The ‘investor-state dispute settlement’, a key element of the bilateral investment pact, will arm foreign investors operating in India with a slew of rights. Biswajit Dhar, director general of the Research and Information System for Developing Countries told TOI: “We understand that the US is insisting that we sign (the clause), which is a problem area as an investor can drag the state to an international arbitration panel if its investment and/or profits are at risk on account of some domestic regulation.”
Most bilateral investment treaties include a broad definition of investment, covering just every aspect from financial transactions to intellectual property to any form of asset, Dhar added.
India and the US have been engaged in giving shape to the Bilateral Investment Promotion and Protection Agreement (BIPPA) and the Prime Minister’s visit to US could serve to hasten its finalization. New Delhi has taken the stand that the Indian judiciary should have the last word on commercial disputes, but the US has so far found this unacceptable, said sources familiar with the situation. In fact, the Indian government is said to be keen to review similar settlement clauses in certain other investment treaties that already exist with other countries and trading blocs. This comes at a time when there is growing opposition to the dispute settlement provision in countries like Brazil and South Africa.
Already, several MNCs in India have invoked provisions of bilateral investment pacts in order to enforce rights they claim have been violated. UK-based telecom major Vodafone plc sent a notice under the India-Netherlands treaty through its Dutch subsidiary Vodafone International Holdings BV against the retrospective application of capital gains tax in the Finance Act, 2012. A spate of similar notices have been sent out by global telcos after the Supreme Court cancelled telecom licenses (see graphic).
Although India has signed similar pacts with over 70 countries, their implications have hit home only in the past couple of years. For instance, in 2011, the government faced an adverse decision by a Singapore-based United Nations Commission on International Trade Law (UNCITRAL), which adjudicated a dispute between the public sector Coal India and an Australian firm, White Industries.
“Often, investors use bilateral investment treaties or provisions in free trade agreements (FTAs) in ways that can take governments by surprise. The investor-to-state dispute mechanism hidden in these agreements is effectively used to sue outside of domestic courts, in investor-friendly arbitration forums (like ICC and UNCITRAL) to generate rulings that favour claims of MNCs over the government’s right and need to regulate different sectors such as health, telecom, banking, mining and environment and different aspects of policy such as taxation. To put it mildly, they are used by corporations to discipline governments, particularly those of developing countries”, says Leena Menghaney, a lawyer with MSF, an international humanitarian organisation.
Experts fear that a “secret agreement” will be “detrimental” to the country’s interests, particularly in areas such as public health and food, which cannot be compromised. What further empowers tobacco and pharmaceutical companies is the inclusion of intellectual property (directly or indirectly) in the definition of investment in trade agreements.
Anand Grover, lawyer and IP expert, said, “We have opposed the provision as India can be dragged to private international tribunals when a company sees its potential profits, including from intellectual property, at risk”.
Recently, US pharmaceutical company Eli Lilly used the provision to start proceedings against Canada in a foreign tribunal, claiming $500million as compensation on grounds that a Canadian court’s decision to invalidate patents on some of the company’s best-selling medicines deprived it of future profits.