Protectionist Trends in Foreign Direct Investment in the European Union – A Risk Based Analysis of Transacting with the European Union

Abstract

The idea of a global economy and market have become a reality in the 21^st century with traditional ideologies of protectionism and strong notions of economic sovereignty becoming less prevalent by the day. Most countries in the world recognize the importance of global commerce and the need for entering into international relations. The relevance of such international relations including commercial dealings is so prevalent that it has now been incorporated as a criterion for establishing statehood itself in Customary International Law.

In contrast to this trend of globalization in recent years several countries have relegated back to a highly protectionist approach in terms of receiving Overseas direct investment or outward foreign direct investment (“ODI/FDI”). This protectionist approach is significantly affected by factors including the nationality of the investor, the area in which the investment is being made, the quantum of investment and possibilities of control, etc. This paper attempts to forge ties between each of these factors to determine whether the European Union is becoming increasingly protectionist in terms of receiving foreign direct investment. The lack of such determination has conjured a rather sanitized image of the EU market towards FDI leading to losses. Therefore, the author further attempts to estimate the impact of such protectionist trends on the viability of deals by assessing the prevalent unsystematic risks.

The authors in this paper shall firstly assess the meaning and advantages/disadvantages of protectionism to explore the rationales behind countries adopting a protectionist FDI policy, secondly the author shall map the relevant factors affecting inward FDI in the European Union (“EU”) based on examples of several transactions undertaken or blocked in a five-year lookback period to gain insight on countries that are receptive to FDI and the sectors they extensively regulate. Lastly the authors shall estimate trends in the EU FDI regime and provide suggestions to avoid losses in terms of the pre-approval process.