Livemint, September 28, 2023
By Pradeep S Mehta
India has missed the bus on helping shape an investment facilitation agreement that has been under WTO negotiations but it’s not too late to make the most we can of it to attract FDI.
On 6 July 2023, over 110 of the World Trade Organization’s (WTO) 164 members concluded text-based negotiations on the Agreement on Investment Facilitation for Development (IFA). Notably, India didn’t participate in the negotiations. Thus, it can do little to influence its contours now. But it can still join on an as-is basis. This will help us in many ways.
The IFA’s primary objective is to build an investor-friendly business environment. This is somewhat like our Ease of Doing Business policy. The IFA mainly speaks about foreign direct investment (FDI), though its provisions can also help domestic investors. It does so through transparent and predictable investment measures, streamlined investment-related administrative procedures and mechanisms for international cooperation such as the exchange of information. The IFA’s scope does not include market access, investment protection, government procurement, certain subsidies and investor-state dispute settlement (ISDS). It also has a firewall to safeguard it from international investment agreements (IIAs). So the IFA is not about liberalizing investment policies; rather, it aims to simplify investment procedures. India could have asked for a negative list of what the IFA will not contain to help allay our fears.
Further, the IFA incorporates special and differential treatment provisions, which modify the extent and timing of the agreement’s implementation for developing and least developed countries, depending on their respective capacities. The IFA also includes provisions for technical assistance and capacity building of these countries.
Investment facilitation and its promotion: Unctad’s Global Action Menu for Investment Facilitation distinguishes between the two. While both seek to attract foreign investment, promotion emphasises a proferred location as an investment destination, whereas facilitation focuses on making it easier for foreign investors to establish or expand their business and conduct day-to-day business activities. In essence, investment facilitation aims to address practical obstacles faced by foreign investors.
High-standard investment protection provisions within IIAs and their inconsistent interpretation by various arbitral tribunals have limited the policy space available for host states to regulate in accordance with their developmental priorities. This has led to a ‘regulatory chill’ among states, followed by a backlash against IIAs. India, for example, has terminated its older bilateral investment treaties (BITs) and is negotiating new deals based on its 2016 Model BIT text.
Investment facilitation provisions within BITs, in general, have been non-binding, encouraging parties to adopt measures that facilitate foreign investment. Such measures include transparent domestic laws, dissemination of information to investors, steps against corruption, cooperation between agencies responsible for investment promotion and institutional arrangements. In this context, Brazil’s Cooperation and Investment Facilitation Agreements serve as a prime illustration of an investment facilitation approach, with their emphasis on collaboration and streamlining investment processes, rather than focusing on investment protection. Such pacts provide for state-state dispute settlement instead of ISDS.
India’s apprehensions: New Delhi does not fundamentally oppose the investment facilitation approach. Recent IIAs signed by India, such as the India-UAE agreement in 2022 and the India-Brazil BIT in 2020, cover investment facilitation. India is also a participant in the BRICS Understanding on Investment Facilitation, and signed a mechanism for it with the EU in 2017.
However, India’s absence from the IFA talks had many reasons.
First, India opposes the WTO route to investment facilitation, as it mistakenly believes that investment falls outside its mandate. India prefers a bilateral approach to investment provisions, as this allows negotiation leverage and is driven by reciprocity, political considerations, bilateral relations and national interests. It helps preserve New Delhi’s policy space and right to regulate in accordance with our development priorities.
Second, India views the IFA as part of a foot-in-the-door strategy by developed nations to begin with harmless investment facilitation under the WTO and then perhaps push for contentious investment protection rules later.
Third, India is against plurilateral agreements within the WTO as these circumvent the consensus decision-making process.
Fourth, India opposes inclusion of ‘Most Favoured Nation’ (MFN) provisions in the IFA. India faced negative repercussions after including an MFN provision under its Australia BIT, and has been wary of them.
The way ahead: Despite India’s concerns, we should not miss the WTO’s investment facilitation bus. New Delhi has liberalized foreign investment in most sectors, and the IFA could advance the aim of attracting FDI. Note that India is also a capital exporting country, and being part of the IFA would facilitate our offshore investments.
India aspires for $5 trillion economy by 2025-26. Consequently, it is crucial for the country to shed a mindset created by the ‘East India syndrome’ and actively engage in shaping the global economic framework.
Saloni Mishra of CUTS also contributed to this article.
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