Nov 25, 2024 07:16 PM IST
If India wishes to accede to these two FTAs, it will have to bring about some major changes in its existing trade and investment treaty practice
The chief executive officer of NITI Aayog, BVR Subrahmanyam, who also served as commerce secretary in the past, recently remarked that India should join the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreements, two key mega-free trade agreements (FTAs). This is a startling comment given the opposition to mega FTAs, particularly the RCEP, in large quarters in India. As a quick background, RCEP is a 15-country FTA that includes the 10 countries from the Association of South East Asian Nations (Asean) and China. India was one of the original negotiating States in the RCEP negotiations. However, it walked out of the deal just days before it was to be finalised. CPTPP is an 11-country FTA including Canada, Japan, and Australia, but without China. CPTPP evolved from the Trans-Pacific Partnership agreement that collapsed after the United States (US) pulled out of it under Donald Trump’s previous presidency. Recently, the United Kingdom acceded to the CPTPP.
Typically, in India, FTAs are mostly thought of in terms of economics or foreign policy and seldom as international legal instruments. While economists debate on the merits of India acceding to these two mega FTAs and foreign policy experts assess their geo-economic utility, it is equally pertinent to understand the international law implications for India.
First and foremost, India will have to go through the accession process to join CPTTP, which might entail accepting conditions stringent from the obligations binding on the founding members. With RCEP, India has the advantage of not going through an accession process because footnote 2 in Article 20.9 of the RCEP agreement provides that this treaty shall be open for accession by India, as an original negotiating State. In other words, India can accede to the RCEP on the same terms as its existing 15 members.
While there are several other legal dimensions that India should be mindful of if it plans to accede to these two FTAs, let me list two. First, both, RCEP and CPTPP contain a chapter on protecting foreign investment. Given the close economic linkage between international trade and foreign investment, this isn’t surprising. Since the 1980s a large number of FTAs have been signed that contain rules on trade liberalisation and investment protection as part of one international economic treaty.
However, India’s extant FTA practice differs from this. India’s recent FTAs signed with Mauritius, Australia, the United Arab Emirates (UAE), and the EFTA States do not contain investment protection rules. In short, India has decoupled investment protection from trade liberalisation in its FTAs although India’s older FTAs signed in the 2000s contain rules on trade liberalisation and investment protection. Presumably, to have greater control, India’s preference seems to be to have a separate treaty on protecting foreign investment with its FTA partner. Accepting RCEP and CPTPP would mean India will have to depart from its existing FTA practice and accept the integration of investment protection and trade in one treaty.
Second, the investment protection chapters in RCEP and CPTPP contain several provisions that go beyond India’s existing investment treaty practice codified in the 2015 Model BIT. For instance, the investment chapters in both RCEP and CPTPP contain substantive principles like the most favoured nation (MFN) and fair and equitable treatment (FET) provisions, which are missing in India’s new investment treaty practice.
Likewise, RCEP and CPTPP do not exclude taxation measures from the ambit of the investment chapters, which the Indian Model Bilateral Investment Treaty (BIT) and India’s subsequent BITs do. Another major difference is in terms of investor-State dispute settlement (ISDS) – a mechanism that allows foreign investors to directly sue States before international arbitration tribunals. Although there is no ISDS in RCEP, CPTPP contains an ISDS provision. The ISDS provision in CPTPP, unlike the Indian investment treaty practice, does not require investors to exhaust local remedies for five years before initiating claims against States for international law violations.
In short, India will have to deviate from its Model BIT and the existing investment treaty practice if it wishes to accede to CPTPP and RCEP. On the issue of exhaustion of local remedies, India has deviated partly from the Model in its BIT with the UAE. Furthermore, joining CPTPP and RCEP would entail India accepting binding investment protection obligations with more than 20 countries through two multilateral agreements, and thus, giving up on the preferred bilateral route.
If India wishes to accede to these two FTAs, it will have to bring about some major changes in its existing trade and investment treaty practice. Is Delhi prepared to do so?
Prabhash Ranjan is professor and director, Centre for International Investment and Trade Laws, Jindal Global Law School. The views expressed are personal
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