India and a few other countries have rejected an informal proposal made by the EU and Canada to work towards a multilateral pact on investments at the World Trade Organisation that will have an Investor-State Dispute Settlement (ISDS) mechanism built into it.

“The EU and Canada have got into an investment agreement in which they have weaved in the much contentious ISDS which allows corporates to take sovereign governments to international arbitration. They now want it to be the template for a multilateral agreement. We have rejected the informal proposal completely and also insisted that it should not be considered as initiation of talks on the issue,” said Commerce & Industry Minister Nirmala Sitharaman at a press briefing on Monday.

The proposal for a global investment pact, made at an informal breakfast meeting of Trade Ministers of select countries in Davos last week, was also rejected by Brazil, Japan and Argentina.

“It is only after all options for settling disputes between a sovereign government and a corporate have been exhausted in domestic courts do we want to allow the issue to be taken up in international courts. It should be part of a bilateral agreement and not a multilateral agreement,” Sitharaman said.

The issue of investment pacts is also set to lead to an indefinite delay in the proposed India-EU free trade agreement as the 28-member bloc is insisting that it wants a bilateral investment treaty (BIT) between the two partners to be negotiated first as the existing ones with individual members would all lapse by April this year.

“I went to ask the EU Trade Commissioner when the free trade talks could start. She said that they were at the moment keen to get the investment agreement negotiated,” she said.

This means that till the Department of Economic Affairs and the EU does not negotiate a new BIT, which could take months as the EU is unhappy with the draft model BIT, talks on FTA will be stalled.

Last year, New Delhi had asked all countries with which India has investment protection agreements, including the EU, to renegotiate those pacts on the basis of the new draft text of BIT.

The key issue

The most contentious issue in the model BIT is the proposed ISDS mechanism as it allows companies to seek international arbitration only when all domestic legal options have been exhausted.

The removal of taxation from the purview of BITs has also come in for criticism from foreign partners.

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