Opinion: India–EFTA TEPA marks a new era in investment treaties

The Agreement introduces unprecedented investment commitments and consultation-driven governance, offering a template for next-generation investment treaties

By Karamjeet Kaur

The India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA) came into force on 1 Oct, 2025.

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The Investment Chapter of this agreement introduced two novel concepts. First, it enshrines a unilateral commitment from EFTA countries (intergovernmental organisation of Iceland, Liechtenstein, Norway and Switzerland)to India of USD 100 billion in investments while creating one million direct jobs. Second, it allows for unilateral remedial measures from the Indian side if this commitment is not ful-filled.

As of the time of writing, since the signing of TEPA in March 2024, the EFTA group has signed four new Free Trade Agreements (FTAs) — with Kosovo (January 2025), Thailand (January 2025), Ukraine (April 2025) and Malaysia (June 2025). None of these FTAs has a commitment to invest or a unilateral remedial action.

While much ink has been spilt on the above, there are aspects of the India-EFTA TEPA that have not received as much attention. This article attempts to bring forth those. A brief commentary may also provide cues for the new-age investment treaties being negotiated by India.

Unprecedented

It is ‘unprecedented’ in also what ‘it does not’ contain. An Investment Treaty provides legal commitments from sovereign states guaranteeing certain protections to foreign investors and their investments. The presence of such protections helps encourage the flow of foreign investments. These protections are referred to in international investment law as ‘substantive obligations’, setting the ‘Standard of Treatment’. Notable examples include Fair and Equitable Treatment (FET), Full Protection and Security (FPS), Prohibition of Performance Requirements (PPRs), Most Favoured Nation (MFN), National Treatment (NT), Expropriation, and Market Access (MA).

A mix of various substantive obligations offered in an investment treaty on a reciprocal basis determines the level of protection provided. These commitments, however, potentially involve a reduction in policy space.

Instead of relying on arbitral panels or tribunals, the treaty prioritises government-to-government consultation, cooperative resolution, and sustained investment facilitation

When sovereign nations sign investment treaties, they undertake binding commitments on the ‘measures’ they may or may not adopt. The term ‘measure’ is generally defined in investment treaties as ‘any law, regulation, rule, procedure, decision, administrative action, requirement or practice’. And sometimes also ‘inaction’. The scope of such treaties thus covers ‘any’ measure that may be taken as a policy, if it impacts the entry, establishment and operation of an investment, depending on the treaty’s coverage.

Consider the following policy actions which arise in the context of traditional investment treaties:

• A performance-based fiscal incentive solely for domestic micro, small and medium enterprises (MSMEs) may go against the treaty commitments by breaching national treatment obligations, which require governments not to discriminate between domestic and foreign investors or their investments. Government action is examined for both de jure and de facto discrimination.
• A ‘standstill’ clause on the conditions of entry of foreign investments provides policy certainty to investors, but this also implies that the elbow-room to future policy changes, to adjust to the changing times, may be reduced.
• National policies must also remain country-agnostic to avoid violation of the MFN clause, which requires similar treatment to investors from different countries.
  In this sense, it is important to place on record an appreciation of TEPA’s investment chapter for securing an ‘unconditional’ commitment to invest from the EFTA countries.

Cooperation, Monitoring, Consultation

A pertinent question is what will ensure that this Agreement lives up to the expectations in the years ahead. The answer lies in Articles 3, 4 and 5 of the Agreement; as elaborated below:

• The Agreement identifies possible areas of cooperation, including the development of mechanisms for identifying investment opportunities, information channels on investment regulations, strategies to identify investment bottlenecks, fostering a conducive business climate and mechanisms for joint ventures with MSMEs, public-private collaborations, centres of excellence, and government agencies. Means to enhance these engagements include economic and scientific missions, investment promotion events, town-twinning programmes, thematic expert exchanges, and support for vocational education.
• The agreement also provides for the creation of a committee under TEPA to monitor the progress. Through continuous and constructive engagement, both sides are expected to work towards agreed targets. There is also a provision for the creation of a dedicated EFTA desk in India to assist investors from EFTA states with any problems that may arise.
• Unlike the standard investor-to-state or state-to-state dispute settlement mechanisms of investment treaties that rely on arbitral panels or tribunals, the Agreement emphasises close cooperation. All matters pertaining to this Agreement are addressed without any involvement of third parties (including arbitration). A three-tier Government-to-Government consultation mechanism has been established for resolving differences.

Next generation Treaties

Next-generation investment treaties must move away from traditional approaches. They must reflect the economic strength of both negotiating parties while also serving as guiding frameworks for sustainable investment and for facilitating investment promotion. Such agreements will require more out-of-the-box thinking. The India-EFTA TEPA has already set the tone.

 

(The author is an Indian Economic Service officer. Views are personal)