Subscribe
E-Paper
 |
| Park Tae-jung |
This is no easy task, and countries at the brink of becoming developed frequently engage in policy experiments that result in both success and failure.
Policy experimentalism often brings about novel laws and policies, as it involves legislation and policy-making that reflects the country's unique situation. Korea is no exception. For example, the Korean National Assembly recently passed a law establishing the Corruption Investigation Office for High-ranking Officials (the first of its kind globally) to reform the Prosecutors' Office.
Furthermore, the incumbent government implemented 28 regulatory changes in an attempt to stabilize the real estate market. If such experiments are successful, they will create substantial progress. But if they fail, the burden will typically have to be borne by the people.
When engaging in policy experiments, countries must be mindful that the new policy does not breach any agreement entered into with another country. In other words, a policy experiment must comply with existing treaties and international laws.
Policy experiments violating treaties or international laws may seem effective in the short term, but they are likely to cause disputes between countries, erode the country's reputation within the international community, and could ultimately lead to policy failures in the long term.
The Fair Trade Commission (FTC) recently announced that it is considering applying the "same person designation" rule (i.e., a rule where a person is deemed to be the "same person" as the corporation, if they exert de facto control over the business) to an individual who purportedly has de facto control over a well-known U.S. retailing and logistics company who is doing business in Korea.
Furthermore, the FTC that had decided against such a designation earlier this year is now reconsidering its decision. This news created substantial controversy in the media and among academia.
Aside from the debate on whether designating an individual who is exerting de facto control over a U.S. company qualifies as a sound policy for Korea, this policy experiment raises an issue under the Investment Chapter of the Korea-U.S. Free Trade Agreement (FTA), the objective of which is to protect foreign investments between Korea and the United States.
Currently, all foreign-invested companies in Korea that qualify for the "same person designation" rule have their local subsidiaries, not individuals, designated as the "same person."
However, if the FTC targets this particular U.S. entity and designates an individual (who purportedly exerts control) as the "same person," it may violate Article 11.4 (Most Favored Nation Treatment) of the Korea-U.S. FTA, which prohibits discrimination against U.S.-invested companies. In addition, requiring this U.S. entity to comply with an unexpected and discriminatory regulation would likely undermine investors' predictability and stability, and violate Article 11.5 (Minimum Standards for Treatment) of the Korea-U.S. FTA (commitment to provide "fair and equitable treatment" to U.S. investors).
Considering the U.S. entity's public profile in Korea, it is unlikely to pursue an Investor-State Dispute Settlement (ISDS), claiming a violation of the Korea-U.S. FTA (as in the well-known ISDS's, initiated by Lone Star and Elliot against the Korean government and claiming significant damages).
Furthermore, if the FTC assigns a "same person designation" to this U.S. company, other foreign companies conducting (or planning to conduct) business in Korea may get the impression that the Korean government can easily retract its commitment to protect foreign investors while experimenting on policies.
While the U.S. company at issue primarily engages in the logistics or retail business, practically all industries have entities set up with foreign funds. Thus, the impact of this policy experiment may be significantly more far-reaching than expected, eroding foreign investors' confidence in various industries, and generally making it more difficult to attract foreign investment.
While the Korean government's attempt at a novel policy experiment (reflecting the unique Korean situation) to regulate the concentration of power in domestic conglomerates is laudable, when expanding this policy to foreign investors, the government must consider its commitments to other countries carefully. This includes considering the Korea-U.S. FTA and international norms. Otherwise, the policy may result in an unexpected failure, and the Korean people will have to bear the burden.
The writer is a professor of Law at Incheon National University. The views expressed in the article are the author's own and do not reflect the editorial direction of The Korea Times.
