ISD will undermine Korea’s real estate policies

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ISD will undermine Korea’s real estate policies
Kor-US FTA, even threatening Constitutional Law

Jo Tae-Geun    

  Chapter 11 of the North America Free Trade Agreement allowed corporations or individuals to sue Mexico, Canada, or the US for compensation when actions taken by those governments (or by those for whom they are responsible at international law, such as provincial, state, or municipal governments) had adversely affected their investments. It is so called investor-state claim,

△Press conference pointing out the danger of ISD on Korea-US Free Trade Agreement ⓒJung Taek-Yong, Voice of People

It has been invoked in cases where governments have passed laws or regulations with intent to protect their constituents, that also impact a corporation’s bottom line. Language in the chapter 11 defining its scope states that it cannot be used to “prevent a Party from providing a service or performing a function such as law enforcement, correctional services, income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care, in a manner that is not inconsistent with this Chapter.”

If the proposed investor-state dispute system is introduced through the Korea-US Free Trade Agreement, the government policies coping with real estate speculation, balanced development, and efficient use of land will be ineffective, experts warned.

Under the ISD terms, in the case of a suspected unfair advantage, individuals or private companies would be able to file for international arbitration against the government, legislature, or judiciary of the other nation.

The People’s Solidarity for Participatory Democracy, and Rep. Choi Jae-cheon and the Citizens Coalition for Economic Justice (CCEJ), announced the results of a joint study on effects of the FTA on domestic real estate policies at a press conference on February 1.

According to the study’s findings, the two nations possess significantly different policies when it comes to compensation during forcible land expropriation. This situation arises when development plans call for existing landowners to leave the area in question, and the government steps in to facilitate the move. South Korea decides the amount of compensation granted to these relocated landowners based on the land price shortly before the announcement of the development plan, while the U.S. bases its compensation on the land price from between six months to three years after the announcement.

In South Korea, skyrocketing real-estate prices have continually fueled controversy, with nearly all presidential candidates in every race placing priority on policies to curb the phenomenon. As a result, in the early 1990s, the government stressed the public use of real estate, and put into place various policies limiting development and multiple real estate holdings by the private sector. During last year alone, the government announced complementary measures to control the soaring real estate prices, with many types of short-term development investment being designated as illegal land speculation.

According to the study, under the Korea’s system, compensation for cases of expropriation can be delivered in the form of bonds or cash, while the US only offers compensation via cash. Therefore, if Seoul wishes to compensate using bonds, it can be subject to international arbitration suits brought forth by U.S. investors, the study said.

△Represantative Choi(The second from left) ⓒJung Taek-Yong, Voice of People

In South Korea, if land is designated by the government as being restricted from development, compensation is not required for potential losses due to the lack of the landowner’s ability to develop the land. This will incur lawsuits from the U.S. as a type of indirect expropriation, the study said.

In addition, the South Korean system, which applies surcharges and heavy transfer taxes to profits earned from land development – in an attempt to curb South Korea’s fierce land speculation problem – will amount to ‘indirect expropriation’ under the currently proposed terms of the FTA. According to the civic groups, if South Korea accepts the ISD system as part of the FTA, South Koreans would likely file lawsuits against the government’s current real estate policies in place for curbing land speculation, as they would then be discrimatory against South Korean investors because foreign investors would be exempt from the regulations, protected by the ISD system.

The study also said that “the forces of real estate speculation in South Korea may be able to neutralize the government’s anti-speculative policies by jumping into the speculation game in the South Korean real estate market through investing in U.S. property funds,” referring to the fact that unlike Korean investors, U.S. property funds, as foreign investors, can avoid the government’s anti-speculative policies through being protected by the ISD system.

In all, the study said that 21 South Korean laws would clash with the terms of the ISD.

2007-02-06 ⓒThe Voiceofpeople