Bilateral Investment Treaties (BITs) are a type of international treaty, specifically agreements between two sovereign states that establish the terms and conditions for private investment, known as Foreign Direct Investment (FDI), by nationals and companies of one state in the territory of the other. The concept's forerunner was the Friendship, Commerce and Navigation Treaties (FCNs), and the modern BIT came into prominence after the World Wars to protect investments in developing countries. The world's first BIT was signed on November 25, 1959, between Pakistan and Germany.
BITs work by providing substantive protections to foreign investors, which typically include Fair and Equitable Treatment (FET), National Treatment (NT), and protection from expropriation without prompt, adequate, and effective compensation. The core mechanism is the Investor-State Dispute Settlement (ISDS), which grants the foreign investor the right to bypass the host state's domestic courts and submit a dispute to binding international arbitration, often under the auspices of the International Centre for Settlement of Investment Disputes (ICSID). This mechanism connects BITs to the broader field of international investment law.
India's approach to BITs has changed significantly following unfavorable arbitration awards, such as the White Industries Australia Limited v. Republic of India (2011) case. In response, the Government of India approved a new Model Bilateral Investment Treaty (Model BIT) in 2016. This new Model BIT is more "state-centric," limiting investor protections by excluding the Most-Favoured-Nation (MFN) clause and imposing stringent requirements, such as the exhaustion of local remedies, before an investor can initiate international arbitration. Following the introduction of the 2016 Model BIT, India terminated the majority of its existing BITs.