- Trade topics
There are two main types of foreign investment:
- foreign direct investment (FDI) – where an investor sets up or buys a company (or a controlling share in a company) in another country, and;
- portfolio investment – where an investor buys shares in, or debt of, a foreign company without controlling that company.
The EU is the world’s main provider and the top global destination of foreign investment. Foreign direct investment stocks held in the rest of the world by investors resident in the EU amounted to €8,990 billion at the end of 2019. Meanwhile, foreign direct investment stocks held by third country investors in the EU amounted to €7,138 billion at the end of 2019.
By contributing to economic growth, job creation and integration in global value chains, foreign investment tends to benefit host countries as well as home countries. Through domestic policies and international agreements, most countries seek to improve conditions to attract investors. Recent findings also highlight the importance of helping investors retain and expand their existing investments.
Objectives of EU investment policy
The EU is one of the most open places to invest in the world. Since 2009 the EU handles foreign direct investment policies on behalf of EU members, as part of the EU common commercial policy. EU investment policy aims to:
- secure a level playing field so that EU investors abroad are not discriminated or mistreated;
- make it easier to invest by creating a predictable and transparent business environment;
- encourage investment that supports sustainable development, respect for human rights and high labour and environmental standards - this includes promoting corporate social responsibility and responsible business practices;
- attract international investment into the EU, while protecting the EU’s essential interests, and;
- preserve the right of home and host countries to regulate their economies in the public interest.
EU investment negotiations
The EU is negotiating or implementing investment rules in trade agreements or in self-standing investment agreements. These investment rules cover:
- allowing the setting up of enterprises by making sure investors can access the market and do not face discrimination between EU and non-EU investors;
- creating a favourable regulatory framework, both when the investor enters the market and when the investor does economic activities in the country, and;
- protecting established investments/investors through commitments to non-discrimination, fair treatment for investors or guarantees of compensation in case of expropriation.
The EU also participates in negotiations to modernise the Energy Charter Treaty (ECT).
The EU’s objective is to ensure that the ECT reflects modern investment standards, such as the ones pursued through the EU’s reformed approach on investment protection, provides stronger provisions on sustainable development, and contributes to the promotion of human rights and international labour standards.
Through investment facilitation, the EU seeks to encourage the setting up of a more transparent, efficient and predictable business climate for investors. This includes, for instance, making information on investment rules public and easily available, or reducing delays in obtaining government permits and approvals.
Investment facilitation contributes to unlocking investment opportunities notably for small and medium enterprises. This should also benefit developing countries by making it easier for domestic and foreign investors to invest, conduct their day-to-day business, and expand their existing investments.
In the WTO, the EU is contributing to the discussions on investment facilitation.
In its recent Trade Policy Review, the European Commission announced its intention to pursue sustainable investment agreements with Africa and the Southern Neighbourhood, focusing on investment facilitation. The roll-out of this initiative started with the launch of negotiations with Angola, and the EPA deepening negotiation with five countries of Eastern and Southern Africa.
A study is being undertaken to support those negotiations and identify the needs of African countries with regard to investment facilitation.
EU reforms on investment dispute resolution
The EU agreed in November 2015 on a reformed investment dispute settlement approach to stay up-to-date with the highest standards of legitimacy and transparency. This introduced clearer and more precise rules on investment protection by creating a permanent dispute settlement mechanism called the Investment Court System.
This system makes sure that everyone follows the same investment protection rules, and seeks to strike a balance between protecting investors in a transparent manner and safeguarding a state’s right to regulate to pursue public policy objectives.
The European Commission promotes further reform of dispute settlement and is leading efforts with trade partners to set up a multilateral investment court to rule on investment disputes.
Screening framework for foreign direct investment
On 19 March 2019, the EU adopted a regulation to create a system to cooperate and exchange information on investments from non-EU countries that may affect security or public order. The regulation makes sure that the EU is better equipped to protect its interests, while remaining among the world’s most open investment areas.
Investment agreements between EU Member States and non-EU countries
The EU adopted in 2012 a regulation establishing transitional arrangements for bilateral investment agreements between individual EU Member States and non-EU countries, to make sure that those agreements do not conflict with the EU competences and are consistent with the EU’s investment policy. On 6 April 2020, the Commission submitted a report on the application of the regulation.
The regulation allows EU Member States to maintain bilateral investment agreements signed before the entry into force of the Lisbon Treaty, and sets the conditions for EU Member States to modify those agreements, and to negotiate or conclude new ones. Those conditions are:
- that the agreement is not in conflict with EU law;
- that the agreement is consistent with the EU’s principles and objectives for external action;
- that the Commission did not submit (or decide to submit) a recommendation to open EU-wide negotiations with the same third country, and;
- that the agreement does not create a serious obstacle to the EU negotiating or concluding bilateral investment agreements with non-EU countries.
Drawing on the EU's approach to investment protection agreements – and on Member States' best practices – the Commssion has developed Model Clauses to guide Member States in their negotiation (or re-negotiation) of bilateral investment agreements.
From March 2020, the Commission publishes its implementing decisions on authorisations granted to individual EU members for bilateral investment agreements.
EU participation in international fora
The EU participates in international institutions and organisations where rules on international investment are discussed:
- Organisation for Economic Cooperation and Development (OECD): Investment Committee
- United Nations Conference on Trade and Development (UNCTAD): World Investment Forum
- World Trade Organization (WTO): Committee on Trade-Related Investment Measures (TRIMs), Structured discussions on investment facilitation for development
- United Nations Commission on International Trade Law (UNCITRAL): Working Group III on Investor-State Dispute Settlement Reform
- International Centre for Settlement of Investment Disputes (ICSID)
- Energy Charter