Daily Editorial Analysis 23 September 2026

Using Trade Treaty Policy to Strengthen Arbitration

Context

• India’s expanding network of Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) reflects its efforts to deepen economic integration, attract investment and expand international market access.
• Recent agreements with the UAE, Israel, Uzbekistan, UK, EFTA, Oman and New Zealand demonstrate this growing engagement.
• Their importance, however, extends beyond tariffs and investment protection to commercial dispute resolution and arbitration.
• For international investors, the attractiveness of an economy depends not only on market opportunities but also on what happens when commercial relationships break down.
• India can therefore use its treaty framework to strengthen its domestic arbitration ecosystem and establish itself as a credible international arbitration jurisdiction.

The Opportunity Beyond Market Access

• The Arbitration and Conciliation Act, 1996 provides the statutory foundation for domestic arbitration, international commercial arbitration and enforcement of foreign awards.
• The challenge is to connect this framework more effectively with India’s international treaty policy.
• India’s recent FTAs have generally omitted Investor-State Dispute Settlement (ISDS), reflecting concerns about regulatory autonomy and potential claims against the State.
• However, substantial foreign investment occurs through contracts between investors and Indian government agencies.
• In such cases, commercial arbitration can provide an alternative to ordinary court litigation.
• Future FTAs could clarify that the absence of ISDS is supported by the availability of effective commercial arbitration remedies in India.
• Such clarity would reassure investors while preserving India’s reservations concerning international investment arbitration.

Distinguishing ISDS from Commercial Arbitration

• India’s BITs increasingly distinguish treaty-based investment arbitration from contractual commercial arbitration.
• The India-Uzbekistan BIT, for example, excludes disputes arising solely from contractual breaches from ISDS.
• Greater clarity is required regarding local-remedy requirements. Some BITs require investors to approach domestic courts or administrative bodies before initiating international arbitration.
• Commercial arbitration seated in India should potentially be recognised as another legitimate mechanism for addressing investment-related contractual disputes.
• Future BITs could therefore clarify that pursuing a dispute through Indian commercial arbitration may satisfy applicable local-remedy requirements.
• This would better integrate domestic arbitration into India’s investment-protection architecture while avoiding unnecessary procedural uncertainty.

Third-Party Funding: A Need for Nuance

• Third-party funding allows external financiers to bear arbitration costs in return for an agreed financial interest in the outcome.
• India’s reservations about such funding in ISDS are understandable because investment disputes involve sovereign decisions and may affect regulatory policymaking.
• However, these concerns do not necessarily apply to ordinary commercial disputes.
• Restrictions on third-party funding in ISDS should therefore not automatically imply its prohibition in domestic commercial arbitration.
• India could develop a comprehensive regulatory framework covering disclosure, conflicts of interest, transparency and procedural fairness.
• A clear distinction between ISDS funding and commercial arbitration funding would help create a more mature arbitration ecosystem.

The Evaluation Parameters of Investors

• Investors evaluate economies on more than taxation, tariffs and market access. They also consider whether disputes can be resolved predictably and efficiently.
• A strong investment environment requires three interconnected elements:
  • Prevention of disputes through clear treaties and contracts.
  • Efficient arbitration proceedings that resolve disputes fairly and promptly.
  • Predictable judicial enforcement of arbitral awards.
• India does not need to transform every BIT or FTA into an arbitration agreement.
• Instead, treaties should complement domestic reforms and clearly establish the relationship between ISDS, courts and commercial arbitration.

India as a Global Arbitration Hub

• India’s ambition to become a global arbitration hub requires consistency between treaty policy, legislation, judicial practice and institutional capacity.
• A credible arbitration ecosystem can reduce commercial uncertainty, strengthen investor confidence and facilitate long-term contracts.
• At the same time, appropriate safeguards are necessary to protect legitimate governmental regulation and prevent excessive claims against the State.
• The objective should therefore be a balanced system that protects commercial interests without compromising regulatory autonomy.

Conclusion

• India’s growing BIT and FTA network provides an opportunity to integrate trade, investment protection and dispute resolution more effectively.
• The absence of ISDS in some agreements need not create a legal vacuum if commercial arbitration in India is made credible, accessible and predictable.
• Future treaties should distinguish investment disputes from contractual disputes, clarify the relationship between local remedies and Indian-seated arbitration, and separate restrictions on ISDS funding from the potential use of third-party funding in commercial arbitration.

Using Trade Treaty Policy to Strengthen Arbitration FAQs

Q1. What is the significance of India’s growing BIT and FTA network?
Ans. India’s BITs and FTAs can strengthen trade, investment and dispute-resolution mechanisms.

Q2. Why is commercial arbitration important for India?
Ans. Commercial arbitration provides investors with a predictable and efficient mechanism for resolving contractual disputes.

Q3. What is ISDS?
Ans. ISDS allows foreign investors to bring certain investment disputes against host States before international arbitral tribunals.

Q4. Why should India distinguish ISDS from commercial arbitration?
Ans. The distinction helps protect regulatory autonomy while strengthening contractual dispute resolution within India.

Q5. How can India become a global arbitration hub?
Ans. India can become a global arbitration hub by ensuring efficient proceedings, predictable enforcement and a credible legal framework.

Source: The Hindu

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