Korea-U.S. Tariff Talks Reach Dramatic Breakthrough... 50:50 Profit Split Agreed, $20 Billion Annual Cap Secured [Gyeongju APEC]

Atmosphere shifts during Korea-U.S. summit at Gyeongju APEC
$20 billion annual cap, $200 billion cash investment via "capital call" method
Remaining $150 billion to be invested in "MASGA" project led by Korean companies
Profits to be split 50:50

South Korea and the United States have reached a dramatic agreement on tariff negotiations, centered around a $350 billion "U.S. investment package." The two countries, which had previously failed to narrow differences on key issues, reached a final conclusion during a Korea-U.S. summit held on the sidelines of the Gyeongju 2025 Asia-Pacific Economic Cooperation (APEC) Summit.

Yonhap News Agency

Under the terms of the agreement, South Korea will invest $200 billion in cash (equity) in the United States, with an annual cap of $20 billion. The remaining $150 billion will be invested through a combination of cash (equity) and guarantees, led by Korean companies, in the so-called "MASGA (Make American Shipbuilding Great Again)" project, which focuses on cooperation in the shipbuilding industry. The profit-sharing ratio will be set at 50:50 between the two countries until the principal is recovered. South Korea insisted on a staggered payment method to minimize shocks to its foreign exchange market, while the United States agreed to change the profit-sharing ratio prior to principal recovery from 90:10 to 50:50 between the two countries.

Kim Yongbeom, Policy Director, revealed these detailed negotiation results during an emergency briefing at the APEC International Media Center (IMC) in Gyeongju on October 29, stating, "South Korea and the United States reached a final agreement on the details of the tariff negotiations on October 29." The text of the comprehensive memorandum of understanding (MOU), which includes trade and security negotiations focused on modernizing the alliance, is expected to be finalized within two to three days. The investment agreement is valid until January 2029.

South Korea will maintain the $350 billion U.S. investment commitment, which was a major issue, but will set an annual cap of $20 billion to mitigate shocks to the domestic foreign exchange market. The United States, which had initially demanded a $350 billion upfront cash payment, accepted the persistent persuasion of the Korean negotiation team. The amount of foreign currency South Korea can raise in a year without destabilizing the foreign exchange market is estimated at $15 billion to $20 billion. Even the annual $20 billion will be paid using a capital call method, which means the investment will be made only when requested, rather than as a lump sum. Kim explained, "The $200 billion investment will not be made all at once but will be invested according to the progress of the project, within the annual $20 billion limit. This is within the capacity of our foreign exchange market." He added, "We have also established a separate provision that allows us to request adjustments to the timing and amount of payments if there are concerns about shocks to the foreign exchange market."

The "MASGA" project, related to shipbuilding cooperation, will be led by Korean companies and will include loans and guarantees. When introducing new shipbuilding orders, funds will be raised through long-term financing, reducing the burden on the foreign exchange market and increasing the likelihood of Korean companies winning shipbuilding contracts. Kim stated, "The $150 billion in the shipbuilding sector will be treated as foreign direct investment (FDI), with loan guarantees provided through domestic and international commercial banks. Including ship financing, the actual burden on the foreign exchange market is expected to be very limited."

Although the investment agreement is valid until January 2029, actual funding is expected to be spread over a long period. The investment funds will actively utilize returns from foreign currency assets. Kim said, "The returns on our foreign currency assets are not insignificant. Interest, dividends, and other income will be heavily utilized." He emphasized again, "With an annual cap of $20 billion, a significant portion can be covered by our existing foreign currency reserves. There will be no new shocks to the domestic foreign exchange market."

Profit to be shared 50:50 between South Korea and the U.S. until principal is recovered... U.S. request accepted

Yonhap News Agency

Investment profits will be shared equally, 50:50, between South Korea and the United States until the principal is recovered. The United States had insisted that if the cash investment ratio was lowered and payments were made in installments, the profit-sharing ratio before principal recovery should be changed from the original 90:10 to 50:50. South Korea has effectively accepted the U.S. request.

However, if it appears that South Korea will not be able to recover the full principal and interest within 20 years, the profit-sharing ratio can be adjusted. Investments will only be made in commercially viable projects where the principal and interest are guaranteed, and this principle will be clearly stated in the documents. "Commercial rationality" is defined as a determination by the investment committee, in good faith, that sufficient cash flow is guaranteed to recover the investment.

In addition, if a loss occurs in a specific project, it will be structured as a kind of umbrella arrangement, allowing losses to be offset by profits from other projects. Kim also stated that if the United States makes unilateral investment demands contrary to the agreement, a safeguard has been established to allow for further negotiations with the U.S.

The semiconductor tariff will be adjusted to a level that is not disadvantageous compared to competitors such as Taiwan, and most-favored-nation (MFN) treatment will be applied to pharmaceuticals and timber. Kim explained, "Tariffs on automobiles and parts will be reduced to 15%, and reciprocal tariffs will be maintained at around 15%. Semiconductor tariffs will be adjusted to a level that is not disadvantageous compared to Taiwan, a competitor." He added, "Some items, such as pharmaceuticals and timber, will receive MFN treatment, and certain aircraft parts and pharmaceuticals will be exempt from tariffs. The MOU will specify mechanisms for the recovery of the principal on U.S. investments in accordance with the principle of commercial rationality."

The tariff reductions will take effect on the first day of the month in which the legislation to implement the agreement is submitted to the National Assembly. Kim stated, "We plan to submit the bill to the National Assembly by mid-November. Once the two countries reach an agreement, the effective date of the tariff reduction will be retroactively set as November 1."

South Korea succeeded in preventing any additional opening of the agricultural market. Kim said, "We thoroughly defended against additional market opening in the agricultural sector, including rice and beef. We also agreed to strengthen cooperation and communication between the two countries on quarantine procedures."

Atmosphere reversed at the Gyeongju APEC summit... "The outlook was not bright even the day before"

Yonhap News Agency

Regarding the dramatic conclusion of the tariff negotiations, Kim stated, "It is unlikely that we made concessions." When asked whether it was South Korea or the United States that made concessions during the negotiations, he responded as such. Kim added, "It is difficult to comment on the other party's position during the negotiation process," but also said, "President Lee Jaemyung said as much, and it is unlikely that we made concessions in just a few days."

On October 24, President Lee stated in an interview with Bloomberg, "The United States should not pursue its interests to the extent that it would have catastrophic consequences for South Korea," adding, "A delay in reaching an agreement does not necessarily mean failure, so I ask for patience." Based on these remarks, most observers believed that it would be virtually impossible to reach a tariff agreement at the Korea-U.S. summit.

Kim reiterated, "As I have repeatedly stated, President Lee would never neglect the national interest for the sake of timing. We acted according to that principle." He added, "Even on the evening of the 28th, the outlook was not bright. There was rapid progress on the day itself."