Foreign direct investment is a direct investment into production or business in a country by a company in another country. The EU supports such movement of capital as it is essential in generating economic growth, jobs and reducing poverty. The EU is the largest source and destination of FDI in the world measured by stocks and flows.
Investment in a nutshell
- FDI plays a crucial role in establishing businesses, creating jobs at home and abroad, as well as in setting up global supply chains.
- Investment and trade are inter-dependent and complementary. Around half of world trade takes place between affiliates of multinational enterprises that exchange intermediate goods and services.
- The investor is the key decision maker over where production of goods and services takes place and their decisions have a direct impact on trade, jobs and capital movements.
EU/World trade flows 2011, € billions 1
|Year||Inward flows (into the EU)||Outward flows (EU to the rest of the world)|
|2011||225 €||370 €|
Foreign Direct Investment, % 2
|Year||Inward stock (% of world inward investment)||Outward stock (% of world outward investment)|
|2011||35.6 %||43.5 %|
- In the EU, outward investment makes a positive and significant contribution to the competitiveness of European enterprises, notably in the form of higher productivity.
- Investment into the EU brings many benefits such as creating jobs, optimising resource allocation, transferring technology and skills, increasing competition and boosting trade. This explains why EU countries make significant efforts to attract foreign investment.
EU investment policy
International investment rules
International rules on Investment contribute to improving the business climate. They increase legal certainty for investors and reduce the perceived risk to invest. The EU subscribes to various international rules on investment:
- the WTO General Agreement on Trade in Services (GATS)
- the WTO agreement on Trade Related Investment Measures (TRIMS)
- the Energy Charter Treaty, which covers investments in the energy sector
- the investment instruments of the OECD
The EU also adheres to principles and standards on responsible business conduct such as the OECD Guidelines for Multinational Enterprises, the reference document on corporate social responsibility intended to balance the rights and obligations between investors and host states.
Investment is now part of the EU’s common commercial policy. As a consequence, the European Commission may legislate on investment.
The European Commission outlined its approach for the EU's future investment policy in its Communication "Towards a comprehensive European international investment policy" in 2010. This policy contributes to the objectives of smart, sustainable and inclusive growth, set out in the Europe 2020 Strategy.
The EU's investment policy is focused on providing EU investors and investments with market access and with legal certainty and a stable, predictable, fair and properly regulated environment in which to conduct their business.
There are two aspects:
1. Increasing market access
The EU is negotiating investment rules in the context of preferential trade agreements that the EU negotiates with third countries and soon, it will also develop self standing investment agreements with selected partners.
The European Commission is currently negotiating on investment, including investment protection, as part of the Free Trade Agreement talks with Canada, India and Singapore, while the Council adopted in 2011 negotiating directives also for four Euromed countries (Tunisia, Morocco, Jordan, and Egypt) and in 2012 for Japan.
The Commission also conducts regular dialogues with key partners such as United States, and Russia, whereas the EU-China summits in 2012 called for the initiation of investment negotiations with China. The EU actively participates in work on international investment conducted in international fora (OECD, UNCTAD, WTO, G8, IMF).
2. Supporting legal certainty and transparency
The European comprehensive investment policy will be introduced progressively. This means that almost 1200 Bilateral Investment Agreements of Member States that currently offer investment protection to many European investors will be preserved until they are replaced by EU agreements. Regulation No 1219/2012 grants legal security to the existing BIAs between our Member States and third countries until they are replaced by EU-wide investment deals. It also allows for the Commission to authorise Member States to open formal negotiations with a third country to amend or conclude a BIA under certain conditions.
The EU's investment policy aims to:
- focus on long-term investment – in other words establishment that generates stable employment and growth
- improve market access and ensure that foreign investments are treated like domestic ones
- foster transparency by clarifying the regulatory framework
- ensure that host and home states fully retain their right to regulate domestic sectors
- free the flow of payments and investment-related capital movements, while preserving the possibility to take safeguard measures in exceptional circumstances; and
- facilitate the movement of investment-related persons ("key personnel").
The EU-Canada trade and investment agreement is the first occasion for EU-wide rules on investment as part of a broad trade agreement.