Analysts say the revised India-UAE Bilateral Investment Treaty (BIT), which came into force on August 31, has created conditions for stronger investment flows from the West Asian kingdom. This breaks the template of the Model Treaty text by providing protection for portfolio investments, allowing investors to seek international arbitration after three years instead of five.
The treaty was signed on February 13 this year, replacing the previous Bilateral Investment Promotion and Protection Agreement (BIPPA) between India and the UAE, which was signed in December 2013 and expired on September 12, 2024. signed on the day.
“This (treaty) will support greater investments that India is looking to receive from the UAE. We discussed several emerging areas such as data centers and artificial intelligence,” Commerce and Industry Minister Piyush Goyal said. He said this after the 12th meeting of the India-UAE Investment High-Level Task Force on Monday.
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Under the new BIT, joint investment in renewable energy and solar and wind power transmission infrastructure in India is also envisaged, as well as a significant increase in UAE investment in both strategic areas and core infrastructure opportunities.
The model text for the India Bilateral Investment Treaty was developed in 2016 in response to several cases brought against India by investors such as Vodafone and Cairn. As a result of the rapid increase in BIT claims, India unilaterally abolished 68 of the 74 treaties it had signed up to 2015 and sought renegotiation based on revised articles. Only seven countries have signed BITs with India under the new model.
The general text of India’s Model Bilateral Investment Treaty provides that international arbitration by an investor may only be resorted to after at least five years of attempts to screen the investor through the Indian legal system.
The new investment agreement between India and the UAE reduces this period to three years. The UAE Treaty also includes portfolio investments that can seek protection under the BIT. Portfolio investments include stocks, shares, trust units, and other forms of capital contributions. This also includes loans, bonds, debentures, and other debt instruments. Debt securities and loans to governments or government-owned enterprises fall outside the definition of investments for purposes of this treaty.
The model text clearly states that portfolio investments in companies or other corporate and government securities will not be covered by any future bilateral investment treaties that India will sign.
The flexibility offered in the investment treaty paves the way for similar deals to be concluded with other countries, such as the UK and the European Union, where negotiations are progressing. Australia, Switzerland, Oman, Israel, Qatar, Tajikistan, Russia, Saudi Arabia, Mexico, Hong Kong and Mauritius are other countries with ongoing investment deal negotiations.
“India and the UAE have signaled a move towards a more open investment environment at the expense of regulatory sovereignty. While this could attract further investment from the UAE, it also raises the risk of an increase in arbitration claims against India. India will soon be approached by other countries to sign BITs on similar liberal terms,” said Ajay Srivastava, co-founder of the World Trade Research Initiative.
However, under this treaty, investors cannot claim damages for investment losses due to changes in tax policy due to enforcement of tax demands. It also preserves the rights of parties to agreements to grant compulsory licenses with respect to intellectual property pursuant to World Trade Organization (WTO) agreements. Claims for losses from government procurement, subsidies and grants are also outside the scope of the agreement.