Prior to the establishment of the World Trade Organisation (WTO) and the General Agreement on Tariffs and Trade (GATT), tariffs routinely functioned as deliberate instruments of industrial policy. By raising the cost of imports, States sought to channel foreign economic activity inland, effectively leaving exporters wishing to preserve market access with little alternative but to invest locally. This reflected a clear causal relationship: the higher the “tariff wall”, the stronger the incentive to establish production facilities behind it – a phenomenon later described as “tariff-jumping” investment. The successive negotiating rounds of the GATT progressively dismantled this dynamic, as tariffs were bound and reduced. Predictable, reciprocal trade liberalisation under the WTO constrained unilateral protectionist measures and reshaped firm incentives, diminishing the traditional tariff‑jumping rationale for investment in favour of participation in globally fragmented value chains. For a time, these binding tariff reductions appeared to promise tariffs’ durable de-politicisation.

Yet while WTO disciplines curtailed unilateral tariff autonomy, they did not govern where and on what terms investment would take place. As global value chains deepened, investment emerged as a decisive variable in industrial development, technological upgrading, and economic resilience. Foreign direct investment became a structural component of global production networks, embedding firms across jurisdictions and rendering capital allocation central to competitive participation in international markets.

States now compete for investment for distinct but converging reasons: developing economies seek capital, technology, and employment to accelerate structural transformation, while advanced economies seek to secure critical supply chains, preserve industrial capacity, and mitigate strategic dependency. In this setting, tariffs have re-emerged – not only primarily as instruments of protection, but as potential levers for influencing the geographic allocation of capital.

Investment commitments in contemporary trade agreements

Unlike their historical function, contemporary tariffs are no longer primarily deployed to indirectly induce firms to relocate production through market pressure alone. Under the classic tariff-jumping logic, high tariffs altered relative prices and left businesses to decide autonomously whether establishing production behind the tariff wall was commercially rational, without any formal obligation to invest. In contrast, contemporary tariffs are increasingly mobilised as explicit leverage in international negotiations, often linked to conditional market access, in order to secure investment commitments and related contributions to domestic industrial objectives.

A prominent illustration is the Trade and Economic Partnership Agreement (TEPA) between India and the European Free Trade Association (EFTA), comprising Switzerland, Norway, Iceland, and Liechtenstein, which was concluded in 2024 and entered into force in October 2025. While the TEPA resembles a conventional trade agreement in many respects, it notably departs in one: it contains a comprehensive outbound investment commitment on the part of the EFTA States. Under Article 7.1(3), the EFTA States collectively commit to mobilising USD 100 billion in foreign direct investment into India over fifteen years, with USD 50 billion envisaged within the first decade, alongside the facilitation of one million jobs. Compliance with these commitments is monitored through a dedicated Investment Sub-Committee (Article 7.7(2)), while a rebalancing mechanism permits India to adopt temporary remedial measures, including the suspension of tariff concessions, if the anticipated investments fail to materialise (Article 7.8). What distinguishes the TEPA is not merely the scale of the committed capital, but the explicit conditioning of market access on investment performance. Tariff reductions covering approximately 82.7% of product categories and affording preferential access for nearly 95% of existing EFTA exports, are thus directly linked to the fulfilment of the investment commitments. In that sense, trade liberalisation operates not as an unconditional exchange of concessions, but as a contingent instrument designed to induce capital inflows on agreed terms.

A similar logic underpins several “deals” concluded during the United States’ recent trade confrontations. For example, the US-EU Framework Agreement on Reciprocal, Fair, and Balanced Trade, concluded in July 2025, followed threats to impose tariffs of up to 30% on EU exports. The parties ultimately agreed on a uniform 15% tariff ceiling on most EU goods, in exchange for extensive EU commitments  in the form of substantial investment pledges amounting to USD 600 billion across strategic sectors. Comparable arrangements were reached with other trading partners, including Japan (USD 550 billion), Korea (USD 350 billion), Switzerland (USD 200 billion), and Taiwan (USD 500 billion), alongside looser investment-facilitation commitments from the United Kingdom and El Salvador.

These agreements illustrate the renewed political appetite for conditioning market access on investment outcomes. However, they also expose a structural weakness: how can investment commitments undertaken by States be translated into binding obligations for private businesses?

From political promises to legally binding obligations

As a matter of law, “State‑to‑State” commitments cannot on their own, absent domestic implementation or a direct stake from the State, mandate private corporations to invest abroad. Governments may encourage, incentivise, or facilitate investment, but they cannot compel a particular business to invest solely by virtue of an international agreement. Investment obligations in trade agreements therefore tend to remain programmatic, relying on aggregate targets, best‑efforts clauses, and political monitoring rather than enforceable duties owed by firms, as illustrated by the collective investment commitments and Investment Sub-Committee oversight provided for in Articles 7.1(3) and 7.7(2) of the TEPA. This limitation is compounded by persistent difficulties of measurement. What qualifies as “investment”? Should existing capital stock be included, or only new expenditures? How should reinvested profits, intra‑company loans, or acquisitions be treated, and over what temporal horizon? Where commitments are framed at the aggregate level, the primary remedy for non‑compliance typically takes the form of inter‑State re-balancing, such as the suspension of tariff concessions reflected in Article 7.8 of the TEPA, rather than punitive measures directed at individual businesses. The result is a largely political enforcement architecture that generates uncertainty for businesses without creating binding legal obligations.

It is against this backdrop that the European Union’s (EU) emerging approach appears distinctive. Following the imposition of countervailing duties ranging from 7.8% to 35.5% on imports of battery electric vehicles (BEVs) from China, including on Volkswagen Anhui and SEAT as importer of the Cupra Tavascan, the European Commission has simultaneously articulated a structured, arguably WTO-compatible alternative: the acceptance of price undertakings including investment commitments in lieu of trade remedy duties.

A price undertaking refers to a voluntary commitment by exporting producers to export their product to the EU at or above a specified minimum price that is deemed sufficient to eliminate the injurious effect of dumping or subsidisation on the Union industry. Such undertakings are expressly contemplated under Article 8 of the WTO Anti-Dumping Agreement and Article 18 of the WTO Agreement on Subsidies and Countervailing Measures. Upon acceptance of such a commitment, the relevant authorities may suspend or terminate anti-dumping or countervailing investigations without imposing duties. In this way, a price undertaking replaces the duties with a proportionate, price-based remedy that is designed to offset the injury rather than to restrict import quantities or impose additional measures in excess of those agreed under the WTO agreements. For that reason, the mechanism can be understood as operating within the remedial architecture of WTO law, in particular as consistent with Article VI of the GATT.

In its January 2026 guidance on price-undertaking offers, the European Commission clarified that Chinese BEV producers may, individually or jointly, avoid countervailing duties by submitting undertakings that address appropriate minimum import prices, sales channels, and cross-compensation risks, alongside “any commitment to invest in the BEV-related industries within the EU”. This guidance has already been reflected in the price-undertaking offer by Volkswagen Anuhi and SEAT in the partial interim review of the countervailing duties on BEVs from China that was initiated in December 2025, under which tariff relief for the Cupra Tavascan is conditioned not solely on an annual import quota and a minimum price mechanism, but also on investment commitments in BEV-related projects within the EU. The inclusion of a binding annual import quota within such an undertaking may nonetheless warrant consideration under the WTO Agreement on Safeguards.

While price undertakings are a recognised feature of EU trade remedy law, they have historically been institutionally disfavoured, rare, and narrowly framed because of the difficulties in monitoring them. The Commission’s acceptance of Volkswagen’s price undertaking, coupled with its readiness to integrate investment-related commitments into this instrument, represents a notable procedural evolution. It also resonates with the diagnoses advanced in Mario Draghi’s Report on European Competitiveness and Enrico Letta’s Report on the Future of the Single Market, both of which emphasise that Europe’s long-term competitiveness depends on strengthening its internal market and investment environment in the face of competition from the United States and China.

Viewed in this light, the European Commission’s approach appears to anchor industrial policy ambitions within the confines of existing EU trade and WTO laws, rather than through ad hoc political bargaining – rendering these “State-to-business” commitments legally binding and directly enforceable. Enforceability thereby follows from the fact that non-compliance with the investment commitment would result in the immediate withdrawal of the undertaking and the re-instatement of duties, in addition to which the obligation operates directly between the European Commission and the investing firm, rather than being mediated through the firm’s home State.

Concluding remarks

The emergence of investment management through trade invites comparison with an earlier period in the evolution of the multilateral trading system. During the 1980s, mounting trade frictions, particularly in sectors such as steel and automobiles, gave rise to forms of “managed trade” centred on voluntary export restraints and other negotiated limits on market access. These arrangements, while often presented as pragmatic solutions to political pressure, ultimately proved corrosive to the rules‑based trading system. Their legacy is reflected in Article 11.1(b) of the Agreement on Safeguards, which expressly prohibits voluntary export restraints and similar measures, seeking to foreclose bilateral bargaining over market access in favour of transparent, multilateral disciplines.

The contemporary shift from “managed trade” to what may be described as “managed investment through trade” therefore bears structural similarities. Tariffs and tariff threats are again deployed as negotiating leverage, this time not to discipline export volumes, but to steer the geographic allocation of capital. Since managed trade tended to privilege large, developed importing markets with sufficient economic leverage, managed investment is likely to favour jurisdictions with sizeable consumer bases. As a consequence, smaller, developing economies that lack comparable bargaining power may find themselves structurally disadvantaged and exposed to the re-direction of investment flows towards States with larger consumer markets. Over time, this dynamic is prone to exacerbate the already existing asymmetries within the global economic order.

The current turn towards managed investment thus marks not merely a technical evolution in trade laws, but a renewed test of the extent to which industrial policy can be reconciled with the architecture of the multilateral trading system.

Image credit: Tom Page