SOUTH KOREA Law and Practice Contributed by: Junu Kim, Woojae Kim, Hangil Lee and Sarthak Malhotra, Bae, Kim & Lee LLC
On dispute settlement, most FTAs provide for ISDS alongside state–state mechanisms. Recent agree- ments include safeguards such as fork-in-the-road clauses, waiver requirements, and cooling-off periods. A few, however, diverge; for instance, RCEP does not include ISDS, providing only for state–state dispute settlement in respect of investment chapters. Korea is not part of a supranational structure compa- rable to the European Union, nor a regional framework such as USMCA. Its policy has instead been to con- clude an extensive network of bilateral and plurilateral FTAs, thereby ensuring wide investment protection coverage while retaining treaty-by-treaty flexibility on dispute settlement. 2.4 Interpretive Aids Korea does not routinely publish official commen- taries or interpretive notes to accompany its invest- ment treaties. Interpretive practice is instead guided by treaty text, travaux préparatoires , where available, and subsequent practice. Academic commentary and government-prepared reference texts, such as the Ministry of Justice’s Commentary on Korea’s Invest- ment Agreements (2018, in Korean), offer practical guidance but lack binding force. The Ministry of Trade, Industry and Energy also oper- ates a website that provides the status of each agree- ment, indicating whether it is: • under preparation; • in negotiation; • awaiting signature; or • in force. Reference materials and related media reports for each FTA are also accessible through the site. 2.5 Investment Laws Korea has a national investment statute, the Foreign Investment Promotion Act (FIPA). It grants national treatment to foreign investors, guarantees free trans- fer of returns, and provides for limited state or local funding incentives in specific sectors. It also empow- ers a Foreign Investment Ombudsman to facilitate the resolution of complaints. The protections under FIPA largely mirror those in Korea’s treaties but are narrow-
er, as they do not include fair and equitable treatment or expropriation protections. It also does not provide for investor-state arbitration. 2.6 Arbitration Clauses in Investor–State Contracts Direct arbitration clauses in contracts between investors and Korean state-owned entities are not uncommon, particularly in infrastructure, energy or construction projects. Such clauses usually provide for commercial arbitration under the KCAB (Korean Commercial Arbitration Board) or other international rules (ICC, SIAC, UNCITRAL), rather than investment treaty arbitration. The protection is narrower: contrac- tual arbitration only covers breaches of the specific agreement, whereas treaty arbitration covers broader standards of protection such as expropriation, fair and equitable treatment and most-favoured-nation treat- ment. The most frequently cited complaints by investors have concerned fair and equitable treatment (FET) and indirect expropriation. In high-profile cases such as Lone Star v Korea , Elliott v Korea and Mason v Korea , investors argued that political influence over the regulatory bodies and other forms of state inter- vention unfairly impaired their rights and reduced the value of their investments. Allegations of expropriation have also been raised, though often framed as indirect expropriation rather than outright seizure. For exam- ple, in Dayyani v Korea , the claim was that blocking an acquisition amounted to unlawful deprivation of investment. 3. Substantive Protections and Breaches 3.1 Common Complaints Claims based purely on breach of contract are less common in treaty arbitrations against Korea, as such disputes are generally channelled into commercial arbitration under contractual arbitration clauses, especially in state-owned enterprise projects. Overall, the core complaint has been the scope of FET and indirect expropriation, reflecting investor con-
212 CHAMBERS.COM
Powered by FlippingBook