Investor state dispute settlement under TPP risks and implications for vietnam

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
---------***---------

DISSERTATION

Investor-State Dispute Settlement under TPP:
Risks and Implications for Vietnam

Major: International Trade Policy and Law

Full name: Dinh Thuc Anh

Hanoi, 2017


MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
---------***---------

DISSERTATION

Investor-State Dispute Settlement under TPP:
Risks and Implications for Vietnam

Major: International Trade Policy and Law

Full name: Dinh Thuc Anh
SUPERVISOR: DR. VU VAN NGOC

Hanoi, 2017

i

REASSURANCE

I hereby assure that this master thesis is exclusively made by myself and that
all data and results stated in this master thesis are honest.
In addition, I hereby assure that all of the supports in the process of
implementation of this master thesis have been thanked and all of data and
information cited in the master thesis have been specified its sources.

The author,

Dinh Thuc Anh


ii

ACKNOWLEDGEMENT

First of all, I would like to express my deep gratitude and great appreciation
to my supervisor Dr. Vu Van Ngoc, for his exemplary guidance and valuable
encouragement throughout the course of this thesis. The support and guidance given
by him have been priceless.
I also take this opportunity to express a deep sense of gratitude to all the
professors and lectures of the master program of International Trade policy and Law
for their valuable supports and guidance, which helped me in growing in knowledge
and experience through various stages.
Furthermore, I would like to especially thank for the support,

encouragement, and assistance from my family, colleagues and friends during the
time of this thesis.

Hanoi, 05th April, 2017


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TABLE OF CONTENTS
REASSURANCE ....................................................................................................... I
ACKNOWLEDGEMENT ...................................................................................... II
TABLE OF CONTENTS....................................................................................... III
LIST OF ABBREVIATIONS ..............................................................................VII
LIST OF FIGURES ............................................................................................... IX
LIST OF BOXES.................................................................................................... IX
ABSTRACT ...............................................................................................................1
INTRODUCTION .....................................................................................................2
1.

Research rationale .......................................................................................2

2.

Research objectives .....................................................................................3

3.

Scope of the research ...................................................................................4

4.

Research methodology ................................................................................4

5.

Structure of the research ............................................................................5

CHAPTER 1: OVERVIEW ON INVESTOR – STATE DISPUTE
SETTLEMENT .........................................................................................................6
1.1

INVESTMENT AND INTERNATIONAL INVESTMENT .......................6

1.1.1 Investment .....................................................................................................6
1.1.2 International investment ..............................................................................7
1.1.3 General effects of foreign investment on host states .................................13
1.2

INTERNATIONAL INVESTMENT AGREEMENTS .............................15

1.2.1 History and development of international investment agreements ..........15
1.2.2 Main contents of international investment agreements ............................19

1.3

INVESTOR – STATE DISPUTE SETTLEMENT ...................................21


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1.3.1 General features of investor –state dispute................................................22
1.3.1.1 With regards to the objects of the dispute ............................................22
1.3.1.2 With regards to the scope of investor – state dispute ...........................24
1.3.1.3 With regards to the method of investor – state dispute settlement .......24
1.3.2

Current situation of investor – state dispute settlement .....................29

CHAPTER 2: INVESTOR – STATE DISPUTE SETTLEMENT UNDER TPP
AND EVALUATION OF RISKS OF INVESTOR-STATE DISPUTE
SETTLEMENT UNDER TPP ON VIETNAM ....................................................33
2.1

Investor-state dispute settlement under TPP agreement .......................33

2.1.1 Objectives and main contents of TPP agreement ..................................33
2.1.1.1 Objectives of TPP agreement ...............................................................33
2.1.1.2 Current situation of TPP agreement.....................................................36
2.1.2 Regulations on investor-state dispute settlement under TPP agreement ..
..................................................................................................................37
2.1.2.1 Regulations on foreign investor protection ..........................................37
2.1.2.2 Investment dispute settlement procedural regulations .........................44
2.1.3 Preliminary evaluation of investor – state dispute settlement under TPP
on host state .......................................................................................................48
2.1.3.1 Benefits for the host state ......................................................................48
2.1.3.2 Risks for the host state ..........................................................................51
2.2

Evaluation of investor-state dispute settlement under TPP agreement

on Vietnam ...........................................................................................................57
2.2.1 Increase in risks of being sued ...................................................................57
2.2.1.1 Current inconsistent, instable law system with cumbersome procedures
..............................................................................................................58


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2.2.1.2 Gap between implementation in reality and in laws ............................61
2.2.2 Risks in state-investor dispute settlement system ......................................63
2.2.3 Burden of costs for international arbitral procedures ..............................64
2.2.4 Difficulties and risks in developing and protecting domestic economy and
society ....................................................................................................................65
2.2.4.1 Risks in developing and protecting domestic enterprise/industry ........66
2.2.4.2 Risks in protecting environment ...........................................................67
2.2.4.3 Risks in foreign exchange control and financial stability ....................68
2.2.5 Risks arising from the unefficient management mechanism of State
owned enterprise ...................................................................................................69
CHAPTER 3: RECOMMENDATION .................................................................71
3.1

Improvement of capacities in issuance and implementation of legal

documents .............................................................................................................71
3.1.1 Innovating procedures of issuance of laws and regulations .................71
3.1.2 Improving capacity of authorities’ organs/staff in building legal
documents ..........................................................................................................73
3.1.3 Enhancing effectiveness of supervision/checking of laws and
regulations system. ............................................................................................74
3.1.4 Improvement of capacities of implementing of laws in reality ..............74

3.2

Use of other alternatives for dispute settlement under arbitral

procedures ............................................................................................................75
3.3

Preparation of resources for investor state dispute settlement by

arbitration ............................................................................................................76
3.3.1 Obtaining experience through participation in investor state dispute
settlement mechanism .......................................................................................76
3.3.2 Improvement of human resources ..........................................................77


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3.4
3.5

Utilization of exceptions in signed TPP agreement .............................78
Other preventive methods ........................................................................79

CONCLUSION ........................................................................................................81
REFERENCES ........................................................................................................83


vii

LIST OF ABBREVIATIONS

Abbreviation

Description

ADB

Asian Development Bank

BIT

Bilateral Investment Treaty

FDI

Foreign Direct Investment

FET

Fair and Equitable Treatment

FTA

Free Trade Agreement

FCN

Friendship, Commerce and Navigation

ICSID

International Centre for Settlement of Investment
Disputes

IIA

International Investment Agreement

IMF

International Monetary Fund

ISDS

Investor-State Dispute Settlement

GDP

Gross Domestic Product

MFN

Most Favored Nation

NAFTA

North American Free Trade Area

NGO

Non-Governmental Organization

NT

National Treatment

OECD
SMEs

Organization for Economic Co-operation and
Development
Small and Medium Enterprises


viii

TPP

Trans-Pacific Partnership Agreement

TNC

Transnational Corporation

UN

United Nations

UNCTAD

United Nations Conference on Trade and

Development

US

United States

WTO

World Trade Organization


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LIST OF FIGURES
Figure 1: The openness to FDI and trade ..................................................................13
Figure 2: Poverty and inward FDI stock (in 60 developing states) ..........................14
Figure 3: Known ISDS cases annual and cumulative (1987-2015) ..........................29
Figure 4: Home state by level of development (total as of end 2013) ......................30
Figure 5: The most frequent home states (total as of end 2015) ...............................30
Figure 6: Respondent states by development status (total as of end 2013) ..............31
Figure 7: The most frequent respondent states (total as of end 2015) ......................31
Figure 8: The outcomes of concluded cases (total as of end 2015) ..........................32

LIST OF BOXES
Box 1: Definition of investment in Asean Comprehensive Investment Agreement ...8
Box 2: Definition of investment in the Canada Model Bilateral Investment
Agreement 2004 ........................................................................................................10
Box 3: Definition of investment in United States Model Bilateral Investment
Agreement 2012 ........................................................................................................12

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ABSTRACT

Undeniably, TPP agreement is considered as a typical free trade agreement
of the 21st century. Since the idea of forming a free trade area in Asia Pacific, it has
received lots of attentions from the governments, researchers, enterprises, NGOs, as
well as citizens from the world and one of the most controversial issues is risks for
host states raised from regulations of TPP on investment and investor-state dispute
settlement. Therefore, the aims of this master thesis are to assess the risks of
investor-state dispute settlement mechanism of TPP agreement on Vietnam and give
recommendations.
First, the master thesis provides an overview of international investment
and investor-state dispute settlements. Based on this background, the thesis analyzes
main provisions of investment and investor-state dispute settlement under TPP
agreement, then preliminarily assesses the risks for host states. After that, the thesis
identifies characteristics of Vietnam which, under regulations of investment chapter
of TPP agreement, will create risks of being sued by foreign investors and risks in
building and issuance policies for encouraging the development of domestic
industries, SMEs, protection of the environment, stabilization of macro-economy,
etc. Finally, the thesis gives implications for Vietnam to eliminate the above risks.
In conclusion, as required by the world integration, participation of Vietnam
in international cooperation agreements is inevitable. However, in order to use these
agreements as a tool to develop the economy, Vietnam needs to innovate
institutional capacity.


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INTRODUCTION

1.

Research rationale
It is a trend that integration among states in the world becomes more and

more extensive which manifested in thousands of effective free trade agreements,
international investment agreements and other cooperation agreements at bilateral,
regional as well as multilateral levels in economic, social and even political aspects.
Until the end of October 2016, the total number of signed international investment
agreements reached to more than 3,320 (UNCTAD, 2016, page 1). In theory,
integration creates the specialization among states, eliminates the barriers in trades
of goods, services, and investments, enhances the innovation process of
administration procedures, promotes economy growth and also enhances social
benefits.
Being seen as one of the effective tools for integration process, international
investment agreements have the main role in attracting foreign direct investment,
which in turn, may result in economic growth in some cases. There are a variety of
researches conducted to prove the link between the international investment
agreements and the increase of foreign direct investment; however, there still has
not been obvious evident in reality to demonstrate that signing more and more
investment agreements will increase the amount of foreign direct investment into
host state (UNCTAD, 2009a). Besides some positive effects on the host state such
as pressure to improve institution and law systems of the host state, international
investment agreements also bring lots of risks for the host state, especially investorstate dispute settlement mechanism.
TPP agreement is a free trade agreement between 12 states including
Canada, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Australia,
the US, Japan, and Vietnam, formed with the primary objectives to eliminate tariffs
and barriers to goods and services trade, liberalize investment, improve trade

facilitation between member states. In addition, TPP also covers other cooperation


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aspects such as e-commerce, state-owned enterprises, labor, intellectual properties,
government procurement, etc. Upon in effect, TPP agreement will create a free
trade area with 800 million people, accounting for 30% of global trade and
approximately 40% of global economic output (Nguyen Quang Thai, 2015).
For Vietnam, participation into TPP agreement may bring more opportunities
for developing economy due to the increase of export, attraction of more foreign
direct investment capital, etc, especially in the context of the slow economy growth
of Vietnam after the world economic crisis in 2008-2009 (based on data of World
Bank, average of GDP growth of Vietnam is 7.2% in period from 2003 to 2007 in
comparison with the average of 5.8% in period from 2010 to 2014)1. However,
Vietnam, being developing state with short of experience in investor-state dispute
settlement and incomplete laws system, will face a lot of difficulties with
regulations and obligations under investment chapter of TPP agreement.
However, it should be noted that integration is inevitable but the most
importance is how to attract more foreign investment capital by accord more
preferential conditions treatment for foreign investors while remaining active
position in building policies to develop sustainably domestic economy and protect
domestic society. This lead the author to choose and research the topic “Investor
State Dispute Settlement under TPP: Risks and Implications for Vietnam”.
2.

Research objectives
This thesis aims to analyze regulations of investment chapter of TPP

agreement, in which focus on investor-state dispute settlement in order to

preliminarily assess some main negative impacts on host state. On basis of analysis
of main characteristics of Vietnam, the thesis evaluates possible risks of stateinvestor dispute settlement mechanism under TPP agreement on Vietnam and give
the recommendation on preventing the investment dispute.

1

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3.

Scope of the research
The thesis focuses on the analysis of regulations on investment and investor

–state dispute settlement of TPP agreement which have negative impacts on the host
state at the aspect of the legislative and implementation of laws and policies of the
host state and the effects of the increase of risks of being sued by foreign investors.
Under such direction, the thesis tries to find typical characteristics of Vietnam
which, under regulations of investment chapter of TPP agreement, will creates
difficulties in building, issuance and implementation of policies to protect public
interests such as environment, promote the development of small and medium
domestic enterprises, infant domestic industries, protect foreign exchange reserve
and finally, risks of being sued by foreign investor. In addition, the thesis will give
recommendations for elimination of the above risks.
4.

Research methodology
The research method used in this thesis is desk research with the aim to

collect information, data from official sources in order to analysis and evaluate risks
of ISDS under TPP agreement on Vietnam and give the recommendation.
4.1

Information and data to be collected:

4.1.1 General information and data related to international investment agreements
such as history and development of international investment agreement, main
provisions of international investment agreement (interpretation, analysis of
provisions, cases and policies related to each provision); investor-state
dispute settlement: main features and methods of investor-state dispute
settlement and current situation of investor-state dispute settlement.
4.1.2 Information and data on TPP agreement, especially regulations on investorstate dispute settlement under TPP agreement together with its benefits and
risks on host states.
4.1.3 Current law and policies systems of Vietnam, especially process of issuance,
implementation of law and policies in realities


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4.1.4 Information in improving current laws and policies system of Vietnam and
experience of other states in investor-state dispute settlement.
4.2

Sources of information and data to be collected: the information and data
collected from series on investment issued by UNCTAD, OECD, General
Statistics of Vietnam, WTO center, research and papers of authors, etc

4.3

Results of the collection of information and data
Based on collected information and data on the international investment
agreement and investor – state dispute settlement as mentioned above, the
thesis preliminarily analyzes regulations in the investment of TPP agreement,
then evaluates the benefits and risks for the host states. Based on this
evaluation and analysis of current laws and policies system of Vietnam, the
thesis finds out the main risks of investor – state dispute settlement under
TPP agreement for Vietnam. Finally, the thesis gives the recommendation to
improve capacities in issuance and implementation of laws and policies and
other solutions based on experiences from other states.

5.

Structure of the research

The thesis includes introduction, conclusion and 3 chapters as follows:
Chapter 1: Overview on investor-state dispute settlement;
Chapter 2: Investor-state dispute settlement under TPP agreement and evaluation of
risks of investor-state dispute settlement under TPP agreement on Vietnam;
Chapter 3: Recommendation for Vietnam.


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CHAPTER 1: OVERVIEW ON INVESTOR – STATE DISPUTE
SETTLEMENT

1.1

Investment and international investment

1.1.1 Investment
Investment, in general, has a broad and different meaning depending on
which field it applies and has changed from time to time when international
economic relation changed. In the economic and social aspect, the investment may
be defined as activities using current sources to bring for the economy and society
in the future greater results than sources used for archiving such result (National
Economic University, 2003). All of the investment activities are conducted for
certain benefits such as the increase in materials or spirits and results of investment
may bring benefit for not only the investor(s) but also the economy and society.
In legal aspect, investment is defined more typically that investor(s) use his
capital, assets under the manner allowed by prevailing laws to conduct activities for
profitable purpose or for other economic and social benefits purposes. However, in
general, investment is mostly related to business with the nature of expenditure to
acquire property or other assets in order to produce revenue; assets so acquired. The
placing of capital or laying out of money in a way intended to secure income or
profit from its employment (H.C. Black, 1990, page 825). Capital may be tangible
assets such as money, equipment, machinery, works or intangible assets such as
intellectual property, land use right, right to exploit natural resources or other assets
rights.
Under

Vietnamese

Investment

Law

No.

67/2014/QH13,

“business

investment” means an investor’s investing capital to do business by establishing a
business organization; making capital contribution, buying shares or capital
contributions to a business organization; making investments in the form of
contracts or execution of investment projects.


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Depending on different criteria, investment activities could be classified as
follows:
a.

Based on purpose of investment, investment activities could be classified as
nonprofit investment and profit investment.

b.

Based on sources of investment capital, investment activities could be
classified as domestic investment and foreign investment.

c.

Based on nature of capital management of investor, investment activities
could be classified as direct investment and indirect investment. Direct
investment is the investment activities in which investor directly participates

into the management, operation of uses of its invested capital/sources.
Meanwhile, indirect investment is the investment activities in which the
investor does not directly involve the process of management or operation of
its invested capital/sources. In this type of investment, there is a distinction
between the possession and management of invested capital. Investors and
managers of the invested capital are the different objects and have different
rights/power to control over the invested capital.

1.1.2 International investment
International investment, in general, involves the transfer of tangible and/or
intangible from one country to another country in order to do business for profit
purpose. In Encyclopedia of Public International laws, foreign investment is the
transfer of funds or materials from one country (called capital exporting country) to
another country (called capital importing country) to be used in the conduct of an
enterprise in that country in return for a direct or indirect participation in earning of
an enterprise. (Rudolf Bernhardt, 1992, page 246).
The definition of investment confined in most of the IIAs is foreign
investment. The scope of assets/transaction being defined as an investment is very
crucial since it is under the protection of IIAs. In different periods, the list of such
assets/transactions changed. From the early time, in the mid-nineteenth century,
investment or in another way, capital flow through the frontier of a country to


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another country existed under the form of tangible properties possessed by aliens or
loans from foreign countries. However, it is clear that the assets being defined as the
investment are tangible properties or interest of financial investment. After the postcolony period, the investment also includes intangible assets such as rights
associated with the right of holding invested assets, land use right, right to exploit
natural resources when there are lots of concession agreement on natural resources

signed; and also include shares of the companies. Until the late twenty century
which is the period of technology innovation and the establishment of TNCs with
global famous trademark, intellectual property rights is considered as an important
value and also included in the investment term.
Together with the changes in the nature of investment term, the definition of
investment in IIAs changes from time to time. In addition, there are two trends in
defining investment in IIAs: open-end definition and exhausted definition
(UNCTAD, 2011).
In order to protect the investment of foreign investor, the state of the investor
tends to use an open-ended list of invested assets in the IIA with host state. Almost
of IIAs are under the form of the open-ended list. Accordingly, such type of IIA has
the tendency to include “every kind of assets”, and especially, the list of assets in
this definition is not exhausted.
Box 1: Definition of investment in Asean Comprehensive Investment
Agreement
“investment” means every kind of asset, owned or controlled, by an investor,
including but not limited to the following:
(i) movable and immovable property and other property rights such as mortgages,
liens or pledges;
(ii) shares, stocks, bonds and debentures and any other forms of participation in a
juridical person and rights or interest derived therefrom;


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(iii) intellectual property rights which are conferred pursuant to the laws and
regulations of each Member State;
(iv) claims to money or to any contractual performance related to a business and
having financial value;
(v) rights under contracts, including turnkey, construction, management, production

or revenue-sharing contracts; and
(vi) business concessions required to conduct economic activities and having
financial value conferred by law or under a contract, including any concessions to
search, cultivate, extract or exploit natural resources.
The term “investment” also includes amounts yielded by investments, in particular,
profits, interest, capital gains, dividend, royalties and fees. Any alteration of the
form in which assets are invested or reinvested shall not affect their classification
as investment;
However, such broad definition also causes the danger of increasing claim
from the foreign investor. Thus, some host states negotiate to limit the broad scope
of investment. There are some methods to narrow this scope, such as closed list of
assets to be investment (Canada Model BIT 2004); exclusion of some certain assets
such as portfolio shares, certain commercial contracts (Canada Model BIT 2004),
certain loans and debts securities (Canada Model BIT 2004), or use some
characteristics of investment to be criteria to decide whether it is “investment” or
not (US model BIT 2012), or limit in certain industries (ASEAN Comprehensive
investment Agreement 2009), or time of commencement of investment (Egypt –
Germany BIT 2005 “[t]he present Agreement shall also apply to investments by
nationals or companies of either Contracting Party, made prior to the entering into
force of this Agreement and accepted in accordance with the respective prevailing
legislation of either Contracting Party”), etc


10

Box 2: Definition of investment in the Canada Model Bilateral Investment
Agreement 2004
investment means:
(I)

an enterprise;

(II)

an equity security of an enterprise;

(III)

a debt security of an enterprise

(i)

where the enterprise is an affiliate of the investor, or

(ii)

where the original maturity of the debt security is at least three years, but
does not include a debt security, regardless of original maturity, of a state
enterprise;

(IV)

a loan to an enterprise

(i)

where the enterprise is an affiliate of the investor, or

(ii)

where the original maturity of the loan is at least three years, but does not
include a loan, regardless of original maturity, to a state enterprise;

(V)

(i)Notwithstanding subparagraph (III) and (IV) above, a loan to or debt
security issued by a financial institution is an investment only where the loan
or debt security is treated as regulatory capital by the Party in whose
territory the financial institution is located, and (ii) a loan granted by or debt
security owned by a financial institution, other than a loan to or debt
security of a financial institution referred to in (i), is not an investment; for
greater certainty: (iii) a loan to, or debt security issued by, a Party or a state
enterprise thereof is not an investment; and (iv) a loan granted by or debt
security owned by a cross-border financial service provider, other than a
loan to or debt security 5 issued by a financial institution, is an investment if
such loan or debt security meets the criteria for investments set out
elsewhere in this Article;


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(VI)

an interest in an enterprise that entitles the owner to share in income or
profits of the enterprise;

(VII) an interest in an enterprise that entitles the owner to share in the assets of
that enterprise on dissolution, other than a debt security or a loan excluded
from subparagraphs (III) (IV) or (V);
(VIII) real estate or other property, tangible or intangible, acquired in the

expectation or used for the purpose of economic benefit or other business
purposes; and
(IX)

interests arising from the commitment of capital or other resources in the
territory of a Party to economic activity in such territory, such as under
(i) contracts involving the presence of an investor's property in the territory
of the Party, including turnkey or construction contracts, or concessions, or
(ii) contracts where remuneration depends substantially on the production,
revenues or profits of an enterprise; but investment does not mean,

(X)

claims to money that arise solely from (i) commercial contracts for the sale
of goods or services by a national or enterprise in the territory of a Party to
an enterprise in the territory of the other Party, or (ii) the extension of credit
in connection with a commercial transaction, such as trade financing, other
than a loan covered by subparagraphs (IV) or (V); and

(XI)

any other claims to money, that do not involve the kinds of interests set out in
subparagraphs (I) through (IX)


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Box 3: Definition of investment in United States Model Bilateral Investment
Agreement 2012
“investment” means every asset that an investor owns or controls, directly or

indirectly, that has the characteristics of an investment, including such
characteristics as the commitment of capital or other resources, the expectation of
gain or profit, or the assumption of risk. Forms that an investment may take
include:
(a) an enterprise;
(b) shares, stock, and other forms of equity participation in an enterprise;
(c) bonds, debentures, other debt instruments, and loans;2
(d) futures, options, and other derivatives;
(e) turnkey, construction, management, production, concession, revenue-sharing,
and other similar contracts;
(f) intellectual property rights;
(g) licenses, authorizations, permits, and similar rights conferred pursuant to
domestic law;3 4and

2

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
3

Whether a particular type of license, authorization, permit, or similar instrument

(including a concession, to the extent that it has the nature of such an instrument) has the
characteristics of an investment depends on such factors as the nature and extent of the
rights that the holder has under the law of the Party. Among the licenses, authorizations,
permits, and similar instruments that do not have the characteristics of an investment are
those that do not create any rights protected under domestic law. For greater certainty, the
foregoing is without prejudice to whether any asset associated with the license,

authorization, permit, or similar instrument has the characteristics of an investment.


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(h) other tangible or intangible, movable or immovable property, and related
property rights, such as leases, mortgages, liens, and pledges.
1.1.3 General effects of foreign investment on host states
Economic development is a significant target which any state aims at and
attraction of foreign investment is considered as one of the ways to obtain such
target and it is especially necessity for the developing state. Foreign investment,
especially foreign direct investment, through its linkages to the foreign trade flow,
can affect the GDP of the host state. The following figure shows the linkages
between the openness to trade and investment.
Figure 1: The openness to FDI and trade

Source: OECD International Direct Investment Statisticsand OECD
Economic Outlook
Foreign trade may affect the economic development through using more
efficiently resources of the economy by specialization, enhancing research and
development and competition in the economies, etc. Such open policies have been
used successfully by 4 Asian tigers such as South Korea, Taiwan, Hongkong,

The term “investment” does not include an order or judgment entered in a judicial or
administrative action
4


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Singapore, China in the 1980s, India in 1960-1970s, however, it also been
unsuccessfully used in Africa.
Foreign investment to some extent may create more jobs for local people and
local people may have the chance to improve its capacities and skills, quality of
living in the host state may increase.
Figure 2: Poverty and inward FDI stock (in 60 developing states)

Source: World Development Indications
However, it is the reality in developing or least developed state such as
Vietnam that local people are employed for jobs which need low technique,
therefore, the capacity of local people may not improve as expected.
In addition, environment pollution and natural resources exhaustion are one
of the effects of foreign investment on host state, especially with developing states
with loose rules and regulations on environmental protection as mentioned in the
following parts. Finally, it is may be the risk of being sued by foreign investors with
a huge amount of compensation and legal fee based on international investment
agreement in which the host state is a member.