Investment Facilitation Agreement (IFA)

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.

References

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