This book deals with the application of the free movement of capital provisions (Article 63 TFEU et seq/ex Article 56 EC et seq) to foreign direct investment (hereinafter: FDI). The central question of the book is: “What rights does a private market participant, engaged in cross-border direct investment originating from or directed to a non-EU Member State, enjoy by virtue of the EC Treaty provisions on free movement of capital?” (p. 8). The study of the application of the free movement of capital provisions in a third-country context is comprehensive in scope and systematic in treatment. After an informative introduction, the author analyses the following issues: the economic rationale for the liberalisation of capital movements under EU law (I); the material scope of application of Article 63 (II); the (im)possibility to delineate between Article 63 and Article 49 TFEU (ex Article 43 EC) on freedom of establishment in their application to FDI (III); the substantive rights that direct investors hold under Article 63 (IV); the personal scope of application of Article 63 (V); and the exceptions to free movement of capital that apply indistinctly (VI) and exclusively (VII) to third-country direct investment. Hindelang moreover taps into recent scholarship in German, which is discussed in considerable detail.

The study focuses on the erga omnes application of the free movement of capital: ie, in contradistinction with the other TFEU freedoms, capital movements have been liberalised not only within the Single Market but also in relations with third countries, albeit subject to a number of exceptions and safeguards. The main thesis of the book is that the same liberal standards should be applied to intra-EU and third-country direct investment. The stakes are high: has the European Union in fact unilaterally opened up to direct investment from third countries – as the author argues, but which has equally been referred to as an “editorial mistake” of the drafters of EU primary law and even as an ‘outrageous act’ (pp. 24–25) – or is there no such self-imposed impediment to a reciprocity-based international liberalisation of FDI? The analysis is partly set against the backdrop of recent discussions in the context of investments by sovereign wealth funds, Gazprom seeking to obtain positions in the European energy market, as well as the adoption of more restrictive investment codes by some of the Member States. Important issues of international economic relations thus underlie the many questions of interpretation of Article 63 et seq (and Article 49) dealt with in this book.

The author's analysis is guided by a macroeconomic perspective. The erga omnes application of the free movement of capital is argued to contribute towards achieving the objectives set out in ex Article 2 EC, such as price stability, equalisation of the balance of payments and economic growth. There is less consideration of the (socio-) economic objectives that European integration is additionally supposed to serve under ex Article 2 EC, such as a “harmonious, balanced and sustainable development of economic activities” and “economic and social cohesion and solidarity among Member States”. The argumentative baseline is the optimised allocation of capital. To this end, the free movement of capital evidences a “liberal political undercurrent” (p. 18) and allegedly needs to be endowed with the greatest possible effectiveness (effet utile). Indeed, the extension of the free movement of capital to third countries under the Treaty of Maastricht was closely related to – and largely coincided in time with – the establishment of the Economic and Monetary Union (EMU), to the extent that there is a “symbiotic relationship” between the two (p. 21). In this regard, the author asserts that “free movement of capital is the best watchdog for the stability of the common currency” (p. 28–29).

The author advances a wide understanding of the term “movement of capital”, which is taken to comprise not only the “actual transfer” of capital, but also any activity in the run-up to it, as well as all follow-up activities (p. 57). For a definition of the term “direct investment”, the author first refers to the 1988 Capital Movements Directive (88/361/EEC, OJ 1988 L178/5), where this notion is understood in “its widest sense” as “investments of all kinds […] which serve to establish or to maintain lasting and direct links between the person providing the capital and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity”. However, the author eventually advances a narrower interpretation of the notion of “direct investment” in view of Article 64(1) TFEU (ex Article 57(1) EC), under which restrictions on capital movements involving direct investment that existed on 31 December 1993 are grandfathered (p. 67 et seq). Because of the need to interpret this exception strictly, the “lasting and direct link” threshold is suggested to run parallel with the higher threshold of “definite/decisive influence”. The latter test hinges on the actual control of the direct investor over the management of an enterprise, rather than the mere capacity to participate in its management. It has so far been used by the Court of Justice for the different purpose of distinguishing between Articles 49 and 63 TFEU in their respective material scopes of application.

Of paramount importance for third-country direct investment is the issue of demarcation between the free movement of capital and freedom of establishment. Hindelang argues in favour of the parallel application of these two internal market freedoms to FDI. He thereby distances himself from the Court of Justice, which in recent years has started to differentiate – “doubtful attempts” (p. 328) – between these two freedoms in third-country situations (see Case C-524/04 Thin Cap [2007] I-2107). This is presented by the author as a departure from earlier case law (such as the Golden Shares cases), where the Court often simply decided a case under the heading(s) (capital and/or establishment) under which it was brought. Even if this may have generated incorrect legal classifications, this was then without further consequence because these cases exclusively involved intra-EU situations. As a result of the more recent jurisprudence, the freedom of establishment has proven capable of superseding the application of the free movement of capital. In the view of the author, this has “fatal consequences” for third-country direct investors (p. 108), since it leaves them “without any protection” (p. 111).

While indeed posing challenges – the delineation test is currently still somewhat “vague and fuzzy” – it can be questioned whether the recent refinement of the earlier case law can be ascribed predominantly to political pressure (p. 99). After all, a “centre of gravity” approach has also been used for the purpose of delineation between other Treaty freedoms, such as in Fidium Finanz (Case C-452/04 [2006] ECR I-9521; capital and services) and Gebhard (Case C-55/94 [1995] ECR I-4165; establishment and services). It is also instructive to look at examples of restrictions on FDI in existing secondary legislation and Union external practice. For instance, under Article 11 of the recent Directives for the internal market in electricity and natural gas (2009/72/EC, OJ 2009 L211/55; 2009/73/EC, OJ 2009 L211/94), third-country direct investors can be denied rights to invest similar to those of EU direct investors. Importantly, these instruments were adopted inter alia on the basis of ex Article 47(2) EC, which is part of the provisions on establishment, and not ex Article 57(2) EC. The possibility to restrict third-country direct investment is here not associated with the free movement of capital by the Union legislator.

The book was published before the entry into force of the Treaty of Lisbon and the author does not address the Union's newly acquired FDI competence under the provisions on the Common Commercial Policy (Article 206 TFEU et seq). Issues of competence are even explicitly excluded from the scope of this study (p. 15). Nevertheless, this book is a mandatory reference for those trying to understand the scope of the Union's FDI competence and the external practice that may emerge in this field, in two respects. Firstly, there is now a need to delineate between Union competence under Articles 64(2) and 207 TFEU in relation to FDI. While competence to liberalise FDI under the former is in principle non-exclusive, Union competence under the provisions on the CCP is exclusive. Secondly, the consequences of the Union being to a significant extent constrained to selectively open up to FDI would be borne in the context of the conclusion of Union external agreements in that area. In this respect, the author makes the interesting point that the Union has the competence to restrict capital transfers under Article 64(2) TFEU, referred to as “The Sleeping Beauty” (p. 299 et seq). This allegedly mitigates the degree to which the unilateral liberalisation in the field of FDI has generated a permanent loss of bargaining power of the Union in relations with third countries. The question does arise whether it is realistic to incentivise a particular third country to open up to EU FDI by so doing, not least because it requires unanimity in the Council to restrict FDI under that provision.

This book is an important and timely contribution to an area where in-depth research in the English literature has hitherto been relatively scarce. The author has definitely succeeded in presenting “a construction of article 56 EC et seq as a ‘coherent whole’” (p. 13). It is moreover written in a captivating style and many interesting arguments will certainly spark further debate. This study is also a mandatory reference in the post-Lisbon era, not least because it contains elements of a view of how the internal market mechanism circumscribes the Union's treaty-making practice in the field of FDI.