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Official Gazette

Sunday, September 20, 2020

International commitments on liberalization of investment

Updated: 11:07’ - 25/09/2007

DUONG NGUYET NGA, LL.M
Law Faculty, National Economics University

Vietnam’s international commitments require it to liberalize foreign investment by opening up various economic sectors, ending discrimination against foreign investors according to certain timelines, and establishing a system to protect investment consistent with international practice.

Bilateral investment treaties

Since the signing of the first bilateral investment treaty (BIT) with Italy in 1990, Vietnam has so far signed BITs with 48 countries and territories around the world. Most of these BITs cover four major contents: acquisition (or the right to establishment) of investments; principles on post-establishment treatment; investment protection measures; and mechanisms for the settlement of disputes.

No

Countries/Territories

Date of signing

1

Italy

18/05/1990

2

Australia

05/05/1991

3

Thailand

30/10/1991

4

Belgium and Luxembourg

24/01/1992

5

Malaysia

24/01/1992

6

Philippines

27/02/1992

7

Germany

03/04/1992

8

France

26/05/1992

9

Switzerland

03/07/1992

10

Belarus

08/071992

11

Indonesia

25/10/1992

12

Singapore

29/10/1992

13

China

02/12/1992

14

Armenia

13/12/1992

15

Chinese Taipei

21/04/1993

16

Republic of Korea

13/05/1993

17

Denmark

25/08/1993

18

Sweden

08/09/1993

19

Finland

13/09/1993

20

Netherlands

10/03/1994

21

Ukraine

08/06/1994

22

Russia

16/06/1994

23

Hungary

26/08/1994

No

Countries/Territories

Date of signing

24

Poland

31/08/1994

25

Rumania

01/09/1994

26

Austria

27/03/1995

27

Latvia

27/09/1995

28

Cuba

12/10/1995

29

Lithuania

06/11/1995

30

Laos

14/01/1996

31

Uzbekistan

28/03/1996

32

Argentina

03/06/1996

33

Bulgaria

19/09/1996

34

Algeria

23/10/1996

35

India

08/03/1997

36

Egypt

06/9/1997

37

The Czech Republic

25/11/1997

38

Tajikistan

19/01/1999

39

Chile

16/09/1999

40

Mongolia

17/08/2000

41

Myanmar

12/05/2000

42

Cambodia

26/11/2001

43

P.D.R. Korea

03/05/2002

44

United Kingdom

01/08/2002

45

Iceland

20/09/2002

46

Japan

11/11/2003

Source: MPI’s Administration Office

 

BITs signed before July 2000 (before the signing of the Vietnam-US bilateral trade agreement)

Vietnam has recognized in all BITs the principle of mutual facilitation and promotion of investments by approving these investments in an equitable and fair manner and refraining from introducing unreasonable and discriminatory measures. The scope of acquired and protected investment was broader than in domestic regulations, covering direct investment, indirect investment, contractual rights, tangible property, intangible property, intellectual property rights and other rights.

However, most BITs have invoked the application of the domestic law of each contracting party to the acquisition of investments. It means that these BITs did not cover market access commitments in all sectors, including services. In other words, treatment agreed under these BITs was accorded only in the post-establishment stage. A number of sectors were not opened to foreign investors or were subject to certain conditions on establishment, such as a cap on foreign capital, or the nature of operation, such as restrictions on technology transfer, employment, land use, raw materials and product outlets. These restrictions were imposed for the purposes of national security, environment, human health, protection of natural resources, animals and plants and the protection of certain sectors.

In all the BITs it signed prior to 2000, Vietnam only recognized the most-favored nation treatment, a principle already enshrined in the 1987 Foreign Investment Law.

The BITs also laid down the basic principles concerning expropriation and nationalization of investor assets. No BIT prevented either contracting party from expropriating investor assets upon payment of prompt and adequate compensation based on market value and due process of law. The BITs also affirmed investor rights to transfer capital, profits and other lawful income back home without delay, in a freely convertible currency and in compliance with IMF obligations.

The BITs endorsed a mechanism for settling disputes between the contracting parties over interpretation and application of the treaties. Normally, these disputes would be settled through negotiation and conciliation or by a third-party arbitration. For disputes between a contracting party and an investor of the other contracting party, the BITs permitted the investor to bring the case before an administrative tribunal or a court of justice of the host country or apply arbitration rules as agreed upon, including the arbitration rules of the International Center for Settlement of Investment Disputes (ICSID), the International Chamber of Commerce or an ad hoc arbitration according to the rules of the United Nations Commission on International Trade Law (UNCTRAL)

The Vietnam-US Bilateral Trade Agreement’s (BTA) chapter on development of investment relations

Though only a part of the BTA, the chapter on development of investment relations is similar to a comprehensive bilateral treaty on the promotion and protection of investment between Vietnam and the US. Apart from applying standards on the promotion and protection of investment prescribed in the aforementioned BITs, Vietnam committed for the first time to accord national and most-favored-nation treatment to US investors. Specifically:

Each party accorded to investors of the other treatment no less favorable than the treatment it accords in like circumstances as the better of national treatment or most-favored-nation treatment to its own investors and investors of a third country. However, neither the US nor Vietnam was obliged to accord immediately and unconditionally national or most-favored nation treatment to investors of the other. This obligation would be performed with some exceptions in the sectors and matters specified in annexes to the Agreement.

Each party also accorded to investments of the other equitable and fair treatment not less favorable than treatment required by international practice, and refrained from applying unreasonable and discriminatory measures that impaired the establishment and operation of investments.

Vietnam accords national treatment with certain exceptions in some sectors and according to schedules suitable to the conditions of its economy, which is in a transitional period. Vietnam maintains exceptions on national treatment in important sectors and matters such as broadcasting and television, culture, banking, insurance, telecommunications, real estate business, land and home ownership, and state subsidies and supports for domestic enterprises (land allocation for investment projects, preferential credits, research and development and education programs and other forms of government support); acquisition of shares of state enterprises; and licensing of investment projects which fall under the decision-making authority of the Prime Minister.

Vietnam commits to eliminate within five to seven years from the effective date of the BTA regulations inconsistent with the WTO Agreement on Trade-Related Investment Measures (TRIMs), such as requirements on export of a number of industrial products; development of local raw material sources for projects in cane sugar, vegetable oil, milk and wood processing; and requirements on localization rates in the manufacture and assembly of automobiles, motorcycles and home electronic appliances. Vietnam immediately abolished on the effective date of the BTA regulations on import-export balances and management of foreign exchange earned from imports.

Under the provisions of Chapter I (Trade in Goods) and Chapter II (Trade in Services), Vietnam also committed:

(1) Within five to seven years, to allow US investors to set up joint ventures or 100% US-owned enterprises to engage in exporting and importing goods, except for some goods and subject to capital contribution percentage limits; and,

(2) To incrementally remove restrictions on market access and accord national treatment, subject to some exceptions, to US investors in eight service sectors with about 54 sub-sectors.

Regarding the registration regime for investment licensing, Vietnam had the right to permanently maintain the evaluation regime for investment licensing with respect to most group-A projects under the decision-making authority of the Prime Minister. For these projects, Vietnam had to publicize the criteria for the grant or denial of an investment license and apply the regime of grant and management of licenses on the basis of national treatment.

Vietnam committed to gradually implement within two to seven years the registration regime for investment licensing with respect to production projects, projects with high export percentages, and projects in industrial parks, export-processing zones and hi-tech parks. Registration only requires the provision of basic information concerning the investor and proposed investment project, with approval issued without any conditions. For these projects, within six years from the effective date of the BTA, Vietnam would implement the registration regime for investment licensing on the basis of national treatment.

Regarding the mode of raising capital and restrictions on the establishment, organization and management of foreign-invested enterprises, Vietnam committed to allow US investors to contribute, increase and reinvest capital in Vietnam dong, originating from their lawful business activities. It also committed to abolish some requirements on investment capital within three years.

Also within this time frame, Vietnam was to allow US investors to establish joint-stock companies and abolish the consensus principle and the requirement that the general director or the first deputy general director of a joint venture be a Vietnamese citizen.

In implementing the roadmap for the application of the single pricing system to a number of goods and services sold to domestic and foreign-invested enterprises, Vietnam committed to refrain from imposing new or more onerous discriminatory prices and fees and eliminate within four years discriminatory prices and fees for electricity, water, telecommunications, aviation, international ports and registration of motor vehicles and tourist services.

Vietnam agreed to facilitate business activity, employment and technology transfer by: (1) allowing US investors to transfer and recruit foreign employees of any nationality into top managerial positions in Vietnam in accordance with the country’s law on entry and sojourn of aliens; (2) refraining from enforcing any requirement on technology transfer or a production processes, except for the purpose of environmental protection and assurance of enforcement of rulings of courts and competent bodies against violations of competition laws; and (3) permitting US investors to import office equipment for their business activities, access and use office space on a non-discriminatory basis, hire agents, consultants and distributors, directly advertise and sell their goods and services, and stock an adequate supply of samples and replacement parts for post-sales service.

BITs signed after the BTA

The signing and implementation of the BTA has opened a way and created a legal foundation for Vietnam to negotiate BITs with treatment levels higher than those stipulated in BITs signed before July 2000. Most BITs signed in this period, such as those signed with South Korea, the United Kingdom and Iceland, recognized national and most-favored-nation treatment principles, which, however, were only applicable to the use, management, maintenance, use, enjoyment and other disposal of investments. The scope of treatment was narrower than that of the BTA and, in practice, excluded the application of national and most-favored-nation treatment in the stage of acquisition and establishment of investments. Accordingly, each contracting party had the right to maintain the regime of investment licensing with respect to foreign-invested projects and was obliged to implement these treatment principles only after investors have observed all licensing conditions and were lawfully established in the territory of each contracting party.

Vietnam also retained the right to maintain some exceptions on national treatment suitable to its economic development level but was obliged to give notice of the revision or cancellation of these exceptions if so prescribed by existing law.

The BIT with Japan has some unique contents: (1) Applying the commitments to market opening according to the BTA’s annex G as an exception on national treatment; (2) expanding national treatment commitments towards removing restrictions in some sectors (distribution, construction, technical services, etc.); (3) applying the roadmap for national treatment on the principle that this treatment will be accorded Japanese investors when any investor of a third country enjoys it (according to the BTA roadmap); and (4) committing to implement the TRIMS on a broad scale, including operation requirements determined in the NAFTA. All other commitments in the BIT with Japan were designed similar to the commitments in the BTA and other signed BITs.

Regional organizations and forums

Since 1995, Vietnam’s international integration in investment has rapidly unfolded within both bilateral and multilateral frameworks. A prominent characteristic is that Vietnam, apart from signing bilateral agreements on the promotion and protection of investment, Vietnam signed or acceded to the following international agreements and forums:

Framework agreement on the ASEAN investment area

Under this agreement, by 2013, Vietnam will grant the temporary exclusion list, covering sectors it has not yet opened or accorded most-favored-nation treatment, to ASEAN investors, on the AFTA + 7 principle.

Asia-Pacific Economic Cooperation Forum

After joining APEC in November 1998, Vietnam worked out a national plan of action on liberalization of investment in accordance with APEC objectives. According to this plan, Vietnam commits to accord full national treatment to foreign investors by 2020, incrementally create a common legal framework and apply common tax policies and service charges to domestic and foreign investors; increase the transparency and predictability of foreign investment laws and policies; improve investment procedures and incrementally reduce operating requirements on investment projects in conformity with TRIMS; gradually apply the registration regime for investment licensing; and diversify forms of investment and methods of raising foreign investment capital.

Asia-Europe Meeting (ASEM)

One of the top priorities of ASEM is to promote cooperation among enterprises and improve trade and investment conditions through implementing two cooperation programs: Trade Facilitation Action Program (TFAP) and Investment Promotion Action Program (IPAP). The general objectives of the IPAP are to build a favorable investment environment to increase a two-way investment flow between Asia and Europe; implement cooperative programs to boost investment among members; and intensify measures to improve mechanisms, policies and regulations on investment in the region.

Multilateral agreements on investment

Vietnam officially joined the WTO on January 11, 2007. During the process of WTO accession negotiations, Vietnam took great efforts to make its investment policies transparent and complete an action plan on implementation of TRIMs with a view to abolishing all measures inconsistent with the Treaty by the time of its accession to the WTO. Vietnam committed to:

(1) abolish the compulsory localization requirement in investment licenses for projects on manufacture and assembly of automobiles, motorcycles, mechanical, electrical and electronic products;

(2) eliminate the compulsory requirement that investment must be made in conjunction with the development of local raw material sources in foreign-invested projects in milk, vegetable oil, cane sugar and wood processing on the list of conditional investment domains issued together with Government Decree No. 24/2000/ND-CP;

(3) remove all localization rate-based import tax incentives for enterprises engaged in manufacturing and assembling mechanical, electrical and electronic products and automobile spare parts stipulated in Joint Circular No. 176/1998/TTLT; and,

(4) refrain from re-introducing measures contrary to TRIMs.

In 1995, Vietnam joined the Multilateral Investment Guaranty Agency (MIGA) and the 1958 New York Convention on Recognition and Enforcement of Awards of Foreign Arbitrations.

Vietnam’s efforts to liberalize investment and improve foreign investment laws and policies in the past are important factors to strengthen the foreign investor’s trust in the attractiveness and competitiveness of Vietnam’s investment environment, opening up new opportunities for attracting foreign investment. These are positive signals to the international community on the nation’s determination to pursue policies of renewal, open-door and international integration.-

VNL_KH1 

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