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India recently inked a landmark trade agreement (the Trade and Economic Partnership Agreement (TEPA)) with the European Free Trade Association (EFTA) comprising Iceland, Liechtenstein, Norway, and Switzerland. The TEPA is the product of some 16 years of negotiation, and aims to facilitate investment by enhancing market access and simplifying customs procedures. Key features include EFTA’s commitment to invest USD 100 billion in India over 15 years across a range of industries such as manufacturing and pharmaceuticals; mutual reduction or elimination of customs duties; and market access to service providers and professionals in certain industries. The TEPA will come into force 3 months after ratification by all states, which is expected to happen within the year.
From an investment protection perspective, the deal raises certain interesting issues – what are the standards of treatment under the TEPA, what recourse is there for investors, and how does the approach accord with India’s recent foreign trade agreements and its model Bilateral Investment Treaty (BIT) adopted in 2015? We discuss some of these points below.
Investment Protection under the TEPA
The TEPA does not adopt the more commonly-seen approach of applying overarching standards of treatment which are subject to exclusions. Instead, it specifies particular standards of protection in respect of each of its chapters. By way of example:
This calibrated approach mirrors that taken in India’s recent trade agreements such as the India-Australia Economic Cooperation and Trade Agreement (ECTA) and the India-UAE Comprehensive Economic Partnership Agreement (CEPA), under which the national treatment and MFN treatment provisions are limited to specific chapters, and there is no FET or anti-expropriation clause. The India-UAE CEPA (Art 12.1) however provides for the parties’ entry into a further BIT, which may contain further investor protections.
Dispute Resolution under the TEPA
The TEPA does not contain an Investor-State Dispute Settlement (ISDS) mechanism – this is similar to the India-Australia ECTA and India-UAE CEPA, which also do not contain ISDS clauses. India has largely jettisoned ISDS mechanisms in FTAs, with the last FTA which included an ISDS clause being the India-ASEAN CEPA in 2014.
This means that foreign investors do not have direct recourse against the host state to enforce the standards of protection under the TEPA. Any alleged failure to observe the commitments or standards in the TEPA would be a matter for resolution amongst the Party states, under the TEPA Dispute Settlement provisions (Chapter 12 and Annex 12A). These provisions provide for disputes to be resolved by arbitration, but do not specify any administering arbitral institution or arbitral rules. Instead, a bespoke arbitration procedure is set out at Annex 12A of the TEPA – this approach is also similar to that in the India-Australia ECTA and India-UAE CEPA. Certain provisions are also carved out of the TEPA dispute settlement mechanism, including the more aspirational investment promotion commitments under Chapter 7.
Observations and Comments
The TEPA is the third in a spate of foreign trade investment agreements signed by India in the last 2 years, following the India-UAE CEPA and the Australia-India ECTA, and in advance of an India-UK FTA that is in advanced stages of negotiation. These developments reflect India’s drive to increase foreign investment and increase its standing as an international trade partner. That said, the dispute resolution provisions of the TEPA (along with the that of the UAE and Australia agreements) indicate that India continues to exercise caution toward the use of ISDS mechanisms.
India had overhauled its investment treaty regime in the 2010s, following the adverse award it received in White Industries v Republic of India under the India-Australia BIT, and a series of other BIT claims being brought against it. By 2016, India had terminated some 77 BITs and launched a new Model BIT in 2015 (upon which its more recent BITs are based). The 2015 Model BIT includes an ISDS mechanism, but couples this with more limited substantive protection. It will be interesting to see to what extent India adopts the Model BIT approach in its future investment agreements, or avoids ISDS provisions altogether as in the TEPA.
Clara Tung would like to thank Gaurika Mohan for her assistance in preparing this article.
22 March 2024
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