Continued Anticipation for Strategic Projects Under the U.S.-South Korea Investment MOU

The one-year mark of the U.S.-South Korean investment memorandum of understanding (MOU) is approaching this fall—without a single investment announcement. By contrast, Japan has announced several major projects, including a natural gas power plant and crude oil export facilities. Korea has committed to announcing investment projects worth USD 350 billion before the end of Trump’s presidential term in January 2029, with USD 20 billion disbursed each year. On top of that, the U.S. administration is likely eager to show off high-profile investments to signal successful outcomes from its trade policy before ballots are cast in the November midterm election and to ramp up pressure on Korea. Naturally, there are questions regarding the source of the delay. However, while negotiations on initial projects continue, Korea has used the time to set up a more robust framework by establishing supporting institutions and appropriate funding, which helps explain the longer timeline and signals the country’s commitment to the MOU.

Korea took a more formal approach to implement its side of the MOU. While the MOU itself outlines a project selection process dominated by the United States and refers only to a “Consultation Committee” on the Korean side to provide input, Korea passed a special bill to establish a number of committees and clearly allocated funding for MOU-related investment projects through the newly launched U.S.-Korea Strategic Investment Corporation (KUIC). The bill, called the “Special Act on Strategic Investment Management between South Korea and the United States,” was detached from other domestic political issues in Korea because both parties recognized the importance of implementing the MOU after Trump threatened higher tariffs if inaction continued.

Establishing new institutions takes time and helps explain Japan’s head start, but it also signals a longer-term commitment. By July, the Korean side had staffed KUIC, as part of a structured approach to help ensure a stronger, long-lasting deal. The bill formally commits funding and establishes institutions with the sole mission of implementing the MOU, a structure that is harder to undo than Japan’s comparably more ad hoc approach. While some may argue that the additional committees introduce bureaucracy and red tape, the special bill provides a pathway for projects that are not commercially reasonable and would otherwise be excluded under the MOU framework, which arguably favors the United States. Rather than describing the Korean approach as dawdling, it could be viewed as a means of securing a commitment.

Another explanation for the delayed investment announcements may be divergent understandings of otherwise ambiguous terms in the agreement. For instance, the MOU clearly states “U.S. ownership” of investment projects but falls short of specifying whether the ownership will be private or public and how that ownership is defined. If the Korean government expects U.S. subsidiaries of Korean companies to own projects while the United States expects some part of its government to own investments, this signals divergent views that may contribute to delays.

In fact, equity has been an ongoing topic of discussion surrounding a potential natural gas power plant in Texas within the MOU framework. While the MOU clearly outlines aspects such as a U.S.-dominated project selection process, funding deadlines, and distributions of free cash flows, some terms may leave room for interpretation. Minister of Trade, Industry, and Resources Kim Jung-kwan highlighted his commitment to resolving issues at the working level ahead of meetings in Washington last week aimed at finalizing investment decisions.

The two governments are not the only parties involved; each project also relies on U.S. and Korean companies. Their corporate incentives and business models matter. The MOU states that suppliers will be selected for each project, with preference given to Korean vendors, and that Korea will suggest a project manager that will receive a management fee. If project ownership indeed falls to the U.S. government, the incentives for private companies (American or Korean) more closely resemble those of government procurement than of traditional investments in which companies hold equity.

Procurement-style incentives will likely suit companies in some strategic industries better than others. Large energy projects, including nuclear plants, combined-cycle power plants, pipelines, and transmission lines, align closely with these incentive structures, in which plants and infrastructure may be owned and operated by separate entities under long-term agreements.

The model arguably fits less well with semiconductor production facilities, for instance, which are owned and operated by the same company and where control of sensitive technologies is crucial, making it difficult to surrender ownership. Financial markets chase AI investments, making funding cheap and accessible for semiconductor companies outside the MOU investment framework. Therefore, it may be challenging to attract corporate partners for projects in some of the sectors outlined in the MOU—even if both governments agree—due to procurement-style incentives and a lack of corporate ownership in MOU-related projects.

Another recent MOU between KUIC, financial institutions, and major Korean shipbuilders HD Hyundai Heavy Industries, Samsung Heavy Industries, and Hanwha Ocean aims to facilitate shipbuilding investments. This signals a pragmatic approach by the Korean government to implement its USD 150 billion in shipbuilding investments in the United States and perhaps overcome some potential incentives-related challenges. Minister of Economy and Finance Koo Yun Cheol called on Korean shipbuilders to identify projects that benefit and create shipbuilding opportunities in both countries, including for small and medium-sized shipbuilders and equipment suppliers. It also aims to help financial institutions and shipbuilders better share early-stage project risks.

While Korean investments appear delayed, causing frustration within the U.S. administration, a robust framework to support MOU-based investment projects has been established. In fact, it arguably signals a more lasting commitment to the agreement and attempts to better align incentives between the two countries and corporate entities. The MOU assigns project selection and approval to the United States, meaning that any Korean influence relies on the goodwill of the United States. As such, it is not in Korea’s interest to stall the MOU’s implementation. Moreover, failure to implement the MOU could lead to higher tariffs on Korean exports to the United States.

Some of the terms in the MOU may well pose challenges for projects in particular strategic sectors, even though they are outside the Korean government’s control. Speculation about early projects suggests that the gas-fired power plant in Texas could be the first if the parties can resolve outstanding issues. Shipbuilding, with USD 150 billion earmarked within the MOU, is another plausible contender for early investments. The Korea-U.S. Shipbuilding Partnership Center was established in Washington last month, and Secretary of Commerce Howard Lutnick has emphasized the importance of shipbuilding investments and promised to help navigate regulatory hurdles. There are also clear efforts in Korea to stimulate shipbuilding projects in the United States. On the flip side, recent comments from Industry Minister Kim suggest that semiconductor projects are unlikely to be among the first investments despite enthusiasm from Washington. Regardless, Korea’s first MOU announcement will be informative and help signal what types of investments fit within the framework.

Nils Wollesen Osterberg is Economic Policy Associate at the Korea Economic Institute of America. The views expressed here are the author’s alone.

This material is distributed by KEI on behalf of the Korea Institute for International Economic Policy. Additional information is available at the Department of Justice, Washington, DC.