ed 1st investor-state dispute

US equity fund’s claims go way too far

The ill-fated relationship between the Korean government and Texas-based Lone Star Funds seems to know no end. The U.S. private equity fund, widely resented here as an ``eat-and-run” investor for pocketing handsome profits without doing much in return for the host country, has set out to even claim the meager taxes it has paid to the latter.

Lone Star cites two reasons for filing investor-state dispute (ISD) arbitration claims against the Korean government: Seoul inflicted damage on the Dallas-headquartered firm’s finance by delaying approval for its sale of the Korea Exchange Bank; and by unwarrantedly taxing the U.S. investor’s paper company in Belgium in violation of the bilateral investment treaty signed between Seoul and Brussels.

These are outrageous claims in the eyes of all who have seen how Lone Star went all out to hide its true identity as an industrial, not financial, investor which could, and should, not have made the equity purchase in the troubled bank, evaded taxes and manipulated stock prices in Korea.

Seoul officials are not free from blame, either, for making an exception in the investor qualification in their haste to dispose of the financially ill Korean bank and for other dubious political reasons.

Nor can Korean taxpayers understand why these bureaucrats failed to exclude paper companies from the list of taxation beneficiaries in revising the pace of Korea-Belgium a few years ago. The only way for them to compensate for losses in state coffers by rash and amateurish handling of international treaties and foreign investors is to win the legal battle at the International Center for Settlement of Investment Disputes in Washington, D.C, in the next couple of years.

A top regulator expressed confidence, noting the government has made preparations since Lone Star first expressed such a will in May.

We are less optimistic, however, if for no other reason than the opaqueness in how these officials handle their jobs. As recently as six months ago, the bureaucrats were busy downplaying both Lone Star’s intention and potential risks when the U.S. hedge fund turns its words into action while refusing to disclose related documents under the usual pretext of ``protecting national interests.” Most taxpayers know had the officials really put economic concerns ahead of all else, Lone Star couldn’t have dreamed of landing here from the outset.

What’s needed for them now is to cope with the international dispute in more cautious and transparent ways so as not to incur any further losses.

No less worrisome is the Korea-U.S. free trade agreement which has even more toxic ISD-related clauses, which could threaten to infringe on the nation’s sovereignty in taxation and other public policy-making.

Free-trade fundamentalists caution against over-interpretation, but the risk seems more than hypothetical. Seoul needs to propose Washington to revisit the potential source of bilateral frictions, and if necessary, rewrite it. It should consider why many Asia-Pacific nations, including Australia, called for removing ISD provision from the U.S.-initiated Pan-Pacific Partnership of free trade.