0.1672
900 319 0030
x

Investment Facilitation Agreement (IFA)

iasparliament Logo
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.

 

References

  1. The Hindu│ IFA Negotiations
  2. WTO│ IFA Agreements
  3. PRS│ BITs In India
  4. PIB│ Provisions Of Model BIT
Login or Register to Post Comments
There are no reviews yet. Be the first one to review.

ARCHIVES

MONTH/YEARWISE ARCHIVES

Free UPSC Interview Guidance Programme