Step Back, Think Twice
On Wednesday, Wikileaks, the infamous site that publishes formerly-secret documents anonymously for the public to read, released the Investment Chapter from the until-now secret Trans-Pacific Partnership (TPP) agreement being negotiated between 12 nations in the Americas and Asia. If passed, it would regulate 40 percent of the world's GDP. The South Korean government has frequently expressed its desire to be a part of the TPP, most recently after the signing of the Korea-New Zealand Free Trade Agreement. But after taking a look at how it would be regulated by the agreement, Korea should instead be thankful that they are not yet included, because the TPP would allow corporations to sue governments for interfering in a company's claimed future profits.
In detail, the TPP would “create a supra-national court, or tribunal, where foreign firms can 'sue' states and obtain taxpayer compensation for 'expected future profits.'” The implications of this clause would fundamentally hamper South Korea's entire global economic strategy. And, if this clause were to have been implemented 50 years ago, South Korea's Miracle on the Han, the name given to the country's rapid rise in GDP over the last generation, might not have even been possible.
Let's take a recent example, South Korea's aggressive stance against Uber, the ride-sharing service that has seen explosive growth in many parts of the world. What happened recently was that Uber started offering its services in South Korea. The Korean government objected, since Uber drivers were not licensed taxi drivers, and this disrupted the existing transportation ecosystem. Right or wrong, the Korean government set up a variety of policies that effectively drove Uber out of the local market. Now licensed, cooperative, local services like Kakao Taxi are slated to take over the ride-sharing revolution in Korea. This is a miniature corporate drama that has recently taken place in Seoul.
But the play would have had a vastly different plot if Korea was party to the TPP. Uber's next move in that case would be to take the Korean government to an investor-state dispute settlement (ISDS) tribunal, where the company would attempt to prove that South Korea's laws affected “the company's future profits.” If the Korean government would be found to have adversely affected Uber's future profits, it would be liable to compensate Uber for said lost future profits.
Or, consider another scenario dealing with Korea's recent Supreme Court decision about the ordinary wage. As a refresher, the issue brought before the court was whether or not regular worker bonuses should be counted as part of a worker's “ordinary wage,” which would then impact overtime compensation rates and retirement benefits. The Korean Supreme Court ruled that regular bonuses were in fact part of an employee's “ordinary wage,” and therefore overtime pay, unused leave compensation, severance pay, and other social insurance costs should increase in proportion.
This decision by South Korea's Supreme Court impacted the profits of many international corporations that do business in South Korea. If the TPP had already been implemented, the Korean government would be on the hook to compensate those corporations for lost future profits due to their decision on the ordinary wage issue.
But it doesn't end there. Corporations could sue governments for raising taxes, raising interest rates, even raising the minimum wage. The Korean government's recent move to double the cost of cigarettes in South Korea, and also to ban their use indoors, would also be up for a lawsuit in an ISDS from international tobacco companies. Anything that could adversely affect international corporate profits would suddenly be much less desirable for a government to do.
If the Trans-Pacific Partnership is passed, international corporations will have much more international political power than they do now. They would use that power to pressure governments everywhere, including South Korea's, to bend to their will. And while the current South Korean government is not perfect in providing an ideal living environment for its citizens, a South Korean government under constant siege by international corporations would arguably be worse. The TPP is bad for South Koreans, and a responsible government should shun it.