The tentative investment chapter of trans – pacific partnership agreement an analysis of theory and practice

HO CHI MINH CITY UNIVERSITY OF LAW
MANAGING BOARD
OF SPECIAL TRAINING PROGRAMS

BACHELOR’S THESIS
INTERNATIONAL LAW MAJOR

THE TENTATIVE INVESTMENT CHAPTER OF
TRANS – PACIFIC PARTNERSHIP AGREEMENT:
AN ANALYSIS OF THEORY AND PRACTICE

Student

: VÕ THỊ HỒNG HẠNH

Student ID : 1055010085
Class

: CLC35

Supervisor : Dr. LÊ THỊ ÁNH NGUYỆT

HO CHI MINH CITY, 2014


AFFIRMATION
I hereby declare that this thesis is my own work. The figures used in the thesis are
authentic. The research results have not been published in any other work.
Ho Chi Minh City, July 2014

Võ Thị Hồng Hạnh

TABLE OF CONTENTS
ABBREVIATION ............................................................................................................
INTRODUCTION .......................................................................................................... 1
CHAPTER 1: TRANS – PACIFIC PARTNERSHIP AGREEMENT AND ITS
TENTATIVE INVESTMENT CHAPTER .................................................................. 4
1.1. Overview of the negotiation of Trans – Pacific Partnership Agreement ....... 4
1.2. Features of Trans – Pacific Partnership Agreement as an International
investment agreement ................................................................................................ 5
1.2.1. International investment agreement ............................................................... 5
1.2.2. Form of international investment agreement ................................................. 6
1.2.3. Features of Trans – Pacific Partnership Agreement ...................................... 7
1.3. Tentative investment chapter ........................................................................... 10
1.3.1. Tentative substantive provisions .................................................................. 10
1.3.1.1. Terminology of investment .................................................................... 10
1.3.1.2. Minimum standard of treatment ............................................................. 14
1.3.1.3. Expropriation .......................................................................................... 18
1.3.2. Investor – state dispute settlement mechanism ............................................ 21
1.3.2.1. Who can be an investor? ........................................................................ 22
1.3.2.2. Whose measures constitute to be conducts of State? ............................. 24
1.3.2.3. Admissible arbitration forum ................................................................. 25
CHAPTER 2: DISPUTES BETWEEN NATIONALS OF TPP NEGOTIATING
PARTIES V. OTHER COUNTRIES, AND OTHERS BETWEEN TPP
NEGOTIATING PARTIES V. NATIONALS OF OTHER COUNTRIES: CASE
ANALYSIS.................................................................................................................... 29
2.1. Cases between nationals of negotiating parties and other countries ............ 29


2.1.1. ICSID case: Metalclad v. Mexico ................................................................ 29

2.1.2. UNCITRAL case: Saluka v. Czech Republic .............................................. 33
2.2. Cases between negotiating countries and nationals of other countries ........ 37
2.2.1. ICSID case: Tecmed v. Mexico ................................................................... 37
2.2.2. UNCITRAL case: Philip Morris v. Australia .............................................. 40
2.3. Other case: CSOB v. Slovak Republic ............................................................ 43
2.4. Michael McKenzie v. Vietnam ......................................................................... 46
CONCLUSION ............................................................................................................. 50
BIBLIOGRAPHY ............................................................................................................
APPENDIX .......................................................................................................................


ABBREVIATION

BIT
GATS
ICSID
IIA
ISDS
JBIT
NAFTA
OCED
TPP
TRIMs

Bilateral Investment Treaty
General Agreement on Trade in Services
International Centre for Settlement of Investment Disputes
International Investment Agreement
Investor – State Dispute Settlement
Japan – Vietnam Bilateral Investment Treaty

North American Free Trade Agreement
Organization for Economic Cooperation and Development
Trans – Pacific Partnership Agreement
Agreement on Trade – Related Investment Measures

UBTA
UNCITRAL

U.S – Vietnam Bilateral Trade Agreement
United Nations Commission on International Trade Law
Rules of Arbitration

UNCTAD
WTO

United Nations Conference on Trade and Development
World Trade Organization


1

INTRODUCTION
1. The necessity of the thesis
―Trans – Pacific Partnership Agreement, in term of the ―21st century agreement‖ is
now one of the most important regional trade agreements that Vietnam has joined the
negotiation since 2008. Accordingly, Vietnam will have to commit deeper in all trade
and trade – related issues in the agreement, including but not limiting to the
investment sector. On the other hand, since better market access will be provided and
Vietnam is still regarded as a potential environment, it is predictable that Vietnam will
receive large capital from foreign investors of 11 negotiating parties, for instance, U.S

and Japan – two largest economies in the world.
Nevertheless, the foreign investment issue in the agreement will definitely bring
more challenges for Vietnam. In June, 2012, the leaked investment chapter shows that
negotiating parties have agreed on including the investor – state dispute settlement
mechanism which grants the foreign investors the right to directly sue host state to
international arbitration. This will possibly pose more risks to Vietnam in two aspects:
(i) as a host state, Vietnam will be exposed to becoming Respondent being sued and
(ii) domestic investors will have to compete more against foreign investors.
In practice, Vietnam has already been Respondent in international investment
disputes. In 2013, we have won first investment case against Michael McKenzie, a
U.S national that invested in Binh Thuan province through a project named South
Fork. With this winning, Vietnam did not have to pay $3.7 billion which was the
amount that the Claimant had requested. However, previously in 2007, we lost our
first case against Trinh Vinh Binh, a Dutch investor and had to pay damages.
Although the exact number is not public, it is reported that the Claimant requested us
to compensate him $100 million. These cases show us how great this mechanism may


2

affect to Vietnam‘s responsibility in future when Vietnam breaches an obligation in
the Trans – Pacific Partnership Agreement.
With all of the reasons above, the author chose to study about the investment issue
in Trans – Pacific Partnership Agreement, particularly the tentative investment
chapter. The name of the thesis is thus ―The tentative investment chapter in Trans –
Pacific Partnership Agreement: An analysis of theory and practice‖.
2. Purpose and Delimitation of the Thesis
The purpose of the thesis is to analyze features of the Trans – Pacific Agreement as a regional investment agreement, to study the important contents of the tentative
investment chapter, and to study how these investment obligations may be interpreted
in practice through cases resolved by the arbitral tribunals.

Because of time and limited material, the author will only analyze the commitments
to investment in the investment chapter. Besides, the scope of the study on substantive
provisions in the tentative chapter will be limited to three particular articles on the
terminology of investment, minimum standard of treatment and expropriation. Thus,
the analysis on practice will also extend to interpreting these obligations.
3. The status of the study
Since the topic is new and the negotiation has not yet been completed, there is
limited number of academic studies regards the tentative investment chapters. In
foreign language, C. L. Lim, Deborah Kay Elms and Patrick Low wrote the Chapter
―Trans - Pacific Partnership Agreement towards Innovations in Investment Rule Making‖ in the book “The Trans – Pacific Partnership: A request for a Twenty – first
Century Trade Agreement” and published in 2012. Leon E Trakman wrote the journal
article ―Resolving Investor-State Disputes under a Transpacific Partnership
Agreement - What Lies Ahead?‖ and published in Transnational Dispute


3

Management Journal in 2012. The organization Public Citizen also wrote the article
―Public Interest Analysis of Leaked Trans-Pacific Partnership (TPP) Investment Text‖
and published on its website in June 2012. These articles mostly discussed various
concerns about a comprehensive investment chapter, especially in the effectiveness of
the questionable investor – state dispute settlement.
In Vietnam, the most relevant study is the article ―Suggestion on negotiating
Investment Chapter of TPP‖ of the WTO Center – Chamber of Commerce and
Industry of Vietnam in January, 2013. There is hardly any thorough study about this
investment chapter. Based on my research, some old studies only concern about the
investor – state dispute settlement mechanism. For instance, the scientific research on
“Settling investment dispute in accordance with ICSID – experience for Vietnam” at
Ministry level in 2012 (Dr. Nguyen Minh Hang is the monitor) analyzed mostly on
the ICSID mechanism and its practice of settlement.

4. Methods
In this thesis, the author has adopted mostly the method of analysis and synthesis in
different parts to achieve the purpose. Besides, the comparative method and data
collection are also utilized in some parts to emphasize important issues.
5. Structure of the thesis
The thesis contains two following chapters:
Chapter 1: Trans – Pacific Partnership Agreement and its tentative investment chapter
Chapter 2: Disputes between nationals of TPP negotiating parties v. other countries,
and others between TPP negotiating countries v. nationals of other countries: case
analysis


4

CHAPTER 1: TRANS – PACIFIC PARTNERSHIP AGREEMENT AND ITS
TENTATIVE INVESTMENT CHAPTER
―Know yourself, know your enemy‖ is a famous quotation telling people the
method to survive in every battle: to know the positions of you and your enemy. In
this negotiation, the same is true; if we do not want to be a small fish in a big pond,
we have to have a minimum insight of the Trans – Pacific Partnership Agreement –
the big playing field that Vietnam is participating. From that perspective, this chapter
will answer what features this trade agreement, particularly the tentative investment
chapter may have. To be more specific, the contents of this tentative chapter, i.e. the
substantive provisions and the investor – state dispute settlement mechanism will also
be discussed.
1.1. Overview of the negotiation of Trans – Pacific Partnership Agreement
The current Trans – Pacific Partnership Agreement (hereinafter ―TPP‖) is
developed from the original Trans - Pacific Strategic Economic Partnership (P4
Agreement) which was concluded between Brunei, Chile, New Zealand and
Singapore in 2005. Interestingly, this Agreement includes a provision that allows the

joining of other countries1. Thus, in 2009, the United States officially participated in
all aspects of TPP negotiations. From that time, the TPP negotiating parties are
expanding to 12 countries throughout the Asia - Pacific region (Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United
States, and Vietnam), making TPP one of the most prominent agreements that will
account for 40% GDP of the world. Furthermore, the parties aim at creating TPP as a
―21st century agreement‖ that will announce all of the problems of modern era,

1

Trans-Pacific Strategic Economic Partnership, Article 20.6 Clause 1 says that ―This Agreement is open to
accession on terms to be agreed among the Parties, by any APEC Economy or other State‖. The terms of such
accession shall take into account the circumstances of that APEC Economy or other State, in particular with
respect to timetables for liberalization‖. The text is available at < />

5

including the promotion of innovation, economic growth and development as well as
support the creation and retention of jobs. Up till now, 20 formal rounds of
negotiations have been held, in which the latest round is in July, 20142.
The TPP is expected to be an ambitious agreement that governs a wide range of
trade and trade – related issues, including industrial goods, agriculture, textiles,
services, investment, intellectual property, the environment, small-and medium-sized
enterprises and others. Although the wrap up of negotiation was intended in 2012,
such controversial issues like agriculture, intellectual property, services and
investments have made that impossible. Indeed, such a high - standard ―21st century‖
agreement has both benefits as well as stakes; therefore, a further thorough
negotiation to balance the divergence in the level of development of parties is
necessary.
1.2. Features of Trans – Pacific Partnership Agreement as an International

investment agreement
It is interesting that all 12 countries of TPP are also members of World Trade
Organization – the largest multilateral trade agreement - and other regional trade
agreements. Thus, there will be interactions between those treaties, especially when
negotiating parties aim at creating TPP as a model for future free trade agreements
with higher integration level. To do so, it must have features of the recent regional
trade agreement that also includes an investment chapter, i.e. to be a regional
investment agreement and to have a ―ratchet‖ mechanism that ensures more
liberalization in investment. To that extent, it is said that TPP is a comprehensive
WTO – plus commitment.
1.2.1. International investment agreement
International investment agreement (hereinafter ―IIA‖) can be generally referred as
treaty with the aim of protecting, promoting, and liberalizing cross – border
2

See more at < />

6

investment3. Currently, we can found IIAs concluded at bilateral or regional level. By
the end of 2012, approximately 3196 IIAs are signed, most of which are in form of
Bilateral Investment Treaty (hereinafter ―BIT‖)4.
The negotiations of IIAs have experienced many opinions. During 1970s – 1980s,
IIAs were opposed strongly by newly created developing countries after
decolonization. However, from 1990s, there were two main reasons that made those
countries change their minds: (i) the increase in the political commitment to economic
liberalism by governments in developing and developed countries, and (ii) the
developing state‘s alternative methods to foreign direct investment (e.g. the
international lending and aid) became increasingly rare5. Hence, with a more positive
view on IIAs, it is not uncommon that the number of IIAs will increase in the future.

1.2.2. Form of international investment agreement
The first form of IIAs was concluded at bilateral level. Accordingly, the provisions
for protection of foreign investor were incorporated into the so – called ―Friendship,
Commerce and Navigation‖ Treaties which were traditionally meant to govern trade
relationship, for instance, Treaty of Amity and Commerce, U.S- France July 16, 1782,
Treaty of Peace and Friendship, U.S- Morocco, June 23 - July 6. Nonetheless, those
treaties were subsequently replaced by BITs that exclusively govern investment
issues.
On the other hand, in the modern era, IIAs can also be found in form of Preferential
Trade and Investment Agreements or their particular form as Free Trade Agreements
or Economic Partnership Agreements. Chapter IV in the US – Vietnam Bilateral
3

Howard Mann (2008) “International Investment Agreements, Business and Human Rights: Key Issues and
Opportunities”,
International
Institute
for
Sustainable
Development
Publication,
p.3
< />4
United Nations Conference on Trade and Development (hereinafter ―UNCTAD‖) (2013), “World Investment
Report 2013: Global Value Chains: Investment and Trade for Development”, United Nations Publication, p. x.
5
Andrew Newcombe and Lluís Paradell (2009), “Law and Practice of Investment Treaties: Standard of
Treatment”, Kluwer Law International, p.41.

7

Trade Agreement (took effect in December 2001) or Chapter 5 of the Brunei – Japan
Economic Partnership Agreement (took effect in July, 2008) are some of these
examples. Investment provisions in those agreements are often included in one or two
chapters, making them just a small part of the treaties. Given that trade and
investment is no longer a replacement but rather a complement to the development of
each other 6 , a number of trade agreements with investment provisions have been
increasing, especially at regional or inter – regional level7. Among those treaties, the
most remarkable one may be the North American Free Trade Agreement (hereinafter
―NAFTA‖) established in 1994. Up till now, the number of investment cases
commenced under NAFTA reaches 51 cases, making it the most frequently – used
legal instruments for investor - state dispute settlement (hereinafter ―ISDS‖)
mechanism 8.
1.2.3. Features of Trans – Pacific Partnership Agreement
1.2.3.1 Regional investment agreement
In nature, TPP is also considered as a regional investment agreement since 12
negotiating parties are in the same geographical area, i.e. the Asia – Pacific region.
Moreover, TPP includes an investment chapter which was leaked in June, 20129. The
chapter includes 28 Articles and 8 Annexes, and more importantly, the square
brackets in this chapter indicate that not all of the articles have been unanimously
agreed. This tentative version also shows that TPP contains common investment
provisions, such as those regulations on promotion and protection (minimum standard
6

Kenneth J. Vandevelde (2005), ―A Brief History of International Investment Agreements‖, U.C. Davis Journal
of International Law & Policy, Vol. 12, No. 1, p.181.
7
UNCTAD observed that at least 110 countries are involved in 22 regional negotiations nowadays. See more at
UNCTAD (2013), “The rise of regionalism in international investment policymaking: consolidation or

complexity?‖,
United
Nations
Publication,
p.1< />8
UNCTAD (2014), “Recent developments in international investment agreements”, p.9
< />9
The link can be found at < />

8

of treatment or fair and equitable treatment, full protection and security, prohibition
against unlawful expropriation and transfer of funds clauses), liberalization (national
treatment, most – favored nation treatment, performance requirement clause), and
other provisions. More importantly, the Draft provides the ISDS mechanism that
grants foreign investor right to directly file a lawsuit against the host state to
international arbitration. Those provisions will be discussed later.
1.2.3.2. Comprehensive “WTO – plus” agreements
In November 2011, the leader of TPP negotiating parties released a statement
clarified the objectives of TPP, that is, to conclude “a comprehensive, next-generation
regional agreement that liberalizes and promotes trade and investment”10 . On the
other hand, some authors have pointed out that provisions for investment included in
Trade Agreements are clearly WTO – plus 11, i.e. address issue that is not provided in
WTO or govern the already – included object in such a more stringent way. In my
opinion, this is also the case of TPP. Up till now, the negotiation of comprehensive
investment rules has never succeeded in WTO forum. Moreover, the reference to
foreign investment in WTO is very limited. There are just provisions that govern
―commercial presence‖ (one type of service supplied by a foreign company setting up
operation in the host countries) under GATS and provisions for prohibition of
performance requirement that govern trade – related investment measures under

TRIMs12. Basically, there are no articles relating to the protection of investment (fair
and equitable treatment, expropriation…) as well as no ISDS mechanism for investors
under WTO. Hence, the inclusion of those provisions in TPP can be considered a

10

Office of the U.S Trade Representative (USTR), “Trans - Pacific Partnership Leadership Statement” (Press
Release), available at < />11
Matsushita Mitsuo and Lee Yong-sik (2008), ―Free trade agreements: WTO disciplines and development
perspectives‖, Law and Development Perspective on International Trade Law (ed. Yong-Shik Lee, Gary Horlick,
Won-Mog Choi, Tomer Broude; 2011, Cambridge University Press), p.262.
12
See more at Article 2 and Annex of TRIMs.


9

WTO – plus. Moreover, the tentative chapter also shows that its performance
requirement clause contain more types that go beyond the provisions in TRIMs. For
instance, Article 12.7.1 point (f) and (h) of the chapter provides for prohibition on
technology transfer requirement, which is not explicitly covered under TRIMS.
Fundamentally, commitment to more ―WTO – plus‖ obligations may provide better
market access to foreign investors, but it will also create more burden on host states
with the compliance of new duties.
1.2.3.3. “Ratchet” mechanism
Another feature that most likely appears in TPP is the inclusion of a so – called
―ratchet‖ clause, i.e. a commitment that any unilateral liberalization by one member
after the treaty enters into force must be automatically bound to lower level of
restrictiveness13. This feature has been covered in recent Regional Trade Agreements
that follows the NAFTA – approach. The ratchet effect is said to occur by the

combination of ―standstill – clause‖ and ―roll – back clause‖ 14 . The ―standstill –
clause‖, as explained by OECD when drafting the Multilateral Agreement on
Investment, is meant to ensure “an irreversible minimum standard for liberalization
through the exclusion of new or additional restrictions”15. With the same aim, TPP is
supposed to provide national treatment and most – favored nation treatment and other
liberalization obligations to all sectors, except for those existing and future ―non –
conforming measures‖ that each country wishes to maintain16. These measures may
be amended but not in a way that decreases the level of conformity. Moreover, the
13

Axel Berger, Matthias Busse, Peter Nunnenkamp, and Martin Roy (2010), ―Do Trade and Investment
Agreements Lead to More FDI? Accounting for Key Provisions inside the Black Box‖, p.6
< />14
OECD (1996), "Mechanisms for standstill, rollback and listing of country specific reservations”, Note by MAI
Negotiating Group chairman, p.6 < />15
Id. at 2.
16
Indeed, in the Draft TPP, Article 12.9 regulates on ―Non – performing measures‖, i.e. measures that are not
consistent with the treaty but are wished to be reserved. The detailed measures of each country will be set out in
Annex 11.


10

―ratchet – effect‖ will be supplemented with the ―rollback clause‖ which will
eventually eliminate the ―non – confirming measures‖. Normally, this effect may be
achieved through a ―phase – out clause‖ or ―sunset – clause‖ which sets out the date
these measures will be removed, or by period examination17. In TPP, it is more likely
that the Annexes including ―non – conforming measures‖ will indicate the Schedules
to remove these types18. By including the ―ratchet‖ mechanism, TPP is expected to

create more transparency, predictability and security for foreign investors 19.
1.3. Tentative investment chapter
The leaked investment chapter also contains the provisions in modern IIAs,
especially in the U.S Model BIT 2012. Since the paper is limited, this part will only
discuss three substantive provisions of terminology of investment, minimum standard
of treatment and expropriation, as well as the ISDS mechanism included in Draft TPP
(For more convenience, I will use the term ―Draft TPP‖ and ―Tentative investment
chapter‖ interchangeably which all relates to the leaked version in 2012). Apart from
using the analytic method, I will compare those provisions with the ones in two IIAs
Vietnam have signed with two TPP‘s negotiating parties, i.e. U.S – Vietnam Bilateral
Trade Agreement (hereinafter ―UBTA‖) and Japan – Vietnam Bilateral Investment
Treaty 20(hereinafter ―JBIT‖).
1.3.1. Tentative substantive provisions
1.3.1.1. Terminology of investment
At first glance, Article 12.2 of Draft TPP addresses the term ―investment‖ by using
the broad asset – based definition in the same way as UBTA and JBIT. Those treaties
17

OECD, supra note 14, at 4.
Article 12.4 (2) and Article 12.10 of Draft TPP refers to ―Schedule to Annex I or II of non – conforming
measures‖.
19
Axel Berger, Matthias Busse, Peter Nunnenkamp, and Martin Roy, supra note 13, at 6.
20
Japan - Vietnam Economic Partnership Agreement (entered into force on October 1, 2009) states that Japan –
Vietnam Bilateral Investment Treaty (entered into force from November 14, 2003), ―except its Article 20, as may
be amended, are incorporated into and form part of this Agreement, mutatis mutandis‖.
18

11

are similar in covering both foreign direct investments and portfolio investments21.
Besides, investment may take various forms. In TPP, ―investment‖ includes:
(a) an enterprise;
(b) shares, stock, and other forms of equity participation in an enterprise;
(c) bonds, debentures, [other debt instruments,] and loans [but does not
include a debt instrument of a Party or of a state enterprise] 22;
(d) futures, options and other derivatives;
(e) turnkey, construction, management, production, concession, revenuesharing and other similar contracts;
(g) intellectual property rights [which are conferred pursuant to domestic
laws of each Party];
(h) licenses, authorizations, permits and similar rights conferred pursuant to
domestic law, and
(i) other tangible or intangible, movable or immovable property, and related
property rights, such as leases, mortgages, liens and pledges…
Basically, the formation of the clause in those treaties is equivalent. Nonetheless,
when compared with the previous IIAs, some modifications in the draft TPP can be
found:
 TPP seems to have more restrictions to portfolio investments. The short – term
debt or loan is likely to be excluded since draft TPP only governs these types where
original maturity must be at least three years23. Besides, Draft TPP indicates that they

21

However, it should be noted that the wording does not exactly point out equity securities (such as shares,
stocks) and debt securities (such as bond, debentures) are portfolio or indirect investment. They can still be direct
one.
22
Another proposal of types is read as follows:

(c) debt securities and loans, as follows:
(i) a debt security of an enterprise:
(A) where the enterprise is an affiliate of the investor, or
(B) where the original maturity of the debt security is at least three years,
(ii) a loan to an enterprise
(A) where the enterprise is an affiliate of the investor, or
(B) where the original maturity of the debt security is at least three years;
23
See more at the footnote of first option of ―debt securities and loans‖: Some forms of debt, such as bonds,
debentures, and long-term notes, are more likely to have the characteristics of an investment, while other forms of
debt, such as claims to payment that are immediately due and result from the sale of goods or services, are less
likely to have such characteristics.


12

must belong to an enterprise which is an affiliate of the investor. The provision also
does not cover debt of a Party or of a state enterprise.
 New form of transaction is included, that is derivatives. Derivative is ―a
financial contract whose value is derived from the performance of some underlying
market factors, such as interest rates, currency exchange rates, and commodity, credit,
or equity prices‖24. Public opinions have been expressed worry towards this type in
TPP when considering the troublesome role these instruments played in the financial
crisis and ongoing regulatory reform efforts 25. In Vietnam, derivatives market is a
new one. Since our national derivative market will only possible to be completed in
2016 and given that derivative is troublesome, we should not pay less attention to this
type of transaction.
 Instead of specifically indicating which intangible rights are intellectual rights,
Draft TPP provides that these are rights “conferred pursuant to domestic laws of each
Party”. This is the difference from both UBTA and JBIT 26 . Since TPP is a

multinational agreement, it is not easy like bilateral treaties to give a detail list that
can satisfy all of the opinions. By regulation as such, it can at least guarantee the
consistency between domestic law and international obligation.
 Finally, Draft TPP tries to limit the expansion of ―contract having a financial
value‖, which can be explained too broad in the previous IIAs. It excludes ―claim to
money‖ from certain contract that does not likely relate to investment activity, i.e.

24

< />Public Citizen, ―Investment Rules in Trade Agreements - Top 10 Changes to Build a Pro-Labor, ProCommunity
and
Pro-Environment
Trans-Pacific
Partnership‖,
August
9,
2010
< />26
Intellectual property under Article 1(1) of UBTA includes ―copyrights and related rights, trademarks, patents,
layout designs (topographies) of integrated circuits, encrypted program-carrying satellite signals, confidential
information (trade secrets), industrial designs and rights in plant varieties‖; and under Article 1(2)(f) of JBIT
includes ―trademarks, industrial designs, layout-designs of integrated circuits, copyrights, patents, trade names,
indications of source or appellations of origin, and undisclosed information‖.
25


13

“commercial contracts for the sale of goods or services by a national enterprise in the
territory of a Party to an enterprise in the territory of the other Party”.

On the other hand, the Draft TPP is more refined on the term by adding more
requirements that must be met to be an ―investment‖. First, Draft TPP requires that
investment must include “such characteristics as the commitment of capital or other
resources, the expectation of gain or profit, or the assumption of risk”. There are
good points in this provision since those features are usually considered as elements
of investment in economy activities27. Moreover, those are also the criteria that ICSID
tribunals probably use when interpreting the definition under ICSID Convention 28.
Nonetheless, no definition of ―expectation of gain or profit‖ or ―assumption of risk‖
can be found in the Draft. This may leave the arbitral tribunal discretionally explain
those terms whenever a claim is submitted to them. Besides, such wording has
received so many criticisms29, since the conjunction between those characteristic is
―or‖, not ―and‖. This could mean that a mere commitment of small capital without
taking the risk and expecting of the profit can still be referred as an investment. It
would be better if the draft replaces ―or‖ with ―and‖ to provide a cumulative test of
these characteristics just like the approach of ICISD tribunal. Besides, a covered
investment under the Drat TPP “must be legally constituted in accordance with the
laws and regulations of the host state”. Accordingly, an investment violating the
regulation of the domestic law will not be protected.
In conclusion, there are new points compared with two existing IIAs that Vietnam
is a party. First, some modifications are added, such as the restriction to former type
of assets and the conclusion of derivatives – new form of assets. Second, new
27

Rudolf Dolzer and Christoph Schreuer (2008), “Principles of International investment law”, Oxford
University Press, p.60.
28
More details on ICSID tribunal and ICSID Convention will be discussed in later part.
29
WTO Center – Chamber of Commerce and Industry of Vietnam, “Suggestion on negotiating Investment
Chapter of TPP” (Khuyến nghị phương án đàm phán Chương Đầu tư và Gải quyết tranh chấp về đầu tư trong

TPP),
p.9
< />

14

requirements to a qualified investment are included, i.e. the characteristics of an
investment and the consistency with host state‘s law. Rather than establishing new
obligations, the Article seems to model the definition to be a guide for future tribunal
to explain the term in accordance with the will of contracting parties.
1.3.1.2. Minimum standard of treatment
Minimum standard of treatment is regarded as an obligation in which states must
grant to foreigners a number of basic rights established by customary international
law, regardless of the treatment accorded to their own citizens30. In other words, in
case States provide an inadequate protection for their nationals or investment from
most - favored nation, this principle can still protect them even though national –
treatment and most – favored treatment principle may not.
Under Article 12.6 titled ―Minimum standard of treatment‖, the Draft TPP requires
that:
“Each Party shall accord to covered investments treatment in accordance
with customary international law, including fair and equitable treatment and
full protection and security.”
However, no definition of those standards can be found in Draft TPP. According to
Oxford Dictionary of English31 , the word ―fair‖ is defined as “treating people equally
without favoritism or discrimination; just or appropriate in the circumstances” and
synonymous with the word ―equitable‖. Those words, in the context of investment
agreements, suggest that States should not treat investors in an unjust, inappropriate,
discriminatory manner. Similarly, the word ―protection‖ is defined as ―the state of
being protected‖ and ―protect‖ as “keep safe from harm or injury‖ 32 . It is thus
30

OECD (2004), ―Fair and Equitable Treatment Standard in International Investment Law - Working Papers on
International
Investment
Number
2004/3‖,
p.8,
note
32.
Available
at
< >.
31
Oxford Dictionary of English (2005), 2nd edition (revised), ed. Catherine Soanes, Angus Stevenson , Oxford
University Press, p. 526.
32
Id. at 1320.


15

synonymous with the meaning of ―security‖. Those terms, in the context of
investment agreements, suggest that States should provide investors and their assets a
shield from any threats within its territory.
(a) Fair and equitable treatment
Under Draft TPP, Fair and equitable treatment is reference to Customary
international law of Minimum standard of treatment. Whereas this format is the same
under UBTA33, the JBIT34 provided that fair and equitable treatment is an independent
clause and has no relation with minimum standard of treatment. What is the meaning
of pointing out the source of fair and equitable treatment‘s obligation? Practically, a

wide range of conducts have been explained as constitute to breaches of ―fair and
equitable treatment‖ standard, for instance, if such conduct is discriminatory, manifest
arbitrary in decision - making, infringes of investor’s legitimate expectation or
constitute a denial of justice35. Besides, when determining the compliance of standard,
the tribunal also considers how serious that breach must be to be deemed as a
violation36. As UNCTAD observes from the practice, with a formulation like Draft
TPP and UBTA, i.e. linking the fair and equitable treatment and minimum standard of
treatment, only a very serious act of maladministration is more likely to constitute a
violation of fair and equitable treatment 37 . Meanwhile, there is no ―floor‖ for the
tribunal to analyze the governmental act in the case of formulation like JBIT. Thus, a
number of past tribunals were not bound by the high threshold of state‘s liability and
33

Article 3 of UBTA ―Each Party shall at all times accord to covered investments fair and equitable treatment
and full protection and security, and shall in no case accord treatment less favorable than that required by
applicable rules of customary international law‖.
34
Article 9 of JBIT ―Each Contracting Party shall accord to investments in its Area of investors of the other
Contracting Party fair and equitable treatment and full and constant protection and security‖.
35
Andrew Newcombe and Lluís Paradell, supra note 5, at 275 – 279.
36
UNCTAD (2012), “Fair and Equitable Treatment A sequel - Series on Issues in International Investment
Agreements II”, United Nations publication, p. 12.
37
Id. at 12 - 14. The high threshold reflects the opinion in Neer case – the most cited expression of minimum
standard of treatment wherein a violation was declared as ―should amount to an outrage, to bad faith, to willful
neglect of duty. Indeed, even though the tribunal in subsequent cases may have various opinions regarding the
standard in Neer case, practice shows that high threshold of state‘s liability is applied in those cases.

16

found violation where the conduct was simply unfair or inequitable towards the
investor 38 . Such formulation like the Draft TPP is expected to limit the liberal
interpretation by tribunals that would harm the normal function of government.
The provision in TPP further indicates that:
“Fair and equitable treatment includes the obligation not to deny justice in
criminal, civil, or administrative adjudicatory proceedings in accordance with
the principle of due process embodied in the principal legal systems of the
world”.
According to OECD, ―denial of justice‖ has been approached by the majority of
case with the meaning of “improper administration of civil and criminal justice as
regards an alien, including denial of access to courts, inadequate procedures, and
unjust decisions”39. Meanwhile, principle of ―due process of law‖ requires State to
respect the legal rights of the person to whom the coercive power is applied, such as
the right to be properly noticed of the intended application of power, right to contest
that application before the tribunal 40 , rights to appeal. Basically, an investment is
guaranteed fairness under those terms. Besides, Prof. Paulsson observed that in order
to initiate a ―denial of justice‖ claim, exhaustion of local remedies is a must. It is well
– established that States are obligated to create a fair and efficient system of justice to
correct a judicial misconduct by an official lower in the hierarchy. Therefore, they
will not bear responsibility under international law if “there are still reasonably
available national mechanisms to correct the challenged action”41.
In my opinion, this approach is suitable with the world – wide trend and do not add
more obligations for Vietnam. Besides, the content of fair and equitable treatment is
38

UNCTAD, supra note 36, at 59.
OECD, supra note 30, at 29.

40
Erwinchemerinsky (2006), ―Constitutional law: Principles and Policies, 3 rd ed., Wolters Kluwer Law &
Business Publisher, p.580, cited in Kennethj. Vandevelde (2010), ―A unified theory of Fair and equitable
treatment”, International Law and Politics, vol.43, p.50.
41
Jan Paulsson (2005), “Denial of Justice in International Law”, Cambridge University Press, p.100.
39


17

more refined, as the provision seems to limit claims only to violation of ―denial of
justice‖. Rather than having a vague regulation that can be interpreted in various
ways, including the explanation that an infringement of investor‘s expectation can
constitute a violation, I myself agree with a more restrictive provision.
Notwithstanding the above, there is still unclear understanding of the term “principle
of due process embodied in the principal legal systems of the world”. The Draft TPP
does not indicate what legal systems are considered as the principles of the world.
Does it mean the common and civil law systems? There is no conclusion. Meanwhile,
―due process‖ belongs to procedural matters which are varied from jurisdiction to
jurisdiction. Basically, principle of due process in Vietnam does not necessarily
resemble to the one in developed countries. The ambiguous language in this clause
may qualify the tribunal to appoint high standard in developed states or in legal
systems other than ours as benchmark for analysis42. This interpretation may place
onerous obligations on developing countries like Vietnam and interfere seriously with
the sovereign power of each state.
(b) Full protection and security
In TPP and also in UBTA and JBIT, the provision for full protection and security
standard is concluded in the same article and same formulation as fair and equitable
treatment. Furthermore, the provision in Draft TPP differs from previous IIAs by

limiting the standard to the physical or police protection:
“Full protection and security in Draft TPP requires each Party to provide the
level of police protection required under customary international law”.
The new provision in Draft TPP is expected to restrict the broad interpretation by
past tribunals when the standard can be extended to legal and commercial activity. As

42

See more Leon E Trakman (2012), ―Resolving Investor-State Disputes under a Transpacific Partnership
Agreement -What Lies Ahead?‖, Transnational Dispute Management, Forthcoming; vol. 7, p.33 -34. Available at
SSRN< />

18

Prof. Sornarajah criticizes, such extension to commercial security would make “the
parallel development which seeks to include economic stability in the fair and
equitable standard” practically meaningless 43.
In conclusion, the obligation to guarantee ―Minimum standard of treatment‖ is quite
refined under Draft TPP with additional language added to ―fair and equitable
treatment‖ as well as ―full protection and security‖ and relation between these
standards. Moreover, the provision is even clearly with an Annex defines the
understanding of ―Customary international law‖:
“Customary international law […] results from a general and consistent
practice of States that they follow from a sense of legal obligation44”.
1.3.1.3. Expropriation
Under Article 12.12, the obligation to refrain from unlawful expropriating includes
the direct as well as indirect taking of investments:
“No Party may expropriate or nationalize a covered investment either
directly or indirectly through measures equivalent to expropriation or
nationalization ("expropriation")…”

Accordingly, only unlawful expropriation is prohibited, as the clause explicitly
states four conditions for an expropriation to be lawful. Firstly, it must serve for a
public purpose. Secondly, it must be conducted in a non discriminatory manner.
Thirdly, prompt, adequate and effective compensation must be paid. And lastly,
imposition of an expropriation must be in accordance with due process of law. The

43

M. Sornarajah (2010), “The International Law on Foreign Investment”, 3rd edition, Cambridge University
Press, p.360.
44
Besides, Annex 12-B proposes that ―[T]the customary international law minimum standard of treatment of
aliens refers to all customary international law principles that protect the economic rights [and interests] of
aliens.]


19

same provisions go with UBTA and JBIT45. Because of limited paper, I will not go
into detail the calculation of compensation which is provided in those treaties.
Besides from those similarities, the draft TPP proposes three annexes relating to
expropriation provision, two of which (annex 12 – C and 12 – D) include methods of
indirect expropriation‘s identification. Some clauses which are not concerned in
previous IIAs can be found in both Annex as follows:


Firstly, both Annexes limit the type of rights that can be deemed as

expropriation to an investment. Accordingly, “an action or series of actions by a
Party cannot constitute an expropriation unless it interferes with a tangible or

intangible property right or property interest in an investment”. We all know that an
investment may comprise of a wide range of rights and interests that altogether serve
for an economic purpose. Practically, some tribunals concluded that a taking of some
particular rights of a whole investment could still constitute an expropriation 46. Thus,
this provision is expected to restrict the broad interpretation by excluding some trade
– based claims that can be found in the past, e.g. access to one‘s market, goodwill,
customer base, from a scope of rights to be deprived47.


Secondly, the Draft TPP concerns the distinction between a bona fide non –

compensable regulatory act and an expropriation. We all know that measures which
genuinely conducted for a legitimate public welfare objectives (such as general
taxation, legislation limited the use of property for consumer, safety, health,
environmental protection, or criminal penalties 48 ) fall within the police power of
States. In those cases, deprivation to the investment may happen as an undesirable
45

Article 12.12 of Draft TPP, Article 10.1 of UBTA, Article 9.2 of JBIT ―…except for a public purpose; in a
non-discriminatory manner; upon payment of prompt, adequate and effective compensation; and in accordance
with due process of law‖.
46
Rudolf Dolzer and Christoph Schreuer, supra note 28, at 108.
47
See more David A. Gantz (2003), ―The Evolution of FTA Investment Provisions: From NAFTA to the United
States - Chile Free Trade Agreement‖, American University International Law Review, vol.19, p.745.
48
Ian Brownlie (2008), “Principles of Public International Law”, 7th edition, Oxford University Press, p. 532.
See also M. Sornarajah, supra note 43, at 374.

20

effect 49 . Since States do not target on a specific investment, there will be no
expropriation. Accordingly, Annex 12 – C proposes that:
“Except in rare circumstances, non - discriminatory regulatory actions by a
Party that are designed and applied to protect the legitimate public welfare
objectives, such as public health, safety and the environment, do not constitute
indirect expropriations”.
The list of legitimate public welfare objective is also not exhaustive, as the footnote
explains. However, the formulation does not state what ―rare circumstances‖ means,
leaving the term explained by tribunals in light with “customary international law
concerning the obligation of States with respect to expropriation” 50 . Meanwhile,
Annex 12 – D propose two choices, one of which is quite similar to Annex 12 – C, the
remaining clarifies the ―rare circumstances‖ in this context are the situations in the
paragraph 4 of the same Annex51. Those relate to the case where discriminatory act is
concluded, or State breaches the prior binding writing commitment with investor,
whether by contract, license or other legal document. Thus, it seems that both
Annexes focus on the nature of the act (that must be bona fide regulatory actions
served for public welfares) and the characteristics or the way the act is conducted (non
– discriminatory, reasonable). This provision supports the method of identification of
the indirect expropriation, which will be discussed below.
Thirdly, both Annexes provide a clearer definition of direct and indirect
expropriation. For instance, methods of direct deprivation like ―nationalization or
formal transfer of title or outright seizure” are indicated. For indirect expropriation,
in addition to defining the term, both Annexes point out criteria that can be used for
identification. Annex 12 – C adopts the assessment of three factors, i.e. economic
49

UNCTAD (2012), “Expropriation (A sequel) - Series on Issues in International Investment Agreements II”,

United Nations publication, p.140.
50
Draft TPP, Annex 12 – C clause 1.
51
―Except in rare circumstances to which paragraph 4 applies, such measures taken in the exercise of a state's
regulatory powers as may be reasonably justified in the protection of the public welfare, including public health,
safety, and the environment, shall not constitute and indirect expropriation‖.