VIETNAM NATIONAL UNIVERSITY - HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ECONOMIC LAW GRADUATION DISSERTATION THE PROVISIONS ON EXPROPRIATION UNDER THE EUROPE - VIETNAM INVESTMENT PROTECTION AGREEMENT ADVISOR: DR. DAO GIA PHUC STUDENT’S NAME: NGUYEN THAO MINH STUDENT CODE: K175021483 HO CHI MINH CITY, 2021 VIETNAM NATIONAL UNIVERSITY - HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ECONOMIC LAW GRADUATION DISSERTATION THE PROVISIONS ON EXPROPRIATION UNDER THE EUROPE - VIETNAM INVESTMENT PROTECTION AGREEMENT ADVISOR: DR. DAO GIA PHUC STUDENT’S NAME: NGUYEN THAO MINH STUDENT CODE: K175021483 HO CHI MINH CITY, 2021 i DECLARATION I, Nguyen Thao Minh, hereby declare that the Graduation Dissertation about “The Provisions on Expropriation under The Europe - Vietnam Investment Protection Agreement” is the result of my own research and has never been published in any work of others. During the implementation process of this study, I have taken research ethics seriously; all findings in this study are the result of my own research and survey; all references of this research are clearly cited in accordance with the regulations.
I bear the full responsibility for the fidelity of the content of my dissertation. Ho Chi Minh City, (day). Student (signature and full name) ii LIST OF ABBREVIATIONS BIT Bilateral investment treaty EU European Union EVFTA EU - Vietnam Free Trade Agreement EVIPA EU - Vietnam Investment Protection Agreement FTA Free trade agreement SADC Southern African Development Community iii TABLE OF CONTENTS: INTRODUCTION: .1 Chapter 1: EXPROPRIATION UNDER INTERNATIONAL INVESTMENT LAW .1 Definition and determination of expropriation .2 Classification of expropriation.3 Distinguish indirect expropriations from non-compensable regulatory measures .21 Chapter 2: REGULATIONS ON EXPROPRIATION UNDER THE EUROPE - VIETNAM INVESTMENT PROTECTION AGREEMENT .1 Introduction about the EVFTA and EVIPA .1 The Europe - Vietnam Free Trade Agreement:. The EU - Vietnam Investment Protection Agreement .2 Classification of expropriation.3 Distinction between indirect expropriation and non-compensable regulatory measures.4 The compensation factor for a lawful expropriation .39 1 INTRODUCTION: Since the first formal establishment in 1990, the diplomatic relations between Vietnam and the European Union (EU) have been strengthened and gained a chain of remarkable achievements over the last three decades.1 With regard to investment, the EU has been among Vietnam's largest investors since its first economic opening to the world.
All 18 economic fields, especially manufacturing, electricity generation and distribution, and real property have received considerable amounts of capital from European nations. Such projects are typically centralized in places which contain modern and adequate infrastructure, for instance, Ho Chi Minh City, Ha Noi City, Dong Nai Province etc.2 Consequently, the recent ratification of EU - Vietnam Free Trade Agreement (EVFTA) is undeniably the most important free trade agreement (FTA) which provides direct advantages to Vietnam since the EU is among the largest and consistent trading partners of the country.3 Simultaneously, the EU - Vietnam Investment Protection Agreement (EVIPA) also receives a majority of consideration since the two agreements have a close-knit relationship, which is mentioned under Article 1.2 of EVFTA specifying that the Agreement not only aims at the liberalization in trade but also in investment. The launching of EVIPA will result in the cessation of previous bilateral investment treaties (BITs) between the Member States and Vietnam.4 In particular, one of the utmost concerns which every investor considers before making investment into a foreign country is the protection over their property rights 1 EuroCham Vietnam, Vietnam and the EU Celebrate 30 Years of Diplomatic Relations, <https://www.org/node/18587> 2 Delegation of the European Union to Vietnam, Guide to the EU-Vietnam Free Trade Agreement, pg.eu/doclib/docs/2016/june/tradoc_154622.pdf> 3 The World Bank, Vietnam: Deepening international integration and Implementing the EVFTA, pg.24 4 Andżelika Kuźnar, Jerzy Menkes, The UE-Vietnam Free Trade and Investment Protection Agreements: Legal and Economic Perspectives, pg. Expropriation is considered to be the fiercest means of the government in its interference with the investor’s property.
History has shown that this concept has been among the most disputable issues in the international investment law on whether or not it should be rendered lawful. Nowadays, it is widely recognized that governments have the right to expropriate, provided that specific conditions are fulfilled. As an alien who invests and conducts business in the host country, the investor has to assess the risks before his operation in another country. However, these judgements made at the time of his entry may not always be precise and sustainable due to changes in national policies of the host State resulting from economic or political reasons.
Such changes may cause serious and considerable detriment on foreign investment or result in the governmental takings of the investor’s assets. Nonetheless, there have not been many Vietnamese studies and researches which deeply conduct on the concept of expropriation, notwithstanding its severe effects on foreign investors. Based on such requirements, the objective of this study is to deepen the understanding of the expropriation and how international law and other bilateral treaties regulate this concept, then make critical opinions and comments on such provisions under the EVIPA in order to provide other options for amendment where applicable in future treaties. The work comprises two main chapters as follows: Chapter 1 will explore the concept of expropriation and its regulation under international law and treaties.
This chapter will focus on the definition and determination of what constitutes a lawful expropriation, then it will give classification of expropriation. Chapter 2 will further discuss the expropriation provision regulated by the EVIPA and later provide comments on this concept. 3 Chapter 1: EXPROPRIATION UNDER INTERNATIONAL INVESTMENT LAW This chapter gives an introduction about expropriation, including the definition of this concept as well as detailed determination of standards for a lawful expropriation, which are public purpose, non-discrimination, due process and payment of compensation. It then as well classifies and defines the two types of expropriation, namely the direct and indirect expropriation.
Furthermore, this chapter also distinguishes indirect expropriation from non-compensable regulatory measures, which are the two ambiguous and often mistaken types of measure in practise.1 Definition and determination of expropriation 1.1 Definition Expropriation has long been a major concern in the field of international investment. It all began in the middle of the nineteenth century when foreign direct investment started to widely spread, while the European investors were attached with the view in their home countries that host governments would protect foreign property from nonsensical governmental acts, some non-European nations started to show their purpose in taking over the control of foreign investors’ assets.5 Hence, “the essence of the matter [expropriation] is the deprivation by State organs of a right of property either as such, or by permanent transfer of the power of management and control. The deprivation may be followed by transfer to the territorial State or to third parties.6 In other words, expropriation refers to the host State’s act of taking away the property or deposing the rights to the property, which is opposed to the owners’ agreement.7 With respect to international law, unless explicitly reject, States are entitled to carry out the expropriation act against both nationals’ and foreigners’ assets for economic, 5 Krista Nadakavukaren Schefer, International Investment Law: Text, Cases and Materials (2nd edition), pg.6,7 6 Ian Brownlie, Public International Law, Oxford University Press, 6th Edition, 2003, pg.29) 7 Surya P Subedi, International Investment Law: Reconciling Policy and Principle (3rd edition), pg.150,151 4 political, social or other reasons. However, such right is not unlimited and applied automatically,8 there are four prerequisites of which an expropriation act has to consist so as to be lawful:9 - Served for a public purpose; - Carried on a non-discriminatory basis; - In accordance with due process of law; - Compensation for investors.
Expropriation can be legal or illegal depending on whether the challenged measure meets those set-forth conditions. The legal expropriation is a lawful act not sanctioned under international law, meanwhile the illegal one is an international wrongdoing: the former calls for compensation whereas the latter demands reparation.10 Normally, investment treaties assign reparation for wrongful acts to international law and hence do not insert any regulation on this matter. In accordance with arbitral practice, reparation may be equivalent to or beyond, but never lower than compensation. Specifically, reparation would exceed compensation in the cases where the damage is more substantial than the expropriated investment value.2 Determination The four elements mentioned above have to be examined deeply in order to identify whether or not the host country is performing legal expropriation.
Nevertheless, it should be kept in mind that before assessing the legitimacy of an expropriatory act, the tribunal shall firstly figure out whether there is the occurrence of an expropriation. This is normally a difficult task, especially when it relates to an indirect expropriation (which will be further discussed in section 1. It is of crucial importance not to mix up the inquiry of whether a governmental act has constituted an expropriation 8 ADC v.com/sites/default/files/case- documents/ita0006.pdf> 9 UNCTAD, Expropriation: UNCTAD Series on Issues in International Investment Agreements II, pg.27 10 UNCTAD, supra note 9, pg.114 5 with that of whether the standards for a lawful expropriation have been met. Only after the tribunal concludes the existence of expropriation should the procedure of lawfulness assessment begin.12 Public purpose requirement It is widely accepted by most legislative systems and is as well a rule of international law that public objective has to be the ultimate goal in order to constitute a genuine expropriatory act.
The deprivation of the investor's assets or his property rights must serve for justifiable national interest purposes in contrast with private benefits or proscribed aims.13 As a matter of fact, the legitimate intent relating to welfare interest cannot be the fundamental factor in arguing that there is no existence of expropriation. Instead, it is only among elements amounting to the legitimacy of an expropriatory measure.14 Nevertheless, it is of crucial importance that such public purpose must be proved to contain legitimate and reasonable interests. If only the mention of “public objectives” can prove its urgency and fulfill this condition, then such requirement would become pointless since there would be no circumstance where it would not have been satisfied.15 Therefore, the question about genuine necessity of public purpose behind any specific expropriation shall outweigh the mere reference to public interest. In addition, the standard of public purpose must be referred to the moment when the expropriation was carried out.
Whether the objective initially attempted by the measure is accomplished or not, does not affect such a standard. In contrast, an expropriatory measure which was effective but not able to give out the legitimate public purpose will be deemed unlawful even if it may serve a public purpose in the 12 ibid, pg.27 13 UNCTAD, supra note 9, pg.28,29 14 Christoph Schreuer, The Concept of Expropriation under the ETC and other Investment Protection Treaties, para.com/sites/default/files/case- documents/ita0006.16 In Siag and Vecchi v. Egypt case, the Egyptian authorities expropriated the Claimants’ land with the reason stated due to the postponement of the Claimants in accomplishing commitments stipulated in the contract. Six years later, the land was handed over to a public gas company to establish the pipeline.
Egypt was declared to have failed to satisfy the public purpose requirement since: “The Tribunal does not accept that because an investment was eventually put to public use, the expropriation of that investment must necessarily be said to have been “for” a public purpose.” (para 432)17 However, even when the State is able to declare the importance of the measure regarding internal needs, there are numerous difficulties to determine the certainty of its justification. It is because the national interest is a broad concept which is difficult to encompass. Such interests are diverse in each nation and in any particular circumstance can only be understood well by its own authority. Hence, it is unlikely that any other organs can have the full evaluation and contestation over that aspect.18 Consequently, due to the broad concept of public concern, accusations of expropriation assumed from the lack of this requirement has rarely occurred in practice.