Bilateral investment pacts: How MNCs sue governments to secure their investments

Some aggrieved foreign investors have threatened to invoke bilateral investment promotion and protection agreements (BIPAs) their home countries have signed with India

• Russia'S Sistema has served a notice to the government, seeking relief from a court judgment that cancelled licences held by its Indian joint venture

• Telenor, WHICH has also lost licences, plans to claim damages under India's CECA with Singapore

• Faced with an adverse Budget amendment, Vodafone, too, is considering taking recourse to a similar agreement

• They are agreements signed to promote and protect the interests of investors of either country in the territory of the other

• Assure a minimum standard of treatment

• India has signed BIPAs with 82 nations, of which 72 are operational.

• Other bilateral pacts that protect investments are: CECA, CEPA and free-trade agreements

• Apply to all investments; give freedom to repatriate investment and returns

• Offer national and most-favoured-nation treatment

• Prevent host governments from nationalizing or expropriating assets without appropriate compensation

• Lay down procedures for settlement of disputes

Dispute settlement road map

A. Between investors and host government

1. Settle amicably in 6 months

2. Claimant may seek resolution via courts in the host country or approach UN Commission on International Trade Law

3.If this step fails, the dispute may be referred to arbitration

B. Disputes between governments

Settle through
1. Negotiations within 6 months

2. If this step fails, the dispute
goes to an arbitral tribunal

So far invoked by...

White Industries of Australia against Coal India.

The case: Its contract with CIL allowed for a bonus if it exceeded the production target and penalty in case of under-fulfilment. Coal India rejected White’s claim for bonuses on the ground of poor quality supplies .The company went for arbitration in 2002. It won the case this year.

Why are such disputes rising?

Because in their rush to attract FDI, govts are signing pacts that allow foreign investers to sue in case of adverse developments.

According to International Investment Arbitration and Public Policy, 158 cases were launched under bilateral investment treaties (up to May 2010).

How do countries respond to lawsuits?

The US and Argentina mount vigorous defence to any investment treaty lawsuit as a deterrent to future claims.

In some cases, a country's legislature has declined to ratify treaties negotiated by the executive, as in Brazil in the 1990s.

Governments have begun to continuously review domestic policy initiatives.

Czech Republic and Ecuador have abrogated non-conforming treaties States can reconsider particular treaties when they come up for renewal every 10-15 yrs or so