[Pleasant FTA] We Also Need an Investor-State Dispute Settlement System

Park Beomyong, who had been operating the Jangbaeksan Tourist Hotel at Mount Baekdu, found himself in a difficult situation. The Chinese government had demanded that he demolish a perfectly sound hotel. Park and the owners of four hotels in the area had begun investing after receiving a promise from the Jilin provincial government that they would be allowed to operate for 25 years. But in September 2006, the government suddenly changed its position and went so far as to issue a demolition order.

The reason the Chinese government is acting this way, it is said, is to apply for UNESCO World Natural Heritage status for the Mount Baekdu area. Whatever the reason, it is clearly an unjust measure against Koreans who made enormous investments in reliance on the Chinese government’s promise.

It is not that Korean investors who suffered losses have no way to file suit against the Chinese central or local governments in Chinese courts. But it is hard to imagine that a mere foreign investor could win a lawsuit against the Chinese government, in a Chinese courtroom at that. What is needed in such a case is investor-state dispute settlement. Under the FTA’s investor-state dispute settlement provision, a foreign investor who suffers losses because the host government failed to keep its promise may seek arbitration from the International Centre for Settlement of Investment Disputes rather than the host country’s courts, and the host government promises to accept the outcome. This provision is a highly common mechanism, already included in the 80 investment guarantee agreements we have concluded with other countries, as well as in the Korea-Chile FTA and the Korea-Singapore FTA.

Because the investment guarantee agreement with China, concluded 15 years earlier in 1992, did not contain this provision, Korean investors at Mount Baekdu have had to bear this disadvantage. That is why the new Korea-China investment guarantee agreement taking effect this year includes, at our side’s request, a strengthened investor-state dispute settlement mechanism.

Even under these circumstances, the fact that investor-state dispute settlement is being singled out as a problem only in the FTA with the United States stems from viewing American investors through an excessively ideological lens.

Korean companies, including Hyundai Motor, have also made substantial investments in the United States. If we are to ask the U.S. government to protect those investments, then we must also keep our promises to American capital investing in Korea. The very mechanism that guarantees the effectiveness of such promises is investor-state dispute settlement. It simply means that if a government breaks its promise and harms an investor, it will provide corresponding compensation; it has nothing to do with economic sovereignty. A country that keeps its promises to other countries and makes policy and law through transparent, predictable procedures and content has no reason to fear investor-state dispute settlement.

Original title: [유쾌한 FTA ] 우리를 위해서도 투자자-국가 소송제도가 필요하다

Author: Center for Free Enterprise (CFE)

Date: 2007-06-20

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=20&idx=10692