Investment Treaty Arbitration: South Korea

Albania (15 December 2003)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Algeria (30 September 2001)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Argentina (24 September 1996)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Armenia (3 October 2019)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Austria (1 November 1991)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

Azerbaijan (25 January 2008)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Bangladesh (6 October 1988)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Belarus (9 August 1997)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Belgium-Luxembourg Economic Union (3 September 1976)

Yes

Yes

Yes

Yes

No

None

Yes

Yes

Bolivia (4 June 1997)

Yes

Yes

No

Yes

Yes

6 months

Yes

Yes

Brazil (not in force, text not publicly released)

Na

Brunei (30 October 2003)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Bulgaria (16 November 2006)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Burkina Faso (14 April 2010)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Cambodia (12 March 1997)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Cameroon (13 April 2018)

Yes

Yes

Yes

Yes

Yes

Na

Yes

Yes

China (1 December 2007)

Yes

Yes

Yes

Yes

Yes

4 months

Yes

Yes

China–Japan (17 May 2014)

Yes

Yes

Yes

Yes

Yes

4 months

Yes

Yes

Colombia (not in force, text not publicly released)

Yes

Yes

Yes

Yes

Yes

Na

Yes

Yes

Congo (13 August 2011)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Congo, Democratic Republic of the (not in force, text not publicly released)

Yes

Yes

Yes

Yes

Yes

Na

Yes

Yes

Costa Rica (25 August 2002)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Croatia (31 May 2006)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Czech Republic (16 March 1995)

Yes

Yes

Yes

Yes

No

3 months

No

Yes

Denmark (2 June 1988)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

Dominican Republic (21 May 2008)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Egypt (25 May 1997)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

El Salvador (25 May 2002)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

Finland (11 May 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

France (1 February 1979)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Germany (15 January 1967)

Yes

Yes

Yes

Yes

Yes

None

No

Yes

Greece (4 November 1995)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Guatemala (17 August 2002)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Guyana (20 August 2006)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Honduras (19 July 2001)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Hong Kong (30 July 1997)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Hungary (1 January 1989)

Yes

No

Yes

Yes

No

6 months

Yes

Yes

India (terminated 12 May 2017) (replaced by CEPA)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Indonesia (10 March 1994)

Yes

Yes

Yes

Yes

No 

12 months

Yes

Yes

Iran (31 March 2006)

Yes

Yes

Yes

Yes

Yes

 6 months

Yes

Yes

Israel (19 June 2003)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Italy (26 June 1992)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Jamaica (5 November 2007)

Yes

Yes

Yes

Yes

Yes

9 month

Yes

Yes

Japan (1 January 2003)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Jordan (25 December 2004)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Kazakhstan (26 December 1996)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Kenya (3 May 2017)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Kuwait (31 August 2007)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Kyrgyzstan (8 July 2008)

Yes

Yes

Yes

Yes

Yes

 6 months

Yes

Yes

Laos (14 June 1996)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Latvia (26 January 1997)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Lebanon (21 December 2006)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Libya (28 March 2007)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Lithuania (9 November 1993)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Malaysia (31 March 1989)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Mauritania (21 July 2006)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Mauritius (7 March 2008)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Mexico (27 June 2002)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Mongolia (30 April 1991)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Morocco (8 May 2001)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Myanmar (31 October 2018)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Netherlands (1 March 2005)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Nicaragua (22 June 2001)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Nigeria (1 February 1999)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Oman (10 February 2004)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Pakistan (15 April 1990)

Yes

Yes

Yes

Yes

Yes

None

No

No

Panama (8 February 2002)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Paraguay (6 August 1993)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Philippines (25 September 1996)

No

Yes

No

Yes

No

3 months

Yes

Yes

Poland (2 February 1990)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Portugal (11 August 1996)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Qatar (16 May 1999)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Romania (11 January 2008)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Russia (10 July 1991)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

Rwanda (16 February 2013)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Saudi Arabia (19 February 2003)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Senegal (2 September 1985)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Slovak Republic (7 February 2006)

Yes

Yes

No

Yes

No

6 months

Yes

Yes

South Africa (6 June 1997)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Spain (19 July 1994)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Sri Lanka (15 July 1980)

Yes

Yes

Yes

Yes

No

12 months

Yes

Yes

Sweden (18 June 1997)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Switzerland (7 April 1971)

Yes

Yes

Yes

Yes

No

Na

No

Yes

Tajikistan (13 August 1995)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Tanzania (not in force)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Thailand (30 September 1989)

Yes

Yes

Yes

Yes

Yes

6 months

No

No

Trinidad and Tobago (27 November 2003)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Tunisia (28 November 1975)

Yes

Yes

Yes

Yes

No

None

Yes

Yes

Ukraine (3 November 1997)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

United Arab Emirates (15 June 2004)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

United Kingdom (4 March 1976)

Yes

Yes

Yes

Yes

Yes

3 months

Yes

Yes

Uruguay (8 December 2011)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Uzbekistan (20 November 1992)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Vietnam (5 June 2004)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Zimbabwe (7 April 2021, not publicly released)

na

ASEAN (1 June 2007)

Yes

Yes

Yes

Yes

No

 6 months

Yes

Yes

Australia (12 December 2014)

Yes

Yes

Yes

Yes

No

 6 months

Yes

Yes

Canada (1 January 2015)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Republics of Central America FTA (1 October 2019)

Yes

Yes

Yes

Yes

No

8 months

Yes

Yes

Chile (1 April 2004)

Yes

Yes

Yes

Yes

No

 6 months

Yes

Yes

China (20 December 2015)

Yes

Yes

Yes

Yes

No

4 months

Yes

Yes

Colombia (15 July 2016)

Yes

Yes

Yes

Yes

No

8 months

Yes

Yes

EFTA (10 January 2006)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

European Union (1 July 2011)

No

No

No

Yes

No

None

No

No

India CEPA (1 January 2010)

Yes

Yes

Yes

No

No

6 months

Yes

Yes

Indonesia CEPA (not in force)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

New Zealand (20 December 2015)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Peru (1 August 2011)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Singapore (2 March 2006)

Yes

Yes

Yes

No

No

6 months

Yes

Yes

Turkey (1 August 2018)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

United States (15 March 2012)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Vietnam (20 December 2015)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

General definition

Most BITs define an ‘investor’ as ‘any natural or juridical persons of either Contracting Party who invest in the territory of the other Contracting Party’. Some BITs do not include a definition of ‘investor’ (Sri Lanka BIT, Switzerland BIT). But all of Korea’s FTAs include a definition of investor generally defining an investor as ‘a natural person or an enterprise of a Party, a Party that is seeking to make, is making, or has made an investment in the territory of the other Party’.

Natural persons  and dual nationals

The definition of ‘natural persons’ is based upon the ‘nationality’ to be determined in accordance with the laws of the country the nationality of which is claimed. The Canada and New Zealand FTAs include permanent residents in the definition of natural persons. Some of Korea’s BITs and FTAs provide that a natural person who is a dual national shall be deemed to be exclusively a national of the state of his or her ‘dominant and effective nationality’ (Australia, Canada, Colombia, US, Turkey  and New Zealand FTAs).

Juridical persons/enterprise of a party  

Under BITs, the term ‘juridical persons’ is usually defined as any entity that conducts economic activities such as companies, public institutions, authorities, foundations, partnerships, firms, establishments, organisations, corporations or associations incorporated or constituted in accordance with the laws and regulations of the relevant contracting party.

Under some FTAs, ‘juridical persons’ (or ‘enterprise') are generally defined as ‘any legal entity duly constituted or otherwise organized under applicable law, whether for profit or otherwise, and whether privately or governmentally-owned including any corporation, trust, partnership joint venture, or other association’ (China, Canada, New Zealand, Vietnam or Turkey FTAs). Under the Australian FTA, the definition is limited to ‘an enterprise constituted or organized under the law of a Party, and a branch of an enterprise of a Party located in the territory of a Party and carrying out business activities there’.

Qualifying investments  

Under most BITs,‘investment’ is defined broadly as ‘every kind of asset invested by investors of one Contracting Party in the territory of the other Contracting Party’ and includes assets such as movable and immovable property and other property rights, shares or any other form of participation in a company, intellectual property rights, business concessions, etc. Korea’s BITs generally do not require the asset to have the characteristics of an investment as interpreted by tribunals applying article 25(1) of the ICSID Convention, ie, the Salini test. Under FTAs, the definition of ‘investment’ is based on the investment chapter of the Korea–US FTA, defining ‘investment’ as every asset that has the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profit or the assumption of risk.

Some BITs expressly include in the definition of ‘investment’ assets that are ‘indirectly’ controlled by an investor (Netherlands and Colombia BITs), while others require investments to be ‘connected with economic activities’ (Hungary and  Panama BITs).

Exclusion of certain assets

Some investment treaties exclude certain types of assets from the definition of ‘investment’:

• a claim to money that arises solely from commercial contracts, unless it is a loan that has the characteristics of an investment (Mexico BIT,  and Chile, Peru, US and Vietnam FTAs);
• a claim to money that arises solely from the extension of credit in connection with a commercial transaction, such as trade financing (Mexico BIT,   Chile FTA , Vietnam FTA);
• market share, market access, expected gains and opportunities for profit-making (Uruguay and Myanmar BITs);
• public debt operations (Colombia FTA); and
• an order entered in a judicial or administrative action (Colombia FTA).

Compliance with local laws

About 36 BITs and the Vietnam BIT  require that the investment must be acquired in accordance with the host State. The laws generally refer to all national laws and laws relating to foreign investment.

Some investment treaties specifically require that the investment must be approved by the competent authority of the contracting party in whose territory the investment is made (Bangladesh, Iran, Pakistan and Sri Lanka BITs), or must be granted admission in accordance with the applicable laws of each contracting party (Indonesia, Jamaica BIT and Vietnam FTA).

Commencement of coverage  

The 2001 Korean Model BIT protects all investments, extending protection to investments made before the entry into force of the relevant treaty. While most investment treaties directly adopt this approach granting protection for investments that existed prior to and after the relevant treaty was entered into force, in some exceptional cases, the BIT shall apply only to investments that were made after the BIT entered into force (Lithuania, Rwanda, Czech Republic and Iran BITs).

Fair and Equitable Treatment (FET) Standard

The majority of Korea’s BITs and FTAs include assurances that covered investments shall be granted ‘fair and equitable treatment’, although wording may vary. For example, the Italy BIT grants covered investments ‘equitable and reasonable’ treatment, while the Pacific Basin Investment Charter grants covered investments‘fair and reasonable’ treatment.

Qualified FET clauses

Some FTAs provide a qualified FET clause either by explicitly listing the type of treatment that constitutes a breach of the FET clause (Australia FTA, Canada FTA, China FTA, Colombia FTA, New Zealand FTA, Turkey FTA, Vietnam FTA). For instance, in the Australia FTA, ‘fair and equitable treatment’ is qualified as including the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world’.

International law/Customary international law/Minimum standard of treatment

A handful of BITs and FTAs link the content of the FET obligation to international law, customary international law, minimum standard of treatment (Australia FTA, Canada FTA, Japan–China FTA, Colombia FTA, Vietnam FTA, Croatia BIT, Japan BIT, Kuwait BIT, New Zealand BIT, Uruguay BIT). The majority of Korea’s investment treaties, however, appear to include unqualified FET clauses.

Public purpose exception

The majority of BITs and FTAs permit lawful expropriation provided that expropriation is for a ‘public purpose’ (public purpose exception). Specific wording varies between investment agreements – for instance, some BITs refer to ‘public interest’ (Congo, Hungary, Morocco and Senegal BITs), while others refer to ‘public utility’ (Dominican Republic BIT), ‘public benefit’ (Germany and Saudi Arabia BITs) and ‘public purpose or public necessity’ (Guatemala BIT). Some treaties are even more specific providing that expropriation be ‘in the public interest, public use or in the interest of national defense’ (Philippines BIT), or for ‘public benefit or social interest’ (El Salvador BIT). Some BITs do not include a public purpose exception (Switzerland BIT and Tunisia BIT).

Non-discriminatory and in accordance with legal procedure

The 2001 Korean Model BIT provides that expropriation shall be carried out on a non-discriminatory basis in accordance with legal procedures. In some BIT and FTAs, the non-discrimination requirement has been interpreted as a ‘due process’ requirement, but many BITs do not adopt this language (Belarus, Senegal, Thailand, United Arab Emirates and the United Kingdom BITs).

With regard to the requirement that expropriation be in accordance with legal procedures, this language has been adopted in several BITs (Albania, Cambodia, Lithuania, Qatar, Slovakia, Tajikistan BITs), with slightly adjusted language in other BITs such as ‘in accordance with its laws’ (India, Nigeria, Pakistan and Spain BITs).

Indirect expropriation

Most BITs and FTAs recognise ‘indirect’ expropriation or ‘other measures having effect equivalent to nationalization or expropriation’ and collectively refer to expropriation and other similar measures of expropriation, with the exception of some BITs (Austria, Germany and Hungary BITs).

In principle, under Korean law, a government regulatory measure that falls short of direct expropriation would not create a claim for compensation unless such a regulatory measure is illegal. The issue of ‘indirect’ expropriation is one of the most difficult negotiating items for the Korean government.

Right to compensation

Most of Korea’s BITs provide ‘prompt, adequate and effective’ compensation where expropriation occurs, although language tends to vary between BITs. Some BITs require expropriation be against ‘just compensation’ (Mexico BIT, Netherlands BIT), while others against ‘full and prompt settlement’ (Pacific Basin Investment Charter). Compensation is nonetheless understood to be granted within a reasonable time (prompt), in an amount equal to the fair market value of the expropriated investment (adequate), in a freely transferable and exchangeable currency (effective).

Under most BITs and FTAs, compensation is based on the ‘fair market value’ of the expropriated investments, the value assessed immediately before expropriation was taken or before impending expropriation became public knowledge, whichever is earlier. Some treaties consider the ‘actual value of the investment expropriated’ (Austria and France BIT). Generally, interest will be included in compensation for expropriated investments.

Right of review

Typically, Korea’s BITs and FTAs provide the investor with a ‘right to prompt review’. (China FTA, Korea–China–Japan trilateral investment agreement). Some grant the investor the right to have the legality of the expropriation reviewed (Austria BIT). A number of BITs do not mention the right to review (eg, Finland, Iran, Italy, Pakistan, Senegal and Turkey BITs).

Carve out for general regulatory measures

A number of FTAs include a carve-out provision for general regulatory measures. For example in the Australia FTA, it provides that ‘non discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations.’ Similar provisions are also found in other FTAs (Canada FTA, China–Japan FTA, China FTA, Colombia FTA, New Zealand FTA, Vietnam FTA, Turkey FTA), as well as in BITs (Myanmar BIT, Rwanda BIT and Uruguay BIT).

Scope of application of national treatment (NT) and most favoured nation (MFN) standard 

Most of Korea’s BITs include NT and MFN provisions, which apply to investments in the territory and apply to investors with respect to operation, management, maintenance, use, enjoyment or disposal of investments. Some extend equal treatment to ‘extension, sale and liquidation’ of investments (Paraguay BIT).

NT and MFN provisions generally apply after the investment has been established and does not extend to the establishment, acquisition, and expansion phases, although there are a few exceptions. In the Japan BIT, NT and MFN obligations extend to the ‘establishment, acquisition, expansion’ of investments. Similarly, many FTAs extend NFN treatment to pre-establishment phases (Korea–US, ASEAN, Vietnam, Australia and Canada FTAs).

“Like circumstances”

A handful of BITs and FTAs make reference to ‘like circumstances’. For instance, the Australia FTA provides that treatment be accorded by a Party that is ‘no less favourable than the most favourable treatment accorded in like cirusmtances’. Similar provisions can be found in other FTAs (Canada, China–Japan, China, Colombia, New Zealand and Vietnam) and some BITs (China, Japan, Kuwait, Myanmar, Uruguay, Spain and Rwanda BITs). The majority of investment treaties otherwise do not make reference to ‘like circumstances’.

Common limitations

Many of Korea’s BITs state that NT and MFN obligations do not extend to the benefits of membership of a customs union, a free trade area, a common market, economic community/union or to taxation agreements, arrangements, legislation or conventions (China–Japan FTA). The limitation, however, is not included in various other FTAs (Peru, US, Turkey, Australia, New Zealand and Colombia FTAs).

Limitation on national treatment and MFN obligations  

Some BITs include carve-outs to national treatment and MFN obligations:

• The Austria BIT provides that national treatment and MFN do not apply to any regulation to ‘facilitate the frontier traffic’ (the China and Italy BITs also include ‘frontier trade’ exception).
• The Guyana BIT reserves a right to grant special incentives to its nationals to ‘stimulate the creation and growth of local industries’.
• The Japan BIT provides a long list of exceptions including measures for the protection of essential security interests, measures in time of war, armed conflict or other emergency, measures for non-proliferation of weapons, measures taken for international peace and security, measures necessary to protect human, animal or plant life or health or public order.
• The Nicaragua BIT excludes ‘deductions, fiscal exemption and any other similar concessions on taxation’.
• The Rwanda BIT provides that national treatment and MFN do not apply to government procurement, subsidies or grants provided by a party, including ‘government-supported loans, guarantees and insurance’.
• The South Africa BIT stipulates that any agreement or arrangement relating to special advantages accorded to the development of financial institutions will be excluded.

Extension of treatment to whole treaty

Most BITs do not address the controversial issue of whether MFN treatment applies to dispute settlement provisions. The Japan–Korea–China trilateral investment expressly provides that the MFN does not apply to provisions concerning the settlement of investment disputes. 

Full protection and security (FPS) Standard

An overwhelming majority of Korean BITs and FTAs provide covered investments ‘full protection and security’ (FPS), although the wording varies. Some simply provide covered investments with ‘protection’ (Paraguay, Spain, Sri Lanka and Switzerland BITs) while others provide covered investments with ‘legal protection’ (Belarus BIT) and ‘full legal protection and fair treatment’ (Iran BIT).

Other BITs provide a more flexible standard such as ‘adequate protection and security’ (Indonesia BIT) and ‘most constant protection and security’ (Bangladesh and Thailand BITs). Some BITs include general provisions on the protection of investments in the preamble to the BITs only (Italy and Philippines BITs).

With reference to domestic law 

In a few BITs, FPS is granted with reference to domestic law. For instance, the Pakistan BIT provides that ‘Investments of nationals or companies of one Contracting Party in the territory of the other Contracting Party shall enjoy full protection and security under the laws of the latter Contracting Party’; ‘[…] most constant protection and security under the laws of the other Contracting Party’(Bangladesh BIT). The majority of Korea’s investment treaties do not link the FPS clause with domestic law.

International law/ Customary international law/Minimum standard of treatment  

The general understanding is that the FPS standard in Korea’s BITs would be limited to the minimum standard of treatment that is required under customary international law, and would not entitle investors/investments to treatment in addition to or beyond that which is granted under customary international law. Some BITs and FTAs even expressly provide that FPS shall be limited to the customary international law minimum standard of treatment, which is the provision of police protection required under customary international law (Rwanda, China, New Zealand, Australia  and Columbia FTAs).

Umbrella clause

The 2001 Korean Model BIT provides an umbrella clause that states: ‘Each Contracting Party shall observe any other obligation it may have entered into force with regard to investments in its territory by investors of the other Contracting Party.’ This language is reflected in most BITs. Some BITs do not include an umbrella clause at all (Bulgaria, Czech Republic, Egypt, Finland, Malaysia, Philippines, Slovakia, Sweden and UAE BITs).

Free transfer of payments

Most BITs and FTAs guarantee the free transfer of all payments relating to investments and returns, although wording may vary. Many BITs and FTAs require that transfer of payments be ‘without delay’ (China BIT, Greece BIT, Jamaica BIT, Australia FTA, Peru FTA and Turkey FTA), while others state that transfer shall be ‘without unreasonable delay’ (Indonesia BIT) or ‘without undue restriction or delay’ (Azerbaijan, Burkina Faso, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Mauritius BITs). The Kuwait BIT specifically stipulates that if there is any delay in effecting the transfer, the investor is entitled to recover interest.

Certain BITs condition the free transfer on the right to exercise powers conferred by its laws and consistent with rights and obligations as  member of the International Monetary Fund (Bangladesh and Lithuania BITs). Others require the fulfilment of tax and public fee obligations (Belarus BIT), compliance with tax obligations (Indonesia and Saudi Arabia BITs), or the fulfilment of legal obligations (Mongolia BIT).

Restrictions to free transfer are also found in several BITs and FTAs in the following circumstances:

• • in  ‘exceptional financial or economic circumstances’ (Sri Lanka BIT, UK BIT);
  • upon the application of laws relating to bankruptcy, insolvency, protection of creditors’ rights, issuing trading or dealing in securities, criminal or penal offences, or ensuring compliance with orders or judgments in adjudicatory proceedings (Japan BIT, Mexico BIT). Similar restrictions appear in FTAs (China, Peru and Vietnam FTAs); and
  • in the event of ‘serious balance of payments and external financial difficulties or threat’, or in exceptional cases where movements of capital ‘cause or threaten to cause serious difficulties for macroeconomic management’, with particular reference to monetary and exchange rate policies (Slovakia BIT).

Denial of benefits clauses   

Many of Korea’s investment treaties include denial of benefit clauses that allow the state to deny benefits of an investment agreement to an investor if it is owned or controlled by a third non-contracting party to the treaty. Denial of benefit clauses have been actively included in BITs after the first investment treaty arbitration was initiated against Korea (LSF-KEB Holdings v Korea), which was lodged by a US-based fund through the Belgium–Luxembourg BIT in 2012.

Generally, denial of benefits clauses can be invoked in the following cirumstances:

• Korea does not maintain normal economic relations with the third non-contracting party (eg, China, United States FTAs);
• Korea adopts or maintains measures with respect to the third non-contracting party that prohibit transactions with the investor (eg, Australia, Canada, Colombia and United States FTAs); or
• the investor has no substantive business operations in the territory of Korea (eg, Australia, Canada, Colombia, New Zealand, Peru, United States FTAs and India CEPA).

Carve-outs for taxation and reservations for certain industries

The most common carve-outs in Korean BITs are related to National Treatment and/or the most-favoured-nation obligation in cases of government procurement, government subsidies and taxation measures. With regard to taxation measures, some treaties have specific provisions that stipulate that no obligations will apply with respect to tax measures unless the obligation relates to expropriation (Armenia BIT).

Typically in Korean FTAs, reservations are made in the Annexes and Schedules to the FTA and these are included as non-conforming measures clauses in the Investment Chapters. Most reservations are made with respect to national treatment obligations for certain industries For instance, under the Korea–US FTA national treatment reservations are made with respect to rice or barley, beef cattle farming, air transportation services, telecommunications, marine research and maritime mapping, etc.

Essential security exception  

The most common exception that is being increasingly included in BITs is the exception for essential security interests. The clause could be interpreted as a self-judging clause giving deference to the determination of the party invoking the exception that the measure in question was necessary for the protection of its essential security interest. 

The essential security exception permits Korea to take necessary measures for the protection of its essential security interests, take measures in pursuance of its obligations under the UN Charter for the maintenance of international peace and security, take any measures to protect human, animal or plant life or health, or take any measures for the maintenance of public order. Such securities exception clauses are also commonly incorporated through a separate exceptions chapter in the case of FTAs.

Fork-in-the-road clauses

Out of 84 IIAs, only a few FTAs include a fork-in-the-road clause. For example, in the Colombia FTA, it states that ‘once the investor has submitted the dispute to either a competent court or administrative tribunal […], the choice of the procedure shall be final and the investor shall not submit the same dispute to a different forum’. Similar provisions are included in a handful of BITs (China, Dominican Republic, Egypt, El Salvador, Japan, Lebanon, Malaysia, Mauritius, Nigeria, Portgual and Saudi Arabia BITs); however, the majority of BITs do not include such clauses.

Exhaustion of local remedies/waiver of local remedies and amicable settlement

The right to commence arbitration typically arises after the exhaustion of local remedies. A period of six months is also generally stipulated for amicable settlement prior to commencing arbitration, although the exact time frame varies between different treaties from three months (UK BIT) to 12 months (Indonesia BIT).

Around 12 BITs contain waiver clauses, which require waiver of the right to initiate any dispute regarding the measure in question, if it has already been brought to one of the agreed fora. In some investment agreements, the investor must waive the right to initiate a claim under any other dispute settlement procedure before commencing arbitration (Mexico BIT, Vietnam BIT and China FTA).

Limitaiton periods

Some of Korea’s BITs and a handful of FTAs provide a limitation period of three years within which arbitration must be commenced (Japan, Mexico and Vietnam BITs, and Korea–Singapore, Korea–Columbia, China–Korea and India–Korea FTAs). The majority of investment agreements do not include a limitation period for the submission of a claim.

Claim notices are generally sent to the entity that is stipulated in the relevant investment treaty. For FTAs such as the Australia FTA and Canada FTA, a notice of dispute is to be served on the Office of International Legal Affairs, Ministry of Justice of the Republic of Korea. Where the investment treaty does not stipulate where claim notices aer to be served, there is a tendency for investors to send their notices to the Korean President as the head of state, with copies to the relevant head of the government agencies, and the ROK Ambassador to the home country of the investor.

Investment treaty arbitrations are handled by an intra-government working group called the International Investment Dispute Task Force (IIDTF) established by a presidential decree that took effect on 5 October 2021. IIDTF consists of representatives from the Office of the Prime Minister, Ministry of Finance, Ministry of Foreign Affairs, Ministry of Trade and Industry and the Ministry of Justice, along with ad hoc members for each individual case from government agencies or local governments relevant to the measure in dispute. The Ministry of Justice also plays a supervisory role (through the International Dispute Settlement Division of the Ministry of Justice) taking the position of the chair of IIDTF.

In most cases where investment claims have been brought against the Korean government, Korea generally shows a tendency to engage external counsel through a closed tender process. However, recently the role of internal counsel at the International Dispute Settlement Division of the Ministry of Justice has been expanded to extend to the handling of small-scale cases. For example, in a few recent cases brought by US investors against Korea under the US FTA, the cases were dealt with by the government’s internal counsel from the Ministry of Justice (the International Dispute Settlement Division of the Ministry of Justice) without involving external counsel. Therefore, the Korean government appears to use both internal and external counsel as necessary.

Korea signed the Washington Convention on 18 April 1966, and ratified the Convention on 21 February 1967. The Convention entered into force for Korea on 23 March 1967. There is no specific Korean legislation implementing the Washington Convention, as Korea does not require a separate implementation legislation for international agreements to have domestic legislative effect.

Korea signed and ratified the New York Convention on 8 February 1973. There is no specific Korean legislation implementing the New York Convention as Korea does not require a separate implementation legislation for international agreements to have domestic legislative effect.

There is no legislation governing non-ICSID investment arbitrations. However, it is arguable that non-ICSID investment arbitrations may be covered under the Arbitration Act, which applies to all arbitrations seated within the territory, and which does not exclude investment arbitrations.

The application of the Arbitration Act is rather extensive as it applies to cases in which Korea is not the seat of arbitration for specific provisions, which include the provisions on provisional measures, recognition and enforcement (including arbitration awards for cases not seated in the territory of Korea).  

The only adverse award against Korea up to date is the Mohammad Reza Dayyani v Korea case (PCA Case No. 2015-38). Compliance was said to be difficult due to the existence of international sanctions against Iran, and not due to the Korean government’s reluctance to comply with the award.  

In view of the Korea’s inability to make comply with the award, Dayyani filed second investment arbitration under the same treaty asserting that Korea’s failure to pay the award constituted a breach of the treaty. However, after the arbitration commenced upon Korea’s receipt of the notice of arbitration in 2021, the Korean government was reportedly granted a licence from the US government to transfer the amount of the arbitration award and the payment process is still ongoing. The newly filed arbitration case remains pending without any active progress. 

A pivotal point for the Korean government and its approach toward investment treaty arbitration was the Korea v Lone-Star Funds case, where a US-based private equity firm Lone Star Funds fell into dispute with the Korean government in relation to its previous investment in a Korean bank. The parties are currently awaiting the Tribunal’s final award after completing all pleadings. While prior to this dispute, the Korean government’s attitude toward investment arbitration had been positive, it now displays a level of caution as was evident during the negotiations for the Korea–United States FTA, where heated debate took place on the ISD settlement provisions. Lawmakers and the media voiced their objection to this section, arguing that the Korean government could be exposed to arbitrary and unreasonable arbitration awards.

Korea has nonetheless entered into approximately 100 or more IIAs and the vast majority of these treaties are reported to include ISDS clauses, which displays the government’s intention to engage in investment arbitration as an inevitable part of Korea being an active participant of inward and outward foreign direct investment.

The local courts’ attitude and recognition of investment awards is yet to be realised, as there have been no attempts for enforcement.  

Foreign Investment Promotion Act

National treatment   Foreign investors and their investments are given the the same treatment as that afforded to Korean nationals.

Transfer – Guaranteee of transfer of proceeds and compensation relating to foreign investment.

Exceptions – Foreign investments may be restricted for reasons associated with the  protection of the interests of national safety and public order, public hygiene,  environmental preservation or the protection of Korea’s morals and customs.

State and local government funding – Some foreign investors in certain limited situations (eg, for the construction of new factories) may be entitled to state and local government funding.

Foreign investment ombudsman – The Ombudsman facilitates the resolution of complaints from foreign investors.

There are no provisions providing for arbitration.

Multilateral Investment Guarantee Agency (MIGA 1985)

Pursuant to the MIGA Convention, Korean nationals and corporate entities may be eligible to acquire political risk insurance with respect of investments made in certain developing states, provided that the investment is medium to long term in nature, supports the host country’s development goals, complies with MIGA’s Policy on Social and Environmental Sustainability and anti-corruption and fraud standards, and is a financially viable investment.  

K-SURE under the auspices of the Ministry of Trade (1992) pursuant to the Trade Insurance Act.

The foreign investment insurance policy provides protection against failure of recovery of stocks (equities), dividends, loan interests in foreign corporations due to the host state’s expropriation, outbreak of war and armed conflicts, revolutions, civil war, civil unrest, as well as measures limiting free transfer of funds or the non-compliance or default of foreign governments. To be eligible, the investor must be a covered company or financial institution under the relevant legislation and must have taken out valid insurance with K-SURE.

Claims against Korea as respondent state

Hanocal Holding BV and IPIC International BV v Republic of Korea, ICSID Case No. ARB/15/17 (Korea–Netherlands BIT). The Tribunal issued a procedural order taking note of the discontinuance of the proceeding pursuant to ICSID Arbitration Rule 44 on 5 October 2016 (The Claimants filed a request for the discontinuance of the proceeding pursuant to ICSID Arbitration Rule 44 on 26 July 2016).

Mohammad Reza Dayyani and others v Republic of Korea (UNCITRAL), PCA Case No. 2015-38 (Korea–Iran BIT). The Tribunal issued a final award against Korea on 6 July 2018. The Korean government applied for the setting aside of this award at the UK High Court, but the High Court rendered a judgment refusing to set aside the award on 20 December 2019.

Jin Hae Seo v The Republic of Korea (UNCITRAL), HKIAC Case No. 18117 (Korea–US FTA). Korea submitted preliminary objections under an expedited preliminary objections procedure in accordance with the Korea–US FTA. The Tribunal issued a final award in favour of Korea on 24 September 2019.

Claims brought by Korean investors

Lee John Beck and Central Asian Development Corporation v Kyrgyz Republic, Moscow Chamber of Commerce, (CIS Investor Rights Convention). The MCCI Tribunal made a final award in favour of the claimant on 13 November 2013. However, the award was set aside in its entirety by the judgments dated 24 June 2014 and 5 June 2015 by the Moscow Arbitrazh Court.

Ansung Housing Co, Ltd v People’s Republic of China, ICSID Case No. ARB/14/25 (Korea–China BIT). China had initiated expedited preliminary objections against the claimant under article 41 of the ICSID Arbitration Rules. The Tribunal made a final award in favour of China dismissing all claims as manifestly lacking legal merit on 9 March 2017.

Samsung Engineering Co, Ltd v Sultanate of Oman, ICSID Case No. ARB/15/30 (Korea–Oman BIT). The parties reached a settlement and the Tribunal rendered its award dated 17 January 2018 taking note of this fact.

Claims against Korea as respondent state

LSF-KEB Holdings SCA and others v Republic of Korea, ICSID Case No. ARB/12/37

Elliott Associates, LP v Republic of Korea, UNCITRAL, PCA Case No. 2018-51

Mason Capital LP and Mason Management LLC v Republic of Korea, PCA Case No. 2018-55

Schindler Holding AG v Republic of Korea, PCA Case No. 2019-44 under UNCITRAL Arbitration Rules and Korea–EFTA FTA

Fengzen Min v Republic of Korea, ICSID Case No. ARB/20/26 (Korea–China BIT), Korea initiated expedited preliminary objections under article 41 of the ICSID Arbitration Rules. The Tribunal rendered its decision on preliminary objections on 18 June 2021, dismissing some of the claims raised by the claimant but not dismissing some.

The remaining claims are pending:

Jason Won v Republic of Korea, Ad hoc arbitration

Joongi Kim, The Evolution of Korea’s Modern Investment Treaties and Investor-State Dispute Settlement Provisions, in Vivienne Bath and Luke Nottage, eds, Foreign Investment and Dispute Resolution Law and Practice in Asia (Routledge, 2011)

Joongi Kim, A Bellwether to Korea’s New Frontier in Investor-State Dispute Settlement? The Moscow Convention and Lee Jong Baek v Kyrgyz Republic, Pepperdine Dispute Resolution Law Journal, Vol. 15, 549–565 (2015)

Hi-Taek Shin, Investment Treaty Practice of China, Japan and Korea in Collected Courses of the International Academy for Arbitration Law, Year 2012, Volume 1, at 1 (2015)

Chansik Han et a, Hanil Tuja Hyupjung Haesul [Commentary on Korea–Japan Bilateral Investment Agreement] (Korea Institute of Industry Research, 2003)

Hi-Taek Shin, Korea, in Chester Brown ed., Commentaries on Selected Model Investment Treaties (Oxford University Press, 2013)

Ministry of Justice, Republic of Korea, Hanguk Eui Tuja Hyupjung Haesulseo [Commentary on Korea’s Investment Agreements 2010].