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Saudi investment treaty to allow arbitration after two years, officials say

By CAShorts DeskPublished Updated Sources: PTI; The Financial Express; The Times of India; Reuters; BusinessLine; Ministry of Finance (PIB); Lok Sabha

Saudi investment treaty to allow arbitration after two years, officials say
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India and Saudi Arabia have concluded negotiations on a bilateral investment treaty that, officials say, lets investors seek international arbitration after two years of local remedies, down from three in the 2024 UAE pact. Finance Minister Nirmala Sitharaman said the Cabinet would approve a revised model treaty shortly and agreements with at least three more countries could follow by December.

Syllabus: Prelims · Current Affairs & IR; GS3 · Liberalisation & Industry; GS3 · Investment Models

Why it matters

A foreign company that puts money into a refinery or a factory in India wants to know where it can turn if a government decision hurts its investment. India has asked such investors to spend five years in Indian courts before going to international arbitration, and foreign companies have long complained that this is slow and puts them off investing more. The Saudi agreement, officials say, cuts the wait to two years, at a time when Saudi Aramco is looking at two Indian refineries and capital inflows have weakened since 2023. The government still wants to keep its freedom to tax and to regulate in the public interest. Indian companies investing abroad gain protection from such treaties too.

Prelims pointers

  • Exhaustion of local remedies: an investor must first use the host state's courts or administrative bodies before bringing an international claim.
  • Investor State Dispute Settlement (ISDS) lets foreign investors bring claims against host states for alleged treaty violations.
  • India's pre-2016 BITs followed the 1993 model BIT, amended in 2003; after the 2016 model, India insisted on five years of local remedies.
  • With Brazil, India signed an Investment Cooperation and Facilitation Treaty (ICFT), not a conventional BIT.
  • White Industries Australia v. Republic of India (2011): India's first adverse award under a BIT; it prompted the rethink that produced the new model text of 2015.
  • USMCA has no investor-state dispute settlement between the United States and Canada; New Zealand's side letters with several CPTPP partners exclude compulsory ISDS between them.
  • Entering into treaties with foreign countries is Entry 14 of the Union List; Article 253 lets Parliament legislate to give effect to international agreements.

Practise a UPSC-style question

With reference to the 'exhaustion of local remedies' rule in India's bilateral investment treaties (BITs), consider the following statements:

1. Under the India-Saudi Arabia BIT, an investor may go to international arbitration after one year of local remedies.

2. The 2024 India-UAE BIT cut the local-remedies period from five years to three.

3. India's 2016 model BIT required investors to pursue local remedies for five years before arbitration.

Which of the statements given above is/are correct?

  1. (a) 1 and 2 only
  2. (b) 2 and 3 only
  3. (c) 1 and 3 only
  4. (d) 1, 2 and 3
Show the answer

Answer: (b) 2 and 3 only

1 is incorrect: the Saudi agreement allows international arbitration after two years of local remedies, officials said. 2 is correct: the UAE treaty of 2024 reduced the wait from five years to three. 3 is correct: the model text India adopted in 2015, known as the 2016 model BIT, makes investors pursue local remedies for at least five years before arbitration.

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