US Congress and courts well aware of ISD’s danger

Hankyoreh, Seoul

US Congress and courts well aware of ISD’s danger

Mississippi Lawsuit sets precedent for how courts rule and how South Korea will be affected by the FTA

By Jung Eun-joo

6 December 2011

Canadian company, the Loewen Group has found itself embroiled in a legal battle after investing in a U.S. funeral home project. Loewen was charged by the Mississippi state court with violating its contract.

The jury ruled that Loewen had to pay $500 million in damages. Loewen eventually reached an agreement with Jeremiah O’Keefe, a small shareholder in the funeral home who filed charges.

Loewen agreed to give O’Keefe $175 million after it faced possible bankruptcy during the appeals trial.

The group responded by filing an investor-state dispute (ISD) arbitration claim contending that the state court’s ruling was in violation of fair treatment and compensation obligations as stated in the North American Free Trade Agreement (NAFTA).

This was the first case in which a court ruling was challenged based on NAFTA. In 1998, the arbitration panel ruled that the jury’s decision had been clearly in the wrong and was inappropriate in light of customary international law. It became apparent that court rulings would be subject to the ISD system even though the arbitration claim was rejected on the grounds that domestic procedures had not run their course.

U.S. state attorney generals, concerned about the development, were the first to act. On March 22, 2002, they issued a resolution declaring that free trade agreements posed a potential threat to state authority, protecting citizens’ welfare and the environment. The U.S. Congress was asked to take steps to ensure that foreign investors weren’t privileged to more rights than U.S. citizens.

In July of 2004, a resolution was adopted by the Supreme Court of the United States (SCOTUS) stating that the investor-state relationship permitted foreign investors the right to challenge rulings. U.S. companies and citizens weren’t allowed the same rights which thus, infringed upon the final force and execution of the state supreme court rulings. SCOTUS went on to urge the Office of U.S. Trade Representatives and Congress to negotiate and approve trade agreements that included provisions recognizing and supporting judicial sovereignty. Also enforced was the finality of court rulings and specifying in the agreements that foreign investors would not enjoy more procedural rights than U.S. citizens or companies.

U.S. administration and Congress accepted the resolutions of state supreme court and state attorney generals creating a modified agreement model for the ISD system.

This model would be applied to the investment-related sections of the KORUS-FTA.

An example of this is that U.S. investors receive more protections when they enter South Korea, while South Korean investors do not receive more substantive rights than U.S. investors in the United States.

This system that was already the subject of serious criticisms in the U.S. for infringing upon the rights of the judiciary is being forced upon South Korea without any measures in place to curb its effects.