{"id":7656,"date":"2020-03-10T08:58:29","date_gmt":"2020-03-10T13:58:29","guid":{"rendered":"https:\/\/iisd.org\/itn\/?p=7656"},"modified":"2024-08-09T18:30:50","modified_gmt":"2024-08-09T16:30:50","slug":"the-best-of-two-worlds-the-brazil-india-investment-cooperation-and-facilitation-treaty-martin-dietrich-brauch","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2020\/03\/10\/the-best-of-two-worlds-the-brazil-india-investment-cooperation-and-facilitation-treaty-martin-dietrich-brauch\/","title":{"rendered":"The Best of Two Worlds? The Brazil\u2013India Investment Cooperation and Facilitation Treaty"},"content":{"rendered":"

Two innovative investment treaty models developed by major emerging economies came to light in 2015 when Brazil concluded its first Cooperation and Facilitation Investment Agreements (CFIAs, or ACFIs, in its Portuguese-language abbreviation)[1]<\/a> and India approved its revised model BIT<\/span>.[2]<\/a> Since then, both models have been influential in the global debate about options for reforming international investment law for sustainable development.[3]<\/a><\/p>\n

The year 2020 begins with a long-anticipated[4]<\/a> marriage between the two: on January 25, Brazil and India concluded their Investment Cooperation and Facilitation Treaty (ICFT).[5]<\/a> This piece provides a preliminary overview of the structure and provisions of the treaty, outlining which elements of the Brazilian approach and of the Indian model it incorporates.<\/p>\n

Preamble and Part I (Scope and Definitions)<\/h2>\n

Preamble<\/strong>. Repeating language from the Indian model BIT, the preamble of the ICFT sets high hopes for the cooperation in and facilitation of investments, which, according to the text, \u201cwill\u201d be conducive to business activity, economic cooperation and sustainable development. This language is more assertive than that used in other treaties concluded by Brazil\u2014for example, \u201crecognizing the essential role of investment in promoting sustainable development,\u201d[6]<\/a> and is quite optimistic given the difficulty of establishing any link between investment treaties and FDI<\/span> flows.[7]<\/a> Even so, the preamble importantly and positively reaffirms \u201cthe right of Parties to regulate investments in their territory in accordance with their law and policy objectives.\u201d<\/p>\n

Objective<\/strong>. The stated objective of the treaty is \u201cto promote cooperation between the Parties in order to facilitate and encourage bilateral investments\u201d (Art. 1). Like other treaties concluded by Brazil since 2015, the ICFT sets out to achieve this objective not through investment protection and ISDS<\/span>, but through an institutional framework to manage an investment cooperation and facilitation agenda, as well as risk mitigation and dispute prevention mechanisms.<\/p>\n

Definition of investment<\/strong>. In line with the Brazilian and Indian models, the ICFT adopts an enterprise-based definition of investment. To be covered by the treaty, the investment must be subject to direct or indirect ownership or control or\u2014a criterion used in recent Brazilian treaties\u2014\u201ca\u00a0significant degree of influence\u201d by an investor of the other state party. It must also have \u201cthe characteristics of an investment, including the commitment of capital, the objective of establishing a lasting interest, the expectation of gain or profit and the assumption of risk\u201d (Art. 2.4).<\/p>\n

Building on both models, the definition of investment also includes a comprehensive list of exclusions, covering orders or judgements in judicial, administrative or arbitral proceedings; debt securities; expenditures incurred prior to obtaining necessary licences; portfolio investments; and intangible rights such as goodwill, brand value and market share (Art. 2.4.1).<\/p>\n

Definition of investor<\/strong>. Investors may be natural persons (nationals, citizens or permanent residents) or enterprises (other than branches). Enterprises must be organized in accordance with the law of their home state and have substantial business activities in the territory of that state (Arts. 2.5 and 2.8).<\/p>\n

Scope<\/strong>. The ICFT will apply to measures (including laws, regulations, decisions and others) relating to existing investments and those established, acquired or expanded after its entry into force, provided that they are admitted in accordance with host state law (Art. 3.1). The article on scope expressly excludes the application of the treaty to any pre-investment activity (Art. 3.5), that is, those undertaken prior to the establishment of the investment, including those undertaken to comply with \u201csectorial limitations on foreign equity, and other specific limits and conditions applicable under any law relating to the admission of investments in the territory of the Party\u201d (Art. 2.10). Local government measures, laws or measures regarding taxation and government procurement, among others, are also excluded from the scope of application of the treaty (Art. 3.6).<\/p>\n

Part II (General Obligations of the Parties): Investment protection provisions<\/h2>\n

Standard of treatment<\/strong>. Like the Indian model and the post-2015 treaties concluded by Brazil, there is no reference to the \u201cfair and equitable\u201d standard. Instead, the ICFT includes a provision on the treatment of investments (Art. 4.1), \u201cbased on the applicable rules and customs of international law as recognized by each of the Parties and their respective national law,\u201d which prohibits the parties from subjecting investments to a closed list of breaches: denial of justice in judicial or administrative proceedings; fundamental breach of due process; targeted discrimination; or manifestly abusive treatment. In addition to these four types of conduct, which appear in the Indian model, the closed list of breaches in the ICFT also includes \u201cdiscrimination in matters of law enforcement, including the provision of physical security.\u201d This had appeared, with slightly different wording, in some other treaties recently concluded by Brazil that also adopted an Indian-style exhaustive list of breaches.[8]<\/a><\/p>\n

National treatment<\/strong>. Foreign investors and investments are also promised national treatment in like circumstances (Art. 5.1). A clarification is included that \u201clike circumstances\u201d depends on the totality of circumstances, \u201cincluding whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare or regulatory objectives\u201d (Art. 5.2). Also building on recent treaties concluded by Brazil, a clarification is included that national treatment does not oblige a party \u201cto compensate for inherent competitive disadvantages which result from the foreign character of the investors and their investments\u201d (Art. 5.3).<\/p>\n

MFN<\/span><\/strong>. In line with India\u2019s strong opposition to the MFN clause in investment treaties, as a result of the country\u2019s negative experience with the White Industries<\/em> case,[9]<\/a> the ICFT does not include one, even though it is a prominent feature in all other treaties concluded by Brazil since 2015.<\/p>\n

Expropriation<\/strong>. The ICFT prohibits direct expropriation by either party, except where implemented for reasons of public purpose, in a non-discriminatory manner, on payment of effective and adequate compensation, and in accordance with due process of law (Art. 6.1). Indirect expropriation, as is the case with all other Brazilian treaties post-2015, is explicitly excluded (Art. 6.3). Even so, the treaty replicates from the Indian model the clarification that \u201cnon-discriminatory regulatory measures\u2026designed and applied to protect legitimate public interest or public purpose objectives\u2026shall not constitute expropriation\u201d (Art. 6.4).<\/p>\n

Transparency<\/strong>. Following both the Brazilian and the Indian models, the ICFT contains a provision requiring each party to publish laws, regulations and other materials pertinent to matters covered by the treaty in electronic format, as well as to publish proposed measures and to provide interested persons and the other party a reasonable opportunity to comment on them. Both obligations, however, are subject to the party\u2019s respective domestic laws (Art. 8).<\/p>\n

Transfers<\/strong>. The ICFT contains an article on the freedom of transfers (Art. 9). In line with both the Brazilian and the Indian models as well as other new-generation IIA<\/span> models, the provision safeguards the right of parties to adopt temporary and non-discriminatory regulatory measures in the event of a balance-of-payments crisis (Art. 9.2\u20133). It also allows parties to prevent transfers through the application of their laws on bankruptcy, compliance with judgements and awards, compliance with labour obligations, among others (Art. 9.4).<\/p>\n

Anti-corruption<\/strong>. Mirroring other recent treaties concluded by Brazil, the ICFT commits the parties to \u201cadopt measures and make efforts to prevent and fight corruption, money laundering and terrorism financing\u2026in accordance with its laws and regulations\u201d (Art. 10.1). It also clarifies that the ICFT does not require the parties to protect investments made with capital or assets of illicit origin, or established or operated through illegal acts subject to asset forfeiture under domestic law (Art. 10.2). In addition to this article in Part II (on state obligations), anti-corruption is also addressed in Part III (on investor obligations).<\/p>\n

Part III (Investor Obligations or Responsibilities)<\/h2>\n

Compliance with laws<\/strong>. The first of two articles in Part III (Art. 11) replicates the text of an article of the Indian model BIT (also Art. 11). It imposes a binding obligation on investors and investments to comply with all investment-relevant laws, including those on taxation, prohibits them from bribing public officials and commits them to providing all information required by the state parties.<\/p>\n

CSR<\/span><\/strong>. In turn, the other article in Part III (Art. 12, Corporate Social Responsibility) closely follows the approach and language on CSR adopted by Brazil in its other post-2015 treaties. First, the article creates a best-efforts obligation on investors and investments to \u201cstrive to achieve the highest possible level of contribution to the sustainable development of the Host State and the local community, through the adoption of a high degree of socially responsible practices, based on the voluntary principles and standards set out in this Article and internal policies, such as statements of principle that have been endorsed or are supported by the Parties\u201d (Art. 12.1). Unlike other Brazilian treaties, the ICFT does not mention any specific sets of standards, such as the OECD<\/span> Guidelines on Multinational Enterprises. The list of voluntary principles and standards for\u00a0 responsible business conduct resembles the lists seen in previous treaties negotiated by Brazil and covers elements including sustainable development, human rights, local capacity building, creation of human capital, good corporate governance and non-discrimination among employees (Art. 12.2).<\/p>\n

Part IV (Institutional Governance, Dispute Prevention and Settlement)<\/h2>\n

Joint Committee and National Focal Points<\/strong>. The ICFT creates a Joint Committee composed of government representatives of both state parties to oversee the implementation of the agreement (Art.\u00a013) and to develop and discuss an Agenda for Further Investment Cooperation and Facilitation (Art. 25). Each state also commits to designating a National Focal Point (or Ombudsperson) to support investors of the other state party. In Brazil\u2019s case, as in similar agreements, the focal point will be the Executive Secretariat of the Foreign Trade Board (CAMEX) (Art. 14.2), while India will establish its own within the Department of Economic Affairs in the Ministry of Finance (Art. 14.3). The functions and responsibilities of these treaty bodies mirror those of the treaty bodies established under the very first agreements concluded by Brazil pursuant to this model.[10]<\/a> The ICFT also requires the parties to share\u2014particularly through these treaty bodies\u2014information concerning business opportunities, incentives, legal frameworks, customs procedures, tax regimes and other investment-related matters (Art. 15). While the obligations are binding (\u201c[t]he Parties shall exchange information\u2026\u201d and \u201cthe Party shall provide, when requested, in a timely fashion, information\u2026\u201d), they are not listed as matters that a state\u2013state dispute settlement tribunal may examine (Art. 19.3).<\/p>\n

Dispute Prevention Procedure<\/strong>. Also following the 2015 Brazilian model, the ICFT includes a state\u2013state procedure designed to prevent investment-related disputes (Art. 18). When one of the state parties considers that the other state adopted a measure in breach of the ICFT, the first state submits a written request to the Joint Committee, along with the underlying finding of fact and law. The Joint Committee then meets within 90 days from the date of the request, and within 120 days from that meeting (extendable by mutual agreement), evaluates the submission and prepares a report with its findings, aimed at resolving the dispute\u2014or preventing its escalation. (All proceedings and documents are confidential, except for the report.) Only if the Joint Committee fails to resolve the dispute, either of the parties may submit it to state\u2013state arbitration.<\/p>\n

Disputes between Parties<\/strong>. Deviating from the Indian model BIT, the ICFT does not include an ISDS provision. ISDS is known to be a no-go for Brazil, which has provided for state\u2013state arbitration only in all of its ACFIs. While the ICFT is no exception, it evidences the evolution of Brazil\u2019s ACFIs. In the very first ACFI, concluded by Brazil with Mozambique in 2015, there was merely a reference to the possibility of the parties resorting to state\u2013state arbitration should the Joint Committee procedure fail to resolve the dispute.<\/p>\n

In turn, the ICFT contains a detailed provision on state\u2013state arbitration (Art. 19). The parties may submit the dispute to ad hoc arbitration or to a permanent arbitration institution, and the purpose of the arbitration is to decide on interpretation of or compliance with the treaty; the IFCT expressly excludes the possibility of a compensation award (Art. 19.2). The arbitral tribunal has jurisdiction only over matters pertaining to Part I (scope and definition), Part II (general obligations of the parties, with some exceptions), Article 16 (treatment of protected information), Article 21 (prudential measures) and Part VII (the final provisions) of the treaty. The state\u2013state tribunal has no jurisdiction over the transparency (Art. 8) and anti-corruption (Art. 10.1) obligations, the investor obligations and responsibilities (namely, compliance with domestic laws and CSR) and the institutional governance provisions, including the information-sharing obligations (Art. 15).<\/p>\n

Each state has the right to appoint one tribunal member, and the two members appoint a third-state national as chairperson of the tribunal; the President of the International Court of Justice may be invited to make any necessary appointments (Art. 19.4\u20135).<\/p>\n

Notably, the ICFT requires arbitrators to have experience in public international law, international investment or trade law, or resolution of investment disputes; to be independent of either state; and to comply with a code of conduct included in Annex II to the treaty. The code of conduct deals with matters including the disclosure of circumstances that may raise questions regarding the arbitrators\u2019 independence, impartiality or freedom from conflicts of interest, and sets rules for challenges and replacements of arbitrators. It also includes a non-exhaustive list of circumstances under which a \u201cjustifiable doubt as to an arbitrator\u2019s independence or impartiality or freedom from conflict of interest shall be deemed to exist\u201d (Annex II, para. 10).<\/p>\n

A decision of the tribunal is binding on the parties (Art. 19.7). Although arbitration costs are to be shared between the parties, and each party must bear its own legal costs, the tribunal has the discretion to \u201cdirect that the entire costs or a higher proportion of costs shall be borne by one of the two disputing Parties\u201d (Art. 19.8).<\/p>\n

Part V (Exceptions)<\/h2>\n

Like other treaties concluded by Brazil, the ICFT includes specific exceptions regarding tax measures (Art. 20), prudential measures relating to the financial system (Art. 21) and measures to ensure that investment activity is undertaken in accordance with labour, environmental and health laws of the host state, as well as a provision forbidding the lowering of standards in those areas (Art. 22).<\/p>\n

In addition, closely following the Indian model BIT, the ICFT includes a general exceptions provision covering measures to protect public morals or maintain public order; protect human animal or plant life or health; protect and conserve the environment; among others (Art. 23), and a provision to safeguard parties\u2019 essential security interests (Art. 24), further detailed in an annex (Annex I).<\/p>\n

Summary of the main features<\/h2>\n

Courtesy of two emerging economies, the 2020 Brazil\u2013India ICFT brings to the IIA world a blend of two of the most innovative investment treaty models developed in recent years:<\/p>\n