The next ministerial meet for the 16-nation Regional Comprehensive Economic Partnership (RCEP), scheduled for August 5 in Laos, will have to address stark differences among members on not just services but also investments, commerce ministry sources pointed out.
Several countries were unwilling to commit to too much liberalisation of their investment space despite detailed talks during the preliminary meeting on the concluding day (July 19) in Jakarta, an official source told FE.
While India has made “one of the best offers” in the investment space, many countries — who are otherwise seeking substantial concessions from India in goods — are simply reluctant to offer anything meaningful in return in either investment or services, he said. Worse, some are not even willing to bind themselves to their current position of liberalisation in investment and services for future, said another source.
India has already made it clear that it doesn’t favour an “early harvest”, which means agreements on all the three pillars of negotiations — goods, services and investment — can be implemented only as a package, not one at a time. A meeting of the trade negotiating committee, held during July 18-19 in Jakarta to address differences among members and also set the stage for the Laos ministerial, doesn’t seem to have attained much success.
Members split over ISDS
Potential RCEP members are still divided over whether to have an investor-state dispute settlement (ISDS) mechanism. While some countries feel the ISDS should be in place to bolster confidence of the private investor, some others are seeking to discourage such a mechanism within the RCEP framework, said one of the sources cited earlier.
According to these countries, past experiences suggest some investors have “misused” the spirit of investment agreements and successfully dragged governments to international arbitration. Also, the arbitrators are often the same ones who fight cases for private investors in some other cases, so chances of some sort of a conflict of interest can’t always be ruled out.
The critics of the ISDS also contend that the investors, in any case, enjoy adequate protection under the domestic laws of a country. Data suggest that the countries (China, for example) that have given the best returns on investments or, at least, promise best returns, have witnessed the highest inflows of foreign investments, so having an ISDS doesn’t guarantee that investments from abroad will flow in. For its part, India may settle for a middle path by supporting the idea of giving some protection to investors under the RCEP framework if it ensures that governments won’t be put to undue disadvantage due to a such a mechanism, said the source.
Definition of ‘investment’ yet to take shape
The potential partners will also have to firm up concrete definitions of “investment” within the framework. A consensus is yet to evolve whether any asset-based foreign investment will qualify for protection or the safeguards should be restricted to investments made though a locally-established enterprise (India seems to favour the latter). The enterprise-based investment emphasises that only a contribution based on a transfer of finance and managerial control over the investment will be sufficient to warrant protection, given the greater commitment of resources and risk that this entails on the part of the investor.
According to an earlier UNCTAD report, the dominance of the traditional broad asset-based definition “risks the possibility that transactions that were not thought to be investments at the time the agreement was entered into might nonetheless become covered as a result of an open-ended nature of the definition”.