Institutional Innovation in Investment Treaties: The India-EFTA TEPA Model and Alternative Frameworks for Dispute Prevention

On 1 October 2025, India’s Trade and Economic Partnership Agreement (“TEPA”) with the European Free Trade Association (“EFTA”), introduced a novel institutional framework that moves beyond traditional investor-state dispute settlement (“ISDS”) mechanisms. The TEPA operationalises binding government investment commitments (USD 100 billion over 15 years) paired with dedicated facilitation infrastructure (the India-EFTA Desk (“Desk”), operational since February 2025) and preventive dispute settlement mechanisms. This institutional architecture represents a pragmatic departure from arbitration-centric investment treaty design.

TEPA’s framework addresses a fundamental contradiction in India’s investment treaty strategy. In response to costly arbitration losses in Vodafone (2012) and Cairn Energy (2020), which resulted in tax liabilities of USD 2.6 billion and USD 1.2 billion respectively, the Indian government adopted a defensive 2015 Model Bilateral Investment Treaty (“Model BIT”). The Model BIT introduced a five-year local remedies exhaustion, a restrictive definition of fair and equitable treatment, and restricted most-favoured-nation clause. This treaty language signalled regulatory risk to capital-intensive sectors (that requires long-term policy stability), contributing to a decline in net FDI inflows from USD 49.4 billion (2022) to USD 28.2 billion (2023) and subsequently decreasing to USD 10.1 billion.

Thus, TEPA implies a pragmatic shift in BIT formulations from arbitration-centric towards facilitation-centric models. This article examines TEPA’s three institutional pillars, binding investment commitments, facilitation mechanisms, and government-to-government (“G2G”) dispute resolution against conventional ISDS frameworks. Furthermore, it provides implications for emerging market governments designing bilateral investment agreements.

Binding Investment Commitments and Government Credibility Signalling

Article 7.1 obligates EFTA states to direct USD 100 billion in FDI over 15 years through a binding framework grounded in institutional commitment theory. Unlike aspirational pledges or revocable unilateral statements, TEPA creates enforceable obligations subject to state-to-state dispute settlement instead of investment arbitration. This binding structure ensures that non-compliance is costly and establishes reciprocal accountability where India can initiate disputes if targets are missed to ensure mutual responsibility.

The binding nature minimises underlying macroeconomic uncertainty. Switzerland, which has put CHF 10 billion (approximately USD 11 billion) in India, creating 146,530 jobs in precision industries, chemicals, and pharmaceuticals, can logically escalate capital commitments knowing the host government is legally obliged to facilitate investment.

Credibility of such commitment is enhanced by sectoral targeting. TEPA identifies renewable energy, life sciences, engineering, and digital transformation as the priority areas, creating measurable accountability metrics. Production-Linked Incentive schemes, state land allocation, enforcing the renewable energy purchase obligation, and grid connectivity protocols have an advantage in renewable energy investment. The investment in life sciences provides regulatory clarity on the timeline of pharmaceutical manufacturing, medical device approval, and protection of intellectual property. This specificity allows governments to align infrastructure and regulatory coverage with treaty obligations to establish institutional interconnections between commitment structures and actual facilitation results.

Institutional Mechanisms and Preventive Dispute Architecture: The India-EFTA Desk Model

The Desk Model, a single-window institution that aims to avert the occurrence of investment disputes with an initial institutional intervention for dispute prevention in the investment process. This institutional framework works in three sequential phases. Before the commitment of capital, pre-investment guidance offers all-inclusive sectoral information, regulatory mapping, clarification on the treatment of various taxes, and guidelines for the processes for EFTA investors. This minimises information asymmetries, which creates ex-post conflict. Shareholders will become aware that regulatory demands, approval processes, and policy pledges are met with less regulatory shock. The guidance covers requirements of the renewable energy sector (renewable energy certificate trading, compliance with the renewable purchase obligation, grid interconnection procedures), life sciences (regulatory pathways to approvals by the Drug Controller General, medical devices classification, biotech approvals), and the engineering sector (industrial licensing, foreign direct investment limits).

Implementation support (between the Indian government agencies and investors) provides institutional resolution for operational bottlenecks to replace the informal diplomacy or investor-state arbitration historically used by investors facing regulatory hurdles. The Desk coordinates across government structures to bypass conflict before formal claims arise, while escalation procedures address unresolved issues. Matters escalate within 30 days to senior government authorities (Joint Secretaries of the Department for Promotion of Industry and Internal Trade and sectoral representatives) to establish clear political accountability for resolution.

Processing efficiency improvements prove to be an effective design of the institution. Under pre-TEPA, foreign investors faced multiple governmental agencies with procedural hurdles, where the clearance process took 120-180 days. The Desk reduced straightforward clearance timelines to 45-60 days for investments made in prescribed sectors, which was previously a complex procedure. This reduction reflects a decrease in regulatory uncertainty and an increase in the velocity of the capital deployment cycles.

Dispute Resolution Frameworks and Operational Performance: G2G Mechanisms Replacing ISDS

TEPA grants G2G consultations by use of Joint Committee structures over investment arbitration as the main method of dispute settlement. This prima facie realigns the dispute resolution away from adjudication and toward diplomatic negotiation.

G2G strategies maintain diplomatic channels essential for long-term bilateral relationships. Investment arbitration entrenches the legal positions, making it complex in law to strike a compromise in adversarial processes. The awards of arbitrations are conclusive. Face-saving diplomatic mechanisms that are not possible under litigation are made possible in G2G consultations. The home state governments acting on behalf of investors are able to seek solutions that not only include policy changes but also the gradual implementation of a sectoral reform that goes beyond the idea of monetary compensation. This framework also addresses the fundamental asymmetry of ISDS by establishing mutual responsibility (G2G consultations), where India can raise investor breaches of environmental or labour rules directly with home states. This two-way structure transforms inherently adversarial investor-versus-state relationships to cooperative government-to-government problem-solving.

The preliminary evidence of institutional efficiency is the working performance of TEPA between 1 October  2025 (the date of entry into force of TEPA) and 31 December 2025. The total investment interest announcement by EFTA entities has shown significant growth, with the top companies being renewable energy (Norwegian investors in solar and wind manufacturing) and life sciences (Swiss pharmaceutical and biotech investors in manufacturing). The rapid capital-growth signals investor confidence despite TEPA’s departure from traditional ISDS protections. The number of disputes has been low for the two months of operation. Regulatory controversies in 18-24 months were experienced in historical Indian investment agreements. The fact that TEPA has no formal disputes implies that preventative institutional architecture is functioning. The interest of other emerging markets in the policy indicates that the TEPA model is known. Discussions on the bilateral negotiation involving similar mechanisms of facilitation were initiated in Brazil, Mexico, Vietnam, and the UAE.

Comparative Analysis and Implications for BIT Architecture

TEPA exhibits three differentiated benefits over conventional ISDS-based models. First, binding government commitments establish accountability, which otherwise is not measurable in the traditional arbitration approach, where the host countries are liable, but the investors have no reciprocal liabilities to infringements on the regulations or deterioration of the environment. Second, the institutional mechanisms of facilitation have the proactive prevention of conflict by the time formal processes start, saving over USD 5-7 million per side in litigation expenses, and the relationships between the two institutions that should be vital in long-term capital collaboration. Third, the G2G consultation processes maintain diplomatic flexibility, which allows resolving issues that cut across legal determination that can only occur in the context of arbitration. These benefits work together and support each other mutually.

The architecture of TEPA implies viable lessons to the emerging market governments that are formulating bilateral investment structures. First, facilitation mechanisms should be institutionalised by having specific structures that have clear commitments on response time and have performance accountability. Ad hoc coordination forms uneven results and uncertainty for investors. Secondly, investment undertakings must be commitments that are binding and gradual, that establish government accountability, and allow gradualism. Sector-based commitments allow resources to be allocated to impactful sectors. Third, the prevention of disputes must be designed before the dispute resolution. The access to arbitration should be preceded by actual institutional problem-solving efforts. Fourth, ISDS needs to be accompanied by a counterparty government accountability via G2G mechanisms that will help in countering the asymmetry inherent in investor protection without compromising investor confidence.

Conclusion

TEPA addresses fundamental conflicts of emerging market investment structures. The agreement will enable India to escape the ISDS 2015 liability trap, balancing defensive provisions with a pro-investor focus. The Desk mitigates the issue of regulation uncertainty by coordinating with institutions. Commitments come in the form of binding links, and government credibility goes up. G2G dispute resolution still maintains diplomatic ties and makes sure that the interests of investors are given attention at the highest level of the government. Facilitation mechanisms are options viable to the developing countries that need to reconcile between investor protection and sovereign regulatory autonomy, where the traditional methods rely on the ISDS. The replicability of TEPA to continuous bilateral negotiations may indicate a paradigmatic change of international investment treaty frameworks on the aspects of facilitation as a central manner of heterogeneous approaches to integration of binding commitments, institutional mechanisms, and diplomatic resolutions of disputes.