Editorial: Justice Ministry’s KORUS FTA warning
7 November 2011
The Ministry of Justice submitted a formal opinion strongly recommending caution with regard to the investor-state dispute (ISD) system, a key item of contention with the South Korea-United States Free Trade Agreement. In a “Manual for South Korea’s Investment Treaties” published in October 2010, the ministry clearly stated that the KORUS FTA provisions on investment reflected a U.S. model and were different in character from previous investment treaties signed by South Korea. This position differs substantially from that of the Ministry of Foreign Affairs and Trade (MOFAT), which has said that the KORUS FTA is no different from previous agreements. MOFAT will be hard pressed to avoid charges that it has been pushing for ratification of the FTA without engaging in the necessary discussions with other related government ministries.
The ISD system is a conflict resolution procedure that allows a foreign company or investor to file a request with an international arbitration body for damages from a state institution in a country with which it has a treaty. Opposition parties and civic and social groups have called for its abolition, arguing that the ISD system in the KORUS FTA is a “toxic provision” that limits judicial sovereignty and the government’s policy autonomy. MOFAT countered that it is an internationally standardized system that is included in most of the investment-related agreements signed by South Korea over the years. This argument has been carried over by ruling Grand National Party (GNP) lawmakers. In a recent call for swift passage of the ratification, Park Geun-hye said the ISD system “is an ordinary system included in most of the investment treaties that South Korea has signed.”
But a look at the Justice Ministry’s document shows how paltry this argument is. To begin with, the ministry concluded that the KORUS FTA adopts a special format reflecting the U.S.’s “2004 Model Bilateral Investment Treaty.” Since it largely conforms to U.S. legal principles, practices, and precedents, it is certain to clash with South Korea’s legal system if enforced as is. Cited as particularly dangerous aspects were its inclusion of the concept of “indirect expropriation,” which is not recognized by the South Korean Constitution, and its acknowledgement of investment contract and investment authorization violations as possible targets for litigation.
The Justice Ministry’s position on the ISD system largely accords with what the opposition parties and civic and social groups have been saying so far. MOFAT has been dismissing opposing claims as falsehoods and exaggerations, but one now has to ask if it is the side that has been misleading the people with baseless logic and concealing the nature of the agreement. We hope to see a proper examination of the dangers of the ISD system taking place at once.