The recent 13th Ministerial Conference of the World Trade Organization was marked by huge concerns from some countries, including India, over the potential adoption of the China-led Investment Facilitation for Development Agreement, or IFDA. Finally, the tension around the agreement ended after India and South Africa rightly took a firm stand against it at the conference, which concluded on 2 March.
IFDA aimed to create legally binding rules for facilitating investment inflows and was supported by more than 120 nations, representing over 70 per cent of WTO membership. This was a plurilateral rather than multilateral agreement—meaning that it was between a select group of WTO members, but not all of them. In response, India and South Africa submitted a paper at the conference about the inadmissibility of this plurilateral agreement in WTO’s fold.
Although plurilateral agreements are permissible under WTO rules, they are an exception. The WTO is a multilateral organisation, and so most of its agreements have been multilateral in nature, binding member nations to common rules. However, there is a precedent for plurilateral agreements in the fold of the General Agreement on Tariffs and Trade (GATT), the predecessor of WTO.
So, what exactly is IFDA and why did India oppose it?
Also Read: China, Maldives sign new defence agreements amid strained ties between Malé & New Delhi
India’s concerns about IFDA
Initially mooted in 2017, IFDA is a proposed agreement within the WTO framework that purports to “enhance the transparency and efficiency of investment regulations and procedures, making participating economies more efficient and attractive to foreign investors in all sectors.” Furthermore, it requires states to augment regulatory transparency and predictability of investment measures.
While all international agreements limit the scope for domestic regulations to some extent, it is more so in the case of IFDA. It potentially compromises the sovereign rights of member countries in the name of investment facilitation.
Normally, agreements, whether multilateral or plurilateral, are made when a group of countries get together to establish consensus on a set of mutually beneficial rules. However, the speciality of the proposed IFDA is that it has been primarily pushed by a single country, China, for its own benefit. Given that it is a dominant military and economic power, many other members have signed on the dotted lines. It would not be a stretch to argue that China’s sole aim is to promote its own economic interests by requiring member countries to streamline their procedures, introduce standard practices, and reduce bureaucratic hurdles in order to facilitate foreign investments.
In the past one decade, China has been often accused of advancing its expansionist agenda through a strategy called “debt trap diplomacy”. This strategy involves luring other countries into a debt trap through liberal financing of infrastructure projects that are being built by China itself. The catch is that these infrastructure projects are often unviable and uneconomic, leaving the host country unable to repay loans and giving China leverage.
For instance, many countries are reeling under debt due to China’s Belt and Road Initiative. Sri Lanka, Pakistan, Bangladesh, and a host of African countries are also frequently cited as examples. Sri Lanka, unable to pay loans, even leased its strategic Hambantota Port to China for 99 years.
In the present world, it’s no longer possible to subjugate sovereign countries militarily. But through such like acts, countries are being indebted and, in a way, subjugated.
It’s more than conceivable, therefore, that the proposed IFDA would serve to open up new pastures for China to pursue its well-documented agenda of expansion and subjugation.
How was IFDA blocked?
There are several legal issues marring the China-led attempt to bring IFDA under Annex 4 of the WTO Agreement. In a strongly worded statement back in December 2023, India described the process as “illegal”. There are several reasons for this contention.
First, the proposed IFDA doesn’t qualify as a ‘trade agreement’ under Article X.9 of the 1994 Marrakesh Agreement (under which the WTO was established). This is because IFDA does not include any substantive provisions related to trade, rendering it ineligible for inclusion as a “trade agreement.
Second, only WTO members who had fulfilled their domestic procedures to sign, ratify, and enforce the IFDA could submit a request for its inclusion. As the IFDA had not yet entered into force for even a single party, the request to add it into the WTO was ultra vires. Such a request could be made only after the IFDA enters into force, and not before that.
Third, negotiations on the IFDA were initiated without a multilateral mandate. This was contrary to the long-held practice of the WTO to take decisions by consensus, and prevented members from examining whether issues related to investment facilitation were trade-related or not. Attempts at adding the IFDA to the WTO were seen as ignoring the inherent illegality of the underlying negotiations.
In light of the legal infirmities mentioned above, the celebrated proposal of integrating IFDA into the WTO fold was blocked abruptly. A rules-based WTO couldn’t ignore its own mandates in going ahead with this China-led initiative.
I will further note that there was nothing in IFDA that could help developing countries attract foreign investment. Instead, it appeared to be a charter for protecting the interests of foreign investors such as China. The agreement would have empowered multinational corporations to lobby against new laws that they oppose, giving them rights that we don’t have as citizens.
It must also be emphasised that inviting foreign direct investment (FDI) is a sovereign prerogative of a nation. This right cannot and should not be diluted or tampered with by any international agreement. Doing so would be encroaching upon the rights of the legislature or, in other words, people of the sovereign nation.
Safeguarding sovereignty
There seem to be sinister designs in the intent, content, and structure of the proposed agreement. It appears that in the garb of creating global standards for investment facilitation measures, the agreement sought to deprive sovereign nations of their right to regulate and monitor FDI in their respective territories.
While the agreement’s proponents claim that IFDA will not restrict parties from regulating FDI in their national interest, there are contradictions. For instance, the agreement includes provisions such as ‘Most Favoured Nation’ (MFN) treatment and impartial administrative procedures for investments from all member countries.
Post Doklam, India put certain restrictions on FDI from all border-sharing countries, mandating government approval in place of the ‘automatic route’. This measure allowed India to restrict investments from a country with which it was in conflict. If IFDA were implemented, countries party to it might be deprived of their freedom to safeguard their respective interests.
Concerns have been raised about China’s push for IFDA, with allegations of influencing smaller nations, especially those participating in the BRI, to sign on. Significantly, over 80 of the more than 120 IFDA signatories are BRI countries, though major ‘beneficiaries’ like Pakistan and Sri Lanka did not sign. Several WTO members, led by South Africa and India, have also voiced their opposition to the deal. However, only India’s objection is mentioned in the final document. Thanks to India’s efforts, therefore, IFDA was blocked in the interests of safeguarding sovereignty and global peace.
Ashwani Mahajan is a professor at PGDAV College, University of Delhi. He tweets @ashwani_mahajan. Views are personal.
(Edited by Asavari Singh)