Context

Recently, India made a historic trade deal with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway and Switzerland.

India-EFTA Trade Deal

• Environment and Labor Integration: India has agreed to include issues such as environment and labor, which it has traditionally opposed incorporating in trade agreements.
• Emphasis on Investment Facilitation: 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.
• FDI Commitment from EFTA Nations: 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.
• Commitment to Job Creation in India: 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.

Enroll now for UPSC Online Course

India’s Free Trade Agreement 

• Binding Trade and Investment Rules: 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. 
• Investment Protection: 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.
• Separate Deals for Trade and Investment: India’s approach seems to be to have separate agreements on trade and investment with the same country.  
  • This is most markedly seen in the case of the UAE. After signing the FTA with the UAE in 2022, New Delhi and Abu Dhabi entered into a bilateral investment treaty earlier this year. 
• India-UK Decoupling: Decoupling approach to the U.K. where trade and investment agreements are seemingly negotiated as two disparate treaties.

Way Forward

• Need for a clear FTA Policy: India needs a clear FTA policy, especially in dealing with international trade and foreign investment laws.
• Integrating Trade and Investment: 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.
• Strengthening Investment Protection: India should consider expanding the scope of investment issues from mere facilitation to effective protection, with an efficacious dispute settlement mechanism under international law.
• Boosting Investor Confidence: Providing enforceable legal protection to foreign investors under international law will boost confidence.
• Importance of Clear FTA Policy: Given the decline in foreign direct investment levels in India, a well-defined and inclusive FTA policy is crucial to propel the country towards a path of heightened economic growth.

Conclusion

By prioritizing investment facilitation alongside trade promotion, India can unlock new opportunities for economic development and strengthen its position in the global economy.