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Investment

Investment can take many forms. Foreign direct investment (FDI) consists in making capital available from one country for carrying out an economic activity in another country, with a view to exercising a form of control, such as the ability to influence business decisions. The most common form of FDI is the creation or acquisition of a company, like a plant to produce cars. Other forms of investment are portfolio investment, through which the investor does not seek control, or any other assets including for example intellectual property rights.

The EU supports the 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 investment flows 2013, € billions

EU/World investment flows 2013, € billions
Year Inward flows (into the EU) Outward flows (EU to the rest of the world)
2013 327 € 341 €

Foreign Direct Investment, %

Foreign Direct Investment, € billions
Year Inward stock (% of world inward investment) Outward stock (% of world outward investment)
2012 34 % 46 %

Source: Eurostat, Unctad

  • 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

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 free trade agreements with third countries and also in stand-alone investment agreements. Whereas the EU is currently negotiating stand-alone agreements with China and Myanmar, investment chapters are being negotiated in the context of FTAs with India, Singapore, Japan, the United States, Egypt, Tunisia, Morocco, Jordan, Malaysia, Vietnam and Thailand. Negotiations with Canada were concluded in 2014.

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.

More on EU’s approach to investor-state dispute settlement.

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").

Outcome

The EU-Canada trade and investment agreement is the first occasion for EU-wide rules on investment as part of a broad trade agreement.