Treaty hurdle no bar for U.S. investments

U.S. companies are finding novel ways to address investment protection and dispute-related issues with their Indian counterparts as talks remain in a limbo over a proposed Bilateral Investment Treaty (BIT).

According to the USIBC, a premier advocacy body to boost bilateral economic and commercial ties, the BIT is “no showstopper” for the flow of funds between the two nations. The BIT is aimed at promoting and protecting two-way direct investments.

“Companies are finding innovative ways to deal with dispute resolution,” USIBC President Mukesh Aghi told The Hindu. He said, for instance, the Gujarat International Finance Tec-City (GIFT City) – India’s first International Financial Services Centre (IFSC) – has offered American investors the option of using the Singapore arbitration model to solve disputes.”

U.S. investors are also signing up with Indian firms to use London and Brussels as seats of arbitration, he added. So, the absence of an India-US BIT is not an issue from an investor’s perspective, Mr. Aghi said.

He also said that at the board-level of a company, the first question that gets asked is about the dispute settlement mechanism for protection of the company’s rights when it proposes investments worth billions of dollars in India.

U.S.-China investments

He cited the example of U.S. and China, where a robust bilateral Foreign Direct Investment (FDI) flow between the two countries has happened so far without a BIT. According to ‘statista’, a statistics portal calculating FDI on a historical-cost basis, the FDI from China in the U.S. in 2015 amounted to $14.84 billion, while the U.S. investments in China totalled $74.56 billion in the same year.

Therefore, “BIT is not a show stopper,” Mr. Aghi said.

Foreign direct investment from India in the U.S. in 2015 was $9.25 billion, while U.S. investments in India were around $28.34 billion, according to ‘statista.’

Ajay Pandey, Managing Director & Group Chief Executive Officer, GIFT City, said many companies, including the U.S. and Europe, have shown interest in using the Singapore International Arbitration Centre facility that is coming up in GIFT City.

Mr.Pandey said: “To make GIFT City an attractive investment destination, we have realised that besides ease of doing business initiatives and tax incentives, a robust dispute resolution mechanism is a must.”

Though U.S. and India had held the first round of BIT negotiations in August 2009, talks have not progressed much.

U.S. Ambassador to India Richard Verma had recently said taking forward BIT negotiations have become “difficult” as India’s new ‘Model BIT Text’ (on the basis of which New Delhi will be negotiating BITs with other countries) “substantially narrows the scope of investments” that can be covered by the BIT.

The other concern the U.S. expressed was regarding India’s model BIT text requiring “that disputes be exhausted in local jurisdictions before alternative investor-state dispute mechanisms can be initiated.”

Citing ‘judicial delays’ in India, investors from the developed world have been demanding flexibility in India’s BITs that will allow them to take disputes to international arbitration tribunals without waiting to exhaust remedies available in India. However, after foreign investors invoked existing BITs to drag the government to international tribunals, India has become wary about the Investor-State Dispute Settlement mechanism in its BITs.

Overseas investors usually seek massive amounts as compensation claiming they suffered ‘heavy losses’ due to various factors, including frequent changes in government policy.

Source: The Hindu