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Investment facilitation for development UPSC NOTE

 What is investment facilitation for development (IFD)?

  • Investment facilitation for development is an initiative focused on improving the environment for foreign investment in developing countries.

  • It's being championed by the World Trade Organization (WTO).

Here's a breakdown of IFD:

  • GoalAttract more foreign direct investment (FDI) into developing countries. 

  • This investment can play a crucial role in their economic growth and development.

  • Method: Instead of changing the actual investment policies of these countries.

  • The IFD aims to make those policies more transparent and streamline administrative procedures. 

  • This reduces uncertainty and makes the investment process smoother for businesses.

  • Benefits: By simplifying the investment process, IFD can:

    1. Reduce costs for investors

    2. Attract a wider range of investors

    3. Encourage reinvestment of profits within the developing country

    4. Ultimately foster sustainable development and economic growth

  • There are currently negotiations underway at the WTO to create a formal agreement on IFD.

  • This agreement would establish common standards for investment facilitation across member countries.

India’s concerns

  • The IFD Agreement, among other things, will require states to augment regulatory transparency, and streamline administrative procedures to bolster foreign investment inflows

  • Importantly, this agreement does not contain provisions on market access, investment protection, and investor-state dispute settlement (ISDS). 

  • ISDS, which allows foreign investors to bring treaty claims against the state admitting investment.

  •  It has been a contentious issue in recent years.

  • Given the existing structure of the WTO’s dispute settlement mechanism.

  • Where only states can bring legal claims against other states.

  • It is implausible that ISDS can be a part of it.

  • India and South Africa played a crucial role in not letting the IFD agreement become a part of the WTO rulebook. 

  • India does not seem to be exceedingly concerned about the text of the IFD agreement. 

  • Instead, India’s principal concerns are twofold.

  • First, the question of whether investment can be part of the WTO

  • And second, the process followed to make the IFD agreement a part of the WTO rulebook.

Whether investment can be part of the WTO?

  • On whether investment can be part of the WTO, India’s chief contention is that investment per se is not trade

  • In other words, investment could or could not result in cross-border trade. 

  • This argument flies in the face of economic literature supporting an inextricable linkage between trade and investment

  • According to the Organisation for Economic Co-operation and Development, about 70% of international trade occurs through global value chains.

  • Which are characterised by trade and investment, thus proving the close relationship between the two.

  • Therefore, it is unsurprising that several modern-day free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership include detailed investment provisions covering both facilitation and protection

  • Interestingly, India’s newly minted trade agreement with the European Free Trade Association also contains provisions on investment, though it is restricted to facilitation and promotion measures.

Functions of the WTO

  • The WTO plays a key role in facilitating international trade

Here are its core functions:

  • Administering Trade Agreements: The WTO oversees the implementation and enforcement of its various trade agreements.

  • Which form the legal framework for international trade between member countries

  • These agreements cover a wide range of topics, including tariffs, subsidies, intellectual property rights, and product safety standards.

  • Forum for Trade Negotiations: The WTO provides a platform for member countries to negotiate new trade agreements and work towards further trade liberalization. 

  • These negotiations can involve reducing or eliminating tariffs and other trade barriers, as well as setting common rules for different aspects of international trade.

  • Settling Trade Disputes: The WTO offers a dispute settlement system to address trade disagreements between member countries

  • This system provides a mechanism for countries to resolve their differences peacefully and according to WTO rules.

  • Monitoring Trade Policies: The WTO monitors the trade policies of its member countries to ensure they comply with WTO agreements

  • This helps to ensure a level playing field for all members and prevent unfair trade practices.

  • Building Trade Capacity: The WTO offers technical assistance and training programs to help developing countries improve their trade capacity. 

  • This can involve helping them to implement WTO agreements, understand their trade rights and obligations, and participate more effectively in the global trading system.

  • Cooperating with Other Organizations: The WTO cooperates with other international organizations, such as the World Bank and the International Monetary Fund (IMF), to address issues that affect global trade. 

  • This collaboration helps to ensure that trade policies are consistent with broader economic and development goals.


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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Investment facilitation for development UPSC NOTE
Investment facilitation for development UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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