India-EU FTA: Policy Implications of Unfettered Investment Flows

By Kavaljit Singh | Briefing Paper # 2 | June 2011

The European Commission (EC) is seeking an expansive mandate to negotiate on investment issues on the behalf of the European Union. In its recommendations to the European Council, the EC sought modifications in the negotiating directives for the proposed free trade agreement with India. If these recommendations are accepted, the EC would pursue comprehensive cross-border investment liberalization and investment protection provisions under the trade agreement with India. The EC document calls for the “progressive abolition of restrictions on investment, with the aim to ensure the highest level of market access.”

The EC recommendations contain several alarming proposals which should receive public scrutiny both in Europe and India. The proposals contain high standard features including a wider definition of investment, national treatment to foreign investors, free transfer of capital and investment-related returns, and curbs on the use of performance requirements. In addition, the EC has recommended investor-to-state dispute settlement mechanism through which foreign investors can invoke arbitration against the host governments. If implemented, such investment rules could seriously undermine development priorities and restrict policy space to regulate cross-border investments in the public interest.