UPSC EDITORIAL ANALYSIS : Investment lessons from the India-EFTA trade deal
Kartavya Desk Staff
Source: The Hindu
• Prelims: Current events of international importance(FTA, tariff, European Free Trade Association (EFTA), etc)
• Mains GS Paper II & III: Bilateral, regional and global grouping involving India and affecting India’s interests etc
ARTICLE HIGHLIGHTS
• India made a historic trade deal this year with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway and Switzerland.
INSIGHTS ON THE ISSUE
Context
What is an FTA?
• FTA is a pact between two or more nations to reduce barriers to imports and exports among them.
• Under a free trade policy: Goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
• Protectionism: The concept of free trade is the opposite of trade protectionism or economic isolationism.
• FTAs can be categorized as: Preferential Trade Agreement (PTA) Comprehensive Economic Cooperation Agreement (CECA) Comprehensive Economic Partnership Agreement (CEPA)
• Preferential Trade Agreement (PTA)
• Comprehensive Economic Cooperation Agreement (CECA)
• Comprehensive Economic Partnership Agreement (CEPA)
What does FTA cover?
• Tariff reduction impacting the entire manufacturing and the agricultural sector
• Rules on services trade
• Digital issues such as data localisation
• Intellectual property rights that may have an impact on the accessibility of drugs
• Investment promotion, facilitation, and protection.
FTA between India and EFTA:
• India has agreed to include issues such as environment and labor, which it has traditionally opposed incorporating in trade agreements.
• India-EFTA FTA includes a detailed investment chapter, which is missing in the other recent Indian FTAs. It focuses on investment facilitation issues, not investment protection.
• It focuses on investment facilitation issues, not investment protection.
• India has managed to extract a promise from the EFTA countries that they shall “aim to” increase foreign direct investment (FDI) to India to $50 billion within 10 years of the FTA coming into force followed by another $50 billion in the succeeding five years.
• followed by another $50 billion in the succeeding five years.
• Article 7.1(3)(b) of the investment chapter provides that the EFTA states shall “aim to” facilitate the generation of one million jobs in India. These articles codify obligation of conduct — an obligation to make an honest endeavor towards achieving a goal, notwithstanding the outcome or the result. EFTA countries are legally obligated to make an honest effort to invest $100 billion and generate one million jobs in India. It will create a template in the ongoing negotiations with the K., the EU, and other countries.
• These articles codify obligation of conduct — an obligation to make an honest endeavor towards achieving a goal, notwithstanding the outcome or the result.
• EFTA countries are legally obligated to make an honest effort to invest $100 billion and generate one million jobs in India.
• It will create a template in the ongoing negotiations with the K., the EU, and other countries.
India’s FTA:
#### ● FTAs routinely contain binding rules on both trade and investment.
#### ● India’s FTAs signed in the first decade of this century with countries such as Japan, Korea, Malaysia and Singapore are based on this economic logic.
#### ● In addition to binding trade rules, they all contain an investment chapter with provisions for protecting investment.
#### ● FTA 2.0: India decoupled international trade law from international investment law.
#### ○ FTAs with Australia, Mauritius, and the UAE which contain binding trade but not investment rules.
#### ● Signing the FTA with the UAE in 2022: India and UAE entered into a bilateral investment treaty.
#### ● Decoupling approach to the U.K. where trade and investment agreements are seemingly negotiated as two disparate treaties.
Way Forward
• India needs a clear FTA policy, especially in dealing with international trade and foreign investment laws.
• India expects not just trade but also higher investment flows from a particular country, Few critical elements must be incorporated into its FTA policy: India should negotiate trade and investment as part of one comprehensive economic treaty. Decoupling trade from investment is not a good idea. Combining the two would give India a clear negotiating leverage to strike a beneficial deal. For example, India can argue that it needs more concessions in trade in return for offering something on investment or vice-versa. India should consider expanding the scope of investment issues from mere facilitation to effective protection, with an efficacious dispute settlement mechanism under international law. Providing enforceable legal protection to foreign investors under international law will boost confidence. Foreign direct investment levels in India have dropped: A clear and comprehensive FTA policy is imperative for launching India to a higher economic growth trajectory.
• India should negotiate trade and investment as part of one comprehensive economic treaty.
• Decoupling trade from investment is not a good idea. Combining the two would give India a clear negotiating leverage to strike a beneficial deal. For example, India can argue that it needs more concessions in trade in return for offering something on investment or vice-versa.
• Combining the two would give India a clear negotiating leverage to strike a beneficial deal.
• For example, India can argue that it needs more concessions in trade in return for offering something on investment or vice-versa.
• India should consider expanding the scope of investment issues from mere facilitation to effective protection, with an efficacious dispute settlement mechanism under international law. Providing enforceable legal protection to foreign investors under international law will boost confidence.
• Providing enforceable legal protection to foreign investors under international law will boost confidence.
• Foreign direct investment levels in India have dropped: A clear and comprehensive FTA policy is imperative for launching India to a higher economic growth trajectory.
QUESTION FOR PRACTICE
What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India?(UPSC 2018) (200 WORDS, 10 MARKS)