The India / UAE Bilateral Investment Treaty: Novel features in the next generation of BITs | United States | Global law firm – Norton Rose Fulbright

Report on the 2024 India-UAE Bilateral Investment Treaty and its Alignment with the Sustainable Development Goals

Introduction: Aligning Investment Governance with Sustainable Development

The 2024 India-UAE Bilateral Investment Treaty (BIT), which entered into force on August 31, 2024, signifies a strategic evolution in international investment agreements, placing significant emphasis on sustainable development. Replacing the 2013 BIT, this new treaty reflects India’s refined policy to balance investor protection with the sovereign right to regulate in pursuit of national development priorities, which are intrinsically linked to the United Nations’ Sustainable Development Goals (SDGs). The agreement governs a substantial trade relationship, valued at US$83.6 billion in FY2023-2024, and its provisions are structured to safeguard policy space for achieving the SDGs.

Recalibrating Investment Protection through an SDG Framework

Standards of Protection and Regulatory Space

The 2024 BIT recalibrates traditional investment protections by embedding carve-outs and qualifications that prioritize the host state’s ability to enact measures supporting sustainable development. The treaty omits broad clauses like Fair and Equitable Treatment (FET) and Most-Favored Nation (MFN), thereby enhancing regulatory flexibility. Key protections are defined narrowly to prevent challenges to legitimate public policy measures.

• Protection Against Arbitrary Treatment: The treaty protects against denial of justice, fundamental breaches of due process, and manifestly abusive treatment, but explicitly carves out measures taken for “legitimate public policy objectives.” This ensures that regulations aimed at achieving goals like SDG 3 (Good Health and Well-being) or SDG 16 (Peace, Justice and Strong Institutions) are shielded from investor claims.
• National Treatment: Guarantees non-discriminatory treatment but allows for differential treatment between national and foreign investors for legitimate regulatory purposes, preserving the state’s ability to implement policies that support local industries and sustainable economic growth under SDG 8 (Decent Work and Economic Growth).
• Expropriation: While protecting against direct and indirect expropriation, the treaty exempts non-discriminatory regulatory measures designed to protect legitimate public interest objectives. This is critical for environmental protection under SDG 14 (Life Below Water) and SDG 15 (Life on Land), as well as public health initiatives.
• Transfer of Funds: The guarantee for free transfer of funds includes exceptions for instances of serious balance-of-payment difficulties or for macroeconomic management, aligning with the principles of stable economic stewardship necessary for SDG 8.

Investor Obligations for Sustainable and Responsible Conduct

A significant feature of the 2024 BIT is the introduction of explicit obligations for investors, codifying principles of responsible business conduct that are central to the SDG agenda.

1. Anti-Corruption Measures: Investors are explicitly obligated to refrain from bribery and related offenses. This directly supports SDG 16.5, which calls for a substantial reduction in corruption and bribery in all their forms.
2. Corporate Social Responsibility (CSR): The treaty mandates that investors incorporate internationally recognized CSR standards into their operations. This promotes sustainable business practices in line with SDG 12 (Responsible Consumption and Production) and encourages private sector contribution to broader development goals.
3. Compliance and Transparency: Investors are required to provide information as mandated by relevant laws, enhancing transparency and accountability.

Prioritizing the State’s Right to Regulate for the Public Good

General Carve-outs for SDG-Aligned Policies

The 2024 BIT introduces several general exceptions that empower the state to prioritize sustainable development without fear of investor disputes. These carve-outs are crucial for implementing the 2030 Agenda.

• Taxation: The treaty includes a robust carve-out for taxation measures. A host state’s determination that a matter relates to taxation is non-reviewable by an arbitral tribunal, protecting the fiscal space required to fund public services and SDG-related initiatives, as envisioned in SDG 17 (Partnerships for the Goals).
• Public Health and Environment: Non-discriminatory measures relating to public morals or the protection of human, animal, or plant life and health are explicitly excluded from challenge, directly safeguarding policies under SDG 3, SDG 14, and SDG 15.
• Essential Security: Measures taken to protect “essential security interests” are self-judging and non-reviewable by tribunals, reinforcing state sovereignty in line with SDG 16.

Reforming Dispute Settlement to Support Sustainable Development

A Pro-Development Dispute Resolution Mechanism

The Investor-State Dispute Settlement (ISDS) mechanism has been fundamentally redesigned to align with principles of justice, institutional integrity, and public interest, reflecting the spirit of SDG 16.

• Exhaustion of Local Remedies: Investors must pursue remedies in domestic courts for a period of three years before initiating international arbitration. This strengthens domestic judicial systems and promotes the rule of law, a key target of SDG 16.
• Anti-Corruption Safeguards: Arbitration is prohibited for investments made through fraud or corruption. Tribunals must suspend proceedings if domestic anti-bribery proceedings are initiated, reinforcing the commitment to SDG 16.5.
• Prohibition on Third-Party Funding: The treaty bans third-party funding of arbitration claims, a measure intended to curb speculative litigation that could create a “chilling effect” on legitimate public interest regulation.
• Binding Joint Interpretations: Arbitral tribunals are bound by the joint interpretations of the treaty by the signatory states, ensuring that the agreement is applied in a manner consistent with their shared development objectives.

Compensation Aligned with Public and Environmental Interest

The treaty redefines the principles of compensation to internalize social and environmental costs, a core tenet of sustainable development.

1. Limitation on Damages: A tribunal can only award monetary compensation limited to actual loss, excluding incidental or consequential damages.
2. Reduction for Public Harm: Crucially, the treaty mandates that any damages awarded must be reduced to account for mitigating factors, including unremediated harm to the environment or the local community. This provision directly integrates considerations from SDG 11 (Sustainable Cities and Communities), SDG 14, and SDG 15 into the calculation of loss, ensuring that investment disputes do not ignore the negative externalities of a project.

Conclusion: A Model for SDG-Coherent Investment Treaties

The 2024 India-UAE BIT represents a paradigm shift in investment treaty practice. By narrowing investor protections, introducing investor obligations, and creating robust carve-outs for public policy, it establishes a legal framework where investment governance actively supports the pursuit of the Sustainable Development Goals. The treaty’s reformed ISDS mechanism and its innovative approach to compensation ensure that the public interest, environmental integrity, and social equity are central considerations. This agreement serves as a model for how nations can attract foreign investment while safeguarding the policy space necessary to build a just, equitable, and sustainable future.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 16: Peace, Justice and Strong Institutions

  The article extensively discusses the legal framework of the India-UAE Bilateral Investment Treaty (BIT), focusing on investor-state dispute settlement (ISDS), rule of law, anti-corruption measures, and the development of transparent and accountable institutional mechanisms for arbitration. This directly relates to building effective and just institutions.

• SDG 17: Partnerships for the Goals

  The entire article is about a bilateral treaty between India and the UAE, which is a form of international partnership. It aims to strengthen economic ties, mobilize financial resources (investment), and enhance policy coherence for sustainable development by creating a stable and predictable investment environment.

• SDG 8: Decent Work and Economic Growth

  The treaty is designed to promote and protect cross-border investments, which are a key driver of economic growth. The article mentions the significant volume of trade (US$83.6 billion) and how the treaty will impact existing and prospective investments, thereby contributing to economic activity.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 16: Peace, Justice and Strong Institutions

   • Target 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all. The article details the ISDS mechanism, including the precondition to “exhaust local remedies,” protections against “denial of justice in judicial or administrative proceedings,” and provisions for the enforcement of arbitral awards, all of which are elements of promoting the rule of law and access to justice in an international investment context.
   • Target 16.5: Substantially reduce corruption and bribery in all their forms. The treaty explicitly addresses this target. The article notes that the BIT imposes an obligation on investors to “refrain from engaging in bribery or related offenses.” It also prohibits claims relating to investments made through “fraud, corruption, money laundering” and gives priority to domestic anti-bribery proceedings.
   • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The article describes detailed provisions for the arbitration process, such as “qualifications of arbitrators,” rules on “conflicts of interest,” and the potential to establish an “appellate body.” These measures aim to create a more transparent and accountable dispute resolution system.
   • Target 16.b: Promote and enforce non-discriminatory laws and policies for sustainable development. The treaty includes carve-outs for “non-discriminatory regulatory measures” designed to protect public interest objectives, such as “human, animal/plant life or health,” reflecting an effort to balance investor rights with the state’s right to regulate for sustainable development.

2. SDG 17: Partnerships for the Goals

   • Target 17.3: Mobilize additional financial resources for developing countries from multiple sources. The BIT is an instrument designed to encourage and protect foreign direct investment from the UAE into India, thereby mobilizing financial resources. The article highlights the US$83.6 billion in cross-border trade as evidence of the significant financial relationship the treaty governs.
   • Target 17.13: Enhance global macroeconomic stability, including through policy coordination and policy coherence. The treaty includes a carve-out allowing for the restriction of fund transfers in the event of “serious balance-of-payment difficulties, macroeconomic management,” which is a tool for maintaining macroeconomic stability.
   • Target 17.16: Enhance the Global Partnership for Sustainable Development… The 2024 India-UAE BIT itself is a prime example of a bilateral partnership aimed at strengthening economic cooperation and creating a coherent policy framework for investment.

3. SDG 8: Decent Work and Economic Growth

   • Target 8.a: Increase Aid for Trade support for developing countries… While not “aid” in the traditional sense, the BIT is a policy instrument that facilitates trade and investment flows, aligning with the goal of supporting economic integration and growth. The article notes the treaty will “impact significantly on existing and prospective investments.”

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions or implies several qualitative and quantitative indicators:

• Indicator for SDG 17.3: The volume of cross-border trade between India and the UAE, explicitly stated as “US$83.6 billion in cross-border trade between the two countries in FY2023-2024 alone,” serves as a direct quantitative indicator of the financial resources involved in the partnership.
• Indicator for SDG 16.5: The inclusion of specific anti-corruption clauses in the treaty is a policy indicator. This includes the prohibition of claims for investments made through “fraud, corruption, money laundering” and the investor’s obligation to “refrain from engaging in bribery.”
• Indicator for SDG 16.3: The establishment of specific dispute resolution procedures, such as the “three years” period for exhaustion of local remedies and the provision for an “appellate body,” are measurable institutional indicators for access to justice.
• Indicator for balancing development with investor rights: The inclusion of an investor obligation to incorporate “internationally recognized corporate social responsibility standards” is a qualitative indicator of progress towards responsible business practices.
• Indicator for environmental considerations: The provision that damages awarded to an investor “shall be reduced by accounting for mitigating factors including unremediated harm to the environment or local community” is a specific, measurable policy indicator linking investment disputes to environmental and social impacts.
• Indicator for policy coherence (SDG 17.13): The existence of a clause allowing for capital controls during “serious balance-of-payment difficulties” is a policy indicator of a country’s ability to maintain macroeconomic stability.

4. Table of SDGs, Targets, and Indicators

Source: nortonrosefulbright.com