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India’s Participation in WTO Talks

Relevance

• GS 2: Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.
• Tags: #WTO #InvestmentFacilitation #EaseofDoingBusiness #FDI #TradeAgreements #India2025 #InternationalTrade #UPSC #MintEditorial #CurrentAffairs.

Why in the News?

As of July 6, 2023, more than 110 out of the 164 members of the World Trade Organization (WTO) successfully concluded negotiations based on the text for the Agreement on Investment Facilitation for Development (IFA). India was notably absent from these negotiations, which means it missed the opportunity to shape the agreement’s terms. However, India still has the option to join the agreement in its current form, which could bring about various benefits for the country.

The IFA’s Core Objective

• The Primary focus of the Agreement on Investment Facilitation for Development (IFA) is to foster an investor-friendly business environment, mirroring India’s Ease of Doing Business policy.
• While the IFA primarily addresses foreign direct investment (FDI), its provisions can also benefit domestic investors.
• The IFA incorporates a safeguarding firewall to protect it from conflicts with international investment agreements (IIAs).

Key Elements

The IFA achieves its goals by

• Promoting transparency
• Predictability in investment measures,
• Simplifying investment-related administrative procedures and
• Facilitating international cooperation through mechanisms like information exchange.

Excluded Aspects

IFA excludes from its scope:

• Market access
• Investment protection
• Government procurement
• Specific subsidies, and
• Investor-state dispute settlement (ISDS)

India could have sought a negative list approach to specify what the IFA would not cover, helping to alleviate concerns and provide clarity on its scope and objectives.

Special Provisions for Developing Nations

• Customized Implementation: The IFA adapts its implementation based on the capacities of developing and least developed countries, offering modified timelines and extents.
• Support through Capacity Building: It includes provisions for technical assistance and capacity building to aid these nations.

UNCTAD’s Global Action Menu for Investment Facilitation

It makes a distinction between investment facilitation and its promotion. Both strategies seek to encourage foreign investment

• Facilitation concentrates on making it simpler for foreign investors to start or grow their businesses and carry out daily operations.
• Promotion emphasizes a proposed area as an investment destination.

Essentially, the Goal of Investment facilitation is to remove practical barriers that international investors face.

Bilateral Investment Treaties (BITs)

• The majority of investment facilitation clauses in BITs have been non-binding, which encourages parties to develop policies that support foreign investment.
• These procedures include the broadcast of information to investors, actions against corruption, collaboration amongst organizations in charge of promoting investment, and institutional structures.
• They place more of an emphasis on fostering cooperation and expediting the investment process than they do on protecting investments.
• Brazil’s Cooperation and Investment Facilitation Agreements serve as a perfect example of an investment facilitation method in this context.
• Instead of Investor State Dispute Settlement (ISDS), these agreements provide for state-to-state dispute resolution.

India’s Engagement in Investment Facilitation

• India doesn’t fundamentally oppose investment facilitation approaches.

Recent Bilateral Agreements

• India has included investment facilitation in recent bilateral agreements with the UAE and Brazil.
• India is also part of the BRICS Understanding on Investment Facilitation.
• India signed a facilitation mechanism with the EU in 2017.

Reasons for India’s IFA Absence

1. Bilateral Preference:

• India disagrees with using the World Trade Organization (WTO) for investment facilitation, believing it’s not the right platform.
• Instead, it prefers negotiating investment terms bilaterally.
• This approach gives India negotiation power, based on mutual benefit, politics, relationships, and national interests.

2. Concerns About WTO Strategy

• India views the WTO’s Investment Facilitation Agreement (IFA) as a method for industrialized nations to start with harmless investment facilitation before maybe introducing harsher investment protection regulations later.

3. Resistance to Plurilateral (Multi-lateral) Agreements

• India opposes plurilateral agreements within the WTO because they bypass the consensus decision-making process, which it values.

4. Caution Regarding ‘Most Favoured Nation’ (MFN) Provisions

• India is cautious about including ‘Most Favoured Nation’ (MFN) provisions in the IFA.
• India is cautious of such inclusions due to a prior experience with Australia’s BIT, which had an MFN clause, which had adverse impacts for India.

India has liberalized foreign investment across sectors, making the IFA beneficial for attracting FDI. Additionally, India’s status as a capital exporter could be enhanced through IFA participation. Achieving a $5 trillion economy by 2025-26 is a priority. To do so, India must overcome apprehensions and engage actively in shaping the global economic framework, shedding historical concerns similar of the ‘East India syndrome’.

Source: LiveMint

Mains Question

What is the Agreement on Investment Facilitation for Development (IFA) negotiated at the WTO, and why did India abstain from participating in the negotiations? Discuss the potential benefits and concerns associated with India’s involvement in the IFA?