EUROPEAN PARLIAMENT APPROVES EU-VIETNAM TRADE AND INVESTMENT AGREEMENTS

On 12 February 2020, the European Parliament (“EP“) gave its consent to the EU-Vietnam Free Trade Agreement (“EU-Vietnam FTA“) and the Investment Protection Agreement (“EU-Vietnam IPA“). The consent from the EP paves the way for approval of the two agreements by the EU Council of Ministers next month.

In brief, the EU-Vietnam FTA focuses on reducing restrictions on trade in goods and services between the EU and Vietnam. The EU-Vietnam IPA, in turn, establishes specific protections for investors and creates, inter alia, a dispute resolution system that allows private parties to bring actions against measures that impact their investments.

Vietnam is a significant trading partner of the EU, with a population of 95 million. It is expected that the EU-Vietnam FTA will enter into force by the middle of 2020. However, the EU-Vietnam IPA will also need to be ratified by Member States and so its full entry into force will depend on their approval. This process is likely to take a number of years.

Further information on the EU-Vietnam FTA and the EU-Vietnam IPA is below.  The full texts of both agreements can be accessed here.

1.) EU-Vietnam FTA in more detail

Central to the EU-Vietnam FTA is the elimination of customs duties on nearly all products traded between the EU and Vietnam. On day one, 65% of EU products will enter Vietnam duty-free and 71% of Vietnam products will enter the EU duty-free. The EU will remove most of the remaining duties it imposes on Vietnamese products within seven years and Vietnam will do the same within ten years.  As illustrated by the table below, in many cases, duties will be reduced significantly.

Product category Vietnam’s current tariff
Machinery and appliances Up to 35%
Chemicals Up to 25%
Textiles 12%
Chocolates 30%
Dairy products Up to 20%

The EU-Vietnam FTA also addresses trade in services – but the liberalisation is generally much more limited than for goods. In particular, like in the WTO, there is no opportunity for “free” trade in services without restrictions. This said, from the EU perspective, a key benefit of the agreement is that Vietnam has agreed to reduce restrictions on services trade for EU companies to a greater extent than it has done for any other trade partner. EU services benefitting from increased access include the following: computer services, financial services, telecommunications, social services, distribution services, courier services, logistic services, air and maritime transport, and environmental services. In accordance with other trade agreements, the EU has not significantly widened its services offering (in particular, because the EU market is relatively open). However, via the FTA, it commits to retain its current level of openness (therefore providing Vietnam a benefit as compared to WTO rules).

Other aspects of the FTA include the following:

  • Non-tariff barriers – Trade in goods is hindered not only by at the border measures, including customs duties, but also by differences in regulation. The FTA contains provisions to reduce behind the border barriers to trade in respect of technical regulations, sanitary and phytosanitary measures and others. For example, as a result of the agreement, Vietnam will accept on its market EU parts and equipment certified in the EU as complying with the UN Regulations.
  • Public procurement – The FTA provides EU companies with access to procurement markets in Vietnam, which is not available to them today. Rules to make procurement more transparent and enforceable by traders are also included.
  • Intellectual Property Rights – The FTA includes comprehensive provisions covering copyright, trademarks, industrial designs, patents and plant varieties. Among other things, the EU pharmaceutical sector will benefit from improved protection of intellectual property rights. Extension of patent protection, up to a limit of two years, will be possible where the effective patent life has been reduced due to unreasonable delays in the process of marketing approval.
  • Geographical IndicationsThe EU-Vietnam FTA extends protection to 169 European foods and drinks. Thus, for example, the rules require that the use of geographical indications such as Champagne, Prosciutto di Parma, Rioja wine and Irish whiskey be reserved for imports from the EU regions from which they originate.
  • Environmental protection and labour conditions – In line with other FTAs recently concluded by the EU, the EU-Vietnam FTA includes a chapter on trade and sustainable development – incorporating obligations related to environmental protection, labour policy and climate change. The agreement provides for the establishment of specialised committees on trade and sustainable development to facilitate and monitor the effective implementation thereof – and envisions a number of channels for the involvement of civil society. The terms of environmental and labour protections will not be enforceable through the generally applicable dispute settlement mechanisms established by the agreements. In lieu, the chapters establish the possibility for external review of issues by independent panels of experts (but who will not have the power to issue binding decisions).
  • State-owned enterprises: In line with recent trade agreements concluded by the EU, the FTA contains a chapter with rules on state-owned enterprises which, inter alia, require such enterprises to act in a non-discriminatory manner in accordance with commercial considerations. In the case of Vietnam, the provisions are especially significant since state-owned enterprises have traditionally been a central feature of the Vietnamese economy.
  • Dispute settlement – The FTA is largely underpinned by state-to-state dispute settlement, involving consultations, optional mediation and ultimately the possibility for binding adjudication by an arbitration panel. The mechanism is modelled on the WTO, but there is no possibility for an appeal. Further, unlike in the WTO, private parties will be able to make interested party submissions in proceedings.

2.) The EU-Vietnam IPA in more detail

The EU-Vietnam IPA establishes substantive protections for investors (e.g. on fair and equitable treatment, on non-discrimination, and on expropriation). It also enables investors of one of the state parties to bring proceedings against the government of the other state party in the event of an alleged infringement of these substantive standards (“investor-state dispute settlement“).

The IPA provides for investor-state dispute settlement claims to be resolved through an “Investment Tribunal System” composed of permanent first instance and appeal tribunals. These permanent tribunals (of nine and six members respectively) will be formed of nationals of Vietnam, EU Member States and third party states who fulfil certain expertise requirements and are subject to a code of conduct regarding their independence and impartiality. The members will be appointed publicly for a fixed term and will be paid a retainer and additional fees when hearing disputes under the treaty. The EU has recently agreed similar, although not identical, investor-state dispute settlement provisions with other countries – namely Canada, Singapore and Mexico. The EU’s approach is intended to address concerns around investor-state dispute settlement, including its transparency and the consistency of the case-law. As with these other treaties, the EU-Vietnam IPA confirms both parties’ commitment to the creation of multilateral dispute settlement mechanisms (such as those currently being discussed by UNCITRAL’s Working Group III) and acknowledges that the provisions of the IPA may be amended subsequently if such multilateral proposals progress.

The IPA contains many of the innovative measures introduced by the EU in other recent treaties, including commitments to transparency, the ability of the state parties’ Joint Committee to propose binding interpretations of the IPA to a tribunal hearing any dispute under it, and the ability of a tribunal to determine that a claim has no legal merit or is unfounded as a matter of law. We also see further development of the EU’s position on certain issues; for example, on Third Party funding and security for costs.

Notably, upon entry into force, the IPA will replace 21 bilateral investment treaties (“BITs“) currently applicable between EU Member States and Vietnam. The EU-Vietnam IPA contains reformed investment protection rules that are not present in existing BITs, including guarantees of best available treatment.

As noted, in order to fully enter into force, the EU-Vietnam IPA must be ratified not only by the EU but also by the Member States individually (and also Vietnam). There is a clause in the IPA that allows for provisional application of matters within EU exclusive competence. In practice, if provisionally applied, this would mean that key substantive investment protections would be applicable. However, there would be no mechanism of investor-state dispute settlement.  Nevertheless, the EU-Vietnam IPA does contain provisions on state-to-state dispute settlement which could apply on a provisional basis (assuming that Vietnam would agree to provisional application).

3.) Broader significance of the EU-Vietnam FTA and EU-Vietnam IPA

Beyond the direct impacts on trade and investment, the EU-Vietnam FTA and EU-Vietnam IPA are viewed as important because they further the EU’s broader objective to secure a trade relationship with countries which are a part of ASEAN, i.e. the Association of Southeast Asian Nations (which comprise Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Laos, Myanmar, Cambodia and Vietnam).  In 2007, the EU and ASEAN opened negotiations for a trade agreement but these ultimately broke down.  In lieu, the EU has focused on seeking trade agreements with individual ASEAN countries, in the hopes of eventually achieving an EU-ASEAN trade framework.  In 2018, the EU concluded an FTA and IPA with Singapore, its largest trading partner in the region.[1] The next significant step is likely the conclusion of trade agreement with Indonesia, while negotiations with Thailand, Malaysia and the Philippines are currently on hold.

4.) Impact of Brexit

The United Kingdom (“UK“) ceased to be an EU Member State at 23h00 London time on 31 January 2020. Until at least 31 December 2020, the UK must continue to apply EU law. This means that the UK will apply the EU-Vietnam FTA to the extent that it enters into force during the transition period (similarly, it would apply the EU-Vietnam IPA if it provisionally enters into force during the same period). The EU has similarly written to partner countries to the effect that they continue to apply international agreements to the UK during the transition period. In many instances, there may be no strict legal obligation for them to do so, but it is expected that many countries will in practice. By contrast, the UK will have no vote when the EU Council of Ministers decides whether to conclude the EU-Vietnam FTA and EU-Vietnam IPA (the latter for aspects within the EU competence). The implications for the UK-Vietnam Bilateral Investment Treaty are as yet unclear. Investors in Vietnam potentially affected by these changes may wish to seek specific legal advice.

For more information, please contact Andrew Cannon, Partner, Lode Van Den Hende, Partner, Eric White, Consultant, Jennifer Paterson, Senior Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Lode Van Den Hende
Lode Van Den Hende
Partner
+32 2 518 1831

Eric White
Eric White
Consultant
+32 2 518 1826

Jennifer Paterson
Jennifer Paterson
Senior Associate
+32 2 518 1834


[1]        The EU-Singapore FTA entered into force on 21 November 2019. The IPA will enter into force after it has been ratified by all EU Member States according to their own national procedures.

 

UK Department for International Trade outlines proposed approach to FTAs with priority countries and launches public consultation on new tariff policy

Following the UK’s departure as a Member State from the EU on 31 January 2020, the UK is now considering pursuing Free Trade Agreements (“FTAs”) with the EU and the rest of the world.

On 6 February, the Department for International Trade (“DIT”) outlined the UK Government’s proposed approach to the negotiation of FTAs with countries which it has identified as being priority partners. These at present include the USA, Japan, Australia and New Zealand. It is thought that these bilateral negotiations may pave the way for the UK eventually to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

The UK Government anticipates outlining the negotiating directives for the US-UK FTA in due course, but has indicated that some of the priority areas for the UK-USA FTA include goods market access, trade remedies, sanitary and phytosanitary standards, sustainability, trade in services, mutual recognition of professional qualifications, investment, SMEs, digital trade, intellectual property and government procurement.

In parallel, as part of the UK’s new trade policy, the DIT has also launched a public consultation aimed at assisting the development of a new UK Most Favoured Nation (“MFN”) tariff which is due to enter into force on 1 January 2021 and will replace the EU’s Common External Tariff which currently applies to imports into the UK. Under the MFN, it is anticipated that tariffs will apply to all goods imported into the UK, unless an exception applies.

For more information, please contact Andrew Cannon, Partner, Lode Van de Hende, Partner, Eric White, Consultant  or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Lode Van Den Hende
Lode Van Den Hende
Partner
+32 2 518 1831

Eric White
Eric White
Consultant
+32 2 518 1826

LANDMARK RULING ON THE WTO NATIONAL SECURITY EXCEPTION

In a landmark decision concerning Ukraine’s complaint against Russia’s transit restrictions, a WTO Panel has ruled for the first time on the nature of the GATT national security exception.

The Panel took the view that the invocation of the exception is justiciable and subject to scrutiny by the WTO Dispute Settlement Body (DSB). This is contrary to the position long held by the US (and invoked by Russia in the current dispute) that the exception is totally “self-judging”, i.e. that it can be unilaterally invoked by a Member without the possibility of further scrutiny. The Panel ultimately concluded that – in the circumstances – Russia’s invocation of the exception was justified.

The implications of the ruling will reverberate far beyond the Ukraine-Russia dispute at hand. A number of WTO Members, including the US and Saudi Arabia, have sought to rely on the self-judging nature of the security exception in their pending WTO disputes, a position they may now need to revisit. Further, the ruling could also play a role in any prospective WTO dispute against the recent activation of US sanctions for “trafficking” in Cuban property under Title III of the Helms-Burton Act.

Continue reading

CJEU upholds opinion of Advocate General and rules that UK can unilaterally cancel Brexit by revoking Article 50

In a landmark decision delivered on an accelerated timetable, the Court of Justice of the European Union (“CJEU“) has ruled that a Member State can unilaterally revoke its notice of intention to withdraw from the European Union (“EU“) under Article 50 of the Treaty on the European Union (“TEU“), upholding the opinion given by the Advocate General last week (see post).

The CJEU, in Wightman and Others v Secretary of State for Exiting the European Union, held that an Article 50 TEU notification can be unilaterally revoked if (1) the revocation is submitted in writing to the European Council (“Council“), (2) the revocation is clear and unequivocal, (3) no withdrawal agreement has entered into force, or if no such agreement has been concluded, the two year (or extended) period has not expired, and (4) the revocation is made in accordance with the Member State’s constitutional requirements.

Continue reading

State-to-State dispute settlement under the EU’s draft Withdrawal Agreement: CJEU jurisdiction not arbitration

We have known for some time now that the UK and EU have very different views regarding the state-to-state dispute resolution mechanism to be contained in the Withdrawal Agreement between the EU and the UK. The EU has never made any secret of its intention for the CJEU to adjudicate on disputes between the UK and the EU over the interpretation of, and compliance with, the Withdrawal Agreement. Yesterday the EU released a draft Withdrawal Agreement for the UK’s consideration which contains a state-to-state dispute resolution provision which is consistent with that approach. This post provides an initial reaction to this draft provision.

Continue reading

The European Court of Justice renders its opinion on the EU-Singapore free trade agreement: investment chapter is not within EU’s exclusive competence

On 16 May, 2017 the European Court of Justice (the Court) rendered its Opinion on the competence of the European Union to conclude the Free Trade Agreement (FTA) with Singapore. The Opinion recognises exclusive EU competence over most of the agreement and largely settles a long-standing dispute between the Commission and the Member States on the division of competences under the Lisbon Treaty.

Importantly, in the context of investor-state dispute resolution, the Court's Opinion is likely to render any agreement including protection for non-direct foreign investments or investor-state dispute settlement (ISDS) provisions a so-called "mixed agreement" which requires each of the Member States as well as the EU itself to become party, unless certain aspects commonly found in such agreements are removed or the Member States otherwise agree (discussed further below).  

The Opinion will have a major impact on the negotiation of future EU trade agreements, whether pending or anticipated (including the potential FTA between the UK and the EU following Brexit).

Continue reading