WTO’s Investment Facilitation Negotiations Are Not Illegal

Why in News?

• The 13th Ministerial Conference (MC13) of the World Trade Organisation (WTO) in Abu Dhabi witnessed a significant development with the non-adoption of the agreement on investment facilitation for development (IFD).
• Despite considerable support, including from around 120 member countries, the IFD Agreement faced opposition, notably from India and South Africa.
• Amid these developments, it is important to understand India's stance against the IFD Agreement and concerns regarding its compatibility with WTO principles, particularly regarding the nature of investment within the realm of trade and the process followed in negotiating the agreement. 

Understanding the IFD Agreement

• Despite opposition from countries such as India, negotiations for an IFD agreement at the WTO were launched in 2017 on a plurilateral basis by 70 countries.
• This was done through a process known as the Joint Statement Initiative. The IFD agreement was finalised in November 2023.
• Today, around 120 of 166 WTO member countries (more than 70% of the membership) back the IFD agreement.
• This agreement aims to create legally binding provisions to facilitate investment flows.
• The IFD Agreement, among other things, will require states to augment regulatory transparency, and streamline administrative procedures to bolster foreign investment inflows.
• Importantly, this agreement does not contain provisions on market access, investment protection, and investor-state dispute settlement (ISDS).
• ISDS, which allows foreign investors to bring treaty claims against the state admitting investment, has been a contentious issue in recent years.

Reason Behind India’s Opposition to IFD Agreement

• Given the existing structure of the WTO’s dispute settlement mechanism, where only states can bring legal claims against other states, it is implausible that ISDS can be a part of it.
• India and South Africa played a crucial role in not letting the IFD agreement become a part of the WTO rulebook.
• India does not seem to be exceedingly concerned about the text of the IFD agreement.
• Instead, India’s principal concerns are twofold. First, the question of whether investment can be part of the WTO. And second, the process followed to make the IFD agreement a part of the WTO rulebook.

India’s Concerns with IFD Agreement at WTO’s 13^th Ministerial Conference (MC13)

• Investment and its Relationship with Trade
  • India’s Stance Challenges the Rethinking of Investment-Trade Nexus
  • India's contention regarding the relationship between investment and trade reflects a nuanced understanding of the evolving dynamics shaping international commerce.
  • While traditional economic perspectives often portray investment and trade as inherently intertwined, India's stance challenges this conventional wisdom by highlighting the diverse nature of investment activities and their implications for cross-border trade.
• The Proposed Role of Investment in Global Economics
  • At the heart of India's argument lies the recognition that investment, though integral to global economic activities, does not always lead to the immediate facilitation of cross-border trade.
  • Unlike trade in goods and services, which involve the exchange of tangible or intangible products, investment encompasses a broader spectrum of activities, ranging from capital injections into foreign enterprises to the acquisition of assets in overseas markets.
  • These investment activities may not always result in immediate trade flows, especially in cases where investments are made for strategic or long-term purposes, rather than for the explicit purpose of engaging in trade.
• Linkage of Global Value Chains and Investment-Trade
  • Furthermore, India points to the complexities of global value chains (GVCs) to underscore the multifaceted nature of investment-trade linkages.
  • While it is undeniable that GVCs rely on both trade and investment to facilitate the seamless movement of goods and services across borders, India argues that the relationship between the two is not always straightforward.
  • Investment in GVCs often serves to enhance production efficiencies, reduce costs, and access new markets, but may not necessarily translate into direct trade activities.
  • Particularly in cases where intermediate inputs are destined for domestic consumption or further processing within the host country.
• Concerns with the Process of Negotiating the IFD Agreement
  • Procedural Concerns in IFD Agreement Negotiations
    • India's opposition to the IFD Agreement also encompasses procedural concerns regarding the negotiation process.
    • India asserts that there was no mandate for conducting negotiations on investment within the WTO framework.
    • This assertion is grounded in previous WTO decisions, such as the 2004 General Council decision, which excluded discussions on trade and investment from the Doha Round of negotiations.
    • India contends that this decision implicitly signalled a reluctance to engage in negotiations on investment-related matters within the WTO framework.
  • Consensus Requirement and Legitimacy of Negotiations
    • Moreover, India points to the consensus requirement for launching multilateral negotiations on new issues, as outlined in the 2015 WTO Nairobi ministerial decision.
    • This decision emphasised the necessity of unanimous agreement among WTO members to initiate negotiations on novel topics.
    • India argues that since there was no consensus among all members to launch negotiations on an IFD Agreement, the subsequent negotiations and the text that emerged are legally questionable.
  • Upholding WTO Integrity and Transparency
    • India's objection raises fundamental questions about the legitimacy of negotiating agreements outside the established framework of WTO mandates.
    • By invoking past decisions and procedural requirements, India underscores the importance of adhering to established norms and principles in shaping global trade governance.
    • This stance reflects India's commitment to upholding the integrity of the WTO's decision-making processes and ensuring that negotiations are conducted transparently and inclusively.
  • Scope and Mandate of WTO Negotiations
    • Furthermore, India's concerns extend beyond mere procedural objections to broader questions about the scope and mandate of WTO negotiations.
    • India contends that discussions on investment-related matters were explicitly excluded from previous rounds of negotiations, suggesting a reluctance among members to address such issues within the WTO framework.
    • This reluctance underscores the need for clarity regarding the scope of WTO negotiations and the parameters within which member states can engage in discussions on novel topics.

Conclusion

• India's opposition to the IFD Agreement at the WTO reflects broader debates surrounding the intersection of investment and trade, as well as procedural intricacies within the organisation.
• While concerns regarding the nature of investment and the negotiation process are valid, reconciling divergent perspectives is essential for fostering consensus and advancing global trade governance.
• As the WTO seeks to navigate evolving trade landscapes, engaging constructively with initiatives like the IFD Agreement can contribute to revitalising its legislative function and addressing contemporary trade challenges.

Q) What is Investment Facilitation for Development (IFD)?

Investment Facilitation for Development (IFD) refers to the process and policies aimed at streamlining and enhancing the ease of investment, particularly in developing countries. It encompasses various measures designed to attract and retain investment, such as simplifying administrative procedures, providing investor support services, and improving infrastructure.

Q) How does Investment Facilitation for Development (IFD) benefit developing countries?

IFD benefits developing countries by fostering economic growth, creating jobs, and stimulating development. By reducing bureaucratic hurdles and enhancing the investment climate, IFD attracts more foreign and domestic investment, leading to increased capital flows, technology transfer, and knowledge spillovers. Ultimately, IFD helps diversify economies, strengthen industries, and improve living standards in developing nations.

Source: The Hindu