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Foreign investment is when businesses or individuals invest in another country.  There are two main types of foreign investment:

  • foreign direct investment (FDI) – where an investor sets up or buys a company in another country
  • portfolio investment: where an investor buys equity in or debt of a foreign company.   The investor does not necessarily have a long-term interest in the company or an  influence over its management.

The EU is both the largest provider and destination of FDI in the world, measured by stocks and flows.

In September 2017 the  EU proposed a regulation and released a working paper to help the EU and the member countries review foreign direct investment (FDI). This is to ensure that FDI remains a source of growth in the EU while protecting the EU's essential interests. The Commission also released a communication about the need for the review.

Why international investment matters

International investments into the EU:

  • are worth €5.4 trillion – or about 36% of the wealth produced annually by the EU
  • directly support 7.6 million jobs in the EU
  • provide capital and technology to foster European research, innovation and competition

EU investments abroad:

  • are worth €6.9 trillion – about 46% of the wealth produced annually by the EU.
  • directly support 14.4 million jobs abroad
  • allows European companies to optimise their production, to access raw materials and components, and to better serve foreign markets

Businesses use international trade and investment to source raw materials and components and to locate some stages of production in the most cost-efficient or skills-abundant locations. 

This is why many non-European firms invest in EU countries – for example, by building factories – while many EU companies stay competitive on world markets by investing abroad or sourcing inputs from overseas. This phenomenon is known as global value chains.

An estimated 80% of global trade today takes place using international production networks - international businesses that exchange intermediate goods and services to build a final product.

Objectives of EU investment policy

EU investment policy aims to:

  • open up foreign markets for EU companies
  • ensure EU companies are not discriminated against abroad
  • have a predictable and transparent business environment
  • attract international investment into the EU
  • make international investment rules clear and consistently enforced
  • protect the investments of EU citizens and companies abroad
  • ensure the free movement of payments, capital, and key personnel necessary for international investment

EU investment policy also fully preserves the right of home and host countries to regulate their economies in the public interest.

EU investment policy in action

The EU is currently negotiating investment agreements with China and Myanmar.  The EU is also negotiating investment rules as part of its trade agreements with partners such as:

  • Egypt
  • India
  • Indonesia
  • Japan
  • Jordan
  • Malaysia
  • Mercosur
  • Mexico
  • Morocco
  • Philippines
  • Singapore
  • Tunisia
  • The United States

Reforming EU investment policy

After the Lisbon Treaty entered into force in December 2009, the EU gained exclusive competence on foreign direct investment as part of the common commercial policy. The European Commission first outlined its approach to investment policy in its policy communication in July 2010.

Over the past 50 years EU countries have negotiated more than 1,400 bilateral investment agreements offering investment protection to many European investors.  These agreements will continue to exist until they are replaced by EU agreements.

The European Commission wants to reform how investment protection works.

In September 2015 it published proposals on the right to regulate and for a new investment court system.  The reforms were included in the EU's proposal for a Transatlantic Partnership and Investment Agreement with the United States (TTIP) and in other EU trade and investment negotiations.

In its Trade for All strategy it proposes:

  • a stronger emphasis on the right of countries to regulate in the public interest
  • clearer investment protection rules
  • a public investment court system to solve investment disputes.

The proposal for an investment court system includes:

  • setting up a permanent tribunal for each EU trade agreement, together with the corresponding trade partner
  • nominating a pool of highly qualified judges, then randomly assigning three of them for each case
  • avoiding any of conflict of interest by preventing nominated judges from also working as investment lawyers
  • the right to appeal against verdicts and the possibility to reverses the court's decisions
  • making all documents available online, and webstreaming hearings for all to see

The EU has already included the substance of these proposals in its new trade agreements with Canada (signed 2016) and Vietnam (concluded 2015).

The European Commission wants to further reform how disputes about investment are settled and is leading efforts with other trade partners to set up a multilateral investment court to rule on investment disputes.

In December 2016, the European Commission launched a public consultation on a multilateral reform of investment dispute resolution.

More on the EU's approach to investment dispute settlement

Participation in international fora

The EU is an active participant in international institutions and organisations where rules on international investment are discussed and agreed:

More on Investment

  • Regulation No 1219/2012 grants legal security to the existing bilateral investment agreements between EU Member States and third countries until they are replaced by EU-wide investment deals.