WTO’s investment facilitation negotiations are not illegal

India should reconsider its defensive approach towards plurilateral agreements such as the investment facilitation for development agreement

March 28, 2024 12:08 am | Updated 02:22 am IST

At the WTO ministerial meeting

At the WTO ministerial meeting | Photo Credit: REUTERS

One of the significant developments at the 13th Ministerial Conference (MC13) of the World Trade Organization (WTO) in Abu Dhabi was the non-adoption of the agreement on investment facilitation for development (IFD). 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.

In Abu Dhabi, these 120 countries wanted to include the IFD Agreement as a plurilateral agreement (PA) within Annex 4 of the WTO Agreement. It is critical to recall that while the WTO is a multilateral trade organisation, Article II.3 of the WTO Agreement categorically allows for PAs. These PAs bind those WTO member countries that accept them and do not create rights or impose obligations on the remaining members.

India’s concerns

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. 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.

Investment is not trade

On whether investment can be part of the WTO, India’s chief contention is that investment per se is not trade. In other words, investment could or could not result in cross-border trade. This argument flies in the face of economic literature supporting an inextricable linkage between trade and investment. According to the Organisation for Economic Co-operation and Development, about 70% of international trade occurs through global value chains, which are characterised by trade and investment, thus proving the close relationship between the two.

Therefore, it is unsurprising that several modern-day free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership include detailed investment provisions covering both facilitation and protection. Interestingly, India’s newly minted trade agreement with the European Free Trade Association also contains provisions on investment, though it is restricted to facilitation and promotion measures.

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Regarding the process followed in negotiating the IFD Agreement, India’s foremost assertion is that there is no mandate to conduct negotiations on investment. India argued that in 2004, the WTO’s General Council decided that the talks on the relationship between trade and investment — one of the so-called ‘Singapore issues’ because it was introduced at the 1996 WTO Singapore ministerial conference — would not take place as part of the Doha round of negotiations launched in 2001.

India also referred to the decision taken at the 2015 WTO Nairobi ministerial decision, which says that “any decision to launch negotiations multilaterally on [new] issues would need to be agreed by all members”. Since all countries never agreed to launch negotiations on an IFD Agreement, according to India, IFD negotiations and the subsequent text that came up for adoption are illegal.

India is correct in arguing that there is a negative mandate to launch negotiations on the relationship between trade and investment. But two questions arise. First, does this negative mandate cover all aspects of investment, including facilitation? It is important to recall that the dropped investment agreement proposed at the 1996 Singapore ministerial focused on issues such as market access and investment protection. So, can the negative mandate include everything and anything on investment at the WTO?

Second, the negative mandate is to launch negotiations on new issues multilaterally. Will this also apply to negotiations launched on a plurilateral basis? The negotiations on an IFD agreement were launched not on a multilateral basis. While Article X.9 of the WTO Agreement states that the decision to add an agreement to the existing set of PAs listed in Annex 4 can be made ‘exclusively by consensus’, nothing in the agreement requires consensus to launch negotiations for a PA.

An essential function of the WTO is to update existing rules and make new ones to govern the increasingly complex nature of international trade. However, the WTO’s decision-making process remains deadlocked because of the colossal difficulties in arriving at consensus. From this perspective, PAs such as the IFD agreement are essential for reinvigorating the WTO’s stalemated legislative function. India, which will soon be the third biggest economy, should reconsider its defensive approach towards PAs, as in the proposed IFD Agreement in the WTO.

Prabhash Ranjan teaches at the Faculty of Legal Studies, South Asian University. The views expressed are personal

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