Bilateral Investment Treaties

A Bilateral Investment Treaty (BIT) is an agreement between two states governing investments made by investors of each state in the territory of the other. Its principal purpose is to protect foreign investment against specified political and regulatory risks by creating enforceable treaty standards, while providing greater predictability to investors and host states.

Protection and promotion of investment

By reducing uncertainty about the treatment of foreign investors, BITs seek to encourage cross-border investment without guaranteeing commercial success or profits.

• BITs commonly protect investors against unlawful expropriation and require compensation when expropriation is lawful.
• Depending on the treaty, protections may include non-discrimination, fair and equitable treatment, physical security and freedom to transfer investment-related funds.
• Treaty protection generally applies only to investors and investments satisfying the BIT's definitions and conditions.

Enforcement of treaty obligations

A BIT converts reciprocal state commitments into legal obligations under international law. Where the treaty contains investor-state arbitration provisions, a qualifying investor may bring a claim directly against the host state rather than relying solely on diplomatic protection by its home state.

• Investor-State Dispute Settlement (ISDS) can provide an independent arbitral forum for alleged treaty breaches.
• The applicable procedure, consent to arbitration and any requirement to pursue domestic remedies depend on the treaty's text.

Balancing protection and regulatory autonomy

Modern BITs also seek to preserve the host state's ability to regulate for legitimate public purposes. Exceptions, exclusions and carefully defined obligations can protect regulatory space while preventing arbitrary or discriminatory state action.

• India's 2015 Model BIT adopts a narrower definition of protected investment and specifies the treatment obligations owed to investors.
• It requires recourse to domestic remedies before international arbitration, subject to the treaty's conditions, and contains exceptions intended to safeguard governmental functions.