Context

• The Bilateral Investment Treaty (BIT) signed earlier this year between India and the United Arab Emirates (UAE) reflects critical developments in India's approach to international investment agreements.
• By replacing the 2014 India-UAE investment treaty, the new BIT reveals India’s evolving strategy and might offer insights into its negotiations with entities like the United Kingdom and the European Union.
• Therefore, it is important to explore the BIT’s objectives, key deviations from India’s Model BIT, and its implications for investment protection and state sovereignty.

BIT’s Objectives: Balancing Investment Protection and Sovereignty

• A well-designed BIT aims to balance two competing goals: providing robust protections to foreign investors and preserving the host state’s regulatory autonomy.
• It must also reduce the interpretive discretion of investor-state dispute settlement (ISDS)
• The India-UAE BIT signed earlier this year demonstrates significant strides in these areas while highlighting areas of both continuity and departure from India’s Model BIT of 2015.

Key Departures from India’s Model BIT

• Exhaustion of Local Remedies
  • One notable deviation is the reduced timeframe for exhausting local remedies before initiating ISDS claims.
  • The India-UAE BIT sets this period at three years, compared to the five-year requirement in the Model BIT and agreements with Belarus and Kyrgyzstan.
  • This change acknowledges concerns about the inefficiencies of India’s overstretched judicial system and provides foreign investors with faster access to international arbitration.
  • By shortening this period, India strikes a middle ground between protecting investor interests and safeguarding against unfounded treaty claims.
• Redefining Investment
  • The India-UAE BIT also revises the definition of ‘investment.’
  • While the Model BIT requires investments to significantly contribute to the host state’s development, this subjective criterion has been removed.
  • Instead, the new BIT focuses on economic characteristics such as capital commitment, profit expectation, and risk assumption.
  • This change reduces the scope for arbitral discretion by eliminating inherently value-laden assessments, offering greater clarity and predictability to investors.
• Greater Clarity: Treatment of Investments
  • Another major refinement appears in Article 4, which outlines instances of treaty violations.
  • Unlike the Model BIT, which ties such violations to customary international law (CIL), the India-UAE BIT omits this reference.
  • This is significant because the content of CIL on foreign investment issues remains unsettled, and linking treaty provisions to CIL could lead to inconsistent interpretations by ISDS tribunals.
  • By clearly specifying violations, the treaty enhances legal certainty for both states and investors.

Points of Continuity with India’s Model BIT

• Exclusion of the Most-Favoured-Nation (MFN) Clause
  • One of the most prominent continuities is the exclusion of the Most-Favoured-Nation (MFN) provision, a key principle in many international economic agreements.
  • The MFN clause typically ensures that a host country provides no less favourable treatment to investors of one country than it does to those of others.
  • Its absence in the India-UAE BIT is a deliberate move, as India aims to avoid the risk of treaty shopping.
  • Treaty shopping occurs when investors use the MFN clause to invoke more favourable provisions from treaties signed with other countries, undermining the host country’s intent and potentially leading to unpredictable legal disputes.
  • By excluding this provision, India limits the risk of arbitration claims based on obligations not explicitly agreed upon in the treaty.
• Exclusion of Taxation Measures
  • Another notable area of continuity is the exclusion of tax-related disputes from the scope of the BIT.
  • The India-UAE BIT, like the Model BIT, bars foreign investors from challenging taxation measures through ISDS mechanisms.
  • This reflects India’s long-standing stance that taxation is a sovereign function and should remain beyond the purview of investment treaties.
  • While this exclusion maximises India’s regulatory power, it may also raise concerns among foreign investors about the lack of recourse against potentially discriminatory or abusive tax policies.
  • Nevertheless, India’s consistent policy underscores its priority of safeguarding its fiscal autonomy.
• Limitation on ISDS Tribunal Jurisdiction
  • The India-UAE BIT, like the Model BIT, places clear restrictions on the jurisdiction of ISDS tribunals.
  • Article 14.6(i) explicitly bars tribunals from reviewing the merits of domestic court decisions.
  • This provision is rooted in India’s belief that domestic judicial systems should retain their authority over legal disputes and that ISDS tribunals should not act as appellate bodies.
  • By restricting the scope of ISDS to procedural and treaty-based violations, the treaty minimises the potential for overreach by arbitral tribunals.
• Reinforcement of Sovereign Regulatory Space
  • The India-UAE BIT continues India’s emphasis on preserving sovereign regulatory space, a hallmark of the Model BIT.
  • By excluding areas like taxation and limiting tribunal oversight, the treaty ensures that India retains significant control over its internal policymaking.
  • This approach aligns with India’s broader stance of striking a balance between promoting foreign investment and protecting national interests.

Broader Implications of Continuity and Impact on Future Treaties

• Implications of Continuity
  • These continuities highlight India’s cautious and calculated approach to investment treaties.
  • While the departures from the Model BIT reflect a willingness to accommodate investor concerns, the consistent exclusion of MFN provisions, taxation measures, and unrestricted ISDS jurisdiction reaffirms India’s commitment to retaining policy autonomy.
  • This continuity sends a clear message to the international community that India values predictability and consistency in its investment treaty framework.
• Impact on Future Treaties
  • The India-UAE BIT strikes a nuanced balance between investment protection and regulatory autonomy.
  • The reduced litigation requirement might appeal to developed countries, signalling India’s willingness to accommodate investor concerns.
  • However, the continued exclusion of MFN provisions and tax measures underscores India’s intent to retain significant policy space.
  • Whether these deviations signify a broader shift in India’s BIT strategy or are tailored specifically for the UAE remains uncertain.
  • Nonetheless, this treaty sets a precedent that could influence ongoing and future negotiations with other countries and economic blocs.

Conclusion

• The India-UAE BIT is a pivotal document that highlights India’s calibrated approach to international investment agreements.
• By addressing investor concerns while maintaining sovereignty over key regulatory areas, the treaty exemplifies a pragmatic middle path.
• Its innovations and continuities alike offer valuable insights into the future trajectory of India’s investment treaty practices in an increasingly complex global economic landscape.