The EU and Member States: FDI, portfolio investments, golden powers and SWFs

This chapter investigates the regulation of SWFs' investments in the EU and its Member States. The chapter starts with an overview of the latest multilateral initiatives concerning SWFs and national security-related concerns, namely the Santiago Principles and the OECD Guidelines for Recipient Countries Investment Policies relating to National Security of 2009. The aforementioned multilateral initiatives, also supported by the EU Commission, aim at avoiding national (over)reactions, and a downward spiral into protectionist. Furthermore the chapter emphasizes that the admission and establishment of foreign investments (direct investments of third countries' SWFs included) in the EU is primarily (but not exclusively) governed by the freedom of circulation of capital. This internal market freedom encompasses the fundamental principle of non-discrimination, which is also mentioned in the OECD Guidelines as a sound basis for national investment policies. Nevertheless, the aforementioned freedom is not absolute. Under the Treaty's rules it is subject to reservations and (possibly) Member States' derogations, when genuine public order and security reasons exist. In this respect, the chapter highlights that free circulation of capital and the case-law of the CJEU thereon gives Member States quite limited possibilities to lawfully resort to investment restrictions. That notwithstanding, some Member States (such as Germany and France) have tightened their foreign investment control procedures for public order and security reasons in recent times. The chapter argues that such national schemes are not in line with the principles developed by the CJEU in its case-law on the matter. Moreover, after the entry into force of the Lisbon Treaty the EU has acquired exclusive competence to legislate on the admission of FDI. The conclusion is drawn that a European harmonization is needed in order to address Member States' genuine public security concerns related to direct investments of third-countries' SWFs.