A BIT about Walmart

Second, while the government of India has allowed 51 per cent FDI in multibrand retail, it will let the state governments decide whether they want to implement it, which reflects the political divide on this issue. So far, only nine states have said that they will welcome foreign retailers. But a future state government opposed to FDI in retail could reverse the current government's decision to allow Walmart to set up shop. This could lead to Walmart dragging India into investor-state arbitration under the India-US BIT. Even without one, Walmart can use other BITs through a subsidiary. For instance, India does not have a BIT with Norway, yet Telenor issued an arbitration notice to India under the investment chapter of the India-Singapore free trade agreement, through a subsidiary based in Singapore.

Does this mean India should not enter into a BIT with the US at this stage? That can be answered only if there is clarity on certain counts. To begin with, in 2012, the US adopted a new Model BIT that is much more extensive in its coverage than most Indian BITs. In addition to the typical provisions contained in most BITs, the US model contains provisions on investment and environment, investment and labour etc. This is at variance with India's Model BIT and treaty practice. It remains to be seen which Model BIT forms the base draft for an India-US treaty.

Second, the 2012 Model US BIT contains elaborate provisions for investor-state arbitration. India might not agree to a BIT with such broad dispute settlement provisions. Third, will India seek a restrictive most favoured nation (MFN) clause to ensure that US companies do not circumvent the BIT provisions by treaty shopping? This question is significant as India recently lost a dispute under the India-Australia BIT because of an expansive MFN provision, which allowed the foreign investor to treaty-shop a beneficial provision from another BIT. Finally, the US Model BIT recognises pre-entry national treatment protection. Will India accept this, and if so, how will it safeguard its FDI policy on multibrand retail? It is imperative that India articulates its stand on these substantive aspects of the issue.

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