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Trade Minister of South Korea should not undermine the ISDS reform objectives pursued by the Prime Minister

For Immediate Release:                 Contact: Heesob Nam (hurips@gmail.com)

August 1, 2019

Trade Minister of South Korea should not undermine the ISDS reform objectives pursued by the Prime Minister

On July 12, 2019, the Korean Prime Minister officially stated at the National Assembly that he “agreed to abolish investor-state dispute settlement (ISDS)”.^[1] This remark is in line with the recommendation of UN human rights experts to UNCITRAL member states,^[2] which calls for a structural and systematic reform of ISDS. The underlying idea of both the Korean Prime Minister and the UN human rights experts is that investors should not be privileged to ignore domestic laws, institutions and culture or to undermine the ability to protect the environment, human rights and labours’ rights of the investment hosting countries. The best way to implement such ideas is to abolish ISDS.

But it is shocking to see that the Korean negotiators of RCEP, especially the Trade Minister, Ms. Yoo, Myung-hee, still maintains the position to support ISDS at  the 27th round of Regional Comprehensive Economic Partnership (RCEP) taking place in China this week. Unlike the old-fashioned perception of the Korean negotiators, ISDS is not a matter of win or lose game between Korean investors and developing countries. It’s about the regulatory space of states in the public interest versus the private interest of investors. As a civil servant, the Trade Minister should take seriously into account public interests and national obligations under international human rights instruments.

ISDS cases against South Korea also show that the Korean negotiators’ position fails to understand the nature of ISDS. The latest ISDS case against South Korea was brought by Malaysian investor, Berjaya Land Berhad.^[3] Further, the first ISDS dispute that South Korea lost was raised by a Singaporean entity, D&A, which was invested by Iranian company, Dayyani group.^[4] These cases illustrate that the nationality of the investor and degree of development of hosting countries has nothing to do with the possibility of ISDS disputes. Moreover, various investors ranging from the US-based hedge fund such as Elliott Management, Lone Star Funds and Mason Capital Management, to individual investors, Korean-American, Korean-Canadian, US real estate development company, and European manufacturers have relied upon ISDS to progressively seek profits by attacking South Korea. The amount of monetary compensation foreign investors have sought against South Korea now exceeds USD 11.7 billion in just seven years.

We call for the Korean Trade Minister to stop supporting ISDS in the RCEP negotiation. We also call for the Prime Minister to discipline the Trade Minister to be consistent with the Prime Minister’s position, and to coordinate relevant administrative branches such as the Ministry of Justice and the Ministry of Foreign Affairs to develop policy options to remove ISDS from international investment agreements involving South Korea. These options should be developed in a transparent way and with a full consultation with civil society. We also urge the RCEP negotiators to develop more fundamental solutions to solve the problems of ISDS, including removal of ISDS from RCEP.

[1] https://occupyfta.blogspot.com/2019/07/korean-prime-minister-agreed-to-abolish.html 
[2] UN Special Procedures Mandate Holders' Letter to UNCITRAL WG III on ISDS Reform, 7 March 2019, https://uncitral.un.org/sites/uncitral.un.org/files/public_-_ol_arm_07.03.19_1.2019_0.pdf, https://www.ohchr.org/Documents/Issues/Development/IEDebt/OL_ARM_07.03.19_1.2019.pdf.
[3] https://occupyfta.blogspot.com/2019/07/10th-isds-case-against-south-korea.html
[4] http://www.theinvestor.co.kr/view.php?ud=20180704000746

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• People’s Solidarity for Participatory Democracy
• MINBYUN-Lawyers for a Democratic Society, International Trade Committee
• Knowledge Commune
• Trade & Democracy Institute

10th ISDS case against South Korea

Reportedly, Berjaya Land Berhad (BLB), a subsidiary of Berjaya Group of Malaysia brought an ISDS case against South Korea, claiming damages of KRW 4.4 trillion (around 4.0 billion in USD). According to the Ministry of Justice, Berjaya's Notice of Intent under the Korea-Malaysia BIT of 1989 was submitted on 17 July, 2019.

Back in 2008, BLB began to invest a resort-style residential and commercial complex (called "Yerae Resort-type Residential Complex") in Jeju Special Self-Governing Province. For this purpose, Berjaya signed, on 29 April 2008, a joint venture agreement with Jeju Free International City Development Center (JDC), and established Berjaya Jeju Resort (BJR). In 2009, BJR was designated as the developer of the Yerae project in place of JDC.

The Yerae complex is a huge project, aiming at building, on an area over 744,205 square meters (183.7 acres), casino hotel, spa resort, landmark tower, medical center, spa auditorium, condominium, 5 star hotel, shopping center, and a museum [1]. Its estimated gross development value (GDV) was USD 3.1 billion, but the project, the first sod was cut in 2013, was stalled in July 2015 due to the Supreme Court ruling in March 2015. 

The Supreme Court held that the expropriation of land in the area of Yerae, owned by several hundreds individuals is invalid (2011Do3746, March 20, 2015). According to the Court, the expropriation of land by JDC is allowable when the land is utilized for building facilities for entertainment and recreation mainly to contribute to the welfare improvement of residents. However, the Yerae Resort-type Resident Complex planned by JDC and approved by Seogwipo city of the Jeju Province is, according to the Court, to build facilities aimed at attracting domestic and foreign tourists, especially high-income elderly people, to stay in the mid- to long-term, thereby generating tourism revenue. Further, the Supreme Court found that the illegality of the measures of the Seogwipo city is so serious and thus illegal per se, resulting in null and void of the subsequent measures for the expropriation.

Berjaya argued, in the Notice of Intent, that the acts and measures of JDC and the Korean courts violates the obligations of: fair and equitable treatment; protection of investment against expropriation, and MFN. Also BLB sought compensation of actual damages, KRW 302.8 billion and lost profit, KRW 4.1 trillion.

The first ISDS dispute against South Korea was raised by the US private equity fund Lone Star at the end of 2012 and South Korea has been involved in 10 cases so far. Including the claim of Berjaya, the cumulative amount of compensation claimed by investors is more than 13 trillion won. 

[1] According to Berjaya Group's annual report of 2009, Berjaya planned to buidl "mid-rise condominiums, a 150-bed medical centre facility, a 500-room casino hotel, a full-fledged casino, world-class entertainment facilities, a 4-storey integrated shopping mall and indoor arena with seating capacity for 6,000 people, a 300-room 5-star resort hotel including 128 units of hotel suites, and exquisite Ocean Villas Resort with a resort-style club house".

* A scanned copy of the Notice of Intent is here and downloadable from the website of the Ministry of Justice.

Korean Prime Minister agreed to abolish ISDS

On 12 July 2019, the Prime Minister of South Korea, Mr. Lee Nak-Yon, attended the National Assembly and said that he agreed to abolish ISDS. (Media coverage: Yonhap, Hani, Khan) This remark came out while his responding to a lawmaker, Mr. Song, at the plenary session of the Budget and Accounting Committee.

The Prime Minister gave reasons for his consent: an excessively high cost; a poor predictability of outcome; and the problem of tyranny of a strong man. He added that the government, especially the Ministry of Justice, the Ministry of Industry, Trade and Energy, and the Ministry of Foreign Affairs were discussing how to reform ISDS, and would consult with the National Assembly when a government plan was developed.

As for the UNCITRAL working group, he said that the Korean government's solution would be prepared in consideration of the national interest and submitted in due time. Interestingly, both the Prime Minister and Mr. Song said the due date is the end of July, not July 15th (This is because the Korean government was granted from the UNCITRAL an extension on the July 15 deadline).

It is the first time that the senior government official officially mentions the repeal of ISDS. Back in 2012, Mr. Lee signed a letter of Korean politicians to the U.S. political leaders (including the President Obama), but at that time he belonged to the opposition party. 

The inquiry of the lawmaker Mr. Song and the response of the Prime Minister stems from the campaign of Korean civil society groups, especially the press conference of June 26th  at the National Assembly, and subsequent media coverage (here, here, here and here). When Mr. Song asked the Prime Minister about ISDS, he reiterated what the civil society groups explained at the press conference and subsequent op-ed. 

Mr. Song demanded, exactly as the CSOs did, the Korean government to present solutions which went beyond the US did in the re-negotiation of NAFTA and the new model BIT of the Netherlands. NAFTA 2.0, or USMCA, eliminates ISDS between the US and Canada and limits the application of ISDS between the US and Mexico. The Dutch new model BIT imposes an obligation upon foreign investor to comply with domestic laws and regulations of the host state, including laws and regulations on human rights, environmental protection and labor laws.

Letter between USG and SKG on confidentiality of KORUS renegotiation documents

January 5, 2018

Michael Beeman

Assistant United States Trade Representative

Office of the United States Trade Representative

Washington, D.C.

Dear Mr. Beeman:

This letter is to acknowledge receipt of your letter of this date, which reads as follows:

“In preparation for initiating negotiations on amendments and modifications to the United States-Korea Free Trade Agreement (KORUS), I would like to outline the following important points about the handling of documents in the context of the negotiations, and confirm that you agree with this approach: 

Letter b/w EC and SKG on confidentiality of negotiation documents of EU-Korea FTA

Facts and Figures of TRIPS-Plus: Experiences of South Korea