IFD Agreement: What lies ahead?

Financial Express, May 14, 2024

By Pradeep S Mehta and Shruti Maheshwari

It is imperative for India to actively participate in negotiations to shape the future of international trade in a manner that benefits all stakeholders.

Previously in this paper, on India’s stance on plurilateral negotiations (shorturl.at/drJS7), including the Investment Facilitation for Development (IFD) Agreement, we argued that the issues raised in favour of India were to follow the rigid path as in the World Trade Organization (WTO) pacts. These cover the WTO’s multilateral character, India’s opposition to plurilateral agreements, and its stance on investment issues at the WTO. India needs to think through these aspects carefully.

The IFD Agreement, endorsed by 126-odd, mostly developing, countries, seeks to streamline bureaucratic processes, enhance investment environment, and promote foreign direct investment. It aligns with India’s initiatives on ease of doing business, such as the National Single-Window System designed to simplify approvals for investors and businesses.

Despite implementing a range of domestic measures to attract and facilitate inward investment, and support other developing countries, India’s non-participation in IFD discussions is rather odd. Moreover, India’s stance appears incongruent with its stated goal of attracting more foreign investment, potentially hindering economic growth.

Further, raising objections to the IFD outcome reflects a broader dilemma facing India on the nature of agreements negotiated outside the traditional multilateral framework.

Holding discussions

The practice of holding discussions at the WTO in less-than-multilateral formats is neither new nor illegal. It is widely acknowledged that such discussions can occur, provided the outcomes are agreed upon by consensus and subsequently incorporated into the WTO framework. However, a point of contention arises when a group of members begins discussions without a multilateral mandate and subsequently seeks to include the outcomes as plurilateral agreements. This challenges both the letter and spirit of the Marrakesh Agreement establishing the WTO. It poses systemic challenges and threatens to undermine the WTO’s multilateral character.

We quote from a recent article by noted econocrat NK Singh in this context: “We need Jagdish (Bhagwati) more than ever before for his sanguine advice on two issues. First, in highlighting that trade will remain an important engine of growth. Second, as the world becomes more protectionist and the validity of value-add chains is increasingly questioned, a fresh approach is needed.”

Thinking innovatively

Amid these debates, the critical question is: Can agreements be non-multilateral in character but effectively multilateral in practice? This necessitates a deeper examination of the agreement’s impact on a large part of the WTO membership, focusing on its practical effects rather than its legal nature.

In certain scenarios, negotiated outcomes may indeed exhibit characteristics of “effectively multilateral” agreements. This is particularly true for agreements addressing major issues of concern to a significant portion of the WTO membership — they can facilitate cooperation and benefit a broad spectrum of members without imposing discriminatory measures. We need to think innovatively and devise mechanisms that can breathe life into negotiated outcomes.

Finally, in the context of the IFD Agreement, India’s resistance contradicts its claims to champion the Global South’s interests and risks sidelining itself from vital negotiations that could benefit developing countries. Many of the affected countries, with whom we spoke and who do not wish to be identified, were quite peeved with India’s stand.

To navigate this complex landscape, India must adopt a nuanced approach.

]First, given the interlinkages of the issues involved, India should clarify its position on the text of the IFD Agreement and the topic of investment at the WTO more generally, before taking a stance on matters such as the IFD Agreement’s incorporation within the WTO framework. This requires a thorough examination of each aspect.

Second, India should engage with the IFD Agreement while recognising that it does not represent the entirety of the debate on its participation in joint statement initiatives (JSI)/plurilateral discussions at the WTO. Each JSI presents unique challenges and opportunities, which need to be analysed.

Finally, India’s arguments for preserving the multilateral character of the WTO may not be valid, as they are accepted under WTO rules. Whatever be India’s stand, it should not affect our participation in plurilateral talks.

Talks between any more than two (but less than all) WTO members are effectively “plurilateral” discussions. The focus should be on meaningfully engaging with negotiations as they take place. India should not maintain any in-principle opposition to negotiating in smaller groups. A stand on the manner of incorporation of negotiated outcomes should be taken on a case-by-case basis.

India’s objection to the IFD Agreement underscores broader debates surrounding the WTO’s multilateral framework and India’s role within it. By adopting a more nuanced approach, India can balance its interests with the broader goals of global economic cooperation and development. It is imperative for us to actively participate in discussions and negotiations to shape the future of international trade in a manner that benefits all stakeholders, and our Viksit Bharat programme.

The authors work for CUTS International, a global public policy research and advocacy group.

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