The Proposed U.S.-South Korea Free Trade Agreement (KORUS ...

CRS-40
from performance requirements for foreign investments from the other party. But the
negotiations collapsed largely over U.S. opposition to South Korea’s so-called screen
quota on domestic films and the latter’s resistence to lifting or reducing it. (The
South Korean government reduced the screen quotas by half just before the KORUS
FTA negotiations were launched in February 2006.) The KORUS FTA chapter on
investment essentially contains the commitments that would otherwise have been in
a BIT.
The FTA sets down general principals for the treatment by South Korea and the
United States of investors and investments from one partner in the territory of the
other. 133 The principle of national treatment — that one party to the agreement will
treat covered investments and investors from the other party no-less favorably than
it treats domestic investors and investments — is paramount. The FTA allows each
party to make exceptions to the national treatment principle, but those exceptions
must be specified in the relevant annexes to the agreement. 134 A second fundamental
principal is most-favored-nation treatment (MFN) — the two parties agree to treat
investors and investments from the other no less favorably than it treats investors and
investments from third, non-party countries. A third principle is minimum standard
of treatment, that is, each party shall accord to all covered investments treatment in
accordance with customary international law, including fair and equitable treatment
and full protection and security.
The KORUS FTA would set limits on government expropriation of covered
investments — that they be only for public purpose and carried out in a nondiscriminatory
manner, and affected investors would be provided with prompt and
adequate compensation (fair market value). It also would require each KORUS FTA
partner-country government allow for the free transfer of financial capital pertaining
to covered investments both into and out of the country with exceptions, such as
cases related to criminal offenses. The KORUS FTA would prohibit the U.S. and
South Korean governments from imposing performance requirements (domestic
content requirements, export-ratios, import limits, etc.) on the investments from the
other. It would allow exceptions for measures intended to accomplish social
objectives, such as to increase employment in certain regions of the country, promote
training of workforce, and protect the environment. The agreement would also
prohibit a requirement that senior managers be of a particular nationality but would
allow a requirement that the majority of board of directors be of a particular
nationality.
133 A range of factors determine the climate for foreign investment — government
regulations, skills of local labor, general economic conditions, intellectual property rights
protection, among others. Therefore, U.S.-South Korean investment ties could be affected
by not only the provisions of the investment chapter of the agreement, but other chapters as
well.
134 The USITC report on the KORUS FTA points out that South Korea’s list these
“nonconforming measures” in the KORUS FTA is longer than in previous FTAs that the
United States has signed; however, industry representatives generally believe that the
KORUS FTA would still render significant opportunities for U.S. investors. USITC. p. 6-
5.