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Lone Star Funds Commences Investor-State Dispute v. Gov’t of Korea

Korea’s Voice of People website reports that the Korean Government has confirmed investor Lone Star Funds delivered its complaint to the World Bank’s ICSID, the International Centre for Settlement of Investment Disputes. Lone Star claims damage due to “arbitrary and discriminatory taxation measures” and the Korean government’s repeated and persistent delays in approving Lone Star’s sale of its stake in Korea Exchange Bank.

Last May 22, Lone Star’s Belgian holding company LSF-KEB Holdings delivered, through the Belgian Embassy in Seoul, its notice to the Republic of Korea of the investor-state dispute. After a mandatory six-month “cooling-off period” intended for the parties to seek compromise, the dispute is now being taken up for formal resolution by ICSID. It’s on like Donkey Kong.

This is the first time Korea has been involved in an investor-state dispute resolution process under an investor-protection treaty. Both the EUKOR (European Union) and KORUS (United States) FTAs The KORUS (United States) FTA and many of the existing Bilateral Investment Treaties with EU states including Belgium include investor-state dispute provisions, so it may be expected that such disputes may become commonplace in the future.

  • jkitchstk

    Which foreign law firm will Korea hire in its defense?

  • http://www.expathell.com thankswww

    This is non-sense. We all know that the Korean government and Korean businesses are 100% transparent, and would never dream of cheating anyone. In fact, honesty in business is one of the many things that Corea is famous for. Someone please phone The Korean (TM). His Top 10 law-firm should be able to handle this in short order.

  • SalarymaninSeoul

    @1,

    they will hire The Korean. And they will lose.

  • SalarymaninSeoul

    The Korean’s top 10 law firm is top 10, all right…top 10 in his neighborhood. what a jackass.

  • http://rjkoehler.com Robert Koehler

    Cut it out, SalarymaninSeoul.

  • Benjamin Wagner

    Important case. A lot of eyes will be on this one. Thanks for posting!

  • Anonymous_Joe

    #5 Robert Koehler: “Cut it out, SalarymaninSeoul.”

    Seconded.

    If you have a problem with theKorean’s ideas (I certainly have had my share), then attack his ideas. If he is indeed a jackass, his jackassocity will show through those ideas, and we’ll be able to draw the conclusion for ourselves.

  • jkitchstk

    “It’s on like Donkey Kong.”

    Boring! The first version was better. What happened to it?

  • http://bcarr.com Brendon Carr

    I’m allowed to re-think.

  • http://www.expathell.com thankswww

    #8

    Totally agree. Too bad about the self-censorship. Original article pretty much said it how it was. Have to keep the Koreans happy though; wouldn’t want a nutizen attack to crash the servers or something.

  • http://bcarr.com Brendon Carr

    It’s not my blog; I’m a guest here. There are things I would do on my own blog, or in comments, that I think twice about as a poster where I might be confused with Robert. Sorry if you don’t like it.

  • gbnhj

    I’m very interested in this case. At issue (at least ostensibly) is a dispute over the W391.5 billion tax leveled by Korea’s National Tax Office on Lone Star for the sale of KEB. Now, I’m familiar with WangKon’s opinion about the equitability of Lone Star’s profits from this sale, but I wonder what his take is on this taxation issue. Care to weigh in, sir?

  • Wedge

    I wonder what I missed from the original post.

    I’d also like to see Belgium stick it to Korea for viotating their bilateral tax treaty. The prefix is “bi,” not “uni.” Korea cannot pick and choose which elements of international treaties it is a signatory to it wants to follow.

  • Jed

    Are you sure the EUKOR FTA includes investor-state dispute provisions? As far as I know European countries have bilateral agreements but there is no section in the actual FTA.

  • http://bcarr.com Brendon Carr

    Wedge — Just defamatory mean stuff about the shameful way the Korean government has treated Lone Star. You know, my specialty. After posting, I edited that back because I don’t think it’s always clear to every reader who the author of the post is. I’m thinking I ought to resuscitate my own blog for this kind of thing.

    The ICSID standard for investor-state disputes is not whether Korea has correctly applied its own laws, but whether its conduct toward Lone Star has been so egregiously unfair that the conduct amounts to a de facto expropriation of Lone Star’s investment. I think Lone Star stands a good chance to prevail, which will prompt some amusing diatribes in the press about how unfair it is that ICSID is in Washington D.C. and there are no Korean members of the tribunal, blah blah blah.

  • http://bcarr.com Brendon Carr

    Are you sure the EUKOR FTA includes investor-state dispute provisions? As far as I know European countries have bilateral agreements but there is no section in the actual FTA.

    Jed — No, I’m not sure. I only know for sure what’s up with the KORUS FTA. I understand the Belgian bilateral investment treaty includes an ISD provision, but the news story wasn’t all that clear to me whether the claim is based on the BIT or the FTA; I presumed the latter but now I have to check. ICSID didn’t have the Lone Star claim or a summary up on its website yesterday so I only have the news reports upon which to rely. Always a mistake but it’s the best we got.

  • Wedge

    Brendon: I look forward to the next post on your blog. The world awaits.

  • Jed

    Korea has had BIT’s with most European countries since the 1960s so I think the inclusion was unnecessary.

    https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDPublicationsRH&actionVal=ParticularCountry&country=ST74

    One reason why all the hoopla about the “poisonous” KORUS FTA made little sense when they have had around four decades experience with the procedure.

  • http://bcarr.com Brendon Carr

    Jed — Except that this Lone Star ISD matter is reported to be the first such case in Korean history. So while Korea may have had four decades’ experience with having treaties that contain a clause concerning ISD, this is supposedly going to be the country’s first experience with having one resolved through a formal process. It should be eye-opening and beneficial to the Korean government, and perhaps the possibility of actually being called to account for Lone Star-style behavior will act as a brake on some of the government’s more despicable excesses in respect of its treatment of that investor.

  • http://www.xanga.com/wangkon936 WangKon936

    I hope Korea loses and Lone Star wins. I hope this leads to greater protection of investor rights, especially foreigner investor rights, in the ROK.

  • jkitchstk

    # 13 Wedge,
    “screwed over,” I think “persistent and/or repetitive delays,” plus one more but I forgot?

    BTW, he forgot “held hostage.”

    # 15,
    “blah, blah, blah,”

    Will contain the rehashing and demonizing for “eating in Korea and running”(like English teachers are also regularly demonized for doing in Korean media) and the International Centre for Settlement of Investment Disputes is “decided by white people/Americans.”

  • gbnhj

    WangKon, I feel the same way, particularly where you focus on the prospect of this process to positively impact foreign investor rights. Thanks for your input.

  • http://www.sperwerslog.com Sperwer

    @16

    According to the notice of claim sent by the affected Lonestar entities to the Office of the President of Korea, they are proceeding under the terms of the BIT between Korea and Belgium/Luxembourg.

  • DynamicallySparkling

    You should see what the loonies over at the hanki have to say about this….100% predicatable
    http://english.hani.co.kr/arti/english_edition/e_editorial/562028.html

  • Anonymous_Joe

    @24 DynamicallySparkling, well at least the hanki printed it as an editorial rather than a news article. Still, hanki would have appeared less Korea, Inc. mouth organ had they let someone else shill for their editorial board.

  • red sparrow

    It’s not just the hanki. This whole country loses its shit whenever the topic of Lone Star comes up. Aside from Zimbabwe and maybe Albania, I can’t think of a worse country than Korea for a foreigner to invest. I exaggerate but you get the point.

  • Wedge

    Can’t wait for the candlelight vigils in front of the Texas Embassy.

  • Wedge

    #24: Waiting for your twin, SparklinglyDynamic, to chime in. Like the name.

  • jkitchstk

    So particular on the edits I see again!

    # 15,
    “The ICSID standard for investor-state disputes is not whether Korea has correctly applied its own laws, but whether its conduct toward Lone Star has been so egregiously unfair that the conduct amounts to a de facto expropriation of Lone Star’s investment.”

    So the court in DC will ask the questions below and probably find “NO” to the questions concerning S. Korea?

    Expropriation laws and review processes
    http://www.oecd.org/investment/toolkit/implementingthepfi/investmentpolicy/expropriationlawsandreviewprocesses.htm
    “1.5 Does the government maintain a policy of timely, adequate, and effective compensation for expropriation also consistent with its obligations under international law? What explicit and well-defined limits on the ability to expropriate has the government established? What independent channels exist for reviewing the exercise of this power or for contesting it?”