Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Towards a comprehensive European international investment policy
Date: 2010-07-07
Institutions: European Commission
Subjects: EU investment, common commercial policy, competitiveness, foreign investment, investment policy, trade restriction

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EUROPEAN COMMISSION 

Brussels, 7.7.2010 
COM(2010)343 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Towards a comprehensive European international investment policy 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Towards a comprehensive European international investment policy 

Investment presents itself as a new frontier for the common commercial policy. The Lisbon 
Treaty  provides  for  the  Union  to  contribute  to  the  progressive  abolition  of  restrictions  on 
foreign direct investment. The Treaty grants the Union exclusive competence to that effect.1 
This Communication explores how the Union may develop an international investment policy 
that increases EU competitiveness and thus contributes to the objectives of smart, sustainable 
and inclusive growth, as set out in the Europe 2020 Strategy.2 It looks at the main orientations 
of  an  EU  investment  policy  for  the  future,  as  well  as  the  main  parameters  for  immediate 
action in this area. 

In parallel to this Communication, the Commission has adopted a proposal for a Regulation 
that  would  establish  transitional  arrangements  relating  to  investment  agreements  between 
Member States and third countries.3 Its objective is to provide legal certainty to both EU and 
foreign investors operating under the terms of these agreements. The proposed Regulation and 
this  Communication  are  only  first  steps  in  the  development  of  a  European  international 
investment  policy,  which  will  be  gradual  and  targeted  and  will  also  take  into  account 
responses to this Communication. 

1. 

DEFINITION, IMPACT AND RECENT TRENDS 

Foreign  direct  investment  (FDI)  is  generally  considered  to  include  any  foreign  investment 
which  serves  to  establish  lasting  and  direct  links  with  the  undertaking  to  which  capital  is 
made available in order to carry out an economic activity.4 When investments take the form of 
a shareholding this objective presupposes that the shares enable the shareholder to participate 

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Article  206  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU)  provides  that  by 
establishing  a  customs  union  in  accordance  with  Articles  28  to  32,  the  Union  shall  contribute,  in  the 
common  interest,  to  the  progressive  abolition  of  restrictions  on  international  trade  and  foreign  direct 
investment,  and  the  lowering  of  customs  and  other  barriers.  Article  207  includes  foreign  direct 
investment as one of the areas covered by the common commercial policy of the Union. The common 
commercial policy is an area of exclusive competence pursuant to Article 3(1) of the TFEU. 
Commission Communication "Europe 2020: a strategy for smart, sustainable and inclusive growth" – 
COM(2010) 2020, 3.3.2010. 
Commission  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing 
transitional  arrangements  for  bilateral  investment  agreements  between  Member  States  and  third 
countries. 
The terms "direct investment" appeared in the Chapter on capital movements and payments of the EC 
Treaty  and  now  in  Articles  63-66  TFEU.  In  that  context,  they  have  been  interpreted  by  the  Court  of 
Justice  in  light  of  the  Nomenclature  annexed  to  Directive  88/361/EEC  of  24  June  1988  for  the 
implementation of Article 67 of the Treaty (OJ L 178, 8.7.1988, p. 5-18), which in turn is largely based 
on  widely  accepted  definitions  of  the  IMF  and  the  OECD.  See  e.g.  Judgment  of  12  December  2006, 
Test Claimants in the FII Group Litigation, Case C-446/04, ECR p. I-11753, para. 181. See also e.g. the 
Judgments  of  24  May  2007,  Holböck,  C-157/05,  ECR.  p.  I-4051,  para.  34;  23  October  2007, 
Commission/Germany,  C-112/05,  ECR  p.  I-8995,  para.  18;  18  December  2007,  Skatterverket  v  A,  C-
101/05,  para. 46; 20  May 2008,  Orange  European Smallcap  Fund,  C-194/06, para. 100; 14  February 
2008,  Commission/Spain,  C-274/06,  para. 18;  and 26  March  2009, Commission/Italy, C-326/07, para. 
35. 

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effectively in the management of that company or in its control.5 This contrasts with foreign 
investments  where  there  is  no  intention  to  influence  the  management  and  control  of  an 
undertaking.  Such  investments,  which  are  often  of  a  more  short-term  and  sometimes 
speculative nature, are commonly referred to as "portfolio investments".6  

Globalisation  has  seen  a  dramatic  increase  of  capital  movements,  including  notably  of  FDI. 
Both  a  cause  and  an  effect  of  globalisation,  FDI  flows  were,  in  2007,  the  year  before 
investment was affected by the global economic and financial turbulence, at a record high of 
almost EUR 1.500 billion.7 

FDI  represents  an  important  source  of  productivity  gains  and  plays  a  crucial  role  in 
establishing and organising businesses and jobs at home and abroad. Through FDI, companies 
build the global supply chains that are part of the modern international economy. Innovation 
in  transportation  and  information  technologies  has  in  turn  facilitated  trade  and  the 
globalisation of business enterprise beyond the confines of large corporations. Investment and 
trade are today inter-dependent and complementary. Around half of world trade today takes 
place  between  affiliates  of  multinational  enterprises,  which  trade  intermediate  goods  and 
services. 

While the relationship between FDI and economic growth and welfare is a complex one, on 
balance,  both  inward  and  outward  investment  have  a  positive  impact  on  growth  and 
employment  in  and  outside  the  EU,  including  in  developing  countries.  In  the  EU,  outward 
investment makes a positive and significant contribution to the competitiveness of European 
enterprises, notably in the form of higher productivity. Contrary to a view that is sometimes 
voiced,  a  review  of  the  current  state  of  research  on  FDI  and  employment  shows  that  no 
measurable negative impact on aggregate employment has so far been identified in relation to 
outward investment.8 However, while the aggregate balance is positive, negative effects may 
of  course  arise  on  a  sector-specific,  geographical  and/or  individual  basis.  Conversely,  the 
overall benefits of inward FDI into the EU are well-established, notably in relation to the role 
of foreign investment in creating jobs, optimising resource allocation, transferring technology 
and skills, increasing competition and boosting trade. This explains why our Member States, 
like other nations around the world, make significant efforts to attract foreign investment. 

Today, the EU is both the world's leading host and source of FDI. As a "market leader", the 
EU benefits from its openness to the rest of the world, including in the area of investment.  

While  FDI  stocks  and  flows  are  today  still  heavily  concentrated  among  industrialised 
countries, emerging market economies have become increasingly active both as investors and 
recipients of investment, including through state-sponsored investment like Sovereign Wealth 

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See e.g. Judgments of 12 December 2006, Test Claimants in the FII Group Litigation, Case C-446/04, 
ECR p. I-11753, para. 182; of 24 May 2007, Holböck, C-157/05, ECR p. I-4051, para. 35; 23 October 
2007,  Commission/Germany,  C-112/05,  ECR  p.  I-8995,  para.  18;  20  May  2008,  Orange  European 
Smallcap Fund, C-194/06, para. 101; and 26 March 2009, Commission/Italy, C-326/07, para. 35. 
The Court of Justice of the European Union has described the notion of "portfolio investment" as "the 
acquisition of shares on  the capital  market  solely with  the  intention  of making  a financial  investment 
without any intention to influence the management and control of the undertaking". See Judgment of 26 
September 2008, Commission/Netherlands, Joined Cases C-282/4 and C-283/04, ECR p. I-9141, para. 
19. 
2009  World  Investment  Report  of  the  United  Nations  Conference  on  Trade  and  Development 
(UNCTAD). 
2010 Impact of EU outward FDI, Copenhagen Economics. 

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Funds,  which  hold  not  only  more  assets  but  have  also  more  diversified  investment  policies 
than  before.9 This trend has become more visible during the current period of turbulence in 
the world economy when investments to and from emerging economies have either surged or 
dropped  less  dramatically  than  flows  between  industrialised  countries.  Overall,  this  has 
translated  in  an  increase  of  the  relative  share  of  emerging  economies  in  global  FDI  flows, 
both for inward and outward flows. Therefore, the EU cannot afford to take a backseat in the 
global competition to attract and promote investment from and to all parts of the world.  

2. 

INVESTMENT AS A NEW FRONTIER FOR THE COMMON COMMERCIAL POLICY 

Investment decisions are driven primarily by market considerations, i.e. expected gains from 
investments.  Yet,  these  decisions  are  deeply  affected  by  the  economic,  political  and  legal 
environment  of  any  given  economy.  Investors  thrive  in  a  stable,  sound  and  predictable 
environment.  A  common  international  investment  policy  is  not  the  only  determinant  of 
inward  and  outward  FDI  flows.  However,  it  serves  the  fundamental  purpose  of  assuring 
investors  that  they  are  able  to  operate  in  an  open,  properly  and  fairly  regulated  business 
environment,  both  within  and  across  a  host  country's  borders.  In  this  respect,  openness  to 
investment should continue to serve as a touchstone to set our policies. The EU will continue 
to be an open investment environment, welcoming foreign investors and their contribution to 
the European economy and society at large. At the same time, the Union should ensure that 
EU  investors  abroad  enjoy  a  level  playing  field,  which  assures  both  uniform  and  optimal 
conditions  for  investment  through  the  progressive  abolition  of  restrictions  on  investment.  A 
more activist approach to ensuring that EU investment relations with third partners constitute 
a  “two-way  street”  is  therefore  warranted.  A  number  of  important  building  blocks  and 
background  studies  are  already  available,  including  through  the  extensive  analytical  work 
performed by international organisations such as OECD and UNCTAD. These lay the basis 
for a common international investment policy.  

(a) 

The “BITs and pieces” of investment policy  

The  most  visible  manifestation  of  Member  States’  policies  on  investment  over  the  last  50 
years is the number of so-called Bilateral Investment Treaties (BITs) that they have concluded 
with third countries. Germany was the first nation in the world to conclude a BIT, in 1959, 
and  many  countries  around  the  world,  including  all  but  one  Member  State,  have  followed 
suit.10  With  a  total  of  almost  1200  agreements  that  cover  all  forms  of  investment,  Member 
States together account today for almost half of the investment agreements currently in force 
around the world.11 An overview of the BITs entered into by the Member States is set out in 
the annex to this Communication. 

Through  BITs,  Member  States  have  sought,  and  obtained,  from  third  countries  specific 
guarantees  on  the  treatment  of  their  investors  and  investments  by  those  third  countries,  for 

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The Commission has set out its approach towards Sovereign Wealth Funds in 2008. See: COM(2008) 
115, 27.02.2008. 
Bilateral Investment Treaty between Germany and the Islamic Republic of Pakistan, 1959. Ireland is the 
only EU Member State that does not maintain any Bilateral Investment Treaty with a third country. 
2009  World  Investment  Report  of  the  United  Nations  Conference  on  Trade  and  Development 
(UNCTAD), p. 32. The UNCTAD reports a total of 2676 BITs, but this figure includes intra-EU BITs, 
which  are  BITs  among  EU  Member  States.  The  latter  category  of  agreements  is  not  covered  by  this 
Communication. 

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example  commitments  against  unfair  or  discriminatory  treatment  or  a  guarantee  of  prompt, 
adequate  and  effective  compensation  in  case  of  expropriation.  These  investment  protection 
guarantees  constitute  one  important  element  of  building  confidence  in  the  legal  security 
required  for  taking  sound  investment  decisions.  Hence,  such  investment  protection 
agreements  are  considered  an  effective  manner  to  promote  and  attract  investment,  in 
particular in countries where domestic institutions and domestic economic policies in and of 
themselves are not considered sufficient to confer such guarantees.  

However,  not  all  Member  States  have  concluded  such  agreements,  and  not  all  agreements 
provide for the same high standards. This leads to an uneven playing field for EU companies 
investing  abroad,  depending  on  whether  they  are  covered  as  a  "national"  under  a  certain 
Member State BIT or not.  

Another  feature  of  the  agreements  of  Member  States  is  that  they  relate  to  the  treatment  of 
investors  “post-entry”  or  “post-admission”  only.  This  implies  that  Member  States’  BITs 
provide no specific binding commitments regarding the conditions of entry, neither from third 
countries regarding outward investment by companies of our Member States, nor vice versa. 
Gradually, the European Union has started filling the gap of "entry" or "admission" through 
both multilateral and bilateral agreements at EU level covering investment market access and 
investment  liberalisation.  These  have  improved  the  conditions  of  market  access  for  all  EU 
investors, notably by ensuring the non-discriminatory treatment of investors upon entry to a 
third country market.12 

(b) 

Towards a common international investment policy 

A  comprehensive  common  international  investment  policy  needs  to  better  address  investor 
needs from the planning to the profit stage or from the pre- to the post-admission stage. Thus, 
our  trade  policy  will  seek  to  integrate  investment  liberalisation  and  investment  protection. 
Research  confirms  that  substantive  investment  provisions  in  broad  trade  agreements  impact 
trade and FDI flows more profoundly, or that the combination of substantive investment rules 
and  provisions  liberalising  other  parts  of  the  economy  jointly  impact  trade  and  investment 
more significantly.13 

An  international  investment  policy  geared  towards  supporting  the  competitiveness  of 
European enterprises will be best served by cooperation and by negotiations at the level of the 
Union.14  In  order  to  be  effective,  guarantees  from  third  countries  on  the  conditions  of 
investment should come in the form of binding commitments under international law. Hence, 
investment  negotiations  with  third  countries,  for  which  we  can  build  on  the  body  and 
substance of the more than 1100 BITs which currently exist, will enable the EU to enlarge, 
better define and protect the competitive space that is available to all EU investors. In the long 

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At  the  multilateral  level,  the  General  Agreement  on  Trade  in  Services  (GATS)  provides  for  a 
framework  for  undertaking  commitments  on  the  supply  of  services  through  a  commercial  presence 
(defined as "mode 3" by GATS Article I). At the bilateral level, the Union has concluded negotiations 
with Korea on a Free Trade Agreement, which includes provisions on market access for investors and 
establishments. 
OECD (2006), Analysis of the economic impact of investment provision in regional trade agreements, 
OECD Trade Policy Working Paper No. 36, 11.07.2006. 
Note that, under Article 207(2) TFEU, the Union has exclusive competence to autonomously legislate 
on  FDI,  as  in  the  other  areas  of  the  common  commercial  policy,  such  as  the  import  and  export 
regulation.  

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run, we should achieve a situation where investors from the EU and from third countries will 
not  need  to  rely  on  BITs  entered  into  by  one  or  the  other  Member  State  for  an  effective 
protection of its investments.  

Investment policy is often complemented by investment promotion efforts by Member States 
and  sub-national  levels  of  government.  Authorities  engage  competitively  in  promoting  both 
inward and outward investment to and from their jurisdictions, just like in the area of trade or 
export  promotion.  Their  efforts  commonly  rely  on  a  variety  of  instruments,  ranging  from 
investment incentives to assistance and support schemes. While it is the Union's responsibility 
to promote the European model and the single market as a destination for foreign investors15, 
it seems neither feasible nor desirable to replace the investment promotion efforts of Member 
States, as long as they fit with the common commercial policy and remain consistent with EU 
law. 

3. 

AN AGENDA FOR EU INVESTMENT NEGOTIATIONS 

As  in  all  areas  of  European  policy-making,  the  thrust  of  the  Union's  action  should  be  to 
deliver better results as a Union than the results that have been or could have been obtained by 
Member  States  individually.  Thus,  the  Union's  future  action  in  this  field  should  be  inspired 
and guided by the best available standards, so as to offer a level playing field of a high quality 
to all EU investors.  

However,  a  one-size-fits-all  model  for  investment  agreements  with  3rd  countries  would 
necessarily be neither feasible nor desirable. The Union  will  have to take into account each 
specific  negotiating  context.  The  interests  of  our  stakeholders  as  well  as  the  level  of 
development of our partners should guide inter alia the standards the Union sets in a specific 
investment  negotiation.  In  the  same  way,  the  nature  of  the  existing  agreements  of  Member 
States  with  any  given  third  country  need  to  be  taken  into  account.  While  BITs  recently 
concluded  by  Member  States  have  largely  a  similar  structure  and  content,  there  are  some 
variations.  These  might  equally  determine  the  objectives  to  be  pursued  in  a  specific 
negotiating context. 

The Commission submits the following broad principles and parameters for future investment 
agreements.  These  are  to  be  developed  and  fleshed  out  in  country-specific  negotiating 
recommendations which the Commission will submit subsequent to this Communication.  

(a) 

Criteria for the selection of partner countries  

FDI is at present heavily concentrated among developed economies. While this reflects these 
countries' economic importance in terms of GDP, it also underscores the generally favourable 
conditions  for  foreign  investors  prevailing  in  some  of  these  markets.  Actual  trade  and 
investment flows are in and of themselves important determinants for defining the priorities 
for  EU  investment  negotiations.  The  Union  should  go  where  its  investors  would  like  to  go, 
just  like  it  should  pave  their  way  abroad,  through  the  liberalisation  of  investment  flows. 
Markets  with  significant  economic  growth  or  growth  prospects  present  a  particular 
opportunity  in  the  current  increasingly  competitive  environment.  It  is  important  that  EU 
investors have access to these markets and that amid the changes that these economies might 

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Commission Communication "A single market for 21st century Europe" - COM(2007) 725  

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be  undergoing,  benefit  from  the  availability  of sufficient  guarantees  for  fair  and  predictable 
treatment. The EU's interests in investment negotiations would also be determined inter alia 
by the political, institutional and economic climate of our partner countries. The 'robustness' 
of  investor  protection  through  either  host  country  or  international  arbitration  would  be 
important  determinants  in  defining  priority  countries  for  EU  investment  negotiations.  In 
particular,  the  capacity  and  the  practice  of  our  partners  in  upholding  the  rule  of  law,  in  a 
manner that provides a certain and sound environment to investors, are key determinants for 
assessing the value of investment protection negotiations. 

In the short term, the prospects for realising the integration of investment into the common 
commercial  policy  arise  in  ongoing  trade  negotiations,  where  the  Union  has  so  far  only 
focused on market access for investors.16 The latest generation of competitiveness-driven Free 
Trade Agreements (FTAs) is precisely inspired by the objective of unleashing the economic 
potential of the world's important growth markets to EU trade and investment. The Union has 
an interest in broadening the scope of negotiations to the complete investment area. In some 
cases,  we  could  also  respond  to  a  request  from  our  negotiating  partners  themselves.  In  the 
EU-Canada  negotiations  towards  a  Comprehensive  Economic  and  Trade  Agreement,  our 
partner  has  expressed  an  interest  in  an  agreement  that  would  cover  investment  protection. 
Other ongoing negotiations in which investment protection should be considered include the 
EU-India  negotiations  towards  a  Broad-based  Trade  and  Investment  Agreement,  the  EU-
Singapore  negotiations  towards  a  Free  Trade  Agreement,  and  the  EU-Mercosur  trade 
negotiations.  

In the short to medium term, the Union should also consider under which circumstances it 
may be desirable to pursue stand-alone investment agreements. China, which is characterised 
by a high proportion of greenfield investments, including from the EU, may be one candidate 
for  a  stand-alone  investment  agreement,  in  which  the  protection  of  all  kinds  of  assets 
including  intellectual  property  rights  should  be  covered.  The  Commission  will  explore  the 
desirability  and  feasibility  of  such  an  investment  agreement  with  China,  and  report  to  the 
Council  and  the  European  Parliament.  Russia  also  presents  particular  opportunities  and 
challenges  to  European  investors.  The  negotiation  with  Russia  of  investment  including 
investment protection should be further considered and discussed, for example in the context 
of a comprehensive agreement, such as the agreement that would replace the Partnership and 
Cooperation Agreement.  

Should a comprehensive, across-the-board, investment agreement with a country, or a set of 
countries, prove impossible or inadvisable in the foreseeable future, sectoral agreements may 
be  an  option  whose  desirability,  feasibility  and  possible  impact  would  be  further  assessed. 
These sectoral negotiations should be based on the principles set out in this Communication 
and remain in line with further developments of the common investment policy. In the same 
vein, the feasibility of a multilateral initiative could be further considered in the long term. 

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A further legal argument for incorporating investment commitments into trade agreements relates to the 
fact  that  trade  agreements,  when  they  comply  with  relevant  WTO  rules  on  economic  integration,  are 
sheltered from the WTO obligation of most-favoured nation treatment, which requires WTO members 
to immediately and unconditionally extend the most favourable treatment to the rest of the membership. 
In  other  words,  only  if  offered  inside  a  trade  agreement,  preferential  treatment,  for  example  on 
investment  market  access,  can  remain  preferential.  This  is  most  relevant  for  FDI  in  services  sectors, 
given  that  the  General  Agreement  on  Trade  in  Services  (GATS)  addresses  the  supply  of  services 
through a commercial presence, which is essentially FDI.  

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(b) 

Looking beyond foreign direct investment 

While  investors  have  a  key  interest  in  establishing  and  controlling  their  assets  abroad,  such 
direct  investments  will  always  give  rise  to  additional  transfers,  like  for  example  the 
repatriation of profits. It is important that a common international investment policy not only 
enables the execution of a direct investment itself – the acquisition of a foreign enterprise or 
the  establishment  of  one  -  but  also  that  it  enables  and  protects  all  the  operations  that 
accompany  that  investment  and  make  it  possible  in  practice:  payments,  the  protection  of 
intangible assets such as Intellectual Property Rights, etc.  

In  this  respect,  the  articulation  of  investment  policy  should  be  consistent  with  the  Treaty's 
Chapter on capital and payments (Articles 63-66 TFEU), which provides that, in principle, all 
restrictions on payments and capital movements, including those involving direct as well as 
portfolio  investments,  both  between  Member  States  and  between  Member  States  and  third 
countries,  are  prohibited.  That  chapter  does  not  expressly  provide  for  the  possibility  to 
conclude international agreements on investment, including portfolio investment. However, to 
the extent that international agreements on investment affect the scope of the common rules 
set  by  the  Treaty's  Chapter  on  capitals  and  payments,  the  exclusive  Union  competence  to 
conclude agreements in this area would be implied.17  

(c) 

Setting standards of investment protection 

A key question relates to the substantive rules the Union would seek to introduce in trade and 
investment agreements. Currently in investment negotiations, the Union relies mostly on the 
principle of non-discrimination, which is the cornerstone of the global trading system. Non-
discrimination  is  usually  implemented  through  two  basic  standards,  ‘most-favoured-nation 
treatment’  and  ‘national  treatment’,  which  are  both  relative  standards,  because  they  involve 
making a comparison between the treatment provided based on origin, rather than defining an 
absolute standard of treatment. Consequently, their content is determined on the basis of the 
treatment  that  a  country  grants  to  its  foreign  investors  and  investments  and  to  its  own 
investors and investments 

While  non-discrimination  should  continue  to  be  a  key  ingredient  of  EU  investment 
negotiations, BITs employ other standards as well, such as “fair and equitable treatment” after 
admission  and  “full  security  and  protection”  treatment.  These  standards  do  not  imply  a 
comparison to the manner in which comparable investments are treated. Moreover, a number 
of  Member  State  BITs  provide  for  the  protection  of  contractual  rights  granted  by  a  host 
government to an investor ("umbrella clause"). They have been traditionally used in Member 
States BITs and are an important element among others that should inspire the negotiation of 
investment agreements at the EU level.  

An  important  cornerstone  of  Member  State  best  practices  are  clauses  which  place  certain 
conditions upon the exercise of the host country's right to expropriate. While it follows from 
Article 345 TFEU that the Treaty does not affect a Member State's right to decide whether a 
given asset should be in public or private ownership, the Court's case law shows that this does 

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Article 3.2 of the Treaty on the Functioning of the European Union provides that “the Union shall also 
have  exclusive  competence  for  the  conclusion  of  an  international  agreement  when  its  conclusion  is 
provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal 
competence, or in so far as its conclusion may affect common rules or alter their scope.” 

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to  attain 

not  have  the  effect  of  exempting  expropriation  measures  from  the  fundamental  rules  of  the 
Treaty,  including  those  on  freedom  of  establishment  and  free  movement  of  capital.18 
Accordingly,  expropriation  measures  in  the  EU  should  be  non  discriminatory19  and 
proportionate 
legitimate  objective  (e.g.  by  providing  for  adequate 
compensation)20. Hence, the Union should include precise clauses covering this issue into its 
own  future  investment  or  trade  agreements.  A  clear  formulation  of  the  balance  between  the 
different interests at stake, such as the protection of investors against unlawful expropriation 
or the right of each Party to regulate in the public interest, needs to be ensured. Likewise, EU 
clauses  ensuring  the  free  transfer  of  funds  of  capital  and  payments  by  investors  should  be 
included.  

their 

Finally, it should be recalled that the Union's trade and investment policy has to fit with the 
way the EU and its Member States regulate economic activity within the Union and across our 
borders. Investment agreements should be consistent with the other policies of the Union and 
its  Member  States,  including  policies  on  the  protection  of  the  environment,  decent  work, 
health  and  safety  at  work,  consumer  protection,  cultural  diversity,  development  policy  and 
competition  policy.  Investment  policy  will  continue  to  allow  the  Union,  and  the  Member 
States to adopt and enforce measures necessary to pursue public policy objectives.  

A  common  investment  policy  should  also  be  guided  by  the  principles  and  objectives  of  the 
Union's  external  action  more  generally,  including  the  promotion  of  the  rule  of  law,  human 
rights and sustainable development (Article 205 TFEU and Article 21 TEU). In this respect, 
the OECD Guidelines for Multinational Enterprises, which are currently being updated, are an 
important instrument to help balance the rights and responsibilities of investors.  

(d) 

Enforcing investment commitments 

Ensuring the effective enforceability of investment provisions is a key objective of the Union. 
The Union has increased its focus in recent years on ensuring that agreements negotiated in 
the field of the common commercial policy can be, and are, effectively enforced, if necessary 
through  binding  dispute  settlement.  The  Union  has  included  in  all  of  its  recent  FTAs,  an 
effective  and  expedient  state-to-state  dispute  settlement  system.  This  dispute  settlement 
system  will,  in  the  future,  cover  the  investment  provisions  of  EU  trade  and  investment 
agreements. 

In order to ensure effective enforcement, investment agreements also feature investor-to-state 
dispute settlement, which permits an investor to take a claim against a government directly to 
binding international arbitration.21 Investor-state dispute settlement, which forms a key part of 
the  inheritance  that  the  Union  receives  from  Member  State  BITs,  is  important  as  an 
investment  involves  the  establishment  of  a  long-term  relationship  with  the  host  state  which 
cannot  be  easily  diverted  to  another  market  in  the  event  of  a  problem  with  the  investment. 

18 

19 
20 

21 

See e.g. Judgments of 23 February 2003, C-452/01, Ospelt [2003] ECR I-9743, para. 24; 1 June 1999, 
C-302/97,  Konle  [1999]  ECR  I-3099,  para.  38;  and  of  6  November  1984,  Fearon,  C-182/83,  ECR 
[1984] p. 3677, para. 7. 
ECJ, Judgment of 6 November 1984, Fearon, C-182/83, ECR [1984] p. 3677. 
EFTA Court, Judgment of 26 June 2007,Case E-2/06, EFTA Surveillance Authority/Norway, para. 79; 
Article 17 (1)of the EU Charter of Fundamental Rights.  
The  Energy  Charter  Treaty,  to  which  the  EU  is  a  party,  equally  contains  investor-state  dispute 
settlement. 

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Investor-state is such an established feature of investment agreements that its absence would 
in fact discourage investors and make a host economy less attractive than others.  

For  these  reasons,  future  EU  agreements  including  investment  protection  should  include 
investor-state dispute settlement. This raises challenges relating, in part, to the uniqueness of 
investor-state dispute settlement in international economic law and in part to the fact that the 
Union has not historically been a significant actor in this field. Current structures are to some 
extent  ill-adapted  to  the  advent  of  the  Union.  To  take  one  example,  the  Convention  on  the 
Settlement of Investment Disputes between States and Nationals of Other States (the ICSID 
Convention),  is  open  to  signature  and  ratification  by  states  members  of  the  World  Bank  or 
party to the Statute of the International Court of Justice. The European Union qualifies under 
neither. 

In  approaching  investor-state  dispute  settlement  mechanisms,  the  Union  should  build  on 
Member  State  practices  to  arrive  at  state-of-the  art  investor  state  dispute  settlement 
mechanisms. Among the main challenges are: 

•  The  transparency  of  investor-state  dispute  settlement.  In  line  with  the  EU's  approach  in 
the  WTO,  the  EU  should  ensure  that  investor-state  dispute  settlement  is  conducted  in  a 
transparent manner (including requests for arbitration, submissions, open hearings, amicus 
curiae briefs and publication of awards); 

•  The atomisation of disputes and interpretations. Consistency and predictability are key 
issues  and  the  use  of  quasi-permanent  arbitrators  (as  in  the  EU's  FTA  practice)  and/or 
appellate  mechanisms,  where  there  is  a  likelihood  of  many  claims  under  a  particular 
agreement, should be considered; 

•  Rules  for  the  conduct  of  arbitration.  The  Commission  will  explore  with  interested 
parties  the  possibility  that  the  European  Union  seek  to  accede  to  the  ICSID  Convention 
(noting that this would require amendment of the ICSID Convention).22 

(e) 

International responsibility 

In line with the Commission's aim to develop an international investment policy at EU level, 
the  issue  of  the  international  responsibility  between  the  EU  and  the  Member  States  in  EU 
investment  agreements  needs  to  be  addressed.  The  European  Union,  represented  by  the 
Commission,  will  defend  all  actions  of  EU  institutions.  Given  the  exclusive  external 
competence,  the  Commission  takes  the  view  that  the  European  Union  will  also  be  the  sole 
defendant regarding any measure taken by a Member State which affects investments by third 
country  nationals  or  companies  falling  within  the  scope  of  the  agreement  concerned.  In 
developing  its  new  international  investment  policy,  the  Commission  will  address  this  issue, 
and in particular that of financial compensation, relying on available instruments, including, 
possibly, new legislation. 

22 

The European Communities successfully negotiated the amendment of, and subsequent accession to a 
number  of  international  agreements/organisations.  A  recent  example  is  the  World  Customs 
Organisation. 

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4. 

CONCLUSION 

The Lisbon Treaty's attribution of EU exclusive competence on FDI integrates FDI into the 
common commercial policy. It also allows the EU to affirm its own commitment to the open 
investment  environment  which  has  been  so  fundamental  to  its  prosperity  and  to  continue 
promoting  investment,  both  direct  investment  and  portfolio  investment,  also  as  a  tool  of 
economic development.  

Until  now,  the  Union  and  the  Member  States  have  separately  built  around  the  common 
objective  of  providing  investors  with  legal  certainty  and  a  stable,  predictable,  fair  and 
properly  regulated  environment  in  which  to  conduct  their  business.  While  Member  States 
have  focused  on  the  promotion  and  protection  of  all  forms  of  investment,  the  Commission 
elaborated  a  liberalisation  agenda  focused  on  market  access  for  direct  investment.  In  this 
respect, a clear and complementary division of labour in the field of investment has resulted 
in a rather large and atomised universe of investment agreements. 

With a view to ensuring external competitiveness, uniform treatment for all EU investors and 
maximum leverage in negotiations, a common international investment policy should address 
all  investment  types  and  notably  assimilate  the  area  of  investment  protection.  The  Union 
should follow the available best practices to ensure that no EU investor would be worse off 
than they would be under Member States' BITs.  

While  investment  protection  and  liberalisation  become  key  instruments  of  a  common 
international  investment  policy,  there  will  remain  significant  scope  for  Member  States  to 
pursue and implement investment promotion policies that complement and fit well alongside 
the common international investment policy. In general, a common policy will require more, 
rather than less, cooperation and coordination among the Union and the Member States. 

Through investment negotiations,  which in principle would be conducted as part of broader 
trade negotiations, the EU should seek to obtain binding commitments from its partners that 
guarantee  and  protect  the  free  flow  of  all  forms  of  investment.  Stand-alone  investment 
negotiations  would  also  remain  an  option.  In  the  short  term,  the  Commission  will  seek  the 
adaptation  of  negotiating  directives  to  enlarge  the  scope  of  negotiations  for  a  number  of 
countries with whom trade negotiations are ongoing, where strong interests exist and where 
requests have been formulated. While the principles and parameters for such negotiations will 
be  inspired  by  ‘best  practices’  that  Member  States  have  developed,  this  Communication 
already submits some broad contours of the scope and standards the Union should be setting 
through international investment negotiations. 

As  set  out  above,  the  proposed  Regulation  regarding  transitional  arrangements  relating  to 
investment  agreements  between 
this 
Communication are only first steps in the development of a European international investment 
policy,  which  will  be  gradual  and  targeted  and  will  also  take  into  account  responses  to  this 
Communication. 

the  Member  States  and 

third  countries  and 

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Annex: Overview of the number of Bilateral Investment Treaties concluded by Member States 

140

120

100

80

60

40

20

0

IE MT CY SI

LV SK EE LT PT EL DK HU BG PL ES RO AT

SE FI

CZ IT

BE+LU NL

FR UK DE

Note: Information as known to the Commission services on 15 June 2010 

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