By A new investment treaty between the UK and India will feature a key provision: allowing companies to sue either government if policy changes negatively impact their investments. This provision is part of a free trade agreement expected to be finalized soon.
What is ISDS?
The Investor-State Dispute Settlement (ISDS) mechanism aims to protect businesses from unfair treatment under local laws. It allows companies to claim compensation if their investments face unjust policies. Despite criticism from environmental groups, the UK pushed for its inclusion in the deal to ensure that British businesses receive fair treatment under Indian law.
India’s Stance on ISDS
India has traditionally opposed ISDS, having scrapped its previous investment treaty with the UK in 2017. The Indian government now prefers a model where ISDS can only be used after exhausting local legal routes. However, the UK has insisted on ISDS in this agreement, citing the need for guarantees for British investors.
Current Negotiations
The UK has not included ISDS in recent free trade deals since leaving the European Union, but it remains part of the CPTPP agreement. Despite past opposition, the India-UK trade deal will include ISDS to protect UK companies’ interests.
Trade Talks and Challenges
India-UK trade talks have been ongoing since January 2022. Negotiations are focused on tariffs on products like whisky, autos, and agricultural goods. There are also regulatory issues in the pharmaceutical sector. The two countries are in the final stages of talks, with Indian Commerce Minister Piyush Goyal in London this week for further discussions.
India’s legal reforms have made ISDS less favorable for foreign investors. However, the new treaty aims to balance both countries’ interests, ensuring fair treatment and providing a secure framework for business investments.
