The Settlement Practice of Environmental Disputes Involving Foreign Investors in Vietnam – the Two Sides of the FDI Coin

The last two decades have been an extraordinary period for Vietnam. The country has undergone dramatic economic development from a centrally planned economy to a “socialist-oriented market economy” under the umbrella of the Doi Moi (Renovation) Policy. Significantly, Vietnam has openly recognized the importance of international economic cooperation. Attracting foreign direct investment (“FDI”) has been a key part of Vietnam’s external economic affairs. The Government of Vietnam has made tremendous efforts to develop the business and investment climate, and by recognizing that the FDI sector is an integral part of the economy – essential to restructuring the economy and raising national competitiveness.

Vietnam has offered certain forms of legal protection to foreign investors, such as most-favored-nation treatment, national treatment, equitable treatment, protection and security, provision on compensation for losses incurred by foreign investors as a result of expropriation. These protections are cemented as the country’s international obligations under bilateral investment treaties (“BIT”) and regional trade agreements. The participation in the multilateral and regional economic arrangement indicates that Vietnam is concerned to protect also the interests of foreign investor in its territory.

It should be noted that FDI inflows have seen a steady and strong increase after Vietnam’s successful accession to the World Trade Organization (“WTO”). The period of 2010–2015 showed the establishment of Vietnam as a major manufacturing hub in the region, with the large majority of FDI flowing into the manufacturing and processing sector. It is recognized that foreign investment projects have played a very important role, not only in providing investment capital but also in stimulating export activities, as well as introducing new labor and management skills, transferring technologies and generating job opportunities in Vietnam.

However, FDI also contributes to various environmental problems and challenges to Vietnam. According to the survey provided in the “Mitigation of Environmental Impacts Related to fdi in Vietnam” workshop held by the Central Institute for Economic Management (“CIEM”) and the EU-MUTRAP Project in June 2016, nearly 67 percent of FDI enterprises operating in Vietnam are export manufacturing companies with low value-added products, backward energy-consuming technologies and high emissions to the environment. Regarding environmental impacts from operation activities, while most of the FDI companies are aware of their obligation to comply with the environment regulations that requires them to prepare an Environmental Impact Assessment Report (“EIAR”) upon application for approval of the investment project, most of them choose to disregard or not fully comply with environment protection requirements by the law.

Such non-compliance leads to the increasing rise of environment disputes on a national scale. According to the year 2000 report of the Inspectorate of the Ministry of Science, Technology and Environment on the results of inspection, from 1994 to 2000, there were 3,252 cases of breach of environment protection laws, of which the breaching entities in 1,515 cases, accounting for 46.57 percent of the total number of breaches, had the responsibility to compensate for damage caused to organisations and individuals. While data concerning the number of environment disputes in Vietnam is not officially collected or widely published since then, most of the disputes related to the violation committed by FDI companies through their operation activities and are on the increasing trend. The major environmental disputes caused by FDI projects arose in the period from 2008 to 2016, which included among others Vedan Vietnam Enterprise Corporation Limited’s (Vedan Vietnam) committed pollution acts in Thi Vai River in 2008 and Formosa Steel’s toxic waste water alleged causing massive fish deaths in Ha Tinh province in April 2016. Therefore, it is of essential to have an insight into the legal framework on foreign investment, environmental protection as well as the practice of environmental dispute settlement in Vietnam in order to find solutions to meet the urgent needs of the society.