[Answered] The India-UAE Bilateral Investment Treaty (BIT) reflects a nuanced approach to balancing investment protection and sovereign regulatory rights. Discuss the key changes introduced in this treaty compared to India’s 2015 Model BIT and their implications for foreign investments. (250 words)

The recently signed India-UAE Bilateral Investment Treaty (BIT) reflects a nuanced approach to balancing investment protection with the sovereign regulatory rights of states. While it draws from India’s 2015 Model BIT, significant departures reveal evolving priorities in India’s investment treaty practices. These changes aim to address the concerns of foreign investors, streamline investor-state dispute resolution, and limit the discretion of arbitration tribunals.

Key Changes Introduced in the India-UAE BIT

• Reduced Waiting Period for Investor-State Dispute Settlement (ISDS)
  • 2015 Model BIT: Mandated exhaustion of local remedies for five years before initiating ISDS.
  • India-UAE BIT: Reduces this period to three years, addressing concerns of delays in India’s overburdened judiciary.
• Definition of Investment
  • 2015 Model BIT: Included a criterion that the investment must be “significant for the development” of the host state, leaving room for subjective interpretation.
  • India-UAE BIT: Omits this requirement, instead of focusing on objective economic characteristics like capital commitment, profit expectation, and risk assumption.
• Clarity on Treatment Standards
  • 2015 Model BIT: Linked violations such as denial of justice and due process breaches to Customary International Law (CIL).
  • India-UAE BIT: Removes reference to CIL, specifying clear grounds for treaty violations.
• Prohibition of Third-Party Funding and Fraudulent Investments: Introduces explicit disallowance of third-party funding in disputes and denies ISDS access in cases of alleged fraud or corruption.
• Exclusion of Most Favored Nation (MFN) Clause and Taxation Measures: Like the Model BIT, excludes MFN provisions and bars the jurisdiction of ISDS tribunals over taxation measures, even if they are abusive.

Implications for Foreign Investments

• Improved Investment Climate: Reduced ISDS waiting period and clearer investment definitions create a more investor-friendly framework, fostering confidence, especially among UAE investors.
• Regulatory Sovereignty: Exclusions of MFN clauses, taxation measures, and domestic judicial decisions reinforce India’s ability to regulate in the public interest while balancing investment protection.
• Streamlined Arbitration: By curbing arbitral discretion and excluding ambiguous criteria like CIL references, the treaty aligns with India’s aim of reducing treaty abuse and arbitration costs.
• Strengthening Bilateral Ties: The treaty aligns with India’s broader economic strategy, complementing the India-UAE Comprehensive Economic Partnership Agreement (CEPA) to attract UAE investments in sectors like infrastructure and energy.

Conclusion

The continuity and innovation in India’s BIT practices underscore a pragmatic approach to fostering a robust investment ecosystem.