Tough Road Ahead to Integrate Investment Facilitation Agreement Into World Trade Organization System

World Trade Organization (WTO) members are thinking about integrating a new treaty—the Investment Facilitation for Development Agreement (IFDA)—into the WTO framework. To do so, IFDA members will need to convince non-signatory countries, including those that have long opposed new plurilateral initiatives, to agree to allow the integration of the IFDA as a plurilateral agreement under Annex 4 of the Marrakesh Agreement establishing the WTO. This article explains the content of the IFDA and the debate about whether to integrate it into the WTO system.

How and When Did It All Begin?

At the 11th Ministerial Conference (MC11) in Buenos Aires in December 2017, a group of 70 WTO members launched a new initiative: a Joint Statement Initiative (JSI) exploring the possibility of creating a multilateral agreement focusing on investment facilitation rules at the WTO. After more than 2 years of structured discussions, the exchanges became formal negotiations in September 2020. After nearly 3 years, those negotiations delivered an important milestone on July 6, 2023: a finalized version of the accord’s legal text.

Involvement in the JSI has grown over time, with 117 members now participating as signatories and one member engaging as an observer. This represents more than two thirds of the WTO’s 164 members. The membership is diverse, with 21 least developed countries (LDCs), 59 developing economies (assuming Agreement on Trade Facilitation designations for developing economies), and 38 developed economies signing on. However, some large economies, including India, South Africa, and the United States, have refrained from engaging in the process.

The WTO is not the usual forum through which international investment rules are negotiated, having delivered only one multilateral agreement, the 1995 Agreement on Trade-Related Investment Measures. Rather, investment governance rules are mainly negotiated through international investment agreements and dedicated investment chapters in regional trade agreements. While investment facilitation provisions were usually absent in international investment agreements, these provisions have become more common, diverse, and deeper in terms of commitments since 2015.

What’s in the IFD Agreement?

The agreement seeks to facilitate investment and thus increase global flows for foreign direct investment (FDI), especially to developing economies and LDCs, to foster sustainable development. It includes a range of commitments, such as improving the transparency of investment measures, simplifying and streamlining administrative procedures, and strengthening cooperation with investors and among governments on investment facilitation matters. The obligations apply to measures by government bodies at different levels, from the central and regional to the local, and to entities with delegated authority.

The agreement seeks to facilitate investment and thus increase global flows for foreign direct investment, especially to developing economies and LDCs.

A core pillar of the agreement is a commitment to improve the transparency of investment measures to help reduce the information-gathering costs that foreign investors may face when familiarizing themselves with a foreign market. Most requirements are publication obligations, in which members agree to publish or make publicly available information on enacted and proposed regulatory measures and improve access to other practical information that could be valuable for FDI decisions. Some of the information must be available online and, ideally, through a single information portal.

Members also agree to improve practices for how laws and regulations are developed. For example, they will provide an opportunity for stakeholder comments during the regulatory development process and carry out ex-ante impact assessments for proposed regulations that could significantly affect FDI decisions.

Furthermore, members commit to simplifying and streamlining their authorization procedures to reduce bureaucratic impediments and improve the reliability and predictability of government procedures. Members, for example, will ensure that FDI-related administrative measures are developed objectively, transparently, and impartially and will improve their practices for implementing application procedures. Commitments are undertaken to ensure integrity and trust in decision-making processes by ensuring that decisions are made independently and by establishing appeal and review processes.

Also critical are pledges to improve cooperation with investors and among governments. Members, for example, will maintain focal points that can respond to questions about matters covered by the agreement. These contact points can be delegated additional functions, such as helping investors resolve ground-level obstacles or channelling policy recommendations to improve the investment climate. Members are also encouraged to improve the linkages between investors and local actors by, for example, maintaining databases with useful supplier information and adopting supplier development programs to strengthen local suppliers’ capacity to respond to the needs of foreign investors. Competent bodies are urged to cooperate on investment facilitation matters.

A final type of measure is efforts to promote sustainable investments. Members agree to adopt policies that facilitate not just any investment but higher-quality investments that deliver more value for sustainability objectives. Members, for example, will encourage foreign businesses operating in their territory to incorporate principles, standards, or guidelines of responsible business conduct (RBC) and to engage with local communities on matters relating to RBC. Members hosting investments also agree to develop anticorruption and anti-money laundering policies. This is the first time a potential WTO treaty includes rules on responsible business behaviour.

Although these efforts have attracted praise, the dearth of sustainability-oriented provisions in the agreement has also attracted criticism. One such criticism is the logic of applying the RBC obligation on host countries instead of from a home-country basis, given that the latter grouping mainly comprises developed economies, which are better resourced to encourage and monitor RBC practices.

Flexibilities and Benefits for Developing Countries and LDC Members

The accord includes a special and differential treatment (SDT) section modelled on the approach used in the Agreement on Trade Facilitation. While developed countries are expected to comply with all the rules of the agreement by the time it comes into force, developing country members can select the provisions they can implement immediately or 1 year after entry into force in the case of LDCs (Category A); those they can implement only after some time (Category B), and the provisions that not only need more time, but also capacity-building support to be implemented (Category C). Should these members not meet their initial deadlines for implementation, they can request extensions, shift category designations, access expert recommendations, and, finally, receive temporary grace periods from disputes. In addition, donor members agree to provide capacity-building support bilaterally or through intergovernmental organizations on mutually agreed terms.

Another benefit that developing and LDC members hope to access eventually is a facility with dedicated funds to support the agreement’s implementation. If the treaty enters into force, a committee will discuss the possibility of setting up such a facility.

What to Expect at MC13?

The co-coordinators have outlined three priorities for the work in the run-up to MC13. The first will focus on the legal scrubbing process, under which members agree on final provisions, make textual adjustments for coherence and clarity, and translate the finalized text into French and Spanish. The second is outreach activities engaging non-signatories and encouraging developing countries and LDC members to conduct needs assessment analysis. This analysis is important to help countries understand the extent to which the domestic framework already complies with IFDA rules and potentially use the information to determine the SDT-related categories and scheduling.

The final and biggest challenge is finding a way to legally incorporate the agreement into the WTO rulebook—the legal architecture issue. Members have stressed their intention to finalize the negotiations within the WTO, thereby forgoing the option of concluding the accord as a non-WTO treaty. They have emphasized their intention to maintain the treaty as a stand-alone agreement, thereby sidestepping the option of integrating the obligations into existing WTO treaties.

The final and biggest challenge is finding a way to legally incorporate the agreement into the WTO rulebook—the legal architecture issue.

Most recently, members decided they would advocate for incorporating the agreement into the WTO framework as a plurilateral agreement in Annex 4 of the Marrakesh Agreement establishing the WTO. While they noted a preference for the accord to be included as a multilateral agreement, it was deemed too difficult to convince certain non-signatories to be bound to obligations they had no role in shaping. With the plurilateral route, only the agreement signatories will have to abide by its rules. Non-parties would be able to benefit from the reforms undertaken but would not have formal rights under the agreement—notably, the right to raise a claim should a member fail to apply benefits to its investors.

Although non-signatories do not participate in the agreement, their consensus is needed to include the IFDA as a plurilateral agreement in the WTO. Getting this permission will be difficult and will likely involve lively discussions in the run-up to and at MC13.

Members’ Differing Positions

Some non-signatory countries, including India and South Africa, have long been vocal in their opposition to the IFDA. They question the legal basis of the JSIs at the WTO, arguing that they were launched without a multilateral mandate, thereby undermining the consensus principle on which the WTO is founded. They also say plurilateral initiatives distract from the multilateral mandate of concluding negotiations on the Doha Development Agenda. Some members counter that the IFDA is not a distraction but a prototype to inject more variable geometry into the WTO system and modernize the negotiating function to respond to diverse membership needs and an evolving global trade landscape.

Proponents also tout the development benefits they expect from implementing the agreement. They contend that the reforms will help countries access more investments and that developing and LDC members will access more capacity-building support to undertake reforms. Opposing views argue that capacity-building support is already widely available for countries that undertake voluntary governance reforms. They worry that the IFDA changes the power dynamics around financing, with countries now only being able to access funds if they commit to binding obligations. Another concern relates to the implementation burden, with some members noting that implementation of IFDA measures requires whole-of-government reforms, and this can be challenging for poorer countries or larger countries with complicated bureaucracies. It also raises concerns about linking potential disputes to burdensome and complex institutional reforms.

These debates will likely persist until and during the MC13. It remains to be seen whether IFDA participants will manage to convince the full membership to allow the agreement into the WTO rulebook or whether opposition persists—not only against the IFDA but also against injecting more variable geometry into the WTO system.