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India-UAE bilateral investment treaty can broaden scope of trade
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Context
The Bilateral Investment Treaty (BIT) between India and the United Arab Emirates (UAE) came into effect on August 31, 2024, replacing the earlier Bilateral Investment Promotion and Protection Agreement (BIPPA). This treaty aims to enhance economic cooperation with the UAE, a significant source of foreign direct investment (FDI) for India. The BIT is particularly notable in the context of India’s recent struggles with bilateral treaties and declining FDI inflows.
Key Provisions of the India-UAE BIT
- Eased Local Remedy Requirement: The new BIT has reduced the period for investors to exhaust local remedies before seeking international arbitration from five years to three years, reflecting a more flexible approach to dispute resolution.
- Negative Covenant on Third-Party Funding: The treaty includes a clause prohibiting investors from utilizing third-party funding for disputes, which contrasts with a growing acceptance of such funding in India’s legal landscape.
- Inclusion of Portfolio Investments: By broadening the scope to include portfolio investments, the BIT allows financial investors to seek recourse under its dispute settlement mechanisms, potentially increasing India’s exposure to investment disputes.
Implications for India’s Investment Climate
- Balancing Investment and Regulation: The BIT aims to find a balance between attracting foreign investment and maintaining the state’s regulatory rights, essential for India’s economic aspirations.
- Impact on Ongoing Trade Negotiations: The treaty may influence India’s ongoing negotiations for free trade agreements (FTAs) with the UK, EU, and other countries, as it sets a precedent for flexible investment terms.
- Long-Term Economic Goals: Despite challenges in contract enforcement and geopolitical factors, the BIT is a step toward fostering a robust cross-border economic ecosystem, aligning with India’s vision of becoming a $5 trillion economy.
Practice Question
Q. Evaluate the significance of the Bilateral Investment Treaty (BIT) between India and the UAE in the context of India’s foreign investment landscape. What challenges and opportunities does this treaty present for India’s economic goals?
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