Golden standard of FTA?
AMCHAM chief expects KORUS FTA will bring greater benefits for Korea
By Kim Jae-kyoung
The countdown for the free trade agreement between Korea and the United States (KORUS FTA) has begun as the two countries agreed Tuesday to put it into effect on March 15, six years after they met first at the negotiating table in June 2006.
Although they agreed on the long-awaited implementation of the historic pact that will make Korea the only country to run free trade pacts with both the U.S. and the European Union, there still remain big questions marks concerning multiple issues, including the investor-state dispute (ISD) system provisions.
The opposition Democratic United Party (DUP) and activist groups have vowed to prevent the implementation of the FTA. The DUP has requested the U.S. president and Congress to suspend the effectuation, calling for modifying 10 controversial clauses, including the ISD settlement system.
The country has been split over the KORUS FTA issue — companies, large and small, are backing the deal, while farmers, small shopkeepers and those in the services sector are deadly set against the pact.
The chairman of the U.S. business lobby group in Korea said the KORUS FTA is a fair deal for both countries, emphasizing that opponents should try to see the forest, not the trees.
He stressed that although the agreement can incur losses for some industries in the short term, it will be a monumental step for Korea to make headway toward becoming an advanced economy, which he believes will not only boost exports but also attract more foreign investment in Korea.
“I looked at a lot of FTAs, and I believe that KORUS FTA is what I call the golden standard,” Pat Gaines, chairman of the American Chamber of Commerce in Korea (AMCHAM), said in an interview with Business Focus at his office in Jonggak, Seoul, on Feb. 15.
“No FTA can benefit every citizen in any country. Already the Korean government has introduced various policies to help ameliorate negative effects of its FTAs and to assist farmers and companies that could be disadvantaged by an FTA as the Korean market opens,” he said. “I truly believe that the benefits in the long run will be far greater for Korea because of the economic environment, processes and transparency that it will put in place.”
The KORUS FTA, in Gaines’ words, is by far “the most visible and the easiest one” because of the strong partnership and alliance between the two countries. “I think it has had so many problems just because it’s so big and important,” he said.
According to Gaines, the implementation of the pact does not just benefit Korea and the U.S. but will be good for foreign investors because it will take the Korea’s business environment to the international level.
The biggest part that Gaines feels may benefit Korea is that the FTA calls for improvements in regulatory transparency and more predictability in the market that will give both domestic and foreign firms greater security in planning their business strategies and pursuing new investments in the Korean economy.
“Regulatory transparency will put in place a framework for business conduct and intellectual property protection. That standard of doing business will help Korea establish not only growth with the U.S but also growth with every other country doing business in Korea,” said Gaines.
“The KORUS FTA takes that to the next step. Because of this agreement, there will be carryover effects on every other investor that comes into Korea.”
ISD in favor of Korea
Regarding the controversial ISD issue, Gaines, who also serves as president of Boeing Korea, the Korean arm of global aerospace giant Boeing, said that the dispute resulted from a misunderstanding of the ISD settlement system. In his view, the clause is more in favor of Korea, not the U.S.
“It is unfortunate that there seems to be some confusion about what the ISD settlement system does and does not do. In the context of the KORUS FTA, it would protect Korean investors in the U.S, and U.S. investors in Korea,” the 56-year-old chief executive said.
According to him, the overall statistics of investment between 2005 and 2010 shows Korean businesses invested $21.7 billion in the U.S, while U.S.-based parties invested $11.5 billion in Korea. “Therefore, we could say that Korean companies have more of a stake in the ISD because it will help protect their investments in the U.S.,” he said.
The ISD is a legal mechanism that is designed to protect investors in foreign countries. ISD clauses are stipulated in more than 2,500 international investment-related agreements in place today, including in 81 agreements that Korea has entered into.
The military officer-turned-CEO cites regulatory transparency as the area where Korea should focus on to improve business environment. He points out that too often, new rules that affect companies’ ability to do business are enacted in Korea without sufficient notice to or involvement of stakeholders, including the foreign business community.
“It is essential that the government make greater efforts to ensure that new policies and changes to existing policies are developed and implemented in a way that allows all stakeholders, both domestic and foreign, a chance to provide meaningful input into the process,” he said.