Trade disputes between EU and Vietnamese enterprises will be handled by an intricate international resolution mechanism once the EU-Vietnam Free Trade Agreement takes effect, giving new hope to EU firms caught in legal limbo in Vietnam.

The European Commission and Vietnam’s Ministry of Trade and Industry have agreed on the final text for the EU-Vietnam Free Trade Agreement (EVFTA), formally concluding the legal review of the document. They also concluded discussions on an investment protection agreement. It is expected that the EVFTA will be signed this September and take effect in early 2019.

Notably, the EVFTA sets up a permanent dispute resolution system, under which disputes about one of the investment protection provisions included in the FTA-such as protection against expropriation without compensation, non-discrimination or fair and equitable treatment-can be submitted to a standing international and fully independent investment tribunal system.

The system’s members will be appointed in advance by the EU and Vietnam, and will be subject to strict requirements of independence and integrity.

“Cases will be heard by divisions of the tribunal which will be composed of three members-one from the EU, one from Vietnam, and a presiding member from a third-party country,” said a recently released guide to the EVFTA. “Decisions of the tribunal can be appealed at a permanent appeal tribunal, which will ensure legal correctness and certainty in the interpretation of the agreement.”

“The usual grounds for non-enforceability of awards have been included in the grounds for appeal, meaning that a final award must be enforced and domestic courts cannot put into question the legal validity of the decisions. This represents an important advantage for European investors abroad,” the document went on to say.

According to a German firm producing paper and paper-based products in a northern province of Vietnam, its year-long dispute with four Vietnamese partners will likely be solved if this international dispute resolution mechanism takes effect under the EVFTA. “If the dispute is solved, we may invest more in our factory,” a firm representative told VIR. “We have invested only slightly more than US$3 million so far.”

The firm was established in April 2008 by Vietnamese businesspeople. During its operation, the firm imported machinery and equipment from a German company, which later became a stakeholder.

However, after the stake purchase agreement was signed and the new joint venture was established in 2010, the German company’s chairman, who is also the joint-venture company’s chairman and deputy general director, found out that his Vietnamese partners had made no stake contributions to the joint venture and filed no legal documents.

Under the Law on Enterprises, all stakeholders have to introduce all necessary documents on stake purchase within a period of 90 days after the enterprise is established. The firm later wanted to change its business registration certificate, but was refused because the Vietnamese stakeholders’ capital contribution failed to be specified, and therefore the names of the Vietnamese stakeholders cannot be removed from the certificate.

“We have brought the case to court, but to no avail. The issue remains unsolved, and we are not sure when it can be resolved,” the representative said. “We think the case may be solved by the international dispute resolution mechanism under the EVFTA.”

An expert from the EU Delegation to Vietnam told VIR that this special international dispute resolution mechanism “guarantees the respect of the substantive investment protection rules applicable to European and Vietnamese investors. The system strikes the right balance between protecting investors and safeguarding the right to regulate.”

According to European Commissioner for Trade Cecilia Malmstrom, the EVFTA is “a great opportunity for European exporters” and “Vietnam is one of the fastest-growing countries in Southeast Asia, a market with significant potential for the EU’s agricultural, industrial, and services exports.”

The EVFTA will eliminate over 99% of tariffs between the partners. Vietnam will liberalise 65% of import duties on EU exports to the country at entry into force, with the remainder of duties being gradually eliminated over a 10-year period. The EU will liberalise tariffs over a seven-year period.

Vietnam has become the EU’s second-biggest trading partner in ASEAN, with the trade turnover of nearly US$55.9 billion last year.

VIR