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Minimizing the Aftershocks of the Korea-U.S. FTA: How to Manage Disputes Arising from the Two Countries' Discrepant Perspectives and Legal Systems
Author: Jaemin Lee
Region: Asia
Theme: Economics
Published September 25, 2008
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After the U.S.-Korea Free Trade Agreement (KORUS FTA) is approved by the legislatures of Korea and the United States, it will likely provide a turning point for the countries’ bilateral trade relationship. It is expected to expand the volume of trade and liberalize various domestic fi elds vis-à-vis the other country. The FTA also brings a wide range of new issues into the equation. One issue is likely to be the increase and diversification of legal disputes in covered sectors. In fact, to some extent this trend is inevitable as enhanced bilateral interaction and increased market presence will inevitably lead to more conflicts at various levels.

It is quite likely that traditional trade disputes (such as antidumping or countervailing measures) between the two countries will continue to increase in the FTA era. More important, the FTA will open the door for new types of legal disputes as well. They include investment disputes, nullification and impairment claims, forum-shopping issues, and complaints about nontariff barriers (NTBs). For these new issues, the two countries will have to navigate uncharted territory for a time. Given that even traditional trade disputes are getting more complex in recent bilateral disputes (as seen in recent zeroing and subsidy disputes), the addition of these new disputes to the bilateral relationship has the potential to create a new source of tension between the two countries. One of the grounds critics have resorted to in criticizing the KORUS FTA is that it pushes the Korean government into a situation where it has to defend itself against endless litigation by U.S. businesses and the U.S. government.

The problem is that the nature and intensity of the new disputes in the FTA era will be quite different from the ordinary legal disputes that the two countries have dealt with so far. Most of the time, it will be impossible to resolve these disputes by simply looking at the provisions of the agreement. Instead, one will need to look beyond the provisions of the agreement, to evaluate, for instance, the government’s intent, an overall design of a particular government policy, or the fundamental structure of the administrative function of governmental agencies. This is far from an easy task.

Under these circumstances, it is critical that the two countries explore a path to effectively manage these disputes and fi nd a mechanism to identify unnecessary disputes early on. One of the key tasks is the recognition that the legal systems of the two countries are fundamentally different and that there are differences of interpretation when observing the same situation. This recognition will be critical in approaching the new types of trade disputes expected to come about.

In fact, in the course of lengthy negotiations for the KORUS FTA, relevant statues and precedents of the two countries were extensively reviewed and discussed in an effort to adopt accurately phrased terms in the agreement. These initial discussions revealed only the tip of the iceberg, however, and there still remain big question marks concerning various issues. After the FTA goes into effect, it is recommended that the two countries make collective efforts to fi ll the gaps through various channels established by the FTA. There certainly will be a wide range of tasks to be accomplished to make the FTA achieve its intended objective. One of the tasks not to be forgotten in this process will be the continued efforts needed to ensure that the FTA dispute settlement mechanisms are not riddled with frivolous lawsuits and that any increase in legal disputes is managed in a constructive manner.

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