Explained: China's Investment Pact That India And South Africa Just Killed At WTO

On 28 February 2024, India and South Africa blocked a proposal for changing the investment landscape in the World Trade Organisation-affiliated part of the world.

The Investment Facilitation Development (IFD) agreement is being pushed by more than 120 countries and China has been pushing for it aggressively.

Investment Facilitation Development 

IFD has its genesis in an attempted OECD multilateral agreement on investment in the 1990s. The dispute shifted to the newly-formed WTO, only to be shelved. In the 2017 Ministerial Conference, 70 countries expressed their desire to create rules on investment facilitation. Most of these countries were heavily reliant on Chinese investment.

Negotiations began in 2020 with 110 countries from developed and developing parts of the world joining the ranks. Three years later, a formal legal text came in July 2023.

IFD is aimed towards ensuring more foreign direct investment (FDI) all across the world. It seeks to accelerate administrative procedures for investment by removing bureaucratic barriers.

Proponents of IFD demand sustainable environment, coherence regarding regulatory regimes in a geography and cross-border cooperation, upto but not limited to the extent of Most Favoured Nation (MFN) regime.

According to a report by the World Economic Forum, the IFD agreement can add $1.1 trillion (1.41 per cent) to global gross domestic product. Like most deals, IFD also contains promises of aid in fulfilling sustainable development goals. On the face of it, IFD offers win-win situations for stakeholders.

For developed nations, their companies get easier access to expanding consumer markets in the developing world. For developing nations, investments bring more opportunity for prosperity.

India’s Objections To IFD 

India has maintained its position that IFD is not under WTO’s jurisdiction.

According to India, such a broader scope of investment agreement doesn’t belong to the WTO. Insofar as trade-related investments are concerned, they are already covered under the agreement on Trade-Related Investment Measures and mode-3 related to FDI in the General Agreement on Trade in Services.

India’s second contention is that IFD is not even a formal agreement. The reasoning behind this assertion is that a unanimous consensus has not been reached.

Apart from technical concerns expressed by India, there is perennial fear of countries like China using IFD for their neo-imperialist agenda.

According to economist August Peter, developing nations will be saddled with more and more compliance regimes in favour of companies headquartered in developed parts of the world. He further argues that after these countries are done with facilitated investment, they will pitch for market access in these countries.

IFD is a pluralistic agreement based on the MFN regime. Until one nation chooses another as MFN on its own volition, the regime substantially constricts the space for flexibility in policies. Enforcing MFN through a global body may not always be an individual sovereign interest.  

Ultimately only two types of entities will benefit from IFD.

One, companies based in Western world looking to expand their markets in developing countries, as the economic prospects in their own geographies face negative momentum.

And two, Chinese companies which are facing heavy scrutiny in countries like India, Vietnam etc for violating local norms.

If we go by Chinese reaction to IFD, it is quite a hint — it would benefit immensely from it, perhaps at the cost of countries like India and South Africa.