European Commission Directorate-General for Trade

Investment

The current phase of globalisation has seen a dramatic increase in Foreign Direct Investment (FDI). As the largest source of FDI in the global economy, the EU considers FDI as a key means to promote development and economic and social growth. In particular, FDI represents an important source of productivity gains and plays a crucial role in establishing businesses and jobs abroad and building the global supply chains that are part of the modern international economy. In this respect, the inter-dependence and complementarity between trade and FDI is widely recognised.

International rules on FDI contribute to improving the business climate by increasing legal certainty for investors and by reducing the perceived risk to invest. However, FDI flows also depend on a whole range of other factors such as political and macroeconomic conditions, infrastructure and human capital, domestic policies, and the bureaucratic environment. If these factors are not right, then domestic reforms are crucial in contributing to attract FDI, and their effectiveness can be enhanced if backed by international rules ensuring that the regulatory framework will remain stable, transparent and non-discriminatory.

EU investment policy is focused on providing EU investors and investments with legal certainty and a stable, predictable, fair and properly regulated environment in which to conduct their business, in line with the existing international rules that are most relevant to this area, i.e. the WTO General Agreement on Trade in Services (GATS), the Guidelines for Multinational Enterprises developed in the OECD framework, and other OECD instruments. Currently, the focus is on the negotiation of investment rules in the context of preferential trade agreements that the EU negotiates with third countries. The EU-Korea Free Trade Agreement is the most recent example of an agreement that reflects EU investment policy negotiations.

Within this framework, the EU follows an approach which is both ambitious and flexible. Its main principles are that:

• It focuses on long-term investment, i.e. establishment that generates stable employment and growth;
• It improves market access and provides that foreign investments both at pre- and post-establishment stages are treated like domestic ones;
• It fosters transparency by clarifying the regulatory framework;
• It ensures that host and home states fully retain their right to regulate the domestic sectors;
• It aims at freeing the flow of payments and investment-related capital movements, while preserving the possibility to take safeguard measures in exceptional circumstances; and
• It seeks to facilitate the movement of investment-related natural persons ("key personnel").

The Lisbon Treaty amends the Treaty Establishing the European Communities, and renames it the Treaty on the Functioning of the European Union (TFEU). Article 207(1) of the TFEU explicitly mentions foreign direct investment as forming part of the common commercial policy,. As such, the Treaty establishes the EU's exclusive competence on foreign direct investment. As a result, the EU investment platform vis-à-vis third countries could be gradually enriched with investment protection standards for all EU investors establishing its presence in these countries.