compatibility review of vietnamese domestic...

Dr. NGUYN TH THU TRANG

Member of the Research team 1

COMPATIBILITY REVIEW OF VIETNAMESE DOMESTIC REGULATIONS WITH EVFTA COMMITMENTS ON INVESTMENT

Results and Recommendations

Presentation overview

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Review Intro Commitment

Intro

Results

01 02 03 04

Recommendations

Review Intro

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Review Intro

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(i) Why investment?

EVFTA predicts new issues facing Vietnams investment:

As a major investor in Vietnam, the EU is interested in:

- Protection afforded to EU investors by VN?

- To what degree will VN open up its investment market to foreign investors?

>>> EU expects high commitments within the EVFTA on investment

For Vietnam:

- VN wants to attract FDIs (-> improve investment climate)

- VN wants to protect its sovereign rights in investment management, ensure level playing field for Vietnamese investors -> wishes to retain some control

Review Intro

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01

02

03

Compare in detail each obligation, commitments compatibility

Assess EVFTAs and Vietnams respective needs

Propose changes to Vietnams domestic regulations to implement EVFTA from the business communitys perspective

REVIEW GOALS

Review Intro

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Review scope

(i) Commitments

Investment (in Chapter 8)

Annex 8d Cross border supply of services and establishment Vietnams schedule of commitments (investment clauses)

(ii) Vietnamese law

Investment regulations: Investment law; documents guiding implementation

Relevant laws (Enterprise, civil, trade, State reparations, acquisition and requisition, commercial arbitration...)

Specific laws on biz sectors (provisions on foreign investments)

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EVFTA Commitments on

Investment

EVFTA Commitments on Investment

Overview

(i) Investment chapter: 60 pages, 3 parts

- Liberalization

- Protection

- Investor-state dispute settlement (ISDS)

(ii) Annex 8d: 66 pages, 3 parts

- General commitments (cross-cutting)

- Commitments to open up services sector

- Commitments to manufacturers

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Investment Chapter Commitments

Commitments on rules

Liberalization of Investment

Investment Protection

Investor State Dispute Settlement (ISDS)

Rules Commitments include commonly applicable rules, to all investment activities under jurisdiction (unless otherwise governed by specific commitments in specific areas)


Liberalisation of Investments

Principle 1: Market Access

- Commit to accord EU investor/investment treatment no less favorable than stated in the commitment schedule (establishment + operation of investment)

- Commit to restraint from taking listed prohibited measures in sectors in the schedule of commitments (except otherwise provided for by the schedule of commitments)

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Examples of prohibited measures:+ Restricting the number of business entities+ Restricting the total transaction value+ Restricting the total number of operations



Principle 2: National Treatment

- Commit to accord treatment no less favorable than that provided for Vietnamese businesses in establishment in sectors under the schedule of commitments (except otherwise provided for by the schedule of commitments)

- Commit to accord treatment no less favorable than that provided for Vietnamese in the operation of investment, except in 3 cases

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03 cases where NT could be disregarded:+ Terms, conditions, limitation specified in the schedule of commitments+ The discriminatory measures came into effect before the EVFTA+ Listed areas (media, distribution of media content, security investigation, elementary and secondary education)



Principle 3: Most Favored Nation Treatment

- Accord to EU investors as regards the establishment of an enterprise, treatment no less favorable than the treatment accorded, in like situations, to investors and investments under free trade agreement Vietnam is negotiating as of 17 July 2015 (TPP, FTA VN-EFTA, RCEP)

- Accord to EU investors as regards their operation in Vietnams territory, treatment no less favorable than the treatment accorded to investors and investments of other non-Party unless it entered into force before EVFTA

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03 instances of allowed discriminatory practice:+ Commitment within the framework of an Economic Community (e.g. ASEAN), avoidance of double-taxation, mutual recognition of specialized services licenses+ Listed areas (communications services except post and telecommunications, fisheries and aquaculture, mining, forestry and hunting...)



Principle 4: Performance Requirements

- Commit not to take listed measures (export percentage, domestic content percentage, relate value of import to export, etc.) in connection with the establishment or operation of any investment in sectors in the schedule of commitments

- Commit not to condition the receipt or continued receipt of an advantage, in connection with the establishment or operation of an investment, on compliance with listed measures (export percentage, domestic content percentage, relate value of import to export)

- A number of exceptions

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Examples of exception+ Require to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development in territory+ Qualification requirements for goods or services with respect to participation in export promotion and foreign aid programmes



Principle 1: Treatment of Investment

- Fair and equitable treatment FET: in violation if fits listed examples

- Full protection and security: Ensure bodily safety for investors and security for investment

- Conditional breach of agreement through exercise of government authority

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Examples of FET violations+ Denial of justice in criminal, civil, or administrative proceedings+ Fundamental breach of due process+ Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief+ abusive treatment such as coercion, abuse of power or similar bad faith conduct



Principle 2:

Compensation of losses owing to war or armed conflicts

Principle 3:

Expropriation is allowed in cases for a public good, with prompt, adequate, and effective compensation at market value at the expropriation point

Principle 4:

Permit all transfers relating to an investment to be made in a freely convertible currency, without restriction or delay and at the market rate of exchange applicable on the date of transfer

Principle 5:

Recognition of subrogation or transfer of any right or title or the assignment of claim in respect of any investment

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Investor - State Dispute Settlement

Claimant?

EU investors in Vietnam (individual or representing business entities in which they hold shares)

Defendant?

State agencies related to EU investors operations

Alleged Claim?

- Violations of EVFTAs Investment Protection commitments; or other commitments related to the principles of National Treatment, MFN; and

- Investors incurred damages

Procedures:

ISDS procedures as stated in the EVFTA chapter on investment; and

Other claims procedures related to ICSID, UNCITRAL, or mutually agreed procedures

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Annex 8d commitments

Open door commitments

General: General commitments

Commitments to specific services sectors

Commitments to specific manufacturing sectors

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Results

Rules Commitments (Investment Chapter)

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1. Definitions

- Vietnamese laws are fundamentally

compatible

- Non-compatible regulations pertains solely to

EVFTA (investors, investments...)


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2. Investment liberalization

(i) The majority of Vietnamese laws are compatible:

- Due to application principle : Investment requirements must be in line with international commitments;

- Thanks to PR provisions in Investment Law which are applied indiscriminatorily to foreign and domestic investors

(ii) Non-compatibilities:

- Market access for EU investors as per schedule of commitments which are more favorable than that in current law

- Commitment that Vietnam restraint from requiring EU investors to sell or re-determine their investments in listed sectors in Chapter 8 annex on NT

- Commitment to offer MFN for EU investors as regarding TPP and other on-negotiating FTA


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3. Investment protection

(i) The majority of Vietnamese laws are compatible:

- Since current laws and regulations recognize FET;

- Since Investment Law recognizes almost all investment protections appearing in EVFTA

(ii) Incompatibilities:

- Real implementation of FET requirements

- Non-violation of agreements between the State and investors through exercise of government authority at clause 5 Article14 on Treatment of Investment

- Compensation of losses in Article 15

- Delayed clearance of interests payments and indirect expropriation


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4. ISDS mechanism

(i) This is not an issue within domestic law framework

- Since ISDS and domestic regulation have separate, non-

overlapping jurisdictions

(ii) Incompatibilities:

- ISDS as stated in EVFTA is not recognized in Vietnamese

law

- Validity of ISDS award and Recognition and

enforcement of ISDS award within and beyond 5-year

reservation

Recommendations

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Recommendations

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(i) Compatible group

No further actions

Pay attention to results: FET

(ii) Non-compatible group:

Develop a separate legal document on implementation of EVFTA commitments onInvestment (a Law)

- Include commitments in schedules

- Include commitments that Vietnam laws and regulations are incompatible

- Include compatible clauses in Vietnamese law but needed to be included to improve transparency and facilitate implementation for EU investors

- Include clauses on ISDS commitments (principle, scope)

NA Resolution for direct application

- ISDS commitments (claims procedures)

Thank you!

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Research teamWTO and Integration Center VCCITel: 04 35771458Email: [email protected]

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