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Businesses or individuals invest in another country to either source components/raw materials, to locate their production in cost-efficient or skills-abundant locations, or to get closer to their customers.

Trade topics
  • Investment

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. Existing foreign direct investment stocks held in the rest of the world by investors resident in the EU (outbound investments) amounted to €9,382 billion at the end of 2022. Meanwhile, foreign direct investment stocks held by third country investors in the EU amounted to €7,715 billion at the end of 2022.

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. Findings by the World Bank 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.

Investment facilitation

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 Trade Policy Review, the European Commission announced its intention to pursue sustainable investment agreements with Africa and the Southern Neighbourhood, focusing on investment facilitation. This initiative is being developed in negotiations for a Sustainable Investment Facilitation Agreement with Angola, and the EPA deepening negotiations with five countries of Eastern and Southern Africa.

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.

Monitoring and assessment of risks from outbound investments

Concern is growing regarding foreign direct investments from the EU into third countries (outbound investments). Some investments in a narrow set of critical technologies can come with the risk of EU technology and know-how getting into the hands of non-EU actors, who may use it to undermine international peace and security. This especially concerns technologies suitable for enhancing military and intelligence capabilities. The Commission is taking this reflection further with a White Paper, proposing an in-depth analysis of outbound investments in a narrow set of critical technologies to determine the nature and extent of risks related to such investments and the need for policy responses.

EU participation in international fora

The EU participates in international institutions and organisations where rules on international investment are discussed:

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