What is investment facilitation for development (IFD)?
Investment facilitation for development is an initiative focused on improving the environment for foreign investment in developing countries.
It's being championed by the World Trade Organization (WTO).
Here's a breakdown of IFD:
Goal: Attract more foreign direct investment (FDI) into developing countries.
This investment can play a crucial role in their economic growth and development.
Method: Instead of changing the actual investment policies of these countries.
The IFD aims to make those policies more transparent and streamline administrative procedures.
This reduces uncertainty and makes the investment process smoother for businesses.
Benefits: By simplifying the investment process, IFD can:
Reduce costs for investors
Attract a wider range of investors
Encourage reinvestment of profits within the developing country
Ultimately foster sustainable development and economic growth
There are currently negotiations underway at the WTO to create a formal agreement on IFD.
This agreement would establish common standards for investment facilitation across member countries.
India’s concerns
The IFD Agreement, among other things, will require states to augment regulatory transparency, and streamline administrative procedures to bolster foreign investment inflows.
Importantly, this 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.
It 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 not letting the IFD agreement become a part of the WTO rulebook.
India does not seem to be 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.
And second, the process followed to make the IFD agreement a part of the WTO rulebook.
Whether investment can be part of the WTO?
On whether investment can be part of the WTO, India’s chief contention is that investment per se is not trade.
In other words, investment could or could not result in cross-border trade.
This argument flies in the face of economic literature supporting an inextricable linkage between trade and investment.
According to the Organisation for Economic Co-operation and Development, about 70% of international trade occurs through global value chains.
Which are characterised by trade and investment, thus proving the close relationship between the two.
Therefore, it is unsurprising that several 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 newly minted trade agreement with the European Free Trade Association also contains provisions on investment, though it is restricted to facilitation and promotion measures.
Functions of the WTO
The WTO plays a key role in facilitating international trade.
Here are its core functions:
Administering Trade Agreements: The WTO oversees the implementation and enforcement of its various trade agreements.
Which form the legal framework for international trade between member countries.
These agreements cover a wide range of topics, including tariffs, subsidies, intellectual property rights, and product safety standards.
Forum for Trade Negotiations: The WTO provides a platform for member countries to negotiate new trade agreements and work towards further trade liberalization.
These negotiations can involve reducing or eliminating tariffs and other trade barriers, as well as setting common rules for different aspects of international trade.
Settling Trade Disputes: The WTO offers a dispute settlement system to address trade disagreements between member countries.
This system provides a mechanism for countries to resolve their differences peacefully and according to WTO rules.
Monitoring Trade Policies: The WTO monitors the trade policies of its member countries to ensure they comply with WTO agreements.
This helps to ensure a level playing field for all members and prevent unfair trade practices.
Building Trade Capacity: The WTO offers technical assistance and training programs to help developing countries improve their trade capacity.
This can involve helping them to implement WTO agreements, understand their trade rights and obligations, and participate more effectively in the global trading system.
Cooperating with Other Organizations: The WTO cooperates with other international organizations, such as the World Bank and the International Monetary Fund (IMF), to address issues that affect global trade.
This collaboration helps to ensure that trade policies are consistent with broader economic and development goals.
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