India, for the past few years, has been actively negotiating and concluding Comprehensive Economic Cooperation Agreements (CECAs) with a number of countries. It has already entered into CECAs with Singapore in 2005 and with Korea in 2009; and is negotiating with Malaysia, Indonesia, Thailand, Mauritius and Japan. It also plans to start negotiations with Australia.
The significance of CECAs can be gauged from two latest developments: One, the recent India visit of Malaysia’s trade minister, Mustapa Bin Mohammed, who emphasised the need to have a CECA with India by October this year; and two, the release of a report of the Joint Study Group (JSG created to study the feasibility of a free trade agreement between India and Australia) on May 5, recommending that India and Australia should enter into such an agreement. Barring Singapore and Japan, India also has an existing Bilateral Investment Treaty (BIT) with the countries mentioned above. As economists calculate trade and investment flows resulting from these CECAs, this article intends to point out an important legal flaw in India’s international obligations on investment protection that will arise in relation to both CECAs and BITs containing investment protection obligations. This has so far gone unnoticed. However, if not addressed, it will result in India having double and even conflicting international investment protection obligations against the investors of the same country, which eventually will be detrimental to India.
India’s CECAs with Singapore and Korea illustrate that these agreements, apart from containing provisions on trade liberalisation, contain elaborate rules on investment protection. These rules are: Treating foreign investments on a par with domestic investments (national treatment); rules against expropriation of foreign investment; clauses allowing investors to repatriate their profits to home country and giving a right to investors to challenge the host country’s measures under investor-state treaty arbitration without the host country having any such right against the investor. India’s other CECAs are not going to be any different if JSG reports on the CECAs with Malaysia, Indonesia and Australia are anything to go by. All the JSGs have recommended to have a chapter on investment containing provisions of the type found in the CECAs with Singapore and Korea. BITs also contain similar enforceable promises made to foreign investors. It is here that the legal flaw in India’s international obligations on investment protection becomes evident.
The moot point is: If India enters into a CECA with Malaysia or Australia, with a separate chapter on investment and with whom it already has a BIT, will the investment chapter in the CECA replace the existing BIT? The same question can also be asked about the proposed CECAs with Indonesia, Thailand, Mauritius and the existing CECA with Korea. If the answer is yes, then problems related to duplication and conflicting obligations will not surface. However, if the answer is no, meaning the CECAs will prevail along with the existing BITs, then conflicting and double regimes on investment protection will emerge unless or until the CECAs provide for reconciliation of such conflicts. The possibility of the latter scenario is stronger in light of the recommendations made by the JSGs for the Indonesia and Malaysia CECAs. Both the JSGs have recommended that countries should review their existing BITs in accordance with the new investment chapter of the CECA. Specifically, the JSG in the case of the India-Malaysia CECA has recommended that both the countries should review their BIT in order to make it more effective towards facilitating investment inflows and protection. Thus, the JSG is implying that the chapter on investment in the CECA should not replace the existing BIT between the two countries but it should exist in addition to it. This recommendation will create a situation where India’s international obligations on investment protection will be contained in two international treaties — the BIT and the investment chapter in the CECA. Similarly, the India-Australia JSG has recommended having an investment chapter without describing how to deal with the existing India-Australia BIT, when the new agreement comes into existence. One fails to understand what purpose will be served by having two international legal regimes on the same subject matter against the same country. On the contrary, the adverse ramification of this will be that foreign investors will be able to shop for beneficial treaty provisions in case of a dispute with India. For instance, if a Malaysian investor wants to challenge a policy of India as being violative of the most-favoured nation (MFN) status, it will pick up that MFN definition, from either the BIT or the CECA, which will help her case more. The India-Korea CECA and the India-Korea BIT are apt examples of such doubling and conflicting regimes. The JSG on the India-Korea CECA, like the other JSGs, recommended that the two countries should revisit and update their existing BIT in light of the proposed CECA and thus, in other words, let the BIT and the investment chapter on the CECA exist simultaneously. However, the BIT has not been revised or updated. The India-Korea CECA, which became effective from January 1, contains provisions in its investment chapter,which are at variance with those given in the India-Korea BIT. For example, the India-Korea CECA contains many exceptions to the application of national treatment whereas no such exceptions exist in the India-Korea BIT. Thus, if India were to give preference to a particular Indian industry (like steel or electronics) and not extend the same to Korean companies (like Posco Steel and Samsung) relying on the CECA, Korean investors can challenge this under the India-Korea BIT. In other words, there are two international legal regimes governing India’s international obligations to Korean investors, and many of these obligations are conflicting. Even if the India-Korea BIT were to be updated, the problem of having two regimes possibly with conflicting provisions will remain unless or until the BIT is made an exact replica of the CECA’s investment chapter, which, in turn, again raises the question: What purpose will such a replica serve?
As a result of having two sets of regimes towards the same country, in case of disputes, the arbitration tribunals will have to judge complex questions like whether a more specific treaty on investment (BIT) should prevail over a more general treaty (CECA) or a treaty latter in time (CECA) should prevail over a former treaty (BIT). Given the highly unpredictable nature of past investment awards rendered by investment-treaty arbitration tribunals, there is no surety of how such a dispute will be settled. This will, hence, unnecessarily complicate things both for India and the foreign investors. Therefore, India should exit the BITs with countries with which it wants to enter into a CECA with an investment chapter, and let the latter be the sole international treaty containing India’s investment protection obligations towards investors of her CECA partner. This will avoid incongruity and lend predictability and stability to India’s international obligations on investment protection, which, in turn, might help India attract more foreign investment.
The author is an assistant professor at NUJS Kolkata (currently on leave to read for PhD at King’s College, London)pranjan1278@gmail.com
