With the expiry of the six-month cooling-off period, Lone Star officially started an international investment dispute against the Korean government last week by filing its notice of arbitration with the International Center for Settlement of Investment Disputes in Washington, D.C. This is the first international investment dispute for Korea under a bilateral investment treaty since Korea’s subscription to the investor-state dispute settlement (commonly called as ISDS) mechanism in 1975. Korea is now joining 85 other countries in the world that have previously participated in the international investment litigations. The government vows an “aggressive defense” during the upcoming proceeding.

The first reaction in Seoul seems to be calm and sober: no panic buttons or emotional response. Understanding this development as “business as usual” is itself a big stride forward. It was just this time last year when the whole country was engulfed by the controversies over the investment chapter of the Korea-U.S. Free Trade Agreement in the course of the agreement’s ratification.

The debates last year must have vaccinated the country against the overblown concern and exaggerated outcome. The Lone Star dispute, which has nothing to do with the FTA but is unfolding within the framework of the 2006 Korea-Belgium BIT, sets a good example of divulging the true nature of investment disputes. Portraying this mechanism as a unique issue in a particular FTA or with respect to a particular trading partner misses the mark by a wide margin. If 85 countries have done this before, it was only a matter of time for Korea.

Hopefully, the business as usual response in the country will continue throughout the proceeding. Critical views are being expressed in Korean national newspapers concerning Lone Star’s decision, but such patriotic rhetoric is neither appropriate nor helpful. The Korea-Belgium BIT acknowledges a foreign investor’s right to pursue its claims through an international tribunal.

Lone Star’s decision to exercise its right under the BIT should not be criticized to the extent it is compatible with the agreement. We should stay mindful that it won’t be long before Korean investors turn to this scheme in other parts of the world. There’s no need for an emotional response. Simply, the remaining task is for an international tribunal to interpret and apply the BIT as it is written.

One could safely assume that Lone Star will vigorously pursue their claims in the upcoming litigation given the enormity of what is at stake. In response, Seoul is expected to rebut the allegations and defend its positions aggressively, as it vowed the other day. Through this first international litigation in this field precious opportunities will be presented to accumulate hands-on experiences and future guidelines.

As shown in the Lone Star example, an investment dispute usually arises when a foreign investor departs the host state and burns the bridge. What has transpired in this case for the past nine years ― from the Dallas-based fund’s arrival in Korea in August 2003 to its initiation of the investment dispute in November 2012 ― would serve as a robust case study material for future interactions with foreign investors.

Once three arbitrators are selected soon, the litigation will begin its life cycle for the next two or three years. As there is no appeal available in this proceeding, the three-member arbitration panel’s decision is final. Korea’s first international investment dispute will be closely watched by many governments and interested entities. Handling this first dispute appropriately will be a crucial first step for Korea in this area. To that end, again, it is imperative to approach and view this dispute with a steady business-as-usual mode.

By Lee Jae-min

Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.