By Shubhra Agrawal
India, along with Brazil, Japan and Argentina rejected an informal proposal put forward by the EU and Canada that was aimed at implementing a multinational pact in international trade investments at the World Trade Organization (WTO). The agreement was based on the principle of Investor-State Dispute Settlement (ISDS). The proposal was raised at an informal meeting of Trade Ministers in Davos on the sidelines of World Economic Forum (WEF).
What is ISDS?
Under ISDS, companies can take governments to international arbitration to settle conflicts without completely exhausting local resources.
Through the ISDS mechanism, companies have claimed huge amounts as compensation in the past for their losses citing various reasons including policy changes.
The ISDS is a part of a bilateral agreement between Canada and the European Union. Both these countries wanted their bilateral agreement to be a template for a multi-nation pact. However, several other WTO countries, including Brazil, Japan, and Argentina rejected the idea.
India’s stand on ISDS
India has refused to become a signatory due to fear of loss of sovereignty. Union Commerce and Industry Minister Nirmala Sitharaman said that the government was completely opposed to the idea of a multilateral approach to investment. She said that such provisions could be a part of bilateral agreements, but could not be included in a multilateral pact.
Sitharaman has said that she is not in favour of the ‘contentious’ mechanism. | Source: The Daily Dollar[su_quote cite=”Nirmala Sitharaman”]…There is no way, we will have investment treaty in which companies can take the sovereign or even the regional governments to court. Anything with regard to investments, we wanted to be settled by the domestic laws and courts and only after that… Appeal outside. [/su_quote]
Implications of implementing ISDS
[su_pullquote align=”right”]Investment functions and capital flow can still take place while the concerns are being addressed.[/su_pullquote]
ISDS mechanisms ensure a fair, unbiased and transparent procedure leading to
independent and impartial judgement. The mechanism is a designed to work quickly, thus ensuring that disputes are settled in a consistent and systematic way. Investment functions and capital flow can still take place while the concerns are being addressed. The EU and the US have also signed various bilateral and multinational treaties, which include ISDS.
Some experts say, that establishing the ISDS in India would be beneficial as investors would be more eager to invest in India if they know that disputes will be heard in a neutral court, rather than one side being unfairly supported due to local politics. Foreigner investors will invest in the country without having to worry about the antics of the next populist politician to gain power.
A year ago, India had asked all countries with which it has Bilateral Investment Protection Treaties (BIT) to re-negotiate the terms, as the existing agreements were set to lapse in April. Currently, all investor related disputes are settled under BITs and India has nearly 84 such treaties. However, the EU did not negotiate the BIT. The Indian government has aimed at pushing through a free trade agreement with the EU. However, in a bilateral meeting between EU and India, leaders of EU made it clear that they would talk about free trade only after concluding a bilateral trade pact with India based on the ISDS mechanism.