Print Friendly, PDF & Email

Investment facilitation agreement (IFA)

GS Paper 2

 Syllabus: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests


Source: TH

 Context: India should not be opposed to joining the investment facilitation agreement (IFA) negotiations for fear of investor-state dispute settlement claims.



  • Even if the World Trade Organization (WTO) is inactive, IFA is one area of rule-making where there is a lot of action.
  • Backed by over 100 countries (it does not include India), the proposed IFA is meant to create legally binding provisions aimed at facilitating investment flows.
  • This will require states to augment regulatory transparency and predictability of investment measures.
  • This agreement will be very different from investment protection agreements (such as BITs) that allow foreign investors to bring claims against the host state for alleged treaty breaches.
  • This is known as investor-state dispute settlement (ISDS).


Why is India not a party to IFA negotiations?

  • Fear of ISDS: Apprehension that foreign investors could use a future IFA to bring claims under the existing BITs.
  • Foreign investors may use the –
    • Most favoured nation (MFN) provision in BITs: To import terms from the IFA that they believe to be more favourable than those provided in the underlying BIT.
    • Ubiquitous provision of fair and equitable treatment (FET) in BITs: To challenge non-compliance with IFA.
    • ‘Umbrella clause’ in BIT: A clause that allows contractual and other commitments owed to a foreign investor to be brought under the treaty’s protective umbrella.


These are mere presumptions:

  • Many BITs exempt an economic integration agreement from the application of MFN. Thus, the possibility of importing IFA provisions into the BIT is remote.
  • It is unlikely that an ISDS tribunal will accept the claim that a simple IFA violation breaches an investor’s reasonable expectations.
  • Most new investment treaties avoid ‘umbrella clauses’ altogether.


Way ahead:

  • The IFA categorically state that it
    • Cannot be used to interpret or apply any rule for the protection of investment contained in any investment treaty.
    • Does not create rights for non-signatory countries and their investors.
  • Reforming BITs: Countries can amend their respective BITs to exclude the IFA from its scope.


Conclusion: The possibility of an audacious ISDS tribunal interpreting provisions broadly can never be ruled out. But this cannot be a basis to oppose international law-making.


Insta Links: