European nations to embrace EVIPA-backed investments

The EVFTA and EVIPA are expected to enable Vietnam’s transition to a regional production hub, Photo: Le Toan

The Delegation of the European Union to Vietnam has been organising meetings with leaders of European nations on a monthly basis, with one of the key contents being urging these nations to adopt the EU-Vietnam Investment Protection Agreement (EVIPA).

The deal has been adopted by only eight out of the 27 parliaments of EU member states so far.

“The EVIPA will help protect the benefits of investors from both Vietnam and the EU in their projects in the territories of Vietnam and the EU. Thus, the sooner the deal is fully adopted, the better it will be for the investors,” said a senior expert from the union.

While the EU and Vietnam have been focusing on fighting COVID-19 and boosting economic recovery, leaders of Vietnam have also been working with EU nations that have yet to pass the EVIPA. National Assembly Chairman Vuong Dinh Hue in particular has been working with leaders of the European Council and European Parliament (EP), and also leaders of Austria, Belgium, and Finland on the issue.

“In the existing context when Vietnam has partaken in 17 multilateral and bilateral free trade agreements (FTAs) with many leading partners, late ratification of the EVIPA will prevent EU enterprises from grasping opportunities to catch up with the business investment trend in the region and the wider world post-pandemic,” noted Hue.

The EVIPA was ratified by the EP and Vietnam in February and June 2020, respectively, but is still subject to ratification of each EU member nation.

Ensuring investors’ benefits

With negotiations lasting from 2012 to the end of 2015, the EVIPA aims to protect investors and investments in the EU and Vietnam and ensures they will be given fair treatment.

“The EU hopes that its IPA with Hanoi will boost investment in the country. Vietnam is one of Asia’s fastest-growing economies, a country of nearly 100 million people with a rapidly expanding middle class. It is also a gateway to the wider Southeast Asia and East Asia regions. Vietnam is therefore a promising market, and relative to the size of its economy it has attracted a very high rate of foreign investment,” said the EP in a statement.

According to the parliament, modelled on the EU-Singapore IPA, the agreement will replace the 20 existing bilateral investment deals between Vietnam and 21 EU member states. It includes a new investment court system, comprising an investment tribunal and appeal tribunal to resolve disputes between EU investors and Vietnamese authorities and vice-versa.

The system aims to offer a high level of protection for EU investors in Vietnam, ensuring that they are not targeted by abusive treatment disadvantaging them relative to Vietnamese operators and that their assets are not expropriated without adequate compensation. At the same time, the agreement confirms the right of governments to achieve legitimate policy objectives such as the protection of public health, safety, the environment, and public morals.

Commenting on the EVIPA’s strength, Minister of Planning and Investment Nguyen Chi Dung said the deal, with more comprehensive and fairer commitments on investment protection, together with important commitments under the EVFTA on opening the markets of goods, services, investment, public procurement, and intellectual property, “will greatly contribute to strengthening the confidence of EU investors in particular to the safety, attractiveness, friendliness, and competitiveness of Vietnam’s investment climate.”

“Simultaneously, Vietnamese enterprises and people will have opportunities to benefit from European high-quality goods and services with affordable prices.”

The EVIPA covers non-direct (portfolio) investment and investor-state dispute settlement mechanisms: these are shared competencies, on which the EU shares decision-making powers with member states, meaning that the agreement must also be ratified by them.

Suitable momentum

According to Giorgio Aliberti, Ambassador and Head of the Delegation of the European Union to Vietnam, with the EU-Vietnam FTA (EVFTA) and the EVIPA, today’s disruptions can also serve as an opportunity for re-organising Vietnamese trade and investment relations. Vietnamese companies may want to consider whether they could diversify their supply chains, their production chains, and their integration into value chains. If Vietnam diversifies more, it becomes less vulnerable to future global economic crises.

“To build up an interest in the EU to invest in Vietnam, you need to facilitate trade in cars, pharma, machinery, and electronic appliances. Only then will CEOs in the EU fully notice the potential of Vietnam. Vietnam will have to resist the temptation of sectoral guidance: get investment only in some sectors but not in others. This managed investment has never worked in any country,” Aliberti said.

If there is more trade from the EU to Vietnam, it is likely that the EVFTA will trigger a new wave of foreign direct investment from the EU into Vietnam, he added. “European companies bring high skills, best practices of organisation, and world-leading technologies to Vietnam. European investment comes with high standards of corporate social responsibility for protecting and training workers and employees, as well as for respecting and protecting the environment.”

These spillover effects are essential for economies like Vietnam to avoid the middle-income trap and allow the country to promote economic growth and create better jobs at the same time, while ensuring sustainable development, Aliberti said.

According to the Delegation of the European Union to Vietnam, both agreements offer Vietnam a chance of becoming a regional production hub. Compared with peer economies in the region, Vietnam has a first-mover advantage of 7–10 golden years of privileged access to the EU’s market. Only Singapore, which has concluded and ratified the FTA before Vietnam, is in a similarly advantageous position. With the foundations of the new economic agreements with the EU, the choice of new European partners is obvious and open to Vietnamese producers. It provides additional opportunities and facilitation for local start-ups and small and medium enterprises to grow into global companies.

“If you take a closer look into the complementarity of our two economies, greater interdependence is really a win-win situation. These positive effects will of course only materialise if the promises and obligations of the agreements are swiftly put into practice,” Aliberti said. “The benefits of the agreements will directly depend on the level of transparency and predictability of government behaviour in contact with businesses. Businesspeople and investors have options to move elsewhere if the overall business environment is not favourable or stable.”

According to the Ministry of Planning and Investment (MPI), once taking effect, the EVIPA will “have many positive impacts” on Vietnam’s investment and business environment.

An MPI study showed that the EVIPA will “pressurise Vietnam to boost its economic renewal, with a more favourable business and investment climate to be created for EU investors and businesses. Besides that, Vietnam will also be able to keep balance its investment attraction and protection of national interests and sustainable development.”

Notably, investment from the EU will be facilitated as the EVIPA will allow a rise in the bloc’s investment liberalisation into Vietnam, especially in a wide range of sectors such as finance, distribution, transportation, and telecommunications.

The EU is one of the most important sources of foreign investment for Vietnam. According to the MPI, investors from 25 out of 28 EU member states have registered $22.2 billion for about 2,230 projects in Vietnam.

In terms of trade, the EU-Vietnam bilateral trade turnover last year reached $55.39 billion, with Vietnam earning just over $40 billion from exporting goods to the EU and spending $15.34 billion importing goods from this market. The figure in the first 11 months of 2021 hit $51.2 billion, with Vietnam fetching $35.7 billion from exporting goods to the EU, up 11.9 per cent on-year, and using $15.5 billion importing goods from this market, up 18.2 per cent on-year.

However, Aliberti noted that attracting and retaining more EU investment will require reforms and streamlining of rules and procedures. “Digitalisation and access from outside of Vietnam to start and accomplish these procedures could help attract more small- and medium-sized global players. Global enterprises are a big source of capital, currently almost untapped. Trade and investment go hand-in-hand in a globalised economy with value chains extending over half the planet,” he said.