WTO’s investment facilitation negotiations are not illegal

Subject: IR

Section: Int organisation

Context:

At the 13th Ministerial Conference of the World Trade Organization (WTO) in Abu Dhabi, a significant event was the failure to adopt the agreement on Investment Facilitation for Development (IFD).

Agreement on Investment Facilitation for Development (IFD):

Initiated in 2017 by 70 countries through the Joint Statement Initiative.
IFD agreement aimed to establish legally binding measures to improve investment flows.
- It also aims to create a more investor-friendly business environment by simplifying investment procedures and promoting transparency and predictability for foreign direct investment (FDI), particularly in developing and least-developed countries.
It notably does not address market access, investment protection, or investor-state dispute settlement (ISDS).
- ISDS allows foreign investors to sue states, is particularly contentious and incompatible with the WTO’s dispute resolution mechanism, which is limited to state-to-state claims.

Investment facilitation and Investment promotion:

The difference between investment facilitation and investment promotion is that promotion focuses on presenting a location as an attractive investment destination, while facilitation aims to simplify the process for foreign investors to establish or expand their businesses by addressing practical challenges they may face.

India’s stance:

Despite being supported by over 70% of WTO members (around 120 of 166 countries) by November 2023, opposition, notably from India, prevented its inclusion as a plurilateral agreement within Annex 4 of the WTO Agreement.
This development underscores the complexity of reaching consensus within the WTO, despite the provision under Article II.3 that allows for plurilateral agreements which bind only participating countries without affecting others.

Why India is not supporting the IFD agreement?

India’s main argument against the inclusion of investment is that investment is distinct from trade; that is, not all investment leads to cross-border trade.
- This stance challenges the widely accepted economic view that trade and investment are deeply intertwined, as evidenced by the fact that around 70% of international trade happens through global value chains, integrating both trade and investment activities.
India’s reservations regarding the Investment Facilitation for Development (IFD) Agreement largely revolve around two main issues.
- Firstly, there is a fundamental concern over whether investment matters should fall within the World Trade Organization’s (WTO) purview.
- Secondly, India is apprehensive about the procedural aspects of incorporating the IFD agreement into the WTO rulebook.
The latter, allowing foreign investors to sue states, is particularly contentious and incompatible with the WTO’s dispute resolution mechanism, which is limited to state-to-state claims.
India, along with South Africa, has been pivotal in preventing the IFD agreement from being integrated into the WTO framework, reflecting broader concerns about the scope of the WTO’s mandate and the process for adopting new agreements.

Significance of Plurilateral agreements:

Plurilateral agreements, like the IFD, are seen by some as a way to break through the consensus deadlock that often hampers the WTO’s decision-making processes, suggesting that embracing such agreements could be vital for the organization’s relevance and effectiveness.
This viewpoint argues for a reconsideration of India’s cautious stance on plurilateral agreements within the WTO, especially given India’s growing economic significance.

Source: TH