‘Necessary’ in Non-Precluded Measures Provisions in Bilateral Investment Treaties: The Indian Contribution

Abstract

One of the controversial issues in international investment law disputes has been the interpretation of ‘necessary’ in the Non Precluded Measures (NPM) provision in bilateral investment treaties (BITs). Investor-State Dispute Settlement (ISDS) tribunals have employed different methodologies to interpret ‘necessary’ in the NPM provisions ranging from using the customary international law defence of necessity codified in Article 25 of the ILC Articles on State Responsibility to using the World Trade Organization (WTO)’s necessity analysis. However, a robust interpretative framework for ‘necessary’ in BIT’s NPM provisions remains elusive. In view of this, the new treaty practice of India to incorporate the least restrictive alternative measure (LRM) test in its newly signed BITs has regenerated the debate on interpretation of ‘necessary’ in NPM provisions. This paper argues that the incorporation of the LRM test in the BIT marks a rejection of the use of customary international law defence of necessity to interpret the treaty defence of necessity. The paper proposes a two-step analytical interpretative framework aimed at operationalizing the LRM test to interpret ‘necessary’. This framework is deferential to the host State’s regulatory autonomy and will also ensure that States fully comply with their treaty obligations towards foreign investors.