U.S.-South Korea Joint Fact Sheet and MOU: It’s the Implementation, Stupid.
The U.S.-South Korea joint fact sheet on trade and security has been released, followed by a bilateral memorandum of understanding (MOU) outlining the investment package. These documents, which took longer than anticipated, were disclosed as U.S. President Donald Trump and South Korea’s President Lee Jae-myung reached an agreement on the tariff and security negotiations at their second summit in Gyeongju on October 29, held on the occasion of the Asia-Pacific Economic Cooperation meeting hosted by South Korea.
While the text of a final trade deal has not yet been released, in examining the two documents that were posted by the governments, attention centered on whether Seoul outperformed Tokyo in securing less disadvantageous trade and investment terms vis-à-vis Washington, and on President Trump’s unexpected approval for South Korea to build nuclear-powered submarines. In the midst of this, debate in Seoul has now shifted to the nature of the MOU itself – specifically, whether it constitutes an agreement that requires National Assembly ratification, which would then make its terms binding under domestic law, given the significant cost to Korean taxpayers.
South Korea Touts a Better Deal Than Japan
With regard to the terms of the deal, the overall framework remained consistent with earlier indications that South Korea will invest $350 billion in the United States, with $150 billion directed toward shipbuilding projects and the remaining $200 billion provided as direct investment. In return, U.S. reciprocal tariffs on Korean goods will be reduced to 15 percent, and tariffs on automobiles and auto parts will also be lowered to 15 percent. Yet much of the attention centered on the comparison with Japan. During a press briefing, South Korea’s Minister of Trade, Industry and Energy Kim Jung-kwan highlighted several provisions in the texts, which he described as “safeguards” absent in Japan’s arrangement.
Annual Investment Cap
First, he said the biggest achievement was securing a $20 billion annual investment cap on the $200 billion in direct investment. The joint fact sheet reads that Seoul “shall not be required to fund an aggregate amount of U.S. dollars greater than $20 billion in any calendar year,” with both leaders recognizing “the potential impact of the MOU on the foreign exchange market stability of the ROK.” This language, which is also included in the MOU, means the $200 billion investment will be spread over at least 10 years. By contrast, Japan’s MOU contains no such provision for phased payments and simply states that Japan will invest $550 billion in the U.S. – meaning Tokyo, given its stronger foreign reserve position, is expected to make a larger investment and proceed on a faster timetable than Korea.
Commercially Reasonable
Another point Kim underscored was the inclusion of the term “Commercially Reasonable.” Under the U.S.-Korea MOU’s “Investment Selection” section, the U.S. President is to select investments recommended by the Investment Committee, which “intends to only recommend Investments to the President which it believes are Commercially Reasonable.” According to Appendix A of the MOU, “Commercially Reasonable” means “Investments which the Investment Committee believes in good faith will produce cash flows over the life of the Investment sufficient to cover the distributions…” In contrast, the U.S.-Japan MOU only states that the U.S. President “selects Investments that have been recommended by the Investment Committee,” without incorporating this term.
Investments vs. Investment Commitments
Also, he noted that under “Investment Execution and Management” section, Korea’s MOU states “Investment commitments shall be made from time to time beginning on the date hereof until January 19, 2029” while Japan’s MOU reads “Investments should be made from time to time beginning on the date hereof until January 19, 2029,” meaning Seoul is required only to make project commitments by the end of Trump’s second term, whereas Tokyo’s language suggests the funds themselves should be put in within that period.
Consultation Committee Chair
Under the same section, the Investment Committee, established by the U.S. President and Chaired by the U.S. Commerce Secretary, “will consult with Korea directly or through a Consultation Committee, chaired by the Korean Minister of Trade, Industry and Resources and comprising designees from Korea and the United States” before making recommendation of any investment to the U.S. President. In Japan’s MOU, however, the Investment Committee “should consult with a Consultation Committee comprising designees from both nations prior to its recommendation to the President,” without specifying that the Japanese side leads the Consultation Committee – and with “should” carrying weaker obligation than “will.”
***Note: The official title is the Korean Minister of Trade, Industry and Energy, but the MOU refers to the position as the Korean Minister of Trade, Industry and Resources.
Investment Project Manager Suggested by Korea
Additionally, Kim pointed out that Korea secured language encouraging the U.S. to select a Korean project manager for each investment project. Under the “Korean Vendors, Suppliers, And Project Manager” section, the U.S.-Korea MOU reads that “The United States should, where feasible and available, select a project manager for each project which may be suggested by Korea,” another condition absent from the U.S.-Japan MOU.
Alaska LNG Project
In the U.S.-Japan fact sheet on trade and investment released immediately after the bilateral deal was announced in July, the Alaska gas project appears under energy, noting the two countries “are exploring a new offtake agreement for Alaskan liquefied natural gas (LNG).” In the October fact sheet with updates, it states that “Tokyo Gas and JERA, respectively, announced letters of intent with Glenfarne for LNG offtake from a pipeline proposed to be constructed in Alaska,” and that Japanese companies account for “more than 10 percent of the project’s export capacity.”
In response to Seoul’s position on Alaska LNG, Minister Kim said that the project appears neither in the U.S.-Korea joint fact sheet nor in the MOU, adding that because its commercial viability has not been established yet, South Korea does not plan to participate at this time.
Where Seoul’s Deal Fell Short
Despite the “safeguards” in place, several shortcomings remain for Seoul, as outlined below. While the joint fact sheet and the MOU have eased some trade uncertainty, it is still too early to deem the deal a success.
U.S. President Decides, No Funding Means Tariffs Snap Back
In particular on investments, because the final outcome hinges on which projects are chosen for the $200 billion package, one of the most controversial points is in the MOU’s “Funding” section, which states:
“Korea may, in its sole discretion, elect not to fund an Investment Amount for an Investment and will consult with the United States prior to any decision to not so fund… In the case where Korea elects not to fund Investments, the United States may also impose tariff rate or rates on Korean imports into the United States at the rate determined by the President.”
This text suggests that while Korea has the discretion not to fund investments, choosing not to do so could enable the U.S. President to unilaterally reinstate tariffs on Korean goods, potentially at rates even higher than the initial 25 percent. Importantly, while the Investment Committee, after discussions with the Consultation Committee, can “recommend” investments to the U.S. President, it is the President who has the final authority to select them.
The South Korean government has claimed that only “commercially reasonable” investments – defined as those that “will produce cash flows over the life of the Investment sufficient to cover the distributions” – would be recommended, but under that very definition, the determination of commercial reasonableness ultimately rests on the Lutnick-led Investment Committee’s “good faith” judgement.
Splitting Profit 50-50, Later 10-90 in Washington’s Favor
Furthermore, as with Japan, South Korea could not avoid a 50-50 profit split on the $200 billion direct investment until the initial investments are fully recovered. And once both sides reach that threshold, the profit share shifts heavily in Washington’s favor, at 10-90. Regarding this point, Minister Kim reportedly told the local press that “the U.S. is not contributing a single penny, yet the profit distribution is set at 50-50,” and explained that because Seoul entered its tariff negotiations after Tokyo, “there were aspects that could not be changed.”
Semiconductor Tariffs Still Uncertain
Language in the joint fact sheet on semiconductor tariffs, which states that the U.S. “intends to provide terms for such Section 232 tariffs on Korea that are no less favorable than terms that may be offered in a future agreement converging a volume of semiconductor trade at least as large as Korea’s, as determined by the United States,” in practice hinges on the outcome of U.S.-Taiwan negotiations, leaving significant uncertainty. Depending on how those negotiations conclude, South Korea could end up in a less favorable position on semiconductor tariffs than, for example, the European Union (EU), which secured in the U.S.-EU joint statement in August that such tariffs “do not exceed 15 percent.”
***Note: Despite the U.S.-Japan trade deal announced on July 22, Japan’s semiconductor tariff rate could not be found in any of the three fact sheets published since (on July 23, September 5, and October 28), nor in the related executive order or statements.
Seoul’s Digital Regulation Stalled
In the U.S.-Korea joint fact sheet on digital regulation, which Japan managed to avoid including, it states:
“The United States and the ROK commit to ensure that U.S. companies are not discriminated against and do not face unnecessary barriers in terms of laws and policies concerning digital services, including network usage fees and online platform regulations, and to facilitate cross-border transfer of data, including for location, reinsurance, and personal data.”
While Korea’s presidential policy chief Kim Yong-bum argued at the National Assembly that this is principle-level language and would not, in the government’s view, challenge the nation’s digital sovereignty, the fact that Korea’s digital regulations are referenced directly in the joint fact sheet has prompted concerns in Seoul that it could stall the passage of the Korea Fair Trade Commission-led Online Platform Regulation Act and the push to introduce network usage fees on dominant foreign, mostly American, tech companies. It is also expected to influence the government’s ongoing review of Google’s request to export high-precision map data, whose decision has been delayed until early next year. Against this backdrop, Politico reported that Washington repeatedly warned it could launch a Section 301 trade investigation against Seoul, “if South Korea pursues legislation viewed as harmful to U.S.”
No Mention of Steel and Aluminum or Visas
Finally, the notable shortfalls are that, although Seoul raised the steel and aluminum tariffs – which currently stand at 50 percent and are likely to stay – the issue was left out of the final text. Likewise, despite expectations, the visa issue that emerged after the Immigration and Customs Enforcement raid on the Hyundai-LG plant in Georgia, where hundreds of Korean skilled workers were detained, was not mentioned either. President Trump has been vocal about the need to bring in foreign talent, referencing the Hyundai case, yet the condition South Korea needs in order to invest in America as promised still remains unclear.
MOU Needs No Ratification, Or Does It?
In this context, the debate in Seoul between the ruling and the opposition lawmakers has now shifted to whether the MOU itself should be ratified by the National Assembly. The MOU makes clear that it is not a treaty, stating “this Memorandum is an administrative understanding between each of the United States and Korea and does not create legally binding rights and obligations.” The government and the ruling Democratic Party of Korea (DPK) cite this language to argue that ratification is unnecessary. They contend that once ratified, it would become legally binding under Korean law and must be observed as written at home, foreclosing further negotiations or revisions. They also point out that neither Japan nor the U.S. has ratified their respective deals. Instead, they support introducing a special bill to promote investment in the U.S., establishing domestic measures for the government to carry out its commitments with Washington.
Yet the main opposition, the People Power Party (PPP), has pushed back, arguing that given the significant cost involved, the MOU must be ratified by the National Assembly. PPP members of the Assembly’s Foreign Affairs Committee noted at a press conference that “even the 1.5 trillion won (about $1.1 billion) U.S.-Korea defense cost-sharing agreement requires National Assembly approval,” and challenged the government’s attempt to bypass the Assembly approval for a national burden of 500 trillion won (about $360 billion), “an amount nearly 330 times larger,” by invoking the relevant provisions of the Korean Constitution.
Amid the ongoing dispute, Finance Minister Koo Yun-cheol pledged to submit the special bill to the National Assembly by no later than the end of this month. In doing so, he said that “the submission of the special law needs to be communicated to the U.S. in order for the 15 percent auto tariff to take effect as of November 1.” The Ministry of Economy and Finance explained that the 15 percent tariff rate would apply retroactively from the month the bill is submitted. What is important to note here is that, with the trigger tied to “submission” rather than “passage,” the bill could sit without immediate action. In other words, the lowered tariff rate takes effect once the bill is “introduced,” while the local measures needed to actually execute the promised investments could proceed once the special bill is “passed,” which hints at the possibility that Seoul may pace the subsequent steps. This is especially so given expectations that the U.S. Supreme Court’s ruling on International Emergency Economic Powers Act tariffs – expected late this year or early next year – could go against the Trump administration, which then would nullify the reciprocal tariffs.
Because Seoul cannot risk a delay that would leave Korean automakers paying 25 percent while EU and Japanese competitors operate at 15 percent in the U.S. market, it is widely believed that the government – backed by the DPK, which holds a National Assembly majority – will first submit the bill to secure the reduced tariff rate, and then seek room for maneuver on implementation while striving to stay aligned with U.S. expectations. In this new deals-based order, where Korea can no longer claim free trade with the U.S., Seoul will need to balance legal certainty with policy flexibility, navigating the trade-off between the timeline, accountability, and the practical realities of implementing a deal of this scale in a way that keeps the process as minimally painful as possible.