Rebuttal to “U.S.-Korea FTA Dangerous Articles”

Debating issues from various angles is essential for a healthy democracy. However, it is distressing when views based on misunderstandings or incorrect facts are propagated. As I read the Kyunghyang Shinmun article by Professor Lee Jong-Hoon published on June 15, “Dangerous Articles in the U.S.-Korea FTA [Free Trade Agreement] Need Revision,” I realized that many people still possess misconceptions about the U.S.-Korea FTA; and, as an authority in commerce, I should set this straight.

I disagree with Dr. Lee’s assessment that the stipulations on capital flow regulation and the investor-state dispute mechanisms are dangerous articles. Dr. Lee points out that the relevant stipulations to guarantee capital flow regulation are inadequate, but this is not the case. Even though the U.S.-Korea FTA was signed before the U.S. financial crisis, there are sufficient safeguards included to ensure stability of the financial system.

First, the U.S.-Korea FTA permits new financial services only under very strict conditions. Dr. Lee’s argument that the U.S.-Korea FTA will enable various derivatives, the cause of the U.S. financial crisis, to enter and wreak havoc to the Korean financial market is stretching it. The U.S.-Korea FTA is restricted to financial products that Korean law permits domestic financial institutions to supply, and even allows for a management system for licensing and authorization by product. As such, the stability of the financial system is already taken into consideration.

Second, the U.S.-Korea FTA recognizes exceptional cases permitting prudential measures to ensure consumer protection, maintenance of the health of financial companies, and the stability of the financial system. Therefore, should a financial crisis happen, the assertion that it cannot be regulated is unfounded. After the global financial crisis, prudential measures like levies on banks are being proposed to G-20 member countries, including South Korea and the U.K.; such proposals would have been unlikely if they were in violation of international agreements like the FTA.

Third, the U.S.-Korea FTA also allows Korea to enforce temporary safeguards in accordance with the Foreign Exchange Transactions Act. Dr. Lee claims that exceptions to the rules have the potential to turn into problems and need to be drastically eliminated. However, these conditions have nothing to do with the U.S.-Korea FTA; they are merely put in place to respect the requirements of the Foreign Exchange Transactions Act in compliance with the World Trade Organization service agreement.

Further, Dr. Lee contends that the Investor-State Dispute provision should be eliminated. In reality, the U.S.-Korea FTA is not the first to include the Investor-State Dispute provision. Such a provision can be found in the majority of over 2,500 Investment Promotion and Protection Agreements throughout the world. It is also included in the majority of over 90 Investment Promotion and Protection Agreements and various FTAs that we [Korea] have signed to date. Additionally, the investor-state dispute mechanism is needed to protect Korean businesses’ overseas investment in the United States, especially when considering that from 2006-2010 Korean investment in the U.S. reached $22 billion and the U.S. investment in Korea reached $8.8 billion.

Dr. Lee points out the danger of individual investors abusing the settlement mechanism. However, bearing in mind that a three- to four-year-long trade dispute would incur a lot of expenses and that litigation comes with the risk of deteriorating public sentiment in the host state and a small chance of winning, the prospect of abuse to the dispute mechanism does not seem substantial. On the contrary, the purpose of the mechanism is to achieve a neutral and impartial resolution to trade disputes through third-party arbitration. Moreover, the mechanism also contributes to conflict prevention between the countries by preventing trade disputes from unnecessarily turning into direct state-to-state confrontations. It is now time to ask ourselves what the agreement can do for the Korean people.