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Supreme Court recommends renegotiation of ISD clause

The Hanyoreh | Apr. 26, 2012

Supreme Court recommends renegotiation of ISD clause

Controversial KORUS FTA clause could lead to ‘legal chaos’, says top legal body

» The Supreme Court document titled, “Examination Opinion on the Investor-State Dispute Resolution Procedure for the South Korea-United States Free Trade Agreement”.

By Jung Eun-joo, staff writer

The Supreme Court submitted an opinion to the government in 2006 stating that the investor-state dispute system (ISD) in the South Korea-United States Free Trade Agreement (KORUS FTA) “could give rise to extreme legal chaos.”

Among the reasons cited by the court were the inclusion of judiciary rulings among the subjects for arbitration and the prospect of increased arbitration requests from US investors.

The opinion was drafted by the Supreme Court at the Ministry of Justice’s request during KORUS FTA negotiations in June 2006, but remained undisclosed for the last five years.

Some observers alleged a violation of court record management rules, since a National Assembly document request was denied on the grounds that the materials in question were not being stored, even though the archival period of six or more years had not yet elapsed.

The Supreme Court’s Court Administration Office submitted a document titled “Examination Opinion on the Investor-State Dispute Resolution Procedure for the South Korea-United States Free Trade Agreement” to Park Joo-sun, a Democratic United Party lawmaker and member of the National Assembly‘s Foreign Affairs, Trade and Unification Committee.

The document states, “Since a greater number of arbitration requests from United States investors are expected, there is concern that [the provisions] will create a considerable burden from the South Korean standpoint, including the response to suits, and result in side effects, such as legal chaos if judicial branch trials cannot be excluded from arbitration requests.”

The Supreme Court also said, “Whether or not to introduce an investor-state dispute system is a decision to be made after the sufficient gathering of opinions from the South Korean public. We should prevent conflict over its interpretation by specifying the subjects and conditions for arbitration requests, particularly excluding judiciary rulings from arbitration requests.”

Half of the document’s eight pages focus on the strengths of the ISD system, while another three examine its problems. The first problem given was the possibility of sovereignty infringement. The court’s view was that introduction of the system could lead to interference in government policies and regulations, with less room for the judiciary to take part in such disputes, resulting in the possible infringement of national sovereignty or judicial authority.

The court also said the system would allow US investors to request direct arbitration against the South Korean government, leading to concerns that they might enjoy greater rights than South Korean citizens, a violation of equal rights.

Indeed, reverse discrimination against citizens has been a common complaint in more developed countries. In 2002, the US Congress enacted the Trade Promotion Authority Act, which empowered the executive to carry out investment negotiations to ensure that foreigners would not receive greater rights than US citizens.

Second, the court noted concerns that the inclusion of judiciary rulings among the subjects of arbitration requests could give rise to legal instability and uncertainty. It offered the example of the Loewen case, in which an arbitration panel reviewed US trial procedures and rulings.

Loewen, a Canadian funeral home conglomerate, received a 1995 Mississippi State Court jury verdict ordering it to pay US$500 million in damages. In response, it filed an ISD suit, claiming violation of the North American Free Trade Agreement (NAFTA). The arbitration panel ultimately dismissed the case, but the case made it clear that judiciary rulings were subject to arbitration.

Another problem the court pointed to was the potential distortion of state public policy. The concern it expressed was that public policy efforts could be diminished and national chaos could result from administrative bodies assessing and reviewing government policies.

The Supreme Court determined that the problem would likely be minimal, since the KORUS FTA included provisions stating that government public health, stability, and environmental policies did not constitute indirect expropriation.

Finally, reference was made to the issue of transparency in arbitration procedures. The Court argued that the KORUS FTA would have greater transparency and fairness than NAFTA because it stipulated that discussions should be held to determine whether to give third party rights to submit legal opinions and establish an appellate body within a three-year period.

Park Joo-sun said, “At the time of the KORUS FTA’s signing in 2007, the Supreme Court‘s review opinion was not properly reflected, and this is why 166 seated judges expressed renewed concerns in December of last year that the FTA would infringe on judicial sovereignty.

"We definitely need to incorporate the Supreme Court’s opinion in the investor-state dispute system renegotiations that are scheduled for June," Park said

The South Korean government announced that it would be renegotiating investment-related provisions in the KORUS FTA with the US within 90 days of its effective date of Mar. 15. It has had a task force working since March on a negotiation draft.
 
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 source: The Hankyoreh