EconomyInCrisis recently featured an article discussing the negative implications that would arise from congressional approval and the subsequent enactment of the Korean-US Free Trade Agreement. One of those implications is that U.S. law will become subservient to the stipulations existing in the FTA. Kor-US, like the rest of our FTAs currently on the books, would allow foreign companies to sue the U.S. for violating any terms of the FTA. This should be especially troubling for Americans since many companies could utilize loopholes in the FTA to gain unsolicited and unbalanced access to our markets.

An example of this possibility is already developing. On August 10 the Wall Street Journal reported that the German-based engineering company, Siemens, is seeking to increase its share of government contracts so it can gain a bigger share of a steady costumer order flow.

According to the Journal, Eric Spiegel, chief executive of Siemens Corp., the U.S. division of Siemens, says his operations currently bring in about $1 billion a year from the U.S. government, a figure he hopes to double by 2015. Despite competition from companies like General Electric Co. and Honeywell International Inc., Mr. Spiegel has high hopes as he believes new government spending will be predominantly directed toward energy efficiency and health care, sectors in which Siemens has a breadth of products including offshore wind turbines, MRI scanners and high-speed trains.

Siemens is invested throughout the United States and Korea, with 147 establishments in 39 states. Due to its investments in the United States and Korea, Siemens stands to benefit immensely from a loophole in the Korea FTA’s investor-state enforcement provisions. The FTA (along with all the other FTAs) stipulates that the United States or Korea could only deny the benefits of the investor-state enforcement to a foreign investor under two circumstances. The relevant provision follows:

“A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other Party and persons of a non-Party, or of the denying Party, own or control the enterprise. “

Siemens currently has 1800 employees and annual sales revenue of 1.2 billion Euros in Korea. Due to its large investor presence in Korea, Siemens could very easily change its country of incorporation, and sue the U.S. government on the basis of their large investment and business activities in Korea, thereby gaining access to government contracts. The situation could also be reversed and Siemens could sue Korea.

This is not a mere hypothetical situation. A duplicate scenario recently developed out of the CAFTA FTA. Pacific Rim, a Canadian-based company, recently sued El Salvador when the country denied Pacific Rim access to gold mining. One year prior to the suit, Pacific Rim re-incorporated in the United States, which granted it access to CAFTA’s investor-state protection clauses. El Salvador’s hands were tied.

The government contracts that Siemens is pursuing are classified as an “investment agreement” under the Korea FTA. If Siemens elects to do so, they could sue the U.S. or Korea if not granted government contracts. Again, this is not hypothetical: Siemens has already successfully brought a case under the Germany-Argentina Bilateral Investment Treaty.

The ability of Siemens or a similar corporation to use the Korea FTA to manipulate the distribution of U.S. government contracts is yet another reason why this FTA needs to be thrown out. The WTO, NAFTA, and all other “free” trade agreements enforce detrimental laws upon America. The WTO’s judgments and policies over the past 30 years have led to a massive trade imbalance that represents the largest unilateral shift of wealth in human history. America’s prosperity is bleeding out. As citizens we must pressure our representatives to take a strong stance against the WTO and any other unfair trade organizations or our economy will continue to circle the drain.

Print PDF