EU’s Ursula von der Leyen wants to seal investment agreement with India, calls it ‘missing puzzle’

Following the conclusion of the landmark India-EU Free Trade Agreement in January 2026, the European Commission President called for swift finalisation of a ...

What Happened

Following the conclusion of the landmark India-EU Free Trade Agreement in January 2026, the European Commission President called for swift finalisation of a separate India-EU Investment Protection Agreement, describing it as the "missing puzzle" in bilateral economic cooperation.
The Investment Protection Agreement had been negotiated on a parallel track alongside the FTA but could not be concluded due to unresolved differences — chiefly around the dispute resolution mechanism (ISDS vs. state-to-state or Investment Court System).
The EU is pressing for an Investment Court System (ICS) as a modernised replacement for traditional Investor-State Dispute Settlement (ISDS); India has historically resisted binding investor-state arbitration.
The EU-India FTA, concluded on January 27, 2026, is described as one of the most comprehensive bilateral trade agreements ever signed — nearly two decades in the making, with negotiations starting in 2007, stalling, and relaunching in 2022.

Static Topic Bridges

India-EU Free Trade Agreement (2026)

The India-EU FTA, concluded in January 2026, represents the culmination of nearly 20 years of on-and-off negotiations. It is the most expansive trade deal either party has concluded.

Negotiations started: 2007; stalled: 2013; relaunched: 2022.
Concluded: January 27, 2026.
EU will liberalise 99.5% of tariff lines on goods imported from India.
India will eliminate or reduce duties on 96.6% of EU goods exports over seven years.
The EU is India's largest trading partner bloc; India-EU bilateral trade in goods was approximately €120 billion in 2023.
The agreement also covers services, intellectual property, sustainable development, and government procurement.
Three separate parallel negotiations: Free Trade Agreement, Investment Protection Agreement (IPA), and Geographical Indications (GI) Agreement.

Connection to this news: The FTA's conclusion without the IPA means the trade relationship lacks binding investor protection — creating uncertainty for long-term capital flows between EU member states and India, particularly in infrastructure and manufacturing.

Investor-State Dispute Settlement (ISDS) and India's Position

Investor-State Dispute Settlement (ISDS) is a mechanism in international investment agreements that allows foreign investors to directly sue sovereign governments in international arbitration tribunals if they believe government actions have violated their treaty rights. India has had a historically adversarial relationship with ISDS.

India faced over 20 ISDS claims between 2011 and 2020, many arising from retrospective tax disputes (e.g., Vodafone, Cairn Energy cases) — resulting in adverse awards and reputational concerns.
India terminated over 58 Bilateral Investment Treaties (BITs) between 2016 and 2018 following adverse ISDS rulings.
India's Model BIT (2016) — revised framework — significantly narrows ISDS scope: requires exhaustion of domestic remedies for at least 5 years before international arbitration, excludes tax and IP from ISDS, and limits claims to direct expropriation only.
India-EFTA TEPA (2024–25) deliberately excluded ISDS provisions, reflecting India's stance.
The EU has moved away from traditional ISDS toward the Investment Court System (ICS) — a permanent, appellate-structured tribunal that the EU considers more transparent and less prone to interpretive inconsistency.

Connection to this news: The impasse over dispute resolution reflects a genuine structural divergence: the EU wants binding investor protection with an ICS, while India is reluctant to accept any mechanism that bypasses domestic courts or exposes policy decisions to international arbitral review.

EU-India Strategic Partnership and Economic Diplomacy

India and the EU established a Strategic Partnership in 2004. The relationship has since expanded across trade, investment, climate, digital, and security dimensions. The FTA's conclusion marks a strategic inflection driven partly by geopolitical realignment — both parties seeking to reduce dependencies on other economic actors.

India-EU Strategic Partnership: established 2004.
EU is a 27-member economic bloc with a GDP of approximately €17 trillion (2024); the world's largest single market.
India-EU bilateral trade in goods: ~€120 billion (2023); services trade adds significantly more.
India-EU Connectivity Partnership (2021): focuses on sustainable connectivity in transport, digital, and energy.
Geopolitical context driving the FTA: supply chain diversification post-COVID, reducing dependencies, and aligning with likeminded democracies in the context of global trade fragmentation.
The EU's trade relationship with India is underpinned by the "Open Strategic Autonomy" doctrine — balancing openness with strategic resilience.

Connection to this news: The Investment Agreement's finalisation would complete the EU-India economic architecture and give European firms the legal certainty to commit large-scale, long-term capital to India — particularly in sectors like green infrastructure, digital, and manufacturing under the EU's de-risking strategy.

Investment Court System (ICS) vs. Traditional ISDS

The Investment Court System is the EU's proposed alternative to traditional ISDS in investment treaties. It introduces a standing, permanent tribunal with an appellate mechanism — unlike ad hoc arbitration panels under traditional ISDS.

ICS features: Permanent judges (appointed by treaty parties), an Appellate Tribunal, public hearings, and binding interpretations by treaty parties.
Adopted by EU in FTAs with Canada (CETA, 2016), Vietnam (2020), Singapore (2019), and Mexico (2020 update).
India's concern: Even ICS involves binding international adjudication over domestic policy actions; India prefers state-to-state dispute resolution where no direct investor claim is possible.
UNCITRAL (UN Commission on International Trade Law) is developing a multilateral investment court (MIC) at the UN level; both India and the EU have engaged with these discussions.

Connection to this news: The question of whether the India-EU IPA will adopt ICS, a modified state-to-state mechanism, or an entirely new model is the central unresolved issue — and will set a precedent for India's future investment treaty architecture.

Key Facts & Data

India-EU FTA concluded: January 27, 2026 (negotiations started 2007; relaunched 2022).
EU tariff liberalisation: 99.5% of tariff lines on Indian goods.
India tariff reduction: 96.6% of EU goods exports (over 7 years).
India-EU bilateral goods trade: ~€120 billion (2023).
India terminated ~58 BITs between 2016 and 2018 following adverse ISDS rulings.
India's Model BIT (2016): requires 5-year exhaustion of domestic remedies before international arbitration.
India-EFTA TEPA (entered into force October 1, 2025) has no ISDS mechanism.
EU Investment Court System (ICS) adopted in CETA (2016) and other EU FTAs.
India-EU Strategic Partnership: established 2004.
Three parallel negotiation tracks: FTA (concluded), Investment Protection Agreement (pending), Geographical Indications Agreement.