American companies, led by Chevron, are threatening to withdraw support for the FTA with Korea [Financial Times] unless tougher investor protections are added. (HT to reader)
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5 Comments
Ha!
I might have a little more sympathy for Chevron’s position if they enforced a little more disclosure on their partners here. GS Caltex isn’t even listed, the financial and corporate disclosure information available on their website is so limited as to be useless, and you’d have to rely on a web search to even find out that it’s a 50/50 ownership structure. One could invest indirectly in GS Caltex by buying shares in GS Holdings, but then you’d just be relying on faith that the Koreans in charge of your investment are managing GS Caltex properly. Isn’t that what Chevron did to begin with? Chevron could have scored a win for investor protection by demanding full public disclosure of the company’s accounts as part of the original joint venture agreement. As it is, we can’t even know exactly what it is that Chevron thinks it has at risk in the potential FTA.
It’s not what Chevron has at risk; it’s precisely that the FTA as proposed isn’t likely to afford Chevron the leverage it needs to effect just the sort of changes you suggest. Although CalTex obviously had a lot of economic clout when it came to Korea, obviously it wasn’t enough to enable it to do without the unnecessary and unneeded local comprador that it was forced gratuitously to enrich by force of Korea’s then laws regarding the permissible terms of foreign investment. This is all about Korea’s mercantilism, not any failing of CalTex/Chevron
it’s about knowing newly created tax laws and such will be applied retroactively and arbitrarily to your organization should you make a profit.
foreign businesses are right in not accepting this type of relationship with korea.
Knowing that newly created laws will not be retroactively applied is, by definition, unknowable.
You can only look back on the history of a counterparty to make inferences about its future behavior. That is expressed in investment terms as the risk premium. In Korea, as the Korea Discount.
If Lone Star/KEB turns out to be a state-led expropriation of foreign-owned private property, that will indeed be priced into future investments in Korea for many years to come.
Alternatively, if Lone Star/KEB turns out to be a state-led expropriation of foreign-owned private property (and the case most certainly is a shocking attempt at such), we may be asking What future investments in Korea? for years to come. Already, foreign investment has just about dropped off a cliff.