Comparative Analysis Of The Dispute Settlement Procedure In China-korea FTA, Observing Their Economic Relationship History

Republic of Korea (hereinafter, South Korea or Korea) recorded a trade surplusof933.60USD Million in February of2014. It is officially announced by the Ministryof Trade, Industry&Energy (MOTIE). Balance of Trade in South Korea averaged486.38USD Million from1966until2014, reaching an all-time high of6,794.27USD Million in June of2010. Since2009South Korea has been recording tradesurpluses due to exports growth with one of the G2countries leading the world. It isPeople’s Republic of China (hereinafter, China). Obviously, there is no doubt thatChina is the biggest top trading partner. China has25percent of total exports and16percent of total imports in South Korea. It is clear that China has surpassed not onlyUnited States (10percent of exports and8percent of imports) but also EuropeanUnion (9percent of both exports and imports) as the largest market leader overKorean peninsula, although South Korea is the first major Asian economy sealed aFree Trade Agreement (FTA) with both US and EU. China and South Korea are thelargest exporter and importer to each other even before they finalize numerous dealsof FTA between two nations.Historically, these two dynamic economies of Asia, China and South Korea, havebeen enjoying intimate economic bonds since August24in1992, when the two statesstarted diplomatic ties. After the1997-98Asian financial crisis, their trade andindustry relationships matured. They became more effective in regional economicaffairs, promoting economic and financial combination. During President LeeMyung-bak (李明博，17th President of ROK, tenure:2008-2013)’s memorable estatevisit to China, President Hu Jintao (胡锦涛, State President of China, tenure:2003~2013) explored the issue of deeper trade ties between the two nations. PresidentLee proposed the issue of launching negotiations on China-Korea FTA on the second day of the state visit. Interest from the Korean side was obvious because Korean TradeMinister Bark Tae-ho accompanied the president to participate in the president’s visit.The two presidents agreed to launch formal negotiations on a FTA promptly.For the size of its domestic economy is definitely smaller to compare with hercompeting countries, Korea needs to have close trade links with the large economiesand markets. With two large FTAs, one with the EU and the other with the US.,already in effect, South Korea can be justly regarded as a successful operator indrafting and executing its trade policy. China is unsurprisingly eager to negotiate thesame trade terms as Korea negotiated in its two FTAs with the EU and US. Havingsuccessfully entered into FTAs with the two largest markets of the world, Korea isinitiating FTA negotiations with the second largest economy in the world.Nonetheless, as many scholars may predict, the relationship between China andKorea would be more complex. While the two neighbors are interdependent and wishto have a cooperative relationship, they also have increasingly competitive rivalry inthe global marketplace. For example, several manufacturing industries and farmsectors in China have a comparative advantage over their Korean rivals. As the twopotential partners of the FTA are aware of the sensitivities of sectors like agriculture,fisheries, and textiles, they have to agree that talks would eliminate sensitive issuesthat could harm any one of the two economies. However, Korea took a long-termperspective and viewed China’s regional and global ascendance as a commercialopportunity rather than a strategic concern. In2008, Korea and China even agreed to astrategic-cooperative partnership, with the aim of deepening diplomatic, economicand security cooperation.Economic interdependence between the two countries has deepened. Theirbilateral trade between over1992-2010recorded a30-fold increase, from6.37billionUSD to207billion USD. They realized the target of200billion USD two years aheadof time. Two-way trade between China and Korea during the first eleven months ofthe last year was224.8billion USD. The new target for2015is300billion USD.China’s is South Korea’s largest trade partner for the last seven years. China-Koreatrade exceeded the combined total of Korea’s trade with the US and Japan. Also, Korea is the third trading partner of China, following the EU and the US. An FTAwith China will have a greater impact on the Korean economy than the one with theEU and the US.Korean agriculture and fisheries will be heavy losers. The Korean governmentdragged its feet because of expected backlash from the farming and fisheries sectors.According to a study by the Korea Institute for International Economic Policy (KIEP),production in these two sectors will drop by$14.26percent, if Korea is to importinexpensive but competitive Chinese imports. Production cuts may be as high as20percent. When it would come in effect, the two economies will grow together.Notwithstanding the presence of sensitive sectors, the overall impact of the FTA willbe positive. It will also strengthen the ongoing regional real sector integration effortsin Asia.In these respects and facts that I mentioned above, my study first review bothChina’s attitude and Korea’s one throughout their each policy on FTAs. Then, itcategorizes the FTAs in accordance to their characteristics and counterpart nations andanalyzes legal issues related to the FTAs. Especially, my research focus on DisputeSettlement Procedures and clauses in FTA that China and Korea would sign in soonfor their good causes and results. Although each of them has their own expectationand hope for their pure interests, there must be disagreements, conflicts and strugglesbetween two nationals. The main purpose of this research is to help China and Koreaso that their people would happily live together based on “equitable, fast, effectiveand mutually acceptable standard” that everybody could follow. The procedure todescribe major points that I like to discuss in this paper is below:First, I like to give historical view point through our trade record so that readersmight have eyes to see a certain pattern throughout all events in our past. I categorizeit as four big parts. According to Korean Government generally recognize as it is, China-Korea trade passing through the Initial Development Period (1992~1997),Modification Period (1998~2001), and Second Development Period (2002~2005), isnow passing through its fourth phase, the Stabilization Period (2006~present). Although the scale of trade has increased, there is limited accessibility of Koreanexports into the Chinese domestic market while processing trade still takeslarge share.While I observe many cases of Korea’s trade with China, I found that there is a strongconnection with investment in China as an investment dependentexport structure. But,following from the recent strengthening of local procurement by Korean businesssubsidiariesin China, there has been a decrease in the export inducement effectthrough investments. In this way, my research would help the readers to see specificcharacters, legal issues and objective reflection for every single period in the greatflow of history between China and Korea.Second, through multiple legal analysis and evaluation on the Korea-signedFTAs and major provisions of the FTAs, this study reviews Korean government’sstrategy and policy for Chinese government to have sounder understanding of Korea.Because Chinese Government has supported and helped me thru Chinese ScholarshipCouncil, I want to repay China’s kindness and grace upon my life through this humblebut useful study. If we have better understating for our opposite party, we could havebetter position for more improved negotiation to strike the most valuable points onlyfor win-win future, avoiding unnecessary wasting time to brutally take everythingfrom each otherparty and give nothing back.Third, before FTA was invented, there were still plentiful international tradesamong nations. There must be disagreements, conflicts and quarrels wherever tradesexist. Therefore, nations were gathered to try to describe and establish DisputeSettlement Understanding throughout GATT, NAFTA and WTO. Later on, the disputesettlement system of the GATT is generally considered to be one of the cornerstonesof the multilateral trade order. I managed several points to examine how DisputeSettlement Understanding was created on legal basis with consents from both partiesas plaintiff (complaint) and defendant (respondent). If we know the original purposeto reach an agreement to have this understanding together, despite selfishness andmisunderstanding, we can meet each other again when we get back to the universalbasic point. Fourth, I have a few delegated examples show that how disputes are settled inWTO. It is interesting to see how they set a settlement body which is the GeneralCouncil in another guise and every single stage has their own works. Also, the wholeprocess;(1) Before and after the first hearing,(2) Rebuttals,(3) Experts’ testimonies,(4) First draft of the panel report,(5) Interim report,(6) Review,(7) Final Report and(8) The report becomes a Ruling. Throughout this research, as I explained full dueprocess regarding Dispute Settlement Procedures, I tried to examine and address legalissues that might be helpful to set Dispute Settlement Clauses in FTA.Fifth, eventually, we look at how Dispute Settlement procedure practically worksthrough FTA in the real world. As we know, Korea-US FTA was barely approved byCongress in Public Law112-41-US–Korea FTA Implement Act and entered into forceon March15,2012, following current US FTA practice in containing two types offormal Dispute Settlement:(1) State-State, applicable to dispute between theKOREA-US FTA Parties, and (2) investor-state, applicable to claims against oneParty by an investor of the other Party for breach of an agreement investmentobligation. This is a perfect figure. I researched this Korea-US FTA that has been twoyears so that I could provide more reasonable and sound view to the readers tomonitor how two nations have been working so far and to expect what kind ofprocedure we should have in China-Korea FTA which is right on the corner. Thischapter will be substantially practical and useful to Chinese government as well asKorean one.Sixth, I want to offer legal suggestions and policy proposals about rules andprocedures for the Dispute Settlement on China-Korea ssFTA. In this chapter, as acore and main idea of this paper, my study reviewed and proposed effective DisputeSettlement Mechanisms under the China-Korea FTA, based on comparative analysisand examination on rules and procedures of existing FTAs concluded by majorcountries (Korea, China, Japan, USA, ASEAN, etc.). It is clear that economicintegration cannot be conducted successfully and consistently, unless disputes andcontroversies among members are solved fairly and effectively. As a matter of facts,the most of armed conflicts and wars have been caused by economic disputes, effective and fair settlement of disputes might be crucial for the successful operationof the China-Korea FTA. Despite settlement mechanisms may contribute to improvingthe authority and legitimacy of regional economic integration and trade rules byproviding uniform interpretation and application of trade rules agreed betweenMember States and facilitating consistent compliance with them. With a view toenhancing foreseeability and legal stability indispensable for international economictransactions and preparing the creation of a regional economic community in EastAsia, I strongly believe that China-Korea FTA should adopt a rule-oriented approachas a basic principle for Dispute Settlement, and provide for appropriate rules whichmay utilize flexibly a diplomacy-oriented approach;(1) consultation,(2) mediation,(3) conciliation. Especially, in case of lacking relevant trade rules, they take intoaccount of friendly relations between Korea and China and also exclusivity ofChinese legal culture.Finally, as my conclusion, because FTAs may have a great impact on not onlypublic policy, national economy, social and cultural sectors, but also people’s dailylife, I highly recommendedthe public should be allowed to participate directly orindirectly in the process of concluding and implementing trade agreements. Theexpansion of public participation in trade policy and trade rule-making mightcontribute to ensuring policy democratization and legitimacy by enhancing thecredibility on government policy. In order to get full support from the public,necessary for successful implementation of the FTA, I believe that both governmentsshould develop legal and institutional mechanisms allowing all stakeholders toparticipate in the process of Dispute Settlement. Last of all, I gladly and respectfullyproposed the ways to expand “Public Participation (公共参与)” in operating theDispute Settlement Mechanism of the China-Korea FTA, hoping to help the brightestfuture of both blessed countries that I love, People’s Republic of China and Republicof Korea.