Transcript by Moreno Bertoldi European Commission

Has the Crisis Affected the EU
Approach to SWF?
by
Moreno Bertoldi
European Commission
DG Economic and Financial Affairs
The Edinburgh Dialogue
European Commission
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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.
European Commission
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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.
European Commission
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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
European Commission
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The EU is very open to FDI
Inward FDI Sock as % of GDP
25
20
% of GDP
EU-15
15
USA
10
5
Japan
0
1993
1995
1997
Source: UNCTAD and Eurostat
1999
2001
2003
2005
2007
European Commission
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SWFs investment important to EU
European Commission
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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
European Commission
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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.
European Commission
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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.
European Commission
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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
European Commission
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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.
European Commission
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…in particular those that have the “Santiago Principles” quality label
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