New investment nears via EVIPA sign-off

National Assembly Chairman Vuong Dinh Hue (left) met with European Parliament President David Sassoli. Photo: VNA

During last week’s meeting between Vietnamese National Assembly Chairman Vuong Dinh Hue and European Parliament (EP) President David Sassoli, the latter said that the EP has signed the adoption of the EU-Vietnam Investment Protection Agreement (EVIPA) and is now urging EU member states that have yet to adopt the deal to ratify it as soon as possible.

The EVIPA, ratified by the EP and Vietnam in February and June 2020, respectively, is aimed for investments of both sides to pour into their respective territories more favourably.

The EP in February 2020 also adopted the EU-Vietnam Free Trade Agreement (EVFTA), which has been in effect for over one year. However, the EVIPA is still subject to EU member ratification procedures. To date, the Czech Republic, Estonia, Greece, Hungary, Latvia, Romania, and Sweden have adopted the deal.

If the EVIPA is fully ratified by all 27 European nations, Vietnam will have a bigger advantage to attract more high-quality investment from the EU than China.

In May, the ratification of the EU-China Comprehensive Agreement on Investment was suspended by the EP due to several issues.

Chairman Hue also suggested that the EP and the European Council urge the member states of the EU to accelerate the ratification of the EVIPA. His request was made during his working visits to the EP and Belgium on September 8-9 after concluding a trip to Austria to attend the fifth World Conference of Speakers of Parliament. Hue then also visited Finland. He also urged the quick adoption of the EVIPA by these countries’ various parliaments.

At a recent meeting with Giorgio Aliberti, Ambassador and Head of the European Union Delegation to Vietnam, State President Nguyen Xuan Phuc also suggested the ambassador continue urging the parliaments of the EU member states to soon complete procedures and ratify the EVIPA to facilitate investment cooperation between Vietnam and the EU.

Protecting investors

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

“The EU hopes that its protection agreement with Hanoi will boost investment in the country. Vietnam is one of Asia’s fastest-growing economies. 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 an EP statement.

Modelled on the EU-Singapore Investment Protection Agreement, the EVIPA will replace the 21 existing bilateral investment agreements between Vietnam and 21 EU member states. In short, these rules will ensure that European investors will receive the best available treatment, without infringing on Vietnam’s right to legislate in its own best interests on issues such as health and safety or the environment.

First and foremost, the EVIPA includes new, more precise standards on investment protection. In practice, this means that the government must respect five fundamental principles. These include provisions on non-discrimination, allowing investors to transfer or repatriate investment-related funds, prompt and adequate compensation in cases of expropriation, a commitment to fair and equitable treatment, and a guarantee that contractual and legal obligations toward investors will be honoured.

The EVIPA also contains a clearer definition of “fair and equitable treatment”. This will ensure a more consistent trade and investment climate since it will remove the possibility of discretionary interpretation. Together, these provisions will ensure that investors and their investments are protected from discrimination and unfair treatment. They will be enforced through an innovative dispute-resolution mechanism to settle state-investor disputes.

This permanent tribunal contains two important provisions which will protect EU investors in Vietnam. It will be independent, meaning courts on either side are unable to overturn its judgments and must implement them. This will ensure fair, transparent, and impartial decision making.

This is aimed to help address some of the concerns that the European Chamber of Commerce in Vietnam raised in an annual report of trade and investment issues and recommendations. In particular, despite recent improvements to Vietnam’s legal framework, most foreign investors still choose to settle disputes through arbitration rather than the Vietnamese courts as a result of their perceived lack of independence.

Secondly, the tribunal will be balanced. Of its nine members, three will come from Europe and Vietnam respectively and a further three from another state. One member from each of these three parties will adjudicate on any specific case. For appeal hearings, the panel will include six members, with two being selected from each side and a further two from the independent nation.

The EVIPA also includes another important provision on alternative dispute resolution. This gives either side the right to request mediation in Brussels, Hanoi, or the capital of the respective EU member state. In the event that this mediation is unsuccessful, it can be escalated to the tribunal at a later date.

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 foreign investors in general and of EU ones in particular to the safety, attractiveness, friendliness, and competitiveness of Vietnam’s business climate.”

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

Great impacts

Vietnam has been pinning its great hope on the implementation of the EVFTA and the EVIPA, which will help the country to expand trade to the EU and attract more high-quality investment from this market.

According to the Ministry of Planning and Investment (MPI), once implemented, the EVIPA will “have massive positive impacts” on Vietnam’s business and investment climate, with assorted spillover effects.

An MPI study showed that the EVIPA with its own pressure will “help Vietnam compulsorily accelerate its economic renewal, with a more favourable business and investment climate in favour of EU investors and enterprises. What is more, Vietnam will also be able to balance its investment attraction and protection of national interests and sustainable development.”

Notably, investment from the EU will be facilitated because the EVIPA will enable an increase in the bloc’s investment liberalisation into Vietnam, especially in many sectors such as specialised services, finance, telecommunications, transportation, and distribution.

In addition, the origin rule under the EVFTA is stricter, making it “favourable for foreign investors to increase funding into goods production in Vietnam in order to take advantage of the country’s market access to the EU, helping promote Vietnam’s status in global value chains,” said an MPI report on the EVIPA.

The EVIPA will help Vietnam improve the quality of foreign investment, attract more investors in a number of industries that the EU has potential, such as the processing industry, manufacturing using high technology, clean and renewable energy, high-quality services, and banking and financial services.

“However, the preparation from the Vietnamese side and its enterprises in terms of business investment environment, human resources, technical infrastructure, and technology absorption capacity plays an important role in taking advantage of these opportunities,” said the report.

The EVIPA will also help support the development of the domestic private sector through spillover effects, as the EU is a highly technologically advanced region. A rise in EU investment can bring high-tech equipment into Vietnam. “However, this result depends largely on the quality of human resources and the technology absorption capacity of domestic firms,” the MPI noted.

“Thanks to the EVIPA and the EVFTA, it is expected that foreign investment in Vietnam will increase not only from EU member states seeking opportunities in the Vietnamese market, and through Vietnam to access other Southeast Asian markets, but also from foreign investors seeking opportunities through Vietnam to access the EU market.”

For example, Ywert Visser, representative from steel processing equipment group Paul Mueller Company, forecast that the EU deals will help encourage major investment flows from not only the EU but also other foreign markets into Vietnam.

“Reaping the benefits of the EVFTA for our company is luckily very straightforward. The deal helps our customers in Vietnam to simplify the import of our equipment. This helps us to do business in the country and our Vietnamese customers have better access to high-quality equipment made in the EU. European firms will continue their desk research for doing business in Vietnam.”

According to the MPI, investors from 25 out of 28 European Union member states have so far registered $22.2 billion for about 2,230 projects in the country.