• Ashutosh Kumar

Brazil-India investment treaty: A new beginning for India?

Updated: Apr 29

Brazil and India recently signed a bilateral investment treaty termed the Investment Cooperation and Facilitation Treaty during the state visit of Brazilian President Jair Bolsonaro.[1] Although Brazil and India are not major sources of foreign investment for each other, the Brazil-India investment treaty is significant because it combines the distinctive strategies adopted by both countries towards investment treaties based on their previous experiences, and sends a powerful message about the future of investment treaties.


Brazil and India have had vastly different experiences with investment treaties. Brazil signed a number of investment treaties from 1994 to 1999.[2] However, due to criticism and resistance towards these treaties, none of them were ratified and so never entered into force.[3] Brazil still managed to attract large amounts of foreign investment which reinforced its opposition to investment treaties.[4] However, after Brazilian firms began making large foreign investments, Brazil reconsidered its position and adopted a new model investment treaty in 2015 - the Cooperation and Facilitation Investment Agreement.[5] This model investment treaty focused on foreign direct investment and excluded portfolio investment. It created a wide berth for regulatory action by States by excluding protections for indirect expropriation and unfair and inequitable treatment. It also provided for an elaborate institutional mechanism for investment promotion and dispute prevention comprising joint committees and ombudsmen. Notably, it rejected investor-state dispute settlement in favour of state-state dispute settlement. Brazil has signed a number of investment treaties based on this model investment treaty since 2015.[6]


Unlike Brazil, India signed and also ratified a large number of investment treaties from 1994 to 2011 as part of its efforts to attract foreign investment.[7] These investment treaties provided sweeping protections to foreign investors without adequate safeguards for regulatory action by States. However, due to a lack of awareness about these investment treaties and the relative dearth of claims from foreign investors, India remained indifferent to the risks created by these investment treaties. In November 2011, India lost the now-infamous White Industries case and faced an adverse investment treaty award for the first time.[8] Soon thereafter, India faced a raft of claims from foreign investors under investment treaties challenging a number of regulatory actions.[9] These circumstances forced India to completely overhaul its strategy towards investment treaties.


India adopted a new model investment treaty in 2015 which espoused a State-centric position on key issues.[10] This model investment treaty narrowed the definition of ‘investment’ and thereby limited the scope of protection available. It curtailed protections available to foreign investors by excluding the ‘Most Favoured Nation’ protection (used in the White Industries case to import more favourable protections from other investment treaties) and replacing the catch-all ‘Fair and Equitable Treatment’ protection with specific minimum treatment standards. It also stipulated broad general exceptions and security exceptions in relation to treaty obligations and imposed certain pre-conditions for the use of investor-state dispute settlement procedure by foreign investors. In addition, India terminated its existing investment treaties to the maximum extent possible and conveyed its firm intention to negotiate new investment treaties on the basis of this model investment treaty.[11] India has signed four such investment treaties so far - with Belarus, Kyrgyzstan, Taiwan and now Brazil.[12]


Brazil and India have adopted distinctive strategies towards investment treaties based on their previous experiences. Brazil has opted for investment treaties which preserve the regulatory power of States by excluding key protections, seek facilitation of investment through institutional mechanisms and adopt state-state dispute settlement instead of investor-state dispute settlement. India has opted for investment treaties which restrict liability for States and also preserve the regulatory power of States by providing broad exceptions in relation to treaty obligations, excluding or restricting key protections and imposing pre-conditions for the use of investor-state dispute settlement procedure by foreign investors.


The Brazil-India investment treaty is an amalgam of these distinctive strategies. It excludes protection for indirect expropriation and the ‘Most Favoured Nation’ protection. It also omits the ‘Fair and Equitable Treatment’ protection in favour of specific minimum treatment standards and contains broad exceptions in relation to treaty obligations. It creates an institutional mechanism for investment promotion and dispute prevention comprising joint committees and ombudsmen and rejects investor-state dispute settlement. The end result is a unique investment treaty which sends a powerful message about the future of investment treaties - first, that investment treaties are unlikely to conform to a common template of standard protections and will reflect specific compromises between States driven by their strategies towards investment treaties; second, that investment treaties will increasingly focus on preserving the regulatory power of States in preference to the protections for foreign investors.


Two important questions do arise nonetheless. The first question is whether the Brazil-India investment treaty can adequately protect investors and thereby encourage investment. The Brazil-India investment treaty excludes or limits several key protections and does not permit investor-state dispute settlement which prevents investors from pursuing legal remedies themselves. In such a scenario, investors may see the protection provided by this investment treaty as inadequate. In addition, investors may be hesitant to rely on the institutional mechanism created by this investment treaty since such institutional mechanism is new and untested. India should assuage these concerns by proactively using the institutional mechanism to identify and address disputes or concerns.


The second question is whether the Brazil-India investment treaty is likely to be accepted as a template for future investment treaties with key capital-exporting States. The strategies adopted by Brazil and India towards investment treaties are broadly compatible. However, such compatibility may not be present when negotiating investment treaties with key capital-exporting States. In such a scenario, India should realise its strategy towards investment treaties by engaging with capital-exporting States and international organisations as part of the ongoing process to reform investment treaties. India should use its position as a leading economy and a key recipient of foreign capital to articulate reform proposals which conform to its strategy towards investment treaties and build consensus for such reform proposals. Such consensus can serve as a template for future investment treaties with capital-exporting States.

[1] The Brazil-India investment treaty was signed on 25 January 2020 and is available on the UNCTAD database (available at: https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5912/download). [2] See details available on the UNCTAD database (available at: https://investmentpolicy. unctad.org/international-investment-agreements/countries/27/brazil). [3] See Jose Henrique Vieira Martins, Brazil’s Cooperation and Facilitation Investment Agreements (CFIA) and Recent Developments (available at: https://www.iisd.org/itn/2017/ 06/12/brazils-cooperation-facilitation-investment-agreements-cfia-recent-developmen ts-jose-henrique-vieira-martins/). [4] Id. [5] See note 3. The Cooperation and Facilitation Investment Agreement is available on the UNCTAD database (available at: https://investmentpolicy.unctad.org/international-invest ment-agreements/treaty-files/4786/download). [6] See note 2. [7] See details available on the UNCTAD database (available at: https://investmentpolicy. unctad.org/international-investment-agreements/countries/96/india). [8] See case details available on the italaw database (available at: https://www.italaw .com/cases/1169). [9] See details available on the italaw database (available at: https://www.italaw.com/ browse/respondent-state?field_respondent_state_tid=622). [10] The text of the model investment treaty is available on the website of the Department of Economic Affairs, Ministry of Finance, Government of India (available at: https://dea.gov.in/sites/default/files/ ModelBIT_Annex_0.pdf). [11] See Nicholas Peacock and Nihal Joseph, Mixed messages to investors as India quietly terminates bilateral investment treaties with 58 countries (available at: https://hsfnotes.com /arbitration/2017/03/16/mixed-messages-to-investors-as-india-quietly-terminates-bilat eral-investment-treaties-with-58-countries/). [12] See note 7.

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