Making Sense of Investment Facilitation for Development Agreement (I)
Hectic parleys are currently underway to incorporate a new agreement on investment facilitation at the World Trade Organization after 112 WTO members concluded text negotiations on an Investment Facilitation for Development Agreement (IFDA) on 6 July 2023. WTO members participating in the talks on IFDA hope that the proposed agreement will reach another important milestone at the WTO’s 13th Ministerial Conference (MC13) to be held in Abu Dhabi in February 2024. The Ministerial Conference is the WTO’s highest decision-making body, attended by trade ministers and other senior officials from the organization’s 164 members.
However, the prospects of achieving another major milestone at MC13 remain bleak as the WTO has become dysfunctional, and the proposed IFDA launched by self-selected members lacks formal mandate and legal legitimacy. More than 50 WTO members have not joined the IFDA process yet.
More importantly, two prominent non-participating members (India and South Africa) have long questioned whether investment is part of multilateral trade relations, and have argued that no negotiations on investment issues can take place within the WTO until the successful conclusion of the Doha Round, as noted in the decision adopted by the WTO’s General Council in the July Framework of 2004.
The text of the General Council’s decision states: “No work towards negotiations on any of these issues [including investment] will take place within the WTO during the Doha Round.” Since the Doha Round to date has not been concluded, discussions regarding investment facilitation are thus contrary to such multilateral mandate, says the communication jointly issued by India and South Africa dated 19 February 2021.
Some Unresolved Issues
The proposed IFDA raises two fundamental issues that require explanation. First, investment facilitation measures are a subset of investment issues for which the WTO currently has no mandate. In December 1996, at the First Ministerial Conference in Singapore, WTO members established a working group to “examine the relationship between trade and investment” to conduct analytical and exploratory discussions. Investment was originally part of the Doha Round agenda launched in 2001, but members were unable to agree on starting negotiations on investment at the Fifth Ministerial Conference in Cancún in September 2003. At the General Council meeting in July 2004, a consensus was reached among members that investment, along with other “Singapore issues” of competition policy and transparency in government procurement, would be excluded from the Doha Round of trade negotiations.
Second, the proposed IFDA differs significantly from other existing WTO agreements, notably Trade-Related Investment Measures (TRIMS) and the General Agreement on Trade in Services (GATS), in which the rules on investment are narrowly defined.
The TRIMS Agreement aims to eliminate certain trade-distorting regulations that host governments impose on foreign investors regarding local content requirements and trade balancing.
The GATS only covers measures limited to the service sector and defines four modes of cross-border service supply. With the exception of commercial presence (Mode 3), the remaining three modes essentially deal with cross-border trade in services. The scope of the GATS is further limited, as rights apply only in cases in which members have made specific commitments in relation to individual service sectors.
In contrast, the proposed IFDA covers measures related to foreign direct investment in all economic sectors (including agriculture and manufacturing) of a signatory member. Unlike the GATS, the proposed IFDA also covers measures within the service sector, even if a foreign investor does not qualify as a service supplier of a signatory member.
Therefore, the scope of application of legal obligations in the proposed IFDA is far broader than other existing WTO agreements, and would apply to all sectors of the domestic economy open to foreign investment in a signatory country.
The relentless push for an IFD agreement begets two big questions: First, why is the non-mandated plurilateral IFDA much more important than the already multilaterally mandated issues at the WTO? Second, why circumvent the WTO’s existing mandates, especially when the member-driven organization is facing a critical moment and geopolitical tensions have exacerbated old problems?
The Two Options
Under the current structure, two options are available for integrating the proposed IFDA into the WTO treaty architecture. The first option is to incorporate it as a standalone multilateral agreement (included in Annex 1 of the Marrakesh Agreement, similar to the Trade Facilitation Agreement), which means that the IFDA will be binding on all WTO members and will create rights for all. The prospects of this option are almost zero, owing to the lack of consensus among all members.
The second option is to pursue it as a standalone plurilateral trade agreement (included in Annex 4, similar to the Agreement on Government Procurement), which means that the IFDA would be binding and applicable only to WTO members who signed the IFDA. This option does not create rights or obligations for members who have not signed the IFDA.
The coordinators of the IFDA process have recently confirmed that they would pursue the second option of a plurilateral agreement under the aegis of the WTO. However, it should be noted that the decision to adopt IFDA as a standalone plurilateral agreement also requires the consent of all WTO members (including non-participating members) through the Ministerial Conference or the General Council acting on its behalf. Article X.9 of the Marrakesh Agreement clearly states: “The Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus to add that agreement to Annex 4.” Hence, the process of integrating the proposed IFDA into the WTO rulebook via Annex 1 or 4 requires the consent of all members.
Beyond these two options, any attempt to insert the proposed IFDA into a new Annex 5 of the WTO Agreement (as proposed by Hamid Mamdouh), or through other means, would not only deepen existing divisions within the WTO but also undermine the basic principles of multilateralism.
The process for a future IFD agreement began in early 2017, when the so-called MIKTA group, consisting of five WTO members (Mexico, Indonesia, Korea, Turkey, and Australia), organized an informal workshop on investment facilitation. Thereafter, informal workshops were organized by the Friends of Investment Facilitation for Development. On the margins of MC11 held in Buenos Aires in December 2017, 70 WTO members adopted a Joint Statement Initiative (JSI) on Investment Facilitation for Development, announcing plans for structured discussions to develop a multilateral framework on investment facilitation. At that time, the majority of WTO members decided not to participate in structured discussions on the IFD.
After more than two years of deliberations, participants in the structured discussions on IFD began formal negotiations on 25 September 2020 on a multilateral agreement on the issue. Their goal was to achieve a concrete outcome by the MC12 scheduled for next year. During the consultations, Türkiye announced a “reflection pause” from the IFD process, while nearly 40 additional participants joined it.
After almost three years of text-based discussions, the participating members concluded negotiations on 6 July 2023.
What surprises many is the extraordinary support for the IFDA initiative by WTO Director-General Ngozi Okonjo-Iweala shortly after she took office in March 2021. Even though the formal mandate of the IFDA negotiations is questionable, she went overboard in celebrating the conclusion of the negotiations. “This represents a momentous achievement,” said Okonjo-Iweala. “This next phase will require you to intensify outreach towards the broader WTO membership — to see whether non-participating members can be brought on board, and to explore options for legally incorporating the new agreement into the WTO architecture. Rest assured that I personally will also be doing my bit in this regard,” she added.
Although the conclusion of the IFDA negotiations is seen as an important milestone, the process is far from complete. In the run-up to the 13th Ministerial Conference, the IFD participants are advancing their work in many areas, including legal scrubbing and translation of the proposed agreement, and outreach activities to garner buy-in from non-participating members for a plurilateral agreement. It remains to be seen whether more than 50 countries (including India and South Africa) will give their consent to the proposed IFDA.
Agreed Text Not Made Public
What is deeply shocking is that the agreed text of 6 July has not yet been made public. Nor would it be made public before MC13, which is scheduled for February 2024.
At a recent webinar, Ambassador Sofía Boza of Chile (the co-coordinator of the IFDA negotiations) stated: “Hopefully, if we can have an agreement with participating members, it might be made public after MC13”.
Neither the coordinators nor the WTO Secretariat have given reasons why the July 6 text will not be made publicly available until then. It is understandable that the legal scrubbing and translation of the proposed agreement may take some time, but why can’t the substance of the agreement (which is contained in the July 6 agreed text) be made public?
Is it not ironic that the IFDA aims to improve the transparency of investment measures and promote dialogue among various stakeholders (including local communities and civil society groups), but its text agreed on 6 July has not yet been made public?
Notes and References
 The Text of the General Council’s Decision on the Doha Agenda Work Programme, WTO, 1 August 2004. Available at https://www.wto.org/english/tratop_e/dda_e/draft_text_gc_dg_31july04_e.htm.
 The Legal Status of ‘Joint Statement Initiatives’ and Their Negotiated Outcomes, WT/GC/W/819, WTO, 19 February 2021. Available at https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/GC/W819.pdf&Open=True.
 Marrakesh Agreement Establishing the World Trade Organization, WTO. Available at https://www.wto.org/english/docs_e/legal_e/04-wto_e.htm.
 Hamid Mamdouh, Legal Options for Integrating a New Investment Facilitation Agreement into the WTO Structure, International Trade Centre, September 2021. Available at https://intracen.org/file/iflegaloptionsmamdouhasofsept17finalpdf.
 The initial members of Friends of Investment Facilitation for Development included Argentina, Brazil, Chile, China, Colombia, Hong Kong, China; Kazakhstan, Korea, Mexico, Nigeria, and Pakistan.
 Investment Facilitation Negotiators Announce Deal on Agreement’s Text, WTO, 6 July 2023. Available at https://www.wto.org/english/news_e/news23_e/infac_06jul23_e.htm.
This is the first in a series of two articles that will analyze the proposed Investment Facilitation for Development Agreement.
Image courtesy of WTO