Under the Bilateral Investment Treaty between Vietnam and Japan (VJ BIT) and the Agreement for an Economic Partnership between Vietnam and Japan (VJ Partnership), a subsidiary incorporated outside Japan by a Japanese investor has certain legal grounds to claim for enjoying the rights preserved for Japanese investors when investing into Vietnam under these treaties. This is because:
- According to Articles 58(e)(i), 58(e)(ii)(B) and 58(f) of the VJ Partnership, “juridical person of the other Party” is defined to include a juridical person owned or controlled by a juridical person constituted or otherwise organized under the law of the other Party. As such, a subsidiary incorporated outside Japan of a Japanese investor may also be regarded as “juridical person” of Japan in light of these above provisions;
- According to Article 1.2(b) of the VJ BIT, “investment” is broadly defined to include “every kind of asset owned or controlled, directly or indirectly, by an investor, including … (b) shares, stocks or other forms of equity participation in an enterprise, including rights derived therefrom.” Based on this definition, one may argue that a Japanese investor’s indirect investment via its subsidiary in Vietnam also falls under the concept of “investment” under the VJ BIT and is therefore subject to certain protection under VJ BIT; and
- According to Article 9.4 of the VJ Partnership, the VJ BIT is incorporated into and forms part of the VJ Partnership. Therefore, it is reasonable to argue that certain concepts under the VJ Partnership may also be used to interpret the provisions of the VJ BIT and vice versa. However, there may be a chance that the licensing authority would not accept the use of Articles 58(e)(i), 58(e)(ii)(B) and 58(f) under the VJ Partnership regarding the concept of “juridical person” of Japan for the VJ BIT for the reason that such Articles only apply to Chapter 7 – Trade in Services of VJ Partnership despite the incorporation of VJ BIT into VJ Partnership.
In practice, it is not clear how a non-Japanese investor makes use of these arguments to apply Vietnam – Japan treaties, which include certain preferential rights in terms of foreign investment, to its investment in Vietnam. It is also not clear if the licensing authority has ever approved any application of Vietnam – Japan treaties to non-Japanese investors. In 2014, it was reported that the Ministry of Planning and Investment (MPI) initially rejected the application of VJ BIT to a foreign-invested company established by a Singaporean investor with a simple reasoning that the investor-of-record of such foreign-invested company is not a Japanese investor. However, details on (1) how the company followed-up with MPI about such rejection and (2) the legal grounds that the company uses for application of VJ BIT to its case are not available for public access.
This post is contributed by Tran Thi Thu Thao, a VILAF associate.