By: Dezan Shira & Assoicates
Editor: Anaïs Robin
After months of delay by Vietnamese authorities, Decree 118/2015 went into force on November 27, 2015.
Providing implementation guidance on the Investment Law of 2014, 118/2015 clarifies a number of provisions with the aim of further facilitating foreign investment. The following article sheds light on specific guidance found within the decree regarding international law and investment treaties.
One of the most important areas of treaty guidance found under the aforementioned decree concerns overlapping investment agreements. With many firms entering into Vietnam under the protection and regulation of multiple Bilateral Investment Treaties (BITs) signed by their home governments, 118/2015’s requirements for the application of a single treaty is important to note.
Although applying a single framework for the regulation and protection of investment has the potential cut down on uncertainty and promises to streamline compliance for certain industries, it also risks cutting into Vietnam’s increasing integration into global trade. By requiring the selection of a single treaty under which investments in a single business line will be regulated, firms seem to be prevented from strategically applying certain aspects of differing agreements to their benefit.
Case Study: Japan
In order to illustrate this principle, we can take the example of Japan. When a Japanese investor does business within Vietnam, its investments are protected from adverse change by the following agreements:
- Japan – Vietnam Free Trade Agreement (FTA),
- Japan – ASEAN FTA,
- Japan – Vietnam BIT,
- Vietnam’s Commitments under the World Trade Organization (WTO),
- the Trans Pacific Partnership Agreement (TPP) – Pending implementation by national governments
While there are many complimentary fields covered by the aforementioned treaties, Japanese investors will only be able to utilize the benefits from a single agreement to guide their investments within a particular line of production. This would in effect prevent a Japanese company from utilizing regulatory concessions achieved under the Japan – ASEAN FTA in conjunction with dispute resolution protocol laid out under the Japan – Vietnam BIT.
With BIT coverage extending to over 60 countries, Vietnam’s integration into world trade has shown no sign of slowing in recent years and presents incredible opportunities for investment. Although Decree 118/2015 does seem to restrict investors from utilizing these agreements to their fullest potential, the relatively untested nature of this guidance leaves room for interpretation on the part of Vietnamese authorities.
For those with vested interests in Vietnam or considering expansion, it is of utmost importance to evaluate existing treaties to determine under which agreement to claim coverage. In conjunction with this preparation, its also critical for companies to keep up to date on the manner in which 118/2015 is enforced, and to take close note of any precedents set on issues such as protocol for notify licensing authorities of treaty selection or change.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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