The investor-state dispute settlement mechanism(ISD) has resurged in the 1990s, and has been given a new meaning. This mechanism is specifically applies to the KOREA-US FTA, and as a result, has grown in significance for Korea. But the ISD has recently come under systematic criticism by nations, even with people concerned with municipal law, due to a lack of recognition. The ISD is one international arbitration system for protecting foreign investors and the accumulated precedents and cases on international trade relations exist. Nevertheless in domestic cases, no one besides some researchers are interested in ISDs. Because of the lack of mutual implementation in subjects concerned with relations between legal regimes, ISD legal studies do not grasp the connection between the ISD and legal research.
This confusion is exhibited in the changing forms of the ISD between the Korean government and the US government in the KOR-US FTA through 8 separate negotiations. Specifically concerning the ISD regime, matters of sovereign prerogatives, indirect expropriation and constitutionality were mainly analyzed. Originally the ISD regime was established to protect investors' assets against sovereign prerogatives. However, the authority of investors has increased to the point that sovereign prerogatives can be encroached. The scope of investment has expanded from the movement of capital and resources to rights of claim, contractual rights, property rights, non-equity investment and permission. Specifically, because investors may be able to claim a "denial of justice" and seek damages from an international tribunal convened under the FTA.
When ISDs occur, it is hard to find a case where an arbitral decision in NAFTA has deviated from customary international law. The single-trial system of arbitration often encroaches policies and interests of the states. For this reason, ISDs policies which are judged by state have been criticized because important state policies are treated carelessly. Indirect expropriation which the KOR-US FTA has allowed is hard to accept for the current Korean legal regimes. Under the interpretation Constitutional law, Korean domestic law is compensated only for direct expropriation, not indirect expropriation. Therefore, there is a need to arrange compensation for legal regimes such as, state indemnity, administrative compensation, compensation of infringement on quasi-expropriation to pass through the preparation process thoroughly. Because if indirect expropriation are introduced, many compensation expenditures would increase.
As a result of an examination of ISDs, operation strategies and effective execution methods of ISD mechanisms are as follows. Korea is expanding its roles as a host state as well as an investment state. So in principle, 1) ISDs are excluded for agreements, for example the Australia-US FTA, 2) when a treaty is included in a ISD, the investor can apply for the arbitration through the concent of the host state or use the domestic laws of the host state, 3) if 1), 2) are unreasonable, it is necessary to reduce the scope of the ISD to a minimum.
Because arbitral decision might be wrong, or differ from each tribunal, the public policy of a state can be forfeited. Therefore, in order to prevent misjudgment, there exists a need to arrange an appellate review. By creating a coherent, well-reasoned body of jurisprudence, investment tribunals bolster their legitimacy, fulfill the goals of both investors and sovereign states, and enhance the possibility of norm development resulting from the dialogue between international and national courts.
In the long term, it is necessary to examine the establishment of international investment dispute court. Indirect expropriation must be introduced, examined and applied to the national budget so as to fit in accordance with in Korea legal regimes.