India could remove the local remedies clause in new BITs as the UK trade deal approaches

NEW DELHI :India is moving away from its 2016 model bilateral investment treaty (BIT) approach in talks with the UK as the two countries seek to shorten the timeframe for resolving investor-state disputes in a new treaty to be signed next month along with a free trade agreement, a person familiar with the matter said.

The change applies particularly to “strategically important countries” with which India is seeking closer economic integration after withdrawing from the Regional Comprehensive Economic Partnership (RCEP), a China-led mega trade deal between 15 Asian nations concluded last year power came.

“Most of the issues in the BIT have been resolved. A few more things still need to be worked on, but it could be finalized along with the India-UK Free Trade Agreement. Both India and Britain have changed their stance during the current negotiations,” said the person quoted above.

India has previously preferred “local remedies” to resolve investment-related disputes rather than agreeing to independent international arbitration after some high-profile losses.

In 2020, Vodafone Group won an international arbitration case against the Indian government, ending a 13-year dispute over India’s $2 billion tax claim.

Before 2015, India had signed BITs with 83 countries or regions. India has suspended BITs with 68 countries/regions with a request for renegotiation based on the 2016 Model BIT, while six BITs are still in force. However, it found few takers, hurting foreign investment.

“The concern in [exhaustion of local remedies] Clause is the time taken to resolve disputes in India. This is a concern of the countries with which we are negotiating. The time frame was a point of discussion,” the person added.

British Foreign Secretary for Business and Trade, Kemi Badenoch, in an interview with mint in August said the contract negotiated in the 1990s had now expired.

But “people who started under this agreement will continue to be covered,” and the new BIT would be about “what happens to the new entrants or the new companies that come in.”

On India’s model BIT, Badenoch had said: “As the United Kingdom, we always say that we respect the sovereignty of other countries. And that is one of the things that I discussed,” with Trade Minister Piyush Goyal and Finance Minister Nirmala Sitharaman.

According to the World Bank’s Ease of Doing Business 2020 report, India ranks 163rd out of 190 countries in ease of contract enforcement. The dispute resolution took 1,445 days and 31% of the claim value.

An Icrier working paper on the impact of BITs on foreign direct investment inflows into India noted that the government has on many occasions expressed complete antipathy to any multilateral governance of international investment.

The Icrier report added: “The collective presence of comprehensive investor protection is positively and significantly associated with foreign investment flows.”

Inquiries to the Ministry of Commerce and Finance remained unanswered as of press time.

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Sybil Alvarez

"Incurable gamer. Infuriatingly humble coffee specialist. Professional music advocate."

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