RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTI/W/71
13 April 1999
(99-1468)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM INDIA
The following communication, dated 22 March 1999, has been received from the Permanent
Mission of India with the request that it be circulated to Members.
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Stocktaking of India Bilateral Agreements fo r the Promotion and Protection of Investments
1. Many developing countries have gradually opened up their economies and are actively
soliciting foreign direct investment (FDI) primarily to attract capital in the hope of availing with it
foreign technology and management skills. In view of the increasing number of options available tothe foreign investors for investing their money, th ey are seeking destinations which afford highest
yield, provide hospitable investment climate, protection of their investment and rights of repatriation
of their investment/returns on investment.
2. The  need for investment protection differs from country to country. For a country with strong
macro-economic parameters and a sound political system, investment protection may not be a strongfactor in determining the investment destination. On the other hand, countries with weak economies
and unstable political systems may require a strong element of investment protection. Therefore,
various countries have been entering into Bilateral Investment Promotion and Protection Agreements
(BIPAs) or Bilateral Investment Treaties (BITs)
1. The agreements by and large have standard
elements and provide a legal basis for enforcing th e rights of the investors. Typically, BIPAs try to
“Promote” foreign investment through “protection”, th is is to say, by assurance to foreign investors
that foreign investment that has been admitted in accordance with the host country’s policies, laws
and regulations is guaranteed fair and equitable treatment including national and MFN, full and
constant legal security and dispute resolution through international mechanism including for investor
to state disputes.
3. India has also pursued a policy of entering into BIPAs with a view to providing predictable
investment climate to foreign investment in India as well as to protect Indian investments abroad.
Since signing the first BIPA with the United Kingdom in March 1994, India has signed BIPAs with
25 countries. Agreements have also been finalized with 9 other countries and negotiations are going
on with another 7 countries. Many of these countries are developed countries. India has been
conducting negotiations for BIPAs based on an investment promotion and protection policy drawn up
in consultation with all concerned Ministries of the Government of India incorporating Indiansensitivities, while taking note of several other bilateral agreements which have been negotiated
earlier by the other countries.
4. Some of the main features of BIPAs signed by India are:
                                                     
1 The terms BIT and BIPA are used interchangeably.  As the term BIPA is used in the Indian context
the same has been used in this paper.WT/WGTI/W/71
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(a) Definition of Investment : Investment is defined as every kind of asset established or
acquired, including changes in the form of  such investment, in accordance with the
national laws of the contracting party in whose territory, the investment is made and
in particular, though not exclusively, includes:
(i) movable and immovable property as well as other rights such as mortgages
liens or pledges;
(ii) shares in the stock and debentures of a company and any other similar forms 
of participation in a company;
(iii) rights to money or to any performance under contract having a financial 
value;
(iv) intellectual property rights, goodwill,  technical processes and know how in 
accordance with the relevant laws of the respective contracting party;
(v) business concessions conferred by law or under contract, including 
concessions to search for and extract oil and other minerals.
As may be seen, in Indian BIPAs the coverage and scope of investments is determined by the
national laws of the contracting parties.
(b) Scope of the agreements : The agreements apply to all investments made by
investors of either contracting party in the territory of the other contracting party,
accepted as such in accordance with its laws and regulation.
(c) Most-favoured-nation (MFN) Treatment :  Investment from the contracting party
shall not be given less favourable treatment than that accorded to investors of any
third state.
(d) National treatment :  Foreign investments are given the same treatment as given to
domestic investments. National treatment is, however, not given to the foreign
investors. As per India’s present foreign investment policy, foreign investors have to
follow a different investment. Thus the treatment accorded is different from treatment
extended to Indian investors. However, taxation matters are an exception to MFN and
National Treatment.
(e) Investment protection : Fair and equitable treatment and full and constant protection
and security, and non-impairment of operations, management, use, etc.
(f) Expropriation and compensation : Expropriation/nationalization of the investments
from the contracting country will not be made except for a public purpose.  Such an
eventuality will be on a non-discriminatory basis and against fair and equitablecompensation.  Judicial review is available to the affected parties, if desired.
(g) Repatriation facilities : Free repatriation of its capital profits, dividends,
disinvestment proceeds, royalty, etc., is permitted. Also, safeguard is provided for
allowing repatriation in the currency of the original investment at the current
exchange rate prevailing on the date of transfer.WT/WGTI/W/71
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(h) Subrogation : Recognition of assignment of any right or claim of investor in favour
of the other contracting party or a designated agency and the right to exercise such
rights and claims.
(i) Dispute settlement mechanism : Elaborate provisions exist for resolution of disputes
between the investor and a contracting party as well as between the contracting
parties. In the former case flexibility is provided for settlement of disputes either
under the domestic laws or under international arbitration.
(j) Entry and sojourn of personnel : Free movement of personnel is provided for in
connection with the investment related activities, subject to the domestic laws relating
to entries of foreign personnel.
(k) Applicable laws : the substantive laws applicable on investments will be the domestic
law unless otherwise provided in the agreement. Overriding provisions also exist for
the host country to take appropriate action on security and environment grounds.
(l) Duration and termination of the agreement : The agreements are initially valid for
a period of ten years and thereafter shall continue indefinitely unless either of the
contracting states gives written notice of its intention to terminate the Agreement in
which event the Agreement stands terminated one year after the receipt of suchnotice. In the event of termination of the Agreement, investments made prior to the
termination will continue to enjoy the provisions of the Agreement for a further
period of 15 years.
5. The Indian system also has in-built provisions for various elements of the investment
protection agreements. It is an accepted principle that all foreign investments at post establishmentstage are treated on par and no discrimination is made in the foreign investment made in convertible
foreign currencies. Similarly, India’s Exchange Control Regulations already provide for facilities for
repatriation of investment proceeds, return on investment, etc. Thus even without capital account
convertibility, there is capital account convertibility in so far as the foreign investments are
concerned. In the matter of dispute settlement mechanism, under an act of Parliament, internationalarbitration provision has also been introduced and thus enables the foreign investors with the option of
redressing investment disputes with the state either under the domestic legal régime or going for
international arbitration. Similarly, for entry and sojourn of personnel, our immigration laws and the
Exchange Control Regulations, permit foreigners  to take up employment in India, although with
appropriate permissions.
6. BIPAs have found favour with developing countries like India because they do not place any
restrictions on host countries in following their ow n foreign direct investment policies in the light of
each country’s unique needs and circumstances. Generally, BIPAs aim at protection and equitable
treatment of FDI after the investment has taken place in consonance with the host countries laws and
regulations. Thus, a developing country has the freedom to grant national treatment only in the post-
establishment phase for investments, subject to such qualifications as may be considered necessary,
conforming to the host country’s policies, laws and regulations.
7. The increasing number of BIPAs is a result of a recognition of the positive rôle that foreign
investment can play in economic development. However, as many of the BIPAs have been concluded
in recent years, there is limited empirical evidence to establish a correlation between the conclusion of
BIPAs and the growth in foreign investment. Theref ore, BIPAs can perhaps be considered as one of
the factors in creating a favourable investment climate. In fact, other factors such as size and growthof the market, the quality of infrastructure and skills, political, economic and legal stability may play a
greater rôle in attracting foreign investments.  Th erefore, it is important for the developing countriesWT/WGTI/W/71
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to improve their investment climate and attract FDI flows through their own unilateral measures for
liberalization of their FDI policies and regulation framework.  It is felt that if developing countries
keep their policies stable and transparent and foreign investors perceive their investment climate to be
congenial in terms of fair and equitable treatment of investment and other factors bearing upon the
investment decision of foreign investor, they will continue to receive FDI flows in line with their
market and investment opportunities.  The upsurge in FDI flows to developing countries in the 1990s
shows that investment climate and investment op portunities can be synchronised under the existing
arrangement through unilateral liberalization of their FDI régime as this provides developing
countries the required freedom and flexibility necessary to ensure that a liberal investment climate is
in harmony with their own developmental as well as political and social needs and concerns. The
developing countries also need to have freedom to screen, regulate and appraise foreign investment in
accordance with their own policies, laws and regulations. However, the foreign investment that isadmitted can be treated at par with domestic investment and can be given full and secure protection
through appropriate domestic legislation of BIPAs.
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