The United States Needs Fair Referees for International Disputes

Last night’s BCS Championship game pitted the Auburn Tigers from the Southeastern Conference (SEC) against the Oregon Ducks from the Pac-10. To guard against biases that could have influenced the game’s outcome, officials were provided by the Big 10.

If football-crazed fans from Auburn and Oregon can understand why referees from the SEC and Pac-10 shouldn’t call the BCS Championship game, surely legislators can understand why investors shouldn’t have to rely on potentially biased officials to mediate international investment disputes.

Not everyone sees it that way. Critics of the proposed Korea–U.S. Free Trade Agreement (KORUS) allege that it gives South Koreans who invest in the U.S. economy greater rights than Americans who invest in the U.S. economy.

On closer examination, these “special” foreign investor privileges aren’t very special. Under KORUS, if a U.S. company believes its property has been stolen by South Korea’s government—or vice versa—it could submit its complaint to an international panel instead of being forced to rely on courts run by the very government that allegedly stole its property in the first place. According to KORUS:

Neither Party may expropriate or nationalize a covered investment either directly or indirectly … except … with due process of law and … on payment of prompt, adequate, and effective compensation.

If that language sounds familiar, it’s because it is borrowed from the Fifth Amendment to the U.S. Constitution:

No person shall be deprived of … property, without due process of law; nor shall private property be taken for public use without just compensation.

Agreements like KORUS encourage more job-creating investment in the United States. According to the Organization for International Investment, 5.6 million Americans work for foreign-owned companies. There are many reasons foreign companies invest here, not the least of which is the knowledge that the threat of expropriation is insignificant.

Recognizing that South Korean firms have the right to create jobs for U.S. workers without the risk of uncompensated expropriation is a good thing. Strengthening the protection of private property rights as recognized in the Bill of Rights is a good thing, too. KORUS achieves both of these results by providing neutral referees to mediate potential disputes.