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Investment Facilitation Agreement (IFA)

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April 11, 2023

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 nationalise 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.

Quick facts

Most favored nation (MFN)

  • A most-favored-nation (MFN) clause requires a country providing a trade concession to one trading partner to extend the same treatment to all.
  • It is the first clause in the General Agreement on Tariffs and Trade (GATT).
  • Though the term looks like a favour given to one country, it only ensures non-discriminatory trade.
  • A member country is not allowed to discriminate between trade partners.
  • If a special status is granted to one trade partner it must be extended to all members of the WTO.
  • The loss of MFN status exposes a country to discriminatory import tariffs on its products.

Investor-state dispute settlement (ISDS)

  • Investor-state dispute settlement (ISDS) is a mechanism in a free trade agreement (FTA).
  • It provides foreign investors with the right to access an international tribunal to resolve investment disputes.
  • An ISDS tribunal cannot overturn domestic laws and regulations.
  • The tribunal is limited to determining breaches of certain investment obligations.



  1. The Hindu│ IFA Negotiations
  2. WTO│ IFA Agreements
  3. PRS│ BITs In India
  4. PIB│ Provisions Of Model BIT
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