Vietnam’s Approval of Fourth Protocol in ASEAN Comprehensive Investment Agreement Promotes Regional Trade and Investment

• Vietnam recently approved the fourth protocol amending the ASEAN Comprehensive Investment Agreement.
• The ASEAN Comprehensive Agreement is a negotiation between ASEAN member states, focusing on enhancing protection, promotion, facilitation, and liberalization for regional investment.
• The fourth amendment aims to promote further investment and integration in the region, moving closer towards the objective of establishing a fair and transparent investment environment.

Vietnam on February 20, 2021, approved the fourth protocol amending the ASEAN Comprehensive Investment Agreement (ACIA); the Vietnamese Government issued Resolution No. 20/NQ-CP to this effect.

The Ministry of Planning and Investment (MPI) is assigned prime responsibility and will coordinate with associated ministries and agencies to implement the above protocol. The Ministry of Foreign Affairs will execute foreign affair procedures according to the appropriate regulations.

What is the fourth protocol amendment? 2 guiding explanations

Firstly, the fourth protocol to amend the ACIA mentioned a prohibition of performance requirements and fundamentals in the Agreement on Trade-Related Investment Measures (TRIMs) that were agreed by all members of the World Trade Organization (WTO).

This means that no member state is allowed to enforce regulations that discriminate against foreign goods from other member states or implement any measure that might provoke obstructions for other member states to invest or conduct trade in the region. More specifically, member states are prohibited to:

• Apply quantitative restrictions on the number of goods exported or imported for investors of other member states;
• Impose regulations to discriminate against imported goods in favor of domestic goods;
• Purchase, use, or grant unfair privileges for domestic goods;
• Enforce local content requirements on other member states’ investors, requiring them to achieve a certain amount or percentage of domestic goods or services;
• Restrict sales of other member states’ products in their country;
• Distribute their domestic products exclusively to specific markets; or
• Require investors of other member states to distribute products exclusively to certain markets.

Secondly, the amendment also includes an alteration in the current reservation list. A reservation list is a list of exceptions that do not conform to the other relevant chapters and commitments on liberalization.

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There are two types of approaches to a reservation list: a positive-list approach and a negative-list approach. In this case, through the amendment, the current reservation list is switched from a single annex to a two-annex negative-list approach.

To elaborate, the first annex explicitly lists certain measures under National Treatment (no discrimination against foreign products), Prohibition on Performance Requirements, and Senior Management and Board of Directors, which is non-applicable.

The second annex dictates the sectors or sub-sectors, industries, products, or activities that are eligible for the exceptions mentioned in the first annex. In other words, these sectors are not obliged to a “full commitment”, and do not conform to certain measures of the regulations on liberalization.

This is because the listed measures are considered to act in opposition to the general liberalization principles, or also because a fully liberalized agreement among all member states cannot be reached.

How will Vietnam and ASEAN benefit from the fourth protocol?

Through the fourth protocol amendment, the ACIA takes a strong stance in establishing a more stable and fair investment environment for regional trade and integration. The amendment fortifies prohibitions on discrimination against foreign goods, enhancing equality between investors and domestic enterprises, and thus will encourage more investors to do business in the region.

Moreover, the prohibition on quantitative restrictions in the amendment is expected to improve exports and imports in ASEAN. Besides, the regulation of prohibiting exclusive delivery to certain markets eliminates the most-favored-nation treatment, offering the same service and products to all member states, and therefore improving trade activities in the region as a whole.

Further, the amendment on the reservation list offers a more transparent and predictable climate for trade and investment in ASEAN. Also, not every country will agree to a “full commitment” to liberalization. Thus, this amendment offers a compromise that is fair, transparent, and reasonable. With this in effect, every country in ASEAN will be satisfied with the terms and agreement, and as a result, will likely engage in further trade activities.

Being one of ASEAN’s member states, Vietnam sees a significant opportunity to benefit from enhanced trade activities in the region. Without restrictions or discrimination, other member states will be more willing to participate in trade in Vietnam, and vice versa.

In addition, the ACIA focuses on five major sectors: manufacturing, agriculture, fishery, forestry, mining, and quarrying, all of which are potential developing sectors in Vietnam. Thus, Vietnam’s trade and investment activities are expected to benefit as a result of the ACIA and the fourth amendment.

Signing of protocols underlines importance of free and fair trade in ASEAN

Since 2012 ASEAN member nations have signed a total of four protocols to amend the ACIA. Specifically, the first protocol in 2014 was signed to establish the process of amending the agreement and its reservations lists, aiming at further liberalization and facilitation of the investment environment.

The second protocol, signed in 2017, modified the definition of an investor as a “natural person” in the ACIA.

The third protocol to amend the ACIA, also signed in 2017, discarded paragraph 8 in the guidance on the application of the ACIA’s reservation list, providing fair treatment for all investors of ASEAN member nations.

The most recently approved fourth protocol aims to amend the agreement to further bolster regional integration and attract more foreign investors.

Positive signal for foreign investors

Overall, the fourth protocol amending the ACIA proves to bring considerable positive effects on promoting trade in Vietnam as well as the wider ASEAN area, to attract more foreign investors.

Moreover, the common ground and effective negotiation demonstrated in this revised agreement indicates a political will among all ASEAN members, presenting a positive indication for the future of trade and investment in Vietnam and ASEAN.

In the near term, the ACIA is expected to enhance liberalization provisions and equality, moving closer towards the objective of presenting the ASEAN region as a single market, and an attractive destination for foreign trade and investment.

The ACIA

The ASEAN Comprehensive Investment Agreement (ACIA) is an ASEAN major economic tool, established as an approach to a liberate and transparent investment regime. The ACIA deliberately outlines the obligations of ASEAN countries to protect ASEAN investors and their investment activities in both absolute and relative terms.

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According to the Vietnam Chamber of Commerce and Industry (VCCI), the agreement’s pillar goals are focused on liberalization, protection, facilitation, and promotion in regional trade and integration.

With that in mind, the ACIA aims to carry out one of ASEAN Economic Community’s most significant objectives: to become a single investment destination and production base, focusing on five core fundamentals: the free flow of goods, capital, services, investment, and labor.

The agreement is expected to create a more conducive business environment, attract investors outside of ASEAN to establish a business in the region, encourage confidence among current investors to sustain and expand their investments, and enhance intra-ASEAN investment.

The ACIA came into effect on  March 29, 2012, and has efficiently boosted ASEAN trade and investment ever since. This was done by building a free, open, and integrated investment system for both domestic and international investors throughout the ASEAN member nations.

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