WTO’s investment facilitation negotiations are not illegal
Relevance: GS Paper III
Why in News?
One significant development at the 13th Ministerial Conference (MC13) of the World Trade Organization (WTO) held in Abu Dhabi was the failure to adopt the agreement on investment facilitation for development (IFD). Despite having support from more than 70% of the membership, which amounts to around 120 member countries, the agreement was not adopted.
What is IFD agreement?
- It aims to create legally binding provisions to facilitate investment flows. In November 2023, the IFD agreement was finalised.
- The IFD Agreement will require states to augment regulatory transparency and streamline administrative procedures to bolster foreign investment inflows.
- Plurilateral negotiations for an IFD agreement were launched at the WTO in 2017 by 70 countries under the Joint Statement Initiative, despite opposition from countries like India.
- In Abu Dhabi, 120 countries wanted to include the IFD Agreement as a plurilateral agreement (PA) within Annex 4 of the WTO Agreement.
- It is critical to recall that while the WTO is a multilateral trade organisation, Article II.3 of the WTO Agreement categorically allows for PAs.
- These PAs bind those WTO member countries that accept them and do not create rights or impose obligations on the remaining members.
India’s concerns:
- The IFD agreement does not contain provisions on market access, investment protection, and investor-state dispute settlement (ISDS).
- ISDS, which allows foreign investors to bring treaty claims against the state admitting investment, has been a contentious issue in recent years.
- Given the existing structure of the WTO’s dispute settlement mechanism, where only states can bring legal claims against other states, it is implausible that ISDS can be a part of it.
- India and South Africa played a crucial role in preventing the IFD agreement from becoming part of the WTO rulebook. India does not seem exceedingly concerned about the text of the IFD agreement. Instead, India’s principal concerns are twofold.
- First, the question of whether investment can be part of the WTO.
- Second, the process followed to make the IFD agreement a part of the WTO rulebook.
Can investment be part of the WTO?
- India argues that investment does not necessarily lead to cross-border trade, while economic literature supports the idea that trade and investment are closely linked.
- The Organisation for Economic Co-operation and Development (OECD) states that 70% of international trade happens through global value chains which involve both trade and investment.
- The modern-day free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, include detailed investment provisions covering both facilitation and protection.
- Interestingly, India's new trade agreement with the European Free Trade Association also includes investment provisions, although they are limited to facilitation and promotion measures.
Process followed in negotiating the IFD Agreement:
- India has stated that there is no mandate for negotiations on investment.
- India argues that the WTO's General Council decided in 2004 that any talks on the relationship between trade and investment, which is one of the 'Singapore issues' (because it was introduced at the 1996 WTO Singapore ministerial conference), would not take place as a part of the Doha round of negotiations that began in 2001.
- India also referred to the 2015 WTO Nairobi ministerial decision, which states that "any decision to launch negotiations multilaterally on [new] issues would need to be agreed by all members."
- According to India, since not all the countries agreed to launch negotiations on an IFD Agreement, the IFD negotiations and the subsequent text that came up for adoption are illegal.
Pertinent questions that require clarification:
- India has argued that there is a negative mandate for launching negotiations on the relationship between trade and investment. However, there are two questions that need to be addressed.
- Firstly, does this negative mandate cover all aspects of investment, including facilitation? It is important to note that the dropped investment agreement proposed in 1996 Singapore ministerial only focused on issues like market access and investment protection.
- Therefore, it is unclear whether the negative mandate applies to all aspects of investment at the WTO.
- Secondly, the negative mandate only applies to launching negotiations on new issues multilaterally. The question arises whether this also applies to negotiations launched on a plurilateral basis?
- Negotiations on an IFD agreement were launched on a plurilateral basis, not a multilateral one. While Article X.9 of the WTO Agreement states that the decision to add an agreement to the existing set of PAs listed in Annex 4 can be made 'exclusively by consensus', nothing in the agreement requires consensus to launch negotiations for a PA.
Way forward:
- The World Trade Organization (WTO) plays a crucial role in regulating international trade by updating existing rules and creating new ones. However, due to the complexity of international trade, reaching a consensus on decision-making within the WTO is challenging, leading to a deadlock in the legislative function.
- To address this issue, Preferential Agreements (PAs) such as the proposed IFD Agreement can help revitalise the WTO's legislative function.
- India, which is set to become the third-largest economy, should reconsider its defensive stance toward PAs and support the proposed IFD Agreement in the WTO.
Conclusion:
The inability to adopt the IFD agreement during MC13 highlights the difficulties faced by the WTO in dealing with complex issues like investment facilitation. It also emphasises the varying views held by member countries on the extent and character of the WTO's involvement in regulating global economic relations. Bridging these gaps will be crucial for the WTO to efficiently deal with the changing dynamics of international trade and investment.
Mains PYQ:
Q. What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? (UPSC 2018)
Q. “The broader aims and objectives of WTO are to manage and promote international trade in the era of globalization. But the Doha round of negotiations seem doomed due to differences between the developed and the developing countries.” Discuss in the Indian perspective. (UPSC 2016)
