 India on the IFA negotiations
Why in news?
India did not join the recently conducted Investment Facilitation Agreement (IFA) negotiations because of the flaws in the investor-state dispute settlement claims.
What is an Investment Facilitation Agreement (IFA)?
- IFA is a trade agreement proposed by the World Trade Organization.
- Aim – To create legally binding provisions by facilitating investment flows.
- It requires states to augment regulatory transparency and predictability of investment measures.
- Informal Dialogue – In 2017, a group of developing and least-developed country Members launched an Informal Dialogue on Investment Facilitation for Development in the WTO.
- IFA negotiations – It was formally launched in 2020 negotiations as ‘Agreement on Investment Facilitation for Development’ (IFD Agreement).
- Eligibility – Participation in this joint initiative is open to all WTO Members.
- India – India did not join the IFA negotiations which is backed by more than 100 countries.
What are the concerns of India?
- Investor-state dispute settlement (ISDS) – India opposes to join the investment facilitation agreement negotiations for fear of investor-state dispute settlement claims.
- ISDS is a system through which individual companies can sue countries for alleged discriminatory practices.
- ISDS is a neutral, international arbitration procedure.
- Future IFA – There are apprehensions that foreign investors could use IFA to bring claims under the existing BITs.
- Most favored nation (MFN) – Foreign investors may use the MFN provision in BITs to borrow or import stipulations from the IFA.
- Fair and equitable treatment (FET) – Foreign investors may use the provision of fair and equitable treatment present in BITs to challenge non-compliance with IFA.
- Umbrella clause – Most new investment treaties avoid ‘umbrella clauses’ altogether thus limiting the possibility of investors suing states for non-compliance of IFA obligations.
- ISDS tribunal – It is doubtful that an ISDS tribunal will accept the argument that mere non-compliance with IFA breaches an investor’s legitimate expectations.
What is the status of India’s bilateral investment treaties (BITs)?
- India’s tryst with BITs started in 1994 when it signed its first with the United Kingdom.
- Bilateral Investment Treaties (BITs) are reciprocal agreements between two countries to promote and protect foreign private investments in each other’s territories.
- Indian Model BIT – BITs were negotiated based on the Indian Model BIT of 1993.
- Till 2015 India had signed BITs with 83 countries.
- The model BIT was finalized and released in public domain in 2016.
Provisions of Model BIT 2016
- Objectives – To provide appropriate protection to foreign investors in India and Indian investors in the foreign country.
- To create a balance between the investor’s rights and the Government obligations.
- Arbitration – The Model BIT stipulate that the aggrieved investor should use all local remedies as well as negotiations and consultations initiating arbitrations against the host State.
- Enterprise – Defines enterprise based on investment instead of asset based definition.
- MFN treatment – Excludes MFN treatment.
- Full Protection and Security (FPS) – FPS means obligations only relating to physical security of investors and to investments.
- State government as stake holders – Includes the actions of the State Governments.
- Fair and equitable treatment (FET) – It links Fair and Equitable Treatment to international laws to counter a broad interpretation and risk misuse.
- Expropriation – Expropriation means nationalization of assets of foreign companies.
- The Model BIT provides that the State cannot nationalize or expropriate an investment except for reasons of public purpose and on payment of adequate compensation.
- Non-Discriminatory treatment – The Model BIT includes a clause on non-discriminatory treatment for compensation of losses.
- Corporate Social Responsibility – It mandates foreign investors to voluntarily adopt internationally recognized standards of corporate social responsibility.
