India-UAE Bilateral Investment Treaty compared to India’s Model BIT

Source: The post India-UAE Bilateral Investment Treaty compared to India’s Model BIT has been created, based on the article “A bilateral investment treaty with a ‘bit’ of change” published in “The Hindu” on 22nd November 2024

UPSC Syllabus Topic: GS Paper 2-International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Context: The article discusses key changes in the India-UAE Bilateral Investment Treaty compared to India’s Model BIT. It highlights reduced waiting times for ISDS claims, clarified investment definitions, greater specificity in treaty violations, and continuity in excluding MFN and taxation issues.

For detailed information on Bilateral Investment Treaties (BITs): India’s Approach and Concerns read this article here

What Are the Key Changes in the India-UAE BIT Compared to India’s Model BIT?

The new India-UAE treaty includes several departures from the 2015 Model BIT:

1. Reduction in Waiting Period for ISDS Claims: The Model BIT required investors to exhaust local remedies for at least five years before filing an international claim. The India-UAE BIT reduces this period to three years. This change addresses concerns about India’s slow judicial process and provides quicker access for foreign investors without increasing India’s exposure to treaty claims.
2. Simplified Definition of Investment: The treaty clarifies that investments must involve capital commitment, profit expectations, and risk assumption. However, it removes the requirement that investments must be significant for the host state’s development, a subjective criterion in the Model BIT. This reduces arbitral discretion and provides clearer protection for lawful investments.
3. Clarity on Treaty Violations: Article 4 of the India-UAE BIT explicitly lists state actions that constitute treaty violations, such as denial of justice or fundamental breaches of due process. Unlike the Model BIT, it does not reference customary international law, which reduces ambiguity and limits the discretion of ISDS tribunals.

For detailed information on India UAE Relations read this article here

What Continues from the Model BIT in the India-UAE BIT?

Despite the changes, the India-UAE BIT retains key elements from the Model BIT:

1. Exclusion of MFN Clauses: The treaty does not include the most favoured nation (MFN) provision, continuing India’s policy to avoid this non-discrimination standard in investment treaties.
2. Exclusion of Tax Measures from ISDS: Tax-related actions are outside the treaty’s scope. This ensures that foreign investors cannot challenge tax measures, even if they believe the measures are abusive.
3. Limitations on Reviewing Domestic Court Decisions: Article 14.6(i) bars ISDS tribunals from reviewing the “merits” of domestic court decisions. This could restrict investors from raising disputes already decided in domestic courts, but the exact scope of “merits” remains open to interpretation.

What New Restrictions Are Introduced?

The India-UAE BIT introduces additional provisions that were not present in the Model BIT:

1. Prohibition of Third-Party Funding: The treaty explicitly disallows third-party funding of ISDS claims, which could limit the financing options for investors.
2. No ISDS for Allegations of Fraud or Corruption: If an investor faces allegations of fraud or corruption, they cannot invoke ISDS under this treaty.

What Are the Implications of These Changes?

These changes highlight India’s evolving approach to investment treaties. For example:

1. The reduction in the waiting period might please developed countries like the UK or EU, but concerns remain about excluding MFN and taxation from the treaty.
2. By simplifying definitions and limiting tribunal discretion, the treaty ensures greater clarity for both investors and states while protecting India’s regulatory autonomy.

Question for practice:

Examine how the India-UAE Bilateral Investment Treaty addresses the concerns of foreign investors while maintaining India’s regulatory autonomy.