India may drop local remedies clause in new BITs as UK trade pact nears

India is moving away from its 2016 model bilateral investment treaty (BIT) approach in talks with the UK as the two countries look to cut the timeframe for settling investor-state disputes in a new treaty to be signed alongside a free trade pact next month, a person privy to the matter said.

The tweak in stance is for “strategically important countries” with which India is seeking closer economic integration after exiting the Regional Comprehensive Economic Partnership (RCEP), a China-led mega trade deal among 15 Asian nations that came into force last year.

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

India so far favoured ‘local remedies’ to resolve investment-related legal disputes rather than agree to independent international arbitration after some high-profile losses.

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

Prior to 2015, India had signed BITs with 83 countries or regions. India suspended BITs with 68 countries/regions with a request to re-negotiate based on the model 2016 BIT while six BITs are still in force. However, it found few takers, hurting foreign investments.

“The concern in [exhaustion of local remedies] clause is the time it takes to settle disputes in India. That is a concern for the countries we are negotiating with. The time frame has been a point of discussion,” the person added.

UK secretary of state for business and trade Kemi Badenoch in an interview with Mint in August said the treaty negotiated in the 90s has now expired.

But “people who started things under it are still covered” and the new BIT would be about “what happens to the new entrants or the new businesses who are coming in”.

On India’s model BIT, Badenoch had said: “We always say as the UK we respect other countries’ sovereignty. And it’s one of the things that I discussed,” with commerce minister Piyush Goyal and finance minister Nirmala Sitharaman.

As per the World Bank’s ‘Ease of Doing Business 2020’ report, India ranked 163 out of 190 countries in ease of enforcing contracts, taking 1,445 days and 31% of the claim value for dispute resolution.

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

The Icrier report added, “The collective presence of an overall investor protection is positively and significantly linked to foreign investment flows.”

Queries sent to the commerce and finance ministries remained unanswered till press time.