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
As per the statistics of General Statistics Office (GSO), The total investment capital in the first quarter of 2021, estimated at US$ 10.13 billion, increased by 18.5% over the same period last year 2 As pointed out, foreign investment, especially foreign direct investment (FDI), plays a significant role in Vietnam’s economy in the current period.
To enhance the international trade and foreign investment in Vietnam between Vietnam and the EU, in July 2015, Vietnam had successfully negotiated the EU – Vietnam Free Trade Agreement (EVFTA) to the intensive economic corporation However, in 2017, to ensure investment protection and investment dispute settlement issues, EU and Vietnam considered separating the original EVFTA to EVFTA and EU – Vietnam Investment Protection Agreement (EVIPA). Although in August 2020, EVFTA officially entered into force, EVIPA has not had
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.
1The COVID-19 crisis caused a dramatic fall in FDI The Global FDI flows decreased by up to 40% in 2020 and are projected to decrease by 5 to 10 % in 2021 For more details, see: UNCTAD, “World Investment Report 2020, International production beyond the pandemic”, 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 (last accessed on: April 13, 2021)
2 Statistic on Foreign Indirect Investment in the first quarter (from 01/01/2021 to 20/3/2021) by General Statistics Office of Vietnam (GSO), available 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 (last 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.
On the one hand, the attraction of foreign investments is a crucial element to promote the economic and social development of the host countries On the other hand, policy and lawmakers should ensure that the economic and social development is sustainable, not detrimental to some fundamental values such as the consumers' health, the environment, the workers' rights or any other domestic objective considered essential for the community established in the investment-host states 3 Therefore, in addition to the broader scope and more profound level of commitments regarding investment issues, sustainable development is one main characteristic of modern IIAs in general, as well as EVIPA in particular While, the primary purpose of the IIAs that is predominately protecting and enhancing the investment considered to contrast with the environmental protection and social development issues by the host states, which is inherent in the sovereignty of the State The dispute practice has indicated that the regulation of the environmental policies can be challenged by claiming for breach of the investment principles. Therefore, that makes the host states should take into consideration when implementing the foreign investment protection commitments and pursuing the goal of sustainable development and environmental protection simultaneously.
Vietnam is the potential investment market with foreign investors, however, the majority of investment sections in Vietnam are concentrated in heavy industries with a high ability to cause environmental pollution In fact, by 2013, only 5% of FDI investing enterprises in Vietnam had high technology, 80% had medium technology, and the rest 14% were using low technology This statistic reflects completely
3Hanoi Law University (2017), Textbook on International Investment Law, Youth Publishing House, Preface
2 contradicts expectations as well as claims to bring advanced technologies and applications into production in Vietnam of the foreign investors 4 Therefore, the number of foreign investors who do not comply with environmental laws in Vietnam and cause severe environmental consequences during the investment process is highly alarming.
To restrict this problem, the government has conducted many different solutions affecting foreign investors' investment and claimed those were the most effective measures to environmental protection However, those measures can be brought lawsuits because violating the fair and equitable treatment obligation (FET) or creating unlawful indirect expropriation conduct in the BIT or FTA that Vietnam was the member Therefore, the research on the relationship between FET and indirect expropriation regulations and environment protection rights of the host State in provisions of EVIPA to find out effective precaution measures against the dispute between EU investors and Vietnam’s government in the future is extremely necessary.
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.
4 Nguyễn Tuyền, (30/3/2016), “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- 20160330164417696.htm (last accessed on June 25, 2021).
L ITERATURE REVIEW
Materials in Vietnamese
In the article "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” (The relationship between “Fair and Equitable” and environmental purpose in CPTPP – Recommendations for Vietnam) of Nguyen Thi Lan Huong in Legal Science Journal, Volume 06, 2019, the author focus on studying the theory of the FET standard in international investment law, the practice on the interpretation of the FET and investment dispute settlement related to FET standard Thereby, the author analyzes the relationship between "Fair and Equitable" and environmental purpose in CPTPP and assesses those regulations to come up with some recommendations for Vietnam However, in terms of theoretical issue, the author only focuses on FET standard regulations and not the indirect expropriation regulations with the majority proportion in the investment dispute Besides, regarding practical issues, this article essentially studies environmental protection and proposes the recommendations for Vietnam under CPTPP, without mentioning the provision of EVIPA that is the subject of this thesis.
In addition, in the article "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" (Applying environmental exception to in international investment law and some comparisons with the reality in Vietnam) of Tran Thang Long in Nghiên cứu lập pháp Journal, Volume 04, 2019, the Author gives a general overview of international investment exception and the practice of applying the exception in international
4 investment disputes Nevertheless, the author focuses only on analyzing environmental exception in international investment law in general based on general exceptions of GATT and GATS and fails to analyze in-depth environmental exception in the new-generation IIAs.
Materials in foreign languages
Many foreign materials provide general knowledge regarding FET standards, indirect expropriation, or environmental protection right, which are the primary concepts in international investment law used in this thesis, such as
“Standards of Investment Protection” of August Reinisch or “Principles of
International Investment Law”, of Rudolf Dolzer and Christoph Schreuer and many
UNCTAD and OECD documents However, the number of studies on the relationship between those issues and the Vietnamese context, particularly in the provisions of EVIPA, is still limited Since EVIPA is entirely new and lacks actual cases, that leads to the lack of detailed research and only stops at embrace.
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 will provide an overall perspective on the relationship between the right to be ensured FET standards and lawful indirect expropriation of the investors and the right to environmental protection of the host state in IIAs in general and EVIPA in particular As a result, the author will make comments and assessments on environmental protection rights in EVIPA before recommending Vietnam on how to apply EVIPA provisions to ensure the right to environmental protection.
R ESEARCH D ELIMITATION
Under the limitations of time and resources, the author can not be able to study all the issues in the regulations of EVIPA deeply Hence, the scope of this thesis is theoretical and practical issues related to FET standard, indirect expropriation, environmental protection right in international investment law,EVIPA and some international investment agreements It should be noted that the theoretical issues are only some definitions and opinions considered as outstanding and appropriate to the author's outlook Besides, this research also studies some remarkable disputes in international and Vietnam’s practice relating the researched issues Finally, the Author would like to concentrate on analyzing regulations inEVIPA and IIAs to clarify the above 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 shall be divided into two chapters The first chapter will focus on the definition, classification, content and related to FET, indirect expropriation and right on environmental protection in international investment law in general The second chapter will provide the analysis and assessment on the link between the goal
6 of environmental protection of host state and the investment protection principles in EVIPA, besides review and estimate the ability to be taken legal actions against Vietnam's government by the EU investor, finally, focus on recommendations for Vietnam related to investment dispute settlement and 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
In the majority of IIAs, with the main purpose that is to “protect the investments that generate those revenues” and prevent them from being abused by the host States 5 , the provisions in the IIAs generally stipulated in favor of the investors rather than the host state Among several investment standards 6 , FET standard is the most important standard in modern IIAs because this standard appears in the vast majority of IIAs and has been frequently invoked by foreign investors in ISDS proceedings, with a high rate of success.
1.1.1 The historical origin of Fair and Equitable Treatment standard
In some studies by several foreign scholars, the foundation of FET regulations has been formed since the ancient Greek period 7 , rooted in the basis of natural law, and inherited and developed in national laws of some countries 8 However, within the scope of the thesis, the Author will only focus on studying the
5Hanoi Law University (2017), supra note 3, p 80.
6Almost all of them are the rules on the admission of investments, including two non-discrimination standards of most-favoured-nation as well as national treatment, absolute treaty standards, such as fair and equitable treatment, full protection and security, as well as protection against arbitrary and unreasonable measures, guarantees against uncompensated expropriations, and provisions on transfer of funds.
7The famous Greek philosopher Aristotle (384-322 BC) laid the first foundation for the doctrine of natural law The doctrine of natural law was the core foundation for the development of fair and equitable treatment in the right of states to defend themselves when invaded by other states in the doctrine of some philosopher such as Marcus Cicero and Thomas Aquinas.
8FET standard is first recognized in national law in Gemany In European law, this standard was known when applied by the European Court of Justice as a general principle of European Community (EC) law to assess limitations on human rights.
8 historical origin of FET standard based on the formation and development of the international investment.
In pre-date modern IIAs, the first reference of FET standard is found in some IIAs appeared in the early international economic agreement such as the Havana Charter for an International Trade Organization 9 and the Economic Agreement of Bogota 10 at the same time in 1948, as well as in the United States treaties on Friendship, Commerce and Navigation (FCN) 11 Besides, under Article 1 (a) of the Draft Convention on Protection of Foreign Property by the OECD Council on October 12, 1967, the FET was emphasized “Each Party shall at all times ensure fair and equitable treatment to the property of the nationals of the other Parties Such property shall be accorded the most constant protection and security within the territories of the other Parties and the management, use and enjoyment thereof shall not in any way be impaired by unreasonable or discriminatory measure” 12
Although those instruments were no binding at all, they laid the foundation for FETs in modern IIAs.
9 Its Article 11(2) stipulates that the International Trade Organization may be appropriate to “make recommendations for and promote bilateral or multilateral agreements on measures designed to assure just and equitable treatment for the enterprise, skills, capital, arts and technology brought from one Member country to another…” The Article affirmed that the foreign investment of all member States should be assured "just and equitable treament".
10 Article 22 of the agreement stipulates that "Foreign capital shall receive equitable treatment The States, therefore, agree not to take unjustified, unreasonable or discriminatory measures that would impair the legally acquired rights or interests of nationals of other countries in the enterprises, capital, skills, arts or technology they have supplied".
11 FCN developed after First World War provided a standard reference to international law in order to protect the person and property of aliens from discriminatory treatment in foreign markets In those treaties, the terms "equitable" and "fair and equitable treatment" are used to safeguard against State action that violated 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
FET standard is an absolute standard of protection and is referred as a catch-all provision While the relative standards of treatment, like MFN and NT principles, do not provide an objective guarantee of good treatment toward foreign investors, FET ensures that foreign investors are granted an adequate treatment, independently of the treatment that the host States afford to its own investors or investors from other countries 13 Besides, as a catch provision with the flexibiity, it is the most often invoked in almost every single claim brought by foreign against host State with the purpose to fill gaps that the more specific standards may leave 14 even if the investor fails to demonstrate a breach of the remaining provisions of the IIA In fact, the Claimants alleged a violation of FET in over 80% of known ISDS cases and breaches of FET provision were the most commonly found violation in cases decided in favour of the investor 15
Even though FET is broadly applied in practice, there has not been a unified definition of FET in the long time because its meaning depends on the interpretations of the ad hoc arbitral tribunals based on a case-by-case basis and how this principle is recognized in each IIA In the opinion of Professor Muchinski, "The concept of fair and equitable treatment is not precisely defined It offers a general point of departure in formulating an argument that the foreign investor has not been well treated because of discriminatory or other unfair measures being taken against its interests It is, therefore, a concept that depends on the interpretation of specific facts for its content.
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
10 discrimination and proportionality in the treatment of foreign investors." 16 Accordingly, the meaning of FET standard is very broad and vague.
FET standard is considered to be the unified standard that is impossible to separate to two standards - "fair" and "equitable", with independent meanings for each concept 17 In general, The FET principle is understood that the conduct of the host State towards foreign investors must be based on unbiased rules This standard protects investors against serious instances of arbitrary, discriminatory or abusive conduct by host States 18 such as the arbitrary revocation or cancellation of licenses, the imposition of unfair sanctions or creating barriers to disrupt business activities 19 Because of the broad scope of the FET, current arbitral practice shows that all types of government conduct – legislative, administrative and judicial alike – can potentially be found to breach the FET obligation 20
In many scholars’ opinions, FET standard has been identified by some as one of elements of minimum standard 21 of treatment of foreigners and of their property, required by international law 22 NAFTA is an example to back up this point of view, Article 1105.1 of the NAFTA stipulates that: “Each Party shall accord to investments of investors of another Party treatment in accordance with international
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
21 The international minimum standard is a norm of customary international law which governs the treatment of aliens, by providing for a minimum set of principles which States, regardless of their domestic legislation and practices, must respect when dealing with foreign nationals and their property.
11 law, including fair and equitable treatment and full protection and security” As a result, FET standard in NAFTA is clearly treated as part of the minimum standard On the other hand, there is also a view that FET is not limited to the minimum standard as contained in the international customary law but takes into account the full range of international law sources, including general principles and modern treaties and other conventional obligations 23 However, some opinions also xem FET standard is a self- standing standard that which is automomous and not explicitly linked to international law This issue is still controversial, in particular given the growing number of arbitral awards which examine claims of denial of fair and equal treatment 24 Because, as previously stated, there are numerous interpretations of the FET concept, there are various types of FET standards in IIAs based on the language used in treaties, including unqualified FET formulation 25 , FET linked to international law, FET linked to the minimum standard under customary international law 26 and FET with additional substantive content 27 On the other hand, the liability threshold for qualifying conduct by the State is also based on the wording of the FET clause.
O VERVIEW ON I NDIRECT E XPROPRIATION IN I NTERNATIONAL I NVESTMENT L AW
In international investment law, expropriation is a term used to refer to the taking of property from its owner by the host state and in most cases, expropriation is carried out for economic or public purposes Expropriation can mainly take two different forms, which are direct or indirect expropriation However, in contemporary IIAs, direct expropriation has been officially stipulated in the legal documents on expropriation and has become relatively rare, while indirect expropriation becomes the most controversial issue in 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
In general, indirect expropriation can be the expropriation “through measures that, although informally deny of investor status, yet affect their assets to a degree sufficient to take the investor's interest in the investment, limit the investor's management, use, or control substantially reduce the value of the investment” 48
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.
As can be seen that the majority of IIAs refer to both direct and indirect expropriation, whereas rare IIAs explicitly define the notion of indirect expropriation. The exceptional example is Article 1110.1 of NAFTA, this provision stipulates that:
“No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except:…” It can be seen that, NAFTA does mention the phrase "indirect expropriation" but does not provide an official definition or how to define acts that are considered indirect expropriation Likewise, Article 4 in Egypt-Germany BIT (2005) still stipulates 51 :
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
49 Section IV(1) of the Guidelines states that: “A state may not expropriate or otherwise take in whole or in part a foreign private investment in its territory, or take measures which have similar effects, except where this is done in accordance with applicable legal procedures, in pursuance in good faith of a public purpose, without discrimination on the basis of nationality and against the payment of appropriate 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)
“[…] 2 Investments by investors of either Contracting State shall not directly or indirectly be expropriated, nationalized or subjected to any other measures the effects of which would be tantamount to expropriation or nationalization in the territory of the other Contracting State except for the public benefit and against compensation…” As a result, the provisions for indirect expropriation in these IIAs are often ambiguous and the consideration of whether an act is an indirect expropriation or not often depends on the interpretation of the arbitral tribunal.
In general, the notion of indirect expropriation is usually referred to by using phrases such as “de facto expropriation”, "equivalent to expropriation", "tantamount to expropriation" 52 , “creeping expropriation”, “constructive expropriation”, “disguised expropriation”, “consequential expropriation”, “regulatory expropriation” or “virtual expropriation” 53 Furthermore, the nature of the concept and its application in reality are unaffected by various phrases In the practice of international investment dispute settlement, indirect expropriation can be carried out in the following forms: expropriation by administrative measures, expropriation by law, expropriation as a result of various measures over a long period of time.
According to recently concluded IIAs, an increasing number of treaties also provide provisions for indirect expropriation, ones of which comprises more detailed provisions For example, in annex B of US Model BIT, indirect expropriation is “an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure” This definition paved the way for later IIAs to define and interpret indirect expropriation.
According to UNCTAD, indirect expropriations are also defined by the following cumulative elements based on state practice, doctrine, and awards of the arbitral tribunals including (1) An act attributable to the State; (2) Interference with property rights or other protected legal interests; (3) Of such degree that the relevant rights or interests lose all or most of their value or the owner is deprived of control over the investment; (4) Even though the owner retains the legal title or remains in physical possession 54 The above criteria are also intended to determine whether an action or series of actions by host state, in a specific fact situation, constitutes an indirect expropriation However, the determination also requires a case-by-case, fact-based inquiry 55
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;
(2) In a non discrimiatory manner; (3) In accordance with due process of law; (4) The payment of compensation These requirements are generally applicable to both direct expropriation and indirect expropriation IIAs may display some difference in formulations but in general, these four conditions have not changed or otherwise evolved in recent years and represent in customary international law.
Public purpose requirement comes from the reason that the expropriation must be motivated by pursuing legitimate welfare objectives instead of a purely private gain or an illicit end 56 Public purpose is recognized by most legal systems
20 and is a rule of international law However, in some IIAs or treaties, the public purpose may be referred to by other formulations such as “public benefit” 57 , “public interest” 58 , “public order and social interest” 59 , “internal needs” 60 , “legal ends” 61 ,
“national interest” 62 , “public necessity” 63 and “public purpose related to internal needs” 64 The differences of these formulations result from different legal cultures and languages and in practice and the host States defines this concept quite wide. Nonetheless, the interpretation and assessment of the reasonableness of the public purpose are often based on the opinion of the arbitral tribunal on a case-by-case basis Public purpose is usually referred to by their meaning under international law or customary law, generally modeled on Article XX GATT, interpreted based on GATT interpretations and clarified through WTO dispute settlement, thereby that creating unity in the interpretation of the notion of public purpose Furthermore, some treaties make use of domestic law to refer to public purpose 65 , allowing a tribunal to incorporate an understanding of the relevant concept in domestic law into its analysis As a result, in each arose dispute, this creates a comprehensive interpretation of the concept of public purpose.
The notion of the public purpose and the way the expropriation was considered in the arbitral decisions, that whether or not the goal was initially sought by the measure affects the demand for the public purpose In return, expropriations
60 Hong Kong, China-Thailand BIT (2006) and Israel-Slovakia BIT (2001)
62 Chile-Philippines BIT (1997) and Malaysia-United Arab Emirates BIT (1992)
21 made but not made for public purposes are not permitted if the property is taken up in the future to serve a public purpose.
IIAs generally require that expropriation be taken "on a non-discriminatory basis", "in a non-discriminatory manner" or "without discrimination" These variations in formulations are not legally significant In practice, the arbitral tribunals have found this requirement to have been violated when a State has discriminated against foreign nationals based on their nationality 66 However, not all distinctions between different types or classes of investors are discriminatory. Tribunals take a nuanced approach to expropriations that affect only some foreigners if such discrimination may result 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 two of the most important issues of sustainable development in international investment law. However, in recent years, the ISDS has grown exponentially in relation to environmental issues This issue arises as a result of the asymmetry that exists between the rights of foreign investors and the rights of the host state to protect the environment In other words, investor concerns about the promulgation and implementation of national policies or measures to protect the environment may have a negative impact As a result, in the context of international investment law, the balance between the two rights as mentioned above is extremely critical.
81 Article 3.1.(d), Bangladesh-United States BIT
83 Article IX(1)(b), The Belgium/Luxembourg-Colombia BIT (2009)
The imbalance between investor's rights and the host state’s right to protect the environment arises when traditional FTAs mainly focus on economic development, market opening and investment protection Therefore, investment activities in the host state, can cause considerable environmental damage, in particular in the developing countries In this scenario, the host state often faces important challenges when dealing with the consequences caused by environmental pollution during the investment In the one hand, based on the right of sovereignty, the host states have the right and the duty to enact regulations and to take measures to protect society and the environment from harm by private actors 84 On the other hand, their obligation to ensure and protect the foreign investor's benefits arises out of a range of international and domestic legal instruments 85 It can be seen that, in traditional IIAs, Environmental measures taken by the host country can be viewed as an expression of covert protectionism, and those taken must always be subordinated to international investment law in general 86 Therefore, the conflict between the domestic environmental measure and the international investment norm has arisen and is referred as “legitimacy conflicts” 87
Besides, the vague, unrestricted, and unpredictable interpretation of the principles of the international investment law, provided the opportunity for dispute settlement bodies to interpret the provisions of this agreement in a fairly straightforward manner as well as placing heavy emphasis on the interests of foreign
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
29 investors without fully considering the interests of the host States It can be seen that states have relinquished too much ‘policy space’ in signing IIAs and the threat of investor-state arbitration is casting a “regulatory chill” over domestic measures that are needed to achieve legitimate, non-investment policy objectives 88
Because the right of foreign investors frequently rests on the right to enact policies and measures relating to the public interest of the host states, host states frequently face accusations of violating investment protection standards in the investor-state disputes Those are often related to FET standard or claim for indirect expropriation when the host state implements environmental protection measures that affect the investor's investment.
According to Black’s Law Dictionary, the state’s police power is the “power of the State to place restraints on the personal freedom and property rights of persons for the protection of the public safety, health, and morals or the promotion of the public convenience and general prosperity” According to Brownlie opinion, the doctrine covers state acts such as (1) forfeiture or a fine to punish or suppress crime;
(2) seizure of property by way of taxation; (3) legislation restricting the use of property, including planning, environment, safety, health and the concomitant restrictions to property rights; and (3) defence against external threats, destruction of property of neutrals as a consequence of military operations and the taking of enemy property as part payment of reparation for the consequences of an illegal war” 89 The above-mentioned definition from Black's Law Dictionary and Brownlie's act list are
89 Ian Brownlie (2008), “Principles of Public International Law”, Seventh edition, Oxford
30 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 the international investment law, the police power doctrine can be referred as a measure that falls within the state’s police powers resulting in loss of property does not constitute an indirect expropriation, and accordingly, does not give rise to an obligation to compensate 90 It can be seen that certain acts of states, according to the doctrine of police powers, are not subject to compensation based on expropriation regulation The exercise of the state’s police powers is clearly not unlimited and the application of police powers doctrine is confined to some measures relating to the most serious issues of public policy, such as maintaining public order, protecting public health and the environment, and taxation As a result, the doctrine plays a crucial role in preserving the host state's right to issue public policy, thereby balancing the rights of investors and the host state.
Recognizing the state's police powers has a long history in such as the United States’ Supreme Court 1915, Federico Garcia Amador’s Fourth Report on the law of State responsibility to the International Law Commission in 1959 91 Besides, the doctrine is also mentioned in Harvard Draft Convention on the International Responsibility of States, the Second American Law Institute’s
Restatement of the Law in 1965 and then its Third Restatement of the Law 92 These serve as the foundation for the subsequent inheritance and development of the police powers doctrine in the 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
As some arbitral tribunals through the awards 93 acknowledged the state’s police powers while still interpreting old generation investment treaties, the police powers doctrine started to make inroads in new IIAs Accordingly, in Investment Agreement for the Common Investment Area of the Common Market for Eastern and Southern Africa (COMESA), the doctrine is referred to by the pharse “right of states to regulate and the customary international law principles on police powers” 94 However, most treaties do not expressly cite the state’s police powers and the US Model BIT is the example with the provision mentioning that: “Except in rare circumstances, non- discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.” 95 This provisions of US Model BIT are provides a framework for provisions on defining in general terms what measures do not constitute an indirect expropriation in several BITs 96 On the one hand, the new generation IIAs tend to expressly reject the sole effect doctrine and espouse the police powers doctrine in mitigated form 97 On the
93 “the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are commonly accepted as within the police power of States’ forms part of customary international law today” Saluka
Investments BV v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para 262.
94 Article 20.8 of COMESA stipulates that: “Consistent with the right of states to regulate and the customary international law principles on police powers, bona fide regulatory measures taken by a Member State that are designed and applied to protect or enhance legitimate public welfare objectives, such as which provides public health, safety and the environment, shall not constitute an indirect expropriation under this Article.”
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
32 other hand, the relationship between the list of elements that must be considered and the police powers clause itself has yet to be interpreted, but in practice, one of the possible uses of the list will be to argue for the presence or absence of the rare circumstances that would allow derogation from the doctrine Futhermore, the police powers doctrine is unaffected by the type of interference with the investment, and if it did not extend to standards other than expropriation, it could be neutralized by investors bringing claims for violations of other standards, such as 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 EVIPA has clearly defined the goals of the parties when signing this BIT, that to “strengthen their economic, trade and investment relationship in accordance with the objective of sustainable development, in its economic, social and environmental dimensions, and to promote investment under this Agreement in manner mindful of high levels of environmental and labor protection and relevant internationally recognized standards and agreements” and to reaffirm “their commitments to the principles of sustainable development” in the
EVFTA” 115 The language in the preamble can be interpreted in a way that emphasizes the environmental protection objective by equating the objective of sustainable development with the objective of enhancing economic, trade and investment relationship The emphasis on investor protection placed by the preambles in EVIPA may as the main objective of the treaty lead the arbitration panel to adopt a reading of the FET and indirect expropriation clause against this background Thereby, this provision also ensures that the connotations of excessive investment protection are restricted and the risk of the government being claimed when pursuing environmental protection policies is kept to a minimum.
EVIPA's preamble truly reflects the investment trend of the twenty-first century, with more comprehensive concerns, particularly in terms of environmental protection In comparison to the traditional BITs that Vietnam has signed, this is regarded as an outstanding feature.
2.1.2 Provisions affirming the State’s right to enact policies and implement measures for environmental protection
The EVIPA affirms “right to regulate within their territories to achieve legitimate policy objectives” such as protection of environment 116 In my opinion, this regulation has overcome its own shortcomings in the other IIAs Accordingly, other IIAs' “right to regulation” provisions frequently provide for consistency of the
“right to regulate” provision with other IIA provisions that are considered redundant and have little effect on the right to environment protection of the host state. Besides, Article 2.2.2 also stipulates that: “For greater certainty, this Chapter shall not be interpreted as a commitment from a Party that it will not change its legal and regulatory framework, including in a manner that may negatively affect the operation of investments or the investor's expectations of profits” The above regulation serves as confirmation that changes to the legal and regulatory framework by themselves do not result in a violation of the FET clause, and thus have significant implications for the host state's environmental protection goal. Therefore, Article 2.2 is the breakthrough in EVIPA, the regulation of the “right of regulation” not only concretizes the sustainable development goals that the parties have acknowledged at the Preamble but also creates guidance and direction for arbitration panel in resolving environmental disputes.
2.1.3 Provisions on Fair and Equitable Treatment
The Article 2.5.2 of the EVIPA (Treatment of Investment) requires a Party to provide fair and equitable treament to investor of the other Party and their investment This Article provides a closed list of criteria which can be used to determine whether a violation of fair and equitable treatment occurred Those criteria include “a denial of justice in criminal, civil or administrative proceeding” 117 , “a fundamental breach of due process in judicial and administrative proceedings” 118 , “manifest arbitrariness” 119 , “targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief” 120 , “abusive treatment such as coercion, abuse of power or similar bad faith conduct” 121 Therefore, FET in EVIPA is defined in a narrow manner than the unqualified FET clauses and FET clause linking to the mimimun standard or international law in other IIAs It could be argued that the host state's change of environmental policies and enactment of environmental protection measures do not constitute a violation of the FET standard, which must be assessed based on the nature of the measure in accordance with the listed criteria With a clear scope and content, this method allows for more predictable FET clause implementation.
Nonetheless, the EVIPA also foresees a possibility of expanding list of criteria by the Article 2.5.2(f) and Article 2.5.3 Hence, the host state also breaches the obligation of FET even if the treatment is not mentioned at point (a) to (e) when “the Parties have so agreed in accordance with the procedures provided for in Article
4.3” However, the application of this content in practice is unlikely applied in practice For Article 2.5.3 to be applicable, the Parties have to amend the Agreement by the procedures 122 in accordance with Article 4.3 According to the Author's subjective opinion, this provision is precautionary instead of expanding the scope and content of the FET clause.
The Article also stipulates that “A breach of another provision of this
Agreement, or of a separate international agreement, does mot estabish that there has been a breach of this Article” 123 This provision clarifies the relationship between FET and a breach of another provision or agreement Accordingly, the purpose of this provision is to prevent arbitration panel from automatically finding a breach of the FET standard when another provision in the IIA has been breached.
Concerning the provisions on investors' legitimate expectations 124 , the criterion of legitimate expectation is considered independently, but only when the creteria from paragraphs 1 to 3 of are satisfied This regulation is intended to limit the arbitrary application of legitimate expectation in order to broaden the scope of the FET clause's application Besides, the arbitration panel “may take into account whether a
Party made a specific representation to an investor of the other Party to induce a covered investment that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain that investment, but that the Party subsequently frustrated” As a result, the arbitration panel's consideration of the
122 Article 4.3, EVIPA stiputes that: “1 The Parties may amend this Agreement An amendment shall enter into force after the Parties exchange written notifications certifying that they have completed their respective applicable legal procedures as provided for in Article 4.9 (Entry into Force) 2 Notwithstanding paragraph 1 and where provided for in this Agreement, the Parties may adopt in the Committee a decision amending this Agreement This is without prejudice to the completion of each Party's applicable 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 clearly defined in Article 2.7.1 of EVIPA: “A Party shall not nationalise or expropriate the covered investments of investors of the other Party either directly, or indirectly through measures having an effect equivalent to nationalizaton or expropriation…” Requirements for lawful expropriation include four essential critera in IIAs that are “public purpose” 125 , “due process of law” 126 , “non-discriminatory basis” 127 , “payment of prompt, adequate and effective compensation” 128 In general, the above regulations are fundamental and not novel, and they can be found in many IIAs.
The regulation explaining the concept of indirect expropriation is a noteworthy point in the regulation on indirect expropriation Thereby, “indirect expropriation occurs if a measure or series of measures by a Party has an effect equivalent to direct exproprition, in that it substantially deprives the investor of the fundamental attributes of property in its investment including the right to use, enjoy and dispose of its investment, without formal tranfer to title or outright seizure” 129 On the other hand, EVIPA also provide that listing criteria for a finding of indirect expropriation, including: “the economic impact of the measure or series of measures, although the fact that a measure or series of measures by a Party has adverse effect on the economic value of an investment, standing alone, does not establish that such
44 an expropriation has occurred”, “the duration of the measure or series of measures or of its effects”, “the character of the measure or series of measures, in particular its object, context and intent” 130 The determination of whether or not a measure or series of measure is considered as the indirect expropriation, the arbitration panel has to dựa vào in a specific factual situation and a case-by-case fact-based inquiry inquiry 131 The clarifying indirect expropriation regulation in EVIPA can ensure that host states can rely on the above criteria to enact and enforce environmental measures without facing allegations of breach of obligations and compensation claims from foreign investors Thereby, the “non-discriminatory measures or series of measures by a Party
R ECOMMENDATIONS FOR V IETNAM ON THE APPLICATION THE FAIR AND EQUITABLE
In general, the provisions of the EVIPA Agreement are well understood and consistently applied The relationship between environmental protection rights and the FET standard, as well as indirect expropriation, is inferred from EVIPA's in each individual regulation Therefore, when compared to the BITs signed by Vietnam, host states' environmental protection right in EVIPA are more guaranteed, uniform, and valid in practice As a result, those regulations have clearly demonstrated the progress of the new generation IIAs with many outstanding regulations, solving the shortcomings in traditional IIAs and, thus, partially overcoming the asymmetry between the host state's right to environmental protection and investor rights, particularly in FET and indirect expropriation regulations.
2.2.Recommendations for Vietnam on the application the fair and equitable treatment and indirect expropriation regulations in EVIPA towards environmental protection goal
It can be seen that, from the perspective of the host state, Vietnam will face many risks and may be sued by foreign investors based on the regulations of EVIPA when promulgating and implementing regulations to ensure the right to protect the environment As a result, the Author will make the following recommendations to address this issue.
2.2.1 Maintaining the legal framework's stability and uniformity
Changing policies and legal regulations are unavoidable in a country's development, and Article 2.2 affirms the State's right to enact policies, implement measures, and change the legal framework pertaining to environmental issues However arbitrarily changing the legal framework, resulting in a loss of investment for investors during the investment process, can still violate the FET standard or result
46 in an expropriation claim Vietnam's legal policies and regulations, in particular, are regarded as unstable, and there is sometimes overlap in legal provisions within the same legal branch or between different branches of law, resulting in the policy being updated on a frequent basis On the other hand, the government provides investment commitments, while much of the responsibility for environmental management including environmental protection policy promulgation is delegated to local authorities This decentralization may result in conflicts between the authorities' decisions, raising the possibility of a dispute with investors and, as a result, addressing the issue of ensuring the legal framework's stability, particularly in policies on investment protection and environmental protection As a result, the regulations and policies issued and applied by competent agencies should be in consistent, non-arbitrary, and non-overlapping and the stability of domestic legal regulations should also be ensured.
2.2.2 Ensuring the suitability of environmental protection measures
Environmental protection measures are inextricably linked to the interpretation and implementation of EVIPA, so it is critical to understand and apply these measures appropriately, based on solid arguments and foundations Therefore, the purpose of environmental protection measures, ensuring non-discriminatory and legal basis, enactment of the measure based on science, and the necessity to apply such measure must all be included in the measures to be put in place Furthermore, environmental measures affecting investors must be issued in accordance with the order of competence under Vietnamese law and must be transparent.
2.2.3 Strengthening the capacity of the competent authorities
As can be seen, EVIPA has not yet taken effect, so the interpretation and application of some provisions are still not entirely clear Furthermore, Vietnam's lack of experience in international investment disputes, as well as its limited professional
47 qualifications and management capacity, is viewed as a weakness in the implementation of EVIPA regulations, particularly environmental protection right regulations As a result, in order for the rights and obligations committed in the EVIPA to be properly and fully comprehended, and for these rights and obligations to be effectively implemented, Vietnam must urgently train, foster, and improve the capacity of officials in charge of enforcing investment laws at the national and local level Furthermore, experts of international investment are responsible for providing advice and recommendations to governments and law enforcement agencies based on their research in order to understand and apply regulations properly, avoiding disputes.
Environmental protection right related to fair and environmental policies, treatment standards, and indirect expropriation appear in many forms in EVIPA, from the Preamble to content provisions such as: the provisions affirming the State's right to enact and implement protection measures, provisions on fair and treatment, and provisions on indirect expropriation The contents of these regulations all have a significant impact on the balance between host states' right to environmental protection and foreign investors' right, particularly when it comes from indirect expropriation and FET obligations Thereby, the author suggests some experiences for Vietnam in applying the provisions of EVIPA based on the assessment and analysis of the above regulations, including: maintaining the legal framework's stability and uniformity, providing appropriate environmental protection measures, and strengthening capacity in the application of EVIPA regulations.
Although EVIPA has not yet taken effect as expected, it will greatly encourage EU investment in Vietnam in the near future However, in addition to the expected economic benefits of EVIPA, the issue of environmental pollution in Vietnam during the investment process is a source of concern It is clear that the number of investors who violate Vietnam's environmental laws and cause severe environmental consequences during the investment process is extremely concerning.
As a result, the government has taken numerous measures to address this issue. Those measures, however, can result in lawsuits due to violations of the fair and equal treatment obligations (FET) or the creation of unlawful indirect expropriation conduct As a result, the author analyzes and evaluates the environmental protection regulations in EVIPA in relation to the FET standard and indirect expropriation using the theoretical foundation of international investment law Since then, the author has suggested some practical experiences for Vietnam in implementing EVIPA provisions in order to ensure Vietnam's right to environmental protection. The author hopes that this bachelor thesis will contribute to the study of regulations in EVIPA, particularly the relationship between the right to environmental protection and the FET standard, as well as indirect expropriation.
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