UK-India investment treaty lets companies sue government, sources say

By Alistair Smout

LONDON (Reuters) -An investment treaty between Britain and India will contain a provision that allows companies to sue either government if they believe policy changes unfairly harm their investment or profits, two sources familiar with discussions told Reuters.

The Investor-State Dispute Settlement (ISDS) mechanism is aimed at protecting companies against possible unfair treatment under local laws, and will be included in an investment treaty that is expected to be struck alongside a free trade agreement shortly.

The mechanism has been criticised in recent years, including by Britain's previous Conservative government, for blocking efforts to fight climate change because fossil fuel producers can use it to protect their assets.

Britain has not included ISDS in any of the bilateral free trade deals it has struck since it left the European Union, though it is a feature of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) it has signed up to. India has also moved to limit ISDS in its treaties.

One of the sources said London had pushed for its inclusion in a deal with India as British businesses wanted reassurance that they would be treated fairly under the Indian legal system.

The Indian government declined to give an immediate response to a question about the current talks.

A spokesperson for Britain's trade ministry declined to comment on the matter but said any deal needed guarantees for businesses that they would be treated fairly.

The two sources said government officials on Tuesday told a meeting of businesses interested in the deal that ISDS was included.

Britain has never lost an ISDS claim by a company but according to UN data, of 30 ISDS cases brought against India since 2003, 8 were brought by UK-based companies under a previous agreement.

"We are determined to improve access for UK businesses, ensure their fair treatment, cut tariffs, and make trade cheaper and easier," the UK trade ministry spokesperson said.

Britain's left-of-centre Labour Party won power last year, and has been keen to stress that it is now the party of business as it restarts various trade negotiations.

Britain and India have been locked in trade talks, on and off, since January 2022, and are expected to strike a full trade deal soon. The Indian Commerce Minister Piyush Goyal was in London earlier this week for late-stage talks, and returned on Friday for further discussions.

Tariffs on whisky, autos and agricultural products are being negotiated as part of the deal, while regulatory issues around the pharmaceutical sector are another sensitive area.

India had previously indicated its opposition to ISDS, scrapping a previous bilateral investment treaty with Britain in 2017 and moving to a model which allowed use of the mechanism only after routes through India's legal system had been exhausted.

(Reporting by Alistair Smout; Editing by Toby Chopra)