Incomplete International Investment Agreements: Problems, Causes and Solutions

Abstract

It was a tense negotiation. South Korea and Turkey had been bargaining over the conclusion of a free trade agreement (FTA) for four years when talks over the investment chapter hit a major roadblock in 2014. Korea pushed to insert a clause to limit performance requirements imposed on Korean investors. Turkey, in turn, opposed the clause to preserve policy space for a set of export subsidy programs it considered vital. A first compromise failed because the responsible Turkish ministry could not produce a list of specific subsidies to be carved out as non-conforming measures. The negotiators then had to get creative. They agreed to tinker with the scope of the treaty’s investor-State dispute settlement (ISDS) clause by exempting the enforcement of the exact subparagraphs that covered export subsidies from ISDS. It was a win–win. Turkey could be sure its subsidies would be shielded from ISDS claims and South Korea had succeeded in including a clause on performance requirements.2 The episode also underscored the pragmatism and creativity that negotiators routinely have to muster to prevent deadlock and conclude the most ambitious agreement possible.