Spotlight on the UK-Vietnam BIT in the context of Brexit (August 2019)

13 August 2019

The EU has negotiated two new trade and investment protection agreements with Vietnam (the EU-Vietnam Free Trade Agreement and the EU-Vietnam Investment Protection Agreement (IPA) (details here)).  The agreements were signed in June 2019.  Neither is yet in force.  Like the EU-Singapore IPA (on which we separately reported here), the new EU-Vietnam IPA makes provision for the suspension or termination of certain existing bilateral investment treaties between EU Member States and Vietnam, as and when the IPA is provisionally applied or enters into force (respectively) (Article 4.20(4) and (5) of the EU-Vietnam IPA), including the UK-Vietnam BIT.  Unlike the EU-Singapore IPA, however, the EU-Vietnam IPA specifies expressly that the Parties “share the understanding that the ‘sunset clauses’ included in [those] agreements […] shall cease to have effect” or shall be suspended (footnotes to Article 4.20(4) and (5)).  The UK-Vietnam BIT contains a sunset clause giving investments made while the BIT is in force protection for twenty years after the date of termination (Article 14).

The EU-Vietnam IPA remains subject to the ratification procedures of both sides.  On the EU side, the EU-Vietnam IPA requires both the consent of the European Parliament and to be ratified by all EU Member States according to their own national procedures, before it can enter into force.  It seems unlikely that that will happen, and therefore it is unlikely that the EU-Vietnam IPA will enter into force, before the UK leaves the EU, given Prime Minister Boris Johnson’s strong commitment to leave by 31 October 2019.  However, if the EU-Vietnam IPA did enter into force while the UK remained an EU Member State, it would have the effect of terminating the UK-Vietnam BIT.  UK investors with investments in Vietnam (and vice versa) would, from that moment, be unlikely to be able to rely on the UK-Vietnam BIT or its sunset clause.  Instead, they would look to the EU-Vietnam IPA for treaty protection of their investments, provided that they qualify for such protection under the terms of the IPA.  If and when the UK subsequently leaves the EU, UK and Vietnamese investors would – as things stand – most likely be left with no investment treaty protection for their investments in the other contracting State.  (There is academic debate as to whether certain provisions of mixed bilateral treaties (of which the EU-Vietnam IPA is one) ratified by the UK would continue to apply to the UK after it leaves the EU.  The EU has stated that mixed bilateral agreements will cease to apply to the UK from the date of its departure.)

If, on the other hand, provisional application of the EU-Vietnam IPA commences while the UK remains an EU Member State, but the EU-Vietnam IPA has not yet entered into force, it is probably the case that the application of the UK-Vietnam BIT is only suspended until the moment of the UK’s departure from the EU.  Upon that date, the suspension of the UK-Vietnam BIT would cease and the UK-Vietnam BIT would once again have effect.  This succession of treaty regimes would raise complex issues in any dispute that may arise between UK or Vietnamese investors and the respective host State.  The EU-Vietnam IPA does at least provide a little more clarity in this respect than the EU-Singapore IPA, since it contains a number of provisions clarifying the interaction between the provisional application or entry into force of the EU-Vietnam IPA and the termination or suspension of the Member States’ BITs with Vietnam in relation to disputes between investors and Member States (Article 4.20(6)-(8)).

It is more difficult still to predict what effect the EU-Vietnam IPA would have on the UK-Vietnam BIT if it entered into force during any “transition or implementation period” (IP), as foreseen by Article 126 of the draft Withdrawal Agreement.  During the IP as currently envisaged, EU law would continue to be applicable to and in the UK (pursuant to Article 127(1)).  Relatedly, the UK would continue during this period to “be bound by the obligations stemming from the international agreements concluded […] by the Union and its Member States acting jointly” (Article 129(1)).  The EU has also agreed that it will notify the other parties to these agreements that, during the IP, the UK is to be treated as a Member State for the purposes of those agreements (footnote to Article 129(1)).  What effect this would have on the UK-Vietnam BIT may turn on Vietnam’s response (if any) to such a notification.  Should the EU-Vietnam IPA enter into force during any IP, Vietnamese and UK investors would be well-advised to seek legal advice as to how (if at all) their investments continue to be covered by an applicable investment treaty.

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