Karl P Sauvant
At the WTO’s 13th Ministerial Conference in Abu Dhabi, 125 members—three-quarters of the WTO’s membership—cosponsored a request to integrate a new Investment Facilitation for Development Agreement (IFDA) into the WTO’s rulebook. Of these sponsors, 89 were developing countries, including 27 least-developed countries.
The IFDA is a plurilateral agreement and open to all WTO members but is binding only on its participants. India has long opposed the IDFA and it even led a (so far) successful campaign with South Africa to block its adoption under Annex 4 of the foundational Marrakesh Agreement at the ministerial conference.
Developing countries want the IFDA because it helps them attract not only more, but also more sustainable and impactful, foreign direct investment (FDI) to advance their economic growth and development. The agreement does this by improving two of the three factors that largely determine the decisions of international investors about the location of their investments—the quality and predictability of the regulatory framework affecting FDI and investment promotion.
For this reason, and not surprisingly, developing countries—currently led by Chile and South Korea—have steered the negotiations of the IFDA since the concept was first proposed by an expert group in 2015 and enshrined in a WTO Joint Ministerial Declaration in 2017.
The finalised agreement explicitly refrains from dealing with market access, investor-state dispute settlement and investment protection. It also leaves entirely in the hands of individual WTO members what FDI policies they want to pursue. Under the IFDA, signatory countries are free, for example, to limit FDI inflows from a particular country, provide incentives, restrict FDI in certain sectors and handle investor-state disputes as they see fit.
The IFDA focuses entirely on technical matters related to the implementation of a country’s FDI policy in the interest of improving the investment climate and helping countries to attract more and better FDI. More specifically, it focuses on transparency, predictability and administrative procedures relating to the implementation of a host country’s FDI policy.
By way of example, the text of the IFDA encourages the publication of FDI-related laws and regulations, establishing a single online information portal, charging reasonable authorisation fees, using ICT and e-government, promoting the establishment of supplier databases, implementing supplier-development programs and promoting responsible business conduct practices. Developing countries also obtain special and differential treatment such as technical assistance and capacity building. They can determine for themselves the pace at which they implement individual provisions.
Countries can certainly improve their investment climate on their own, unilaterally. But for many countries, the IFDA brings a number of benefits. These include anchoring investment facilitation reforms in shared international commitments, which helps countries overcome domestic resistance to such reforms.
As a commitment device, the agreement sends a positive signal to international investors that a participating country is serious about attracting FDI. And for many developing countries, the technical assistance and capacity building provided for the implementation of the IFDA would be an important resource for improving their chances in the highly competitive global investment market. These benefits are crucial for many smaller developing countries, especially least-developed countries.
For India, an additional consideration comes into play. Several of the country’s firms are already significant outward investors and are poised to become even more internationally powerful. They are interested in investment environments in host countries that are transparent and predictable and where excessive red tape does not hinder the establishment of their foreign affiliates. India, like many other countries, should support its national firms in their quests to increase their international competitiveness by backing the IFDA.
India opposes the IFDA, arguing that the WTO’s lacks a mandate to deal with investment matters and that plurilateral agreements fragment the multilateral trading system. But the IFDA would build on the WTO’s General Agreement on Trade in Services which already covers FDI in services sectors—some two-thirds of global FDI—and the Agreement on Trade-Related Investment Measures. Both agreements were supported by India and explicitly address aspects of WTO members’ FDI measures. Addressing FDI issues is not a novelty for the WTO. The IFDA recognises that firms must first invest in order to trade and that a lot of trade takes place within global value chains and within the international production networks of multinational enterprises as intra-firm trade.
The inclusion of plurilateral agreements in the WTO’s rulebook is not new. It would just add plurilateralism to the Agreement on Government Procurement—for which India has observer status—and the Agreement on Trade in Civil Aircraft, both of which are already part of Annex 4.
Because of the WTO’s consensus requirement, India has the power to block the IFDA as a plurilateral agreement. But this is preventing developing countries from reaping its benefits, including the opportunity for many developing countries and the WTO’s 27 least developed members to receive the technical assistance and capacity-building support needed to attract FDI. Should India continue to block an agreement desired by the vast majority of developing countries within the WTO, it risks damaging the goodwill of its fellow developing countries in trade negotiations, which could undermine its global standing.
India can also unlock the direct and indirect benefits of the IFDA by allowing its integration into the WTO rulebook as a plurilateral agreement. Unblocking the agreement is made easier by the fact that the IFDA was deliberately conceived as a plurilateral agreement open for acceptance by all WTO members. Its benefits would extend to all WTO members without imposing any obligations on non-participants. Even as a non-participant, India and its firms that invest abroad would benefit from the improvements made to participating countries in which Indian firms invest—all at no cost to India.
But India could go further and join the IFDA, making it a multilateral agreement. The overarching objective of the IFDA—improving host countries’ investment climates—would first and foremost benefit India’s domestic firms. A vibrant enterprise sector is, after all, the bedrock of economic development. Government authorities would be able to refer to the IFDA when contemplating regulatory reforms, which would make it easier for them to overcome domestic resistance to their implementation.
Furthermore, India joining the IFDA would send a signal to international investors that India is serious about better facilitating FDI inflows. This could energise the country’s Make in India program, help Indian firms integrate into global value chains and create the employment opportunities that India badly needs—important goals of the country’s growth strategy.
India’s government should seize the opportunity and support the IFDA to advance the country’s economic growth and development and strengthen its standing
among its fellow developing countries. In the process, it would also strengthen the multilateral trading system and restore some faith
in the WTO’s embattled rule-making function.
Karl P Sauvant is Senior Fellow at the Columbia Center on Sustainable Investment, Columbia Law School, Columbia University.
Source: East Asia Forum
