Luận văn thạc sĩ tiếng anh

TABLE OF CONTENTS
ACKNOWLEDGEMENTS .................................................................................................. i
ABBREVIATIONS .............................................................................................................. ii
FIGURE, TABLE AND BOX ............................................................................................. iii
ABSTRACT ........................................................................................................................ iv
Chapter 1. INTRODUCTION ............................................................................................. 1
Chapter 2. OVERVIEW OF FDI INCENTIVES AND PROTECTIONS IN
INTERNATIONAL INVESTMENT AGREEMENTS ...................................................... 5
2.1. Overview of International Investment Agreements ................................................. 5
2.1.1 The role of FDI and FDI attraction determinants ................................................ 5
2.1.1.1. FDI and world economy development ............................................................. 5
2.1.1.2. FDI determinants ............................................................................................ 9
2.1.2 The proliferation of IIAs as a key FDI determinant............................................ 12
2.1.2.1. Bilateral investment agreements .................................................................... 14
2.1.2.2. Regional and interregional investment agreements ........................................ 15
2.1.2.3. Multilateral agreement on investment ........................................................... 16
2.2. MIAs as a fundamental basis for investment incentive and protection ................. 17
2.3. FDI incentives and protections commitments in MIAs .......................................... 23
2.3.1. The role of investment incentives and protections .............................................. 24
2.3.2. FDI incentives in MIAs ...................................................................................... 27
2.3.3. FDI protections in MIAs .................................................................................... 30
Chapter 3. COMMITMENTS RELATING FDI INCENTIVES AND PROTECTIONS
IN TPP ................................................................................................................................ 34
3.1. Overview of TPP and the Investment Chapter ....................................................... 34
3.1.1. Summary of the Trans-Pacific Partnership Agreement ..................................... 34
3.1.2. Key content of the Investment chapter ............................................................... 36
3.2. FDI incentives and protections commitments in TPP ............................................ 38
3.2.1. Providing non-discrimination treatment ............................................................ 38
3.2.2. Providing fair and equitable treatment (minimum standard of treatment)......... 44
3.2.3. Ensuring expropriation for a public purpose with fully compensation .............. 47
3.2.4. Allowing for transfer of funds ............................................................................ 51

3.2.5. Providing Investor - State dispute settlement mechanism................................... 53
3.2.6. FDI incentives commitments in TPP.................................................................. 57
3.3. TPP investment commitments in comparison with MIAs ...................................... 58
Chapter 4. VIETNAM’S INVESTMENT LEGISLATION AND COMMITMENTS
UNDER TPP INVESTMENT CHAPTER ........................................................................ 61
4.1. Overview of Vietnam's investment legal framework.............................................. 61


4.1.1 FDI entry ............................................................................................................. 62
4.1.2 FDI establishment ............................................................................................... 65
4.1.3 FDI treatments .................................................................................................... 67
4.1.3.1. FDI protections ............................................................................................. 67
4.1.3.2. FDI incentives .............................................................................................. 68
4.2. The compatibility between Vietnam's legal framework and TPP investment
commitments................................................................................................................... 69
4.2.1. TPP investment commitments that Vietnam's legal framework have been
compatible with ............................................................................................................ 70
4.2.2. TPP investment commitments that Vietnam's legal framework have partly or not
compatible with ............................................................................................................ 73
4.3. Effects of TPP investment incentives and protections commitments on Vietnam
legislation ........................................................................................................................ 76
Chapter 5. INTERNATIONAL EXPERIENCES AND IMPLICATIONS FOR
VIETNAM INVESTMENT LEGAL FRAMEWORK ..................................................... 80
5.1. International experiences in implementing TPP .................................................... 81
5.1.1. Preparation of TPP member countries for implementing the agreement ........... 81
5.1.1.1. Malaysia ....................................................................................................... 81
5.1.1.2. Singapore...................................................................................................... 82
5.1.1.3. United States................................................................................................. 83
5.1.2. Options for harmonizing TPP and national legal framework ............................ 85
5.1.2.1. Keeping default condition ............................................................................. 85

5.1.2.2. Reform the domestic legal system ................................................................. 85
5.1.2.3. No International Investment Agreement ........................................................ 86
5.2. Implications for Vietnam's investment legal framework ....................................... 87
5.2.1. Promoting the coherence between TPP’s investment chapter and domestic
investment legal framework ......................................................................................... 87
5.2.2. Balancing private and public interests within investment commitments ............ 90
5.2.3. Effects of the TPP – the case of Vietnam’s Pharmaceutical Industry, a further
implication ................................................................................................................... 92
CONCLUSIONS ................................................................................................................ 95
REFERENCES .................................................................................................................. 97
ANNEX .................................................................................................................................. i


ACKNOWLEDGEMENTS

Firstly, I would like to express my deepest appreciation and thanks to my
mentor, Dr. Tran Thi Ngoc Quyen for precious guidance, comments and suggestions.
This paper is one of the last compulsory elements of Master of International
Trade Policy and Law program at the Foreign Trade University. The objective of this
study is to find out the suitable way for Vietnam to successfully implement the TPP
Investment chapter through reforming domestic law and policy and take advantages of
FDI in the context of pursuing sustainable development. I hope it can be applied to a
practical situation.
I would like to assure that the research of “Commitments related to Foreign
Direct Investment Incentives and Protections under the Trans-Pacific Partnership and
Implications for Vietnam” was carried out by me. All contents, tables, figures and
boxes illustrated in this study are honest, accurate and quoted from a reliable source.

Hanoi City,
December, 2016

i


ABBREVIATIONS
APEC

Asia-PacifIc Economic Cooperation

BIT

Bilateral Investment Treaty

FET

Fair And Equitable Treatment

FIE

Foreign Invested Enterprise

FTA

Free Trade Agreement

GATS

General Agreement On Trade In Services

IIA

International Investment Agreement

ICSID

International Centre For Settlement Of Investment Disputes

ISDS

Investor–State Dispute Settlement

LDC

Least Developed Country

LLDC

Landlocked Developing Country

M&As

Mergers And Acquisitions

MFN

Most Favoured Nation

MNE

Multinational Enterprise

NAFTA

North American Free Trade Agreement

RCEP

Regional Comprehensive Economic Partnership

TNC

Trans-National Company

TTIP

Transatlantic Trade And Investment Partnership

TIP

Treaty With Investment Provision

TPP

Trans-Pacifc Partnership Agreement

UNCITRAL

United Nations Commission On International Trade Law

USTR

United States Trade Representative

WTO

World Trade Organization

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FIGURE, TABLE AND BOX
Page

Table 1: World FDI flows, 2013-2015, billions of dollars

..…6

Table 2: Key investment protections of Investment treaties

…30

Table 3: Summarizing the coherence of Vietnam investment legislation
and TPP investment incentives and protections commitments

…76

Figure 1: Trends in IIAs signed, 1980 – 2015

…13

Box 1: FDI in Vietnam economy

..…8

Box 2: Vietnam’s BITs signed, 1996-2016

…15

Box 3: Results of Vietnam’s investment attraction policy

…27

Box 4: Case analysis on investment protection dispute

…56

Box 5: ISDS cases show conflict between public interest and investors’
interest

…91

iii


ABSTRACT
Apart from the economic determinants, macroeconomic and policy stability
have been found to be one of the most important foreign direct investment (FDI)
determinants. It is necessary to carefully analyzing the relation between the TransPacific Partnership (TPP) as a multi-regional free trade agreement with investment
provisions and Vietnam domestic investment legislation and environment. My
dissertation addresses the main questions of what is the nature and effect of

commitments related to FDI incentives and protections under the TPP in comparison
with Vietnam legal framework and how the Vietnamese goverment can act
affirmatively to improve investment legislation of Vietnam thereby take advantage and
limit the disadvantage of those commitments. Some recently researches discussed
about the general benefits of TPP on Vietnamese economy and particularly on several
sectors such as livestock farming, textile and garment or automobile industry. This
dissertation goes deep into the study of the interrelation between the TPP’s investment
chapter and the investment climate in Vietnam. It also reveals the burden of risk in
investor – state dispute settlement, which actually could reverse the fundamental
“polluter pays” principle. The dissertation conclude with a discussion of how the
Vietnamese government can do to make domestic invesment legislation compatible
with commitments in TPP while still balancing private-public interest.

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Chapter 1. INTRODUCTION
1.1. Background and rational
On October 5th 2015, the Trans-Pacific Partnership agreement was signed in
principle. It’s a new generation trade agreement, including twelve countries from two
side of the great Pacific Ocean (Australia, Brunei, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, US and Vietnam). According to a number of
researches on the impacts of TPP on its members, Vietnam seems to be the country
that gain most economic benefit. It is estimated that in one decade, Vietnam’s GDP
will increase by 11% and exports will rise by 28% with a 50% increase in apparel and
textile. Vietnam will have opportunities to access new markets to which it does not yet
have access to. However, many obstacles will also arise.
After years of global integration, it is shown that Vietnam depends much on
low-value added products export and foreign direct investment. As the country
continues its strategy to deeper international integration, Vietnam really need to make

fundamental changes in economic institution, mechanism and management policies,
especially in investment policy. When Vietnam joined the WTO, many experts
expected an “economic explosion” would occur. With high incentives for foreign
investors, exports and foreign investment increased. But enormous foreign capital
flowing into Vietnam caused inflationary while many Vietnamese enterprises still not
able to adapt with major changes in terms of trade and business competitiveness. This
opened an era called “after-WTO” and warned us of how we should deal with these
free trade agreements.
It is necessary to overcome obstacles that come from those ambitious
investment-trade agreements by promoting the attractiveness of country while
avoiding negative effect of investment commitments. The attractiveness of the host
country would be greatly enhanced by a combination of three sets of FDI
determinants: (i) economic determinants; (ii) the policy framework for FDI; and (iii)
business facilitation (UNCTAD 1998, p. 91). As the world economy becomes more
open to international business transactions, countries compete increasingly for FDI not
only by implementing business facilitation measures, but also by improving their
policy and economic determinants. Regarding the policy framework determinants,
policy makers have considered various incentive and protection policies to attract FDI,
and to ensure its consistency with the domestic economic development objectives.
Apart from the other determinants, policy framework for investment may be the most
important FDI determinants. It is necessary to carefully exploring the relation between
free trade agreement with investment provisions and the domestic investment
legislation and environment. As Vietnam laws and regulations become more enabling
for foreign investors and converge in key aspects, foreign investors increasingly put a


premium on such features as policy coherence, transparency, predictability and
stability.
Besides, the Investor-State Dispute Settlement (ISDS) process, by which
private companies can sue foreign governments over loss of opportunity to make

money, is the major concern that should be brought up first. The reasons lead to
dispute are often government policy that base on public interest - such as
environmental protection, health and food regulations, and policy that supports local
economies, workers, and domestic financial institutions.
Though it is undeniable to say that ISDS increases the level of stability of the
host country’s business environment and depoliticises disputes by making sure they
are decided on legal basis, this TPP deal will punish our government with lawsuits for
implementing measures to address climate change, for maintaining and expanding our
national healthcare system, for standing strong in regulations for food and products,
for explicitly supporting local business and workers, and for protecting our financial
system so that it is stable against global shocks. This research explain that the threat of
being sued over these things will keep the government from being able to make good
policy, resulting in a public interest policy chill.
1.2. Literature review and objectives of the research
Recently researches mention about the impact of TPP on Vietnamese economy
or mention the change of Vietnam investment legislation, but in general. For example:
Lê Hồng Hiệp, “The TPP’s Impact on Vietnam: A Preliminary Assessment” (2015)
provides a preliminary assessment of the impact of economic, political, and strategic
potential of the TPP for Vietnam. It argues that Vietnam may gain significantly in
terms of GDP growth, export performance and FDI inflow. In the long term, the
economy will also benefit if further legal, institutional and administrative reforms are
undertaken along with improvements in the state-owned and private sectors.
Politically, immediate impacts will be limited, but the country may become more open
and conducive to further liberalization in the long run. In strategic terms, the
agreement will help the country improve its strategic position, especially vis-à-vis
China in the South China Sea, although such an impact is not imminent and should not
be exaggerated. Doãn Thị Phương Anh (2016) indicates some prospects of economic
benefit for TPP’s members and implications for Vietnamese government and
enterprises to take advantage; Trần Việt Dũng, Recent development of the Vietnamese
investment framework – a preparation for AEC and future integration (2016) only

indicates key issues of the current Vietnamese investment legal framework (such as
new definitions of foreign investor, economic organization with foreign investment
capital – FIE, incorporation of FIE, acquisition of capital/shares, etc) in the context of
doing business, the background of the AEC and AEC’s investment in Vietnam.
There’s a gap for an analysis of issues arise from the Investment chapter (chapter 9) of
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TPP related to foreign direct investment incentives and protections, which can help
Vietnam promote itself as an attractive FDI destination and also will create a number
of challenges in the implementation of the chapter in terms of legal framework,
transparency and protectionist measures.
The main purposes of this research is assessing potential impact of the
Investment Chapter on the business environment in Vietnam and point out
fundamental changes in legal framework that Vietnamese government has to
implement to comply with the commitments it has made. It is sure that TPP (if ratified
by all member countries) will improve national investment policy and help attracting
more FDI to developing countries. It may contribute to the coherence, transparency,
predictability and stability of the investment frameworks of host countries. The
problem is, there is no detailed document analyzes the level of compatibility of
Vietnam investment framework and the investment provisions under TPP investment
chapter, neither negative impact on the legislation of the country and also which
investment regulation Vietnam has to amend to comply with TPP. Thus, it is necessary
to analysis and review Vietnam's investment legislations against TPP commitments to
clarify differences and make amendments of Vietnam's legal. From this,
recommendations are made to guarantee the conformity to the TPP in the most
beneficial ways for parties.
1.3. Research Questions
For the scope and scale of this research to be answered, the research questions
are formulated as following:

- What types of investment incentives and protections are there in international
investment agreements?
- What is the meaning of commitments related to foreign direct investment
incentives and protections under the Trans-Pacific Partnership?
- What is the compatibility level between Vietnam investment incentive and
protection provisions and TPP Investment chapter and how they will affect present
business environment, rules and regulation in investment legislation of Vietnam?
- How can Vietnamese government make changes to domestic investment legal
framework to take advantage and limit the disadvantage of those commitments?
1.4. Methodology
The research approach of this study is qualitative research to make a primarily
theoretical dissertation. The methodology including selection and discussion of
theoretical material and descriptive material, publication research, law research and
case review, include both present and historical information, and detailed comparison
of regulations, theories in terms of their applicability. The study attempting to uncover
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the deeper meaning and effect of TPP investment incentives and protections
commitments and experiences in implementing international investment treatments.
1.5. Structure of the dissertation
The research questions systematize thesis into 5 chapters: Chapter 1.
“Introduction”; Chapter 2. “Overview of FDI incentives and protection in International
Investment Agreements” introduces the background of FDI and FDI incentives and
protections in international investment agreement. Chapter 3. “Commitments relating
FDI incentives and protection in TPP” will give details about content of FDI
incentives and protections commitments and comparing with standard multilateral
investment agreement; Chapter 4. “Vietnam’s investment legislation and TPP”
analyzes the compatibility between Vietnam investment incentive and protection
provisions and TPP Investment chapter and the effect of those commitments on

country’s investment environment and legal framework. Lastly, Chapter 5.
“Recommendation on Vietnam's investment law and policy” review the international
experiences in implementing the TPP and point out recommendations for Vietnam to
fully complying with TPP Investment chapter and avoiding negative impact of it on
the country.

4


Chapter 2. OVERVIEW OF FDI INCENTIVES AND PROTECTIONS IN
INTERNATIONAL INVESTMENT AGREEMENTS
2.1. Overview of International Investment Agreements
2.1.1 The role of FDI and FDI attraction determinants
2.1.1.1. FDI and world economy development
Foreign direct investment (FDI) is defined as an investment involving a longterm relationship and reflecting a lasting interest and control by a resident entity in one
economy (foreign direct investor or parent enterprise) in an enterprise resident in an
economy other than that of the foreign direct investor (FDI enterprise or affiliate
enterprise or foreign affiliate) (UNCTAD, 2007). FDI implies that the investor exerts a
significant degree of influence on the management of the enterprise resident in the
other economy. FDI may be undertaken by individuals as well as business entities. In
other words, FDI is an investment made by a company (especially MNEs or TNCs) or
individual in one country in business interests in another country, in the form of either
establishing business operations or acquiring business assets in the other country, such
as ownership or controlling interest in a foreign company. The key feature of foreign
direct investment is that it is an investment made that establishes either effective
control of, or at least substantial influence over, the decision making of a foreign
business. In the world of globalization, the important role of FDI in economic
development is proved. It has a major role to play in the economic development of the
host country. Over the years, FDI has helped the economies of the host countries to
obtain a launching pad from where they can make further improvements. Any form of

FDI brings in a lot of capital knowledge and technological resources into the economy
of a country.
FDI is an important factor which drives economic growth around the world,
particularly in the last twenty years. FDI is being utilized by most, if not all,
developing countries as a means of complementing the level of domestic investment,
as well as securing economy-wide efficiency gains through the transfer of appropriate
technology, management knowledge, and business culture, access to foreign markets,
increasing employment opportunities, and improving living standards. The overall
benefits of international investment - more specifically, FDI for developing countries
are well approved. Many studies showed that FDI triggers technology spillovers,
assists human capital formation, contributes to international trade integration, helps
create a more competitive business environment and enhances enterprise development
(OECD, 2002). All of these contribute to higher economic growth, which is the most
potent tool for alleviating poverty in developing countries. Moreover, beyond the
strictly economic benefits, FDI may help improve environmental and social conditions

5


in the host country by, for example, transferring “cleaner” technologies and leading to
more socially responsible corporate policies.
From the perspective of companies which investment abroad, investing
overseas can generate many benefits, including: reducing transport costs by locating
manufacturing plant within a consuming country; gaining easier access to a country’s
markets, especially where the product can be made with local ingredients (in addition,
investing firms gain access to a range of resources, including cheap or skilled labour
and local knowledge and expertise); exploiting of economies of scope, such as
spreading fixed management costs between territories; and avoiding barriers to trade
such as tariffs and quotas, as in the case of Japanese car producers, such as Toyota and
Nissan, locating in the EU.

Regarding those roles and benefits, the world observed global FDI inflows rose
year by year. It has grown by 38 per cent overall in 2015 to $1,762 billion, up from
$1,277 billion in 2014, with considerable variance between country groups and regions
(table 1). FDI flows to developed economies increased by 84 per cent to reach their
second highest level, at $962 billion. Strong growth in flows was reported in Europe
(up 65 per cent to $504 billion). In the United States FDI flows almost quadrupled,
although from a historically low level in 2014. Developing economies saw inward FDI
reach a new high of $765 billion, 9 per cent above the level in 2014. Developing Asia,
with inward FDI surpassing half a trillion dollars, remained the largest FDI recipient in
the world. FDI flows to Latin America and the Caribbean – excluding Caribbean
offshore fnancial centres – remained flat at $168 billion (UNCTAD, 2016).

Table 1 World FDI flows, 2013-2015, billions of dollars
Source: UNCTAD World Investment Report 2016

FDI has effects on growth, environmental and society:
a) FDI and growth
FDI influences growth by raising total factor productivity and, more generally,
the efficiency of resource use in the recipient economy. This works through three
6


channels: the linkages between FDI and foreign trade flows, the spillovers and other
externalities vis-à-vis the host country business sector, and the direct impact on
structural factors in the host economy (UNCTAD, 2003).
While the evidence of FDI’s effects on host-country foreign trade differs
significantly across countries and economic sectors, a consensus is nevertheless
emerging that the FDI-trade linkage must be seen in a broader context than the direct
impact of investment on imports and exports. The main trade-related benefit of FDI for
developing countries lies in its long-term contribution to integrating the host economy

more closely into the world economy in a process likely to include higher imports as
well as exports. Host countries’ ability to use FDI as a means to increase exports in the
short and medium term depends on the context. The clearest examples of FDI boosting
exports are found where inward investment helps host countries that had been
financially constrained make use either of their resource endowment (e.g. foreign
investment in mineral extraction) or their geographical location (e.g. investment in
some transition economies). Targeted measures to harness the benefits of FDI for
integrating host economies more closely into international trade flows, notably by
establishing export-processing zones (EPZs), have attracted increasing attention. In
many cases they have contributed to a raising of imports as well as exports of
developing countries. However, it is not clear whether the benefits to the domestic
economy justify drawbacks such as the cost to the public purse of maintaining EPZs or
the risks of creating an uneven playing field between domestic and foreign enterprises
and of triggering international bidding wars.
Economic literature identifies technology transfers as perhaps the most
important channel through which foreign corporate presence may produce positive
externalities in the host developing economy. MNEs are the developed world’s most
important source of corporate research and development (R&D) activity, and they
generally possess a higher level of technology than is available in developing
countries, so they have the potential to generate considerable technological spillovers.
Technology transfer and diffusion work via four interrelated channels: vertical
linkages with suppliers or purchasers in the host countries; horizontal linkages with
competing or complementary companies in the same industry; migration of skilled
labour; and the internationalisation of R&D. The evidence of positive spillovers is
strongest and most consistent in the case of vertical linkages, in particular, the
“backward” linkages with local suppliers in developing countries. MNEs generally are
found to provide technical assistance, training and other information to raise the
quality of the suppliers’ products. Many MNEs assist local suppliers in purchasing raw
materials and intermediate goods and in modernising or upgrading production
facilities.

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The major impact of FDI on human capital in developing countries appears to
be indirect, occurring not principally through the efforts of MNEs, but rather from
government policies seeking to attract FDI via enhanced human capital. Once
individuals are employed by MNE subsidiaries, their human capital may be enhanced
further through training and on-the-job learning. Empirical and anecdotal evidence
indicates that, while considerable national and sectoral discrepancies persist, MNEs
tend to provide more training and other upgrading of human capital than do domestic
enterprises. However, evidence that the human capital thus created spills over to the
rest of the host economy is much weaker. Policies to enhance labour-market flexibility
and encourage entrepreneurship, among other strategies, could help buttress such
spillovers.Those subsidiaries may also have a positive influence on human capital
enhancement in other enterprises with which they develop links, including suppliers.
Such enhancement can have further effects as that labour moves to other firms and as
some employees become entrepreneurs. Thus, the issue of human capital development
is intimately related with other, broader development issues.
FDI has the potential significantly to urge enterprise development in host
countries. The direct impact on the targeted enterprise includes efforts to raise
efficiency and reduce costs in the targeted enterprise, and the development of new
activities. In addition, efficiency gains may occur in unrelated enterprises through
demonstration effects and other spillovers akin to those that lead to technology and
human capital spillovers. Available evidence points to a significant improvement in
economic efficiency in enterprises acquired by MNEs, albeit to degrees that vary by
country and sector. The strongest evidence of improvement is found in industries with
economies of scale. Here, the submersion of an individual enterprise into a larger
corporate entity generally gives rise to important efficiency gains. Overall, the picture
Foreign invested companies continue to play an important role in the economy.

According to the Vietnam General Statistics Office (GSO) the FDI sector contributed 70
percent of total exports in 2015 (up from 47 percent in 2000) and foreign invested
enterprises’ contribution to GDP increased to 18 percent from 13 percent over the same
period. Vietnam has maintained registered FDI levels of around $18.5 billion per year over
the last five years. Concluding the four FTA’s in 2015-2016 has already increased FDI in
Vietnam.
In 2015, according to Vietnam’s Foreign Investment Agency (FIA), the United
States was the 16th largest FDI source with a total investment of $224 million, down from
11th in 2014. Malaysia beat out Japan as the second largest FDI source in 2015 due to a
large investment in the Duyen Hai 2 thermal power plant south of Ho Chi Minh City. The
top three FDI sources in 2015 were South Korea, with newly registered capital of $2.7
billion in 702 projects, Malaysia with $2.4 billion in 27 projects, and Japan with $1.3
billion in 299 projects, according to the FIA. China FDI excluding Hong Kong increased to
$744 million (10th largest source) in 2015 from $427 million in 2014.
Box 1: FDI in Vietnam economy
Source: Vietnam General Statistics Office

8


of the effects of FDI on enterprise restructuring that we can derive from recent
experience may be too positive, because investors will have picked their targets among
enterprises with a potential for achieving efficiency gains. However, from a policy
perspective, this makes little difference, as long as foreign investors differ from
domestic investors in their ability or willingness to improve efficiency or realise new
business opportunities. Authorities aiming to improve the economic efficiency of their
domestic business sectors have incentives to encourage FDI as a vehicle for enterprise
restructuring.
b) FDI and environmental and social concerns
FDI has the potential to bring social and environmental benefits to host

economies through the dissemination of good practices and technologies within
MNEs, and through their subsequent spillovers to domestic enterprises (UNCTAD,
2003).
The direct environmental impact of FDI is generally positive, at least where
host-country environmental policies are adequate. Most importantly, to reap the full
environmental benefits of inward FDI, adequate local capacities are needed, as regards
environmental practices and the broader technological capabilities of host-country
enterprises. The technologies that are transferred to developing countries in connection
with foreign direct investment tend to be more modern, and environmentally
“cleaner”, than what is locally available. Moreover, positive externalities have been
observed where local imitation, employment turnover and supply-chain requirements
led to more general environmental improvements in the host economy. Empirical
evidence of the social consequences of FDI is far from abundant. Overall, however, it
supports the notion that foreign investment may help reduce poverty and improve
social conditions. The general effects of FDI on growth are essential. Studies have
found that higher incomes in developing countries generally benefit the poorest
segments of the population proportionately. The beneficial effects of FDI on poverty
reduction are potentially stronger when FDI is employed as a tool to develop labourintensive industries – and where it is anchored in the adherence of MNEs to national
labour law and internationally accepted labour standards.
In sum up, the economic benefits of FDI are real, but they do not accrue
automatically. To reap the maximum benefits from foreign corporate presence a
healthy enabling environment for business is paramount, which encourages domestic
as well as foreign investment, provides incentives for innovation and improvements of
skills and contributes to a competitive corporate climate.
2.1.1.2. FDI determinants
From the perspective of foreign investors, the attractiveness of the host country
would be greatly enhanced by a combination of three sets of FDI determinants: (i)
9

economic determinants; (ii) the policy framework for FDI; and (iii) business
facilitation (UNCTAD 1998, p. 91). Economic determinants include traditional factors
such as the availability of low-cost raw materials, skilled labour, and adequate physical
infrastructure. The policy framework for FDI includes factors such as economic,
political and social stability, rules and standards regarding entry, treatment and
operations of foreign firms, and policies on the functioning and structure of the
domestic market such as trade policy, privatization policy, and tax policy. As the
world economy becomes more open to international business transactions, countries
compete increasingly for FDI not only by improving their policy and economic
determinants, but also by implementing business facilitation measures.
Regarding the policy framework determinants, policy makers have considered
various incentive and protection policies to attract FDI, and to ensure its consistency
with the domestic economic development objectives. The competition for the world’s
FDI flows is fierce. Evidence indicates that countries which offer safe and profitable
investment opportunities win in the global competition for this floating capital (Nabil
Md. Dabour, 2000). Foreign private investors look for certain important pointers such
as freedom to control investments, convertible currencies, greater privatization, stock
market reforms, greater political stability, and a legal framework for doing business.
Beyond these general characteristics of well-functioning market economy, investments
in infrastructure, particularly transport and telecommunications, are also important.
Thus, FDI flows where opportunities abound and where returns are safely realized.
International investment needs are immense. This requires that the international
investment regime constitutes a framework for increased flows of sustainable foreign
direct investment for sustainable development. The international investment regime
covers what has become the single most important form of international economic
transactions and the most powerful vector of integration among economies: foreign
direct investment and non-equity forms of control by multinational enterprises over
foreign production facilities. Among the most striking features of the global
investment landscape over the past decade has been the rise of capital-export
countries. They have a need to protect their investors and capital flows. Because of the

economic importance of international investment, there is no doubt that it is necessary
to make set of rules governing investment protections.
As an important FDI attraction determinant, international investment
agreements (IIAs) provide an additional layer of security to covered foreign investors
and can offer recourse to international investment arbitration to resolve investor - state
disputes. Investment protections have been a principal vehicle to guard against bad
policies in the undeveloped are and elsewhere in world economy (UNCTAD, 2003).
Investors need some assurance that any dispute with the government will be dealt with
fairly and swiftly, particularly in countries where investors have concerns about the
10


reliability and independence of domestic courts. Such agreements may also help
countries to improve their own domestic legislation covering investment. These
considerations have led to the negotiation and signature of many investment treaties,
particularly in the 1990s. Over the last 50 years, 180 countries have negotiated over
3,200 agreements with investor and investment protections mechanism (USTR, 2014).
These provide assurance of basic rule of law protections and recourse to neutral,
international arbitration in the event of an investment dispute.
Developing countries recognized the importance of FDI and FDI determinants.
Consequently, old restrictive and controlling policies and institutions were replaced by
new ones aimed at attracting FDI. Thus developing countries and countries in
transition, have lifted bans and restrictions on FDI entry (including in such sensitive
industries as mining, infrastructure and financial services), improved the standards of
treatment and protection of foreign investors and eased restrictions on their operations.
In the competition with other countries for attracting FDI, especially better types of
FDI (such as export-oriented manufacturing projects or projects with high
technological content or simply greenfield investments creating jobs) they started
offering TNCs incentives, sometimes very generous. Generally reluctant to bind their
FDI policies in multilateral agreements, developing countries have, however,

submitted some aspects of their investment frameworks, especially those concerning
protection and treatment of FDI (much less so FDI liberalization), to international
treaties (Zbigniew Zimny, 2008).
The importance of IIAs becomes clear when host countries seeking for a
protection for their FDI capital in other country. In the pre-IIAs era, before IIAs were
concluded, foreign investors who sought the protection of international investment law
for their investment encountered short-lived structure consisting largely of spread
treaty provisions, a few questionable customs, and contested general principles of law.
Consequently, international law failed to address important issues of concern to
foreign investors. For example, international law did not deal with the right of foreign
investors to transfer funds from host countries. Principles of customary international
law were often vague and subject to conflicting interpretations, for instance with
regard to the calculation of compensation in case of expropriation. There was also no
effective mechanism to pursue investors claims against host countries that had harmed
investments or did not honor contractual obligations. Foreign investors, who failed to
settle their claims in the domestic courts of the host country, had no other option than
to act through their governments in a lengthy and more political than legal process.
The general purpose of international investment agreements is the promotion
and protection of investments from one contracting party in the territory of the other
contracting party. They provide, with variations in scope and content, for standards of
treatment of investors and their investments, including:
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- National treatment;
- Guarantees against expropriation without compensation;
- Guarantees of fair and equitable treatment or the international minimum
standard of treatment;
- Full protection and security;
- Investor-state dispute settlement, allowing covered foreign investors to bring

arbitration claims against host governments where they consider that treaty guarantees
have been breached.
2.1.2 The proliferation of IIAs as a key FDI determinant
International investment agreements initially took the form of “Bilateral
Investment Treaties” or BITs. These treaties only cover investment protection,
meaning that only investment that has already been established in the host country (socalled “post-establishment” phase) will be covered under the agreement. However,
they do not deal with investment liberalization (the so-called “pre-establishment”
phase) concerning the admission of foreign investments into the host country.
With the advent of Free Trade Agreements (FTAs), most prominently the North
American Free Trade Agreement (NAFTA), investment chapters have become an
integral part of FTAs. In the spirit of deepening economic integration, liberalizing
trade in goods and services would need to be complemented with investment as well.
This is why FTAs usually include investment liberalization and protection. This article
will only focus on issues concerning investment protection.
On a multilateral level, however, a single investment agreement remains
elusive. Currently, there are multilateral agreements in the trade in goods and
services—the General Agreement on Trade in Goods (GATT) (1947) and the General
Agreement on Trade in Services (GATS) (1995), both under the aegis of the World
Trade Organization. There were attempts to create a multilateral investment treaty for
members of the Organization for Economic Cooperation and Development (OECD) in
the late 1990s under the “Multilateral Investment Agreement” (MAI). However, the
MAI failed to materialize as countries pulled out when civil society groups raised
concerns that the MAI would threaten national sovereignty especially by limiting labor
and environmental standards.
Hoping to attract more FDI, developed and developing countries are
increasingly entering investment agreement. As a key factor to attract FDI and gain
more benefits from FDI, the year 2015 saw the conclusion of 31 new IIAs – 20
bilateral investment treaties (BITs) and 11 treaties with investment provisions (TIPs),
bringing the IIA universe to 3,304 agreements (2,946 BITs and 358 TIPs) by year-end
(figure 1). Countries most active in concluding IIAs in 2015 were Brazil with six,

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Japan and the Republic of Korea with four each, and China with three. Brazil is taking
a new approach to BITs, focusing on investment promotion and facilitation, dispute
prevention and alternatives to arbitration instead of traditional investment protection
and investor-State dispute settlement (UNCTAD, 2016).
The frst four months of 2016 saw the conclusion of nine new IIAs (seven BITs
and two TIPs), including the Trans-Pacifc Partnership Agreement, which involves 12
countries. By the end of May 2016, close to 150 economies were engaged in
negotiating at least 57 IIAs (including megaregional treaties such as the Transatlantic
Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic
Partnership (RCEP)) (WIR14). Although the numbers of new IIAs and of countries
concluding them are continuing to go down, some IIAs involve a large number of
parties and carry signifcant economic and political weight (UNCTAD, 2016).

Figure 1 Trends in IIAs signed, 1980 – 2015
Source: UNCTAD World Investment Report 2016

Previously, the country pairs were mostly between developing and developed
countries, but over the past two decades, the picture has changed, with developing and
developed countries signing agreements with their own peers. As mentioned,
investment chapters are also now part of all FTAs, except for a few exceptions.
A prominent example of a region that has actively engaged in investment rulemaking is the Association of Southeast Asian Nations or ASEAN. Each of the ten
member countries have signed over 286 BITs and over 92 FTAs with investment
chapters . Among these are FTAs that are signed among the ten members or with other
dialogue partners (such as Australia and New Zealand). These FTAs contain
investment chapters which include investment protection provisions similar to those
found in BITs.
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The obligations set out in IIAs differ in geographical scope and coverage. Some
of them address only certain aspects of FDI policies. Others address investment
policies in general, including policies that affect both domestic and foreign investors
(competition rules or anticorruption measures). Still others cover most or all important
elements of an FDI framework, ranging from admission and establishment, to
standards of treatment to dispute settlement mechanisms. The most important effort to
create international rules for investment in the early years after World War II was
multilateral - in the framework of the Havana Charter. It failed. The bilateral level
proved to be most productive in terms of producing investment rules. It focused first
on protection and then on liberalization. The first instruments of choice were treaties
for the protection and incentive of foreign investment-bilateral investment treaties
(BITs). Later, free trade agreements took up the matter as well.
2.1.2.1. Bilateral investment agreements
BITs are spinoffs from general treaties dealing with economic relations between
countries. The year 2015 saw the conclusion of 31 new IIAs – 20 bilateral investment
treaties (BITs), bringing 3304 BITs (UNCTAD, 2016).
Among the world of IIAs, the bilateral approaches, mainly BITs and free trade
agreements with an investment component, have the advantage of allowing countries
the freedom of choosing the partners to enter into an agreement and how to tailor the
agreement to their specific situations. They offer countries flexibility in designing their
networks of IIAs, concluding them with countries that are key investors, avoiding
countries that are less interesting or that may insist on unwanted provisions. Allowing
each treaty to be negotiated separately gives developing countries more flexibility than
under a multilateral approach. In addition, BITs can be negotiated quickly. Important
is also that the overwhelming number of BITs cover only the post-establishment stage
of investment, leaving admission and establishment-which have the greatest
development implications-to be determined autonomously by host countries.
The number of bilateral free trade agreements covering investment issues is

rising as well, with most early ones involving neighbouring countries and newer ones
tending to be concluded between distant countries in different regions and having
investment commitments in a separate chapter. Among the main issues addressed:
preestablishment and post-establishment national treatment; most-favoured-nation
(MFN) treatment; prohibitions of performance requirements (often going beyond that
contained in the Trade-related Investment Measures (TRIMs) Agreement); incentive
and protection, including that for expropriation and compensation; dispute settlement,
both State-State and investor-State and transfer clauses guaranteeing the free transfer
of payments, including capital, income, profits and royalties.

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Vietnam has 63 BITs with the following countries and territories: Algeria;
Argentina; Armenia; Australia; Austria; Bangladesh; Belarus; BLEU (BelgiumLuxembourg Economic Union); Bulgaria; Cambodia; Chile; China; Cuba; Czech
Republic; Denmark; Egypt; Estonia; Finland; Finland; France; Germany; Greece;
Hungary; Iceland; India; Indonesia; Iran, Islamic Republic of; Italy; Japan; Kazakhstan;
Korea, Dem. People's Rep. Of; Korea, Republic of; Lao People's Democratic Republic;
Latvia; Lithuania; Malaysia; Mongolia; Morocco; Mozambique; Myanmar; Namibia;
Netherlands; Oman; Philippines; Poland; Romania; Russian Federation; Singapore;
Slovakia; Spain; Sri Lanka; Sweden; Switzerland; Taiwan Province of China; Tajikistan;
Thailand; Turkey; Ukraine; United Arab Emirates; United Kingdom; Uruguay;
Uzbekistan; Venezuela, Bolivarian Republic of.
Box 2: Vietnam’s BITs signed, 1996-2016
Source: InvestmentPolicyHub, 2016

2.1.2.2. Regional and interregional investment agreements
Regional and interregional approaches typically deal with a range of issues, so
there is more room for bargaining. With the overall purpose of expanding the regional
market, they often include the liberalization of foreign entry and establishment-and

reduce operational restrictions. They offer-indeed require-more flexibility in how
treaty provisions are applied to the different countries. Where regional agreements
include rules of origin, insiders may benefit in attracting FDI. The downside is that
they are discriminatory. Countries outside the integrating region may be hurt by the
diversion of investment. Investment by third countries in such a region may also divert
trade.
The universe of regional and interregional agreements dealing directly with
investment matters is growing as well. Unlike BITs and bilateral free trade
agreements, not all regional instruments are binding. An example of a non-binding
nature relating to foreign investment in the Asia - Pacific Economic Cooperation
(APEC) have been adopted in the 1994 APEC Non-Binding Investment Principles.
The trend is towards comprehensive regional agreements that include both traderelated and investment-related provisions, even extending to services, intellectual
property rights and competition. Indeed, most regional free trade agreements today are
also free investment agreements, at least in principle. The general aim is to create a
more favourable trade and investment framework-through the liberalization not only of
regional trade but also of restrictions to FDI and through a reduction of operational
restrictions, all to increase the flow of trade and investment within regions. Generally
addressing a broader spectrum of issues than bilateral agreements, regional agreements
allow tradeoffs across issue areas. Developed and developing countries typically use
the traditional international law tools-such as exceptions, reservations and transition
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periods-to ensure flexibility in catering to the different needs, capacities and policy
objectives of countries. As with BITs, it is difficult to identify the impact on FDI of
regional or interregional agreements dealing only with the harmonization of
investment frameworks of member countries. They improve the enabling framework.
And where they reduce obstacles to FDI (as most regional agreements do), they can
increase investment flows-again, if the economic determinants are favourable
(UNCTAD, 2003). The main economic determinant that influences FDI flows in

regional agreements is market size. But that is the result of reducing barriers to tradenot of FDI.
2.1.2.3. Multilateral agreement on investment
A truly multilateral investment agreement hasn’t existed yet. Many efforts to
create comprehensive multilateral rules for FDI have shared the fate of the first effort
and failed. Most prominent among them were the United Nations Code of Conduct on
Transnational Corporations (in the late 1970s and 1980s) and a Multilateral Agreement
on Investment by the OECD (in the late 1990s). But the World Bank Guidelines on the
Treatment of Foreign Direct Investment, a nonbinding instrument, set down (in 1992)
some certain standards of treatment for investors on which a level of international
consensus could be said to exist (UNCTAD, 2003).
Some efforts dealing with specific investment aspects bore fruit as well. The
Convention on the Settlement of Investment Disputes between States and the
Nationals of other States provides a framework for the settlement of investment
disputes. The ILO Tripartite Declaration of Principles Concerning Multinational
Enterprises and Social Policy deals with a range of labourrelated issues. The
Convention Establishing the Multilateral Investment Guarantee Agency (MIGA)
enhances the legal security of FDI by supplementing national and regional investment
guarantee schemes with a multilateral one. The WTO Agreement on TRIMs prohibits
certain trade-related investment measures (adopted as part of the Uruguay Round).
And the General Agreement on Trade in Services (GATS), also concluded as part of
the Uruguay Round, offers a comprehensive set of rules covering all types of
international services delivery, including “commercial presence”, akin to FDI. The
GATS leaves member countries considerable flexibility on the scope and speed of
liberalizing services activities. It allows them to inscribe, within their schedules of
commitments, activities that they wish to open and the conditions and limitations for
doing this - the positive list approach.
In their Declaration at the Fourth Session of the WTO Ministerial Conference in
Doha in November 2001, members of the WTO agreed on a work programme on the
relationship between trade and investment. In doing so, they recognized the need for
strengthened technical assistance in the pursuance of that mandate, explicitly referring

to UNCTAD. In response, the WTO Working Group on the Relationship between
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Trade and Investment (set up at the WTO’s 1996 Ministerial Conference in Singapore)
has been deliberating on the seven issues listed in paragraph 22 of the Declaration as
well as technology transfer. In its meeting on 1 December 2002, the Group discussed
its annual report and an intervention by a group of developing countries dealing with
home country measures and investor obligations. The discussions of the Working
Group are reported to the WTO General Council. Recognized at Doha was “the case
for a multilateral framework to secure transparent, stable and predictable conditions
for long-term cross-border investment, particularly foreign direct investment, that will
contribute to the expansion of trade”. It was also agreed “that negotiations will take
place after the Fifth Session of the Ministerial Conference on the basis of a decision to
be taken,by explicit consensus, at that Session on modalities of negotiations”.
2.2. MIAs as a fundamental basis for investment incentive and protection
The need for a Multilateral Investment Agreement
It is sure that a MIA can help reduce the complexity associated with the
patchwork of bilateral and regional investment agreements. As mentioned above,
investment treatment are dealt with in a overload of international instruments
including an estimated 3.300 bilateral investment treaties, OECD Codes of
Liberalization and the Declaration, WTO Agreements, and regional trade agreements,
such as the NAFTA and the EU treaty. These competing and conflicting rules can
create uncertainty for MNEs, TNCs in the treatment of FDI. A single overarching
investment treaty would not only reduce the complexity of the investment environment
but would also extend the coverage and provide a stronger mechanism for investment
liberalization.
A multilateral framework for investment would facilitate further expansion of
FDI. It was argued that legally binding multilateral disciplines in investment would
improve the enabling environment-by contributing to greater transparency, stability,

predictability and security for investment in sectors not yet covered by multilateral
rules. International obligations would also help reduce investor risk perceptions and
narrow the gap between the actual risk of policy instability that may be suggested by a
host country’s domestic legislation, and the risk as perceived by foreign investors. If
multilateral disciplines further reduced obstacles to FDI beyond what other IIAs do,
this (plus the right economic determinants) would presumably lead to higher
investment flows (Peterson Institute for International Economics, 2013).
Some countries see multilateral disciplines as an important complement to the
bilateral and regional IIAs, to create a common legal basis. Indeed, a multilateral
agreement could create the “floor” of standards applicable to IIAs in general (though
this would not necessarily be uniform if a GATS-type positive list approach were
used). Some fear that the floor would be too low, providing lower standards of
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protection and market access than BITs and regional agreements. Others fear that the
floor could be too high (even when exceptions, derogations and the like are allowed),
constraining national policy space too much. Whether the floor is low or high, a
multilateral framework would lock in whatever would be agreed. But it would not
constitute a ceiling of rules in the investment area. Because countries would still be
free to go beyond multilateral standards when they negotiate bilaterally or regionally.
In other words, a multilateral framework would most likely not replace the large and
rapidly growing number of IIAs. And it could well be that a multilateral instrument
would serve as a starting point for more far-reaching bilateral and regional
negotiations in the future.
The world currently observe a debate about a multilateral agreement on
investment. The last attempts to establish MIA failed in 1998 at the Organization for
Economic Co-operation and Development (OECD) and in 2003, as part of the Doha
Development Agenda of the World Trade Organization (WTO). The reasons for these
failures are both the resistance of emerging countries and developing countries to onesided policies mainly aimed at protecting international investors, and divergences

among industrialized countries, particularly regarding the liberalization of market
access regulations. Global investment flows are protected by a fragmented system of
more than 3300 bilateral investment agreements and 300 free trade agreements with
investment chapters. Most of these agreements establish far-reaching and binding
standards of protection for international investors, such as national treatment, fair and
equitable treatment, and liberal financial transfer clauses. Among the essential features
of IIAs is that investors can assert their rights against host counties directly before
transnational arbitration tribunals.
The increasing regionalization of investment rule-making is advanced as an
argument which can facilitate the leap to the next-higher, multilateral level. As a result
of so-called "Mega-Regionals" - like the TPP between the U.S.A. and 10 other
countries in the Pacific Region, the Regional Comprehensive Economic Partnership
(RCEP) between the Association of Southeast Asian Nations (ASEAN) and six other
countries, including China or the planned TTIP - it is possible that an integration of
investment rules will arise which would simplify the negotiations about an MIA.
It is more promising to deal with these challenges in the context of regional cooperation, since this permits better accommodation of the treaty contents to the
specific needs of the countries involved. Negotiations at the regional level should be
supplemented by co-ordination efforts on the global level. The G-20 is the appropriate
orchestrator for talks about these systemic questions, talks which in turn should be
carried on with the inclusion of the OECD, WTO, and the UNCTAD and other
stakeholders.

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The coherency of rules of investment will be improved in the context of MIA.
On the one hand, the issue here is to take into account previously neglected issues such
as the negative effects of host countries' investment incentives or investments of stateowned companies. On the other, the aim would be to reduce the potentially negative
impact of investment rules on other policy areas such as international financial and
trade policies, or health and environmental policies. It appears doubtful that a

standalone MIA which only addresses investment rules would improve the coherency
of the current investment regime.
There are two kinds of multilateral investment agreement. The first is the MAI
which started by the OECD and was expected to be a comprehensive multilateral
investment agreement for the world. The other can be considered as multilateral
investment agreement is the set of investment provisions included in (regional) free
trade agreements, such as in NAFTA, TTIP1, RCEP2 or TPP. The fact is, the lack of
the current multilateral investment regime can be better dealt with in the context of
regional negotiations. The regionalization of investment rule-making is already in full
swing and has reached a new level with the negotiations of "Mega-Regionals" such as
the TPP, RCEP or TTIP. These regionalization processes are significant not only
because of the high volume of trade and investment flows which are affected. Also
important is the impact of these integration processes on the framework of future
international investment policies. One benefit of these regionalization processes is the
integration of rules of investment into the context of a free trade agreement. These socalled WTO-plus treaties encompass not only trade in goods but also such areas as
services, the rights to intellectual property, competition, investments, and
sustainability. These accords either go beyond the level of regulations agreed on in the
WTO or open up fully new fields of regulation. Below we will take an overview about
investment commitments in MAI and NAFTA as biggest MIAs until now.
Main content of Multilateral Agreement on Investment
Multilateral Agreement on Investment (MAI) is name of a MIA. Negotiations
on a MAI were launched at the May 1995 Council meeting at Ministerial level of the
OECD upon receipt of a report by two OECD committees. The Committee on
International Investment and Multinational Enterprise (CIME) and the Committee on
Capital Movements and Invisible Transactions (CMIT) had been conducting
1

The Transatlantic Trade and Investment Partnership (TTIP) is a proposed trade agreement between the European Union and
the United States, with the aim of promoting trade and multilateral economic growth. The American government considers
the TTIP a companion agreement to the TPP. The agreement is under ongoing negotiations and its main three broad areas

are: market access; specific regulation; and broader rules and principles and modes of co-operation. The negotiations were
planned to be finalized by the end of 2014, but will not be finished until 2019 or 2020.
2
Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement between the ten member states
of the Association of Southeast Asian Nations (ASEAN) and the six states with which ASEAN has existing FTAs (Australia,
China, India, Japan, South Korea and New Zealand). RCEP negotiations were formally launched in November 2012 at the
ASEAN Summit in Cambodia. RCEP is viewed as an alternative to the TPP trade agreement, which excludes China and
India. The 15th round of RCEP negotiation was held on October 11–22 in Tianjin, China.

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