Corporations Could Sue the Government Under India Deal, Campaigners Warn

As the UK-India Free Trade Agreement (FTA) is signed, campaigners have warned a soon-to-be-announced parallel treaty could contain provisions which would allow corporations investing in both countries the power to sue the British and Indian Governments.

The UK-India bilateral investment treaty (BIT) will accompany the new Free Trade Agreement which was announced on May 6.

The parallel investment treaty contains the controversial Investor-State Dispute Settlement (ISDS) mechanism according to inside sources who spoke to Reuters. The ISDS has been dubbed a system of “corporate courts” by campaigners.

Previously, India terminated a large number of its BITs after facing several ISDS claims. Of a total of 30 cases India has faced, eight were raised by UK corporations under the previous 1994 India-UK BIT, which was terminated by India in 2017.

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UK investors are the third most frequent users of ISDS, raising concerns over India’s sovereignty in the policymaking space. 

In their 2023 book Silent Coup which focuses heavily on the ISDS system, investigative journalists Claire Provost and Matt Kennard wrote that ISDS claims have become an “asset class” with specialised financiers funding spurious claims in order to take a cut of the winnings.

Several of the third-party firms funding ISDS claims have offices in London.

Meanwhile longstanding concerns exist over the use of ISDS litigation by fossil fuel companies to challenge climate policy in the UK.

In 2023, the previous Conservative government exited the Energy Charter Treaty – which contains ISDS – citing  the treaty’s risk to the UK’s ability to reach net zero. Fossil fuel companies are the strongest users of ISDS: making $327 billion out of ISDS claims since 1996.

In 2023 the UN Special Rapporteur on human rights related to a safe, clean, healthy and sustainable environment, David Boyd, released a report on the ISDS system which found that “Foreign investors have weaponized” the “secretive” ISDS system which “violated” the “the right to a clean, healthy and sustainable environment” and “undermined” the rule of law.

Cleodie Rickard, trade campaign manager at Global Justice Now said: “Signing an investment deal with India which gives corporations the power to sue our countries shows a government at odds with the times. Last year, the Conservative government withdrew from an ISDS deal, the Energy Charter Treaty, citing its risks to the UK’s net zero goals. Now Starmer’s government is pulling us a step back into this outdated system, and subjecting India to the same – it’s hypocrisy.  Countries from Indonesia to South Africa have terminated ISDS deals, while Australia and New Zealand have pledged not to include it in future trade agreements. It is highly concerning that this is a priority for the UK, when it is widely accepted ISDS ties governments’ hands [leaving them with little room] to enact the policies we need to face today’s crises. This treaty cannot go ahead, and MPs should reject it.”

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Other concerns include a risk to the UK steel industry into which the Indian firm Tata steel retains significant investments.

According to campaign groups opposed to ISDS, such as Trade Justice Movement, investment treaties containing ISDS provisions usually contain a “fair and equitable treatment” clause which companies can use to sue over “unfair competition” such as national preference in industrial policy.

While this would not affect decisions made before the signing of the treaty, it could affect future decisions to protect UK steel.

Investment Arbitration Reporter reports that there are widespread rumours within the legal industry that the British Government is being sued in an arbitration court under the ISDS system by a Russian oligarch over the UK’s sanctions imposed on certain Russian nationals following the 2022 invasion of Ukraine.

The Department for Business and Trade (DBT) refused to confirm or deny whether it held the information requested by IA Reporter following a Freedom of Information request they lodged asking if the government was indeed being sued by a Russian oligarch.

The Department for Business and Trade did not respond to Byline Times’ question on the veracity of the rumour.

Tom Wills, director of the Trade Justice Movement said: “This deal gives Indian and British companies the power to override democratic decision-making, potentially obstructing efforts to achieve net zero and tackle inequality in both countries. It contains nothing that will support higher standards of environmental or human rights protection. And unless the UK reforms its parliamentary processes quickly, it will be pushed through without any opportunity for MPs to amend or reject it. The Labour government came into power promising a change in trade policies. But this deal looks like more of the same: a rush into a low standards agreement which does nothing for workers or ordinary people.”

The UK Government did not confirm to Byline Times if the BIT contains the ISDS provision. A DBT spokesperson said “This Government is committed to securing a deal on investment with India that is in the best interests of British business and the British people.”