Switzerland and Liechtenstein, two of the four members of the European Free Trade Association (EFTA), are advocating for a bilateral investment treaty (BIT) with India. 

Background

• EFTA Trade Deal: The EFTA nations plan to invest USD 100 billion in India over the next 15 years as part of the newly signed Trade and Economic Partnership Agreement (TEPA).
  • While the trade agreement focused on economic cooperation, a BIT was not initially part of the discussions.
  • However, Switzerland and Liechtenstein are now pushing for a BIT to secure better investment protection for their companies operating in India.

About Bilateral Investment Treaty

• A Bilateral Investment Treaty (BIT) is a reciprocal agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state.
• The first BIT was signed by India on March 14, 1994.
• Some of the features of BIT:
  • Investor Protection: BITs typically provide safeguards against unfair treatment, expropriation without compensation, and arbitrary regulatory changes.
  • Non-discriminatory treatment: Ensures that foreign investors are treated fairly and transparently under the host country’s legal system.
  • Most-Favored-Nation (MFN) Clause: Guarantees that investors receive treatment no less favorable than that given to investors from any other country.
  • National treatment: Requires that foreign investors be treated on par with domestic investors in similar circumstances.
  • Investor State Dispute Settlement (ISDS): Requiring investors to exhaust local remedies before commencing international arbitration etc.

Need for a Bilateral Investment Treaty (BIT) for Switzerland and Liechtenstein

• Suspension of MFN Clause in DTAA: In December 2024, Switzerland suspended the Most-Favoured-Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) with India.
• Impact of Indian Supreme Court Ruling: The suspension followed an Indian Supreme Court ruling, which stated that DTAA enforcement requires notification under the Income Tax Act.
  • This led to higher taxes on Swiss companies operating in India, including Nestlé.
• Investment Protection and Stability: A BIT would provide Swiss and Liechtenstein investors with greater legal protection and predictability, addressing concerns over tax disputes and ensuring a stable investment environment.

India’s BIT Framework

• India canceled its old Bilateral Investment Treaties (BITs) based on the 1993 model due to adverse rulings in multibillion-dollar international disputes.
• To address this, India introduced a conservative 2016 model BIT that favoured the state over investors in investor-state disputes, including the “exhaustion of local remedies” clause. 
• However, this model has been criticized by Western trade partners for being overly restrictive.

India’s Shift Towards Investor-Friendly BITs

• India has signaled a shift in its approach to BITs and the Union Budget highlighted plans to revamp the BIT framework
• Key changes expected in the revamped BIT include: Better protection for foreign portfolio investors Entity-based protection, and more investor-friendly investment norms.

Significance  of Switzerland and Liechtenstein pushing for a BIT with India

• Strengthening India’s Global Position: A revamped BIT framework could boost Foreign Direct Investment (FDI), enhance India’s credibility, and set a precedent for future treaties with other nations.
• Shifting Global Investment Trends: Highlights India’s growing importance as an investment destination, encouraging other countries to seek similar treaties and promoting sustainable investment practices.
• Geopolitical Impact: Strengthens India-Europe ties and encourages India’s active role in multilateral trade forums.
• Addressing Tax and Legal Challenges: Provides clarity on tax and dispute resolution, potentially serving as a benchmark for global tax treaties.
• Enhanced Investor Protection: MNCs would benefit from stronger legal safeguards, reducing risks associated with investments in India.
• Improved Business Confidence: Clearer investment norms and dispute resolution mechanisms would boost business confidence among foreign investors.

Conclusion

A Bilateral Investment Treaty (BIT) between Switzerland, Liechtenstein, and India marks a significant step toward fostering stronger economic ties and addressing key concerns like tax disputes and investor protection.