One of the leading features of globalization is the cross border movement of capital. Simply companies or multinational corporations invest in different countries. For a company going to make investment in other countries may face many risk factors. Uncontrollable events especially those related with discretionary actions by the foreign government may make its investment unsafe.
To avoid such situations and to ensure safety for overseas investment of the domestic companies, a government can get into a bilateral agreement with a foreign government. These bilateral agreements are called Bilateral investment Treaties (BITs) or Bilateral Investment Promotion and Protection Agreements (BIPAs).
Bilateral Investment Promotion and Protection Agreements (BIPAs) are agreements between governments of two Countries for the reciprocal promotion and protection of investments in each other’s territories by individuals and companies situated in either State. They provide treaty based protection to foreign investment. The BIPAs are thus bilateral agreements by countries to protect the investment by each country’s investors in the other country.
BIPAs are now instrumental in giving safety and mutual trust simultaneously for cross national investors. Though the BIPAs are signed by governments, the beneficiaries are business entities. Investment protection is given for investment by companies in other countries.
There is substantial economic logic in crafting BIPAs. All investors are seeking those investment destinations which provide most protective, hospitable and profitable climate for their investments. Similarly, countries would like to project themselves as investment friendly destinations to attract more foreign investment. Because of these two, large numbers of BIPAs are signed globally.
From the Indian angle, bilateral investment treaties not only encourage capital flows into India but also provide safe business environment for Indian investors abroad.
Foreign investment activity has picked up in India only after the launch of economic reforms in 1991. As part of the Economic Reforms Programme, the foreign investment policy of the Government of India was liberalized. Volume of foreign investment especially FDI, started to get momentum by mid 1990s.
As the reforms progressed, negotiations were undertaken with a number of countries to enter into Bilateral Investment Promotion & Protection Agreement (BIPAs) in order to promote and protect on reciprocal basis investment of the investors. India signed the first BIPA with UK in 1994.
After that a large number of BIPAs were tailored with different countries with different clauses. So far, (as on January 10, 2016) India has signed 83 BIPAs (UAE is the 83rd) with other countries; out of which 72 BIPAs have already come into force and the remaining agreements are in the process of being enforced. In addition, agreements have also been finalized and/ or being negotiated with a number of other countries.
Several controversial issues were raised during the recent past by MNCs in India, enforcing their right signed under BIPAs. One example is the Vodafone’s tax dispute. Vodafone has indicated that it may initiate proceedings against India under the India-Netherlands BIPA on its tax issue.