India’s free trade agreement (FTA) negotiations with countries such as the United Kingdom and the European Union (EU) seem to be on ice due to the ongoing parliamentary elections in India. However, before election fever gripped the country, India managed to clinch a historic trade deal, in March, with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway and Switzerland. The newly minted Trade and Economic Partnership Agreement (which we refer to as FTA) between India and EFTA is expected to give a much-needed leg-up to the low levels of extant trade between the two sides. The FTA between India and EFTA is also important because, as economist Biswajit Dhar has argued, India has agreed to include issues such as environment and labour, which it has traditionally opposed incorporating in trade agreements.
On investment
Another reason sets this FTA apart from those India signed recently with countries such as Australia, the United Arab Emirates (UAE), and Mauritius. The India-EFTA FTA includes a somewhat detailed investment chapter, which is missing in the other recent Indian FTAs. This chapter focuses on investment facilitation issues, not investment protection. But it has a remarkable and unprecedented characteristic. India has managed to extract a promise from the EFTA countries that they shall “aim to” increase foreign direct investment (FDI) to India to $50 billion within 10 years of the FTA coming into force, followed by another $50 billion in the succeeding five years. Likewise, Article 7.1(3)(b) of the investment chapter provides that the EFTA states shall “aim to” facilitate the generation of one million jobs in India. In legal terms, these articles codify what is known as an obligation of conduct — an obligation to make an honest endeavour towards achieving a goal, notwithstanding the outcome or the result. This differs from an obligation of result, which would require achieving a specified outcome. In other words, the EFTA countries are legally obligated to make an honest effort to invest $100 billion and generate one million jobs in India. They are not required to realise these outcomes. Nonetheless, the Indian negotiators need to be complimented for incorporating such path-breaking specified obligations of conduct in the investment chapter, which are typically not found in FTAs or investment treaties. Notably, this creates a template worth emulating in the ongoing negotiations with the U.K., the EU, and other countries.
