A call for equitable negotiations

In recent trade negotiations, demands from developed countries for India to incorporate "investment protection" elements within free trade agreements (FTAs) have sparked considerable debate.

While the proposal may appear benign on the surface, its implications could be far-reaching and detrimental, particularly for developing nations like India.

The insistence on embedding such provisions within FTAs undermines sovereign decision-making, exposes countries to disproportionate risks, and demands closer scrutiny. The concept of investment protection, in essence, grants expansive rights and safeguards to foreign investors. These provisions include commitments that may restrict a host nation's policy space in areas such as public health, environmental regulation, and labour rights.

As noted by informed sources, the integration of these elements within FTAs is inappropriate and unnecessary. Instead, they argue, investment protection agreements should be negotiated separately, preserving the integrity of trade-focused agreements. A precedent for separate negotiations exists. For example, India and the European Union (EU) have been working on a distinct investment protection agreement, independent of the India-EU FTA. This distinction is crucial.

FTAs often feature specialized dispute settlement mechanisms that allow countries to implement retaliatory measures across unrelated sectors, should disputes arise. Incorporating investment protection clauses within an FTA could exacerbate such conflicts, distorting the trade agreement's primary intent.

India's caution stems from its past experiences. Investment chapters in earlier FTAs with countries like Japan, Korea, and Singapore have revealed risks of disputes spilling over into the trade domain. This cross-sectoral escalation of conflicts is particularly problematic when disputes reach country-to-country levels of resolution, disrupting broader economic relationships.