We should join the WTO’s investment facilitation talks

Source– The post is based on the article “We should join the WTO’s investment facilitation talks” published in the “mint” on 28th September 2023.

Syllabus: GS3- Economy

Relevance- Issues related to WTO

News– On 6 July 2023, over 110 of the WTO 164 members concluded text-based negotiations on the Agreement on Investment Facilitation for Development (IFA).

What are some facts about IFA (Investment Facilitation Agreement)?

The primary goal of the IFA is to create a business environment that is favourable to investors.

The IFA primarily focuses on FDI.

It achieves this by implementing transparent and predictable investment measures, streamlining administrative procedures related to investment, and establishing mechanisms for international cooperation.

IFA does not cover areas like market access, investment protection, government procurement, specific subsidies, or investor-state dispute settlement (ISDS). It contains safeguards to shield it from international investment agreements (IIAs).

In essence, the IFA is not aimed at liberalising investment policies. Its objective is to simplify investment procedures.

IFA incorporates provisions for special and differential treatment, which adjust the scope and timeline of the agreement’s implementation for developing and least developed countries based on their respective capacities.

The IFA also includes provisions for providing technical assistance and capacity building to these countries.

What is the difference between investment facilitation and investment promotion?

UNCTAD’s Global Action Menu for Investment Facilitation draws a distinction between the two approaches.

While both aim to attract foreign investment, promotion places emphasis on showcasing a particular location as an attractive investment destination.

In contrast, facilitation concentrates on simplifying the process for foreign investors to establish or expand their businesses. Investment facilitation seeks to address practical challenges encountered by foreign investors.

What are issues faced by international investment agreements (IIAs)?

High-standard investment protection provisions have been included within international investment agreements.

Their inconsistent interpretation by various arbitration panels has constrained the policy flexibility available to host countries to regulate in alignment with their developmental priorities.

For instance, India has terminated its older bilateral investment treaties (BITs) and is in the process of negotiating new agreements based on its 2016 Model BIT text.

What is India’s approach towards investment facilitation?

Indi does not fundamentally oppose the concept of investment facilitation. Recent India-UAE agreement in 2022 and the India-Brazil BIT in 2020, include provisions related to investment facilitation.

India is also a participant in the BRICS Understanding on Investment Facilitation and signed a similar mechanism with the EU in 2017.

Why has India decided to not participate in the IFA (Investment Facilitation Agreement) talks?

1. India is against utilising the WTO as a platform for investment facilitation, as it holds the misconception that investment matters fall outside the WTO’s mandate. Instead, India prefers bilateral negotiations for investment provisions.
2. India perceives the IFA as part of a strategy by developed nations to initiate investment facilitation within the WTO, possibly followed by the introduction of contentious investment protection rules at a later stage.
3. India opposes plurilateral agreements within the WTO, as they bypass the consensus decision-making process.
4. India is against the inclusion of ‘Most Favoured Nation’ (MFN) provisions in the IFA due to past negative experiences, such as the repercussions faced after including an MFN provision in its Australia BIT.

How WTO’s investment facilitation framework is a potential opportunity for India?

New Delhi has opened up foreign investment in most sectors, and participation in the IFA could advance the goal of attracting foreign direct investment (FDI). India is also a capital-exporting country, and involvement in the IFA could facilitate its overseas investments.

India has ambitious aspirations for achieving a $5 trillion economy by 2025-26. Therefore, it is essential for the country to move beyond a mindset shaped by historical experiences, and actively engage in shaping the global economic framework.