Do Free Trade Agreements Threaten the States? Well, Maybe the Korea-U.S. FTA Does, At Least a Little

by Julian Ku

I am sympathetic to the concern, expressed in this short article, about the threat that international agreements pose to state laws.  The American states, as I’ve argued here and here, need more autonomy in foreign affairs and in their interaction with international law, not less.  But I think free trade agreements like NAFTA are generally the least intrusive of those agreements in many ways, since many of their provisions cannot be enforced directly against the states in most cases.  Certainly, no free trade agreement has ever been used to override a state law in the U.S.

Still, the anti-trade site I linked to above may have a point with the pending Korean U.S. Free Trade Agreement. Unlike NAFTA and other FTAs I am aware of, KORUS seems to allow for ICSID arbitration of investor disputes, and ICSID enforcement as well. ICSID Award enforcement in the U.S. could permit, at least in theory, a Korean investor to enforce the relevant KORUS provisions in a U.S. court proceeding without the consent or intervention of the U.S. federal government.  That is a big shift and could expose state laws to more foreign investor litigation than before.  So

5 Responses

  1. Response… Julian, Can you elaborate on your point about the uniqueness of the KORUS FTA when it comes to the offer of ICSID arbitration and enforcement of ICSID awards? It’s possible that I am missing something. But, if not, I think it should be pointed out that a number of U.S. FTAs and BITs permit recourse to ICSID. So, at least on the face of your post, I don’t understand how the KORUS pact is unique.

  2. An America, lost in fantasy, must act to recover its dream!
    Christopher Caldwell ‘s review ( of Exorbitant Privilege : The Rise and Fall of the Dollar and the Future of the International Monetary System mentions how China is so dependent on a strong dollar. China’s keeping the U.S. dollar over-valued adversely affecting all U.S. trade, with all U.S trading partners, not just trade with China. This overt act, affecting all U.S. trade, is 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”. In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, by the powers that be, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.

  3. Response…Luke, I guess Julian actually wanted to refer to
    Its Art. 11.26(10) provides that “A disputing party may seek enforcement of an arbitration award under the ICSID Convention or the New York Convention regardless of whether proceedings have been taken under paragraph 9.” The application of this Article subsequently leads to ICSID Art. 54. What unique can it be?

  4. Phu, The inclusion of ICSID arbitration in the KORUS FTA is not a novelty in U.S. BIT/FTA practice. That’s why I had queried Julian’s post, to see what he had in mind. (The provision you pointed out is interesting though, and allows investors to get a new panel to rule as to whether a state is respecting an ICSID or UNCITRAL arbitral award!) Cheers, Luke

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