Vietnam, FDI and the TPP ISDS: a Tentative Look

The Trans-Pacific Partnership Agreement (“TPP”) is a multilateral agreement currently being negotiated that, when finally agreed, will encompass approximately 40% of the worlds GDP under a new generation of multilateral economic governance that is focusing on competition policy, labour rights, international investment law and the harmonization of other areas of law and aimed at boosting trade, investment and economic growth between members, who at the advanced negotiation stage include Japan, the USA, Vietnam, Australia, Singapore, Brunei, Malaysia, New Zealand, Chile and Peru, with Canada and Mexico interested in joining. One of the most controversial aspects of the negotiations is that they are largely being held behind closed doors – with only limited information on draft chapters being released through memorandums, or via the medium of Wikileaks, hence why this short article is a tentative look – a detailed analysis at this stage is not possible until the final draft is released or leaked, which will not be for some time yet. This lack of transparency has helped foster strong opposition to the agreement before even considering the provisions contained within. This article considers some implications of the TPP’s Investor-State Dispute Settlement (“ISDS”) for investors of inward and outward FDI in Vietnam.

Opposing views mean uncertainty for ISDS in TPP

The ISDS provisions of the TPP have both strong support, and strong disapproval. The strong support comes primarily from the Japanese and US governments and firms that see the ISDS as crucial to the success of the TPP, and the need to protect their investment interests particularly in the SE Asian parties to the agreement. On the opposing side, with a particularly vitriol response is Australia, which has undergone a unique policy shift among developed countries and chosen to accommodate anti-ISDS voices, arguing that it ISDS is a threat to domestic rule of law and has an undermining effect on national judiciary systems. In light of this, Australia has become a proponent to abandoning the ISDS mechanism in the TPP. While the inclusion of an ISDS is still highly likely to be included as part of the agreement – with the USA pressuring opponent parties to endorse the ISDS – and arguing that there won’t be a TPP without it, there is still uncertainty around how the final draft of the TPP will be structured.

ISDS could bring new forms of investment to Vietnam

The inclusion of ISDS into the TPP agreement could have the effect further reducing the risk associated with foreign investment, which could encourage companies from developed countries party to the TPP such as those in the US, to engage in “discretionary” outsourcing, this refers to foreign investment that does not require a foreign presence to be successful (while “non-discretionary” investment outsourcing refers to investment that requires outsourcing to a foreign jurisdiction to be financially viable) , and to ensure performance, would usually be kept in the home country jurisdiction where investment is less risk averse. Such investment can include high quality manufacturing, research and development and others. This discretionary investment could further raise investor confidence in Vietnam as a destination for high tech, R&D and other forms of investment.

Vietnamese outward investment could be boosted

2014 was regarded as a bumper year for Vietnamese outward FDI, with approximately US$1 billion going to 129 projects around the world. While the biggest recipients of Vietnamese FDI have been Myanmar and Cambodia, the US and Singapore were also destinations, both of whom are parties to the TPP negotiations. This suggests that Vietnamese firms would be able to benefit from the ISDS mechanisms. While the US and Singapore have highly developed legal frameworks for the enforcement of foreign arbitral awards; both countries and Vietnam are indeed party to the New York Convention, this could seek to enhance Vietnamese enterprises’ access to a neutral ISDS mechanism. The wide scope of the Japanese and American positions on ISDS covering all major contracts between foreign investors and the host state, if agreed, could protect many forms of Vietnamese FDI to the US and Singapore.

A potential Appellate structure could enhance ISDS for investors

Although not confirmed as yet, the US has taken a leading role in the TPP negotiations in calling for an Appellate structure to the TPP ISDS. Such a mechanism has been widely promoted in US-led international investment agreements, and is included in the US model BIT as a review mechanism. Furthermore, the International Centre for Settlement of Investment Disputes (“ICSID”) secretariat has also considered reform to include an Appellate structure for reviewing arbitral awards. Such a mechanism in the TPP ISDS could have two implications for investors. Firstly, such a structure could harmonize the interpretation of the TPP treaty text, and allow for the correction of awards from the many private commercial arbitration institutions from different jurisdictions that contain different rules of interpretation, and provide a more legitimate investment framework for investors. Indeed, the basis behind the ICSID Appellate structure was to achieve the aforementioned.

Summation

This short look at some of the potential implications on both inward and outward investors in Vietnam suggests that there will be benefits to the international framework for investment in the region that will have the effect of boosting investor confidence between TPP members, on the back of a re-energized ISDS mechanism. With suggests that such negotiations are at an “advanced stage”, it is likely that more aspects of the agreement will be made public in the months to follow.

Bibliography

  • Sappideen, R. Ling Ling, He. ‘Investor-state Arbitration: The Roadmap from the Multilateral Agreement on Investment to the Trans-Pacific Partnership Agreement’, 40 Fed. L. Rev. 207 2012
  • Cai, Congyan. ‘Trans-Pacific Partnership and the Multilateralization of International Investment Law’, 6 J. E. Asia & Int’l. L. 385 2013
  • Ikenson, D. ‘A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement’, 57 Free Trade Bulletin 2014
  • Mayer Brown JSM ‘A Guide to doing business in Vietnam’ 2015
  • Mayer Brown JSM ‘Will Vietnam Sink or Swim Amid a Proliferation of FTA?’ International Trade Asia, 2015
  • http://www.talkvietnam.com/2015/02/vietnams-outward-fdi-is-the-tide-turning/ Accessed 7/4/15
  • http://kluwerarbitrationblog.com/blog/2011/05/11/reconsidering-icsid-awards/ Accessed 7/4/15

By Joseph McDonnell – Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

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