KORUS FTA: a Pandora’s box of complications

Posted on : 2012-03-15 13:33 KST Modified on : 2012-03-15 13:33 KST
Report finds South Korea’s public policy freedom could be unfairly limited by KORUS FTA
 Gyeonggi Province
Gyeonggi Province

By Jung Eun-joo, staff writer in Washington & Toronto

A US legal group is claiming that the investor-state dispute provisions (ISD) of the South Korea-US Free Trade Agreement (KORUS FTA) pose a greater threat to Korean public policy than the North American Free Trade Agreement (NAFTA) and other US trade agreements. The South Korean government has consistently argued that the KORUS FTA ensures more autonomy in public policy than other trade agreements signed by the US.

A report released Wednesday by the Center for International Environmental Law on the ceding of authority to foreign investors in the KORUS FTA stated that the addition of phrases and letters absent from previous US investment agreements and FTAs meant a greater possibility that legitimate environmental, health care, and consumer/labor safety policies could be included as indirect expropriation.

Indirect expropriation refers to US constitutional law and legal precedents requiring a state to pay compensation for asset damages that arise due to government measures. Unlike the US, South Korea does not compensate for indirect expropriation as a rule.

The report highlighted the increased ability of foreign investors to win government compensation for asset losses. This would be due to provisions deeming public policy measures indirect expropriation when viewed as extremely severe or unbalanced relative to purpose.

The center’s secretary-general, Marcos Orellana, said that while discretionary powers were guaranteed for arbitrators to determine whether the goals or effects of public policy are unbalanced, there is no precedent for this even within the US Supreme Court.

Orellana added that since arbitrators are generally specialists in international investment law, they could not be assumed to have the necessary expertise to make determinations about public policy in areas such as the environment and health care.

Orellana also said a letter specifying that investment contract rights would be recognized as property rights was a first for a US trade or investment agreement.

Noting that investment contracts already have provisions to protect the parties involved, the report said it was unclear why the authority to file an ISD claim should also be guaranteed for foreign investors.

Following a comparison of the KORUS FTA and NAFTA at the Hankyoreh’s request, Gus Van Harten, professor at Osgoode Hall Law School of York University in Toronto, Canada, said the investment area of the KORUS FTA has a broader scope of application. He also said that government policy sovereignty was curtailed and arbitrators’ discretional powers slightly strengthened as a result.

Van Harten explained that while the two agreements were about 95% the same, the KORUS FTA has some reductions in the scope of public policy for areas recognized as exceptions in NAFTA, including national treatment, appropriation and compensation, denial of benefits, and the investment environment.

Moreover, while NAFTA restricted the composition of arbitration panels to representatives from the US, Canada, and Mexico, the KORUS FTA guaranteed they would be open to representatives from roughly 100 countries, effectively permitting extraterritoriality (the state of being exempt from local law), Van Harten added.

US attorney Haeng-seon Kim said the KORUS FTA guarantees a broader range of investor rights than either the US Constitution or legal precedents, which have traditionally regarded private property rights as sacred.

Kim said this was a violation of the South Korean Constitution, which restricts property rights to what is appropriate for the public interest.


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