Treaty on the Mutual Protection of Investments: Bahrain–UAE

Bahrain–UAE Investment Protection Agreement

On 10 March 2025, Bahrain officially ratified the Bahrain–UAE Investment Protection Agreement (IPA), which had been signed on 11 February 2024 in Dubai. The bi-lateral treaty is a significant legal and economic milestone, establishing the basis for deeper commercial links, more secure investment protections, and co-ordinated mechanisms for dispute resolution between the two Gulf states.

The IPA, organized according to international standards, is a major milestone in the region's investment history, providing transparency, clarity, and legal guarantee to investors in both Bahrain and the United Arab Emirates (UAE). This article discusses the most important provisions of the agreement, its operational implications for businesses, and its consistency with wider regional and global investment trends.

Key Provisions of the Bahrain–UAE IPA

1. Article 2: Promotion of Investments

The IPA requires both sides to actively encourage and promote investments made by investors of the other side. Subject to domestic laws, this provision expresses an aim at lowering regulation hurdles, making procedures less complicated, and facilitating investor entry and establishment in both the UAE and Bahrain.

2. Article 3: Protection and Treatment of Investments

This article assures equal and impartial treatment, complete legal protection, and security for investments. It categorically forbids arbitrary or discriminatory actions that might injure investors. This creates an element of legal predictability that is vital to long-term foreign direct investment (FDI).

3. Article 4: Most-Favored-Nation (MFN) Treatment

The MFN provision provides that investors of either nation be treated no worse than investors of any third country. This encourages a competitive investment climate and deters preferential bilateralism to the exclusion of either party.

4. Article 5: National Treatment

Investors in Bahrain and the UAE are assured of national treatment, i.e., they will be treated equally to domestic investors in the other's territory. Carve-outs could be extended to sensitive areas such as public procurement or subsidies, but the general principle enhances bilateral investor confidence.

5. Article 6: Digital Trade

This cutting-edge provision demonstrates the evolution of investment treaties. It ensures cooperation in digital trade, encompassing critical areas including:

1. Cybersecurity cooperation
2. Enforcement of intellectual property rights
3. Harmonization of technical and digital standards

This is particularly important in a time when digital services, fintech, and e-commerce dominate regional economies.

6. Article 7: Expropriation

The IPA limits expropriation to situations of public purpose and ensures that it is done in a non-discriminatory fashion with immediate, adequate, and effective compensation. It conforms to principles of customary international law, thus promoting investor confidence.

7. Article 8: Compensation for Losses

During war, armed conflict, civil unrest, or other such occurrences, investors shall be entitled to compensation no less beneficial than that accorded to domestic or third-country investors. This provision provides risk management in risky situations.

8. Article 9: Transfers

Investors are free to transfer capital, profits, dividends, royalties, and proceeds in a freely convertible currency without undue delay. This clause is important for cross-border liquidity and financial planning.

9. Article 13: Dispute Resolution

The IPA provides several avenues of dispute settlement, such as:

1. Friendly negotiations
2. Resort to national courts
3. International arbitration in accordance with the International Centre for Settlement of Investment Disputles (ICSID)

Other mutual agreed mechanisms

This provision appreciably adds to the enforcement of investor rights by providing for neutral and binding adjudication.

Implications of Doing Business in Bahrain and the UAE

1. Increased Legal Certainty

Through explicit legal protections, the IPA establishes a more predictable regulatory climate, a necessary prerequisite for long-term, capital-intensive investment in industries like real estate, energy, finance, and technology.

2.  Increased Investor Confidence

By establishing guarantees against expropriation, discrimination, and arbitrary regulation through codified law, the treaty substantially reduces perceived risk to investors, encouraging companies and institutional investors to increase operations or venture into new markets within either jurisdiction.

3. Access to Neutral Arbitration

The availability of recourse to claim under ICSID reinforces investor protection. Arbitration mechanisms have long been a staple of high-standard BITs, and their presence here moves Bahrain and the UAE closer to rule-of-law-based jurisdictions offering investor remedies.

4. Technology Sector Collaboration

The digital trade piece unlocks new opportunities for tech startups, cybersecurity companies, and digital service providers. Bahrain's developing fintech landscape and the UAE's sophisticated digital infrastructure could both benefit from aligned standards and intellectual property protection.

5. Deepened Regional Economic Integration

The IPA supports wider initiatives like:

1. The Abu Dhabi Declaration on Investment Promotion
2. Bahrain-UAE Joint Economic Committee priorities
3. GCC-wide efforts to establish a single economic market

These synergies serve to place both countries as favorable investment doorways into the broader Middle East and North Africa (MENA) region.

Strategic Context and Vision

The IPA needs to be interpreted within the wider strategic policy of both countries:

1. Bahrain Economic Vision 2030 is seeking to diversify the economy and lure high-quality investments, particularly in areas such as manufacturing, logistics, and financial services.
2. UAE Centennial 2071 aims for the UAE to become a world-class global investment hub, backed by top-tier infrastructure, laws, and policies conducive to investors.

The two nations are also reacting to changing global economic patterns, such as changes in supply chains, digitalization, and decarbonizing investment portfolios. The IPA offers a bespoke legal framework to steer these changes while protecting economic sovereignty.

Conclusion

The Bahrain–UAE Investment Protection Agreement is a watershed moment towards a safer, more transparent, and cooperative investment environment in the Gulf. Through the provision of strong legal protection, encouraging digital integration, and enabling equitable dispute resolution, the IPA is a resounding message: Bahrain and the UAE are open for business on equal, modern, and investor-friendly terms.For existing and future investors and businesses, this treaty establishes a sound legal framework on which to investigate expansion, partnership, and innovation between two of the most visionary economies in the Middle East.