Some Advice to India on IFA Negotiations

Why in the News?

 India should not be opposed to joining the investment facilitation agreement (IFA) negotiations for fear of investor-state dispute settlement claims.

 

Introduction to investment facilitation agreement (IFA)

• The objective of the proposed IFA, launched by developing and least-developed WTO members in 2017, is to develop a legally binding multilateral agreement on investment facilitation.
• Over 110 countries (excluding India) are members negotiators of this joint initiative.
• This will require states to augment regulatory transparency and predictability of investment measures. 

 

IFA vs Bilateral Investment Treaties (BITs):

• IFA will be very different from investment protection agreements such as BITs.
• This is because BITs allow foreign investors to bring claims against the host state for alleged treaty breaches.
• This is known as investor-state dispute settlement (ISDS) - a mechanism in a free trade agreement (FTA) or investment treaty that provides foreign investors with the right to access an international tribunal to resolve investment disputes.

 

India's concerns

• India is wary of the fact that investors could use a future IFA to bring claims under the existing BITs. 
• The foreign investors may use the most favoured nation (MFN) provision to import stipulations from the IFA perceived to be more advantageous than those given in the underlying BIT.
• The foreign investor may use the universal provision of fair and equitable treatment (FET) present in BITs to challenge non-compliance with IFA.
• Another area where India's concern lies is the so-called ‘umbrella clause’ — a BIT clause that allows contractual and other commitments owed to a foreign investor to be brought under the treaty’s protective umbrella.
• An investor can use ISDS to seek compensation for -
  • The expropriation of a foreign investor's property
  • Discrimination and minimum standards of treatment, denial of justice.

 

How should India overcome its fear of ISDS?

• The possibility of foreign investors successfully importing IFA provisions into the BIT is remote.
  • Even if they try, it is highly unlikely for the ISDS tribunal to agree with their arguments.
• It is doubtful that an ISDS tribunal will accept the argument that mere non-compliance with IFA breaches an investor’s legitimate expectations.
  • ISDS can only intervene and deliberate on the matter only if a State has included its IFA commitments as part of the specific assurances to the foreign investor. 
• Most new investment treaties avoid ‘umbrella clauses’ altogether. This limits the possibility of investors suing states for non-compliance of IFA obligations as a breach of a BIT’s ‘umbrella clause’.

 

What can be done?

• The IFA can clearly state that
  • No investment treaty's provision for the protection of investments can be applied or interpreted through the IFA.
  • It does not grant non-signatory nations or their investors any rights.
• Reforming BITs: Countries can amend their respective BITs to exclude the IFA from its scope.

 

Conclusion

Over 110 counties are pushing for IFA, so it's easier for them to agree among themselves to insulate IFA from ISDS.

In international law, the role of ISDS cannot be ruled out. Therefore, instead of opposing a policy moved by more than 100 countries, India should participate in active negotiations and put forth its concerns strongly and come up with solutions that address India's challenges and concerns.

 

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Q1) What are Bilateral Investment Treaties?

Bilateral Investment Treaties (BITs) are reciprocal agreements between two countries to promote and protect foreign private investments in each other’s territories. 

 

Q2) What is the Most Favoured Nation status?

The MFN clause in WTO’s General Agreement on Tariffs and Trade is intended to ensure that member countries of the organisation do not discriminate between their trade partners. The primary condition under MFN is that a country must charge the same tariff rate on imports irrespective of their origin.

 

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Source: The Hindu