ISD clause presents more work for FTA negotiators

Although Sunday’s negotiations on ratification of the free trade agreement with the United States managed to produce a dramatic compromise to discuss the controversial Investor-State Dispute Settlement (ISD) clause later if the FTA bill is ratified, there remain issues to solve about the clause in the Korus FTA.

Belatedly, the ISD provision in the trade deal with the United States has undergone fierce debate as to ratification of the trade deal, serving as an obstacle to passing the long-pending Korus FTA ratification bill. The ruling Grand National Party and the government tried to hold a debate on the ISD issue earlier in the day, but failed as opposition parties, mainly the largest Democratic Party, boycotted it. The DP demands removal of the ISD, calling it “a toxic clause” while the GNP stubbornly refuses to remove it.

The ISD is a requisite for all kinds of international investment treaties.

“The ISD is required in about 2,500 international investment-related agreements including 85 deals that Korea has been agreeing to with other countries,” Trade Minister Kim Jong-hoon said.

It is not a special clause adopted solely for the Korus FTA at all, according to Kim. “It is a clause that provides safeguards for Korean businesses abroad and attracts foreign investors to the country,” he said.

From 2006 to 2010, Korean businesses invested a total of $20.3 billion into the U.S., far exceeding an $8.8 billion investment made by American businesses in Korea. Plus, the total amount of international investments made by Korean companies was recorded at $33.55 billion as of last year. This, by far, outstrips the $13.07 billion invested by other countries. Therefore, Korea is in urgent need of the ISD provision, because many Korean companies are making increasing overseas investments these days, the trade minister explains.

However, the opposition DP insists that the ISD provision bears high risks of nullifying the country’s crucial public policies. For instance, opposition lawmakers assert that the ISD could hinder implementation of a series of recently debated legal measures to protect small local merchants and boost co-prosperity between large and small businesses, and even the national health insurance system.

There are worries that when an American private health insurance firm would file a legal complaint against the Korean government, alleging that it cannot operate its business due to Korea’s national health insurance system, the country would have to drop the system in compliance with global free trade standards.

However, the trade ministry says this is not the case. The Korus FTA excludes Korea’s universal health insurance system, so there is no risk that the government gives up the national system or even some other public policies, the Ministry of Foreign Affairs and Trade says.

The ministry puts emphasis on the importance of the ISD provision, saying that it is needed to protect Korean businesses making large amounts of investments in many developing countries. “Since developing countries aggressively lure foreign investments to boost their employment and economic growth, there exist risks for investors because such countries are not politically or systemically stabilized,” a document released by the ministry said.

“Local laws or systems could be suddenly removed, doing damage to foreign investors. This is why the ISD is recommended to be included in international investment treaties as a safeguard for them.”

The ISD does not give disadvantages only to Korea, according to the ministry.

One of the allegations is that Korea would probably lose in legal disputes with the world’s most powerful countries like the U.S. In reality, the ISD is a legitimate legal clause that even American politicians are worried about, says the document.

By Song Su-hyun [ssh@joongang.co.kr]