There have been numerous calls to boycott Chinese goods in India since 20 soldiers were killed in a clash with Chinese troops in the Galwan Valley along the LAC in Ladakh | Photo: ANI
There have been numerous calls to boycott Chinese goods in India since 20 soldiers were killed in a clash with Chinese troops in the Galwan Valley along the LAC in Ladakh | ANI
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The Narendra Modi government’s decision to ban 59 Chinese apps, and some ministries and states cancelling contracts with Chinese companies might eventually end up in international arbitration as claims brought by investors from China.

One is unsure if these moves, apart from assuaging the nationalistic sentiments of some domestic constituents, will have any tangible economic impact on China. China is contesting the ban arguing it violates obligations that India owes to it under the World Trade Organization (WTO) rules. While the potential violation of WTO rules has been discussed, the ban on the apps and cancellation of contracts also needs to be looked through the prism of international law on foreign investment contained in bilateral investment treaties (BITs).


Also read: PM Modi sends message to China from Ladakh: ‘Age of expansionism is over’


India-China Bilateral Investment Treaty

India signed a BIT with China that came into force in 2007. This BIT, like all such investment treaties, provides certain rights to foreign investors under international law, such as the right to fair and equitable treatment (FET). The BIT empowers the foreign investor to directly bring claims against the host State before an international arbitration tribunal in case of a dispute. This is known as the investor-State dispute settlement (ISDS). India is currently battling around 20 such dispute claims under different BITs with millions of dollars being claimed as damages. For instance, Vodafone and Cairn Energy are currently battling two ISDS claims against India for imposition of taxes retrospectively.

The India-China BIT stood terminated on 3 October 2018 due to India’s decision to unilaterally denounce the treaty. This unilateral termination had nothing to do with China. It was part of the mass terminations of BITs that the Modi government undertook in 2017 as part of its new BIT policy. Investment treaties with around 60 countries were terminated with the Chinese BIT being one of them. However, as per Article 16(2) of the India-China BIT, in case of unilateral termination, the treaty ‘shall continue to be effective for a further period of fifteen years from the date of its termination in respect of investments made or acquired before the date of termination of this Agreement’.

In other words, the Chinese BIT continues to protect the Chinese investment under international law, provided the investment was made before 3 October 2018. Thus, if any of the current actions of the Modi government, and state governments affects Chinese investments made before the said date, it could trigger ISDS claims against India. Given the fact that the termination date is less than two years back, presumably, a large number of Chinese investments in India continue to enjoy treaty protection. Moreover, the possibility of Chinese investment in India through other countries under different ownership structures and their protection under other Indian BITs cannot be ruled out.


Also read: Modi govt’s silence on China gave ‘satellite warriors’ a free run. India will rue the damages

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Arbitrariness is an FET violation 

Chinese investors may challenge the ban on these apps as a violation of the FET provision of the India-China BIT.

The FET provision, as it has been held in several BIT cases, imposes an obligation on host States not to act arbitrarily. In other words, if States adopt measures on the pretext of public purpose but the real reason is to harm the investor, or if measures are taken in wilful disregard of due process and procedure, such measures shall qualify as arbitrary, and thus breach the FET provision.

A collective ban on 59 apps has been imposed through a press release that relies on Section 69A of the Information and Technology Act. The press release, which is not a legal order, provides vague and generic grounds for banning these apps. Couched in the language of national security, the release says that these apps are prejudicial to sovereignty and integrity of India, defence of India, the security of the state and public order. But, as information technology lawyer Apar Gupta argues, this ban is legally suspect as it appears not to have been imposed as per the procedure laid down in the website blocking rules of 2009. These rules provide for a process of notice, hearing, and a reasoned order before a ban. A departure from these rules is possible if a clear case of emergency is made out. If these processes are not followed, the ban will be arbitrary. Consequently, a Chinese investor can make a strong case that the ban violates India’s FET obligation under the India-China BIT.

Likewise, the cancellation of contracts of Chinese companies could be challenged as arbitrary and thus a violation of the FET obligation owed to Chinese investors. To show that these cancellations are not arbitrary, India will have to prove that there was a justifiable reason for these annulments, and that they have been carried out after following the due process. India has already lost two BIT claims – Devas v India and Deutsche Telekom v India – where it was held guilty of violating the FET provision for arbitrarily cancelling contracts impacting foreign investors without following the due process.


Also read: Military talks with the Chinese must not wear India down. Plan B should be ready


Essential security exception

In case a Chinese investor brings such an ISDS claim, India could try defending its actions under the national security exception provided in Article 14 of the India-China BIT. This provision allows the host State to take measures for the protection of its essential security interests or in circumstances of extreme emergency, provided these measures are adopted after the laws have been reasonably applied on a non-discriminatory basis. Thus, as per the provision under Article 14, India can take actions for the protection of its essential security interests, provided the action is consistent with its domestic laws that are applied reasonably, not arbitrarily. Given the possibility of India’s action being arbitrary under Indian law, it would weaken India’s defence under Article 14 of the India-China BIT.

The Modi government needs to carefully assess its actions by taking into account its international investment law obligations. Or else, the Central government’s attempt to live up to its well-advertised image of a ‘muscular government’ to appease the domestic constituency, might turn out to be a costly affair internationally for India.

Prabhash Ranjan is a senior assistant professor at South Asian University’s faculty of legal studies and author of the book ‘India and Bilateral Investment Treaties: Refusal, Acceptance, Backlash’. Views are personal.

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29 Comments Share Your Views

29 COMMENTS

  1. Just one question, “How many of these arbitration proceedings has China defended or agreed with adverse outcomes, if any?” China’s respect for international rules based order is clearly evidenced in its response to the adverse ICJ verdict on South China Sea.

  2. If every action of the GOI have a reaction, the author has duly cautioned the govt the possible repercussion.There has been tendency to attribute motives and abuse the person having a domain knowledge. It is a view of the author , reminding the govt to take all precautions to safeguard the interest of the nation.It is not merely an issue of soverignity /empty national pride. It is duty bound to protect economic interest of the nation and much needed investment will flow (the govt has relaxed/opened so wide its gate to allow 100%FDI in many sectors of the economy) only when the govt. adheres to and uphold the principle of rule of law and international legal obligations, leave alone China,rest of the world matters. you cannot take decisions in isolation There is a verse in THIRUKKKURAL in Tamil “edithuraikkkum emera mannan keduppar elanum kedum” which means there should always be a critical person to even critize the King as otherwise even without a evil person, the kingdom will be ruined.

  3. Thank you dear author for exercising your right to freedom of expression to give valuable inputs to the Chinese bro…

  4. the author thinks that those running the government are fools and takes decision without considering different possibilities. this time India has taken a leaf out of china’s play book. “threat to integrity and sovereignty of nation”. if you see, china fits this everywhere to do what they want. why not do the same thing. a treaty is not for ever….remember HONG KONG. and Mr. Author, instead of researching on what all problems India will face, why not spend time to dig out how India can create some problems for China? WE ALREADY HAVE ENOUGH CRITICS…

  5. India will have to formulate a special law that permits it to abandon any treaty with China. Even if it requires declaring China an enemy ready for a war with us, we must go ahead with all suitable actions to deter China to cause harm to us.

  6. Treaties are between friendly Nations. Even as per the most judicious jurisprudence, no treaty will be valid in the face of transgression of sovereignty. Or do you mean we continue with the massage China when it is holding a knife to the throat?

    • Proving transgression when there is no IB and by our own pronouncement that not an “inch is lost” will be impossible.

      Now our armed forces kept some peace and tranquility treaty in letter and spirit by allowing soldiers to be beaten to death than opening fire in defence!!!

      • Hi PR (whoever you are in anonymity),
        Greetings!
        The tactics on the the border is beyond (should be too) the media glare….what seems is not what it is!!! The defence of a Nation is not easy.
        On your observation…..
        On the one hand you say that the Indian soldiers got beaten up while maintaining India can’t prove aggression; “oxymoronic”, if I may. This is one of the many advantages of a democracy with free media and freedom of speech (it is another natter that many a time this freedom is not exercised with equal responsibility) . In this case if you can’t see beyond the obvious, you can’t win – more so in an arbitration. But if one is smart, a democratic India is, it can win.
        Wait and watch

      • Armed forces do not keep peace and tranquility by NOT defending its borers. . It falls in the realm of a Nation’s security policy.

        A long unresolved border between any two countries is a potential flash point at any time. So it is between India and China. Yes, I agree that since Independence, we had decades to resolve this issue. We lost “inches” in 1962. Even after that we were unable to resolve the issue through diplomacy or otherwise.
        PR, the practicality is, there are two options if we do not want to “lose” soldiers. Capitulate and give away lost territories and more or resist and negotiate. In the former we will lose credibility as a Nation and in the latter we will lose brave soldiers.
        It is the people like you (us), the public through its elected Government, who should decide.
        What do you feel is the right option? Not even claim the lost territories as ours and lose some more?

  7. Why does Congress always sign shit care with China and Pakistan which can land us in trouble ? Can Mr Rahul gandhi answer this question

  8. Arbitration only matters if both parties are participating in such an arbitration – otherwise its just a mock trial that means nothing.

    India is under no obligation to participate in any arbitration, especially if it invokes national security as a justification along with national privacy laws which were confirmed by the SC over 2 years back.

    This writer is trying to be too clever by half – treaties are only upheld of they offer mutual benefit and even without BIT companies can approach the courts for relief, so its not that arbitration will be quicker or more rewarding.

  9. Fu.. the treaty.
    China never gives two hoots to international judgements.
    If these treaties harm Indian interests then kick them.
    These international treaties are for civilized world.
    China is not one of them.

  10. Those commenting on economic decisions should know how commerce works. The so called APPS are owned by Chinese companies based in CHINA or otherwise. Banning of an APP is like the banning of a foreign newspaper, book or movie. Even if made exclusively for one market, the production source is not located in the market hence no production. Time people become real and stop parroting.

  11. Beijing can drag India to tribunals because of treaties. It’s a good point. But you need to prioritize what is importatnt for you. Losing a few tribunals or losing of sovereignity? I think India has decided that it’s right time to do anything possible to sideline China who never stops bullying other countries if it can. Most of the other countries who China is bullying are scared of China. India shouldn’t choose that route.

  12. What if CCP passes law that all the companies has to share the data? China has passed a similar law. In that case India has every right to ban Chinese companies.
    If China goes to WTO it will expose itself. Its not as easy as this article presents. China knows this very well so just wait and watch. I am meanwhile eagerly waiting on decision by GOI on 5G. Lets hope that notorious Chinese company known as Huwei is kicked out.

  13. “Chinese investments enjoy treaty protection and so Beijing can drag new delhi to tribunals”.
    Fine. But is this a stronger reason to allow Chinese aggression, incursions? For exampe, if you’re a shopkeeper and you made a deal with another shopkeeper or a wholeseller about something, and then that person misbehaves with your younger sister, what’ll you do?
    So the author should decide what’s inportant for India. Sovereignity or tribunals!

  14. The matter is simple. When China is a declared enemy country if the law is invoked then it is a force mejeure and arbitrators can do NOTHING in the matter

  15. At times even intellectuals miss the obvious. The idea behind banning APPS is to motivate the investors to take the route of arbitration. :-). That’s a chess move. The was order was broadcasted left the users in ambiguity and sufficient room for the government to play around. The damage is done and if any Chinese investors file law suite in international tribunal, it will cost very heavy to China. You don’t fire a weapon without considering the retaliation.

    • You have to understand the writer’s mindset. Most likely is a China paid pimp. China has been known to buy press and media among other things. No surprise there.

    • What are you even saying? Are you dumb? If they take us to BIT, India will have to pay heavy compensation. The government in its bid to make a stunt forgot to do its homework. This is not a movie, and you should think about all the possibilities.

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