India is blocking the adoption of the IFDA as it will set a norm sidelining developing states from the decision-making process
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The Investment Facilitation for Development Agreement (IFDA) aims to facilitate global investment in the same manner as global trade agreements. Traditionally, investment rules are negotiated through International Investment Agreements/Treaties (IIAs) and dedicated chapters in regional trade agreements. Over time, regulating investment facilitation has gained momentum at the World Trade Organisation (WTO). This prompted the launch of a Joint Statement Initiative (JSI) led by China with 70 member states on board. The JSI efforts translated into the finalisation of the IFDA this year, with about three quarters of WTO’s membership supporting it. India, however, is blocking the adoption of IFDA amidst concerns of plurilateralism displacing multilateralism at the WTO.
Traditionally, investment rules are negotiated through International Investment Agreements/Treaties (IIAs) and dedicated chapters in regional trade agreements.
IFDA aims to enhance the development, communication, and administration of foreign direct investment (FDI) measures, while deliberately excluding aspects such as market access, investment protection, and investor-state dispute settlement. It primarily consists of four broad components: improving the transparency of investment measures, streamlining administrative processes, fostering cooperation between governments and investors, and promoting sustainable investments. States are encouraged to publish regulations online through a single platform and engage stakeholders in shaping new FDI regulations. Administrative procedures should be fair and transparent, with clear updates on application statuses. The agreement prompts governments to commit to independent decisions concerning FDI authorisations and to ensure appeal and review mechanisms at the behest of investors. It stipulates designated focal points for inquiries related to the agreement and facilitates collaboration on cross-border issues. These commitments include empowering local suppliers through capacity-building programmes and information databases that bridge investor needs with the setting up of information. Finally, sustainable investments are promoted by encouraging adherence to international standards for responsible business conduct and developing anti-corruption policies.
States are encouraged to publish regulations online through a single platform and engage stakeholders in shaping new FDI regulations.
Presently, 130 members, including 89 developing countries and 27 least-developed countries (LDCs) have cosponsored a request to integrate the IFDA into WTO’s rulebook. China, Chile, South Korea and Saudi Arabia are amongst the major proponents of IFDA’s adoption. The United States has opted not to join the IFDA itself, but it has shown support for its adoption. The IFDA is a plurilateral agreement, which would only be binding for its signatory members. Such JSIs or plurilateral negotiations are initiated by a group of WTO members without adhering to the rules of consensus decision-making in the multilateral body. The majority view purports that IFDA provisions fall under the purview of WTO as they pertain to multilateral trade relations. The IFDA squarely focuses on technical matters related to the implementation of a state’s Foreign Direct Investment (FDI) policy in the interest of enhancing the investment climate. Proponents also argue that the WTO should be open to negotiating more plurilateral agreements such as this one to meet its members' modern and diverse needs.
The IFDA is envisaged as only one block of a greater policy shift. The 2015 Brazil Bilateral Investment Treaty (BIT) Model pioneered IIA provisions being inclined towards mutual cooperation over investment protections and dispute settlement. With the global investment treaty regime undergoing significant reconsiderations, investment facilitation is becoming a growing domain in negotiations. India has been largely protectionist in its approach to investment treaties since 2016, with its state-centric Model BIT of 2015 favouring facilitation while sidelining liberal investor protections. The traditional Investor-State Dispute Settlement System (ISDS) has alarmed developing states due to its inherent investor bias and lack of accountability. ISDS poses risks to host states, as a breach of IIA obligations can result in significant monetary claims from investors. Over the past decade, average damages awarded in ISDS cases have exceeded US$250 million. IFDA includes a firewall provision aimed at reducing ISDS risks. It dictates that IFDA should be interpreted distinctly from other investment treaties or agreements. It acknowledges that certain governments will face difficulties in ensuring IFDA compliance and a failure to exercise IFDA obligations will not constitute a breach of any other IIA. This ‘firewall’ reduces the risks of host states being dragged into expensive and onerous ISDS arbitrations arising from outdated IIAs. Reforming investment treaties also present an opportunity to establish more robust rules concerning development and sustainability.
The traditional Investor-State Dispute Settlement System (ISDS) has alarmed developing states due to its inherent investor bias and lack of accountability.
Developing states are likely to face significant challenges in the implementation of international investment facilitation obligations. This process will require coordinated efforts across government synergies to reform domestic legal frameworks, ensuring that they comply with international standards. FDI regulations target national legislation and contracts in tandem with IIAs. While there is a pressing need for increased investment to achieve sustainable development goals, states must ensure that their legal and policy frameworks promote high-quality sustainable investments rather than undermine them.
India has led a campaign with South Africa to block the IFDA’s adoption under Annex 4 of the foundational Marrakesh Agreement at the ministerial conference. Owing to WTO’s consensus requirement, India has the power to block the IFDA as a plurilateral agreement.
India’s reluctance rests on the twin reasoning of WTO’s non-mandate over investment issues and plurilateralism concerns. India's key contention has been that investment is not trade per se, and if certain members wish to negotiate the subject, they should do it outside the formal structure of WTO. WTO is a body to discuss trade, and investment is not a trade issue
The investment aspects of trade are covered by existing WTO agreements, namely the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Investment Measures (TRIMs). GATS deals with the supply of services through a commercial presence in the territory of any other member country. Its objective is to create a reliable and predictable system of international rules for trade and services. TRIMs entail trade-related investment measures that can restrict and distort trade. From India’s standpoint, investment is driven by market forces and investment decisions should solely be the investors alone which, in this case, is the investing country. No policy framework can promise the quality of the investment and the returns on the same.
Principally, India is against plurilateral pacts on multilateral platforms such as WTO. IFDA’s adoption will set a norm sidelining developing states from the decision-making process. It would be a take-it-or-leave-it scenario, undermining the weakest and poorest countries' engagement, and would distract attention away from the multilateral agenda. WTO's Doha Declaration 2001 states that negotiations on investments could only be based on a decision arrived at by explicit consensus. India strongly opposed IFDA discussions at Ministerial Conference 13 2024 (MC13), contending non-mandate.
From India’s standpoint, investment is driven by market forces and investment decisions should solely be the investors alone which, in this case, is the investing country.
IFDA has been primarily led and pushed by China. This presents a greater apprehension, echoed by India. China has historically abused its investor protections in foreign countries owing to its debt-trap diplomacy. This involves Chinese financing of unviable infrastructure projects, burdening weaker economies with heavy debt and jeopardising their assets. Sri Lanka, for instance, had to lease the strategically fruitful Hambantota Port to China for 99 years owing to such measures. IFDA will intensify retaliatory measures and diplomatic pressures upon defaults in loan repayment to Chinese state-owned entities, especially under its Belt and Road Initiative.
Concerns remain that IFDA’s enforcement leverages China’s well-documented expansionist agenda under the disguise of investment facilitation. Global standards for investment regulation would weaken governments’ sovereign right to regulation. IFDA binds states to implement regulatory measures to enhance transparency and predictability in investment. Corporate lobbying by foreign players would be given a significant boost, enabling them to influence the legislation in weaker economies. In essence, IFDA provisions would incline towards the interests of foreign investors over developing states.
Discussing FDI measures is not new for the WTO, as proponents assert the agreement would build upon GATS and TRIMS, promoting transparent FDI reforms to boost trade practices. Plurilateral agreements are not alien to the WTO either, residing in Annex 4 of its rulebook. The IFDA proposal has been well received amongst developing states owing to its differential treatment provisions. It acknowledges that developing countries and LDCs may not be able to implement all the commitments stipulated in the agreement. These states are accorded autonomy to determine which rules apply from the onset, and which commitments would require capacity-building funds and an extended timeframe for their realisation. Conversely, India propagates flexibilities in existing rules in view of developing states, with incentives and subsidies augmenting domestic industrialisation.
WTO is presently in a deadlock over multiple issues including multilateral negotiations and reforming its dispute settlement body. India’s campaign further complicates WTO’s deadlock. With India and South Africa leading the Global South voices, India’s manoeuvre may risk goodwill in trade negotiations with developing states. With little movement to reform and revive the WTO, members may feel reluctant to onboard new and binding rules. As the debate unfolds, investment facilitation reforms rest on reconciling multilateral commitments and upholding the autonomy of states, particularly those from the Global South.
Dharmil Doshi is a Research Assistant at the Observer Research Foundation
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Dharmil Doshi is a Research Assistant at ORF’s Centre for New Economic Diplomacy, where his research spans international commercial law (encompassing treaties and conventions, foreign ...
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