India And EU To Delink Investment Protection From FTA In New Trade Talks

New Delhi, Dec 4 (KNN) In a nuanced approach to international trade negotiations, India and the European Union are set to decouple investment protection and arbitration from their proposed Free Trade Agreement (FTA), with sources revealing that the two aspects will be negotiated through distinct channels.

The emerging framework suggests that the FTA will primarily concentrate on investment liberalisation, focusing on rules governing Foreign Direct Investment (FDI). 

Notably, investment protection and arbitration mechanisms will be addressed separately through a bilateral investment treaty (BIT), marking a strategic departure from conventional trade negotiation models.

Sources indicate that India may not secure a minimum investment commitment from the EU, unlike its recent agreement with the European Free Trade Association (EFTA). 

This divergence stems from the EU's complex legal structure, where such comprehensive commitments fall under individual member states' jurisdictions.

A key source elaborated that the negotiations are deliberately structured into two distinct segments. While the FTA will facilitate FDI, the BIT will handle investment protection and arbitration, ensuring a clear demarcation between the two processes. 

Bilateral Investment Treaties traditionally ensure minimum standards of treatment and non-discrimination for investments across territories.
The Finance Ministry has been proactive in advocating for separate BIT negotiations, a stance rooted in its experiences with international arbitration. 

In 2016, the ministry formulated a model BIT designed to mitigate risks associated with multinational companies filing international arbitration cases, which had previously resulted in significant financial losses for India.

The EU's preference for a separate investment protection agreement is strategic, allowing the investment pact to progress independently of the FTA's negotiation pace. 

During these discussions, the EU is actively seeking binding commitments from India regarding FDI limits in fully liberalized sectors and areas with potential for further openness.

While both India and the EU acknowledge fundamental differences in their approach to arbitration, they share a consensus on maintaining separate negotiation tracks. 

This approach mirrors the recent India-EFTA FTA, which similarly focused on investment promotion and facilitation without incorporating investment protection features.

The current negotiations mark a significant milestone, coming after a nine-year hiatus. 

Officially relaunched in June 2022, the talks encompass not just the FTA but also parallel discussions on investment protection and geographical indications, signalling a comprehensive and methodical approach to bilateral economic engagement.

(KNN Bureau)