MECHANISM AND MEASURES TO PREVENT INTERNATIONAL INVESTMENT DISPUTES – INTERNATIONAL EXPERIENCE AND LESSONS FOR VIETNAM

Master's thesis "Settling investment disputes between the Vietnam Government and foreign investors" by Tran Phuong Thao carefully analyzed some disputes between foreign investors and t

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MASTER THESIS

MECHANISM AND MEASURES TO PREVENT INTERNATIONAL INVESTMENT DISPUTES – INTERNATIONAL EXPERIENCE

AND LESSONS FOR VIETNAM

Specialization: International Trade Policy and Law

DOAN VIET THANG

Hanoi – 2019

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MASTER THESIS

MECHANISM AND MEASURES TO PREVENT INTERNATIONAL INVESTMENT DISPUTES – INTERNATIONAL EXPERIENCE

AND LESSONS FOR VIETNAM

Specialization: International Trade Policy and Law

Code: 8310106

Full name: Doan Viet Thang Supervisor: Assoc Prof Dr Nguyen Minh Hang

Hanoi - 2019

I hereby assure that this master thesis is exclusively made by myself and that all data and results stated in this master thesis are honest

In addition, I hereby assure that all of the supports in the process of implementation cited in the master thesis have been specified its sources

The author

Doan Viet Thang

First of all, I would like to express my deep gratitude and great appreciation

to my supervisor Assoc Prof Dr Nguyen Minh Hang, for her exemplary guidance and valuable encouragement throughout the course of this thesis The support and guidance given by hers have been priceless

I also take this opportunity to express a deep sense of gratitude to all the professors and lecturers of master program of International Trade policy and law for their valuable supports and guidance, which helped me in growing in knowledge and experience through various stages

Furthermore, I would like to especially thank for the support, encouragement and assistance from my family, colleagues and friends during the time of this thesis

Hanoi, 28th Jun 2019

TABLE OF CONTENTS

TABLE OF CONTENTS i

LIST OF ABBREVIATIONS iv

LIST OF FIGURES vii

SUMMARY OF THESIS RESEARCH RESULTS viii

INTRODUCTION 1

CHAPTER 1: BASIC THEORETICAL ISSUES ON INVESTOR - STATE DISPUTE 7

1.1 An overview of international investment and Investor - State dispute 7

1.1.1 Conception of international investment 7

1.1.1.1 Conception of investment 7

1.1.1.2 Conception of international investment 9

1.1.2 An overview of international investment dispute 10

1.1.2.1 Conception of international investment dispute 10

1.1.2.2 Classification of international investment disputes 10

1.1.3 Investor - State dispute (ISD) 11

1.1.3.1 Conception of Investor - State dispute 11

1.1.3.2 Features of Investor - State dispute 14

1.2 An overview of mechanism and measures to prevent international investment disputes 16

1.2.1 Concept of investor-State dispute prevention 16

1.2.2 Investor-States dispute prevention mechanisms 17

1.2.3 Investor-States dispute prevention measures 20

CHAPTER 2: MECHANISM AND MEASURES FOR PREVENTING INVESTOR – STATE DISPUTES - INTERNATIONAL EXPERIENCE 22

2.1 The situation of Investor - State disputes settlement in the world 22

2.1.1 The situation of Investor - State disputes settlement by the diplomatic protection method 22

2.1.2 The situation of Investor-State disputes settlement by the Courts’ mode 23

2.1.3 The situation of Investor-State disputes settlement by the Arbitration

method 24

2.1.4 The situation of Investor - State disputes settlement by the other methods 26

2.2 Mechanism and prevention measures in settling international investment disputes in some countries 28

2.2.1 Mechanism and prevention measures in settling international investment disputes in Jordan 28

2.2.2 Mechanism and prevention measures in settling international investment disputes in Colombia 29

2.2.3 Mechanism and prevention measures in settling international investment disputes in Korea 33

2.2.4 Mechanism and prevention measures in settling international investment disputes in Peru 37

CHAPTER 3: LESSONS FOR VIETNAM IN PREVENTING INVESTOR – STATE DISPUTES 44

3.1 The basis for proposing measures to prevent Investor - State disputes 44

3.1.1 Current situations of foreign investment in Vietnam 44

3.1.2 Situation of Investor - State disputes and Investor-State dispute settlement in Vietnam 46

3.1.2.1 Situation of Investor - State disputes in Vietnam 46

3.1.2.2 Situation of ISD settlement in Vietnam 47

3.1.3 Situation of Vietnamese on prevent Investor - State dispute 59

3.2 Lessons learn for Vietnam to prevent Investor-State disputes and applied solutions 61

3.2.1 Lessons for Vietnam to prevent Investor-State disputes 61

3.2.1.1 Focus on the warning mechanism and dispute prevention 61

3.2.1.2 Establish a specialized agency to represent the State in the prevention and resolution of ISD 62

3.2.1.3 Complete methods of settling disputes with foreign investors in the

country 65

3.2.1.4 Pay attention to negotiating and signing IIAs 66

3.2.2 Investor-State dispute prevention mechanism and measures for Vietnam 67 3.2.2.1 Mechanisms and measures to prevent international investment disputes remotely 67

3.2.2.2 Select and appraise the capacity of foreign investors and determine and prioritize investment sectors in accordance with the law to prevent disputes 74

3.2.2.3 Monitor closely the implementation of investment projects of foreign investors 75

3.2.2.4 Mechanisms and measures that block disagreements and conflicts develop into disputes 75

3.2.2.5 Ensure authority to negotiate and settle - budgetary authority 80

3.2.2.6 Institutional response: ombuds and mediation services 81

3.2.2.7 State-State cooperation in dispute prevention 82

CONCLUSION 84

LIST OF REFERENCES 86

LIST OF ABBREVIATIONS

ANDI Algeria's Agence National de Development des Investments

ASEAN Association of Southeast Asian Nations

DRCAFTA Dominican Republic Central America Free Trade Agreement

ICDR International Center for Dispute Resolution

ICSID International Centre for Settlement of Investment Dispute

ISD Investor-State Dispute

NHK-ITEC NHK Integrated Technology Inc

TPP Trans-Pacific Strategic Economic Partnership Agreement

US United State

VIAC Vietnam International Arbitration Center

VUS.BTA Vietnam-United State Bilateral Trade Agreement WIPO World Intellectual Property Organization

LIST OF FIGURES

Figure 2.1 - Getting prepared: the institutional system of Colombia 32 Figure 2.2 - The Republic of Korea Office of the Foreign Investment Ombudsman 36 Figure 2.3 - Alert system of Peru 42

SUMMARY OF THESIS RESEARCH RESULTS

In the trend of international integration, up to now, Vietnam has signed nearly

70 investment treaties Most bilateral investment treaties stipulate issues related to the settlement of Investor-State dispute (ISD) Most investment treaty regulates that ISDs can be settled according to the procedures of the International Centre for Settlement of Investment Disputes (ICSID), under the ICSID Additional Facility or any other arbitration organization However, the ISD settlement at arbitration is not only costly, but these arising ISDs will reduce the confidence of foreign investors in Vietnam's investment environment Therefore, the purpose of the thesis is providing measures to prevent possible ISDs After the research process, the thesis should give the following results:

Firstly, give the concept of "Investor-State dispute"

Secondly, on the basis of studying the status of ISD settlement in some

countries, synthesizing mechanisms and preventive measures of ISD in those countries

Thirdly, assess the current status of legal provisions on investment dispute

settlement between foreign investors and the Vietnamese Government

Fourthly, analyze some cases between foreign investors and the Vietnamese

government, thereby drawing lessons for Vietnam in the prevention and settlement

of ISD

Fifthly, propose measures to prevent disputes between foreign investors and

the Vietnamese government

INTRODUCTION

1 Rationale of the study

The implementation of opening policy, attraction of foreign investment (FI) in Vietnam makes economic relationship in general and foreign investment relationship in particular in Vietnam become more and more diversified and complicated In that context, it is difficult to avoid investment disputes The disputes can be a foreign investor-domestic investor dispute or a foreign investor to foreign investor dispute or foreign investor- Vietnamese Government dispute

In recent years, foreign investor-Vietnamese Government disputes in investment activities are increasing Practice of international investment dispute settlement shows that arbitration is a dispute settlement method that investor and State usually take precedence to choose; and practice also shows that Vietnam has not had experience in the dispute settlement at arbitration yet Unfruitful dispute settlement will harm Vietnam’s attraction for foreign investment and reduce Vietnam’s completion in drawing foreign investment Therefore, besides good settlement of international investment dispute, it is important to prevent international investment disputes It is the reason the author selects the theme:

“Mechanism and measures to prevent international investment disputes –

International experience and lessons for Vietnam” as my graduation thesis

2 Research situation

2.1 Situation of research topics oversea

In overseas, there have been many studies mentioning the theoretical issues about ISD and ISD resolution Some projects can be listed as follows:

- Dr David A Gantz: “Settling international investment disputes through

arbitration” (2004) – The aim of this study is to take stock of and to analyse the

Investor-State Arbitration under ICSID, the ICSID Additional Facility and the UNCTAD Arbitral Rules

- Research "Investor-State Dispute Settlement Public Consultation: 16 th May –

23 rd July 2012" (2012) which gathers reports of experts at the 16th round table of

the Organization for Economic Cooperation and Development (OECD)

- Research "Investor - State Dispute Settlement and Impact on Investment

Rulemaking" (2008) study of the United Nations Conference on Trade and

Development (UNCTAD) The aim of this study is to take stock of and to analyse the major developments in the interpretation of procedural and substantive international investment agreement (IIA) provisions as contained in bilateral investment treaties and economic integration agreements with investment provisions It addresses the implications of those developments for countries, emphasizing the particular needs of developing countries It presents some conclusions and reflections on possible next steps that countries could take to implement the lessons learned from the investor-State dispute settlement experience

- Research “Dispute settlement provisions in international investment

agreements: A large sample survey” by Joachim Pohl, Kekeletso Mashigo and

Alexis Nohen (2012) This document surveys Investor-State Dispute Settlement (ISDS) provisions in a sample of 1,660 bilateral investment treaties (BITs) and other bilateral agreements with investment chapters (mainly Free Trade Agreements, FTAs) The treaties in the sample were concluded by the 54 countries that participate in the “Freedom of Investment” (FOI) Roundtables with any other country The survey presents a statistical portrait of ISDS provisions of this treaty sample that is both comprehensive and detailed The intention is to provide a factual and statistical catalogue of treaty content and not to in any way engage the OECD

or countries participating in the FOI process regarding interpretation of treaty language in an arbitral setting, regardless of whether these treaties are in force or not In some cases, the bilateral treaties are also compared with selected multilateral agreements with investment chapters (e.g NAFTA, Energy Charter Treaty)

- Research “Reform of Investor-State Dispute Settlement: In search of a

roadmap” (2013) This note outlines five main reform paths: Promoting alternative

dispute resolution; Tailoring the existing system through individual IIAs; Limiting investor access to ISDS; Introducing an appeals facility; Creating a standing

international investment court And “Global Value Chains: Investment and Trade

for Development” by UNCTAD – The world investment report by UNCTAD

In general, these works investigate theoretical and practical issues of ISD resolution based on international investment agreements (IIA), bilateral investment agreements (BIT) and on the basis of ISD solving experience But each study only touches on certain issues, but there is no comprehensive study on preventing ISD These studies study the resolution of ISD by developed and developing countries, but there is no separate study for Vietnam

Regarding ISD mechanisms and precautions, there are a number of studies abroad mentioned, such as :

- Research “Investor-State Disputes: Prevention and Alternatives to

Arbitration I” by UNCTAD (2010) This is reports summarizing the opinions of

experts in this field around the world from both direct and online The arbitration experts of the Center for Effective Dispute Resolution (CEDR) are active and offer many analysis and recommendations to promote the use of alternative methods in international investment disputes

- Publications “Stocktaking of Investment Dispute Management and

Prevention in the Southern Mediterranean Region” by OECD (2018) It provides an

overview of the region's recent ISDS trends, an analysis of each country’s regulations and international agreements, as well as the current mechanisms set up for the management of investment disputes It also presents selected case studies and good practices in investor-State dispute prevention

These studies focus on analyzing the practice of dispute resolution of some countries, from which draw lessons, synthesize mechanisms and preventive measures in those countries, but there is no content which is related to Vietnam

2.2 Situation of research topics in Vietnam

In Vietnam, there have been a number of studies on ISD settlement but few and only focus on theoretical and practical issues to resolve disputes between foreign investors and the Vietnamese government, including:

- Assoc Prof Dr Hoang Phuoc Hiep "Theory and practice on the position,

role and participation of government agencies in handling government-related international trade and investment disputes", research works (2012) It provides an

overview of the role of government agencies in solving investment disputes base on theory and practice in Vietnam Thereby it makes suggestions to improve the legal regulations on the role and operation of state agencies in settling investment disputes

- Phan Hong Nguyen "Law on settlement of disputes in the field of foreign

direct investment by arbitration in Vietnam" master thesis – Hanoi Law University

(2012) The dissertation provides an overview of the legal provisions on settlement

of investment disputes in the field of direct investment from abroad into Vietnam; the current situation of application and to finalize the relevant legal system to ensure the quick and convenient settlement of investment disputes

- Tran Phuong Thao "Settling investment disputes between the Government of

Vietnam and foreign investors", Master thesis – Diplomatic Academy of Vietnam

(2015) The thesis provides an overview of the Law and the actual status of investment disputes between foreign investors and the Vietnamese government; propose to improve the legal regulations on resolving disputes between foreign

investors and the Vietnamese government

An overview of the research works on theoretical and practical issues of investment dispute resolution between foreign investors and the Government of Vietnam, found that in the country there has been research on this issue, although, the number of research works is still limited Although there has not been any study

to introduce the concept of "investment disputes between foreign investors and the Government of investment host- countries", there have been studies to introduce the

concept of "disputes in foreign direct investment" The research in this group mainly refers to the Department of Justice's focal position in international dispute resolution, the research on dispute settlement mechanism and the methods of dispute settlement are only complementary for the main content of the study Therefore, there has not been comprehensive research on the theory and practice of resolving investment disputes between foreign investors and the Government of

Vietnam Master's thesis "Settling investment disputes between the Vietnam

Government and foreign investors" by Tran Phuong Thao carefully analyzed some

disputes between foreign investors and the states of Vietnam, withdrew the lessons learned in dispute resolution However, the introduction of ISD precautions is not mentioned in this study

Thus, the above works and articles only stop at dealing with small issues or content related to investment disputes, there is not a complete and comprehensive study of investment disputes between foreign investors and the Government of Vietnam and there has not been any research to introduce or systematize mechanisms and measures to prevent investment disputes between foreign investors and the Government of Vietnam Therefore, the thesis will focus on solving theoretical issues about ISD, based on research, referring to mechanisms and preventive measures of ISD of countries, derived from practical experience in ISDS

of Vietnam to draw up mechanisms and measures to prevent investment disputes between foreign investors and the Government of Vietnam

3 Objectives of the study

International investment dispute can be foreign investor - domestic investor dispute; foreign investor-to-foreign investor dispute; foreign investor - State dispute However, in the scope of the study, author only concentrates in investment dispute between the investor and the host country Therefore, the objectives is finding the mechanism and measures to prevent the dispute between foreign investor and Vietnam state after researching the experiences from other countries

4 Scope of the study

The thesis research ISD and prevention of investment dispute between the foreign investor and the Vietnamese Government on the basis of international experience and practice, theory and practice of ISD settlement in Vietnam

On international experience, based on the source of the material, the thesis focuses on the experiences of Jordan, Peru, Columbia, and Korea

5 Methodology of the study

The study uses the methodology of dialectical materialism and historical materialism The specific research methods of the study included analysis, synthesis, going from general to specific and other scientific methods such as comparison, statistics, case studies etc to solve the problems that the topic has set The study focuses on assessing the advantages, limitations and obstacles of the current legal provisions, identifying issues that have not been stipulated by law or have been legal provisions or needed to be amended and supplemented accordingly and better meet the requirements of practice preventing investment disputes between foreign investors and the Vietnamese government

6 Structure of the study

Excepting for the foreword, conclusion, and recommendations, reference, the research includes 3 chapters:

Chapter 1: Basic theoretical issues on Investor - State dispute

Chapter 2: Mechanism and measures in preventing Investor - State

dispute - International experience Chapter 3: Lessons for Vietnam in preventing Investor - State disputes

CHAPTER 1:

BASIC THEORETICAL ISSUES ON INVESTOR - STATE DISPUTE

1.1 An overview of international investment and Investor - State dispute

1.1.1 Conception of international investment

Popular conception of “Investment” is mentioned on BIT conventions signed

or participated by Vietnam with other countries According to Chapter 4, Article 1, Item 1 Vietnam-United States -Bilateral Trade Agreement (VUS.BTA):

"Investment" means every kind of investment in the territory of a Party owned

or controlled directly or indirectly by nationals or companies of the other Party ” According to Article 4, item c ASEAN Comprehensive Investment Agreement (ACIA):

“Investment” means every kind of assets owned or controlled an investor including but not limited to:

(i) Movable property and real estate, property rights such as pledgement, mortgage or guarantee;

(ii) Stock, shares, bond, debentures, and every form of participating in a legal entity and rights and benefit received from it

(iii) Intellectual property empowered according to law and regulations of each member state;

(iv) Right of demanding money or for every contract implementation related

to business and having financial value;

(v) Contractual rights, such as under turnkey, construction, management, manufacture contract or allocation of tariff contract; and

(vi) Franchising is required in order to carry out economic activities and having financial value empowered according to law or contract including any franchising for research, cultivation, extract or exploitation of natural resources; Term of “investment” also includes amounts of money be brought by investment, in details: profit, interest rate, profit from capital, dividend, royalties, and emoluments Any change of form under that invested and reinvested assets does not affect their classification as an investment

Although Conceptions of investment mentioned above are different, there are general features as follows:

The first, the purpose of investment is profit For enterprise, benefits tended by

them are recovery rate, profit, development of position of the enterprise For the State, investment activities tend to make social economic benefits such as employment, supply of public products and services, protection of resources and environment and firm development

The second, the investment are only implemented when the investor or

procuring agency brings his capital in investment process The client can be

organizations, individuals and the state Investment capital can exist under many

forms such as tangible assets, intangible assets

The third, the investment has hidden risks Now investment activities surpass

territory of a state so the degree of risk of these activities is getting higher Restricting risk as well managing risk are issues interested in and studied by investors, imported government or exported government

Therefore, investment can be understood as sacrifice something in the present,

through that the investor put money, assets under forms, methods according to law

in order to carry out activities for profit

1.1.1.2 Conception of international investment

Basing on different criteria, investment is classified as parts Basing on managing right of investment activities, there are two kinds of investment: direct investment and indirect investment Basing on an economic zone of receiving capital, investment can be split into two main groups: investment in private zone and investment in government zone Basing on investment field, it is possible to split investment into many kinds such as investment in manufacture, investment in trade or services etc Basing on capital resource, investment is split into domestic investment and foreign investment (international investment)

As per the classification mentioned above, Foreign Investment (International Investment) is a form of investment activities

From the point of view of a state, with the investment from a state to another state or vice versa, we have the term "foreign investment" However, considering general aspects of the world's economy, all the operation is called international investment

Considering its nature, investment is capital export because the capital is moved across the frontier In other words, investment activities will bring international factors if the activities are carried out on the other state's territory by the investors, perhaps natural person or legal entity having citizenship of the other states Therefore, while having features of the international investment in general, it has specific features to be different from domestic investment: It is the movement of capital cross the state's frontier Therefore, it is possible to understand as follows: International

investment is the process that the investor moves capital or any value kinds from a

state to another state to carry out investment activities for profit or social economic benefits

1.1.2 An overview of international investment dispute

1.1.2.1 Conception of international investment dispute

"Dispute" is a legal conception that is understood and defined in different ways "Dispute" is used to mention "existing situation between two (or more) individuals created by signals of complaints or in opposition "

According to Black's Law Dictionary, "dispute is contradiction, divergence;

contradiction of requirements or rights; demand of right, requirement or demand from a party to be responded by an opposite requirement or argument of the other party" (1999, p.17)

According to Vietnamese Dictionary, dispute is understood that

"contradiction; doing or carrying out some opposite issues …; to cram the thing

that it is ambiguous to define which party it belongs to” (2000)

In order to define to exist of dispute in Mavrommatis case, on its decision in

1924, Permanent Court of International Justice gave a definition of dispute:

“dispute” is a disagreement on the legal or reality, a conflict of legal opinion or benefit conflict between two or more people (David A Gantz 2004, p.10)

From the above definition, it is possible to understand that dispute is the

disagreement, conflict on the basis of law or reality on benefit or obligation between subjects

Therefore, international investment dispute is understood as disagreement,

conflict on economic benefit between subjects participating in international investment in the implementation of rights and obligations occurred from international investment activities

1.1.2.2 Classification of international investment disputes

Basing on subjects taking part in dispute, International investment dispute can

be divided into dispute between investors, dispute between two states; dispute between a foreign investor and state receiving investment

The first kind: dispute between investors usually occur under two forms:

dispute between a foreign investor or foreign owned business and capital-importing country; dispute between investors

The second kind: dispute between two states This is dispute between two

states on international investment relating to violation, conflicts, disagreement on articles of bilateral agreements or multilateral agreement on trade or investment The disputes occur when the economic benefit of a state is violated due to non-compliance with signed agreements of a state or more and its consequence is that the retaliation on benefit or political tensions of a part to be violated

The third kind: dispute between a foreign investor and capital-importing

country This dispute occurs in process of implementation of foreign investment projects, treaties on encouragement and protection of bilateral or multilateral investment The dispute mainly relates to the implementation of contracts such as BOT, BTO and BT

1.1.3 Investor - State dispute (ISD)

1.1.3.1 Conception of Investor - State dispute

On Regulation on Coordination on investment dispute settlement attached to Decision No 04/2014/QD-TTg dated January 14th 2014 of the Prime Minister conception of international investment dispute is mentioned in Article 2.1 as follows:

International Investment Dispute as per the Regulation is the dispute occurring from that a foreign investment sues Government, State of Vietnam (hereinafter called the Government of Vietnam) or state organizations or organizations authorized by the State to implement state management (hereinafter called state organizations) on the basis of:

a) Agreement on encouragement and protection of investment or Trade Agreement or other international treaty with regulation on encouragement and protection of investment, of that Vietnam is a member, stipulates dispute settlement

between a foreign investor and the Government of Vietnam at international arbitration or proper foreign jurisdictional agency; or

b) Contract, agreement between the Government of Vietnam or state organization of Vietnam and foreign investor, stipulates that organization of settlement of dispute occurring from the contract or the agreement is international arbitration or proper foreign jurisdictional agency;

Therefore, we generalize that: Investor - State dispute is the disagreement,

conflict on benefit or obligation between the foreign investor and the host state in the investment relationship on the basis of international treaties signed or participated by the host government, of which there are regulation on settlement of dispute between a foreign investor and the host State and/or on the basis of contract, agreement between the host State and the foreign investor

In order to see conception of ISD, it is necessary to see two conceptions: foreign investor and the host state

Host state or importing country or the Government of importing country is a term not defined on investment agreements However, from the point of view of “foreign investor”, the Government of capital-importing country is a state that allows foreign investor to carry out investment activities on the state’s territory On IIA the Government of the capital-importing country is understood as a party signing IIA that is legal basis for relationship with the investor of other parties signing IIA Therefore, the Government of the Capital-importing country is the Government of the State that allows foreign investor to carry out investment activities on the state’s territory and it is also the government

Capital-of a party signing IIA in the relationship with the investor Capital-of other parties signing IIA

Foreign investors include natural person (Individuals) and legal entity (enterprise, economic organizations) carry out investment activities According to IIA, a sign determining foreign investors is citizenship of the investor The citizen

of the investor will affect a protection scope of IIA because agreements are signed

in order to achieve purpose of protection of foreign investor The citizen of natural person investor on IIA is determined according to law of parties to IIA For example, BIT between Vietnam and Argentina stipulates that "investor" being every natural person is a citizen of a Party to the Agreement in accordance with law of the party (Point a, Item 2 Article 1) Besides citizenship factor, some IIA add residence factor: It is time of residence or residence (Point c, Item 1 Article 1 Australia - Vietnam BIT) For legal entity, BIT is able to stipulate simply protection for legal entity established according to Parties to the Agreement IIA can add factor that legal entity has to have head office (Point ii, Item a, Article 1 India - Germany BIT 1998) and/or to do business in the state signing the Agreement

However, there are some difficulties in determining citizenship of investor on IIA, for example:

Almost BIT does not mention conception of two citizenship and many investment lawsuits related to two-citizenship issue For natural person investor, the implementation of BIT usually comes up against difficulties in case of that the investor has two citizenships: citizenship of capital-importing country and citizenship of capital-exporting country According to international law, custom, a state that is not the capital-importing country, the investor is its citizenship, the state will carry out measures in order to protect its citizen when he/she sues the host state (UNCTAD 2011, p.14) Some BIT mentions this issue and solution of determination of citizenship of natural person: citizenship of natural person is

"effective", "controlled and effective" citizenship (Article 1, BIT Model Agreement

of United States 2004), therefore natural person is determined having citizenship of

a state with the natures mentioned above

For legal entity investor, difficulties in determining citizenship occur from that the investor takes advantage of its citizenship in order to be protected by IIA Especially, an investor of the third party could take advantage of legal entity citizenship by establishing a legal entity in the territory of one of the Parties to the agreement so that it is protected when it invests in the other Party Similarly, an

investor of a party signing agreement can establish legal entity in the territory of the other party in order to be protected when it invests in the state of which it is the citizen The above cases are examples for "treaty shopping" phenomenon which is popular and brings about bad effects to the protection purpose of IIA

Therefore, "Foreign investor" is a term that it is necessary to consider in details in accordance with specific investment treaties especially in case that the foreign investor has two citizenship of concerned states

1.1.3.2 Features of Investor - State dispute

ISD has some specific features as follows:

The first, In reference to subjects: Depute arises between two subjects that

have different legal status: a foreign investor and host country (authorities in issuing license, managing investment project or organizations entrusted by the State to be a procuring agency in investment contract with foreign investor

The legal status of foreign investor in the investment relationship is decided by the investor's citizenship Unlike investor, the legal status of the host Government taking part in the relationship is decided by diplomatic custom It means that the host Government plays a role as a special subject in international private relationship The host government has special legal status giving expression to judicial immunity and immunity for state’s assets, except that the Government declares clearly to give up the immunity Thanks to the immunity, when participating in international investment relationship, the host government is in a better position than the foreign investor because it is not adjudged or imperative when it violates the investment agreement This causes an inequality for the foreign investor in the investment relationship with the host government However along with the development of international trade between states, many states applied a relative immunity for the state so that the immunity is applied for non-trade transaction It is represented by the acceptance of states for that the investor has dispute with the host government settled under international mechanisms (such as PCA or ICSID Arbitration) and recognizes the investor's complaint right for

unsuitable regulation or policy of the host government (it is represented with that many states signed ICSID convention According to that the investor has right to sue directly the host government) However, the right is not recognized by all states, therefore the absolute judicial immunity in trade transactions still exists and blocks the international investment relationship

The second, In reference to dispute: Normally, dispute is an issue arising from

or relating to relationship between the investor and the state However, the scope of dispute objects in details is stipulated on Convention/Agreement on related investment and/or investment or domestic law in case of that there is not any convention/agreement For example, Article 1.10 Chapter IV VUS.BTA allows using 3 kinds of dispute settlement: investment acceptance, investment agreement, others investment rights The dispute object has specific characteristics, typically as follows:

- Although relating to State, the dispute has small scope and small effect, mainly in the related case with the related investor and does not affect largely and directly to large group of enterprises or business environment in general

- Due to the dispute relating to individual investor, circumstance in the dispute has a given confidential factor and so that in some cases (for example, settlement by arbitration) a decision of settlement is not able to be public

The third, In reference to dispute settlement mode, ISD is able solved through

judicial mode or unjudicial mode Popular judicial mode is to sue at court or arbitration Moreover, it is possible to settle dispute through negotiation, mediation but these modes are not popular The dispute settlement mode is able to be stipulated on IIA or contract (if any) between the investor and the state organizations of the host State However, in some cases (effective) dispute settlement article on IIA is different from that on the contract In that case, dispute settlement mode is chosen depending on parties' claim is put out basing on IIA or contract If the claim bases on IIA, dispute settlement article will be applied and if the claim bases on the contract, the dispute settlement article will be applied

1.2 An overview of mechanism and measures to prevent international

investment disputes

1.2.1 Concept of investor-State dispute prevention

Prevention is an action to eliminate the cause of potential nonconformities or other potentially unwanted situations

Prevention of ISD is the action of “minimizing potential areas of dispute

through extensive planning in order to reduce the number of conflicts that escalate

or crystallize into formal disputes.” (UNCTAD, 2010:xiv) According to this

understanding, dispute prevention is conceptualized as the act of reducing the number of conflicts that escalate into formal disputes This idea stems from a crucial conceptual distinction widely acknowledged by conflict theorists and Dispute System Design (DSD) practitioners, i.e the differentiation between the

notion of “conflict” in the one hand, and “dispute” in the other

As understanding of investment disputes mentioned in Section 1.1.2.1, preventing investment disputes is an activity to eliminate the causes of disagreements and conflicts of economic interests between the participants in the international private; when conflicts arise, conflicts of interest need to take actions

so that conflicts do not develop into disputes

From the above definitions and analyzes, preventing investment disputes is understood as an action to eliminate, minimize, and eliminate the causes and risks

of hidden risks to reduce conflicts and benefit between investors and local government proactively according to the plan and predetermined plans

According to the above definition, investment dispute prevention has the following characteristics:

- Is an activity that minimizes the number of conflicts that may arise into dispute

- Being proactive in planning and anticipated plans

1.2.2 Investor-States dispute prevention mechanisms

The concept of "mechanism" which is the concept used in technical sciences

and physical, is introduced into legal science with a basic understanding as its origin with appropriate adjustments (Nguyen Nhu Y (2001), Vietnamese dictionary, Culture and Information Publishing House) The term "Mechanism" is the transliteration of the word Mécanisme of the West The Le Petit Larousse dictionary

(1999) defines "Mécanisme" as "the way in which a set of factors depends on each

other" The Vietnamese Dictionary (Institute of Linguistics, H.1997) defines the

mechanism as "how to follow a process of implementation"

Dispute prevention mechanism is one of the ways, measures or modes of operation of different legal entities in a certain order and discipline to prevent disagreements between those subjects Dispute prevention mechanisms can be developed and formulated on the basis of domestic laws or on the basis of agreement between the relevant entities

Therefore, the mechanism to prevent investment disputes can be understood as

the way, measures or modes of operation of foreign investors and the Government of investment receiving countries in a certain order and discipline, to prevent investment disputes between those entities

Characteristics of ISD prevention mechanisms

Firstly, on the subject in the dispute prevention mechanism: In the mechanism

of preventing investment disputes, the parties to the dispute include foreign investors and the State and related agencies

Secondly, about the content of the mechanism: Mechanism to prevent

investment disputes includes measures, methods and procedures for preventing investment disputes

Thirdly, about the purpose of the mechanism: The investment dispute

prevention mechanism aimed at preventing investment disputes may arise and

resolve investment disputes that have arisen so that disputes that arise do not have

to be resolved through the judicial

Classification ISD prevention mechanisms:

Firstly, classification by mechanism source: ISD prevention mechanisms by

contract and ISD prevention mechanisms by institutional

- Investor-State dispute prevention mechanism by contract: foreign

investors and local governments will negotiate contractual agreements in addition to terms of rights and obligations in investment relations, contracts will have Conflict management provisions may occur in the future with the aim of not giving rise to litigation disputes This is a popular form of investment contracts

ISD prevention mechanism's contracts may include mechanisms that allow parties to consult directly to manage any conflicts that may arise during the performance of the contract or require a problem-solving technique specifically to allow a third party to support conflict management parties such as a dispute settlement, mediation, fact-finding or neutral evaluation panel that the parties may agree on, before Any specific conflicts arise

In theory, at least, ISD prevention mechanism's contracts have the advantage

of allowing parties involved in potential conflicts to adjust mechanisms according to their specific needs However, the main limitation of this type of ISD prevention mechanism is that, as mentioned before, they may only apply in situations where the relationship between investors and the State is adjusted by a contract

-Investor-State dispute prevention mechanism by institution: Institutional

ISD prevention mechanisms can be defined as investor-State conflict management mechanisms institutionalized within the structure of the public administration of the host government Contrary to contractual ISD prevention mechanisms, institutional ISD prevention mechanisms would in principle apply horizontally to all investments, regardless of whether or not they are governed by an investment contract

Experimental data shows that about half of the cases brought to state-investor arbitration under IIA do not arise from measures adopted at the central or national level of the Government which are the extent to which IIAs are negotiated Instead,

a significant number of disputes between investors and the state tend to arise regarding measures adopted by city or provincial governments or by state agencies

in charge of specific sectors of the economy (Franck, 2008) Therefore, ISD prevention mechanism organizations may be particularly useful to address investment-related conflicts stemming from the application of inconsistent policies and measures of different governments - especially the inconsistency may entail the host country's liability under IIA

In most countries, the proper development of dispute prevention organizations will likely require the implementation of a comprehensive program aimed at regulating and modernizing parts of public administration infrastructure to allow investment stakeholders to early manage conflicts between investors and the state The most common model of dispute prevention organizations includes the following elements:

1) Investment stocktaking process should comprise at least three key components: a regulatory audit, an empirical analysis of investment stock and flows into the country, and third, a record of the investor-State conflict history of the country

2) Lead agency with the authority in charge of coordinating activities with relevant government agencies

3) Information sharing process: allowing the lead agency to disseminate information to agencies involved in conflict The lead agency is the head of information for other agencies on issues of implementation of IIAs

4) Early alert mechanism: allowing the Lead Agency to learn about the existence of an investment-related conflict as soon as possible This is an important factor in preventing conflict to develop into a dispute

5) Problem solving methods for the parties: once the problem-solving process has enabled the parties to find a solution to the conflict It is paramount that such solution receives the approval of the adequate political instance of host State and the investor

Secondly, According to the criteria of the time of dispute arising, there is a mechanism of remote dispute prevention (early prevention), there is a mechanism to prevent disputes when there are problems or conflicts arise With problems or conflicts arise, prevention mechanisms are in place to prevent conflicts to arising into disputes

1.2.3 Investor-States dispute prevention measures

According to the Vietnamese word "Measures are ways to handle work or solve problems"

Measures to prevent international investment disputes are ways to implement actions to prevent international investment disputes Preventive measures are implemented according to mechanisms and policies on early activities from abroad

Classification ISD prevention measures:

Research measures of international investment can be classified into the following measures:

- According to the impact of preventing international investment disputes: Economic measures, educational measures, measures of organization and legal measures

- According to the scope of activities:

+ Measures to prevent international investment disputes in the whole country: Economics, politics and education

+ Special precautions: For each object of international investment disputes specific to the economic sector

- According process:

+ Remote preventive measures: through IIA negotiations, implementing the provisions of IIA for agencies from central to local levels and foreign investors + Preventive measures when there are arising problems: quickly receiving and processing problems of foreign investors

CHAPTER 2:

MECHANISM AND MEASURES FOR PREVENTING INVESTOR – STATE DISPUTES - INTERNATIONAL EXPERIENCE

2.1 The situation of Investor - State disputes settlement in the world

2.1.1 The situation of Investor - State disputes settlement by the diplomatic

protection method

In the development of ISD solutions, today's diplomatic protection is less pronounced in protecting the interests of other state-owned investors and is less and less used Limiting the use of this method is reflected in bilateral and multilateral investment agreements Clause 1 of Article 27 of the ICSID Convention provides:

"No Contracting State may offer international diplomatic or legal action, involving

a dispute which its nationals and other Contracting States has agreed or must provide arbitration under this Convention, unless the Contracting State fails to comply with the award" On the bilateral level, BITs have similar rules For

example, Item 3 Article 12 BIT between Vietnam - Australia (1991), Article IX.16 BIT Vietnam - Chile (1999)

One of the outstanding advantages of the ISD resolution mechanism is the avoidance of political confrontation between countries When investors face difficulties in claiming compensation from the state according to international arbitral awards, they may invoke their government's actions In the Patuha Power Ltd case with the Republic of Indonesia (ruling UNCITRAL October 16, 1999), the Indonesian government did not make compensation to judgment investors Later, Pahuta received part of the compensation from political risk insurance issued by a US governmental agency, the Overseas Private Company (Overseas Private Investment Corporation - OPIC) The OPIC later claimed a refund from the Indonesian Government through diplomatic moves and pressure from the United States

As mentioned above, diplomatic protection is still allowed and plays an important role in some cases where the State receiving investment in disputes with foreign investors who do not enforce an arbitration award In addition, in the

process of adjudicating disputes with foreign investors, the government is prosecuted based on its power, which can act to cause difficulties and threaten investors Therefore, diplomatic protection still plays a certain role in protecting legitimate rights and interests of investors Governments, especially developing countries, should strictly adhere to their obligations to foreign investors in IIAs, especially in compliance with international arbitration awards to avoid political confrontation and adversely affect relations between countries

2.1.2 The situation of Investor-State disputes settlement by the Courts’ mode

Addressing ISD by way of the court is supported by the Calvo doctrine The theory holds that the jurisdiction to settle ISD belongs to the country in which the investment takes place and the investor must use the receiving country court Some former Latin American countries supported this view and stated that ISD can only

be resolved by domestic litigation This view is also expressed in a number of regional agreements that prevent members from allowing foreign investors to be treated more favorably than domestic investors, and to prioritize the settlement of disputes by receiving national courts invest This content is stipulated in Articles 50 and 51 (amended in 1991) of Decision No 24 of the Agreement Council of Cartagena (between Bolivia, Colombia, Ecuador and Peru) The United Nations Charter on Economic Rights and States' Obligations December 12, 1974 emphasizes that states have the right to "regulate and enforce their jurisdiction over foreign investment within the territory according to the laws of that country and in line with its national goals and priorities, it is found here that the Charter does not prohibit the use of internationalization measures, but not giving their support these measures (UNCTAD, 2003, p.27-28, p.12)

The trend of developing countries and transforming economic are to shift to the above-mentioned investment-related dispute with international dispute settlement mechanisms The foreign investors are very supportive of this transition and think that ISD should be addressed by dispute settlement mechanisms governed

by international procedures and standards, typically by international arbitration

(UNCTAD 2003, p.13) That is why developing countries have signed investment agreements with something that could resolve the dispute as a tool to attract foreign investment

However, according to William S Dodge (2006, p 30), resolving disputes through national courts can be used with large-scale disputes, and disputes with lower-level authorities and regulators For example, under NAFTA, the important body of Loewen said that it would not make sense for a country to face legal obligations in violating international law that caused by low-level judicial officers when the appellate has not been conducted in a national court

Currently, the priority of resolving ISD by domestic courts is showing signals

of returning, mainly due to concerns about the resolution of ISD by arbitration that may affect the right to issue national public policies For example, the FTA between the US and Australia in 2004, Australia negotiated not include the terms of ISD settlement and this is the only US bilateral FTA without this provision Australia advocates negotiating similar rules in other trade agreements, so disputes in this area will be resolved by domestic courts On the other hand, the Australian government also recommends that foreign investors should consider and evaluate carefully before deciding to invest in a country that they are not protected by international dispute settlement mechanisms (Emerson C 2011, p.14)

2.1.3 The situation of Investor-State disputes settlement by the Arbitration

2009 Comprehensive Investment Agreement (Part B), North American Free Trade Agreement 1994- NAFTA (Chapter 11), Energy Charter Treaty (ECT) (Part 3 and Article 26), FTA United States - Chile 2003 (Chapter 10)

In fact, arbitration is also a commonly used method of resolving ISD The number of disputes brought to arbitration is increasing If in the years of 1990-

1995, this method was still strange in the field of investment (every year there were only about 0-2 disputes were given to arbitration), until the period 2000-2010, this number was average increase of 20-30 cases / year As of the end of 2010, the total number of ISD cases presented by arbitration is known as 390 cases, of which 25 were in 2010 alone (UNCTAD 2012d, p.2)

Considering the status of ISD settlement by arbitration, there are some issues

to note as follows:

First, the situation of making judgments: Of the total 390 cases of the above

cases, 197 were resolved, of which 78 were in favor of the receiving state (about 40%) and 59 protection benefits of investors (30%) There are still some disputes between the two sides that reached a mutual agreement or a decision that was not made public Thus, although this method facilitates foreign investors to sue the state, it does not mean that the state receives investment at a disadvantage States can make arguments to protect their interests and win disputes

Second, about the parties to the dispute: The majority of disputes are filed by

investors from developed countries By the end of 2010, there were 83 states facing complaints of investors by arbitration method, including 51 developing countries,

17 developed countries and 15 countries with transfer economies (UNCTAD 2011, p.2) The fact that developing countries are regularly sued for international arbitration in disputes with foreign investors stems from a number of reasons

Firstly, the legal system of these countries has not been completed, often changing

policies and legal regulations, thereby affecting the interests of investors; Secondly,

complicated and lack of transparent procedures for domestic procedures make it

difficult for investors to pursue lawsuits; Thirdly, judicial agencies in developing

countries, especially courts, do not guarantee independence and fairness, so they do not create trust with investors

Third, on the form of arbitration: Arbitration regulation has a priority to use

compared to arbitration cases Arbitration organization plays an important role in resolving ISDs, including ICSID, arbitration of ICC, Stockholm Chamber of Commerce (SCC) With the form of arbitration, most parties use the arbitration rules of UNCITRAL According to UNCTAD statistics, out of a total of 390 investment disputes reported by 2010, the ICSID mechanism accounted for a remarkable proportion with 245 cases, followed by a form of arbitration under the Arbitration Rules of UNCITRAL with 109 cases Other arbitration mechanisms account for a small proportion such as SCC (19 cases), ICC (6 cases), the rest are other arbitration cases

As the most commonly used arbitration mechanism in ISDs, ICSID is also the only permanent arbitration mechanism specialized in resolving disputes of this type Established under the Washington Convention of 1965 on resolving disputes between the State and citizens of other states, under the World Bank, the Center played an important role in creating a settlement mechanism Investment disputes are more effective Currently, 157 countries have joined the Washington Convention in 1965, of which 147 have submitted official documents on accession, ratification or approval of the Convention Of the 245 disputes raised by ICSID by the end of 2010, 227 cases had the final conclusion (corresponding to 97%) (ICSID 2010) This ratio shows that ICSID is another effective ISD resolution mechanism

2.1.4 The situation of Investor - State disputes settlement by the other methods

Most of the provisions for resolving ISDs in IIAs require that the right parties first use informal measures, with the aim of resolving conflicts in a friendly and stress-reducing way (UNCTAD 1998, p.88) This provision can be seen in sample BITs of capital exporting countries such as Germany (1991, Article 11), France (1998, Article 8), England (1991, Article 8) and BITs that have been signed as

Vietnam-China BIT (1992, Article 8.1), Argentina-Bolivia BIT (1994, Article 9.1), Brazil-Chile BIT (1994, Article VIII.1)

However, the use of other forms of dispute resolution (mediation, prevention policy, early detect disputes etc.) is still very limited (UNCTAD 2010, p.1) Although organizations such as ICSID, ICC and SCC have other dispute settlement mechanisms in addition to arbitration mechanisms for the parties to choose, there are actually few records of ISDs using rules that mediation For ICSID, there have been 374 disputes submitted to the Center so far but only 7 cases require the use of ICSID mediation mechanism

A study by J Coe (2005, p.35) showed that only about 30% of the disputes that raised ICSID were resolved by the parties before the intervention of the arbitration decision

Non-judgmental methods are rarely used because they do not have a mechanism to enforce agreements or decisions during the resolution process In addition, investors are reluctant to participate in mediation procedures in part because they think these procedures take time and cost before reaching their main goals of conducting arbitration procedures On the side of the country receiving investment, there are some difficulties due to complicated organizational structure

in the management apparatus, making it difficult to resolve through reconciliation This is because in order to enforce an ICSID mediation agreement, there must be the participation of many government agencies that the agencies involved in the dispute must have a legal document or approval from another agency to participate

in dispute resolution or compensation The problem arises further which agency will

be responsible for the settlement through that mediation and about the outcome of the mediation Another reason is that because the mediation method is more confidential than the arbitration procedure, it is possible that public opinion will not support the Government to settle disputes with investors in a controversial issue are interested in public opinion Especially issues related to social policy, environment, health etc while using arbitration, the Government can refer to the obligation to

compensate and the obligation to comply with the their decisions (Stevens, Margrete and Ben Love 2010, p.389-418)

However, resolving disputes between investors and host countries with alternative methods also has certain development steps In addition to alternative methods such as negotiation, consultation, and mediation, which are more specifically defined in investment agreements, some countries, through national law, have taken measures to strengthen the method of alternative dispute resolution

in investment disputes For example, Peru has enacted laws 28,933 to respond promptly to investment disputes and try to resolve by negotiation and conciliation, and to establish a specialized Council of members from many agencies The government oversees ongoing or possible disputes and resolves on behalf of the Government with foreign investors South Korea built an independent inspection agency, listened to investors' opinions, collected information, produced reports and petitions to the Government Recognizing the role of alternative dispute resolution methods, UNCTAD also has research on alternative ways to resolve and prevent disputes in 2010 and 2011 at Investor publications - State Disputes: Prevention and Alternatives to Arbitration I, II, in which researchers had a fairly comprehensive analysis of alternative methods of dispute resolution

2.2 Mechanism and prevention measures in settling international investment disputes in some countries

2.2.1 Mechanism and prevention measures in settling international investment disputes in Jordan

The Jordan Investment Commission (JIC) holds the role of the investment promotion agency in Jordan The functions of the Council (Investment Law No 30-

2014, https://investmentpolicyhub.unctad.org/InvestmentLaws/laws/175 accessed

on 22/01/2019) are the following: submit recommendations to the Cabinet (legislation drafts, national strategies and policies); oversee and supervise the Commission’s work and follow up on the implementation of annual plans; study the obstacles facing the economic activities; outline the remedial courses thereof and