Some Advice To India On The IFA Negotiations
India is opposed to joining the investment facilitation agreement negotiations for fear of investor-state dispute settlement claims.
Points to ponder:
- The World Trade Organization (WTO) is now in a “moribund” state, although the investment facilitation agreement (IFA) is one area of rule-making where there is a great deal of activity.
- The concept of investment facilitation in the WTO context refers to the creation of a more transparent, efficient, and investment-friendly business climate – by making it easier for investors to invest, conduct their day-to-day business, and expand their existing investments (whole-investment-lifecycle approach), as well as for host and home governments to work cooperatively and in mutually beneficial ways to facilitate not only more but also a more sustainable investment.
- The proposed IFA, backed by more than 100 countries, is intended to provide legally enforceable regulations aimed at streamlining investment flows, but India is not a party to the negotiations.
- Investor-state dispute settlement (ISDS) is a system that allows foreign investors to sue countries for specific state activities that harm foreign direct investment. (FDI). This approach is most commonly implemented through international arbitration between a foreign investor and the country receiving the FDI.
- One reason India may be reticent to participate in the IFA negotiations is a concern that foreign investors may utilize the IFA to file claims under existing bilateral investment treaties.
- A bilateral investment treaty (BIT) is an agreement that establishes the terms and conditions for private investment in another country by nationals and firms of one country. This is referred to as a foreign direct investment. (FDI). Trade treaties are used to create BITs.
- Foreign investors could exploit the most favored nation (MFN) provision in BITs to borrow or import terms from the IFA that they deemed to be more favorable than those in the underlying BIT.
- Foreign investors could also use the common provision in BITs requiring fair and equitable treatment (FET) to challenge noncompliance with the IFA.
- These presumptions may be erroneous, as many BITs exempt economic integration agreements from MFN applicability, and ISDS arbitrators are unlikely to accept allegations that mere non-compliance with the IFA violates an investor’s legitimate expectations.
- The IFA can be excluded from BITs by explicitly saying that it cannot be utilized to interpret or apply any regulation for investment protection contained in any investment treaty.
- The IFA can also specify that it does not create rights for non-signatory countries or their investors, and the draught IFA text includes language to that effect.
- Critics contend that this is insufficient because the IFA cannot bind an ISDS tribunal hearing a claim brought by an investor under a BIT.
- Countries can address this issue by revising their BITs to exclude the IFA from their reach. The BIT reform process is already underway, with older treaties being replaced with newer ones that have more balanced provisions.
- The potential of an ambitious ISDS tribunal broadly interpreting clauses cannot be ruled out, but this cannot be used to argue against international lawmaking.
Fear of ISDS allegations should not prevent India from participating in the IFA negotiations at the WTO. The IFA can be excluded from the scope of BITs, and countries can change their BITs to do so. The BIT reform process is already underway, and the hypothetical possibility of an ISDS tribunal broadly interpreting rules cannot be used to justify opposing international lawmaking.