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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.

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. Foreign direct investment stocks held in the rest of the world by investors resident in the EU amounted to €7,412 billion at the end of 2017. Meanwhile, foreign direct investment stocks held by third country investors in the EU amounted to €6,295 billion at the end of 2017.

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. Recent findings 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. 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;
  • promote investment that supports sustainable development, respect for human rights and high labour and environmental standards. This includes encouraging 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 and facilitating 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 fair treatment for investors or guarantees of compensation in case of expropriation.

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 will make 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 members and non-EU countries

The EU adopted in 2012 a regulation creating a set of rules for bilateral investment agreements between individual EU members and non-EU countries, to make sure that they are consistent with EU law and with the EU’s investment policy.

The regulation sets the conditions for applying the more than 1400 bilateral investment agreements currently in force, as well as the conditions for EU members to modify existing agreements and 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 decided to submit a recommendation to open negotiations with the non-EU country concerned, and;
  • that the agreement does not create a serious obstacle to the EU negotiating or concluding bilateral investment agreements with non-EU countries.

EU participation in international fora

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