More than trade: Why India resists an investment facilitation agreement in WTO

November 19, 2021 4:15 AM

Proponents are the new Vamanans (the Vishnu avatar) who demand ‘three feet of land’ & occupy ‘the whole of three worlds’ of entry, admission and non discriminatory treatment

This resulted in the forum being attempted to be shifted to the newly established WTO, with its relatively effective dispute settlement system.This resulted in the forum being attempted to be shifted to the newly established WTO, with its relatively effective dispute settlement system.

By Augustine Peter

The 12th Ministerial Conference (MC12) of the WTO is scheduled from November 30 to December 3 in Geneva. A group of over 100 WTO member countries are deliberating on a proposal to have a plurilateral agreement on investment facilitation to be finalised at this ministerial conference. India has taken a firm stand against this initiative. Here, we analyse the reasons.

The OECD multilateral agreement on investment (OECD MAI) in the 1990s could not succeed because of the high standards of investment protection sought by the US, in particular, and the large number of exceptions and exemptions sought by OECD countries like France. This resulted in the forum being attempted to be shifted to the newly established WTO, with its relatively effective dispute settlement system. However, the 2004 July Framework agreement shelved the discussions.

Investment is back in reckoning in the WTO with the Ministerial statement at Argentina (13 December, 2017) by the trade ministers of 70 WTO member countries, both developing and developed which recognised the “the need for closer international cooperation at the global level to create a more transparent, efficient, and predictable environment for facilitating cross-border investment”. The Ministers called for beginning structured discussions with the aim of developing a multilateral framework on investment facilitation. The successful entry into force of the Trade Facilitation Agreement (TFA) in the WTO on 22 February, 2017 triggered the idea of bringing investment policy under the umbrella of WTO.

Status of discussions
The agreement on Investment Facilitation for Development being negotiated by a group of over 100 WTO members under a plurilateral mode has been evolving and the visible result of the progress of such discussions are the three texts prepared in his own responsibility and without prejudice, by the Group coordinator, Ambassador Mathias Francke of Chile. The salient provisions that are appearing to be emerging in the plurilateral discussions are the following: (i) The definition of investment for coverage appears to be veering towards FDI as defined by the IMF in terms of lasing interest in the invested entity which is taken as 10 per cent or more stake in the invested entity concerned. Government procurement would stand exempted. Coverage of sub-central government and entities which are non-governmental bodies acting in the exercise of powers delegated by central, regional or local governments or authorities is expected. (ii) Most Favoured Nation (MFN) treatment provisions are prominently appearing in the texts and are most likely to remain in the final text that may emerge. (iii) Transparency and notification provisions contemplated broadly envisage publication and making available information that is relevant for implementation of provisions covered in the agreement. Prompt notification to the proposed Committee on Investment Facilitation about new laws and changes to the existing laws is being envisaged. The Agreement is likely to set some standards for processing of the applications including time bound processing and in the event of rejection of an application reason for doing the same being required to be conveyed to the investor. A single window system might be pushed for by at least some Members. A transparent and fair appeal mechanism is also one of the likely provisions. (iv) Special and Differential Treatment (S&DT) provisions are likely to be confined to capacity building initiatives and longer time periods for compliance. (v) Sustainable investment would be a major addition to the proposed agreement and obviously goes beyond the objective of facilitation of investment. (vi) Responsible Business Conduct has got some thought as the discussions in the group proceeded. Discussions on inclusion of measures to prevent and fight corruption, money laundering and terrorism financing with regard to matters covered in the proposed agreement are likely.

India’s reservations
India’s reservations against the investment facilitation discussions on the sidelines of the WTO are twofold: (a) Investment doesn’t belong to the WTO: To the extent investment is related to trade it is already included in the TRIMs agreement and under mode 3 related to FDI in the General Agreement on Trade in Services (GATS). Rules on football (trade) can’t, for example, be applied to tennis (investment); (b) Plurilateral route of negotiations under which investment facilitation is being discussed has no legitimacy in the WTO. India has naturally not participated in the discussions and has not formally commented on the successive texts.

A close look at the likely provisions, however, indicates the following: (a) The phrase ‘investment facilitation for development’ is evidently a misnomer. There are hardly any development provisions, except extended time periods for implementation and the promised technical assistance. The proposed agreement would be too burdensome for developing countries and LDCs, because nearly all of the obligations that may be created are on host countries. The transparency and facilitation provisions being envisaged, though burdensome for many developing countries and LDCs, that may not be difficult for India to comply given her outstanding track record in FDI liberalisation and facilitation. However, the MFN provisions being discussed are extremely touchy for India because ever since the White Industries staked claim under the India-Australia bilateral investment treaty (BIT) leaning on MFN, India annulled all the BITs signed until then and came out with a new Model BIT text in 2015, excluding MFN provisions.

There is a view that India should engage in discussions on investment facilitation because it is innocent and would also be beneficial. However, it has to be noted that discussions on future agreements in the WTO normally start as low ambition proposals that gradually expand and snowball to large and comprehensive agreements imposing substantial obligations on member countries. Investment as such was abandoned in the WTO under the July Framework Agreement in 2004. The objective of the proponents now is evidently to hoist investment on the WTO agenda in an elementary and apparently harmless form as investment facilitation, to start with, and gradually expand the foothold to market access. Proponents are, in that sense, new ‘Vamanans’ who demand ‘three feet of land’ and finally occupy ‘the whole of three worlds’ of entry, admission and non discriminatory treatment (national treatment at pre-establishment stage and MFN), besides eventually (investor-to-state) dispute settlement in respect of cross border investment flows. Pre-establishment national treatment and MFN curb the policy flexibility of developing countries substantially. Naturally, India has been taking a firm stand against entry of investment per se into the WTO in any form, even as she is vigorously promoting investment flows very liberally, with sterling results in terms of record investment flows even in the face of the deadly pandemic.

The author is former member, Competition Commission of India (CCI), and visiting fellow, RIS
Views are personal

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