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Report No. 260

Chapter -II

Preliminary

A. Preamble

(i) Analysis and comment:

2.1.1 As the preface to a treaty, a preamble sets out the objectives for which the agreement is being entered into. The language of the preamble can influence the interpretation of treaties, especially at the time of dispute resolution. It can alter the extent of obligations upon a State Party to the treaty, as well as the degree of broadness or narrowness that a tribunal would adopt while interpreting the provisions of the treaty.

2.1.2 The preamble to the 2015 Model contains three paragraphs, the first being a general statement of purpose, i.e., "to promote bilateral cooperation... with respect to foreign investments".

2.1.3 The second paragraph reaffirms rights of State Parties to regulate investments in their territories in accordance with their law and policy objectives, while retaining the right to change conditions applicable to such investments. The underlying intent of this paragraph is arguably to reaffirm the sovereign right of a State Party to modify the conditions for investment prevalent in its territory. However, the expression of such intent must be appropriately tempered with the assurance that there will be no compromise on certainty and transparency in domestic law.

2.1.4 Certainty and transparency are two aspects that are key to ensuring potential investors remain interested in a country. Here, it is important for Indian investors venturing abroad to have the confidence that relevant laws in foreign countries will not be abruptly changed, while offering the same assurance to foreign investors entering India.

These concepts have been adopted by many countries in their treaties, including, for example, Norway ("[d]esiring to encourage, create and maintain stable, equitable, favourable and transparent conditions for investors of one Party and their investments in the territory of the other Party on the basis of equality and mutual benefit"), and the United States ("[a]greeing that a stable framework for investment will maximize effective utilization of economic resources and improve living standards").19 This must be balanced by the requirement that investors can enter and operate only in accordance with the laws of the Host State.

19 Norway Model BIT; US Model BIT 2012; BIT between the United States and Uruguay (2005).

2.1.5 Some countries have expressly included a reference to the right to adopt laws to protect health, environment and labour standards.20 Incorporating a statement of this nature in India's Model BIT may help defend legitimate social welfare laws adopted by India in public interest.

20 Preamble, Norway Model BIT; Preamble, US Model BIT 2012.

2.1.6 The third paragraph of the preamble seeks to "align the objectives of Investment with sustainable development and inclusive growth of the Parties". 'Sustainable development' and 'inclusive growth' are a sign of "new generation" investment policies, and may have been borrowed from the Investment Policy Framework for Sustainable Development issued by the United Nations Conference on Trade and Development (UNCTAD).21 Some Model BITs use 'sustainable development' in their preamble.22 In the 2015 Model, the terms are used only in Article 8.1.

The 2015 Model does not, however, at any stage, lay down what "inclusive growth" or "sustainable development" entails, nor does it impose any related independent obligations on the investor. Even as used in Article 8.1, the terms have no substantive value. Through the preamble, the terms can, at best, indicate treaty intent, and in this regard, the terms may remain as they are.

21 UNCTAD, Investment Policy Framework for Sustainable Development, UNCTAD/DIAE/ PCB/2012/5, Geneva, 2012, available at
http://unctad.org/en/PublicationsLibrary/diaepcb2012d5_en.pdf

22 UNCTAD, 'Recent trends in IIAS and ISDS', 25-27 February 2015, available at
http://unctad.org/en/PublicationsLibrary/webdiaepcb2015d1_en.pdf



Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty Back




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