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Vietnam ratifies investment treaty with EU, embracing a “next generation” permanent investment tribunal

On 8 June 2020, Vietnam ratified the EU-Vietnam Investment Protection Agreement (EUVIPA). Once it enters into force, the EUVIPA will provide important investment protections to qualifying investors. It will also enable investors of one State party to bring proceedings against the other if there is an infringement of those substantive protections—but, rather than in international arbitration, before a standing investment tribunal.

Importantly, upon its entry into force, 21 agreements between EU member States and Vietnam will cease to have effect and will be replaced by the EUVIPA.

The EUVIPA will enter into force when each EU member State completes its internal ratification process, which is likely to take some time.

Investors and investments qualifying for protection

The threshold definitions of “investor” and “covered investment” must be satisfied in order to benefit from the investment protections of the EUVIPA.

As to “investor”: the EUVIPA provides protections for natural persons and companies set up in accordance with the domestic laws of a State party, or owned or controlled by a natural person or a company of a State party. However, the EUVIPA limits protection to companies with “substantive business operations” in their home country. The EUVIPA provides some guidance on this concept by noting that “substantive business operations” is equivalent to the concept of “effective and continuous link” under the Treaty on the Functioning of the European Union. Thus, a significant point from the perspective of treaty structuring of investors is that EUVIPA will not protect the so-called “shell” or “mailbox” companies.

“Covered investments” is defined as an investment by an investor of one State party in the territory of the other that has been made in accordance with the other State party’s applicable law and regulations. Notably, in addition to enumerating some examples of what form an investment can take, the EUVIPA expressly requires that the investment meet certain characteristics to qualify for protection, such as commitment of capital or other resources, the expectation of gain or profit, the assumption of risk and a certain duration, similar to the so-called Salini test requirements for identifying investments in cases under the ICSID Convention.

Investment protections and limitations

The EUVIPA guarantees certain fundamental principles of treatment for covered investments, such as fair and equitable treatment, national and most-favoured-nation treatment, and no expropriation without prompt and adequate compensation.

However, investors should be particularly mindful of the limitations on the scope of the investment protections, as certain protections are expressly excluded for certain activities and industries, including the oil and gas and mining industries.
More specifically, the EUVIPA provides that, if you are an “investor” with a “covered investment”, you and your investment are entitled to the following protections.


  1. Fair and equitable treatment (FET) and full protection and security. Each State party guarantees investors and covered investments a fair and equitable treatment and full physical protection and security. The EUVIPA lists measures which constitute a breach of the FET standard, including those that constitute a denial of justice, abuse of power or bad faith, “manifest arbitrariness” or discrimination on “manifestly wrongful grounds”. Notably, the EUVIPA provides that any conduct not expressly listed may constitute a breach of FET “where the Parties have so agreed in accordance with the procedures provided for” in the EUVIPA.

  2. National Treatment. Under the EUVIPA, qualifying investors and investments are to receive treatment no less favourable than the treatment accorded by the host State, in like situations, to their own investors and investments. This protection expressly applies to the operation of the covered investments (and not to their establishment or acquisition). It does not apply to subsidies and to a number of industries in Vietnam, including oil and gas, mineral and natural resources, hydroelectricity and nuclear power.

  3. Most-Favoured-Nation Treatment (MFN). Under the EUVIPA, qualifying investors and investments are to receive treatment no less favourable than the treatment accorded by the host State, in like situations, to investors and investments of a third country. Importantly, the scope of the MFN protection is significantly curtailed. Similar to national treatment, the EUVIPA excludes providing MFN treatment to a number of industries. It also provides that substantive obligations in other treaties do not in themselves constitute “treatment” and cannot give rise to a breach of the MFN provision unless the host State has adopted or maintained measures pursuant to those obligations. Investors will also not be able to rely on dispute resolution clauses in other treaties.

  4. No expropriation without compensation. The State parties agree not to expropriate or nationalise covered investments directly through formal transfer of title or outright seizure of a covered investment, or indirectly through measures that have an effect equivalent to expropriation or nationalisation, except: (a) for a public purpose; (b) in a non-discriminatory manner; (c) on payment of prompt, adequate and effective compensation; and (d) in accordance with due process of law. In addition, an important qualification to this guarantee is that non-discriminatory regulatory actions by a State party that are designed and applied to protect legitimate public policy objectives do not constitute indirect expropriation, except in rare circumstances.

Investor-State Dispute Settlement

Investors are able to enforce the substantive investment protections against a State party by submitting a dispute to binding investor-State dispute settlement (ISDS) if it cannot be resolved within six months by consultation.

The EUVIPA provides for a reformed ISDS mechanism, reflecting EU’s concerns with ISDS. Some Asian States (such as Japan) have resisted the EU’s changes and have sought to maintain the “old-style” ISDS system, while others (such as Singapore and Vietnam) are more supportive.

Most importantly, under the EUVIPA, the disputing parties do not get to choose who will decide their dispute. Instead, the EUVIPA provides that, upon its entry into force, permanent first instance and appeal tribunals will be established. The first instance tribunal will consist of nine members (three from Vietnam, three from EU member States and three from third countries), who are required to have certain qualifications and adhere to a code of conduct. They will hear cases in a division of three (one from a EU member State, one from Vietnam and one from a third country who will be the chair). The members of the specific division will be appointed by the president of the first instance tribunal, not by the parties to the dispute. Similarly, the appeal tribunal, which will consist of six members (two from EU member States, two from Vietnam and two from a third country), will hear cases in a division of three, with the president of the appeal tribunal appointing the specific division members.

The EUVIPA also expressly addresses a number of substantive and procedural aspects of the ISDS, including the following.

  1. Withdrawal of domestic or international court or arbitral proceedings related to the same measures. Addressing the risk of multiple proceedings, the EUVIPA requires that if an investor wants to take advantage of the ISDS provisions under the EUVIPA, it must withdraw and waive its right to initiate related proceedings in other domestic or international fora.

  2. Transparency. The EUVIPA provides that the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration apply, which provides that the proceedings will be transparent and interested third parties may make submissions.

  3. Binding interpretations. The EUVIPA establishes a committee with the power to issue binding interpretations of the EUVIPA. A permanent tribunal’s award must be consistent with the committee’s decisions.

  4. Preliminary objections. The EUVIPA expressly allows for preliminary objections that a claim is “manifestly without legal merit”. It also gives the Tribunal authority to dismiss claims that are “unfounded as a matter of law” as a preliminary question.