India-UK FTA done and dusted but bilateral investment treaty still pending

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India and the United Kingdom (UK) after several rounds of talks finally managed to seal a free trade agreement (FTA) and a social security pact on May 6 but a bilateral investment treaty (BIT) between the two nations is still pending.

While free trade agreements focus on facilitating exports and imports between two countries, bilateral investment treaties (BITs) provide protection to foreign investors. BITs are agreements between two countries designed to promote and protect investments made by investors from each country in the other's territory.

“Talks on the BIT are still on as negotiations continue over a mutually acceptable time period for dispute resolution. Inclusion of taxation in the treaty has been another contentious issue but the BIT with the UK will also be concluded soon in the next few months and within this year,” an official said.

Prime Minister Narendra Modi and his UK counterpart Keir Starmer are likely to meet in the coming months in India. “Prime Minister Modi extended an invitation to India, which the Prime Minister was pleased to accept and said he looked forward to visiting India at the earliest opportunity,” a Downing Street spokesperson said on May 6.

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In a first, the BIT is likely to include an Investor-State Dispute Settlement (ISDS) mechanism that will protect companies against possible unfair treatment under local laws. An ISDS mechanism allows companies to sue either government if they believe policy changes unfairly harm their investment or profits

India and the UK signed a BIT in March 1994 but New Delhi unilaterally denounced it in March 2017, citing ISDS concerns. Besides the country was also in a phase of remodelling all its BITs to be in a better negotiating position. India unilaterally terminated BITs with a significant number of countries, including 58 out of 87 BIT partners initially, and the number grew to 68 by 2019.

During this phase, India used the ISDS mechanism only after all routes through its legal system had been exhausted.

Also Read: Double Contribution Convention: Indian workers in UK exempted from paying social security for three years.

Earlier, FTAs often used to include a separate chapter on BIT, which was sometimes used as a negotiating card, but it was realised that trade matters often different from issues pertaining to BITs, officials said. For example, investment protection treaties could be in conflict with sovereign functions such as taxation. Hence, India has been negotiating the BIT separately though in parallel to the FTA and the double contribution convention agreement.