Korea, U.S. ink $350B investment MOU under trade deal

Industry Minister Kim Jung-kwan talks about the specific details of the agreement Korea and the United States reached for lowering auto tariffs to 15 percent during a press briefing in the government complex in central Seoul on Nov. 14. [YONHAP]

 
Korea and the United States on Friday sealed a memorandum of understanding for a $350 billion investment package, including $200 billion in cash investment, in exchange for the U.S. lowering its tariffs on most Korean goods to 15 percent. 
 
This comes roughly three and a half months after the broad framework agreement reached in the tariff negotiations on July 30.
 
 
The $150 billion will be used in Korea’s massive shipbuilding projects in the United States, while $200 billion will be invested in cash, with a $20 billion quota per year. The investment sector will include shipbuilding, energy, semiconductors, raw materials, pharmaceuticals and AI.
 
With the latest agreement signed between Industry Minister Kim Jung-kwan and U.S. Commerce Secretary Howard Lutnick, tariffs on Korean-made automobiles and auto parts will be reduced from 25 percent to 15 percent, saving Hyundai Motor and Kia from paying an estimated 4 trillion won ($2.7 billion) in additional annual duties.
 
Tariffs on wood products will also be set at 15 percent, while forthcoming duties on pharmaceuticals will be capped at a maximum rate of 15 percent.
 
Korea also secured a U.S. commitment that chip tariffs applied to Korean exports will be “no less favorable than the terms that may be offered in any future agreement covering a volume of semiconductor trade at least as large as Korea’s.”
 
However, tariffs on steel products will remain at 50 percent — a point that Kim described as “the most regrettable part,” noting that “United States was adamant that it would not go below 50 percent in this area.”
 

President Lee Jae Myung announces the result of the Korea-U.S. joint fact sheet on trade and defense on Nov. 14. [YONHAP]

 
Specifically, the selection of investment projects will be made through January 2029 before the end of U.S. President Donald Trump’s term. Funds required for the projects must be deposited no earlier than 45 business days after receiving official notification of the approved U.S. investment destination.
 
Investment projects will be selected by Trump, based on recommendations from an investment committee chaired by Lutnick. The committee must consult in advance with a consultative body chaired by Kim and recommend only investments that are “commercially reasonable.” 
 
“The term commercially reasonable means an investment is deemed commercially reasonable if, under the principle of good faith, the committee determines that the invested capital can be sufficiently recovered,” Kim said during a press briefing at the government complex in central Seoul on Nov. 14.
 
“It is assessed to be more favorable than Japan. A closer look at the fact sheet shows that we are required to fulfill the investment ‘commitment’ by January 2029, whereas Japan lacks such language, effectively obligating them to complete the investment itself by that date,” Kim said. “We intend to operate the projects in a manner that maximally reflects the needs and demands of our companies, ensuring they are beneficial. There are already aspects currently under discussion.”
 

The joint fact sheet on President Donald Trump and President Lee Jae Myung’s meeting, posted on the White House website on Nov. 13. [SCREEN CAPTURE]

 
Regarding the Alaska LNG project, “Korea will, for the time being, refrain from participating in it due to the absence of a commercial rationale,” Kim said.
 
“Again, a closer examination reveals that Japan’s agreement explicitly mentions a pipeline, implying involvement in the Alaska project, while ours doesn’t have that term, meaning that even if we participate, we are primarily considering the procurement aspect rather than direct project engagement.”
 
Failure to meet U.S. investment contributions could trigger higher tariffs, according to the agreement.
 
The government plans to establish a dedicated special fund under a newly enacted law to oversee investments in the United States. The fund will directly secure foreign currency for investment purposes, prioritizing strategies that minimize disruption to the foreign exchange market, such as leveraging returns on existing foreign assets or issuing foreign-denominated bonds, rather than purchasing currency directly from the market. 
 
The passage of this special legislation is a prerequisite, with a bill expected to be introduced as early as next week. 
 
Distributions of investment returns will be allocated on a 50-50 basis between Korea and the United States until principal and interest obligations are fully repaid. After that, the allocation will shift to a 10-90 split, favoring the United States. 
 
For each project, Korea has the right to nominate preferred project managers, and the United States is obliged to give priority to Korean companies when selecting vendors and suppliers providing goods and services for the projects.
 
Regarding the $150 billion in shipbuilding cooperation investments, the Korean government will facilitate private investment, guarantees and ship financing in the sector — either directly or through a consultative committee — for projects approved by the committee. 
 
“Under this framework, all resulting revenues accrue to Korean firms,” Kim said. 
 
“Although the two sides had reached a stalemate at one point as their positions failed to converge, we ultimately arrived at a mutually beneficial agreement that allows the project to move forward within the bounds of our national capacity and under the principle of commercial rationality. This, in turn, has helped further strengthen the trust between the two countries,” said Kim during a press briefing in central Seoul Friday.
 
Meanwhile, Hyundai Motor Group immediately issued a statement thanking the government for its efforts to lower the auto tariffs. Until now, Hyundai was the only major automaker in Korea that has been facing 25 percent tariffs, while Toyota Motor and Volkswagen stood at 15 percent. 
 
“We are grateful to the government for its dedicated efforts on behalf of Korea’s national interest, from navigating a challenging negotiation process to reaching a tariff agreement, issuing the joint fact sheet and signing the investment fund MOU,” it said. “We plan to pursue multifaceted measures to minimize the impact of tariffs while further strengthening our fundamentals through quality enhancement, brand competitiveness and technological innovation.” 
 
The government will hold a follow-up meeting with the chiefs of seven major companies in Korea during the weekend, which will be joined by Samsung Electronics Executive Chairman Lee Jae-yong, SK Group Chairman Chey Tae-won, Hyundai Motor Group Executive Chair Euisun Chung, LG Group Chairman Koo Kwang-mo, LG Group Chairman Koo Kwang-mo, Celltrion Chairman Seo Jung-jin and Hanwha Group Vice Chairman Yeo Seung-joo. 
 

BY SARAH CHEA [[email protected]]