Korea sets 'commercial rationality' standard for $200 billion U.S. investment plan

The government on Tuesday finalized the rules that will determine which projects receive funding under its $200 billion strategic investment commitment to the United States, approving a decree giving shape to the Korea–U.S. Strategic Investment Special Act before the law goes into effect on June 18.

Korea committed the funds under a deal struck with Washington last November to secure a 15 percent tariff rate. But the government is under pressure to ensure taxpayer money is not sunk into projects that will not pay off — and the decree, which fleshes out the operational details of the law passed by the National Assembly in March, sets the rules for striking that balance.

The decree's central provision defines what counts as "commercially rational," or the threshold a project must clear to receive funding. According to the provision, a project qualifies if Korea expects to recoup every dollar it invests, plus interest, over the life of the investment. The interest rate will be pegged to the 20-year U.S. Treasury yield at the time of investment, plus a spread negotiated between the two countries. Other details, including the project's assumed lifespan and the size of the spread, will be determined by the Minister of Trade, Industry and Resources, in consultation with the United States, the Cabinet said.

The decree also establishes the process for selecting individual investment projects. The Korea–U.S. Strategic Investment Project Management Committee, chaired by the Minister of Trade, Industry and Resources, must report its assessment of each project's commercial rationality and expected returns to the Operations Committee and request a vote to proceed. Projects that fall short on commercial rationality must also include an assessment of their impact on national security and supply chain stability.

The Operations Committee, the final decision-making body, will be chaired by the Deputy Prime Minister and the Minister of Economy and Finance. The Ministry of Foreign Affairs, the Ministry of Planning and Budget and the Financial Services Commission will also be standing members. Specialized subcommittees covering finance and foreign exchange, industry and technology, and risk and legal matters have also been established, ensuring expertise across the board.

The Korea–U.S. Strategic Investment Corporation, the joint venture created under the act, will operate for 20 years from its date of incorporation. Its statutory capital is 2 trillion won ($1.3 billion), to be paid in by the government in annual installments. Some of the corporation's functions may be delegated to the Export-Import Bank of Korea, Korea Development Bank, Korea Trade Insurance Corporation, Korea Investment Corporation, Korea Ocean Business Corporation and the Korea Overseas Infrastructure and Urban Development Corporation.

The government plans to launch the corporation on the day the act takes effect, completing the institutional groundwork for implementing the Korea–U.S. agreement. Specific projects will be selected after review by the Project Management Committee, deliberation by the Operations Committee, a report to the National Assembly and consultations with the United States. Nuclear power plant construction was among the candidates being discussed as a potential first project. Still, Industry Minister Kim Jung-kwan said at a press briefing last month that an announcement this month was unlikely. "We can only proceed with selection once the commercial rationality analysis is complete," he said. "An announcement in June will be difficult."

However, whether even commercially rational projects will actually deliver returns remains uncertain. "We need to quantify future revenues to assess whether the principal and interest can be recovered, and it is questionable whether sufficient information to do that can be secured," said Heo Yoon, a professor at Sogang University's Graduate School of International Studies. "If projects are selected purely on commercial rationality, it will not only be difficult to meet that standard in practice, but the security and supply chain benefits that are harder to quantify right now may be overlooked."

BY NAM SOO-HYOUN [[email protected]]