A forthcoming investment treaty between the UK and India will feature an Investor-State Dispute Settlement (ISDS) mechanism, allowing companies to sue either government if they believe policy changes unfairly impact their investments or profits, according to sources familiar with the discussions.
The ISDS mechanism aims to protect companies from potential unfair treatment under local laws and is expected to be included in an investment treaty alongside a broader free trade agreement. While Britain has not included ISDS in recent bilateral free trade deals since leaving the EU (except for the CPTPP), London reportedly pushed for its inclusion in the India deal to reassure British businesses about fair treatment under the Indian legal system. India has also been moving to limit ISDS in its treaties.
The mechanism has faced criticism for potentially hindering climate change efforts, as fossil fuel producers could use it to protect their assets. The UK has never lost an ISDS claim, but UK-based companies have brought eight cases against India under a previous agreement.
Both the UK trade ministry and the Indian government have not provided immediate responses regarding the inclusion of ISDS. Negotiations between the UK and India have been ongoing since January 2022, with tariffs on whisky, autos, and agricultural products, as well as regulatory issues in the pharmaceutical sector, being key areas of discussion. India had previously expressed opposition to ISDS, scrapping a previous treaty with Britain in 2017.
