firmly in place has been confirmed through an abundance of historical evidence.
What is ISD?
A few years ago, members of the [[which party or parties]] who supported the Korea-U.S. free trade agreement under former president Roh Moo-hyun have reversed themselves. Now that they are out of power, they are now opposed to the FTA. Mainly, they cite the investor-state dispute settlement (ISD) clauses.
Their opposition is not reasonable because the clauses are contained in almost every bilateral FTA and investment treaty. It is also a groundless claim that the ISD system will threaten our public policies. The Korea-U.S. FTA has beefed up the protection of public policies, compared with other similar pacts. The ISD clauses cannot be a plausible excuse to deter the implementation of the deal.
One of the issues that some opponents have raised since the beginning of the talks in 2006 is the clauses allowing investors to bypass the domestic legal system and file suits against governments with international arbitration panels. The principled opponents of trade made similar arguments about the ISD and public policies, which then-President Roh Moo-hyun countered by noting that most investment treaties contained the system. Stressing the enhanced transparency in the ISD settlement procedures under the Korea-U.S. FTA, he made it clear that indiscriminative government policies for public welfare would not be subject to indirect expropriation.
There is little difference between Roh and his successor Lee when it comes to KORUS-FTA. The only change is that the current government has accepted the U.S. demand to delay the removal of the tariffs on vehicles a few years. No carmakers or those in the automobile industry have complained about the compromise; rather, they have all welcomed the deal.
Is the Korea-U.S. FTA the only treaty with ISD?
Then, should we drop the Korea-U.S. FTA due to the ISD clauses that the opposition parties and dissenters insist are as harmful as poison?
Their argument would be plausible if KORUS-FTA was the only deal with the ISD clauses. But they are specified in most FTAs?1 out of 85 investment treaties that we have been signed so far. The FTA between Korea and the EU contains no clauses on ISD, but bilateral investment treaties with individual EU member countries specify the dispute settlement mechanism. Since the Korea-U.S. FTA is not the only deal with the ISD clauses, that cannot justify opposition to the deal.
Groundless claim on public policy
Then, is it plausible to claim that the ISD clauses should be scrapped as they can neutralize public policies?
The ISD clauses specify how a dispute between an investor and a state should be settled. They enable an investor to bring a case against a target government to international arbitration panels for losses arising from a government violating a treaty. The issue is whether the government has violated any clauses on an investment treaty. The international arbitrators do not judge whether a government policy is valid for public interest. They do not judge about which one is more important between public policy and an investor`s right, either. They just make a legal conclusion on whether a disputed case is against the treaty or not. In principle, the ISD has nothing to do with public policy.
Korea-U.S. FTA beefs up public policy protection
The opponents claim that we may lose our judicial sovereignty over public policy if the international arbitration panels accept a complaint raised by an investor under the clause of indirect expropriation. The FTA with the U.S. allows legal action when a state or government materially infringes one`s property right without affecting direct ownership. Opponents claim that if a government policy for public interest results in indirect expropriation and an investor wins a case against it, it will lead to the nullification of the policy. However, all investment treaties specify indiscriminative policies for public welfare such as public health, security and environment will not be subject to indirect expropriation and so does the FTA with the U.S. Furthermore, the FTA also excludes tax and property price policies. The opponents` argument about indirect expropriation is far-fetched.
ISD defines dispute settlement procedures
The FTA and investment treaties presume that they respect each government`s policy goal to pursue public interest while ensuring national treatment for foreign investors and appropriate protection of investment assets at the same time. Governments obliged to comply with the treaties. The international arbitration panels decide whether they abide by the agreed-upon rules. The ISD system defines the procedures on how to settle disputes. Why should it become a reason to keep the FTA with the U.S. from being implemented?
Or, a different final sentence: Opponents뾢nemies of increased trade as well as opportunistic politicians who have reversed themselves뾥ave built a shaky case against the KORUS-FTA based on half-truths and outright lies.
By Song Won-keun, head of research coordination team at the Korea Economic Research Institute and [[an adjunct scholar with the Center for Free Enterprise뾬r what is his CFE affiliation?]]