries. For example, Brazil has concluded BITs on the basis of a new model text which does not include ISDS. India has recently published its new Model BIT, which departs significantly from the current ISDS system. Also, South Africa has moved away from ‘old school’ BITs by terminating many of them with EU Member States and replacing them with a new domestic investment law. More recently, within the context of the Transatlantic Trade and Investment Partnership (TTIP) negotiation, the European Commission has proposed the creation of an Investment Court System (ICS) that would create a semi-permanent two-tier court system, which would constitute a significant departure from the existing ISDS system. Indeed, the FTA between Canada and the European Union (Comprehensive Economic and Trade Agreement (CETA)) already contains the ICS proposal.

India and Bilateral Investment Treaties: From Rejection to Embracement to Hesitance?

With the rise of a new generation of investment policies, upgrading existing bilateral investment treaties (BITs) is of significant interest to states. China has upgraded 28 per cent of its investment treaties in various ways. Two investment arbitration tribunals and one highest court at the seat of arbitration have recently rendered decisions favouring the application of old Chinese BITs over the upgraded ones. China's experience with upgrading BITs may provide general policy discourse and direction for other countries planning to upgrade their BITs. Using China's experience, this article categorizes different methods of upgrading BITs into the Coexistence Model (parties to an old BIT join existing or new free trade agreements or a regional investment agreement), the Replacement Model (replace an old BIT with a new one), the Amendment Model (amend an old BIT by a protocol) and the Joint Interpretation Model (make a diplomatic announcement to interpret a BIT). This article also discusses the benefits and challenges of each model and concludes with directions for future BIT upgrading.

The coevolution of trade agreements and investment treaties: Some evidence from network analysis

Do Bilateral Investment Treaties Erode Institutional Quality?

Developing countries often consider foreign direct investment (FDI) as an engine to boost economic growth. Therefore they try to promote investment inflow by various means. One approach is to offer investment guarantees to foreign investors using Bilateral Investment Treaties (BITs). Following international best practice, India has signed a number of BITs to stimulate inflow of FDI. Till date, the Government of India has signed BITs with 83 countries. These BITs were largely negotiated on the basis of the Indian Model BIT of 1993. There have been recent moves that point in the direction of India fundamentally altering the text of its BITs with countries, including calling off existing BITs and approving a new model BIT. However, concerns have been raised as to the possible pernicious impact of these changes on the inflow of FDI into India. This paper investigates whether the concern is warranted at all – by asking if BITs significantly impact the inflow of FDI. It is established that BIT is indeed a veritable boost to FDI inflow, and the estimated coefficient remains significant and robust across econometric specifications. Therefore, a note of caution is sounded for the rejigging exercise involving BITs that has been initiated by India.