Friday, May 31, 2013

Recent Trends in Investment-State Dispute Settlement (ISDS): Why India Should be Worried

The latest UNCTAD report on trends in investment disputes says that last year saw a record 95 claims filed against States. This brings the total number of known treaty based cases to 518. Unsurprisingly, claimants from the United States account for 123 (or 24%) of all such cases. 42 decisions were given in 2013 of which 9 resulted in the award of $ 1.77 billion dollars.

The more worrying trend, which lends credence to the calls for reform is that 61 claims last year were against developing countries. Countries in financial crisis were also a target for investment claims with two Chinese investors bringing a claim against the Belgian government for its treatment of Fortis. A Cypriot bank brought claims against the Greek government arguing the bailing out Greek banks discriminated against its Greek subsidiary. Investors also challenged environmental measures taken by governments over the last year. Such claims should force us to revisit the question of the balance of power between Investors and States in BITs. This problem is magnified in case of practices like third party funding, where specialized firms finance Investor Claims in return for a share in future damages. The discontent with existing ISDS mechanisms is widespread and calls for reform are getting louder. It has been reported that mediation is proving to be an attractive option for resolution of such disputes (for a detailed analysis see the Kluwer blog article here).

It is in this context, that we look at what the UNCTAD report says about India. In January, it was reported that India was putting on hold all existing BIT negotiations in light of a spate of claims following the White Industries judgment. As many as 7 investors had filed investment claims against India in 2012, and India ranks as the country with the second highest claims after Venezuela (9). Despite this it seems that India is in negotiations to sign a BIT with the United States.

I had previously argued that investor claims notwithstanding India should in fact join the ICSID. I still stand by that position, because ICSID offers a way of resolving India's investment disputes as well as allowing Indian investors abroad to file claims against other States. But the problem with the current Indian position is that it is unclear if Investment awards can be enforced under the Arbitration and Conciliation Act, 1996. While the government has announced a rethink on BITs as far back April 2012, the process has been far from transparent, and little is known about what policy/legislation if any is being formulated to address this reconfigure India's BITs.

With India negotiating a BIT with the US- a country who's investors are responsible for a fourth of all investment claims- India should not only has the opportunity to reform its own BIT policy but also play a leadership role in evolving new mechanisms for developing countries in balancing the power between Investors and States.

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