As Obama pushes FTAs, unionists in Colombia & Panama are killed
WTO Doha Round: Cranking up the Deficit

Korea Also At Threat from FTA

We've been talking a lot about how Bush's Korea FTA would give investors incorporated in Korea but with (current or planned) investments in the U.S. with greater rights than U.S. investors under U.S. law.

But it's also true that U.S.-incorporated investors with (current or planned) investments in Korea would get greater rights than under Korean law. As Jeeyeop Kim wrote in a paper for the parastatal Korean National Housing Corporation:

...Korea will be unable to avoid the situation where foreign investors are treated differently from domestic investors or citizens under KORUS-FTA. Throughout modern Korean history, the focus the Korean government has been mainly on economic growth. To rapidly achieve this goal, the direction of Korean policy on land use control has been to make compensation for interference with property rights as infrequently as possible. The legislature did not seriously consider the compensation requirement as unnecessary to the private property rights and governmental goals. As a result, many zoning systems and land use laws have been adopted without providing for compensation.

Additionally, it has been difficult for an individual claimant to seek compensation. Although it may be apparent that private property is being indirectly expropriated by a law, compensation will not provided unless the law includes a compensation requirement. The only way to plead compensation is to appeal to the Korean Constitutional Court. However, even if the Court finds that the law is unconstitutional, it may not grant compensation by itself. Instead the claimant must wait until the law is amended to include a compensation clause. Furthermore, the Constitutional Court does not have authority to force the legislative body to amend the law if the legislature does not want to. Consequently, the compensation mechanism for indirect expropriation in Korea does not work efficiently and property rights have fallen victim in the name of public objectives...

FTA requires that compensation “be paid without delay” and “be equivalent to the fair market value of the expropriated investment immediately,” while the Korean compensation mechanism provides otherwise. The Korean Constitutional Court stated in the Public Facility case that compensation does not need to be only monetary and legislators may adopt alternatives to alleviate damages such as the cancellation of the alleged action or the right to request that the government purchase the affected property...

Kim's piece focuses primarily on land-use regulations, as opposed to more intangible notions of property in financial services contracts like derivatives, which are also offered up as the basis for standing to launch an "indirect expropriation" claim under Bush's Korea FTA if regulations get in the way of profit.

Kim is clearly sympathetic to the idea of the FTA forcing a change in Korean legal norms, but is honest enough to admit that the Korean practice for most of its history is not to pay compensation for "indirect expropriation" or "regulatory takings" when there's a public interest at stake.

None of this has hindered Korea's development. In fact, it is exactly Korea's embrace of unorthodox (but historically proven) policies that helped catapult the country from the development level of Sub-Saharan Africa to OECD levels in little over a generation, as Korean scholar Ha-Joon Chang documents.

(Daniel Soonghyun Lee, in a piece sympathetic to the FTA, also notes some inconsistencies of the FTA's dispute settlement mechanism with Korean civil law procedure, which is based on German law via Japan.)

This is not the first time that "trade liberalization" seems conditioned on deregulation of Korean domestic policies. During the Asian Financial Crisis, for instance, Korea committed to the IMF that it would deepen its financial services commitments at the WTO. Now, the country appears poised to deregulate via a trade pact yet again.

Print Friendly and PDF


Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)