J USTIFICATION OF THESIS
Despite the negative effects of COVID-19, Vietnam is one of the few countries that recorded positive growth in foreign direct investment in early 2021 1
According to the General Statistics Office (GSO), Vietnam's total investment capital reached approximately US$ 10.13 billion in the first quarter of 2021, marking an 18.5% increase compared to the same period in the previous year This growth highlights the crucial role of foreign investment, particularly foreign direct investment (FDI), in driving Vietnam's economic development during this time.
To enhance the international trade and foreign investment in Vietnam between Vietnam and the EU, in July 2015, Vietnam had successfully negotiated the
The EU-Vietnam Free Trade Agreement (EVFTA) aims to enhance economic cooperation between the two regions In 2017, to address investment protection and dispute resolution, the EU and Vietnam decided to separate the original agreement into the EVFTA and the EU-Vietnam Investment Protection Agreement (EVIPA) While the EVFTA came into effect in August 2020, the EVIPA has yet to be finalized.
EU members’ ratification yet However, the EVIPA is expected to attract investment and modern technology from Europe into Vietnam and protect investors and investments in EU and Vietnam.
The COVID-19 pandemic led to a significant decline in foreign direct investment (FDI), with global FDI flows plummeting by nearly 40% in 2020 Projections indicate a further decrease of 5 to 10% in 2021, highlighting the ongoing impact of the crisis on international investment For comprehensive insights, refer to the UNCTAD's "World Investment Report 2020: International Production Beyond the Pandemic."
2020, International Production beyond the Pandemic”, United Nations Publications, New York, available at: https://unctad.org/system/files/official-document/wir2020_en.pdf (last accessed on: April 13, 2021)
In the first quarter of 2021, from January 1 to March 20, the General Statistics Office of Vietnam reported significant statistics on Foreign Indirect Investment For detailed insights and data, visit their official website at https://www.gso.gov.vn/du-lieu-va-so-lieu-thong-ke/2021/04/dau-tu-truc-tiep-nuoc-ngoai-quy-i-nam-2021, accessed on April 10, 2021.
The regulatory regime of foreign investments in the modern international investment agreement (IIAs) should generally respond to two different objectives.
Attracting foreign investments is vital for the economic and social development of host countries; however, policymakers must ensure that such development is sustainable and does not compromise essential values like consumer health, environmental integrity, and workers' rights Modern international investment agreements (IIAs), including the European Union's Investment Protection Agreement (EVIPA), emphasize sustainable development alongside investment protection While the primary aim of IIAs is to safeguard and enhance investments, this focus can sometimes conflict with environmental and social objectives inherent to state sovereignty Dispute practices reveal that environmental regulations may be challenged under investment principles, prompting host states to balance foreign investment commitments with the pursuit of sustainable development and environmental protection.
Vietnam presents a promising investment landscape for foreign investors; however, most investments are primarily directed towards heavy industries, which pose significant environmental risks As of 2013, only 5% of foreign direct investment (FDI) enterprises in Vietnam utilized high technology, while 80% employed medium technology, and 14% relied on low technology This data highlights the urgent need for a shift towards more sustainable and advanced technological investments in the country.
The textbook on International Investment Law by Hanoi Law University (2017) highlights the contradiction between expectations and the reality of foreign investors bringing advanced technologies to Vietnam Alarmingly, many foreign investors fail to adhere to environmental laws, resulting in significant environmental damage during their investment activities.
The Vietnamese government has implemented various solutions to address environmental issues, targeting foreign investors and claiming these measures are effective for environmental protection However, these actions may lead to lawsuits for violating the fair and equitable treatment (FET) obligation or for unlawful indirect expropriation under the Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) to which Vietnam is a party Therefore, it is crucial to research the interplay between FET, indirect expropriation regulations, and the environmental protection rights of the host state under the provisions of the EU-Vietnam Investment Protection Agreement (EVIPA) to identify effective precautionary measures that could mitigate potential disputes between EU investors and the Vietnamese government in the future.
For these reasons, the author decided to study the topic: “Environmental
Protection Right toward Fair and Equitable Treatment and Indirect Expropriation regulations in EVIPA and Recommendations for Vietnam” as the bachelor’s thesis.
A growing number of foreign direct investment (FDI) companies in Vietnam are contributing to environmental pollution, raising concerns about their impact on local ecosystems and communities This trend highlights the urgent need for stricter regulations and oversight to mitigate the environmental effects of FDI activities in the country.
L ITERATURE REVIEW
Materials in Vietnamese
In the article "The relationship between 'Fair and Equitable' and environmental purpose in CPTPP – Recommendations for Vietnam" by Nguyen Thi Lan Huong, published in the Legal Science Journal, Volume 06, 2019, the author examines the Fair and Equitable Treatment (FET) standard in international investment law, focusing on its interpretation and application in investment disputes The study highlights the interplay between the FET standard and environmental objectives within the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), offering recommendations for Vietnam However, the article primarily addresses FET regulations, overlooking the significant issue of indirect expropriation in investment disputes Additionally, while it emphasizes environmental protection under CPTPP, it does not address the provisions of the EU-Vietnam Investment Protection Agreement (EVIPA), which is relevant to the discussion.
Bài viết "Áp dụng quy định trường hợp ngoại lệ về môi trường trong pháp luật đầu tư quốc tế và một số so sánh với thực tế Việt Nam" phân tích việc áp dụng các quy định ngoại lệ liên quan đến môi trường trong bối cảnh pháp luật đầu tư quốc tế Tác giả so sánh các quy định này với thực tế tại Việt Nam, nhấn mạnh những thách thức và cơ hội trong việc bảo vệ môi trường trong quá trình thu hút đầu tư Nội dung bài viết cung cấp cái nhìn sâu sắc về sự cần thiết phải cân bằng giữa phát triển kinh tế và bảo vệ môi trường trong các chính sách đầu tư.
In his article "Applying Environmental Exception in International Investment Law: Comparisons with Vietnam's Reality," Tran Thang Long provides an overview of international investment exceptions and their application in disputes He emphasizes the environmental exception within international investment law, drawing comparisons to the general exceptions outlined in GATT and GATS However, the analysis lacks depth regarding the environmental exceptions present in new-generation International Investment Agreements (IIAs), highlighting a gap in understanding their implications for current practices.
Materials in foreign languages
This thesis focuses on key concepts in international investment law, including FET standards, indirect expropriation, and environmental protection rights, drawing on a variety of foreign materials that enhance understanding of these important topics.
“Standards of Investment Protection” of August Reinisch or “Principles of
International Investment Law”, of Rudolf Dolzer and Christoph Schreuer and many
While UNCTAD and OECD documents provide valuable insights, there is a notable scarcity of studies examining the connection between these issues and the Vietnamese context, especially regarding the provisions of the EVIPA As EVIPA is a relatively new agreement without existing case studies, this has resulted in limited in-depth research, often remaining at a surface level of understanding.
In conclusion, there are no materials in Vietnamese or foreign languages mentioning the environmental protection right in EVIPA in detail.
P URPOSE OF THESIS
This thesis examines the interplay between the right to fair and equitable treatment (FET) standards, lawful indirect expropriation of investors, and the host state's right to environmental protection within International Investment Agreements (IIAs), focusing specifically on the EU-Vietnam Investment Protection Agreement (EVIPA) The author evaluates environmental protection rights under EVIPA and offers recommendations for Vietnam on effectively implementing these provisions to safeguard environmental interests.
R ESEARCH D ELIMITATION
Due to time and resource constraints, this thesis focuses on theoretical and practical aspects of the Fair and Equitable Treatment (FET) standard, indirect expropriation, and environmental protection rights within international investment law, particularly in relation to the EVIPA and select international investment agreements The theoretical framework includes key definitions and perspectives aligned with the author's viewpoint Additionally, the research examines significant disputes in both international and Vietnamese contexts pertinent to these topics Ultimately, the author aims to analyze the regulations within EVIPA and International Investment Agreements (IIAs) to elucidate these critical issues.
R ESEARCH M ETHODOLOGIES
To achieve all of the thesis's objectives, the author employs a variety of research methodologies, including analytical, synthesis theory, historical, assessing, and comparison methods.
The analytical, historical, and synthesis theory methods will be used to study IIA provisions, synthesize, and analyze legal issues arising from those provisions.
The methods for evaluating and comparing will primarily be used to identify differences and inadequacies in regulations between IIAs, EVIPA, and the legal perspectives of scholars around the world.
S TRUCTURE OF THESIS
This thesis is structured into two main chapters The first chapter examines the definitions, classifications, and content related to Foreign Investment Treaties (FET), focusing on indirect expropriation and the right to environmental protection within the framework of international investment law The second chapter analyzes the relationship between the environmental protection objectives of the host state and the investment protection principles outlined in the EU-Vietnam Investment Protection Agreement (EVIPA) It also evaluates the potential for legal actions by EU investors against the Vietnamese government and concludes with recommendations for Vietnam regarding investment dispute resolution and strategic policy planning.
OVERVIEW ON ENVIRONMENTAL PROTECTION RIGHT TOWARD FAIR
O VERVIEW ON F AIR AND E QUITABLE T REATMENT STANDARD IN I NTERNATIONAL
1.1 Overview on Fair and Equitable Treatment standard in International Investment Law
Most International Investment Agreements (IIAs) aim to safeguard investments and prevent host states from abusing them, typically favoring investors over host countries Among various investment standards, the Fair and Equitable Treatment (FET) standard is the most significant in contemporary IIAs, as it is widely included and frequently cited by foreign investors in Investor-State Dispute Settlement (ISDS) cases, often leading to successful outcomes.
1.1.1 The historical origin of Fair and Equitable Treatment standard
Research by various international scholars indicates that the foundation of FET (Fair and Equitable Treatment) regulations dates back to ancient Greece, where it was rooted in natural law This concept has since evolved and been integrated into the national laws of several countries However, this thesis will specifically concentrate on the study of
5Hanoi Law University (2017), supra note 3, p 80.
Investment admission rules typically encompass key principles such as non-discrimination standards, including most-favored-nation and national treatment They also establish absolute treaty standards like fair and equitable treatment, full protection and security, and safeguards against arbitrary or unreasonable actions Additionally, these rules provide guarantees against uncompensated expropriations and outline provisions for the transfer of funds.
The renowned Greek philosopher Aristotle (384-322 BC) established the foundational principles of natural law, which became essential for advocating fair treatment and the rights of states to self-defense against invasions This doctrine was further developed by philosophers like Marcus Cicero and Thomas Aquinas, emphasizing its significance in legal and ethical discussions.
The Fair and Equitable Treatment (FET) standard was first acknowledged in national law in Germany and has been recognized in European law through its application by the European Court of Justice as a fundamental principle for evaluating restrictions on human rights within the European Community (EC) The historical origins of the FET standard are rooted in the evolution of international investment law.
The concept of Fair and Equitable Treatment (FET) in international investment agreements (IIAs) can be traced back to early economic agreements, including the 1948 Havana Charter for an International Trade Organization and the Economic Agreement of Bogota, as well as U.S treaties on Friendship, Commerce, and Navigation Furthermore, the OECD's Draft Convention on Protection of Foreign Property, established on October 12, 1967, underscores the importance of FET, stating that each party must ensure fair and equitable treatment of foreign nationals' property, providing consistent protection and security while prohibiting unreasonable or discriminatory measures that could impair the management and enjoyment of such property.
Although those instruments were no binding at all, they laid the foundation for FETs in modern IIAs.
Article 11(2) of the International Trade Organization emphasizes the importance of ensuring "just and equitable treatment" for foreign investments, including enterprises, skills, capital, arts, and technology transferred between member countries It advocates for the promotion of bilateral or multilateral agreements aimed at safeguarding these investments and fostering fair treatment across all member states.
Article 22 of the agreement ensures that foreign capital is treated fairly, prohibiting states from implementing unjustified or discriminatory actions that could undermine the legally acquired rights or interests of foreign nationals in relation to the enterprises, capital, skills, arts, or technology they provide.
After World War I, 11 FCN treaties established a standard reference for international law aimed at protecting the rights and property of foreigners from discrimination in foreign markets These treaties emphasize the principles of "equitable" and "fair and equitable treatment" to prevent state actions that contravene internationally accepted norms.
12 UNCTAD (2012), “Fair and Equitable Treatment, UNCTAD Series on Issues in International Investment Agreement II”, United Nations, p 5
1.1.2 Definition and content of Fair and Equitable Treatment standard
The Fair and Equitable Treatment (FET) standard serves as a comprehensive protection mechanism for foreign investors, distinct from relative treatment standards like Most-Favored-Nation (MFN) and National Treatment (NT) principles, which lack objective guarantees FET ensures that foreign investors receive adequate treatment, regardless of the host state's treatment of its domestic or other foreign investors This flexible provision is frequently invoked in international disputes, often filling gaps left by more specific standards, even when investors cannot demonstrate breaches of other International Investment Agreements (IIAs) Notably, over 80% of known Investor-State Dispute Settlement (ISDS) cases allege FET violations, making it the most common basis for claims in favor of investors.
The concept of Fair and Equitable Treatment (FET) lacks a unified definition, as its interpretation varies among ad hoc arbitral tribunals and is influenced by the specific provisions of each International Investment Agreement (IIA) According to Professor Muchinski, FET serves as a foundational framework for foreign investors to argue against discriminatory or unfair treatment, emphasizing that its meaning is contingent upon the interpretation of individual case facts.
At most, it can be said that the concept connotes the principle of non-
13 Hanoi Law University (2017), supra note 5, p 119
14 Rudolf Dolzer, Christoph Schreuer (2012), Principles of International Investment Law, Oxford University Press, United Kingdom, p 122
15 UNCTAD (2020), International Investment Agreements: Reform Accelerator, OECD publishing, p 20 discrimination and proportionality in the treatment of foreign investors." 16 Accordingly, the meaning of FET standard is very broad and vague.
The Fair and Equitable Treatment (FET) standard is a unified principle that prohibits separating its meanings into "fair" and "equitable." This principle mandates that host States must treat foreign investors according to unbiased rules, safeguarding them from arbitrary, discriminatory, or abusive actions Such actions may include the unjust revocation of licenses, unfair sanctions, or barriers that hinder business operations Due to the FET's broad scope, recent arbitral practices indicate that various forms of government conduct—whether legislative, administrative, or judicial—can potentially violate FET obligations.
Many scholars consider the Fair and Equitable Treatment (FET) standard as a crucial component of the minimum standards for the treatment of foreign nationals and their property, as mandated by international law An illustrative example of this is found in NAFTA, specifically in Article 1105.1, which states that each Party must provide investments from investors of another Party with treatment that aligns with international standards.
16 Peter T Muchlinski, (1995), “Multinational Enterprises and the Law”, The Oxford Press, p 625
17 Rudolf Dolzer, Christoph Schreuer (2012), supra note 14, p 122
18 August Reinisch (2008),” Standards of Investment Protection”, Oxford University Press, United Kingdom, p 111
19 Azernoosh Bazrafkan, Alexia Herwig (2016), “Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks”, European Journal of Risk Regulation, p 441
20 OCED, (2004), Fair and Equitable Treament Standard in International Investment Law, OCED Publishing, OCED Working Papers on International Investment, p 12
The international minimum standard is a customary international law norm that dictates how states must treat foreign nationals and their property This standard establishes essential principles that all countries must adhere to, regardless of their own domestic laws and practices.
The Fair and Equitable Treatment (FET) standard in NAFTA is recognized as part of the minimum standard of international law, encompassing principles such as fair treatment and full protection However, some perspectives argue that FET extends beyond this minimum standard, integrating a broader spectrum of international law sources, including general principles and modern treaties Additionally, there are views that consider FET a self-standing standard, independent of international law This ongoing debate is highlighted by the increasing number of arbitral awards addressing claims of denial of fair treatment Given the diverse interpretations of the FET concept, various types of FET standards exist within International Investment Agreements (IIAs), influenced by treaty language These include unqualified FET formulations, FET linked to international law, FET associated with customary international law minimum standards, and FET with additional substantive content, all of which impact the liability threshold for state conduct.
O VERVIEW ON I NDIRECT E XPROPRIATION IN I NTERNATIONAL I NVESTMENT L AW
Expropriation in international investment law refers to the host state's acquisition of property from its owner, typically for economic or public purposes It primarily manifests as either direct or indirect expropriation While direct expropriation is explicitly addressed in legal documents and has become relatively uncommon, indirect expropriation has emerged as a contentious topic within the realm of international investment law.
In the scope of this thesis, the Author only focuses on indirect expropriation, which is considered common in current dispute practice.
Basically, indirect expropriation has the same effect as direct expropriation, both are acts of the host State to interfere with the use or benefit of investors' assets.
45 For example, Duke Energy v Ecuador case
46 Nguyen Xuan My Hien, supra note 34
Unlike direct expropriation, indirect expropriation involves total or near-total deprivation of an investment but without a formal transfer of title or outright seizure 47
Indirect expropriation occurs when measures are implemented that, while not formally stripping an investor of their status, significantly impact their assets These actions can limit the investor's management, use, or control of the investment, ultimately leading to a substantial reduction in its value.
The 1992 World Bank Guidelines on “Expropriation and Unilateral Alterations or Termination of Contracts” 49 as well as the 1994 Energy Charter Treaty 50 , were among the first instruments to address indirect expropriation.
Most International Investment Agreements (IIAs) address both direct and indirect expropriation, but few explicitly define indirect expropriation A notable exception is Article 1110.1 of NAFTA, which provides a clear definition of this concept.
Under NAFTA, no party is allowed to nationalize or expropriate an investor's investment from another party within its territory, nor take any actions that could be seen as equivalent to expropriation, unless specific conditions are met While NAFTA references "indirect expropriation," it lacks a formal definition or criteria for identifying such acts Similarly, Article 4 of the Egypt-Germany BIT (2005) outlines provisions related to expropriation without providing clear definitions.
47 UNCTAD (2012), Expropriation UNCTAD Series on Issues in International Investment Agreements II, New York and Geneva, p 7
48 Trịnh Hải Yến (2017), Textbook of International Investment Law, National Political Publishing House, Hanoi, p 259
According to Section IV(1) of the Guidelines, a state is prohibited from expropriating or partially seizing foreign private investments within its territory, or implementing measures with similar effects, unless such actions comply with established legal procedures, are pursued in good faith for a public purpose, are non-discriminatory regarding nationality, and include the payment of fair compensation.
50 Article 13 provides that: “investments of investors of a Contracting Party in the Area of any other
Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation”
51 Article 4 in Egypt-Germany BIT (2005)
Investments made by investors from either Contracting State cannot be expropriated, nationalized, or subjected to measures equivalent to expropriation in the territory of the other Contracting State, except for public benefit and with compensation Consequently, the provisions regarding indirect expropriation in International Investment Agreements (IIAs) tend to be ambiguous, with the determination of whether an action constitutes indirect expropriation often relying on the interpretation of the arbitral tribunal.
Indirect expropriation, often referred to as "de facto expropriation," "creeping expropriation," or "regulatory expropriation," encompasses various phrases that highlight its essence Despite the different terminology, the concept remains consistent in its nature and application In the context of international investment dispute resolution, indirect expropriation can manifest through administrative measures, legal actions, or prolonged regulatory practices.
Recent International Investment Agreements (IIAs) increasingly include detailed provisions on indirect expropriation For instance, the US Model Bilateral Investment Treaty (BIT) defines indirect expropriation as actions by a Party that result in effects equivalent to direct expropriation, without the formal transfer of title or outright seizure This definition has influenced subsequent IIAs in their interpretation of indirect expropriation.
According to UNCTAD, indirect expropriations are characterized by four key elements: (1) an act attributable to the State, (2) interference with property rights or protected legal interests, (3) a degree of interference that significantly diminishes the value of those rights or deprives the owner of control over the investment, and (4) the owner retains legal title or physical possession These criteria help assess whether actions by a host state constitute indirect expropriation, necessitating a case-by-case, fact-based analysis.
1.2.2 Requirements for a lawful Indirect Expropriation
The majority of IIAs allow States to expropriate investments as long as the taking is effected according to the four following criteria: (1) For a public purpose;
Expropriation must be conducted in a non-discriminatory manner, adhering to due process of law, and ensuring the payment of compensation These essential requirements apply to both direct and indirect expropriation While International Investment Agreements (IIAs) may vary in their phrasing, the fundamental principles of these four conditions have remained consistent and are entrenched in customary international law.
The public purpose requirement mandates that expropriation must be driven by legitimate welfare objectives rather than private gain or illicit motives This principle is acknowledged across various legal systems.
International law recognizes the concept of public purpose, which is often articulated in various forms within International Investment Agreements (IIAs) or treaties These alternative expressions include terms such as "public benefit," "public interest," "public order and social interest," "internal needs," and "legal ends."
The concepts of "national interest," "public necessity," and "public purpose related to internal needs" vary across legal cultures and languages, with host States often adopting a broad definition The interpretation of public purpose is typically determined by arbitral tribunals on a case-by-case basis, guided by international or customary law, particularly referencing Article XX of GATT and its interpretations through WTO dispute settlement This approach fosters consistency in understanding public purpose Additionally, some treaties reference domestic law, enabling tribunals to integrate domestic interpretations into their analyses, which leads to a more comprehensive understanding of public purpose in each dispute.
The concept of public purpose plays a crucial role in arbitral decisions regarding expropriation, as the initial intent behind the measure significantly influences the legitimacy of the public purpose claim Consequently, the effectiveness and justification of expropriations are closely tied to whether the intended goals were achieved.
60 Hong Kong, China-Thailand BIT (2006) and Israel-Slovakia BIT (2001)
62 Chile-Philippines BIT (1997) and Malaysia-United Arab Emirates BIT (1992)
65 UNCTAD (2012), supra note 26, p.30 made but not made for public purposes are not permitted if the property is taken up in the future to serve a public purpose.
International Investment Agreements (IIAs) mandate that expropriation must occur "on a non-discriminatory basis," "in a non-discriminatory manner," or "without discrimination," with these variations being legally inconsequential Arbitral tribunals have determined that this requirement is breached when a State discriminates against foreign nationals based on nationality However, not all distinctions among various investor types are deemed discriminatory, as tribunals adopt a nuanced perspective on expropriations impacting select foreign investors, particularly when such distinctions stem from legitimate government policies.
E NVIRONMENTAL P ROTECTION RIGHT IN I NTERNATIONAL I NVESTMENT L AW
Environmental Protection right in International Investment Law
Foreign investment and environmental protection are crucial components of sustainable development within international investment law Recently, there has been significant growth in Investor-State Dispute Settlement (ISDS) cases related to environmental issues, highlighting the imbalance between the rights of foreign investors and the host state's authority to safeguard the environment This imbalance raises concerns that investor apprehensions regarding national environmental policies may hinder effective environmental protection Consequently, maintaining a balance between the rights of investors and the host state's environmental responsibilities is essential in the realm of international investment law.
81 Article 3.1.(d), Bangladesh-United States BIT
83 Article IX(1)(b), The Belgium/Luxembourg-Colombia BIT (2009)
The imbalance between investor rights and a host state's environmental protection arises in traditional Free Trade Agreements (FTAs), which primarily emphasize economic development and investment protection This focus can lead to significant environmental damage, particularly in developing countries, where host states face challenges addressing pollution caused by investments While host states possess the sovereign right and duty to implement regulations to safeguard society and the environment, they are also obligated to protect foreign investors' interests under various legal frameworks Consequently, environmental measures enacted by host countries may be perceived as covert protectionism, often subordinated to international investment law This tension between domestic environmental regulations and international investment norms creates what are known as “legitimacy conflicts.”
The ambiguous and flexible interpretation of international investment law principles allows dispute resolution bodies to interpret agreement provisions clearly, prioritizing the interests of foreign investors.
84 Suzanne A Spears (2010), “The Quest for Policy Space in a New Generation of International Investment Agreements”, Journal of International Economic Law, Vol 13, Issue 4, p 1037 - 1075
86 Jorge E Viủuales, “The environmental regulation of foreign investment schemes under international law” in P.-M Dupuy and J E Viủuales (2012), “Harnessing Foreign Investment to Promote Environmental Protection: Incentives and Safeguards”, Cambridge University Press
Investor-state arbitration has led to a significant "regulatory chill," causing host states to overly compromise their policy space when entering into International Investment Agreements (IIAs) This situation has resulted in domestic measures necessary for achieving legitimate policy objectives being undermined, as the interests of investors are prioritized over those of the host states.
Foreign investors often assert their rights to influence policies that serve the public interest of host states, leading to accusations of investment protection violations in investor-state disputes These disputes commonly involve claims related to the Fair and Equitable Treatment (FET) standard or allegations of indirect expropriation, particularly when host states implement environmental protection measures that impact the investors' interests.
The state's police power, as defined by Black's Law Dictionary, refers to the authority of the state to impose restrictions on individual freedoms and property rights to safeguard public safety, health, and morals, as well as to enhance public convenience and overall prosperity This doctrine encompasses various state actions, including the imposition of forfeitures or fines aimed at punishing or deterring criminal behavior, as noted by Brownlie.
The definition from Black's Law Dictionary outlines key aspects of property seizure, including taxation, legislation that limits property use related to planning, environmental, safety, and health regulations, as well as the defense against external threats It highlights the destruction of neutral property during military operations and the appropriation of enemy property as reparations for the impacts of an illegal war.
89 Ian Brownlie (2008), “Principles of Public International Law”, Seventh edition, Oxford
University Press, Oxford p 532 only understood as a rather broad meaning in international law, which is regarded as the foundation for police powers doctrine in international investment law.
In international investment law, the police power doctrine asserts that actions taken by a state under its police powers, which may lead to property loss, do not equate to indirect expropriation and thus do not require compensation This doctrine indicates that certain state actions, particularly those addressing critical public policy issues such as public order, health, environmental protection, and taxation, are exempt from expropriation regulations Consequently, the police power doctrine is essential in maintaining the host state's authority to implement public policies while balancing the rights of investors with the interests of the host state.
The recognition of state police powers has a rich historical context, notably illustrated by the United States Supreme Court's decisions in 1915 and Federico Garcia Amador's Fourth Report on state responsibility presented to the International Law Commission in 1959 Furthermore, this doctrine is referenced in the Harvard Draft Convention on the International Responsibility of States and the Second American Law Institute’s contributions, highlighting its significance in international law.
The Restatement of the Law established in 1965, along with its Third Restatement in 1992, forms the essential basis for the evolution and interpretation of the police powers doctrine within Investment Insurance Agreements (IIAs).
90 Catharine Titi, (2018), “Police Power doctrine and international investment law”, In Filippo Fontanelli, Andrea Gattini and Attila Tanzi (eds) General Principles of Law and International Investment Arbitration, Brill, 2018, p 324
Recent arbitral tribunals have acknowledged the state’s police powers while interpreting older investment treaties, leading to the incorporation of the police powers doctrine in new International Investment Agreements (IIAs) For instance, the Investment Agreement for the Common Investment Area of the Common Market for Eastern and Southern Africa (COMESA) explicitly references the “right of states to regulate” alongside customary international law principles on police powers However, many treaties, including the US Model Bilateral Investment Treaty (BIT), do not explicitly mention state police powers The US Model BIT states that non-discriminatory regulatory actions aimed at protecting legitimate public welfare objectives, such as health and safety, typically do not amount to indirect expropriation This provision establishes a framework for defining measures that do not constitute indirect expropriation in various BITs New generation IIAs generally reject the sole effect doctrine while adopting the police powers doctrine in a moderated form.
According to Saluka, the principle of customary international law asserts that a State is not liable for compensation to dispossessed foreign investors when it implements general regulations recognized as part of its police powers.
Investments BV v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para 262.
Article 20.8 of COMESA emphasizes that Member States have the right to implement genuine regulatory measures aimed at safeguarding public welfare objectives, including public health, safety, and environmental protection Such measures will not be considered as indirect expropriation under this Article, in accordance with customary international law principles regarding police powers.
95 Annex B of the US Model BIT (2012)
96 Armenia–Singapore Agreement on Trade in Services and Investment (2019), Annex 3-A, para 3(b); ASEAN–Hong Kong, China SAR Investment Agreement (2017), Annex 2, para 4; Burkina Faso–Turkey BIT
(2019), Art 6.2; Canada–EU CETA (2016), Annex 8-A, para 3; China–Republic of Korea FTA (2015), Annex 12-
B, para 3(b); CPTPP (2018), Annex 9-B, para 3(b); EU–Singapore Investment Protection Agreement (2018), Annex 1, para 2; EU–Vietnam Investment Protection Agreement (2019), Annex 4, para 3; PACER plus (2017), Annex 9-C, para 4; United Arab Emirates–Uruguay BIT (2018), Annex on Expropriation, para 4(b); USMCA
(2018), Annex 14-B, para 3(b) This BIT list based on the statistics of UNCTAD, UNCTAD (2020), International investment agreements reform accelerator, New York and Geneva: United Nations, p.25
The relationship between the essential elements to consider and the police powers clause remains to be interpreted, yet the list may serve to argue the existence of exceptional circumstances that permit deviations from the established doctrine Additionally, the police powers doctrine remains intact regardless of the nature of investment interference; if it were limited solely to expropriation standards, investors could still challenge violations through claims based on other standards, such as Fair and Equitable Treatment (FET).
ENVIRONMENTAL PROTECTION RIGHT TOWARD FAIR AND EQUITABLE
E NVIRONMENTAL P ROTECTION RIGHT TOWARD F AIR AND E QUITABLE T REATMENT AND
The preamble of the EVIPA outlines the parties' objectives in signing this Bilateral Investment Treaty (BIT), aiming to enhance their economic, trade, and investment relations while prioritizing sustainable development across economic, social, and environmental aspects It emphasizes the promotion of investments that adhere to high standards of environmental and labor protection, as well as internationally recognized agreements, reaffirming their commitment to the principles of sustainable development.
The preamble of the EVFTA highlights the importance of environmental protection by linking sustainable development with economic, trade, and investment goals In the context of the EVIPA, the focus on investor protection may influence arbitration panels to interpret the Fair and Equitable Treatment (FET) and indirect expropriation clauses in a manner that balances these interests This approach helps to limit excessive investment protection and minimizes the risk of government claims when implementing environmental policies.
The preamble of EVIPA captures the investment trends of the 21st century, emphasizing broader concerns, especially regarding environmental protection This focus distinguishes it from the traditional Bilateral Investment Treaties (BITs) that Vietnam has previously signed.
2.1.2 Provisions affirming the State’s right to enact policies and implement measures for environmental protection
The EVIPA emphasizes the "right to regulate" within territories to pursue legitimate policy goals, including environmental protection This regulation effectively addresses the shortcomings found in other International Investment Agreements (IIAs) Consequently, the "right to regulate" provisions in other IIAs often aim to ensure consistency with these objectives.
The "right to regulate" provision in Article 2.2 of the EVIPA is crucial as it clarifies that changes to a host state's legal and regulatory framework do not inherently violate the Fair and Equitable Treatment (FET) clause, thereby supporting the state's environmental protection objectives This article emphasizes that the regulation does not impede a Party's ability to modify its laws, even if such changes may adversely impact investments or investor profit expectations Consequently, Article 2.2 represents a significant advancement in the EVIPA, aligning with sustainable development goals and providing clear guidance for arbitration panels in addressing environmental disputes.
2.1.3 Provisions on Fair and Equitable Treatment
Article 2.5.2 of the EVIPA mandates that each Party must provide fair and equitable treatment (FET) to investors from the other Party, outlining specific criteria to assess potential violations These criteria include denial of justice, fundamental breaches of due process, manifest arbitrariness, targeted discrimination based on wrongful grounds, and abusive treatment Unlike broader FET clauses found in other international investment agreements, the EVIPA defines FET more narrowly, suggesting that changes in a host state's environmental policies may not violate the FET standard Instead, such assessments should consider the nature of the measures against the established criteria, leading to more predictable implementation of FET clauses.
The EVIPA allows for the expansion of criteria under Article 2.5.2(f) and Article 2.5.3, indicating that a host state can violate the obligation of Fair and Equitable Treatment (FET) even if the treatment is not explicitly listed in points (a) to (e) This breach occurs when the parties have mutually agreed to such treatment following the procedures outlined in the relevant articles.
The practical application of Article 2.5.3 is unlikely without an amendment to the Agreement, as outlined in Article 4.3 The author believes that this provision serves as a precautionary measure rather than broadening the scope and content of the Fair and Equitable Treatment (FET) clause.
The Article also stipulates that “A breach of another provision of this
The provision clarifies that a breach of another agreement or provision does not automatically imply a violation of the Fair and Equitable Treatment (FET) standard Its purpose is to ensure that arbitration panels do not hastily conclude a breach of the FET when another provision within the International Investment Agreement (IIA) has been violated.
The provisions regarding investors' legitimate expectations emphasize that the criterion of legitimate expectation is evaluated independently, but only when the criteria outlined in paragraphs 1 to 3 are met This regulation aims to restrict the arbitrary use of legitimate expectation, thereby expanding the applicability of the Fair and Equitable Treatment (FET) clause Additionally, the arbitration panel may consider various factors in their assessment.
An investor relied on a specific representation made by the other Party to induce a covered investment, creating a legitimate expectation However, the Party later frustrated this expectation, leading to the arbitration panel's examination of the situation.
Article 4.3 of EVIPA states that the Parties have the ability to amend the Agreement, which will take effect once they exchange written notifications confirming the completion of their legal procedures as outlined in Article 4.9 Additionally, the Parties can adopt decisions to amend the Agreement through the Committee, without affecting the requirement to complete their respective legal procedures.
43 legitimate expectation is not a mandatory obligation but will be based on their assessments on a case-by-case basis.
Indirect expropriation is explicitly outlined in Article 2.7.1 of the EVIPA, which states that a Party must not nationalize or expropriate the investments of the other Party's investors, either directly or indirectly through measures that have an equivalent effect For expropriation to be considered lawful, it must meet four essential criteria, including a clear "public purpose."
The principles of "due process of law," "non-discriminatory basis," and "payment of prompt, adequate, and effective compensation" are essential regulations that are widely recognized and not new, as they are commonly included in numerous International Investment Agreements (IIAs).
The regulation on indirect expropriation is significant, as it defines the concept and outlines that indirect expropriation occurs when a Party's actions lead to effects akin to direct expropriation, significantly depriving an investor of essential property rights, including the ability to use, enjoy, and dispose of their investment, without formal title transfer or outright seizure Additionally, the EVIPA establishes criteria for determining indirect expropriation, emphasizing that while the economic impact of such measures is a factor, the mere adverse effect on an investment's economic value does not, by itself, constitute indirect expropriation.
R ECOMMENDATIONS FOR V IETNAM ON THE APPLICATION THE FAIR AND EQUITABLE
The EVIPA Agreement effectively clarifies the relationship between environmental protection rights and the Fair and Equitable Treatment (FET) standard, as well as indirect expropriation, reflecting a consistent application across its regulations Compared to Vietnam's existing Bilateral Investment Treaties (BITs), the environmental protection rights afforded to host states under EVIPA are more robust and uniformly enforced This advancement highlights the progress of new generation International Investment Agreements (IIAs), addressing the shortcomings of traditional IIAs and helping to balance the asymmetry between host states' environmental protection rights and investor rights, particularly regarding FET and indirect expropriation.
2.2.Recommendations for Vietnam on the application the fair and equitable treatment and indirect expropriation regulations in EVIPA towards environmental protection goal
From the perspective of the host state, Vietnam faces significant risks and potential lawsuits from foreign investors under the EVIPA regulations when enacting and enforcing environmental protection measures To mitigate these challenges, the Author proposes several recommendations to effectively address this issue.
2.2.1 Maintaining the legal framework's stability and uniformity
In a country's development, changing policies and legal regulations are inevitable, as highlighted in Article 2.2, which affirms the State's authority to enact environmental policies However, arbitrary alterations to the legal framework can jeopardize investor confidence and potentially lead to violations of the Fair and Equitable Treatment (FET) standard or expropriation claims Vietnam's legal landscape is often perceived as unstable, with frequent updates and overlaps in legal provisions across various branches, complicating the investment environment While the government commits to investment protection, the delegation of environmental management responsibilities to local authorities can create conflicts, increasing the risk of disputes with investors Therefore, it is crucial to ensure that regulations are consistent, non-arbitrary, and non-overlapping, thereby enhancing the stability of domestic legal frameworks, particularly in investment and environmental protection policies.
2.2.2 Ensuring the suitability of environmental protection measures
Environmental protection measures are closely tied to the interpretation and implementation of the EVIPA, making it essential to understand and apply these measures effectively These measures should be founded on solid arguments and scientific principles, ensuring a non-discriminatory and legal basis for their enactment Additionally, any environmental measures impacting investors must adhere to the established order of competence under Vietnamese law and be transparent in their application.
2.2.3 Strengthening the capacity of the competent authorities
The EVIPA has yet to come into effect, leaving some of its provisions open to interpretation and application challenges Vietnam's limited experience in international investment disputes, along with its insufficient professional qualifications and management capabilities, poses significant obstacles to effectively implementing EVIPA regulations, especially those related to environmental protection rights To ensure a comprehensive understanding and execution of the rights and obligations under EVIPA, it is crucial for Vietnam to prioritize the training and capacity building of officials responsible for enforcing investment laws at both national and local levels Additionally, international investment experts should offer guidance and recommendations to government and law enforcement agencies based on their research to facilitate proper regulation application and minimize disputes.
The EVIPA encompasses various aspects of environmental protection rights, including fair treatment standards and indirect expropriation, as outlined in its Preamble and specific provisions These regulations significantly influence the balance between a host state's rights to protect the environment and the rights of foreign investors, particularly concerning indirect expropriation and Fair and Equitable Treatment (FET) obligations To enhance the application of EVIPA in Vietnam, it is recommended to maintain a stable and uniform legal framework, implement suitable environmental protection measures, and strengthen the capacity for applying EVIPA regulations effectively.
The EVIPA is poised to significantly boost EU investment in Vietnam, despite its delayed implementation However, concerns regarding environmental pollution arising from foreign investments persist, particularly due to violations of Vietnam's environmental laws by some investors In response, the Vietnamese government has enacted various measures to mitigate these issues, though such actions may lead to legal challenges related to fair and equal treatment (FET) obligations and potential indirect expropriation claims This analysis evaluates the environmental protection regulations within EVIPA in relation to the FET standard and indirect expropriation through the lens of international investment law The author proposes practical recommendations for Vietnam to effectively implement EVIPA provisions while safeguarding its environmental rights, aiming to enhance the understanding of the interplay between environmental protection and investment regulations.
1 Hanoi Law University (2017), “Textbook on International Investment Law”, Youth Publishing House, available at: http://pltmqt.hlu.edu.vn/Images/Post/files/Khoa%20PLTMQT/GT%20L%C4
2 Trinh Hai Yen, “Textbook on international investment”, National potical Publishing House
1 Record of the conference: “New – Generation Free Trade Agreement and Non-Trade Issues”, organized by the Faculty of International Law at Ho Chi Minh University of Law on October 2020.
IV ARTICLE AND ACADEMIC PAPER
1 Nguyen Thi Lan Huong (2019), “Liên hệ tiêu chuẩn “đối xử công bằng và thỏa đáng” với mục tiêu bảo vệ môi trường trong CPTPP – Một số đề xuất cho Việt Nam”, Legal Science Journal, Vol 06/2019, available at: https://iluatsu.com/quoc-te/tieu-chuan-doi-xu-cong-bang-va-thoa-dang-voi- muc-tieu-bao-ve-moi-truong/
2 Nguyen Tuyen, (2016), “Ngày càng nhiều doanh nghiệp FDI gây ô nhiễm ở Việt Nam”, Dân Trí news, available at https://dantri.com.vn/kinh- doanh/ngay-cang-nhieu-doanh-nghiep-fdi-gay-o-nhiem-o-viet-nam-
3 Nguyen Xuan My Hien, “Sự phát triển của tiêu chuẩn đối xử công bằng và thỏa đáng trong hiệp định thương mại tự do thế hệ mới”, Legal ScienceJournal, Vol 06(127)/129, p 48 – 59, available at: https://tapchikhplvn.hcmulaw.edu.vn/module/xemchitietbaibao?oidfe37 4-1e6f-4843-a7b6-638cce62a0cb
4 Pham Thi Hien (2019), Bồi thường thiệt hại trong trường hợp truất hữu gián tiếp theo Luật Đầu tư quốc tế - Kinh nghiệm cho Việt Nam, Vietnamese Journal of Legal Sciences, Volume 02(123)/2019, available at: https://tapchikhplvn.hcmulaw.edu.vn/module/xemchitietbaibao?oid3bd1 52-9915-4de9-a1dc-3d3fa23e9f2b
5 Tran Thang Long (2019), “Áp dụng quy định trường hợp ngoại lệ về môi trường trong pháp luạt đầu tư quốc tế và một số so sánh với thực tế Việt Nam”, Nghiên cứu Lập pháp Journal, Vol 04/2019, available at: http://www.lapphap.vn/Pages/TinTuc/210256/Ap-dung-quy-dinh-truong- hop-ngoai-le-ve-moi-truong-trong-phap-luat-dau-tu-quoc-te-va-mot-so-so- sanh-voi-thuc-te-Viet-Nam.html
1 https://www.gso.gov.vn.
REFERENCE MATERIALS IN FOREIGN LANGUAGE
I INTERNATIONAL TREATIES, LAW, LEGISLATIONS AND RULES
5 Chile-Philippines BIT (1997) and Malaysia-United Arab Emirates BIT (1992)
11 Draft Convention on Protection of Foreign Property
15 Havana Charter for an International Trade Organization
16 Hong Kong, China-Thailand BIT (2006)
23 Republic of Korea- Mexico BIT (2000)
24 Republic of Korea-Nigeria BIT (1997)
25 Resolution 1803 (XVII), 14 December 1962, Declaration on Permanent Sovereignty over Natural Resources
26 Resolution 3281 (XXIX), 12 December 1974, The Charter of Economic Rights and Duties of States (A/RES/29/3281)
27 The Belgium/Luxembourg-Colombia BIT (2009)
28 United States treaties on Friendship, Commerce and Navigation (FCN)
1 August Reinisch (2008), Standards of Investment Protection, Oxford
2 Ian Brownlie (2008), Principles of Public International Law, Seventh edition, Oxford University Press, Oxford
3 Kathryn Gordon, Joadchim Pohl (2011), Environmental Concerns in International Investment: A Survey, OCED Working Papers on International Investment, OECD publishing, p 8, available at: http://dx.doi.org/10.1787/5kg9mq7scrjh-en
4 OCED, (2004), Fair and Equitable Treament Standard in International Investment Law, OCED Publishing, OCED Working Papers on International Investment, available at: https://www.oecd.org/daf/inv/investment- policy/WP-2004_3.pdf
5 OECD (2011), Harnessing Freedom of Investment for Green Growth Freedom of Investment Roundtable April 14, 2011, OECD publishing, p 2, avalable at: https://www.oecd.org/daf/inv/internationalinvestmentagreements/47721398 pdf
6 Rudolf Dolzer, Christoph Schreuer (2012), Principles of International
Investment Law, Oxford University Press, United Kingdom.
7 Surya P Subedi (2008), International Investment Law – Reconciling Policy and Principle, Oxford and Portland, Oregon: Hart Publishing
8 UNCTAD (2012), Expropriation UNCTAD Series on Issues in International Investment Agreements II, New York and Geneva, available at: https://unctad.org/system/files/official-document/unctaddiaeia2011d5_en.pdf
9 UNCTAD (2012), Fair and Equitable Treament UNCTAD Series on Issues in International Investment Agreements II, New York and Geneva, available at: https://unctad.org/system/files/official-document/unctaddiaeia2011d7_en.pdf
10 UNCTAD (2020), “World Investment Report 2020, International Production beyond the Pandemic”, United Nations Publications, New York, available at: https://unctad.org/system/files/official-document/wir2020_en.pdf
11.UNCTAD (2020), International Investment Agreements: Reform Accelerator, New York and Geneva: United Nations
III ARTICLE AND ACADEMIC PAPER
1 Alessandra Mistura (2019), Enhancing Environmental Through the
The integration of international civil liability principles into international investment law is essential for enhancing environmental protection By incorporating these principles, we can ensure that investors are held accountable for environmental harm caused by their activities This approach promotes sustainable development and aligns investment practices with global environmental standards Strengthening civil liability mechanisms not only safeguards ecosystems but also fosters responsible investment, ultimately benefiting both investors and host countries Emphasizing accountability in international investment can lead to more effective environmental governance and contribute to the achievement of international environmental agreements.
2 Catharine Titi, (2018), Police Power doctrine and international investment law, In Filippo Fontanelli, Andrea Gattini and Attila Tanzi (eds) General Principles of Law and International Investment Arbitration, Brill, 2018
3 Jorge E Viủuales, “The environmental regulation of foreign investment schemes under international law” in P.-M Dupuy and J E Viủuales (2012),Harnessing Foreign Investment to Promote Environmental Protection:Incentives and Safeguards, Cambridge University Press