1 European Commission Has the Crisis Affected the EU Approach to SWF? by Moreno Bertoldi European Commission DG Economic and Financial Affairs The Edinburgh Dialogue

2 European Commission Four Freedoms of the EU Treaty Free movement of capital, alongside freedoms of movement of persons, goods and services. But unlike other freedoms, free movement of capital applies not only between EU Member States (MS), but also between EU MS and third countries. Article 56: “…all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited” Result: SWFs, like all other investors, be they from the EU or not, are welcomed and not discriminated. EU MS have to keep their legislation on foreign investment within the boundaries of the Treaty.

3 European Commission EU concerns relating to SWFs investments SWFs are controlled by governments. Potentially they could be used for strategic purposes or to pursue foreign policy goals Possibility that SWFs investments may increase the government involvement in the economy. Possible distortions in competition Lack of financial transparency that may generate financial instability SWFs are the outcome of large external imbalances. These imbalances are a factor of fragility in the international financial system. The governments of the originating countries should do more to reduce them.

4 European Commission SWFs investment important to EU Benefits: Long-term investors Effective re-cycling of current account surpluses Have played a positive stabilising role during the financial crisis

5 European Commission The EU is very open to FDI Source: UNCTAD and Eurostat

6 European Commission SWFs investment important to EU

7 European Commission The EU common approach to SWFs Approved in March 2008 and includes 5 commitments to SWFs: 1.The commitment to an open investment environment 2.The support of multilateral work (OECD & IWGSWF) 3.The use of existing instruments 4.The respect of EU Treaty obligations and international commitments 5.Proportionality and transparency

8 European Commission EU needs to do its part Despite the crisis, most Member States have not changed their regulatory framework and investment regimes. This is in line with the EU common approach and the OECD guidelines. In 3 countries changes were introduced. In the last two years several EU governments have publicly stated that SWF investment is welcomed.

9 European Commission Lisbon Treaty gives EU exclusive competence on FDI Since 1 December 2009, as part of the common commercial policy under the new Lisbon Treaty, the EU has the exclusive competence on FDI. However, the exercise of this competence by the EU will be evolutionary and not revolutionary. The change does not affect existing mechanism that continue to apply. EC objective is to ensure that the new Treaty will not adversely affect legal certainty relating to foreign investment and investor’s rights established in existing bilateral investment agreements.

10 European Commission The same holds for SWFs EU common approach to SWF focused on transparency and governance Significant progress has been made by most SWFs in the adherence to the Santiago Principles We see great merit in making further progress as it would enhance trust and confidence between recipient countries and SWFs. The Santiago Principles are not a beauty contest or a “menu a la carte” By implementing the principles, SWFs prove that they’re responsible and reliable global financial players A clear picture of the rate of implementation and the roadmap would be beneficial both to SWFs and recipient countries

11 European Commission Promising results IFSWF Sydney statement marks significant progress: “Some members have issued their first annual reports/reviews and increased available information on their websites. Forum members reiterated their commitment to continue discussing the progress with the application of the Principles” “The Forum members will undertake a survey on the experiences with application of the Principles and publish relevant parts of it “ A survey of the implementation of the Santiago Principles will be prepared by the IFSWF for the meeting that will take place in Beijing in April next year.

12 …in particular those that have the “Santiago Principles” quality label