India-UAE Bilateral Investment Treaty (BIT)

Context:
The India-UAE Bilateral Investment Treaty (BIT), signed in 2023 and effective from August 31, 2024, replaces the 2013 treaty. It aligns with India’s Model BIT while addressing emerging challenges in global investment.

Key Features of the India-UAE BIT

1. Mandatory Local Remedies:
   • Investors must exhaust domestic legal remedies for three years before initiating international arbitration.
2. Balanced Framework:
   • Strikes a balance between sovereign regulatory powers and investor protection to address concerns from both sides.
3. Investment Scope:
   • Covers both direct and portfolio investments, eliminating jurisdictional ambiguities.
4. Transparency and Compensation:
   • Ensures protection from expropriation, transparency in dealings, and guarantees compensation for losses.
5. Exclusions:
   • Excludes the Most-Favoured-Nation (MFN) clause to avoid misuse.
   • Excludes taxation issues to safeguard India’s fiscal autonomy.
6. Anti-Fraud Safeguards:
   • Restricts third-party funding in arbitration and limits Investor-State Dispute Settlement (ISDS) in cases of proven investor misconduct.

Significance of the India-UAE BIT

Economic Relations

• UAE is India’s 7th largest FDI source, contributing $19 billion (April 2000–June 2024).
• Provides a stable investment environment, enhancing investor confidence.

Sectoral Partnerships

1. Trade:
   • UAE is India’s 3rd largest trading partner after the US and China.
2. Energy:
   • Supplies crude oil, LNG, and LPG, contributing to India’s energy security.
3. Defense:
   • Strengthened collaboration through initiatives like Desert Cyclone, a joint military exercise.

Advantages of the Treaty

1. Investment Protection:
   • Guarantees fair treatment for investors and reduces arbitral discretion by clearly defining terms.
2. Regulatory Sovereignty:
   • Excludes MFN and taxation, ensuring policy space for India’s regulatory decisions.
3. Investor Confidence:
   • Transparent and predictable investment provisions foster trust among investors.
4. Strategic Negotiation Model:
   • Provides a blueprint for ongoing investment discussions with UK and EU.
5. Moderated ISDS Mechanism:
   • Addresses global concerns about lengthy domestic litigation requirements by simplifying arbitration procedures.

Challenges

1. Judicial Overstretch:
   • India’s legal system faces delays that could undermine the treaty’s intent of expedited resolution.
2. Investor Concerns:
   • Exclusion of MFN and taxation clauses might deter developed country investors.
3. Arbitral Risks:
   • Inclusion of portfolio investments could increase India’s exposure to arbitration claims.

Way Forward

1. Strengthening Legal Infrastructure:
   • Expedite dispute resolution by addressing systemic judicial delays and inefficiencies.
2. Clarifying Treaty Provisions:
   • Define ambiguous terms such as ‘merits’ to reduce potential jurisdictional disputes.
3. Stakeholder Engagement:
   • Consult investors to address concerns about MFN and taxation exclusions and align interests.
4. Anti-Corruption Measures:
   • Implement robust anti-fraud frameworks to enhance treaty credibility and protect investments.