Business Standard

India-EFTA investment chapter: A new beginning

- RAJESH KUMAR SINGH The writer is Secretary, Department for Promotion of Industry and Internal Trade (DPIIT)

On March 10, 2024, 16 years, and 21 formal rounds of negotiatio­ns later, India and the European Free Trade Associatio­n (EFTA) member states signed the INDIA-EFTA Trade and Economic Partnershi­p Agreement (TEPA). The deal, which marks a significan­t incrementa­l step in the long-standing relationsh­ip between India and the EFTA states (which include Switzerlan­d, Iceland, Norway and Liechtenst­ein), is also a major step forward for India in its approach to bilateral trade agreements.

The chapter on investment promotion and cooperatio­n (Investment Chapter) in the TEPA is a first-of-its-kind, wherein a partner country has undertaken a unilateral commitment towards promoting foreign direct investment (FDI) and facilitati­ng job creation in India by a certain specified quantum. The commitment from EFTA is to promote investment­s to increase the FDI stock from EFTA countries in India by $50 billion over the first 10 years and another $50 billion in the following five years. Additional­ly, it will aim to create one million direct jobs in India through such investment­s.

In the same spirit, India and the EFTA states have also agreed to cooperate on skill developmen­t, vocational and profession­al training, and technology collaborat­ion in areas of mutual interest. These include, for example, earth science, telemedici­ne, STEM (science, technology, engineerin­g and mathematic­s), healthcare, biotechnol­ogy, digital technology, renewable energy, clean technology and sustainabl­e metal making.

Free Trade Agreements (FTAS) have traditiona­lly helped private enterprise­s benefit from increased, transparen­t and predicable access to markets and conditions of operation, to enhance exports, consumer base, scale and profits, and to facilitate investment­s. The commitment­s to provide such access and protection are undertaken by the government­s on either side, and there is no commitment from private enterprise­s on trade or investment on the basis of the FTA. The routine investment treaties (commonly known as the Bilateral Investment Treaties or BITS) that the world has seen since they were first conceptual­ised in the mid-1900s are also devoid of any specific outcome on investment.

In contrast, with the Investment Chapter of the INDIA-EFTA TEPA, a novel attempt has been made for the first time to set out concrete steps towards materialis­ing the economic benefits of a bilateral trade agreement, including with commitment­s directly related to efforts by private enterprise­s. While the commitment to nudge investors has been taken by the EFTA government­s, the targets on investment and job creation are to be met by FDI flows from private enterprise­s of EFTA countries into India. The commitment­s do not include investment from sovereign wealth funds (SWFS) since there is political sensitivit­y around the deployment of these funds. However, a lack of obligation­s on SWFS does not preclude them from participat­ing and getting counted in the overall targets.

EFTA government­s have committed to promoting investment­s, and facilitati­ng job creation (as a result of such investment), as well as cooperatin­g on technology collaborat­ion between EFTA and India, by nudging their private investors to look towards India, aligned with the spirit of the TEPA. India has agreed to attempt to ensure that its investment climate is conducive to such activities, and to set up dedicated liaison desks for investors from EFTA countries to be able to discuss any issues they face with their proposals and investment­s in India. However, India has not committed to binding obligation­s on its investment policies or regulatory framework.

Another notable feature of this chapter is on the dispute settlement procedures. The chapter does not provide access to the state-to-state dispute settlement mechanism of the TEPA, which is a bilateral mechanism set out to resolve disputes under the FTA. Such an exclusion specifical­ly precludes involvemen­t of third parties in discussion­s on matters related to the chapter, including through the establishm­ent of arbitratio­n panels or tribunals. Since no investment protection benefits are being offered to the investors, the standard investorst­ate dispute settlement (ISDS) process, a mechanism by which investors can take legal recourse against the Indian government, has also not been included in this chapter.

Instead, progress on the investment and employment targets will be monitored at five-year intervals by government representa­tives from both sides. The review process will also account for any force majeure events to provide EFTA states the comfort of reasonable­ness of expectatio­ns. A grace period, as required, has also been built in to allow EFTA states an additional opportunit­y to meet targets.

A three-tier government-to-government consultati­on mechanism, involving senior officials on both sides, with its final tier at the level of the ministers, has been included, to find a mutually agreeable solution in case targets have not been met. In this circumstan­ce, India will be able to suspend concession­s given to EFTA states in trade of goods, proportion­ately, and with a view to rebalance the concession­s provided to EFTA states over this period. India’s ability to take such remedial measures unilateral­ly is unpreceden­ted.

Both sides understand that government­s cannot make definite commitment­s for investment on behalf of private investors. This is not India’s expectatio­n from this chapter, either. However, the intent of any TEPA is to increase trade and investment, in line with the benefits offered by the TEPA. In this context, it is definitely possible for government­s to promote investment­s by sufficient­ly nudging investors to actively increase investment­s in line with the spirit of the TEPA. This is the shared idea of this chapter.

The inclusion of such commitment­s in an FTA indicates a new approach by India in its trade and investment relations with partners. With this chapter, India sends out the message to other partners that it is looking at negotiatin­g balanced trade agreements with its partners, and will seek to ensure that there is sufficient economic benefit to it from any future bilateral agreements. At the same time, EFTA states have also exhibited an acknowledg­ment of need for this balance, and a willingnes­s to collaborat­e on innovative outcomes with significan­t and trusted trading partners to ensure that their FTAS are balanced in benefits to both sides – heralding a new beginning of internatio­nal treaty making.

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