Why in the News?

The bilateral investment treaty (BIT) between India and the United Arab Emirates (UAE), signed earlier this year, has recently been made public. This new treaty will replace the 2014 India-UAE investment agreement and holds significant importance.

What are the implications of India’s revised Model BIT for foreign investors?

• Enhanced Investor Protection: The new BIT aims to provide greater protection for foreign investments while balancing the state’s right to regulate. This is expected to boost investor confidence by assuring minimum standards of treatment and non-discrimination.
• Quicker Access to ISDS: The reduction of the local remedies exhaustion period from five years to three years allows investors to access international arbitration more quickly if disputes arise, potentially making India a more attractive destination for foreign investments.
• Clearer Definitions and Reduced Discretion: By refining the definition of what constitutes an investment and removing subjective criteria related to the significance of investments for host state development, the BIT reduces arbitral discretion, which can lead to more predictable outcomes in dispute resolution.

How does the India-UAE BIT depart from the Model BIT?

• Exhaustion of Local Remedies: As noted, the India-UAE BIT lowers the exhaustion period from five years to three years, reflecting India’s responsiveness to concerns about lengthy legal processes in its judicial system.
• Removal of Development Significance Criterion: The BIT omits the requirement that investments must significantly contribute to the host state’s development—a criterion present in the Model BIT. This change simplifies the definition of what constitutes an investment eligible for protection, reducing subjective interpretations by ISDS tribunals.
• No Reference to Customary International Law: Unlike the Model BIT, which links treaty violations to customary international law (CIL), Article 4 of the India-UAE BIT does not reference CIL, thereby limiting arbitral discretion and providing clearer grounds for evaluating state actions against investments.
• Prohibition on Third-Party Funding: The new treaty explicitly disallows third-party funding in ISDS proceedings, which may impact investors’ ability to finance their claims against states without personal financial risk.

What are the positives and future opportunities for India-UAE BIT relations?

• Strengthened Economic Cooperation: The BIT is expected to enhance bilateral economic ties by providing a stable legal framework that encourages investment flows between India and the UAE, both of which have significant stakes in each other’s economies.
• Increased FDI Inflows: With UAE being a key source of foreign direct investment (FDI) for India, estimated at around $19 billion, the new treaty is anticipated to stimulate further investments, benefiting various sectors in both countries.
• Alignment with Broader Economic Agreements: The BIT complements other agreements such as the Comprehensive Economic Partnership Agreement (CEPA), reinforcing a comprehensive framework for economic collaboration beyond just investment protection.
• Potential Influence on Future Treaties: India’s approach in negotiating this BIT may serve as a model for future treaties with other countries, reflecting a more flexible stance that could attract additional foreign investments while still safeguarding national interests.

Conclusion: The India-UAE BIT offers stronger investment protection, quicker dispute resolution, and clearer definitions, fostering bilateral economic ties. This new agreement balances investor rights and state regulation, encourages increased FDI, strengthens economic cooperation, and could influence future treaties for enhanced global investment.

Mains PYQ:

Q How will the I2U2 (India, Israel, UAE and USA) grouping transform India’s position in global politics? (UPSC IAS/2022)

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