India and Brazil conclude negotiations of Bilateral Investment Treaty

As previously noted in April 2015, India amended its model bilateral investment treaty (the Indian Model BIT) and has reportedly been deploying it in recent months to seek to re-negotiate bilateral investment treaties (BITs) with over 47 countries (see previous post of July 2016). One of these negotiations was with Brazil, a country historically known for not having any BITs in force, despite signing several in the 1990s. A specialised news source (Investment Arbitration Reporter) has now reported the conclusion of negotiations between India and Brazil culminating in a near-final treaty between the two nations.[1] 

History of Brazil and India’s Investment Protection Climate

The final text of the India-Brazil Bilateral Investment Treaty (the India-Brazil BIT) is expected to be released later this year.  Brazil has signed over 20 BITs but none of them have been ratified and/or are in force.[2] Brazil is also a party to several multilateral agreements and treaties that contain investment provisions, including the existing India-MERCOSUR Framework Agreement (the Existing Agreement).[3]  It remains to be seen if the India-Brazil BIT will come into force in the near future given the reticence of the Brazilian government to ratify any of its existing BITs.

India on the other hand has entered into 82 BITs of which 72 are in force. However, given the recent spate of BIT claims initiated against India, it is understood to be wary of the traditional protections provided to investors under BITs (at least as far as inbound investment into India is concerned) and has accordingly (i) published the amended Indian Model BIT which contains restrictive investor protections, as well as (ii) announced that it is seeking to re-negotiate a majority of its BITs.

Key Features of the India-Brazil BIT

Although the text of the India-Brazil BIT has not been released, limited information on the content of the draft BIT has been reported.  As mentioned in our earlier post, the Indian Model BIT heavily amended the previous version of India’s model BIT to limit the reach of protections provided to investors into India, and correspondingly also reducing the protection provided to outbound Indian investors.

Notably, the India-Brazil BIT is reported not to contain any provision for investor-state arbitration.  Instead, it is understood to provide for a tiered dispute resolution method including the use of an ombudsman, state-state arbitration and procedures for dispute prevention, including the establishment of a joint committee tasked with overseeing the Brazil-India BIT’s future implementation – all of which appear in Brazil’s Model BIT. Similar to the provisions of the Indian Model BIT, a significant omission from the India-Brazil BIT is the familiar fair and equitable treatment ("FET") standard, and it is understood to adopt the requirement of adherence to a customary international law standard, which generally has a higher threshold. Also significant is the omission of the most favoured nation ("MFN") clause, which is common to many modern BITs.  The India-Brazil BIT also reportedly excludes a wide range of subject matters, including taxation and labour.   

Impact of the India-Brazil BIT

More clarity will be available when the full text of the India-Brazil BIT is released.

While Brazil has never participated in investor-state arbitration, India is no stranger to the process, having faced a number of claims under its BITs in recent years which in turn prompted the changes to its Model BIT. Perhaps of consequence is that the conclusion of the India-Brazil BIT comes at a time when the EU has reportedly been urging India not to terminate its BITs with individual EU member states before new treaties are put in place. It will be interesting to see what impact the seemingly successful negotiation of the India-Brazil BIT has on attempts by India to re-negotiate its other BITs.        

For further information, please contact Nicholas Peacock, Partner, Donny Surtani, Senior Associate, Kritika Venugopal, Associate or your usual Herbert Smith Freehills contact.