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

Abstract

The Chapter deals with the European approach on sovereign investments. Although sovereign investments are not a new phenomenon, the rise of SWFs, both in size and number, as of 2006 has attracted increasing attention in national and international political circles due to the national security related-concerns their operations may raise in recipient economies. The Chapter starts with overview of the post-2007 multilateral initiatives addressing the national security concerns related to SWF operations (i.e. the Santiago principles, and the OECD Guidelines for Recipient Country Investment Policies Relating to National Security). It moves on to the analysis of the Common European Approach to SWFs, endorsed by the Commission in its 2008 Communication, as well as the freedom of circulation of capital (which applies to sovereign investments), and the CJEU's case-law thereon. In the view of the EU Commission (as expressed in its 2008 Communication) new European regulations, specifically addressing SWF issues, such as an EU committee on foreign to mirror arrangements in the US, and EU-wide screening mechanism or some golden shares mechanism for non-EU foreign investment are not necessary. On the one hand, the soft law approach, already endorsed by the afore-mentioned multilateral initiatives and fully supported by the EU, is deemed to be sufficient; on the other, the EU legal framework already provides the EU and its Member States with the tools to safeguard public order and public security in the European area. Nevertheless in spite of the EU Commission's call on Member States to stick to the TFEU principle of free movement of capital, and the OECD Guidelines, there has been a tightening of national public security-related control schemes for FDI in the EU area over last years. In this respect, the post-2008 restrictive policies of France and Germany towards foreign direct investments (SWFs' operations included) are specifically investigated as illustrative examples.The Member States' control schemes for FDI, mentioned above, are not in line with EU internal market freedoms for the reasons outlined in the Chapter. Moreover, such entry schemes are clearly incompatible with the post-Lisbon rules on the Common Commercial Policy.Furthermore, the recent restrictive policies of France and Germany towards foreign direct investments do not appear to be based upon clearly-identified and specific national security risks, possibly posed by third countries' SWFs, in conformity with the OECD Guidelines; but they are driven by general (rather than specific) national security concerns related to non-EU SWFs' investments (as well as investments by third country nationals in general) which appear to be overstated. Neither did the afore-mentioned Member States address the security-related concerns raised by investments of third country nationals (SWFs included) through non-discriminatory measures of regulatory character and general application, as recommended by the OECD Guidelines. The domestic schemes considered in the Chapter precisely materialized those State overreactions, that the EU Commission's common approach, and the afore-mentioned multilateral initiatives intended to avoid. Nevertheless, contrary to the statements of the Commission in its 2008 Communication on a Common European Approach to SWFs, the Treaty's rules on free circulation of capital, and the CJEU’s case-law thereon, as well as the existing European sectoral regulations, do not guarantee to the Member States a sufficiently predictable legal framework in order to properly safeguard their national security interests, as the post-2008 changes enacted by some Member States to their control schemes for foreign investments seem to show. Neither do EU law, and its jurisprudential approach appear to guarantee sufficient legal certainty for prospective foreign investors. The Chapter concludes that a European harmonization measure on SWF operations appears to be necessary in order to stop unilateral initiatives of the MSs, and ensure the coherence between the functioning of the internal market and the external action of the EU.