Context: 

The Union Cabinet  has ratified the Bilateral Investment Treaty between India and the United Arab Emirates.

• The two nations have also implemented a free trade agreement in May 2022. India received an FDI of $16.7 billion between April 2000 and September 2023.

What Is a Bilateral Investment Treaty?

• Definition: Bilateral Investment Treaties are international agreements establishing the terms and conditions for private investment by nationals and companies of one country to another country. 
• Provide guarantees: They set forth actionable standards of conduct that applied to governments in their treatment of investors from other nations, including: 
  • National  treatment (treating foreign investors at par with domestic companies)
  • Fair and equitable treatment (in accordance with international law)
  • Protection from expropriation (limiting each country’s ability to take over foreign investments in its territory).
• Alternative  dispute resolution mechanism: It provides a mechanism for dispute resolution whereby  an investor  has recourse to international arbitration, often under the auspices of the ICSID (International Center for the Settlement of Investment Disputes).

Association of India With Bilateral Investment Treaty

• Start: As  a part of its economic liberalisation programme of 1991 India started its BIT journey with the first BIT signed with the United Kingdom (UK) in 1994
• Present Status:  India has signed BITs with 83 countries till 2015 (of which 74 were in force) and  these BITs were negotiated based on the Indian Model BIT of 1993. 
• Need for a new BIT Model:  As per UNCTAD, so far 22 ISDS claims have been brought against India, challenging a wide array of regulatory measures such as the imposition of retrospective taxes, cancellation of spectrum licences, and revocation of telecom licences etc
  • White Industries v India case 2011: India  lost in the case with the  ISDS tribunal finding India in violation of  its obligations under the India-Australia BIT.
• Revised Model BIT of 2015: The new model aims to provide appropriate protection to foreign investors in India, while maintaining a balance between investor’s rights and the government’s obligations. Since then India has,
  • Signed:  New BITs/Investment Agreements signed with only four countries
  • In Negotiations: Is engaged in negotiations  with 37 countries/blocks
  • Termination:  India terminated  its older BITs with 77 countries (i.e., older BITs with only six countries are in force).

Significance Of Bilateral Investment Treaty

• Investor confidence: The Treaty is expected to improve the confidence of the investors, especially large investors, resulting in an increase in Foreign Investments and Overseas Direct Investment (ODI) opportunities 
• Investment Boost: The approval is expected to increase investments in India and is likely to help in realising the goal of Atmanirbhar Bharat by encouraging domestic manufacturing, reducing import dependence, increasing exports etc.

Challenges Associated With Bilateral Investment Treaty

• Investor obligations: No binding investor obligations in the Bilateral Investment Treaties  restrict the host states without a legal basis to raise counter-claims on grounds of  violation of local law, human rights obligations, environmental obligations etc against the erring investors.
• Dispute resolution: The timely settlement of investment disputes through pre-arbitration consultation or negotiations is not followed resulting in  significant cost to the exchequer.
• Drafting of BITs:  The text of BITs has certain ambiguities which result in  overbroad interpretation by arbitrators and tribunals, investment disputes or claims against India and the abuse of certain provisions by investors.
• Transparency in the ISDS proceeding: The government is bypassing its legal obligations under the domestic law by acording  primacy to the confidentiality orders of the arbitral tribunal and denying  supplying the information on ISDS under the Right to Information Act.
• Lack of expertise: India does not have sufficient number of lawyers/judges with the requisite expertise and experience in arbitration and thus  huge fees are paid to foreign lawyers and law firms engaged to represent India in investment arbitration

Suggestions For Bilateral Investment Treaty: From Standing Committee on External Affairs Report

As per The Standing Committee on External Affairs report 2021  recommendations on the subject ‘India and Bilateral Investment Treaties’

• Renewed Approach towards BITs: India should focus on signing new BITs with already partner countries, signing BITs selectively in identified priority sectors, and early completion of treaty negotiations
• India as a hub for Arbitration:  Ministry of External Affairs should  ensure early implementation of the agreement  signed  with the Permanent Court of Arbitration (PCA), under which an arbitration administered by PCA can be conducted in India and also promoting the New Delhi International Arbitration Centre as a world-class arbitration centre.
• Developing local expertise: To  develop  panels of domestic lawyers (and law firms) with  the requisite expertise in investment arbitration to represent India, and experience in investment treaty law to ensure good drafting of BITs as well as training government officials in the field of investment treaties.

Also Read: INDIA-UAE Relations

News Source: PIB