AMCHAM interferes in domestic policies through FTA
Controversial clause often used to bully governments
By Jung Eun-joo
7 January 2012
Under the Korea-US Free Trade Agreement (KORUS FTA), Korean civil servants would be excluded from the Health Insurance Review and Assessment Service (HIRA)’s process of price determination. Instead independent review procedures could be used to set prices for medicines and medical supplies. This has caused concern among health care groups who worry that multinational pharmaceutical companies could use the independent review procedure to change the Korean government’s medicine prices.
On November 2 last year, the Ministry of Health and Welfare (MOHW) announced plans to pass a reform bill with standards for national health insurance medical care expenses, including the creation of a review procedure. The reform bill stipulates that the independent review procedure will not have the power to fix medicine prices and that the HIRA will reassess prices with reference to the results of the review.
The American Chamber of Commerce in Korea (AMCHAM Korea) opposes this. The chamber said that if the HIRA was not tied down by the report of the review results, this could mean that the independent review procedure may not be binding. AMCHAM Korea is requesting that the MOHW ensure that the results of investigation are reflected in the final outcome.
The MOHW expressed opposition to this, saying that Australia, which had earlier introduced an independent review procedure, used the final outcome only as a reference. AMCHAM, however, is showing no signs of yielding. Korea and the US are clashing on this issue during working-level deliberation ahead of the KORUS FTA’s implementation.
AMCHAM is pressuring Korea’s legislation and policy before the KORUS FTA comes into effect. This is because of not only America’s economic clout but also the fact that, if the FTA comes into effect, its right to raise investor-state disputes (ISDs) is guaranteed.
Established in 1953, AMCHAM Korea works in the interests of around 2000 US companies operating in Korea. Its members are divided into over 30 standing committees, including aerospace and defense, construction, capital markets and Internet. Those committees examine Korea’s institutional and conventional barriers and publish an annual trade report every March or April. That document is reported to the US Congress and is also referenced in the Office of the United States Trade Representative (USTR)’s report on trade barriers in individual states. Based on its findings, the US puts pressure on the Korean government to remove non-tariff barriers that restrict American companies.
If the KORUS FTA comes into effect, AMCHAM Korea’s members receive a powerful weapon in the form of the ISD. If their interests are damaged by Korean government policy, they will be able to seek international arbitration. If arbitrators rule in favor of the American companies, they may receive large financial settlements.
The Ministry of Justice has found a tendency for large companies to apply for arbitration even when the probability of winning the cases is low. This is done to tame the government of the host country. Even when it comes to fair policies, the sending of cases for arbitration can mean the state ends up having to pay several million dollars in arbitration and legal fees. The government officials who enacted the policies that the foreign companies object to are often held responsible, which can weaken the chances they will enact protective policies in the future.
Lee Jeong-woo, a professor of economics at Kyungpook National University and senior policy advisor to former president Roh Moo-hyun, predicted, “Korean bureaucrats, attempting to avoid responsibility for getting caught up in legal cases, will in future decrease policies for the protection of the socially vulnerable and small and medium sized enterprises. All policies and systems are changing to US-style jungle capitalism.”
The Korean government is already under the influence of AMCHAM and multinational companies. For example, Korea Post announced on November 11 2011 plans to pass a partial amendment to enforcement regulations for the law on post office deposit insurance, increasing the maximum insurable amount from 40 million won to 60 million won. As soon as AMCHAM expressed opposition to this, saying it violated the FTA, Korea Post withdrew the plan.
In July last year, the Ministry of Land, Transport and Maritime Affairs ceased expansion of a supply and demand management policy for construction machinery that restricted the new registration of excavators, which were in excess supply due to works as part of the Four Rivers project. The US’s Caterpillar and Sweden’s Volvo took issue with the plan, citing WTO standards, whereupon Korea’s Ministry of Foreign Affairs and Trade requested restraint, citing concerns of a trade dispute.