India-UAE bilateral investment treaty can broaden scope of trade – The Indian Express

The Bilateral Investment Treaty (BIT) between India and the United Arab Emirates

Introduction

The Bilateral Investment Treaty (BIT) between India and the United Arab Emirates came into force from August 31, 2024. This treaty replaces the earlier Bilateral Investment Promotion and Protection Agreement (BIPPA) which lapsed on September 12, 2024. The BIT is a significant move to strengthen economic cooperation with the UAE, a country that accounts for 3% of total Foreign Direct Investment (FDI) receipts in India and has made cumulative investments of $19 billion between 2000-2024.

Background

This announcement comes at a time when India’s bilateral treaties have decreased, especially since the adoption of the model BIT in 2016. The model BIT was seen as a one-size-fits-all measure rather than a nuanced and calibrated approach towards cross-border trade. As a result, 68 out of the 74 BITs that were in force as of 2015 were terminated. The difficulty in renegotiating terms with other countries under the 2016 model led to a decline in FDI. According to government data, between April 2023 and September 2024, FDI equity inflows declined by 24%, while total FDI, which includes reinvested earnings and capital inflows, contracted by 15.5%.

Emphasis on Sustainable Development Goals (SDGs)

Goal 8: Decent Work and Economic Growth

Harbouring aspirations of a $5 trillion economy, the Indian government, in its 2024 Interim Budget, promised a renewed push to re-energize economic ties with its trade partners. The India-UAE BIT is an important step towards fulfilling that promise.

Flexibility in Amending Covenants

It is interesting to note from the text of the treaty that India has shown a softened and flexible stance in amending or dispensing with certain covenants from the model BIT. For example, the requirement for an investor to first resort to local remedies under the Indian legal system for five years before taking recourse to international arbitration has been reduced to three years under the India-UAE BIT (Article 17.1). This amendment may provide a template for other countries seeking similar concessions.

Prohibition of Third-Party Funding

Another noteworthy addition is the inclusion of a negative covenant prohibiting investors from availing third-party funding for contesting disputes. This prohibition goes against the domestic tide in India, which has started to embrace the concept of third-party funding in arbitration. The blanket prohibition of third-party funding for investor-state disputes may need further consideration.

Expansion of Trade Scope

The India-UAE BIT broadens the scope of trade by including portfolio investments, which were specifically excluded in the model BIT. This allows investors with financial holdings to take recourse under the BIT and make any disputes arising therefrom amenable to the investor-state dispute settlement mechanism (ISDS) under the BIT. However, this may increase India’s exposure to disputes over financial instruments, even those that don’t significantly contribute to economic development.

Conclusion

Time will judge whether the treaty has managed to strike a fine balance between promoting foreign investment and the state’s right to regulate. The discussions on the proposed Free Trade Agreements (FTAs) with the UK and the EU are at an advanced stage, and negotiations with other countries such as Hong Kong, Australia, Oman, Saudi Arabia, and Russia are also active. These steps should be viewed in the right spirit, with the hope that they pave the way for a robust cross-border economic ecosystem, aligning with the Sustainable Development Goals (SDGs).

About the Writer

The writer, a lawyer, is a partner at Numen Law Offices.

SDGs, Targets, and Indicators Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 16: Peace, Justice, and Strong Institutions
• SDG 17: Partnerships for the Goals

The article discusses the Bilateral Investment Treaty (BIT) between India and the United Arab Emirates, which aims to bolster economic cooperation and attract foreign direct investment (FDI). This aligns with SDG 8, which focuses on promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. The article also mentions the challenges India faced in negotiating BITs and the decline in FDI, highlighting the importance of strong institutions and partnerships for achieving SDG 16 and SDG 17.

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries
• Target 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all
• Target 17.3: Mobilize additional financial resources for developing countries from multiple sources

The article emphasizes the need for economic growth and attracting foreign investment to achieve India’s goal of becoming a $5 trillion economy. This aligns with Target 8.1 of SDG 8. The article also mentions the challenges in negotiating BITs and the importance of a robust cross-border economic ecosystem, which relates to Target 16.3 of SDG 16. Additionally, the article highlights the need for partnerships and negotiations with various countries, reflecting Target 17.3 of SDG 17.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator 8.1.1: Annual growth rate of real GDP per capita
• Indicator 16.3.1: Proportion of population who have experienced a dispute in the past two years and who accessed a formal or informal dispute resolution mechanism, by type of mechanism
• Indicator 17.3.1: Foreign direct investment (FDI), official development assistance (ODA), and South-South cooperation (SSC) as a proportion of total domestic budget

The article mentions the decline in FDI equity inflows and total FDI in India, which can be measured using Indicator 17.3.1 of SDG 17. The article also discusses the challenges in negotiating BITs and the need for access to justice, which can be measured using Indicator 16.3.1 of SDG 16. Additionally, the article’s focus on economic growth aligns with Indicator 8.1.1 of SDG 8, which measures the annual growth rate of real GDP per capita.

SDGs, Targets, and Indicators Table

Source: indianexpress.com