WORLD TRADE
ORGANIZATIONWT/WGTI/W/42
6 July 1998
(98-2661)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM KOREA
The following communication, dated 15 June 1998, has been received from the Permanent
Mission of the Republic of Korea with the request that it be circulated to Members.
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Korea's Bilateral Investment Treaties
As stated by the Chairman of the Working Group at the meeting of 30 and 31 March 1998, it
is important for the Working Group to have a broad picture of the experiences of Members with the
investment rules of regional and bilateral agreements.  In response to the Chairman's suggestion,
Korea presents an overview of the bilateral investment treaties (BITs) which it has signed with othercountries.  The introductory part provides a numerical analysis of Korea's BITs as well as a
description of the underlying economic background.  Section II identifies key elements of Korea's
BITs.
I. INTRODUCTION
Korea is not one of the major countries as far as foreign investment volume is concerned.
According to data compiled by UNCTAD
1, Korea's outward stock of FDI is 13.7 billion dollars, the
21st largest in the world.  Yet Korea has an extensive network of BITs;  Korea has signed a total of
53 BITs and UNCTAD's data2 show that Korea ranks 10th in terms of the number of concluded BITs.
Until the end of the 1970s, Korea sought BITs mainly as a tool to attract foreign capital.  But
this perception of BITs underwent a drastic change as Korea's overseas investment started to take off
from the mid-1980s.  A BIT was increasingly regarded as a tool to protect Korea's overseas
investment, reflecting Korea's new role as a capital exporter.
Out of the 53 BITs Korea has signed to date, 36 were concluded after 1990.  Of these, 18
were signed over the last three years.  Nineteen of the 53 BITs were concluded with OECD member
countries and 34 BITs were concluded with non-OECD member countries.
                                                     
1 World Investment Report 1997
2 World Investment Report 1997WT/WGTI/W/42
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II. STANDARD MODEL OF KOREA'S BITs
Korea uses a standard model treaty in negotiating BITs.3  The model treaty is comprised of a
preamble and 12 articles.  The articles are mainly concerned with investment protection.  The Korean
model treaty does not contain clauses on performance requirements or on restrictions of the entry of
key personnel, which can work as a barrier to inward foreign investment, nor does it require thegovernment of the host country to liberalize foreign investment.
A summary of the key elements of the standard model treaty is as follows:
1. Scope of application
1.1 Definition of investment
The Korean model treaty takes a broad asset-based definition of investment.  Investment is
defined as every kind of asset invested by an investor of one contracting party in the territory of theother contracting party.  An illustrative list of various types of investment is provided.
1.2 Definition of investor
The definition of investor covers both natural persons and juridical persons.
1.2.1 Natural persons
A natural person is defined as a person having nationality of citizenship under the domestic
laws of a contracting party.  Permanent residents are not considered as natural persons.
1.2.2 Juridical persons
A juridical person is defined as an entity incorporated or constituted in accordance with, and
recognized as a juridical person by, a contracting party's domestic laws.  The Korean model treaty
applies the principle of territoriality in defining companies covered by the treaty.  Only investments
made by companies located in the territory of one of the contracting parties are covered.  Investments
made by a company located in a third country are not covered even though the company is owned orcontrolled by a contracting party's nationals or companies.
2. Admission of investment
Each contracting party shall encourage the creation of favourable conditions for investors of
the other party to make investments in its territo ry, and shall admit such investments in accordance
with its laws and regulations.
3. General standards of treatment
3.1 Fair and equitable treatment, full protection and security
Investments by investors of each contracting party shall at all times be accorded fair and
equitable treatment and shall enjoy full protection and security in the territory of the other party.
                                                     
3 The final text of a BIT may differ from that of the model treaty depending on the outcome of
negotiations.WT/WGTI/W/42
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3.2 National treatment and MFN
Investments by investors of either party shall be accorded national treatment and MFN
treatment, whichever is more favourable to investors.  This applies to returns as well.
3.2.1 General exceptions
Derogations from national treatment and MFN treatment are not allowed except for privileges
resulting from a regional agreement for economic integration for privileges resulting from an
international agreement relating to taxation.
3.3 Expropriation
Expropriation, nationalization or any other measures having an effect equivalent to
expropriation or nationalization are not allowed exce pt where the measures are taken:  (1) for public
purposes;  (2) on a non-discriminatory basis;  (3) under the due process of law;  and (4) against
prompt, adequate, and effective compensation.
3.4 Transfers
Investors are guaranteed free transfers of payments related to investments and returns.  The
transfers shall be made in a freely convertible currency, without undue restriction and delay.
3.5 Subrogation
In case a contracting party makes payment to its investors under a guarantee it has made, the
party is entitled to all the rights and claims that the investor has to the other party.
3.6 Dispute settlement
3.6.1 Dispute between a contracting party and an investor
If a dispute between the host country and an in vestor cannot be settled amicably within six
months, it is to be submitted to the ICSID arbitration.  If the other contracting party is not a party to
the ICSID, the dispute is to be submitted to conciliation and arbitration procedures mutually agreed
upon on the basis of the Washington Convention of 1965.
3.6.2 Dispute between the contracting parties
If a dispute between the contracting parties is not settled amicably within six months, it is to
be submitted, at the request of either party, to an ad hoc arbitral tribunal.
4. Application of other rules
Where a matter is governed both by the BIT and by another international agreement to which
both contracting parties are parties, or by general principles of international law, the more favourable
treatment to the investors shall be accorded.
If a contracting party's laws and regulations or other specific provisions or contracts grant
more favourable treatment to the investors than is accorded by the BIT, the more favourable treatment
to the investors shall be accorded.
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