Ministry of Finance and Economy, Ministry of Trade, Industry and Energy finalize detailed investment criteria; profitability assessed against US government bond rates and spread; Korea-US Strategic Investment Corporation to launch June 18
South Korea has finalized the detailed criteria governing its $200 billion strategic industry investment in the United States, a follow-up measure to the Korea-US tariff negotiations. Going forward, a project will only proceed if projected returns flowing back to South Korea over the investment's lifetime are sufficient to cover the full principal and interest. The government has also established the operational framework for the Korea-US Strategic Investment Corporation and the associated fund, and has spelled out the project screening process.
The Ministry of Finance and Economy and the Ministry of Trade, Industry and Energy said the Cabinet approved the enforcement decree for the Special Act on the Operation and Management of Strategic Investment between the Republic of Korea and the United States of America — commonly known as the Korea-US Investment Special Act — at its meeting Tuesday.
The decree fills in the details delegated by the Special Act, which takes effect June 18 as a legislative follow-up to the Korea-US tariff negotiations. The act calls for $150 billion in investment in the shipbuilding sector and $200 billion in strategic industries including energy, semiconductors, critical minerals, AI and biotech.
The decree first defines what constitutes "commercial rationality" for the $200 billion strategic industry investments. A project is deemed commercially rational if the total projected returns distributed to South Korea over the expected life of that investment are sufficient to cover the full principal and interest.
The expected lifespan of each project will be determined through consultations between South Korea and the United States. The interest rate used to calculate principal and interest will be set at the yield on 20-year US government bonds at the time of investment, plus a spread agreed upon by both sides.
Additional commercial rationality criteria will be set by the minister of trade, industry and energy in consultation with the United States, following deliberation and approval by the Korea-US Strategic Investment Steering Committee, which is chaired by the deputy prime minister and minister of finance and economy.
The project selection process has also been formalized. When the Korea-US Strategic Investment Project Management Committee — chaired by the minister of trade, industry and energy — submits a project to the Steering Committee for consideration, it must report the results of the commercial rationality review, legal and strategic considerations, recommendations for participating domestic companies, US government support and projected return assessments. For projects that do not meet the commercial rationality threshold, the committee must also assess their impact on national security and supply chain stability.
The decree also sets out the composition and operation of both committees. Beyond the existing Ministry of Finance and Economy and Ministry of Trade, Industry and Energy, the government added the Ministry of Foreign Affairs, the Ministry of Planning and Budget and the Financial Services Commission as standing member ministries. Government members will be designated by each committee chair from among ministers and vice ministers of relevant agencies on a case-by-case basis.
Eligibility requirements for private-sector committee members have also been specified. Private members of the Steering Committee may include individuals with at least 10 years of experience in financial investment or strategic industries who work at government agencies, public institutions, financial institutions or international financial organizations, as well as Korean or US-licensed attorneys and certified public accountants.
The Steering Committee may establish subcommittees covering finance, banking and foreign exchange; industry, technology and investment; risk, legal affairs and regulation; and diplomacy, trade, security and supply chains.
The Korea-US Strategic Investment Corporation, to be established under the Special Act, will operate for 20 years from the date of its incorporation registration. Its statutory capital of 2 trillion won (approximately $1.45 billion) will be paid in cash by the government in annual installments. Korea Overseas Infrastructure and Urban Development Support (KIND) has been added to the list of entities to which the corporation may delegate operations, joining the Export-Import Bank of Korea, Korea Development Bank, Korea Trade Insurance Corporation, Korea Investment Corporation and Korea Ocean Business Corporation.
The issuance of Korea-US Strategic Investment Bonds to fund the Korea-US Strategic Investment Fund will follow the procedures for export-import finance bonds under the enforcement decree of the Export-Import Bank of Korea Act. Transfers between fund accounts to address temporary liquidity shortfalls may be carried out with Steering Committee approval.
The government has also defined the composition and duties of the Project Management Office to be established within the Ministry of Trade, Industry and Energy, and has laid the groundwork for designating a dedicated agency to provide specialized project review support. Direct costs incurred during the office's screening of candidate projects may be covered by the Korea-US Strategic Investment Corporation through the Korea-US Strategic Investment Fund.
The government plans to move quickly to promulgate the decree approved Tuesday, with both the Special Act and its enforcement decree set to take effect June 18. The Korea-US Strategic Investment Corporation is to be launched on that date, completing the legal and institutional framework needed to implement the strategic investment agreement between the two countries.
y2k@heraldcorp.com
