India should be open to the WTO investment facilitation pact

India would do well to actively take part in these negotiations and try to shape the investment facilitation agreement in a manner that reflects its concerns
India’s apprehensions stem from WTO’s checkered past on investment (AFP) PREMIUM
India’s apprehensions stem from WTO’s checkered past on investment (AFP)
Updated on Oct 22, 2021 05:44 PM IST
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ByPrabhash Ranjan

One of the major issues that members of the World Trade Organization (WTO) are going to discuss in the 12th ministerial meeting at Geneva next month is investment facilitation.

Select WTO member-countries launched discussions towards an investment facilitation agreement at the 11th WTO ministerial meeting held in 2017 in Buenos Aires, Argentina. Since then, the number of WTO member countries supporting this proposal has swelled to over 100. This includes developed countries such as the nations of the European Union (EU), Australia, and several developing countries, including Brazil, China, and Russia.

The purpose of the investment facilitation agreement is to create legally binding provisions aimed at facilitating investment flows. The legal obligations (among other things) would require States to augment regulatory transparency and predictability of investment measures, streamline and speed up administrative procedures, and enhance international cooperation, information-sharing, and exchange of best practices to bolster foreign investment inflows. This agreement will be very different from investment protection treaties such as bilateral investment treaties (BITs) that impose substantive protection standards on host States and confer enforceable rights on foreign investors.

India is opposed to these negotiations. India believes that negotiations on investment facilitation are a camouflage to bring in contentious issues such as market access and investment protection within the ambit of the WTO. After being sued by more than 20 foreign investors under BITs, and losing high-profile cases against corporations such as Vodafone and Cairn Energy, India has got cold feet on investment protection under international law.

India’s apprehensions also stem from WTO’s checkered past on investment. After the establishment of the WTO in 1995, developed countries and blocs pushed for a multilateral agreement on investment focusing on market access and investment protection. However, due to persistent opposition from developing countries, including India, investment was finally dropped from the WTO’s agenda in 2004.

Nonetheless, India’s concerns are misplaced for two reasons. First, the focus of the current negotiations on investment is restricted to facilitation measures only and does not extend to investment protection. Second, unlike the negotiations on an investment protection agreement in the past, the current negotiations on an investment facilitation agreement are led by developing countries. Most of these countries share India’s scepticism on investment protection under international law. Thus, it is unlikely that the agenda on investment facilitation would broaden to include issues of market access and protection.

In any case, India, as part of its domestic economic reforms to boost foreign investment, has adopted several measures aimed at facilitating foreign investment. For instance, the commerce ministry recently launched a foreign investment facilitation portal, which will act as a single point online interface between the government and foreign investors. This single-window clearance system is expected to iron out the administrative bottlenecks that foreign investors face while dealing with different government departments and ministries.

Likewise, India has strengthened regulatory transparency by making available all the policies and regulations on the portal.

Given this, the investment facilitation agreement is a great opportunity for India to lock in these unilateral reforms by agreeing to binding norms at the WTO. This will enable India to demonstrably walk the talk on economic reforms, ensuring no backtracking and avoiding costly policy upheavals. It will also signal a stronger commitment to foreign investors towards attracting foreign investment, which is critical to attaining the goal of becoming a $5-trillion economy.

A future agreement on investment facilitation at the WTO should honour three critical aspects.

One, as some international lawyers have pointed out, there is a possibility of foreign investors endeavouring to borrow elements from the WTO’s investment facilitation agreement to expand their enforceable rights under BITs. Foreign investors can accomplish this, for example, by relying on provisions like the most favoured nation (MFN). Under BITs, foreign investors have used the MFN provision to borrow beneficial elements from other investment treaties. Thus, the WTO investment facilitation agreement must be completely insulated from BITs. The investment facilitation agreement should declare unequivocally that it would not cover issues of market access and investment protection. Furthermore, the investment facilitation agreement should state unambiguously that its breach shall not establish a violation of any investment protection rule under BITs.

Two, one of the major reasons for developing countries such as India to oppose investment treaties is the restriction that these treaties ostensibly impose on the sovereign right to regulate. Therefore, the WTO investment facilitation agreement should not unduly curtail the policy space of developing countries.

Three, the WTO investment facilitation agreement should not impose too onerous binding obligations, which developing countries would find difficult to meet. Instead, the agreement should contain provisions on providing technical assistance to developing countries such as India to fulfil obligations under the agreement. Addressing these concerns will boost the acceptability of the agreement among the WTO members.

India would do well to actively take part in these negotiations and try to shape the investment facilitation agreement in a manner that reflects its concerns. India can also consider using the investment facilitation agreement as a bargaining chip to obtain a favourable deal on other issues in the WTO, notably agriculture.

Prabhash Ranjan is professor and vice dean, Jindal Global Law School, O P Jindal Global University

The views expressed are personal

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Friday, December 03, 2021