Francesco Seatzu (Università degli Studi di Cagliari)

On 27 January 2026 the European Union and India announced the political conclusion of negotiations on a free trade agreement (FTA), meaning that the parties have agreed the substance of the text, which must still undergo legal scrubbing before signature and ratification. Separate agreements on investment protection and on geographical indications are still under negotiation. The FTA eliminates all or nearly all tariffs on a wide range of industrial goods, phases down India’s 110 per cent tariff on EU motor vehicles towards 10 per cent, and opens substantial parts of the services market. This post looks at the legal technique used to deliver these commitments, and specifically at three decisions. First, the package was split along competence lines instead of being concluded as a single mixed agreement (one to which the Union and its Member States are both parties). Second, investment protection, including investor-State dispute settlement (ISDS), through which investors bring claims against the host State before an international tribunal, was left to a separate and far less advanced instrument. Third, the Union kept its autonomous trade-related measures, which it adopts unilaterally, out of the negotiated text; the most important are the Carbon Border Adjustment Mechanism (CBAM) and the Corporate Sustainability Due Diligence Directive (CSDDD). The first two decisions can be traced to the Court of Justice’s case law on external competence (Sections 1 to 3). The third reflects the Union’s position that its own legislation is not open to negotiation (Sections 4 and 5). Each has implications for EU trade agreements beyond the one with India.

1. Splitting the mandate: the shadow of Opinion 2/15

The practice of negotiating a stand-alone FTA alongside a separate investment protection agreement dates from Opinion 2/15 of 16 May 2017. In that Opinion the Full Court held that the EU-Singapore FTA fell within the Union’s exclusive competence, mainly under Article 3(1)(e) and Article 207(1) TFEU, and for transport services under Article 3(2) TFEU. Two matters were excluded: portfolio investment, which gives the investor no control over the company and therefore falls outside the reference to ‘foreign direct investment’ in Article 207(1) TFEU, and ISDS. The Court treated both as shared competence (Segura-Serrano, p. 829). As regards ISDS, it held that a mechanism which removes disputes from the jurisdiction of national courts is not ancillary to the common commercial policy, since it changes the judicial architecture of the Member States, and that such a mechanism cannot be established without their consent (para. 292). Agreements covering these matters are accordingly concluded by the Member States as well as by the Union, each in accordance with its own ratification procedure.

The EU-India package follows this model: a trade agreement that the Union can conclude on its own, and a separate instrument containing the elements of shared competence. The difference in procedure is considerable. The FTA, which is confined to matters covered by Article 207 TFEU, can be signed and provisionally applied on the basis of a Council decision under Article 218(5) TFEU and concluded under Article 218(6) and (8) TFEU once the European Parliament has consented and the Council has decided by qualified majority. The investment protection agreement (IPA), to the extent that it covers portfolio investment and ISDS, will in principle have to be ratified by every Member State in accordance with its constitutional requirements. The experience of CETA (the Comprehensive Economic and Trade Agreement between the EU and Canada) illustrates the effect. The parts within EU competence have been provisionally applied since 21 September 2017, less than a year after signature; the investment protection provisions are still awaiting ratification by all Member States. The Union adopted the same approach for Mercosur, dividing the agreement into a mixed partnership agreement and an EU-only interim trade agreement, which has been provisionally applied since 1 May 2026. The European Parliament has since asked the Court, under Article 218(11) TFEU, to rule on whether that division is lawful.

2. Consequences for treaty interpretation

Opinion 2/15 was concerned only with the division of competence and said nothing about how the two treaties resulting from it should be read together. In the EU-India package, tariff liberalisation, rules of origin, the disciplines on technical barriers to trade and on sanitary and phytosanitary measures (TBT and SPS) and the trade and sustainable development (TSD) chapter are contained in one instrument, concluded and provisionally applied on one timetable. Investment protection is contained in another, negotiated in parallel, which will be ratified later, if at all. Article 31(1) of the Vienna Convention on the Law of Treaties (VCLT) requires a treaty to be interpreted in the light of its object and purpose. Where the concessions exchanged in a single negotiation are divided between two treaties, each reflects only part of the bargain, and its object and purpose is correspondingly harder to establish. A panel established under the FTA’s dispute settlement chapter may therefore have to decide whether the FTA can be interpreted without reference to a companion treaty that formed part of the same exchange of concessions but may enter into force late or not at all.

The point has practical significance for FTA provisions that bear on investment, such as national treatment commitments in services and the establishment disciplines limiting the performance requirements (conditions, such as local-content quotas, that a host State attaches to foreign investment) that each party may impose on the other’s investors. These provisions may need to be read in the light of an investment protection standard, and a remedy, that does not yet exist or that will be negotiated after the FTA text was settled. That task will fall to the first panel or committee required to apply them before the IPA enters into force.

3. Investment protection: Achmea, Opinion 1/17, and the choice of design

By deferring investment protection, the parties also postpone a choice of design that the Court has already narrowed in two rulings, a judgment and an Opinion, which arose in different contexts. Achmea (C-284/16) concerned an intra-EU agreement, the bilateral investment treaty (BIT) between the Netherlands and Slovakia. The Court held that its arbitration clause was incompatible with Articles 267 and 344 TFEU, because it removed from the EU judicial system disputes that might call for the interpretation or application of EU law, and it grounded that conclusion in the mutual trust between Member States. In Opinion 1/17 the Court upheld the Investment Court System (ICS) established by CETA, a standing tribunal with an appellate tier that replaces the ad hoc arbitration of earlier investment treaties. The CETA tribunal applies CETA in accordance with international law and may take account of EU law only as a matter of fact. The Court also observed that the principle of mutual trust on which Achmea relied has no counterpart in an agreement between the Union and a third State (Croisant).

The EU-India IPA will have to remain within the limits set by these two rulings, which still leave several designs available. India’s own treaty practice has moved away from conventional investor-State arbitration. Its 2015 Model BIT imposes demanding conditions on investor claims, and in 2016 and 2017 India terminated most of its BITs, among them those with 22 EU Member States. The India-EFTA Trade and Economic Partnership Agreement, in force since 1 October 2025, contains neither investment protection nor ISDS. Its investment chapter deals only with promotion and facilitation, is excluded from State-to-State dispute settlement, and provides for consultations and an administrative desk to deal with investors’ concerns. The EU-India IPA might follow that model, provide for an ICS-type permanent tribunal of the kind approved in Opinion 1/17, or rely on State-to-State arbitration. Until it is concluded and ratified, EU investors will have no investor-State remedy against India under any treaty, except in respect of earlier investments that remain protected by the sunset clauses of the terminated BITs. The India-UK Comprehensive Economic and Trade Agreement gives rise to a very similar problem of sequencing (Nilopher).

4. CBAM: an autonomous measure and unaddressed WTO exposure

CBAM is the most significant of these autonomous measures. It entered its definitive, chargeable phase on 1 January 2026, a few weeks before the political conclusion of negotiations, and the FTA gives India no exemption, quota or preferential adjustment under it. The €500 million package for the decarbonisation of Indian industry, announced at the same time, is a cooperation measure and does not affect how CBAM applies. The Union appears to regard CBAM as an exercise of its internal environmental competence (Regulation 2023/956 is based solely on Article 192(1) TFEU) and therefore as falling outside what can be negotiated in a trade agreement under Article 207 TFEU. Any accommodation for India will come through technical dialogue and financial cooperation.

It remains open, therefore, whether CBAM is compatible with the non-discrimination obligations in Articles I:1, III:2 and III:4 GATT 1994 and, if it is not, whether it can be justified under the general exceptions in Article XX(b) GATT (protection of human, animal or plant life or health) or Article XX(g) GATT (conservation of exhaustible natural resources) (de Stefano, p. 267). India has raised objections to CBAM in several WTO bodies, and the FTA does not address them. The environmental and market-access commitments in the FTA must be read alongside a measure that the agreement neither regulates nor overrides. Any challenge to CBAM’s compatibility with WTO law would be brought in the WTO, wholly outside the FTA’s procedures.

5. The TSD chapter and the CSDDD: two regimes, two enforcement logics

The TSD chapter follows the cooperative model used in EU agreements before the Commission’s 2022 review of TSD enforcement. It refers to the Paris Agreement and the core ILO conventions, includes a non-regression clause (a commitment not to lower labour or environmental standards in order to attract trade or investment), and leaves disputes to consultations, the parties’ joint bodies and, as a last step, a panel of experts, outside the FTA’s general State-to-State dispute settlement (Borderlex). The sanctions-based enforcement adopted after the 2022 review in the EU-New Zealand FTA was widely regarded as unacceptable to India. The 2021 panel report under the EU-Korea FTA indicates what the cooperative model can achieve. The panel held, for the first time, that at least some TSD commitments are legally binding and may be the subject of panel proceedings, and it found that Korea had breached them. The report does not, however, have the binding force of a ruling under the general dispute settlement mechanism; it provides for no trade sanctions, and its effect depends on how the parties respond to it (Novitz). The effectiveness of the EU-India chapter will depend largely on its implementation.

Indian exporters that supply EU companies will also be affected by the CSDDD (Directive (EU) 2024/1760), which requires in-scope EU companies to identify, prevent and address adverse human rights and environmental impacts in their own operations and in their ‘chain of activities’. The Omnibus I Directive (EU) 2026/470 has considerably narrowed the CSDDD: it will apply from 26 July 2029, only to very large companies, and without the harmonised civil liability regime in the original Article 29, so that liability is now largely a matter for national law. Its obligations will nevertheless reach Indian suppliers through their contracts with EU customers, irrespective of the content of the FTA’s TSD chapter. Labour and environmental standards in cross-border supply chains are thus governed by two unconnected regimes: the TSD chapter, negotiated and in principle supervised by the FTA’s joint bodies, and the CSDDD, adopted unilaterally, enforced privately through contracts, and beyond the reach of the FTA’s institutions.

6. Concluding observations

Taken together, the split of the package along competence lines, the postponement of investment protection and the exclusion of CBAM and the CSDDD amount to a constitutional technique that is now well established in EU external trade law. The technique is constitutional in that it is determined by the allocation of powers under the Treaties, both between the Union and the Member States, as interpreted by the Court in Opinions 2/15 and 1/17, and between the Union’s trade competence and the internal legislative competences on which CBAM and the CSDDD are based. It can therefore be expected to recur in agreements with other partners. It enables the Union to sign and provisionally apply the commercially important core of an agreement quickly, on the basis of exclusive competence and without waiting for national ratifications. The matters in which commitments to a third State would most restrict the Union’s own legislative choices, namely investment protection, carbon border adjustment and human rights due diligence, are either left to a later instrument or kept out of the negotiation.

Whether this reflects caution in the face of the Court’s case law on competence or a deliberate decision to separate politically achievable liberalisation from more contentious distributive issues, its consequences are already apparent: an uncertain relationship between the FTA and an IPA that has yet to be concluded, an unresolved question about the GATT compatibility of CBAM as applied to Indian exports, and a negotiated TSD chapter operating alongside a due diligence regime that the Union legislated on its own. These questions are likely to occupy those applying the EU-India agreements for some years.