New FDI Rules Not Violation, Say Government Sources On China Criticism

India revised its FDI policy to curb "opportunistic takeovers" amid the coronavirus pandemic.

India has denied China's criticism that its new Foreign Direct Investment rules are a violation of the WTO agreement. The rules calling for government sanction for neighbours wishing to invest in India are "not denial" of permission but only an approval process, so no violation, top government sources said on Tuesday.

China has called the new FDI rules a violation of WTO principles of non-discrimination and against free and fair trade. In a statement, Beijing also called for a "revision of discriminatory practices".

On Saturday, the government stepped up scrutiny of investments from companies based in neighbouring countries, in what was widely seen as a move to stave off takeovers by Chinese firms during the coronavirus outbreak. The changes were meant to curb "opportunistic takeovers/acquisitions," said the government.

In the new policy, companies in countries that share a border with India will have to approach the government for investing in India, instead of taking the automatic route.

The existing FDI policy as applicable to investments from India's neighbourhood, was confined to Bangladesh and Pakistan, while the new policy brings China, Nepal, Bhutan and Myanmar within its ambit.

"The additional barriers set by Indian side for investors from specific countries violate WTO's principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment. We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment," the Chinese Embassy said in a statement on Monday.

Sources rebutted the statement along with an assessment of how the government's move affected various treaties under the WTO.

On the General Agreement on Tariffs and Trade (GATT), sources said the new norms don't directly affect goods.

The order also did not come under the Trade-Related Investment Measures (TRIMS) related to trade restrictive practices, the sources said it was an investment measure, but not related to trade in goods.

Sources ruled out any link with the General Agreement on Trade in Services (GATS), pointing out that its new policy was not related to market access or national treatment restriction. "This does not automatically result in any equity cap or restriction. Only a formally different procedure is prescribed," said officials.
On allegations of violating the Bilateral Investment Treaty, sources said the India-China and India-Nepal pacts had been terminated. The treaty only applies to investment already made in India before the termination, not retrospectively.

India took the step in the backdrop of growing concern across the world that Chinese companies are buying cheap, distressed assets slammed by the COVID-19 pandemic. Countries such as Australia and Germany have also reportedly tightened their FDI policies in recent weeks to protect their companies.