EFTA and Viet Nam sign new Free Trade Agreement with Investment Promotion Chapter

On 18 October 2026, the Member States of the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway, and Switzerland – signed a new Free Trade Agreement (FTA) with Viet Nam in Hanoi. The comprehensive FTA covers trade in goods and services, intellectual property, rules of origin, competition, government procurement, trade remedies and sustainable development. It facilitates trade by eliminating or reducing customs duties and includes provisions designed to benefit small and medium-sized enterprises (SMEs).

In addition, the FTA includes an Investment Chapter designed to promote foreign direct investment (FDI) flows between the EFTA States and Viet Nam. This article discusses the Investment Chapter and its relationship with other investment-related agreements between the parties to the FTA.

Background

Negotiations for the EFTA-Viet Nam FTA began in 2012 and the agreement has not yet entered into force.

The FTA comes against a backdrop of expanding commercial relations. According to the EFTA, trade between the EFTA States and Viet Nam has grown steadily over the past decade. In 2025, bilateral trade reached EUR 4.8 billion with Viet Nam recording a trade surplus of EUR 2.5 billion, compared with EUR 500 million a decade earlier. The Swiss figures exclude trade in gold. The main EFTA exports to Viet Nam in 2025 were electrical machinery, fish, pharmaceutical products and mechanical machinery. Conversely, electrical machinery, footwear and apparel, and mechanical machinery accounted for the largest shares of EFTA imports from Viet Nam. Imports across these categories experienced strong growth over the decade with average annual growth rates exceeding 10%. Among EFTA exports, electrical machinery and seafood products also recorded similarly robust growth over the same period.

Under the FTA, the EFTA States will abolish customs duties on all imports of industrial goods, fish and other marine products originating in Viet Nam. In return, Viet Nam will remove tariffs on the vast majority of industrial and seafood products originating in and exported from the EFTA States. Key EFTA exports, including cheese, coffee, chocolate, infant food and food supplements, will enjoy duty-free access to the Vietnamese market.

The FTA also establishes a framework for trade in services, complemented by specific annexes covering the movement of natural persons, financial services, telecommunications and international maritime transport and related services.

Investment Promotion under the FTA's Investment Chapter

The FTA includes an Investment Chapter to promote mutual FDI. The Investment Chapter clarifies that it does not provide investment protection and is without prejudice to the international investment treaties to which the EFTA States and Viet Nam are parties.

Under the Investment Chapter, the EFTA States and Viet Nam will grant each other's investors national treatment (NT) when establishing a commercial presence in non-service sectors. As a key standard in international investment law, NT requires that a host state treat foreign investors no less favourably than its domestic investors in the same circumstances. The FTA's NT commitment covers the acquisition of existing companies and the establishment of branches in the partner country. It therefore addresses non-discriminatory treatment at the investment-establishment stage. The commitment follows a positive list approach whereby each party specifies the economic sectors in which NT applies. The sectors covered include agriculture, fishing, mining and quarrying and manufacturing. Certain reservations apply within these sectors, including those related to land acquisition and investment screening. 

Accordingly, subject to the applicable reservations, investors from Iceland, Liechtenstein, Norway and Switzerland can establish businesses in non-service sectors in Viet Nam under the same conditions as domestic investors.

Another standard in international investment law addressed by the FTA's Investment Chapter concerns payments and transfers. Under this provision, subject to certain public policy reservations, neither party can impose restrictions on international transfers and payments for current transactions related to investments covered by the FTA.

In line with contemporary treaty practice, the FTA reaffirms each party's right to regulate in pursuit of legitimate policy objectives, including the protection of public health, safety, the environment, and climate change mitigation and adaptation. The FTA also includes a chapter on trade and sustainable development, which reaffirms the parties' existing commitments under international environmental agreements and labour instruments, including obligations under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement.

Dispute Settlement Mechanism under the FTA

Disputes between the parties over the interpretation or application of the FTA are to be resolved through state-to-state arbitration. Before initiating arbitration proceedings, the complaining party must seek an amicable settlement through cooperation and consultations. If these efforts prove unsuccessful, either party can request the establishment of an arbitral tribunal composed of three members. Hearings are held in private unless the parties to the dispute agree otherwise.

The FTA's Investment Chapter clarifies that investor-state arbitration mechanisms under existing investment treaties between Viet Nam and the EFTA States do not apply to alleged breaches of the Investment Chapter.

Relationship with Bilateral Investment Treaties

The FTA's Investment Chapter is particularly relevant for investors from Liechtenstein and Norway, as neither country has concluded a bilateral investment treaty (BIT) with Viet Nam. BITs are international agreements between two states that establish protections for investors of one state investing in the territory of the other. They provide important substantive investment protection standards and allow investors to enforce these protections directly through investor-state arbitration. The investment guarantees afforded under BITs extend beyond those provided for in the FTA's Investment Chapter.

Switzerland and Iceland, by contrast, concluded BITs with Viet Nam in 1992 and 2002, respectively. These BITs provide protection guarantees for Swiss and Icelandic investors in Viet Nam. Switzerland has an extensive network of investment treaties, having signed 130 BITs with countries around the world with 109 in force. Iceland, in turn, has signed nine BITs with eight currently effective. The FTA's Investment Chapter clarifies that it does not affect the interpretation or application of the existing BITs between Viet Nam and Switzerland or Iceland.

Comment

The signing of the EFTA-Viet Nam FTA marks an important milestone in economic relations between the two sides. Bringing together Switzerland, Norway, Iceland and Liechtenstein with a fast-growing Southeast Asian economy of more than 100 million people, the FTA establishes a framework for deeper trade and investment ties across a combined market of approximately 110 million people.

Through its NT commitment, the FTA's Investment Chapter introduces an important investment promotion rule that allows EFTA investors to establish businesses in non-service sectors in Viet Nam under the same conditions as domestic investors. The NT commitment therefore broadens opportunities for EFTA investors seeking to establish a commercial presence in Viet Nam. At the same time, the FTA preserves the existing BITs between Viet Nam and Switzerland and Iceland, maintaining important investment protection guarantees for Swiss and Icelandic investors under those BITs.

Although the FTA has been signed, it has not yet entered into force. Its impact will depend on the completion of relevant domestic approval procedures. The signing represents a step towards closer economic integration and provides a stronger foundation for future trade and investment.

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