	Introduction

The U.S.-South Korea Free Trade Agreement (KORUS FTA), which was approved by Congress in P.L. 112-41 and entered into force on March 15, 2012, follows current U.S. free trade agreement (FTA) practice in containing two types of dispute settlement: (1) State-State, applicable to disputes between the Parties to the KORUS FTA, and (2) investor-State, applicable to claims by an investor of one Party against the other Party for breach of a KORUS FTA investment obligation. The KORUS FTA also contains language relevant to dispute settlement stemming from a bipartisan understanding on trade policy between congressional leaders and the George W. Bush Administration finalized on May 10, 2007, setting out various provisions to be added to completed or substantially completed FTAs pending at the time. Aimed at, among other things, expanding and further integrating labor and environmental obligations into the FTA structure, the May 10 understanding provides that labor and environmental obligations in an FTA are to be subject to the same State-State dispute settlement provisions, enforcement mechanisms, and remedies for non-compliance as the agreement's commercial obligations. The same approach to labor and environmental disputes is also found in the U.S.-Peru Trade Promotion Agreement, which entered into force on February 1, 2009, and in U.S. FTAs with Colombia and Panama, approved by Congress in October 2011 along with the KORUS FTA. In general, resort to panels under FTA State-State dispute settlement has been uncommon and thus there has been relatively little experience with the operation of this mechanism over a range of agreements and issues. FTA investor-State claims have been the most prevalent under the North American Free Trade Agreement (NAFTA), with cases filed against all three NAFTA Parties, that is, the United States, Canada, and Mexico. One claim under the U.S.-Peru Trade Promotion Agreement, filed by the U.S. investor Renco Group, is currently pending. To date, investor-State claims have not been filed under other U.S. FTAs. As is the case with its NAFTA partners, however, the United States imports capital from South Korea to a greater degree than it does from parties to these other U.S. investment agreements and Korean investment in the United States may indeed grow over the course of the FTA. While this situation may thus create a greater potential for investor-State disputes than exists under most other U.S. investment agreements, the extent to which disputes involving Korean investors will in fact arise would seemingly depend upon a variety of factors and interests unique to an investor's individual situation and thus for now remains only a matter for conjecture. To date, the United States has prevailed in all investor-State cases brought against it. 20.9) of the agreement. Labor and Environmental Disputes

Due to its incorporation of principles set out in the inter-branch May 10, 2007, trade agreement understanding discussed earlier, the KORUS FTA differs from most earlier FTAs with labor and environment chapters in containing additional labor and environmental obligations; not restricting its general dispute settlement procedures to specified provisions of its labor and environmental chapters; and not limiting the remedy for non-compliance with an adverse panel report to the payment of an annual monetary assessment (i.e., a fine) by the defending party. Unlike most earlier FTAs with environment chapters, the prevailing Party in a dispute would not be initially limited to seeking the payment of a fine by the defending Party in the event the Party has not complied in the case. In the event the prevailing KORUS FTA Party does propose trade sanctions, the defending Party, as in labor disputes, would then have the option of paying an annual monetary assessment to the prevailing Party, or, if the Parties agree, to a fund that would distribute funds to the defending Party to facilitate compliance with its obligations in the case. This current most-favored-nation (MFN) rate for the covered items is 2.5% in the United States and 8% in South Korea. A tribunal may only make monetary awards and thus may not direct a Party to withdraw or modify a disputed measure.
The U.S.-South Korea Free Trade Agreement (KORUS FTA), which was approved by Congress in P.L. 112-41 and entered into force on March 15, 2012, follows current U.S. FTA practice in containing two types of formal dispute settlement: (1) State-State, applicable to disputes between the KORUS FTA Parties, and (2) investor-State, applicable to claims against one Party by an investor of the other Party for breach of an agreement investment obligation. An unsuccessful defendant in a State-State dispute would generally be expected to remove the complained-of measure; remedies for non-compliance include compensation and the suspension of KORUS FTA obligations (e.g., the imposition of a tariff surcharge on the defending Party's products) and, as an alternative, payment of a fine to the prevailing Party in the dispute or, in some cases, into a fund that may be used to assist the defending Party in complying with its obligations in the case. The agreement also contains special procedures for State-State disputes relating to motor vehicles that grant the prevailing Party an automatic right to increase tariffs on motor vehicles of the defending Party to most-favored-nation (MFN) rates. If the United States or South Korea were found to have violated an investment obligation in an investor-State dispute, the tribunal would be authorized only to make a monetary award to the investor and thus could not direct the State defendant to withdraw the challenged measure. If the State defendant did not comply with the award, the investor might seek to enforce it under one of the international arbitral conventions to which the United States and South Korea are party.
State-State dispute settlement in the KORUS FTA differs from that in most earlier U.S. FTAs in that it applies to all obligations in the agreement's labor and environmental chapters instead of only domestic labor or environmental law enforcement obligations. Also, in the event a Party is found to be in breach of one of these obligations and has not complied, the prevailing Party may impose trade sanctions instead of, as under earlier agreements, being limited to requesting that the non-complying Party pay a fine, with the proceeds to be expended for labor or environmental initiatives in that Party's territory. The changes stem from a bipartisan understanding on trade policy between congressional leaders and the George W. Bush Administration finalized on May 10, 2007, setting out provisions that were to be added to completed or substantially completed FTAs pending at the time. Among other aims, the understanding sought to expand and further integrate labor and environmental obligations into the U.S. FTA structure. The same approach to labor and environmental disputes is found in FTAs with Colombia and Panama, each approved by Congress in October 2011, and the U.S.-Peru Trade Promotion Agreement, which entered into force in 2009.
Resort to panels under FTA State-State dispute settlement has been uncommon, and thus there has been relatively little experience with the operation of this mechanism over a range of agreements and issues. FTA investor-State claims have been filed under the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-U.S. Free Trade Agreement, and the U.S.-Peru Trade Promotion Agreement. As is the case with its NAFTA partners, particularly Canada, the United States imports capital from South Korea to a greater degree than it does from parties to other U.S. investment agreements, and South Korean investment in the United States may indeed grow over time. While this situation may create a greater potential for investor-State disputes than exists under most other U.S. investment agreements, the extent to which disputes involving South Korean investors will in fact arise would seemingly depend upon a variety of factors and interests unique to an investor's individual situation and thus for now remains only a matter for conjecture. To date, the United States has prevailed in all investor-State cases brought against it.