India’s Bans on Chinese Apps & International Investment Arbitration: Assessing Potential Arguments

Keywords: India, China, Ban, Apps, BIT

Introduction

Along the same lines as America, the Indian Government recently banned more than 170 Chinese mobile apps, including WeChat, TikTok, and BaiDu, on the ground that they are prejudicial to India’s security and public order. [1]

To seek redress against India, the affected Chinese investors could rely on the 2006 India-China Bilateral Investment Treaty, [2] which is still in force pursuant to its sunset clause (art. 16). This article analyses the claims and defences that the parties could use in a hypothetical investment-treaty arbitration. Although the investors may have non-Chinese nationalities available to them, this article will solely focus on their potential claims under the India-China Bilateral Investment Treaty (the “BIT”). A ponderation of each side’s potential arguments is necessary to ultimately consider whether such bans may give rise to a prima facie ISDS case for the investors.

Chinese investors’ arguments under the BIT

Jurisdiction ratione materiae

Since jurisdiction ratione personae depends heavily on the specifics of each claim, it is here more pertinent to consider jurisdiction ratione materiae, i.e., whether the banned apps could qualify as an ‘investment’.

Specifically, they could be claimed to constitute an investment in three ways. First, apps could be protected as IP (art. 1(b)), as domain names are widely accepted as IP rights. [3] Second, investors may be deemed to own “rights to money or to any performance under contract” (art. 1(b)(iii)), both with regard to advertisement contracts and agreements with their end-users on data usage. Finally, the apps’ parent companies could claim their shares therein constitute an investment (art. 1(b)(ii)).

Fair and Equitable Treatment (Art. 3 BIT)

India’s bans may breach three aspects of FET. First, the bans could potentially defeat the investors’ legitimate expectations, as they drastically changed the legal framework based on which the investments were made – availability of the apps to the public.

Second, they may be claimed to breach due process, [4] transparency, [5] and non-arbitrariness. [6] Indeed, the bans’ compliance with the domestic procedural formalities [7] seems disputable. [8]

Finally, the Chinese investors could claim the bans were implemented in bad faith, [9] disguising measures designed to damage Chinese investors (thus, indirectly China) as actions taken in the interest of public order.[10]

Non-Discrimination Standards (Art. 4 BIT)

India’s bans may imply a violation of National Treatment, should they unduly advantage local competitors, or of Most-Favoured Nation, should they treat non-Chinese investors in a more favourable way than Chinese ones. In this sense, non-Chinese tech companies have faced several allegations regarding data security around the world, [11] however they seem far from falling within India’s ‘blacklist’.

Indirect Expropriation (Art. 5 BIT)

The Chinese investors may claim that the bans substantially deprive the investors of the benefits of their investment [12] – for instance, their IP rights over their domain name, which cannot anymore be accessed by Indian users, or of their right to revenues generating from advertisements and users’ data.

Moreover, India’s bans may not meet the requirements art. 5 provides to excuse a measure’s expropriatory character. First, while the bans allegedly pursue public interest, they may seem somewhat incoherent, as several apps owned by the same parent companies as those banned were not affected by the measures. [13] This could leave doubts about their actual purpose. Second, the economic impact of the bans was seemingly not offset with fair compensation, and the measures may not be considered as non-discriminatory in nature.

Finally, the bans’ interim nature may not exclude a claim of indirect expropriation as, in light of the current tense geopolitical situation between India and China [see below], “an objective observer would conclude that there is no immediate prospect that the owner will be able to resume the enjoyment of his property”. [14]

India’s Defences

Under the BIT

Territoriality

The BIT limits its application to investments made “in the territory of the other Contracting Party” (art. 2). Accordingly, India could claim the lack of jurisdiction ratione loci, as the apps may not have any territorial nexus with the host state. [15]

However previous arbitral case law interpreted territoriality as where an investment’s benefits flow, rather than as its physical location. [16] Hence, the Chinese apps may be still regarded as an investment within the territory of India, since they put their service at the disposal of Indian citizens.

Security exception (Art. 14 BIT)

Accordingly, India would have to prove that the bans were issued “for the protection of its essential security interests or in circumstances of extreme emergency in accordance with its laws […] on a non-discriminatory basis”.

Claiming circumstances of extreme emergency may not work in this case, as many of the affected apps have long been used in India, [17] thus essential security interests seem more relevant to consider. Tribunals have generally been deferential towards what states deem a threat to their essential security interests. [18] Accordingly, a potential tribunal may accept India’s argument that the data security and privacy of millions of Indian app users constitute essential security interests, which the bans aimed to tackle.

Nevertheless, in case the bans were deemed non-compliant with Indian laws or discriminatory in nature, India may struggle to meet the other two requirements laid out in art. 14.

Under Public International Law

Police Powers

India could claim that the bans are an expression of its police powers, and therefore exclude a violation of the applicable BIT, especially with regard to expropriation and FET. [19]

Nevertheless, the scope of such defence is limited to measures taken bona fide and on a non-discriminatory basis, therefore India may have to prove that the bans were adopted in respect of due process, without intentionally harming foreign investors, and without targeting investors based on their nationality.

Necessity

In this regard, India may struggle with three of art. 25 ARSIWA’s requirements [20] – to prove that the bans were the only measures possible to safeguard India’s national security, that India did not contribute to the situation of necessity, and that it was facing imminent peril.

As for the first two requirements, the main issue could be the potential inadequacy of Indian data protection laws. [21] In fact, appropriate legislation may have been a more suitable response to data security concerns, as the targeted apps are likely not the only ones creating these kind of issues. Furthermore, the lack of adequate legislation may be viewed as India’s contribution to a potential situation of necessity. Finally, as mentioned, most of the banned apps have been used in India for years, therefore it may be hard to prove the existence of an imminent peril arising from them.

Countermeasures

Countermeasures have rarely been dealt with in investment treaty cases. [22] The main issue is that the investor would bear the negative consequences of a countermeasure taken by the host state to respond to the unlawful conduct of its home state, which is not a party to the arbitral proceedings.

In the case of Chinese companies, however, this concern seems mitigated, since many of them have close links with or are ultimately owned or controlled by China.

According to art. 49 of ARSIWA, India would have to prove that the bans were taken in response to previous wrongful conduct by China, that they aimed at inducing China to compliance and are therefore reversible, and that they are proportional to the injuries suffered (Art. 51 ARSIWA).

First, India could argue that the bans amount to countermeasures to respond to the ongoing territorial clashes with China across the ‘Line of Actual Control’ in Ladakh. India could claim that the measures were an attempt to induce China to regress into the mainland. Furthermore, the bans were issued through interim orders of the Indian Government, hence they may be considered reversible.

Second, countermeasures similar in nature to the offence suffered are more likely to be deemed proportional.[23] This is not the case for the bans. However, non-reciprocal countermeasures may be deemed proportionate when reciprocal ones would affect an obligation that cannot be breached by a countermeasure, for instance, jus cogens. [24] In this vein, India could claim its bans are proportional, as reciprocity would have involved the use of force against China’s territorial integrity.

Conclusion

In light of the foregoing, the investors’ possible arguments seem stronger than the host state’s defences, thus appearing to give rise to a prima facie case. The bans’ seemingly disputable compliance with the procedural formalities set out in the 2009 Blocking Rules, as well as their potential discriminatory character against Chinese companies may constitute India’s main weak spots. These shortcomings may be apparent to a tribunal, which could view them as measures aimed at damaging Chinese investors (and therefore China) as a political consequence of border tensions, more than at tackling actual issues of national security.

ENDNOTES

[1] Ministry of Electronics & IT (Government of India) ‘Government Bans 59 mobile apps which are prejudicial to sovereignty and integrity of India, defence of India, security of state and public order’, Press Release (29 June 2020) https://pib.gov.in/PressReleasePage; Indian Ministry of Electronics & IT (Government of India), ‘Government Blocks 118 Mobile Apps Which are Prejudicial to Sovereignty and Integrity of India, Defence of India, Security of State and Public Order’, Press Release (2 September 2020) https://pib.gov.in/PressReleasePage accessed 10 September 2020.

[2] Agreement between the Government of the Republic of India and the Government of the People’s Republic of China for the Promotion and Protection of Investments, (signed 21 November 2006; in force 1 August 2007).

[3] Matthew R. Dardenne, ‘Testing the Jurisdictional Limits of the International Investment Regime: The Blocking of Social Media and Internet Censorship’ (2020) 40(1) Denver Journal of International Law & Policy, p. 411-412.

[4] Rudolf Dolzer and Christoph Schreuer, ‘Principles of International Investment Law’ (Oxford University Press 2012), p. 154.

[5] ibid., p. 149.

[6] Case Concerning Elettronica Sicula (ELSI) (United States of America v Italy), Judgment (20 July 1989), ¶ 128.

[7] Ministry of Electronics & IT (Government of India), Information Technology (Procedure and Safeguards for Interception, Monitoring and Decryption of Information) Rules (2009) https://www.meity.gov.in/writereaddata/files/Information accessed 10 September 2020.

[8] E.g. Anupriya Dhonchak and Nikhil Purohit, ‘Is India’s ban on Tiktok and 58 other Chinese apps consistent with the provisions of IT Act?’ (Scroll.it, 1 July 2020) https://scroll.in/article/966131 accessed 10 September 2020; Pragya Jain and Chaitanya Acharya, ‘India’s International Investment Law Breach through its Chinese Application Ban’ (Jurist.org, 17 August 2020) < https://www.jurist.org/commentary/2020/08/> accessed 10 September 2020.

[9] Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003), ¶ 153.

[10] Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award (20 August 2007), ¶ 7.4.39.

[11] E.g. Alex Hern, ‘Facebook personal data use and privacy settings ruled illegal by German court’, The Guardian (12 February 2018) https://www.theguardian.com/technology/2018 accessed 10 September 2020; Emma Woollacott, ‘Legal Challenge To US-EU Data Transfer Via Google Analytics And Facebook Connect’, Forbes (18 August 2020) < https://www.forbes.com/sites/emmawoollacott/2020/08/18/> accessed 10 September 2020; Harry Pettit, ‘iPhone users may get £750 each from Google over ‘illegal’ data snooping – here’s how to check if you’re owed cash’, The Sun (3 October 2019) https://www.thesun.co.uk/tech/ accessed 10 September 2020.

[12] Tippetts, Abbott, McCarthy, Stratton v. TAMS-Affa Consulting Engineers of Iran et al., IUSCT Case No. 7, Award No. 141-7-2 (29 June 1984), pp. 10-11; Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000), ¶ 103.

[13] E.g. Ananya Bhattacharya, ‘TikTok may be gone but another ByteDance app is thriving in India’ (qz.com, 20 July 2020) https://qz.com/india/ accessed 10 September 2020.

[14] UNCTAD Series on Issues in International Investment Agreements, ‘Expropriation’ (unctad.org, 2012) https://unctad.org/en/Docs/unctaddiaeia2011d7_en.pdf accessed 13 September 2020.

[15] E.g. Christopher R. Zheng, ‘The Territoriality Requirement in Investment Treaties: A Constraint on Jurisdictional Expansionism’ (2016) 34 Singapore Law Review 139.

[16] Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997), ¶ 41; Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction (24 May 1999), ¶ 90; SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003), ¶ 125; SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004), ¶¶ 99-107; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010), ¶¶ 277-79.

[17] E.g. TikTok, PubG, WeChat and BaiDu.

[18] CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited and Telecom Devas Mauritius Limited v. India, PCA Case No. 2013-09, Award on Jurisdiction and Merits (25 July 2016), ¶¶ 244-245; Deutsche Telekom v. India, PCA Case No. 2014-10, Interim Award (13 December 2017), ¶ 235.

[19] E.g. Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Award (17 March 2006), ¶ 262; Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), ¶¶ 422-423.

[20] Draft Articles on the Responsibility of States for International Wrongful Acts, (2001).

[21] Saheli Roy Choudhury, ‘India’s existing data privacy laws are inadequate in protecting people’s information’ (CNBC, 13 July 2020) https://www.cnbc.com/2020/07/14/india-chinese-apps-ban-data-protection-laws.html accessed 10 September 2020.

[22] Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB (AF)/04/5, Award (21 November 2007), ¶¶ 110-180; Corn Products International, Inc. v. United Mexican States, ICSID Case No. ARB (AF)/04/1, Award (18 August 2009), not public; Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award (18 September 2009), ¶¶ 379-430.

[23] Gleider Hernandez, ‘International Law’ (Oxford University Press 2019), p. 331.

[24] ibid.

Letizia Busso holds an LL.M. in International Trade and Investment Law from the University of Amsterdam, an LL.M. from the University of Turin, and a Certificate in Transnational Legal Studies from Georgetown Law. She is currently in the process of qualifying as a Lawyer.

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.