Bilateral Trade and Investment Agreements: Framework, Provisions & Challenges

Bilateral Trade and Investment Agreements are important tools that help two countries trade and invest with each other. In India, these agreements include Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) that cover investments. India uses these agreements to bring in foreign money, increase exports, and join global business networks. Since opening its economy in 1991, India has signed many such agreements to show it follows international rules while protecting its own interests. These agreements follow India’s laws and Constitution to support the country’s growth goals. Understanding these agreements means looking at their legal basis, key terms, and how they handle disputes. This article explains these topics in simple terms, focusing on how India balances the rights of foreign investors with its own rules.

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Legal Framework Governing Bilateral Trade and Investment Agreements in India

The legal framework for Bilateral Trade and Investment Agreements in India is primarily governed by Article 253 of the Constitution, which empowers Parliament to enact laws for implementing international treaties. The Foreign Exchange Management Act (FEMA), 1999, and oversight by the Ministry of Commerce and Industry and the Department of Economic Affairs ensure alignment with domestic laws and policies.

Constitutional Rules

India’s Constitution gives the central government the power to sign international agreements, including Bilateral Trade and Investment Agreements. Article 253 allows Parliament to make laws to put these agreements into action. For example, the Foreign Exchange Management Act (FEMA) of 1999 controls foreign investments and works alongside these agreements.

Article 51(c) of the Constitution says India should respect international laws and agreements, showing its commitment to following these treaties. However, these agreements don’t automatically become part of Indian law. They need specific laws to be applied in India, as India follows a dualist system.

Government Oversight

The Ministry of Commerce and Industry and the Department of Economic Affairs (DEA) in the Ministry of Finance manage these agreements. The DEA handles BITs, while the Commerce Ministry works on FTAs. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) help carry out investment rules. These groups ensure the agreements follow Indian laws, like the Companies Act of 2013 and foreign investment policies.

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Types of Bilateral Trade and Investment Agreements

There are two main types of Bilateral Trade and Investment Agreements: Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) with investment sections.

Bilateral Investment Treaties (BITs)

BITs focus on protecting and encouraging investments. India signed its first BIT with the United Kingdom in 1994. Since then, India has signed over 80 BITs, but many were canceled or updated after 2016 to match India’s new Model BIT.

Free Trade Agreements with Investment Provisions

FTAs cover trade in goods, services, and investments. Examples include the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) and the India-Japan Comprehensive Economic Partnership Agreement (CEPA). These agreements go beyond investments to include lower tariffs and better market access.

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Essential Provisions in India’s Model Bilateral Investment Treaty

In 2016, India created a Model BIT to set clear rules for its Bilateral Trade and Investment Agreements. This model protects investors while allowing India to make its own rules. Here are the main parts, explained simply.

Definitions and Scope

The Model BIT defines an “investment” as a business set up or bought under the host country’s laws, with real business activities and money invested. It doesn’t include small investments like stocks or assets to prevent misuse of the treaty. The rules apply only to investments made after the agreement, not to early steps like planning to enter a market.

Standards of Treatment

Investors get National Treatment, meaning they are treated as well as Indian businesses in similar situations. The Model BIT does not include Most-Favored-Nation (MFN) treatment to avoid taking rules from other treaties. Fair and Equitable Treatment (FET) follows basic international law, protecting against unfair court decisions but not covering broad expectations. Full Protection and Security means physical safety for investments, not financial stability.

Expropriation

The government cannot take an investor’s property unless it’s for a public reason, done fairly, follows legal steps, and comes with quick and fair payment. Indirect expropriation, like actions that hurt an investment’s value, is judged by factors like economic impact and balance. The Model BIT allows exceptions for public welfare rules, like those for health or the environment.

Dispute Settlement

The Investor-State Dispute Settlement (ISDS) system lets investors bring claims, but they must try Indian courts for five years first. This encourages using local courts before international arbitration. Disputes between countries are settled through talks or arbitration. The Model BIT also requires publishing laws related to investments for transparency.

Exceptions and Safeguards

The Model BIT allows exceptions for public order, security, taxes, and intellectual property rules. Security exceptions let India decide what’s needed for national security. These rules come from India’s past experiences, like the White Industries case, where broad interpretations caused problems.

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India’s Existing Bilateral Trade and Investment Agreements

India has signed many Bilateral Trade and Investment Agreements. According to UNCTAD, India has 88 BITs and 19 Treaties with Investment Provisions (TIPs). Many older BITs were ended in 2017 to update them under the Model BIT. Below is a table of major agreements, showing their type, partner, signing date, status, and focus.

This table shows India’s move toward balanced agreements. For example, the recent BIT with the UAE leaves out FET and MFN to lower arbitration risks.

Challenges in Implementing Bilateral Trade and Investment Agreements

These agreements bring challenges under Indian laws. One big issue is investor disputes. India has faced over 20 ISDS claims, often about taxes or rule changes. Cases like Vodafone and Cairn Energy showed conflicts between treaty promises and India’s tax laws.

• Another challenge is matching these agreements with India’s foreign investment rules. Sectors like defense and telecom have limits, needing government approval. Updating older BITs has been slow, with only a few revised by 2025.

• Indian courts have also stepped in, as seen in Union of India v. Vodafone Group. Courts checked arbitral awards under public policy rules in the Arbitration and Conciliation Act, 1996.

Recent Developments and Reforms

India has made changes to improve its Bilateral Trade and Investment Agreements. The 2024 BIT with the UAE includes new features, like a three-year period to try local courts (shorter than the Model BIT’s five years) and rules to block shell companies from benefits. Talks with the UK and EU for FTAs focus on sustainable development and digital trade.

In 2025, India signed the EFTA TEPA, promising $100 billion in investments over 15 years. These steps support the Atmanirbhar Bharat initiative, which promotes self-reliance while welcoming foreign investment. The government also started the India Investment Grid to make treaty-based investments easier.

Summary

Bilateral Trade and Investment Agreements are key to India’s economic relations, creating a legal framework for safe cross-border trade and investment. Under Indian laws, these agreements balance investor rights with India’s ability to make rules, as shown in the Model BIT. With ongoing talks and updates, India keeps improving its approach to ensure these agreements support sustainable growth. Lawyers need to stay updated on these changing treaties to help clients follow rules and avoid disputes.

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Bilateral Trade and Investment Agreements: FAQs

Q1. What are the provisions of the bilateral investment treaties?

Bilateral Investment Treaties include rules for protecting investments, ensuring fair treatment, preventing unfair expropriation, and resolving disputes, often requiring local remedies first.

Q2. What is the trade and investment framework agreement?

A Trade and Investment Framework Agreement is a non-binding pact between countries to promote trade and investment through cooperation and dialogue.

Q3. What are some potential challenges of trade agreements?

Trade agreements can face challenges like disputes over rules, balancing national interests, and harmonizing with domestic laws.

Q4. What is a bilateral trade agreement?

A bilateral trade agreement is a deal between two countries to reduce trade barriers and boost economic cooperation.

Q5. What are the disadvantages of bilateral trade agreements?

Disadvantages include potential job losses in some sectors, increased competition for local businesses, and complex dispute resolution processes.