LONDON — The United Kingdom and India are poised to include a contentious investor protection clause in a forthcoming investment treaty, allowing companies to sue either government over policy changes that harm their profits, two sources familiar with the talks told Reuters.
The provision, known as an Investor-State Dispute Settlement (ISDS) mechanism, would be embedded within the investment treaty set to accompany a broader free trade agreement (FTA) expected to be finalized soon.
ISDS clauses, which allow foreign investors to bypass local courts and seek arbitration in international tribunals, have come under fire in recent years. Critics argue they can obstruct government efforts to regulate in the public interest—particularly on climate action—by enabling fossil fuel companies to challenge laws that threaten their assets.
Since leaving the European Union, Britain has not included ISDS in any of its bilateral FTAs, though it remains part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the UK joined. India, too, has moved to restrict ISDS in its recent treaty models.
Despite that trend, British negotiators have pushed for ISDS to be part of the India deal. One source said UK businesses are seeking legal assurances that they will receive fair treatment under Indian jurisdiction.
Both the Indian government and Britain’s trade ministry declined to confirm the specific content of the negotiations. However, a UK trade ministry spokesperson emphasized the importance of fair treatment guarantees in any agreement: “We are determined to improve access for UK businesses, ensure their fair treatment, cut tariffs, and make trade cheaper and easier.”
According to officials briefed on Tuesday, companies interested in the FTA were told that ISDS provisions had been agreed. Although the UK has never lost an ISDS case, India has faced 30 such claims since 2003—eight of them from UK-based firms.
The Labour government, which came to power last year, has been positioning itself as pro-business and has revived multiple trade talks with renewed energy. The UK-India FTA discussions, which began in January 2022, have reached an advanced stage.
Indian Commerce Minister Piyush Goyal visited London earlier this week for negotiations, returning again on Friday for further talks. Among the outstanding issues are tariffs on whisky, cars, and agricultural goods, as well as regulatory barriers in India’s pharmaceutical industry.
India had previously scrapped its bilateral investment treaty with the UK in 2017 and shifted to a model that permits ISDS only after exhausting all domestic legal avenues—a policy it may now be reconsidering in the interest of finalizing the trade deal.