The Evolving Korean Statutory Law on Arbitration

01 January 2018

The Republic of Korea (Korea) is one of the countries the economy of which has developed rapidly over the past four decades. According to the World Bank, in 2016, Korea had the world’s eleventh-largest economy and was in eighth place in the world for trade. Considering its land mass, population, and natural resources, it is amazing how fast and big the Korean economy has developed. In the 1980s, Korea was known as one of the “Asian Dragons” along with Taiwan, Hong Kong, and Singapore. All these countries were believed to have great economic potential and the possibility for development. Among the four countries, Korea showed the greatest economic growth. In fact, Korea has become a model for national economic development. Other emerging countries in Asia are trying to emulate Korea’s strategy of economic development. At the beginning of the industrialization of the Korean economy, Korea pursued an export-oriented industrialization by combining mass production-mass exports with relatively high productivity-low wages. At that time, Korean trade focused mainly on the export of goods manufactured in Korea through cheap labor. Since the 1990s, however, the Korean strategy for economic development changed because of the rapidity of its economic development; labor-intensive industry declined and more technology-intensive industry began to develop. As a result, Korea is now a player in international business activities. Unlike the past - when Korea was simply manufacturing products through borrowed technology - Korean companies now create the technology they use and, as a result, compete effectively in global commerce. The Korean brand has become a guarantor of high quality. For example, the Hyundai cars have a good reputation abroad and combine relatively high quality with reasonable prices. Electronic goods manufactured by LG or Samsung are recognized as having the highest quality in various Middle Eastern countries. As Korean companies engaged in more complex international business transaction, they became involved in contracts for sales of goods, licensing, agency, distribution, franchise, construction, and turn-key operations. For example, the Hyundai automobile company began exporting Korean-made cars to countries all over the world; nowadays, they build factories abroad and employ local people to produce cars locally. Thus, Hyundai avails itself of many transactional contracts; agency or distributorship contracts with business partners abroad to sell the cars; service contracts with carriers for the transportation of cars; construction contracts with constructors to build local factories; and supply contracts to service manufacturing abroad. In addition, the company enters into employment contracts with local employees and to address consumers. Just like Hyundai, other Korean companies are also conducting international business in more complex ways. They, too, encounter greater transactional disputes with foreign companies, consumers, and employees. Contracts are used to identify and provide for the best ways to solve disputes. Arbitration dominates dispute resolution in international business. To bolster its competitive edge, Korea has begun to devote greater attention to arbitration in ICA. There is now no doubt that arbitration is more efficient and effective for the adjudication of international commercial disputes as a necessary appendage to the legal system. In Asia, Hong Kong with Singapore as a close second has become the center of ICA. It is the Korean conviction that Korea offers a better society, economy and government and can outdistance either Hong Kong or Singapore. While China seeks to be the Asian leader in ICA, Korea is better positioned geographically to intermediate between China and Japan - the two Asian economic giants. In ICA, contracting parties generally choose a country with no ties with either party. This practice enhances the neutrality of the arbitration. In comparison to Chinese or Japanese venue, Korea offers greater neutrality. Hong Kong is well-developed as a place for ICA, but that venue might well favor Chinese interest. In addition, Korea’s status in Asia has expanded significantly over the last fifteen years, primarily because of the Hallyu. The Hallyu started spreading among the younger generation and now it has spread to the middle-aged generation. With a combination of economic development and improved image, organizations like the Korean Commercial Arbitration Board (KCAB), the Korean Bar Association (KBA), the Korea Chamber of Commerce (KCC) have urged that Korea take advantage of its position and use it as a platform to become a center of ICA in Asia. Moreover, lawyers, entrepreneurs, and scholars have advocated that the Korean government should aggressively develop its infrastructure in ICA. In 2013, the Seoul International Dispute Resolution Center (Seoul IDRC) was established through the support of the Seoul Metropolitan Government, the Ministry of Justice, Korea Commercial Arbitration Board (KCAB), and the Korean Bar Association (KBA). The purpose of the Seoul IDRC is to act as a center for Asian ICA proceedings by providing hearing facilities with the cooperation of leading arbitral institutions including the American Arbitration Association (AAA), the Hong Kong International Arbitration Center (HKIAC), the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the Singapore International Arbitration Center (SIAC). There needs to be even more progress. Because the legal system and courts are instrumental to the functionality of arbitration, judges need to undertake special training and the current Korean perception of arbitration needs to be revamped. The Korean arbitration law should be reexamined. The national arbitration law measures the depth of the legal acceptance of arbitration. The Korean Arbitration Act (KAA) was enacted as an independent law for the first time in 1966; it was completely amended in 1999 after two partial amendments in 1973 and 1993. In 1999, the KAA was brought into line with UNCITRAL Model Law on International Commercial Arbitration (hereinafter, UNCITRAL Model Law). The UNCITRAL Model Law aims to unify and harmonize worldwide arbitration laws. It was intended to allow jurisdictions in the developing world especially to become instantly seen as favorable to arbitration. Some countries in the developed world (like Germany) also relied on the UNCITRAL Model Law because it reflected global standing and regulation of arbitration. Because of their participation in the development of ICA, countries (like France, the United States, and England) enacted their own statutes on arbitration. Korea amended the KAA in keeping with the UNCITRAL Model Law, allowing it to participate in the global law of arbitration. Korea is now hospitable to arbitration and regulates it in a manner that allows it to be autonomous and effective. The Korean law is fully conversant with the global regulation of arbitration. In terms of the 1999 amendment to the KAA, Korean scholars and practitioners strongly argued that the KAA had to reflect the changes in the Korean economy and integrate the international regulation of ICA. The need to amend the KAA became more evident when the UNCITRAL Model Law was itself amended in 2006. Nonetheless, it took a decade to achieve the evident emendation. The KAA was finally amended in 2016. The 2016 amendment focuses on (i) the removal of inefficiency and the restriction on arbitration law, (ii) adding or drafting new regulations to help arbitral proceedings to operate more smoothly and effectively. By doing so, Korea may have taken its initial step toward becoming an Asian Hub for ICA.