Rekindling FDI through FTAs

A combined approach of an FTA with an investment protection agreement will help India re-establish its position as an attractive destination for FDI

- AMITA BATRA

It is encouraging to note that the fundamental link between trade and investment in modern-day trade led by global value chains (GVCs) is beginning to be recognised by negotiators of India’s free-trade agreements (FTAs).

An explicit inclusion of investment-related provisions is evident in India’s recent FTAs with developed economies of the European Free Trade Association (Efta) and New Zealand. However, it may be noted that in both the FTAs, the respective chapters on investment include provisions only on promotion, cooperation and facilitation. Critical aspects of investor protection and investment dispute settlement mechanism do not find place in these FTAs. Furthermore, the investment target of $100 billion and $20 billion in the FTAs with Efta and New Zealand, respectively, rely on “best endeavour” by the partner countries. Rebalancing mechanisms in the event of failure to achieve the foreign direct investment (FDI) target come into play only after 15 years and, even then, provide for a due process of consultation and consideration of possible reasons for falling short of targets. Effectively, therefore the investment commitment can extend over at least 15 years of the FTAs coming into force. More importantly, the relatively deeper FTAs with the United Kingdom (UK) and the European Union (EU) do not include an investment chapter or provisions on investment liberalisation and facilitation, and there is as yet no investment agreement/treaty with these countries.