New Delhi: India and the United Kingdom are trying to find a middle ground to conclude a bilateral investment treaty along with a free trade agreement (FTA) by the end of this month, said people with knowledge of the matter.
The prospects of a deal have brightened with the UK softening its stance on India's proposal that investors exhaust all local remedies before opting for international arbitration, they said, even as UK Prime Minister Rishi Sunak's visit to India to ink the pact remains uncertain.
The UK had been insisting on "pre-establishment national treatment" while raising concerns about the time-consuming legal processes to resolve disputes related to investments in India.
The UK wanted to keep the investment pact out of the trade deal."The UK has had issues with the long time it takes to exhaust local remedies for dispute resolution but is now showing flexibility," said a government official, who did not wish to be identified.
The bilateral investment treaty (BIT) has been seen as one of the sticky points in the ongoing FTA negotiations between the two sides.
A separately revised investment treaty for the UK could set the stage for revision of similar pacts with other countries in future, according to people in the know.
India considers an investment treaty with the UK crucial as the latter is among the top investors in the country. In 2022-23, India received $1.74 billion in foreign direct investment (FDI) from the UK, up from $1.65 billion in the previous financial year. Between April 2000 and March 2023, FDI inflows from the UK amounted to $34.3 billion.
Under the rule of exhaustion of local remedies in India's model BIT, a claim must first be submitted before a relevant domestic court or administrative body. The idea is to prevent arbitrators from having expanded jurisdiction.
Pre-establishment national treatment allows foreign investors to drag the government to arbitration overseas even before an investment is made.
Arbitration cases
After witnessing an increase in arbitration cases, India had amended the model BIT in December 2015, making it mandatory for foreign investors to exhaust local judicial remedies before seeking arbitration.
India has lost multiple arbitration disputes, such as those with Cairn Energy PLC, Vodafone Group BV and Devas Mauritius Ltd, which were initiated invoking the pre-2015 BIT provisions. It is, therefore, now cautious in its approach to BIT, said experts.
According to the United Nations Conference on Trade and Development, 11 investor-state dispute settlement cases were filed against India between 2000 and 2020.
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