Out of alignment – On India-UK Bilateral Investment Treaty

Source- The post is based on the article “Out of alignment” published in the “The Indian Express” on 14th July 2023.

Syllabus: GS 2 – Bilateral, regional and global groupings and agreements

Relevance – Issues related to foreign investment

News – Negotiations are undergoing on the India-UK bilateral investment treaty.

What is the main point of contention in negotiation?

London has conveyed its unease regarding New Delhi’s insistence on including the “exhaustion of local remedies clause” in dispute resolution mechanisms.

This clause has played a central role in India’s decision to unilaterally terminate 68 out of 87 Bilateral Investment Treaties between 2013 and 2019. It has also been a fundamental aspect of a model BIT by the Indian government.

Why is the “exhaustion of local remedies clause” problematic?

1) It is impractical to expect foreign investors to rely solely on local remedies. The Indian judicial system is known for its slow pace.

Policy interventions by the government further complicate matters. For example, the Vodafone case lasted 13 years, partly due to the government retroactively amending tax laws.  This compelled Vodafone to appeal to the Permanent Court of Arbitration.

2) Courts and regulators have not consistently upheld contractual obligations. In the dispute between Amazon and Future Group, the Singapore International Arbitration Centre (SIAC) initially ruled in favour of Amazon,

A decision later confirmed by a single-judge Bench of the Delhi High Court. However, on appeal, a Division Bench of the same court favoured Future Group. But the Supreme Court upheld the SIAC’s decision.

The government claims that international arbitration favours investors over governments. But it is incorrect.

Data from the UNCTAD demonstrates that out of 1,104 known cases of international dispute settlement, 274 rulings were in favour of states, while 212 rulings favoured investors.

What should be the India government’s approach towards investment treaties?

India should accept international arbitration for confidence-boosting of investors.

It should honour decisions of arbitration courts. It will avoid the embarrassment caused by seizing of Indian assets abroad by corporations to enforce arbitral awards, which occurred in the case of Cairn Energy.

India should not impose this clause in investment treaties.