Mediating Japan-Korea Trade and Investment Tensions

By Prof James Claxton, Prof Luke Nottage & Dr Brett Williams*

The following guest blog derives from a project on Asia-Pacific international business dispute resolution funded jointly over 2019 by the University of Hong Kong and the University of Sydney. It will be tabled at a second symposium on 15 November. Versions are also published by Kluwer Arbitration Blog.

  1. Introduction: complex multi-faceted tensions
    1. A media and geopolitical storm recently erupted after Japan introduced measures affecting exports to the Republic of Korea (Korea). Thunder sounded with Japan’s imposition of certification requirements on three chemicals needed by South Korean companies to make semiconductors, memory chips and displays for consumer electronics (the 4 July Measure). This was followed by lightning and rain when Japan removed Korea from its “white list” of trusted trading partners (the 2 August Measure), then threats by Seoul to retaliate by reducing military-intelligence cooperation and imposing countermeasures on trade. The growing geopolitical tempest has brought about the worst breakdown in cross-border bilateral relations in five decades, generating both regional and global ramifications.[1]
    2. Differing rationales for the geopolitical storm have been given. The Japanese government[2] and media[3] tend to emphasise security concerns, namely on-shipments of such chemicals with potential military applications to North Korea, violating multilateral sanctions. The South Korean government[4] and media,[5] as well as some international news outlets,[6] have often placed more emphasis on the possibility of Japan “retaliating” for an October 2018 judgment of the Supreme Court of Korea. That decision upheld lower court judgments from 2014 finding major Japanese companies, such as Nippon Steel, liable to compensate claimants alleging that they were forced labourers for the Japanese companies during World War 2. The companies, and the Japanese government, have argued that such claims were precluded by a bilateral treaty signed in 1965 to restore diplomatic relations.[7] (Interestingly, similar claims and defences under a different bilateral instruments have been raised before Japanese courts by Chinese war-time labourers, generating a settlement with Nishimatsu group companies.[8]) A few media reports also speculated that Japan introduced export restrictions affecting Korea to bolster the appeal of the Abe Administration in upper House of Councillor elections,[9] but it secured another solid victory anyway.[10] Some media sources also suggest that populist Korean President Moon Jae-in may be “playing to the base” too in domestic politics.[11]
    3. Introducing trade-restrictive measures, however, raises the potential for Korea to complain before the World Trade Organization (WTO). It brings to mind the claim successfully brought by the Obama Administration against China over 2012-14, resulting in China removing export duties and quotas imposed on rare earths, for which it similarly controlled almost all world trade. However, the general exceptions China failed to establish in that case, under Article XX of the General Agreement on Tariffs and Trade (GATT), dealt with health and conservation of natural resources.[12] By contrast, Japan here could be expected to raise national security exceptions under Article XXI. There are even greater differences from a procedural perspective, which we focus on below. If indeed Korea files a formal complaint and an ad hoc panel rules against Japan, this would only come by next year at the earliest. By then the Appellate Body will lack sufficient members (full-time “judges”), due to the Trump Administration blocking new appointments until its concerns about dispute resolution and other aspects of the WTO system are adequately addressed.[13] Accordingly, Japan could appeal any panel decision allowing retaliation for any GATT violations found, and then never come under pressure to remove or adjust its measures against Korea.
    4. The situation becomes even messier when we consider below [[in Part 3]] other potential inter-state dispute resolution processes. Japan could seek arbitration under the 1965 treaty, but that effectively requires the counterparty to provide further consent, which Korea does not seem to want to do. Japan might also consider litigating the treaty before the International Court of Justice (ICJ). Another option is to invoke inter-state arbitration under the Japan-Korea bilateral investment treaty (BIT) in force since 2003, and/or a trilateral investment treaty in force from 2014.[14] However, it may be difficult to prove that the Korean court judgments involved a procedural defect or discrimination towards the Japanese companies creating a denial of justice, contrary to the relevant treaty.
    5. A further possibility, mentioned so far only in a very few media reports but also sketched below [[in Part 4]], is that the companies directly initiate investor-state dispute settlement (ISDS) claims, as provided by both investment treaties in lieu of inter-state arbitration. This could theoretically include an application to the ad hoc arbitration tribunal to issue interim measures preventing enforcement of the Korean Supreme Court ruling, until the tribunal had finally determined claims such as denial of justice.
    6. A major problem for the Japanese companies is that this means they would have to fork out tribunal, lawyer and expert witness fees – often hefty, even if the claim ultimately succeeds.[15] A major problem for the Japanese government, in turn, is that ISDS claims brought by the companies would likely further incense not only the current Korean government, but also some groups within Korean society (including an association of judges).[16] They and the then opposition party became critical of ISDS especially as it was negotiated into the Korea-US Free Trade Agreement (KORUS), brought into effect from March 2012, and as the first-ever treaty-based claim was brought against Korea from late 2012 by a Belgian subsidiary of US-based Lone Star.[17] One Australian NGO even interprets a recent Korean newspaper report of current Prime Minister Lee Nak-Yeon as suggesting that Korea may “abolish” ISDS.[18] More likely he was signalling the need for further rethinking of Korea’s investment treaty policy and practice, which has anyway been evolving (eg regarding ISDS transparency).[19] But an ISDS claim by Japanese companies and/or an award favouring Lone Star would further inflame simmering political tensions, especially as this year another US investor (Gale) has filed a notice to initiate ISDS regarding a development in Incheon,[20] while Chinese and now Malaysian investors have filed notices regarding projects on Jeju Island.[21]
    7. As we conclude [[in Part 5]], given this complex set of potential claims across multiple forums, the best way forward seems to be a negotiated overall settlement, perhaps facilitated by formal mediation.

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Challenges and Opportunities for International Commercial Arbitration and Investor-State Dispute Settlement in the Asia-Pacific Region: A Symposium

By Dr. Nobumichi Teramura

The following guest blog derives from a project on Asia-Pacific international business dispute resolution funded jointly over 2019 by the University of Hong Kong and the University of Sydney. It will be tabled at a second symposium on 15 November. Versions are also published by Kluwer Arbitration Blog.

Introduction

More than a year has passed since the commencement of the so-called trade war between China and the US. The ongoing geopolitical tension in the Asia-Pacific region shows no signs of slowing down, and this inevitably affects the business environment; international business is not separable from international relations. It is time for international lawyers in the region to reconsider their strategy for the coming years, especially concerning international commercial arbitration (ICA) and investor-state dispute settlement (ISDS).

On 15 July 2019, the University of Hong Kong Asian Institute of International Financial Law (AIIFL), jointly with Sydney Law School, organised an international symposium: “Challenges and Opportunities for International Commercial Arbitration and Investor-State Dispute Settlement in the Asia-Pacific Region”. The symposium, supported by Transnational Dispute Management (TDM), brought together leading experts in international business law from the Asia-Pacific region. Building on Reyes & Gu (eds), The Developing World of Arbitration: A Comparative Study of Arbitration Reform in the Asia-Pacific (Hart, 2018) and Chaisse and Nottage (eds) International Investment Treaties and Arbitration Across Asia (Brill, 2018), the symposium examined more recent challenges and opportunities for ICA and ISDS: the proliferation of international commercial courts; the 2018 UN Convention on enforcement of mediated settlement agreements; dispute resolution mechanisms for the Belt & Road initiative; and the impact of evolving investment treaty practices and high-profile cases on public attitudes towards ICA and ISDS. The main focus of the symposium was Australia, Japan, China, Hong Kong and Singapore.

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Upcoming Symposium on Challenges and Opportunities for International Commercial Arbitration and Investor-State Dispute Settlement in the Asia-Pacific Region (Mon, 15 July, 1:30-5:35 PM)

HKU School of Law, the University of Sydney School of Law together with AIIFL will be hosting a conference on “Challenges and Opportunities for International Commercial Arbitration and Investor State Dispute Settlement in the Asia Pacific Region on 15 July 2019 starting at 1:30pm.  Below is information on the program:

Topics

International Commercial Arbitration in Australia: Judicial Control over Arbitral Awards
An Australian Perspective on Investment Treaty Negotiations and Investment Arbitration
Developing Japan as a Regional Hub for International Dispute Resolution: Dream Come True or Daydream?
Procedural Models to Upgrade BIT’s: China’s Experience
China and International Investment Arbitration: Chinese Arbitral Institutions and ISDS Rules
China’s Belt and Road Development and A New International Commercial Arbitration Initiative in Asia
International Commercial Arbitration and ISDS Developments in Hong Kong in the Context of the Belt and Road Initiative
Can the Singapore International Commercial Court Play a Role in ISDS?

Panel Discussion
ISDS in Recent Arbitration of International Investment Agreements Involving Asian countries
Contract claims v Treaty claims: can the investor have it both ways?

Draft Programme is available HERE.

Please register ONLINE to reserve a place.

Review of Court Mediation Reform: Efficiency, Confidence and Perceptions of Justice (2018)

The Asian Journal of Law and Society recently published a review written by Professor Eric Feldman of University of Pennsylvania of Court Mediation Reform: Efficiency, Confidence and Perceptions of Justice

Book Review: Court Mediation Shahla Ali, Court Mediation Reform: Efficiency, Confidence, and Perceptions of Justice (Cheltenham, UK: Edward Elgar Publishing, 2018) pp 298. Hardcover: $135.00.

“Where there are people, there is conflict; and where there is conflict, there are conflict resolution institutions. In many societies, including the ten countries that form the heart of this book, the government-run institutions charged with resolving conflict are called courts. Yet, in all ten countries, experts and the populace more generally believe that courts are to some degree failing. In response, they have created alternative dispute resolution (ADR) institutions to handle at least some of the conflict bubbling throughout society. In addition, country by country, they have retooled their courts and introduced court-based mediation in an effort to provide an attractive venue to disputants.

Professor Shahla Ali’s book, Court Mediation Reform: Efficiency, Confidence, and Perceptions of Justice, takes a careful look at whether mediation provides a solution to the various problems that allegedly are endemic to courts around the world. Is mediation less expensive than litigation, for litigants themselves or for the state? Does mediation reduce the caseloads that so often overburden the civil-litigation system? To what extent does mediation serve to mend, or even enhance, relationships that might be permanently frayed by litigation? Does the relative informality of mediation improve the experience of those who engage in conflict by involving them more thoroughly in the process of dispute resolution? Might mediation offer social benefits that elude litigation, like creating a shared sense of harmony? By looking systematically at court mediation in a variety of national settings, Ali provides insight into how mediation currently functions, as well as its successes, failures, and continuing challenges.

Ali, a law professor at Hong Kong University, has carefully constructed this comparative study. Because of differences between civil-law and common-law jurisdictions, she explores mediation in both types of legal systems. She also accounts for gaps between more and less economically advanced countries, and for differences between mandatory and voluntary mediation systems. The result is a book with ten case-studies, five of which focus on voluntary mediation (UK, Hong Kong, France, the Netherlands, Malaysia) and five on mandatory mediation (the US, Australia, Italy, China, and India). The studies are centred on the five years following the introduction of mediation in each jurisdiction. A survey of 83 practitioners provides a complementary, qualitative assessment of mediation.

The tight, rigorous construction of Ali’s comparative project belies the far-reaching, multifaceted nature of the questions it addresses. As her review of the theoretical framework of the project makes clear, her aim is to put some empirical meat on the bones of the debate over the strengths and weaknesses of ADR. What happens, she asks, when conflict resolution bypasses formal, state-sponsored, judicial decision-making, and is instead managed through ADR? Does ADR serve as a venue for the public airing of values? Does it establish precedent for future cases? Does it damage the authority and credibility of courts? To what extent does it diffuse the legitimate claims of parties? How well does it serve justice? As Ali makes clear, defenders of ADR generally (and mediation more particularly) argue that it enhances participation in the legal process, empowers participants, strengthens values like dignity and empathy, underscores relationships, and promotes justice. Does it? Or do the critics of ADR have a long list of legitimate gripes? Against this ideologically charged debate, Ali insists that we put aside the rhetoric and look carefully at how mediation is working on the ground.

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Forum: Advances in Comparative and Transnational ADR – Research into Practice, 8 & 9 March, 2019

On 8 and 9 March 2019, the University of Hong Kong Faculty of Law will be hosting a forum on “Advances in Comparative and Transnational ADR – Research into Practice.”  Registration is free of charge and available here.

Program

March 8th
8:40am Registration, 11th Floor Cheng Yu Tung Tower Faculty of Law; University of Hong Kong, Hong Kong SAR
9:00 am Welcome: Dean Michael Hor, University of Hong Kong, Faculty of Law

Opening remarks: Shahla Ali, University of Hong Kong

9:15 am – 10:15 am Session 1 – Methodological Considerations in Comparative and Transnational ADR

Chair: Zhao Yun
Discussant: Lola Akin Ojelabi

·      Matthew Erie, “The Third Eye: The Problem of Method in the Study of Transnational Dispute Resolution”
·      Michael Palmer, “Modes of Dispute Response: Reconnecting the Range”
·      Shahla Ali, “Advancing Research and Practice in Dispute Resolution Institutions through Inclusive Devolved Reflection”

10:15 am – 10:35 am Morning Break
10:35am – 12:10 Session 2 – Comparative ADR Ethics, Standards and Jurisprudential Ideals

Chair: Keith Hawkins
Discussant: Kerstin Bree Carlson

·      Deborah Hensler, “Re-Inventing Arbitration: How Expanding the Scope of Arbitration is Re-Shaping its Form and Blurring the Line Between Private and Public Adjudication”
·      Michal Alberstein, “Between Summary Trials and ADR”
·      Lola Akin Ojelabi, “The Challenges of Developing Global Ethical Standards for ADR Practice”
·      Zachary R. Calo, “Legal Ethics and Transnational Dispute Resolution”
·      Dorcas Quek, “A New Chapter in the Cross-Border Enforcement of Mediated Settlement Agreements: The Elevated Role of Mediation Standards in Procedural and Substantive Justice”

12:10-1:20 Lunch for Speakers/Chairs 
1:20 pm – 2:20pm Session 3 – Comparative Approaches in Conciliation and Arbitration

Chair: Tania Sourdin
Discussant: Luigi Cominelli

·      Anselmo Reyes, “The Use of Conciliation and Litigation by the Hong Kong Equal Opportunities Commission”
·      Manuel Gomez, “Talk to Me: The Upsurge of International Arbitration-Related Conferences and their Impact on Academia, the Industry and the Legal Profession”
·      Gu Weixia, “Arbitration in Comparative Perspectives”

2:20 pm – 3:35 Session 4 – Comparative ADR in Peace building, Health Care and Disasters

Chair: Eric Feldman
Discussant: Matthew Erie

·      Kerstin Bree Carlson, “Peace Through Law: A Hybrid Tribunal for Divided South Sudan”
·      Eric Feldman, “Recent Developments in Victim Compensation for the Fukushima Disaster” [TBC]
·      Nadav Davidovitch, “Dealing with Conflicts in Health Care Systems: Form Clinical Medicine to Public Health Settings”
·      Martin Lau, “TBC: ADR in Pakistan”

3:35-4pm Break
4pm – 5:50pm Session 5 – ADR Developments and Reform in Mainland China

Chair: Michael Palmer
Discussant: Sida Liu

·      He Xin, “Flexibility and Authority: Resolving Labor Disputes in a County Government in Western China”
·      Kwai Ng, “Wearing Two Hats – Problems of Judicial Mediation as Seen from China”
·      Chao Xi, “Negotiations in the Shadow of Shareholder Activism”
·      Sida Liu, “The Spaces of Global China: Hong Kong as a Frontier for Chinese Law Firms”
·      Ling Zhou, “Forum Shopping in a World of Mixed Processes: China’s Professional Litigants”
·      Yang Lin, “New Developments in Online Dispute Resolution in China”

5:50 pm Closing remarks
6:30pm Dinner hosted by HKU (by invitation only)

Saturday March 9th

9:30am – 11:20 Session 6 – Mediation Developments in the Context of Civil Justice Reforms

Chair: Mark Feldman
Discussant: Mark Feldman

·      Tania Sourdin, “When is the Best time to Mediate? Considering Early Mediation”
·      Luigi Cominelli, “Mediation Models and the Impact of the 52/2008 Directive on Civil and Commercial Mediation in Europe”
·      Pablo Cortes, “Imbedding Mediation in the Civil Justice System”
·      Nadja Alexander, “International Comparison of Regulatory Systems for Mediation”
·      Francis Law, “TBC”

11:20-11:50 Break
11:50 am – 12 Closing remarks and next steps
12 noon Lunch hosted by HKU (by invitation only)

Conference Theme:

The focus of the forum is on exploring the challenges and opportunities in understanding and assessing developments in systems of dispute resolution in diverse social and political contexts through comparative research. Papers will cover topics such as practical considerations in conducting comparative work in the field of transnational and comparative dispute resolution, insights from recent studies, and consideration of how research may inform policy reform in ADR institutions regionally and transnationally. The aim of the forum is to facilitate research collaboration that will also translate into positive policy applications and directions for future study.

Speaker and Chair Bio’s:

May be found here.

Media sponsor: TDM

** Transnational Dispute Management (TDM, ISSN 1875-4120) is a comprehensive and innovative information service on the management of
international disputes, with a focus on the rapidly evolving area of investment arbitration, but also in other significant areas of international investment (such as oil, gas, energy, infrastructure, mining, utilities etc). It deals both with formal adjudicatory procedures (mainly investment and commercial arbitration), but also mediation/ADR methods, negotiation and
managerial ways to manage transnational disputes efficiently. See
www.transnational-dispute-management.com for more information. You can
apply for a free OGEMID trial membership and students can sign up for
Young-OGEMID (which is free)

 

Call for Papers: Advances in Comparative & Transnational ADR: Research into Practice

The Law Faculty at the University of Hong Kong will be hosting a research forum March 8-9, 2019 on Advances in Comparative & Transnational ADR: Research into Practice to which we  warmly invite submissions for consideration.

 

  • The focus of the forum is on exploring the challenges and opportunities of understanding and assessing developments in systems of dispute resolution in diverse social and political contexts through comparative research.  Papers may cover topics such as practical considerations in conducting comparative work in the field of transnational and cross-border dispute resolution, insights from recent multi-country studies, and consideration as to how research may inform policy reform in ADR institutions regionally and transnationally. We hope the forum will facilitate research collaboration that will also translate into positive policy applications and directions for future study.
  • For those wishing to submit a paper for consideration:
a) By 10 December 2018, please e-mail us:
(i) an abstract of your paper (up to 200 words);
(i) your biography (100 words);
(iii) indicate whether you intend to submit your paper for the conference publication; and
(iv) indicate whether you have any objections to being a discussant at the forum.
Submissions may be sent to: sali@hku.hk

International Dispute Resolution Team Established by China’s Supreme Court

With the aim of providing a mechanism for the promotion of international commercial dispute resolution in the context of cross-border trade and development, in August of 2018, China’s Supreme People’s Court established its first International Commercial Expert Committee to provide advisory opinions and assist in the mediation of disputes.  The Committee consists of 32 Chinese and foreign experts. A recent report noted that ‘the International Commercial Expert Committee is designed to ensure operation and promote adjudication of the International Commercial Court, and support to resolve international commercial disputes through arbitration, mediation, litigation and other diversified commercial dispute settlement methods.” According to Susan Finder, this Committee appears to be the “first of its nature within the Chinese justice system.”