In the midst of discussions with the United Kingdom to finalize a new bilateral investment treaty (BIT) alongside an impending free trade agreement, India is signaling a departure from its previous BIT approach crafted in 2016. This shift is particularly notable in negotiations with “strategically important countries,” with which India seeks to forge deeper economic integration. This change in stance follows India’s exit from the Regional Comprehensive Economic Partnership (RCEP), a significant trade agreement led by China involving 15 Asian nations, which came into force last year.
While many aspects of the BIT have already been resolved, a few remaining issues require further attention. However, the prospect of reaching an agreement has brightened, with expectations of concurrent finalization alongside the India-UK Free Trade Agreement (FTA). It is noteworthy that both India and the UK have adapted their positions during the ongoing negotiations.
Previously, India had leaned toward utilizing “local remedies” as a means to resolve investment-related legal disputes, rather than consenting to independent international arbitration. This preference for local remedies gained prominence after a high-profile dispute involving the Vodafone Group in 2020, which resulted in an international arbitration ruling in favor of the company, ending a 13-year-long legal battle over a $2 billion tax claim by the Indian government.
The primary concern with the “exhaustion of local remedies” clause lies in the prolonged duration required for dispute resolution in India, a concern shared by the countries involved in these negotiations. The timeframe for settling disputes has thus been a pivotal point of discussion.
UK Secretary of State for Business and Trade, Kemi Badenoch, emphasized that the previously negotiated treaty from the 1990s had expired. However, existing agreements and arrangements established under that treaty continue to apply to ongoing matters, including legacy businesses and new entrants.
During discussions with India, Badenoch underscored the UK’s commitment to respecting the sovereignty of other nations, including India. These negotiations have highlighted India’s evolving position regarding BITs.
Notably, the World Bank’s “Ease of Doing Business 2020” report ranked India at 163 out of 190 countries in terms of ease of enforcing contracts, reflecting an extended timeline and substantial claim value deductions for dispute resolution.
A working paper by the Indian Council for Research on International Economic Relations (ICRIER) on the impact of BITs on foreign direct investment (FDI) inflows into India emphasized the government’s reluctance towards multilateral governance of international investment. The paper indicated a positive and significant correlation between comprehensive investor protection and increased foreign investment flows.
Queries directed to India’s commerce and finance ministries remained unanswered at the time of press.
This shift in India’s approach to BITs represents a noteworthy development in its international economic relationships and underscores the nation’s intent to enhance economic integration with strategically important partners, such as the UK. It reflects a proactive response to concerns and challenges that have arisen in previous investment disputes, and anticipates a more efficient resolution mechanism for future disputes.
