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India Considers Qualified MFN Clause in Bilateral Investment Treaty Reforms
The Union Government is considering a broader restructuring of India’s Bilateral Investment Treaty (BIT) framework, including a Qualified Most Favoured Nation (MFN) provision. The proposed changes also cover Investor-State Dispute Settlement (ISDS) timelines, post-treaty protection periods, the definition of “investment”, and third-party funding of investment litigation.
Proposed BIT Framework Reforms:
| Dimension | Key Details |
|---|---|
| Bilateral Investment Treaty (BIT) | A BIT comprises an agreement between two countries that establishes rules for protecting investments made by investors of one country in the territory of the other. |
| BITs: key issues | BITs generally address: protection against discriminatory treatment, expropriation of investments, fair and equitable treatment, transfer of funds, and Investor-State Dispute Settlement (ISDS). |
| India’s Model BIT (2015) | India’s 2015 Model BIT provides for a more cautious approach towards investor protections, including not providing an open-ended MFN clause or a full Fair and Equitable Treatment (FET) standard. |
| MFN principle: core requirement | The MFN principle mandates a country to provide investors from one treaty partner treatment no less favourable than that provided to investors from another country. |
| Reason cited for moving away from open-ended MFN (2015 Model BIT) | The 2015 Model BIT provides for moving away from an open-ended MFN provision due to concerns that investors can use provisions from treaties with third countries to make broader claims than those expressly negotiated in their own treaty. |
| Qualified MFN: concept | A Qualified MFN provision provides for retaining the principle of non-discrimination while placing specific limitations on its application. |
| Qualified MFN: safeguards | A Qualified MFN provision can provide for safeguards specifying: which treaty provisions can be imported, whether it can apply retrospectively, whether settled disputes can be reopened, and what categories of treatment are covered. |
| Current trigger on MFN design | The proposed reforms provide for Qualified MFN treatment rather than restoring the open-ended MFN rule that is removed about a decade ago. |
| ISDS: proposed domestic window | The proposed framework provides for reducing the domestic ISDS window from 5 years to 1 year. |
| ISDS: domestic remedies before arbitration | Under the proposed system, investors are expected to pursue domestic legal remedies for 1 year before moving towards international arbitration. |
| Post-treaty protection after BIT expiry | The draft proposal provides for doubling the period of investor protection after expiry of a BIT from 5 years to 10 years. |
| Definition of “investment” | The proposed change provides for expanding the definition of “investment” to include portfolio investments and other financial assets. |
| Third-party funding | The proposal provides for banning third-party funding of investment-related litigation. |
| BIT negotiations | India is negotiating around a dozen BITs. |
| European Union | The European Union has moved towards an Investment Court System model while retaining non-discrimination protections. |
| FDI inflows | According to the report, average annual net FDI is close to US$40 billion during FY20–FY22, and is approximately US$7.65 billion in FY26, based on preliminary data. |
| Outbound investments | The article states that Indian companies have expanded their investments overseas. |