India-UAE Investment Pact: Reducing Arbitration Time and Expanding Protection

India has recently signed a Bilateral Investment Treaty (BIT) with the United Arab Emirates (UAE) aimed at enhancing investor confidence and fostering stronger economic ties. One of the key changes in this agreement is the reduction of the arbitration period for foreign investors from five years to three years. This new provision allows investors to seek international arbitration if disputes are unresolved by the Indian judicial system within the stipulated timeframe. The BIT, effective from August 31, 2024, also extends protections to shares and bonds, broadening the scope of investments covered compared to the previous agreement.

Key Features of the BIT

Arbitration Time Reduction: The BIT reduces the time for foreign investors to seek international arbitration from five years to three years, a significant shift from India’s model BIT.

Expanded Investment Protection: Unlike the model BIT, the new agreement includes portfolio investments such as shares and bonds, allowing a wider range of financial instruments to be protected.

Investor-State Dispute Settlement (ISDS): The ISDS mechanism will provide an independent forum for dispute resolution, aiming to assure investors of a stable and predictable investment environment.

Implications and Expert Views

Union Commerce and Industry Minister Piyush Goyal emphasized that the BIT would create a framework for resolving investment-related disputes, thereby boosting investor confidence. However, experts from the Global Trade Research Initiative (GTRI) warn that while the BIT may attract more UAE investment, it could also lead to a rise in arbitration claims against India. This potential increase in disputes over financial instruments might shift the focus away from long-term investments, which are crucial for economic development.

Historical Context and Future Outlook

With the UAE currently accounting for 3% of India’s total Foreign Direct Investment (FDI) inflows and being the seventh-largest source of foreign investment, this BIT represents a strategic effort to solidify economic relations. As India negotiates similar treaties with other countries, including the UK and European Union trade blocs, the impact of this agreement will likely influence future investment treaties and the broader economic landscape between India and its partners.