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. It creates enforceable treaty standards to protect qualifying foreign investments against specified political and regulatory risks, while providing predictability to investors and host states. It does not guarantee commercial success or profits.

Protection and enforcement

A BIT converts reciprocal state commitments into legal obligations under international law. The protection available depends on the treaty's definitions, conditions and precisely negotiated obligations.

• 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.
• Where the treaty provides for Investor-State Dispute Settlement, a qualifying investor may bring a claim directly against the host state instead of relying solely on diplomatic protection.
• Consent to arbitration, applicable procedure and any requirement to pursue domestic remedies depend on the treaty's text.

Role of a Model BIT in negotiations

A Model BIT is a state's standard negotiating template, not by itself a binding treaty. It sets out the state's preferred definitions, protections, exceptions and dispute-settlement rules, providing a coherent starting position for negotiations.

• The model communicates the state's policy priorities and helps maintain consistency across treaties negotiated with different partners.
• Negotiating states may accept, reject or modify model clauses; legal obligations arise from the final bilateral text that they conclude and bring into force.
• A model can also serve as a benchmark when reviewing or renegotiating existing investment treaties.

India's approach and regulatory autonomy

Modern BITs seek to protect investment while preserving the host state's ability to regulate for legitimate public purposes. Exceptions, exclusions and carefully defined obligations can preserve regulatory space while restraining arbitrary or discriminatory 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.
• Its exceptions are intended to safeguard governmental functions.