Once again the democratic party of South Korea, now called the Democratic United Party, is railing against the KORUS Free Trade Agreement. The DUP is promising to repeal the agreement should they gain a majority in the April elections.
As an outsider observing this obsession against the agreement, I often wonder if it is simply a political tactic to appeal to their base in the countryside or if it is based on an unfortunate holdover of a more xenophobic past.
I wonder whether the DUP will also demonstrate so violently and vocally against the proposed free trade agreement between China and South Korea or if, with the memory of Lone Star still fresh in their minds, it is only the thought of foreign direct investors from the United States coming to South Korea which generates such angst for them.
Regardless of the underlying reason or reasons, this outdated and isolationist approach to geopolitics ultimately will only damage South Korea, its economy and its people.
The DUP’s approach seems even more asinine when one considers that since 2009 over 50 percent of the South Korean economy has been based on exports.
South Korea’s economy is expected to contract in the first quarter of 2012 due to weak export demand as a result of the European economic crisis. Further the Korean economy posted a dramatic year-over-year decline in January due to weak exports despite the fact that overall exports to the United States jumped dramatically. Without the increase in exports to the United States the economic decrease would have been much worse.
Nonetheless, the DUP continues its ongoing protest against the FTA and the investor state dispute settlement clause. As we all know by now, the ISD clause allows foreign direct investors in South Korea to appeal to an international arbitrator when there is a question of whether the Korean government, or its proxies, has expropriated the investment of the foreign investor.
But does a foreign direct investor in South Korea actually need this kind of protection? After all, back in 2001 South Korea established a Human Rights Commission designed to ensure that the inviolable fundamental human rights of all individuals be protected. This commission has the laudable purpose of investigating cases of discrimination based on any one of a number of factors including sex, nationality, race, appearance and skin color. The all encompassing list seems guaranteed to ensure that foreigners and foreign direct investors in South Korea will be protected from any ill treatment and especially from expropriation by the Korean government of their investments due to discriminatory reasons.
Unfortunately, and rather significantly, the commission’s mandate specifically excludes court decisions, and therein lies the giant black hole into which the entire investment of a foreign direct investor can disappear. Without the ISD clause a foreign direct investor who is subject to discriminatory treatment by the South Korean judiciary has no recourse.
Unfortunately, the South Korean judiciary has a reputation for bias even among the Korean citizenry who believe that the judiciary cares more about a complainant’s connections than the merit of the case. And if the Korean citizenry mistrusts the judiciary, then what sort of treatment should a foreign investor expect? Especially since bias is shown not only in high profile cases such as Lone Star Investments, but also in many cases involving small scale direct investments by foreigners, such as foreigner owned schools, restaurants and bars.
Often when disputes involving international contracts or interracial families are before the court, any shared investments are given 100 percent to the Korean party. Shockingly the judiciary often reaches these decisions despite such results being in direct conflict with South Korean law. And if Lone Star Investment Fund with its massive resources was unable to obtain unbiased treatment, these small investors have no hope at all.
At the same time as foreign direct investors are being robbed of their investments in the South Korean courts, the South Korean government has created numerous free trade zones throughout the country in an attempt to attract foreign corporations, foreign direct investors and foreign universities. But how will these potential investors balance the risk and reward when considering an investment in South Korea. Every investment has some amount of risk and normally the greater the risk, the greater the potential reward. However, there is no increase in the reward for investing in South Korea that offsets the potential risk of dealing with the South Korean court system.
Thus every investor from the United States must consider the court-based risk when looking at a direct investment in South Korea. The routine bias exhibited by the judiciary, the inability of the Human Rights Commission to remedy this type of discrimination, and a national party that wants to strip needed legal protections for foreign direct investors means that the risk of investing in Korea may be too high in light of the potential rewards.
Thus, should the DUP gain a majority in the National Assembly or win the presidential election later this year, South Korea may have to change its slogan from “Korea, Be Inspired,” to “Korea, Invest at Your Own Risk.”
By Daniel Fiedler
Daniel Fiedler is a professor of law at Wonkwang University. He also holds an honorary position as the lawyer representative for international marriages in Namwon. ― Ed.
