India and Israel have signed a Bilateral Investment Agreement (BIT) to boost mutual investments and economic cooperation. The agreement includes a robust dispute resolution mechanism, safeguards against expropriation, and transparency. It also aims to promote collaboration in critical sectors like fintech, infrastructure, and digital payments.
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Picture Courtesy: NEWSONAIR
India and Israel signed a Bilateral Investment Treaty (BIT) to boost mutual investments, enhancing investor confidence, and promoting economic cooperation.
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Read all about: INDIA ISRAEL RELATIONS |
It is a reciprocal agreement between two countries that establishes the terms and conditions for private investments made by investors of one country in the other's territory
National Treatment (NT)
This principle ensures that foreign investors and their investments are treated no less favorably than domestic investors in similar circumstances.
Fair and Equitable Treatment (FET)
This clause protects foreign investors from arbitrary or discriminatory government actions and ensures that they receive treatment that aligns with international legal standards.
Protection against Expropriation
BITs limit a government's ability to nationalize or seize foreign investments, either directly or indirectly.
If expropriation does occur, it must be for a public purpose, non-discriminatory, and accompanied by prompt, adequate, and effective compensation.
Most-Favored-Nation (MFN) Treatment
This provision ensured that investors from one treaty partner were treated no less favorably than investors from any other third country.
Free Transfer of Funds
Guarantees that investors can freely transfer capital, profits, and returns related to their investments out of the host country.
Investor-State Dispute Settlement (ISDS)
A key feature of BITs, this mechanism allows a foreign investor to initiate an international arbitration proceeding against a host state for alleged treaty violations, bypassing the domestic court system.
The 1993 Model
India started signing BITs in 1994, based on its 1993 model. By 2015, it had signed agreements with 83 countries.
India terminated 77 of its older BITs and has been renegotiating new agreements based on the 2016 model.
The 2016 Model
Enterprise-based investment: It narrowed the definition of investment, primarily covering only direct investments.
Exhaustion of domestic remedies: It mandated a five-year waiting period for investors to exhaust domestic legal remedies before they could initiate international arbitration.
Sovereign right to regulate: It included clauses that excluded areas like taxation and government procurement from the purview of arbitration.
Enhanced Investor Protection: Provides greater certainty and safeguards for investments.
Revised Dispute Resolution: Foreign investors must first pursue legal remedies within the host country's courts.
Adjusted Waiting Period: For Israeli investors, the waiting period before seeking international arbitration is reduced from five to three years.
Balances State Sovereignty: Preserves the right of each country to regulate in public interest areas like taxation, procurement, and environment.
Boosts Bilateral Investments: Aims to increase investment flows beyond the current $800 million.
Foundation for Broader Deal: Paves the way for a potential Free Trade Agreement (FTA) between the two nations.
Focus on Key Sectors: Facilitates cooperation and investment in fintech, infrastructure, cybersecurity, and advanced technologies.
First OECD Member: Israel is the first Organization for Economic Co-operation and Development (OECD) member to sign a BIT with India under its new, stricter framework.
Limited Investor Protections: The treaty's narrow definition of "investment" and exclusion of tax disputes from arbitration reduce safeguards for Israeli investors.
Investor-State Dispute Settlement (ISDS) Hurdles: Investors must exhaust India's domestic legal remedies, which are often slow, before pursuing international arbitration.
No MFN Clause: Without a Most-Favored-Nation (MFN) clause, Israeli investors are not guaranteed the same favorable treatment given to investors from other countries with different treaty terms.
Economic Imbalance: Treaty focuses on investment but may not address underlying trade imbalances driven by India's high imports of Israeli technology.
Geopolitical Risks: Broader geopolitical complexities in the Middle East could impact investor sentiment and the stability of the relationship.
Leverage strategic investment
Target Israeli tech: Encourage investment from Israel's leading sectors, including cybersecurity, fintech, and water management.
Promote joint ventures: Combine Israeli innovation with India's market size and manufacturing base to promote technology transfer and create high-tech jobs.
Utilize GIFT City: Position India's international financial hubs to attract Israeli fintech and financial services investments.
Improve investment environment
Streamline regulations: Simplify domestic business rules to offset investor concerns regarding the treaty's stricter dispute resolution process.
Provide clear guidance: Issue transparent, sector-specific guidelines to clarify the BIT's terms, particularly on the definition of "investment" and tax exemptions.
Strengthen Dispute Resolution
Include clear definitions for terms like “investment” and “due process” to minimize arbitration risks.
Promote pre-arbitration consultations, as recommended by the 2021 Parliamentary Standing Committee, to resolve disputes amicably.
Geopolitical Neutrality
Reaffirm India’s commitment to a balanced Middle East policy, supporting Palestinian humanitarian causes while advancing economic ties with Israel.
Use platforms like BRICS and G20 to advocate for inclusive global governance, mitigating perceptions of aligning with controversial figures.
Modernize BIT Framework
Revisit the 2016 Model BIT to include flexible provisions like Most Favoured Nation (MFN) status and shorter local remedy exhaustion periods.
India-Israel's BIT is a significant step towards economic cooperation, aiming for increased investments, technological collaboration, and investor confidence. However, India must navigate geopolitical complexities and implement challenges to maximize benefits, strengthen ties with Israel, and strengthen its global economic power.
Source: NEWSONAIR
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PRACTICE QUESTION Q. Analyze the significance of the recent Bilateral Investment Agreement (BIT) between India and Israel. 150 words |
The core objective of BIT is to create a predictable and stable environment to boost bilateral investments between the two nations.
The current value of bilateral investments stands at $800 million.
A BIT focuses specifically on protecting and promoting investments, whereas an FTA focuses on reducing tariffs and non-tariff barriers to trade in goods and services.
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