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WTO: Agreement on Investment Facilitation for Development (IFA)

GS Paper 3

 

Syllabus: Economic Liberalization

 

Source: LM

 Context: Recently (July 2023) over 110 (it does not include India) of the WTO 164 members concluded text-based negotiations on the Agreement on Investment Facilitation for Development (IFA)

 

What is the Agreement on Investment Facilitation for Development (IFA)?

The Agreement on Investment Facilitation for Development (IFA) is a WTO-negotiated agreement designed to create a more investor-friendly business environment by simplifying investment procedures and promoting transparency and predictability for foreign direct investment (FDI), particularly in developing and least-developed countries.

  • It is meant to create legally binding provisions aimed at facilitating investment flows.

 

What IFA doesn’t cover?

  • IFA does not cover areas like market access, investment protection, government procurement, specific subsidies, or investor-state dispute settlement (ISDS).
  • In essence, the IFA is not aimed at liberalising investment policies. Its objective is to simplify investment procedures.

 

Investment facilitation and Investment promotion: 

The difference between investment facilitation and investment promotion is that promotion focuses on presenting a location as an attractive investment destination, while facilitation aims to simplify the process for foreign investors to establish or expand their businesses by addressing practical challenges they may face.

 

Reasons for India’s Non-Participation in IFA Talks:

Reasons Description
WTO’s Mandate India believes that investment matters are beyond the WTO’s scope and prefers bilateral negotiations for investment provisions.
Concern About Developed Nations’ Strategy India views the IFA as a step by developed nations to introduce investment facilitation in the WTO, potentially followed by contentious investment protection rules later on.
Opposition to Plurilateral Agreements India opposes plurilateral agreements within the WTO, as they do not follow the consensus decision-making process.
Concerns About ‘Most Favoured Nation’ (MFN) Provisions India is wary of including MFN provisions in the IFA due to past negative experiences, including repercussions faced after including an MFN provision in its Australia Bilateral Investment Treaty (BIT).
Legally binding dispute settlement The apprehension that foreign investors could use a future IFA to bring claims under the existing BITs.
India has terminated its older bilateral investment treaties (BITs) and is in the process of negotiating new agreements based on its 2016 Model BIT text.

 

About WTO:

 World Trade Organization (WTO) is a member-driven, consensus-based intergovernmental organisation that regulates and facilitates international trade between nations. It officially began operations on January 1, 1995, in accordance with the 1994 Marrakesh Agreement.

  

Issues and limitaitons of WTO:

Issues Examples
Outdated Rulebook TRIPS does not address digital piracy and online copyright infringement effectively.
Ineffective Dispute Settlement The US-China dispute over tariffs and trade practices remains unresolved after years.
Divergent Member Interests Disagreements on agricultural subsidies due to differing positions of developed and developing countries.
Lack of Enforcement Power China’s intellectual property rights violations persist despite WTO rulings.
Limited Scope of Agreements GATS doesn’t cover new digital service modes adequately.
Non-Inclusion of Developing Countries’ Concerns Doha Development Round didn’t address issues like agricultural subsidies and market access for developing countries.
Lack of Transparency TiSA negotiations were criticized for secrecy and potential influence by powerful countries.
Failure to Address Trade Imbalances The trade deficit between the US and China has led to tensions and disputes.
Limited Capacity Building Developing countries struggle with compliance due to inadequate capacity building.
Inability to Adapt to Changing Global Dynamics Rapid e-commerce growth poses challenges not adequately addressed by existing WTO rules.

  

Despite these limitations, WTO is still relevant:

Areas of Contribution Explanation Examples
Promoting Trade Liberalization Reduction of global tariffs, leading to increased market access. WTO’s efforts resulted in the reduction of global average tariffs on industrial goods from 7.0% in 1996 to 3.4% in 2017.
Settling Trade Disputes Resolving trade disputes among member countries. WTO facilitated the resolution of the US-EU aircraft manufacturing subsidies dispute.
Providing Technical Assistance Supporting developing countries in improving trade capacities. WTO’s Aid for Trade initiative aids developing countries.
Facilitating Trade Negotiations Providing a platform for trade negotiations and issue resolution. WTO’s Trade Facilitation Agreement simplifies customs procedures.
Safeguarding Intellectual Property Rights Establishing a framework for global protection of IP rights. WTO’s Agreement on TRIPS promotes IP rights enforcement.

 

Way forward:

  • Updating Rules: Revise and modernize trade rules to encompass digital trade, services, and other emerging sectors.
  • Flexibility in Negotiations: Recognize the diverse needs of member countries, allowing for flexible negotiations on specific issues.
  • Henry Gao argues that countries have to elect the appellate body members by resorting to voting at the WTO’s General Council meeting.
  • Transparency: Improve transparency in trade practices and negotiations to build trust among member countries.
  • Launch negotiations to address the intertwined issues of agricultural subsidies and market access, while recognising that food security concerns will not disappear.

  

Conclusion

The World Trade Organization remains an indispensable organisation but it requires urgent modernisation. Members have to face the reality that the organisation requires non-cosmetic, serious root-and-branch reform for a WTO adapted to 21st-century economic and political realities.

 

Insta Links:

 

Mains Links:

What are the key areas of reform if the WTO has to survive in the present context of the ‘Trade War’, especially keeping in mind the interest of India? (UPSC 2018)

 

Prelims Links: (UPSC 2015)

The ‘Fortaleza Declaration’ recently in the news, is related to the affairs of:

      1. ASEAN
      2. BRICS
      3. OECD
      4. WTO

 

Ans: 2