In brief: regulation of inbound foreign investment in European Union

Regulation of inbound foreign investment

Does the state have a foreign investment promotion programme?

The European Union itself does not have a specific programme for the promotion of foreign direct investment (FDI). EU member states may establish national (or sometimes regional) programmes for the promotion of FDI on their territory.

Nevertheless, in 2014, the European Union launched an ambitious infrastructure investment programme called Investment Plan for Europe (the Juncker Plan) to boost all investments, increase competitiveness and support long-term economic growth in Europe. The Juncker Plan had three objectives: to remove obstacles to investments; to provide visibility and technical assistance to investment projects; and to make smarter use of financial resources.

By providing a total guarantee of €33.5 billion (through the EU budget and the European Investment Bank Group), the Juncker Plan aimed to generate a 1:15 multiplier effect. Each euro of public money was expected to generate €12 of investments from private investors and €3 of additional investments from the European Investment Bank. The Juncker Plan mobilised a total of €514 billion in additional investments across the European Union (exceeding its initial €500 billion target).

Building on the success of the Juncker Plan, the InvestEU Programme (2021–2027) further aims to boost investments, innovation and job creation in Europe and to mobilise at least €650 billion in additional investments in the next long-term EU budget.

Identify the domestic laws that apply to foreign investors and foreign investment, including any requirements of admission or registration of investments.

The European Union does not subject foreign investments to specific rules. However, the FDI Screening Regulation, which entered into force in October 2020, puts in place a system of cooperation and exchange of information, between EU member states, on investments from non-EU countries that may affect national security or public policy.

In addition, in May 2021, the European Commission adopted a proposal for a Regulation to tackle distortive effects caused by foreign subsidies, including when those subsidies facilitate investments in the European Union.

Finally, FDI must still comply with the domestic legislation and regulations in place in each specific EU member state.

Identify the state agency that regulates and promotes inbound foreign investment.

There is no EU agency regulating and promoting inbound foreign investments. EU member states may establish national (or sometimes regional) agencies for the promotion of FDI on their territory.

Identify the state agency that must be served with process in a dispute with a foreign investor.

Prior to the submission of a claim (and irrespective of whether the dispute will ultimately be initiated against the European Union or an EU member state), the Comprehensive and Economic Trade Agreement (CETA), the EU-Singapore Investment Protection Agreement (EUSIPA) and the EU-Vietnam Investment Protection Agreement (EUVIPA) provide that the investor must deliver to the European Union a ‘notice to submit a claim’ requesting the European Union to determine whether the European Union itself or an EU member state will be the respondent in the dispute (article 8.21 CETA; article 3.5 EUSIPA; and article 3.32 EUVIPA).

Once the determination of the respondent has been made, the investor may initiate the proceedings through a proper notice of arbitration.

However, CETA, EUSIPA and EUVIPA do not specify which institution of the European Union must be served with the ‘notice to submit a claim’, and, potentially, with the notice of arbitration. CETA merely provides (article 8.23.8) that the European Union and Canada will notify each other of the place of delivery of notices and other documents by the investors and that this information will be made publicly available. EUSIPA and EUVIPA do not contain such a provision. As a default, it is the European Commission that represents the European Union in international judicial proceedings.

So far, only one investor-state arbitration has been initiated against the European Union (pursuant to the UNICTRAL Arbitration Rules 1976 and the Energy Charter Treaty (ECT)). Based on publicly available information, the notice for arbitration was served on the EU Commission represented by its president and other senior officials (such as the Director-General for the EU Commission’s Legal Service and the Director-General for Trade). The notice of dispute in the PNB Banka case (a further ECT dispute in respect of which no arbitration has yet been commenced) was also served on the European Commission (via the president of the Commission) and the European Commission expressly confirmed in that case that it is responsible for handling investor-state disputes (Directorate-General for Trade, Unit F2).