India's Stance on Investment Protection in FTAs: A Balancing Act

India is resisting demands from developed countries to include 'investment protection' provisions in free trade agreements, citing potential negative impacts. Concerns include expansive obligations, arbitration costs, and disputes affecting unrelated trade areas. India prefers independent investment treaties, arguing for clarity, minimized risks, and promoting local legal remedies before arbitration.

India is pushing back on pressure from developed countries to incorporate 'investment protection' elements within free trade agreements (FTAs), scrutinizing the potential detrimental effects of such integration. According to informed sources, including these provisions as a standalone chapter in FTAs could fundamentally alter the trade agreements' structure, particularly due to specialized dispute settlement systems that allow for retaliatory actions across unrelated sectors.

Insiders highlight that while demands for arbitration as a resolution mechanism are mounting from developed nations, many of those countries are themselves stepping away from such procedures in recent treaties. For instance, the UK and several European states have recently exited the Energy Charter Treaty, which supported arbitration for disputes between investors and states. This withdrawal stems from the significant costs associated with arbitration—estimated between USD 5 million and USD 7.5 million—and the lengthy process involved.

The Indian strategy emphasizes exhausting local remedies before pursuing international arbitration, aligning with efforts to safeguard taxpayer funds and promote quicker settlements. Although developed countries label this approach as a delay, India, along with other developing nations, asserts that it encourages early dispute resolution and aligns with practices observed in investment treaties globally. India's careful approach to negotiations reflects a commitment to protecting its economic interests while balancing investor confidence and preserving its domestic policy space.

(With inputs from agencies.)