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The U.S. ratification of the Korea-U.S. FTA on Oct. 13 lobbed the ball into Korea’s court one final time. It is being reported that Korea’s ratification procedure will begin soon. One of the key points that the opponents of the agreement raised (again) after last week’s U.S. ratification was the investment dispute settlement procedure contained in the agreement. This dispute settlement mechanism has been criticized as a loss of Korean sovereignty for the benefit of foreign business interests. The critics portray this procedure as a genie coming out of the bottle that gobbles up a country’s sovereignty. This is a dispute settlement mechanism under the FTA framework exclusively applicable to bilateral investment disputes between an investor from one party and the government of the other party.
To the extent it introduces a dispute settlement mechanism between an individual and a foreign government through an international tribunal, this procedure stands to present peculiar consequences, both positive and negative. Where, as here, both negative aspects and positive ones co-exist, a proper way of evaluating the overall consequence would be to look into both aspects in their entirety, by according equal weight. Only focusing on sporadic snapshots of negative aspects or positive aspects fails to give an accurate picture of the matter. Instead, one would need to take one step backward and pause to catch a better glimpse of the entire silhouette of this dispute settlement mechanism as applied to the Korea-U.S. bilateral context. The way I see it, positive elements far outweigh negative ones, and the assertions of the critics are mostly exaggerated. Following are the realities that have been mostly forgotten in the controversy over this issue.
More than anything else, this system is not new. Among the 85 investment treaties that Korea has signed so far since it first signed one with Germany back in 1967, 80 treaties already contain this very system. So, describing the Korea-U.S. FTA as if it were the first instance of introducing this “unheard of” mechanism is simply misplaced. So, such an argument is at least 40 years late.
Secondly and more importantly, what has been missing in this controversy is the contemplation of the fact that Korean investment in foreign countries is on the rise. With respect to the United States alone, since 2006, Korean investment in the United States has surpassed U.S. investment in Korea by a ratio of 3 to 1. So, if anything, this dispute settlement procedure may provide further (or equal) protection for Korean investment and investors in the United States. Chances are, the U.S. government is equally concerned about this dispute scheme, given its experience in the investment disputes with Canadian and Mexican investors under the NAFTA.
Third, under these circumstances, a more appropriate question at this juncture should be how Korea prepares and manages this mechanism down the road instead of raising all sorts of hypotheticals that may or may not happen in the future. Should problems be identified as we go along, we can come up with a plan to minimize or address them. Of course, the investment dispute settlement procedure has given a list of homework for Korea that requires continued attention. Once all homework is done properly, this will ultimately become business as usual that comes and goes, as opposed to a genie out of the bottle. Korea’s experience at the WTO dispute settlement procedure provides a good precedent: Korea had similar concerns and uneasiness in 1995 when a new dispute settlement procedure was introduced. But Korea turned out to prevail in 70 percent of its 29 disputes so far, much higher than the average. So, it raises the question: Where have all these people been during the 29 disputes at the WTO where Korea has sued or been sued since 1995. Nothing serious happened. The Korean economy has fared relatively well during this period.
The over-exaggeration of the problems of the investment dispute settlement mechanism is neither accurate nor appropriate. This does not provide a rational basis to oppose the free trade agreement with the United States, or with any other country for that matter.
By Lee Jae-min
Lee Jae-min is a professor of law at the School of Law, Hanyang University, Seoul. He formerly practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.
To the extent it introduces a dispute settlement mechanism between an individual and a foreign government through an international tribunal, this procedure stands to present peculiar consequences, both positive and negative. Where, as here, both negative aspects and positive ones co-exist, a proper way of evaluating the overall consequence would be to look into both aspects in their entirety, by according equal weight. Only focusing on sporadic snapshots of negative aspects or positive aspects fails to give an accurate picture of the matter. Instead, one would need to take one step backward and pause to catch a better glimpse of the entire silhouette of this dispute settlement mechanism as applied to the Korea-U.S. bilateral context. The way I see it, positive elements far outweigh negative ones, and the assertions of the critics are mostly exaggerated. Following are the realities that have been mostly forgotten in the controversy over this issue.
More than anything else, this system is not new. Among the 85 investment treaties that Korea has signed so far since it first signed one with Germany back in 1967, 80 treaties already contain this very system. So, describing the Korea-U.S. FTA as if it were the first instance of introducing this “unheard of” mechanism is simply misplaced. So, such an argument is at least 40 years late.
Secondly and more importantly, what has been missing in this controversy is the contemplation of the fact that Korean investment in foreign countries is on the rise. With respect to the United States alone, since 2006, Korean investment in the United States has surpassed U.S. investment in Korea by a ratio of 3 to 1. So, if anything, this dispute settlement procedure may provide further (or equal) protection for Korean investment and investors in the United States. Chances are, the U.S. government is equally concerned about this dispute scheme, given its experience in the investment disputes with Canadian and Mexican investors under the NAFTA.
Third, under these circumstances, a more appropriate question at this juncture should be how Korea prepares and manages this mechanism down the road instead of raising all sorts of hypotheticals that may or may not happen in the future. Should problems be identified as we go along, we can come up with a plan to minimize or address them. Of course, the investment dispute settlement procedure has given a list of homework for Korea that requires continued attention. Once all homework is done properly, this will ultimately become business as usual that comes and goes, as opposed to a genie out of the bottle. Korea’s experience at the WTO dispute settlement procedure provides a good precedent: Korea had similar concerns and uneasiness in 1995 when a new dispute settlement procedure was introduced. But Korea turned out to prevail in 70 percent of its 29 disputes so far, much higher than the average. So, it raises the question: Where have all these people been during the 29 disputes at the WTO where Korea has sued or been sued since 1995. Nothing serious happened. The Korean economy has fared relatively well during this period.
The over-exaggeration of the problems of the investment dispute settlement mechanism is neither accurate nor appropriate. This does not provide a rational basis to oppose the free trade agreement with the United States, or with any other country for that matter.
By Lee Jae-min
Lee Jae-min is a professor of law at the School of Law, Hanyang University, Seoul. He formerly practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.
