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Seoul reveals a lack of experience in FTA negotiations

Hankyoreh, Korea

Seoul Reveals a Lack of Experience in FTA Negotiations

Song Chang-seok, reporter for the Hankyoreh

1 August 2006

"We are learning new things while we’re negotiating with the American representatives," said a Korean official who was part of the labor section negotiation team during the first round of the Korea-U.S. FTA talks, held in Washington last June. "The U.S. is demanding the introduction of a so-called ’public communication system,’ which was a term that we heard for the first time," the negotiator told Hankyoreh.

The public communication system allows any member of the public, in both Korea and the U.S., to file a complaint to any of the two governments for violations in the labor or environment regulations that are agreed by the two nations. The relevant country is then expected to notify the individual afterwards on how it handled the case.

The Korean representative said: "Unlike in America, the labor issue is a very sensitive hot button in Korea. I am not sure how the Seoul government can handle all the complaints if we start operating such a completely open avenue for registering complaints. The labor and environmental issues are something that we are dealing with for the first time in this round of talks with America and there are many things with which we are not very familiar," he confessed.

"We are digging up every page of the relevant law."

Similar stories are coming from the financial sector of the negotiations, as well. In the area of investment, the two sides exchanged a reserve list of items that they could not include in the FTA deal during their July 10-14 talks in Seoul. However, the financial service discussions have been postponed to the third round of the negotiations slated for September in America. "Although South Korea has had a few FTA experiences with other countries before, the discussion of the financial service sector is something new that popped up in our negotiations with America. The U.S. side has an outline to start with because it has had some experience in the field, but we need some time to do research and come up with our reserve list," explained Shin Je-yoon, deputy director general for the International Finance Bureau of the Finance Ministry.

If Korea signs a free trade pact with the United States, it is supposed to give American companies, in principle, the same treatment it confers to Korean companies, including giving them full access to the domestic market. If Korea’s current domestic laws or financial practices discriminate against foreigners or limit their market access, and if Korea wants to retain its current practices, it then needs to submit a list of such exclusions at this time.

The financial service sector is a sensitive issue for Korea because once it is open, America’s advanced financial products can enter the Korean market easily. Its effect is big enough and comparable to creating a "U.S.-induced financial crisis." The Korean negotiation team should have studied the relevant laws and regulations beforehand and set up necessary countermeasures well in advance. Now only belatedly, the team said it was rummaging through every relevant law.

The Korean government’s lack of preparation is also manifest in its handling of the foreign investor’s right to sue the State, which is one of the so-called "poison pill" clauses that both those who staunchly oppose the FTA deal and those who want the Korean government to approach the issue more carefully all point to in one concerned voice. The clause allows foreign investors to take the State directly to an international court such as the International Centre for Settlement of Investment Disputes (ICSID), without going through any domestic court system. The government could also be easily sued for practicing sound regulatory measures, including green belts or screen quotas for number of domestic movies that need to be shown per year, since doing so would undermine a foreign investor’s interests. The government then won’t even have an opportunity to have its case heard by its own court.

The Korean government, in a report it released two years ago when it was pushing forward a Bilateral Investment Treaty (BIT) with Washington, said that "the number of cases in which a State was sued by foreign investors accounts for only 40 total during 1965 to 2000." It stated that "South Korea was not involved in a single case." The BIT is a deal on which Seoul and Washington almost reached an agreement, but in the end it was shot down by fierce protests at home. What America is demanding from the currently unfolding FTA’s investment negotiations is similar to the demands it made during the BIT. 

The Korean government has its own explanation to offer on the matter. The total number of cases brought to the ICSID for the past 35 years was only about 40, it said, comparable to one case per year. Therefore, it shouldn’t be something that Korean people need to worry about, the government assured. However, the 2004 report mysteriously omits the most recent data, from the year 2001 to 2003. The number of litigations in 2001 was 14, which increased to 19 in 2001 and increased again by a big margin to 31 in 2003.

Was the omission intentional? The most likely answer is that the government was not paying very close attention to the situation and it neglected to update the relevant data.

When The Hankyoreh asked an official who was in charge of the investment sector in Seoul’s FTA negotiation team on May 24 whether Korean government was ever brought to the international court in relation to the clause, he still said, "No, we haven’t had a single case."

However, the Hankyoreh was able to locate one such case from the ICSID’s website very easily. According the website, South Korea was sued by the Colt Co., an American arms manufacturer in February 1984, in an alleged patent violation case. It is said that the case came to a conclusion by both sides reaching a deal in 1990 before the international court would hand out a verdict. The reason the Korean government was sued was based on the 1960 agreement Seoul made with Washington concerning the guaranty of investments.

All of this shows that the Korean government didn’t know about the ICSID case when it was negotiating the BIT with the U.S. in 2004, and didn’t even know about it until through May 24 of this year, which was only 10 days before the first round of the Korea-U.S. FTA negotiations kicked off. At that time, The Hankyoreh presented the team with the relevant facts and asked a second time for confirmation, at which point the official said, "This isn’t likely, but we’ll go check." One hour later, he replied, "I think you’re right. We didn’t know about it before because there wasn’t any relevant legal record remaining."

For a government official involved in the negotiations to say that is a lame excuse. The government either didn’t know about the ICSID website, which should be considered one of the most basic places to begin in the field of investment negotiation, or the government hasn’t visited the website regularly for updates.

South Korea’s love affair with the U.S. FTA

Watching the Korean government in its handling of the American offer of an FTA, one feels like one is watching a romance story in which only one side is deeply in love with the other. From the very beginning of the current administration, Seoul has sought an FTA from Washington, only to get rejected repeatedly. Later, the ungratified lover came up with a new strategy: "beating around the bush." That is, it instead approached America’s neighboring countries to get America’s attention. The Korea-Canada trade negotiations in 2004 were part of such move.

The plan worked. Suddenly, Uncle Sam sent a love call to Korea. The U.S., which is a competitor of Canada in terms of agricultural and dairy product exports, didn’t want to lose Korea to Canada, says a trade official with the Korean government. The U.S. was desperate, too. But the Korean government failed to take full advantage of the opportunity. When the long-awaited lover finally reached out his hand, its Korean suitor rushed to hold hands, in order not to miss this rare opportunity, thinking a bright future lay ahead for both.

But, love makes one blind. The Korean government wasn’t thinking too much. When the U.S. demanded four preconditions from South Korea before entering into FTA talks, which included the reduction of the screen quota for domestic films, Seoul simply gave in. Although in the process, the South Korean trade minister, Kim Hyun-jong, repeatedly met with U.S. officials and tried to persuade them to drop those concessions, essentially the underlying premise he was working with was more like one that spells out: Korea is more than happy to sign an FTA deal with the U.S. whenever handsome Sam wants it.

The Korean government was also utterly lacking in terms of engaging in productive public debate on whether the nation should move to forge an FTA accord with the U.S., as well as researching exactly what economic effect can be expected from such bilateral trade pact. The public hearing necessary for the launching of the Korea-U.S. FTA negotiations, as stipulated by the Presidential Decree No. 121, was held only one day before the government’s official announcement of the negotiations. Civic groups criticized it, claiming that the hearing was perfunctory and was not held to genuinely hear people’s opinions on the matter, but rather to have "evidence" that the government indeed held a public hearing as required by law.

The ex-presidential aide, Jeong Tae-in, who has distanced himself from the government’s FTA drive since his whistle-blowing on the administration’s poor preparation for the deal, points out: "Compared to an FTA deal with Japan, an FTA with the U.S. covers a lot broader scope of areas. But the government put into it, say, only one tenth of the research and preparations it had done in its deal with Japan." Some of the loyal supporters for the FTA also acknowledge the government’s poor preparation. Shin Ji-ho, head of the pro-FTA organization, the Liberty Union, says, "Although the preparation was lacking, we don’t have time to discuss it now."

The South Korean FTA drive is, most noticeably, headed by two individuals: Trade Minister Kim Hyun-jong and the chief negotiator, Km Jong-hoon. The Trade Minister is said to be behind President Roh Moo-hyun’s final decision to go ahead with the Korea-U.S. FTA deal. He was educated in the United States, from elementary to graduate school. He is known to be quite straightforward and is a man of strong conviction, just like President Roh.

The chief negotiator, Kim Jong-hoon, hails from a long career in the Foreign Ministry. But his experience in trade is relatively small. His work in the field includes one year as director-general of the International Economic Affairs Bureau at the Ministry of Foreign Affairs and Trade and two years as a Regional Trade Representative. Other negotiators in the Korean team are more or less in a similar situation, mainly because the Foreign Ministry requires its workers to change their assignments every two or four years. During the first and the second round of the talks, for example, the lead negotiators for the three main sections had been shuffled there as part of their normal schedule of assignment change. On the contrary, the U.S. team has many experienced trade negotiators that have been working in the field for more than 10 years, including its chief negotiator, Wendy Cutler.

This Article, which first appeared on the 1 August issue of the Hankyoreh 21 weekly newsmagazine, was traslated by Lee Seong Hyon.