On India’s new stance on trade agreements: It takes India back to the pre-reforms era

Source- The post is based on the article “Prabhash Ranjan on India’s new stance on trade agreements: It takes India back to the pre-reforms era” published in “The Indian Express” on 10th April 2023.

Syllabus: GS 3 – Economy

Relevance– Issues related to international trade and investment issues

News– The article deals with India new approach to FTAs

What is the record of India in signing FTAs?

India signed several FTAs in the 2000s with countries like Singapore, Korea, Malaysia, and Japan. These FTAs include binding rules on both, international trade liberalisation, and the protection of foreign investment from arbitrary state conduct.

In the last few years, India has signed FTAs with Mauritius and the UAE and an interim one with Australia. India is currently negotiating FTAs with the UK, European Union, Canada, and Israel.

How is India ‘s FTA policy different from its earlier approach?

India is decoupling international trade law from international investment law. The FTAs with Mauritius, UAE, and Australia contain detailed international rules on trade. But, rules on foreign investment protection are missing.

There is absence of investment protection in these FTAs. It is more striking because India has unilaterally terminated its bilateral investment treaty (BIT) that protects foreign investment with Mauritius and Australia.

In FTA 2.0, India is ostensibly following an approach that can be described as the “domestication of IIL”. It is a process where countries develop domestic rules in parallel to international rules to protect foreign investment.

They give primacy to their domestic laws in safeguarding foreign investment by doing two things-

First, domestically legislating investment protection standards that are typically part of International Investment Law. Second, providing a dispute resolution mechanism at the local level instead of treaty arbitration. South Africa is a good example of this kind of domestication.

India has also unilaterally terminated most of its investment treaties. It has signed a few BITs in the last decade.

Unlike South Africa, India hasn’t legislated an exclusive law for the protection of foreign investment. But the message is quite clear. International trade commitments will be protected under international law and  foreign investment will be guarded as per municipal laws.

India’s approach can also be explained as “de-legalisation of international economic law”. It prefers domestic adjudication for trade and investment matters at the cost of international law.

What can be inferred from India’s new approach to FTAs?

The domestication or de-legalisation of IIL takes India back to the pre-1991 era when India was not in favour of international legalisation of economic relations.

Today, India desperately seeks foreign investment but is suspicious about IIL. The decoupling of international trade law from IIL is not in sync with the approaches of India’s current and potential FTA partner countries.