There is no System Preference for this, and even the system menu to enable/disable it does not work well so I have disabled “Smart” Copy&Paste in most fields in Keyboard Maestro (I can't see many occasions where it is actually useful in Keyboard Maestro in any event).
“Use smart quotes” is not the same as “Smart Copy/Paste”.
That preference applies to the setting for Use Smart Quotes (and Use Smart Dashes), (which Keyboard Maestro honours (except in programming fields where it turns it off explicitly)).
There does not appear to be any system preference for “Use smart quotes”. And it does not appear to be particularly sensibly handled by the system either.