Impending ROK-U.S. Investment Deal: Risk Analysis and Policy Recommendations

Executive Summary

The ROK-U.S. investment agreement, valued at over $100 billion, represents a set of projects entering the initial confirmation phase within the broader $200 billion strategic investment mechanism. This is not the final destination of the negotiations but an ongoing matter. The MOU for eight nuclear power plants, the Texas gas-fired combined cycle power plant, and demands for additional semiconductor investment are being concluded at different paces and under different conditions, requiring risk management for each individual project. In particular, reports that the Special Purpose Vehicle (SPV) structure, designed as a safeguard for principal recovery, has been undermined by the U.S. side suggest that the principle of "commercial rationality" that South Korea has maintained could be compromised at the actual contracting stage. Demands for semiconductor equity and the potential linkage to the security track also remain unresolved variables. The government and companies should not merely treat the announcement of this agreement as an achievement but must simultaneously verify and document the detailed conditions. In the short term, it is necessary to codify the conditions for voting rights and principal recovery before signing the nuclear plant MOU. In the medium to long term, selecting projects based on commercial viability and reorganizing the inter-agency control tower are required.

I. Issue Analysis

Impending ROK-U.S. Investment Deal: Analysis of the Current Situation

1. Background and Developments

Negotiations between South Korea and the United States on investment in the U.S. entered a phase of substantive progress following President Lee Jae-myung's visit to the White House last August. The government has been negotiating based on a strategic plan to invest up to $200 billion in the U.S. over the next 20 years [10]. The Encinal gas-fired combined cycle power plant project in Texas was selected as a candidate for the first project [10]. The government's choice to prioritize the energy sector was guided by the overarching principle of "commercial rationality" for U.S. investment, namely the feasibility of recovering principal, dividends, and interest [10]. The surge in U.S. electricity demand due to the proliferation of AI data centers also supported this decision [10].

The actual disbursement of funds has already begun. The government planned an initial transfer of $2.2 billion for U.S. investment, sourcing the funds from the foreign exchange reserves of the Bank of Korea and the Foreign Exchange Stabilization Fund [4]. However, it has maintained a cautious stance on the $67 billion Alaska LNG project [4]. The government plans to disburse approximately $2.2 billion this year and then continue investments up to an annual limit of $20 billion starting next year, in accordance with a joint fact sheet [4].

In the nuclear power sector, negotiations have become more concrete. The government is strongly considering a plan to invest $120 billion to construct eight new nuclear power plants on the U.S. mainland and has reached a consensus on prioritizing the construction of four of them (two U.S. plants, two Korean plants) [1]. It is reported that the ROK and the U.S. may sign a memorandum of understanding (MOU) as early as September 18 [1]. Meanwhile, the issue of securing voting rights in Westinghouse remains a variable that will determine the future of nuclear power plant exports [4].

2. Current Situation

The investment agreement for over $100 billion, as reported by the Wall Street Journal, is an extension of this series of negotiations. However, this figure appears to refer not to the entire $200 billion strategic investment plan, but to a group of projects that have entered the initial confirmation stage. Synthesizing the JoongAng Ilbo report that an MOU for eight nuclear power plants is imminent [1] and The Hankyoreh's exclusive report on the U.S. investment SPV structure [19], the negotiations are proceeding with agreements being reached sequentially on a project-by-project basis.

Disagreements over risk management mechanisms have also been exposed during the investment implementation process. The Hankyoreh reported that the master Special Purpose Vehicle (SPV) structure, designed as a safeguard for principal recovery for the $200 billion U.S. investment, was broken by the U.S. side [19]. This SPV was a mechanism intended to allow the repayment of the total principal and interest with profits from other projects, even if individual projects incurred losses [19]. If this structure has been compromised, it raises the possibility that principal recovery may become difficult for some projects [19]. This suggests that the "commercial rationality" principle, which the South Korean government has upheld in the investment negotiations, may not be fully implemented in the actual contract terms.

In the semiconductor sector, a separate pressure track is in operation. Taiwan's DigiTimes Asia reported that the U.S. is demanding additional semiconductor manufacturing investment as South Korea prepares to select the first project under its $200 billion strategic investment mechanism [7]. The report stated that ownership has emerged as a key point of contention in the negotiations [7]. Samsung Electronics Chairman Lee Jae-yong and SK Group Chairman Chey Tae-won are scheduled to meet again with NVIDIA CEO Jensen Huang in New York at the end of September, a move taking place amidst Washington's pressure to expand investment in the U.S. [16]. It has also been pointed out that U.S. semiconductor tariff policy is directly linked to the U.S. memory production plans of Samsung Electronics and SK hynix [18].

In traditional manufacturing sectors such as steel, demands for tariff relief continue. On September 5, Minister of Trade, Industry and Energy Kim Jeong-gwan, in a meeting with the governor of Louisiana, requested tariff relief on equipment that a Korean company needs to import for a $5.8 billion steel mill investment [14]. This case illustrates the structural contradiction where expanding investment in the U.S. conversely creates a tariff burden.

3. Key Actors and Positions

The South Korean Governmentis using investment in the U.S. as leverage in tariff negotiations and as a means to secure access to the U.S. market for domestic industries. Prioritizing the nuclear and energy sectors is interpreted as a strategy to minimize domestic political risks by concentrating investment in areas with a high probability of commercial recovery [10]. At the same time, it is attempting a selective approach by maintaining a cautious attitude toward projects with high recovery uncertainty, such as the Alaska LNG project [4].

The Office of the U.S. Trade Representative (USTR)led by Ambassador Greer, is domestically emphasizing the message that the "America First" trade policy is contributing to wage increases for American workers and manufacturing reshoring [2][8][13]. This shows that investment negotiations with allies, including South Korea, are being conducted in connection with U.S. domestic politics, particularly public opinion in the manufacturing regions of the Midwest.

Samsung Electronics and SK Groupare navigating the pressure to expand semiconductor investment and tariff risks by coordinating their cooperative relationships with U.S. Big Tech firms like NVIDIA [16][18]. SK hynix has already begun construction of an advanced HBM packaging facility in West Lafayette, Indiana [18]. From the companies' perspective, the investment equity structure and ownership conditions are directly linked to future profit distribution, so they are bound to react sensitively to the outcome of these negotiations [7].

Korea Hydro & Nuclear Power and the Nuclear Industryare seeking a path for nuclear power plant exports by defining their relationship with Westinghouse [4]. The plan to simultaneously build two U.S. nuclear plants and two Korean-model plants can be seen as a result that reflects the industry's expectation that this could serve as a bridgehead for Korean nuclear technology to enter the U.S. market [1].

4. Key Issues

The first issue is the effectiveness of safeguards that guarantee the recovery of investment principal. If the structure for integrated profit and loss management through an SPV has been weakened by U.S. demands, the assessment of each individual project's profitability becomes much more important [19]. The possibility cannot be ruled out that projects whose profitability was questioned from the outset, like the Alaska LNG project, could be included again in the future negotiation process.

Disagreement over the semiconductor equity structure is also a key factor. In a situation where the U.S. is demanding adjustments to ownership along with additional investment [7], the extent to which Samsung Electronics and SK hynix will accept equity concessions is expected to be a watershed moment for future negotiations.

The interconnected structure of tariffs and investment is also a persistent variable. A paradoxical situation has already emerged in the steel sector, where increasing investment in the U.S. leads to a greater tariff burden on the import of necessary equipment and parts for that business [14]. Whether this problem will spread to other sectors like semiconductors and nuclear power is a point to watch in the latter half of the negotiations.

The timing and detailed conditions of the nuclear power MOU are also subjects for short-term observation. While September 18 is being strongly mentioned as a likely date [1], the allocation method for the remaining units after the initial four plants begin construction appears to be not yet finalized.

II. In-Depth Issue Analysis

Impending ROK-U.S. Investment Deal: In-Depth Issue Analysis

1. Analysis of Root Causes

The primary cause of this U.S. investment agreement is tariffs. Around the time of the summit last August, the South Korean government promised to expand investment in the U.S. in exchange for concluding mutual tariff negotiations. This framework itself reflects an asymmetry in negotiating power. The U.S. is in a position to set the scale and conditions of investment, using its authority to impose tariffs as leverage. South Korea, with its export-heavy economic structure, has entered negotiations from a difficult position where it cannot easily endure the imposition of tariffs.

The recent actions of the USTR illustrate the nature of this pressure. During a visit to an Iowa tire factory, USTR Ambassador Greer emphasized "reshoring jobs for American workers" [2][8]. In an FT podcast, she also presented the rebuilding of the U.S. manufacturing base and the protection of supply chains as achievements of the Trump administration's trade policy [13]. Such messages reveal Washington's basic approach of using investments from allies as achievements for domestic political consumption.

The second cause is the linkage with security issues. A previous EAI report analyzed that "it is highly likely that targeted semiconductor tariffs, designation as a transshipment risk country, and demands for defense cost-sharing will proceed as a single negotiation package" [3]. The case where President Trump announced a reduction of ROK-U.S. joint military exercises without prior consultation, while simultaneously taking issue with the refusal of military cooperation related to Iran [6][9], suggests that pressure on the security track is not separate from the trade track. The U.S. investment agreement can be seen as a realistic point of agreement that South Korea can secure within this complex pressure structure.

2. Structural Context

Economic Structure

The $200 billion strategic investment mechanism was designed on a project-by-project basis [10][19]. The selection of the Texas Encinal gas-fired combined cycle power plant as the first project was based on the industrial reality within the U.S. of surging electricity demand from AI data centers [10]. This shows that South Korea's investment in the U.S. is designed in a way that is subordinate to U.S. industrial policy priorities. It is a structure where investment is concentrated not in areas South Korea wants, but in areas the U.S. needs.

The vulnerability of this structure is revealed in the mechanism for principal recovery. The initially designed master Special Purpose Vehicle (SPV) was planned to act as a safeguard to offset losses from individual projects with profits from others [19]. However, the exclusive report by The Hankyoreh that this structure was broken by the U.S. side shows that the "commercial rationality" principle the South Korean side tried to secure in the early stages of negotiation could be compromised at the actual implementation stage [19]. The South Korean government's cautious attitude toward the Alaska LNG project [4] can be understood in the same context. It is a selective approach of drawing a line on commercially uncertain projects while concentrating resources in areas with a relatively high probability of recovery, such as nuclear power and energy.

Industry-Specific Pressure Structures

The semiconductor sector is forming a separate pressure channel. Taiwan's DigiTimes Asia reported that the U.S. is demanding additional semiconductor manufacturing investment as South Korea prepares to select the first project under its $200 billion strategic investment mechanism [7]. In this process, the issue of equity ownership has emerged as a point of contention in the negotiations [7]. The scheduled meeting between Samsung Electronics Chairman Lee Jae-yong and SK Group Chairman Chey Tae-won with NVIDIA CEO Jensen Huang in New York at the end of September is also intertwined with this pressure situation [16][18]. SK hynix's groundbreaking for an HBM packaging plant in West Lafayette, Indiana [18], shows that responses at the individual company level are already underway.

A different pattern emerges in the steel sector. The Minister of Trade, Industry and Energy requested tariff relief from the U.S. for the import of necessary equipment related to a $5.8 billion steel mill investment in Louisiana [14]. This shows that even in the process of South Korea implementing its investments in the U.S., a paradoxical situation is occurring where U.S. tariff policy increases the cost of executing the investment. It is a structure where the more investment increases, the more one is exposed to tariff risks.

The Security-Economy Linkage Structure

A previous EAI analysis, commenting on the period when Foreign Minister Wang Yi's visit to South Korea coincided with the announcement of the reduction of ROK-U.S. exercises, pointed out that "the essence of the problem lies not in China's changing role, but in the structural vacuum in the ROK-U.S. consultation channel" [9]. This structural vacuum is a recurring pattern in the U.S. investment negotiations as well. The observation that if the responses of the Ministry of Trade, Industry and Energy, the Ministry of Foreign Affairs, and the Ministry of National Defense are fragmented, there is a "risk that the U.S. side will exploit differences in positions among ministries to maximize concessions" [3], applies directly to the investment negotiation phase. In the current structure where negotiating channels are dispersed by issue—nuclear power, semiconductors, steel, energy, etc.—room remains for the U.S. to apply pressure on each track individually.

3. Comparison with Historical Precedents and Similar Cases

Japan's precedent is the closest point of comparison. In February-March of this year, Japan announced a $109 billion investment plan in the U.S. in the gas-fired power plant and Small Modular Reactor (SMR) sectors [10]. South Korea's investment design, centered on nuclear power and energy, follows a similar trend to this Japanese case. This implies a repeating pattern where the U.S. presents the energy and infrastructure sectors as priorities when demanding investment from its allies. However, how the SPV structure or equity issues were handled in the implementation of Japan's investment is an area that requires further confirmation.

China's case serves as a contrasting reference point. China and the U.S. are showing signs of moving to quickly conclude mutual tariff reductions on $30 billion worth of goods [15]. These are negotiations proceeding in line with the political schedule leading up to the Trump-Xi summit, with the focus on tariff reduction itself rather than investment expansion. South Korea's case, where tariff reduction and large-scale investment are tied together as a package, can be seen as a situation where it is being asked for more extensive concessions than China.

The case of energy cooperation with Venezuela also offers implications. The U.S. Department of Energy defined the expansion of energy investment and production with Venezuela as a new era of "prosperity and security" [5]. This shows a general pattern of the Trump administration using the attraction of investment in the energy sector as a key tool of foreign policy. South Korea's agreement to build eight nuclear power plants [1] and the Texas gas-fired power plant project [10] can also be seen as being situated within this pattern.

4. Key Variables Shaping Future Developments

First is the direction of the Westinghouse voting rights issue. According to The Hankyoreh, this issue remains a variable that effectively holds the lifeblood of South Korea's nuclear power plant exports [4]. Even if the MOU for eight nuclear plants is signed around September 18 [1], if the intellectual property and voting rights relationship with Westinghouse is not settled, the actual export profits from the Korean-model nuclear plants could be limited.

Second is whether and how the undermining of the SPV structure is reflected in the actual contract terms. The Hankyoreh reported that "principal recovery for some projects may be difficult" [19]. How this issue is specifically handled in the contracts for each nuclear and energy project will be an important point of observation in the future negotiation phase.

Third is the outcome of the negotiations on equity ownership in the semiconductor sector. If the U.S. demand for additional investment expands into an equity issue, as reported by DigiTimes Asia [7], it could lead to an issue of effective control over the U.S. production facilities of Samsung Electronics and SK hynix. This is a matter directly related to the companies' core technological assets, and thus has different ramifications than the nuclear or energy sectors.

Fourth is the question of whether inter-agency negotiating channels will be integrated. The diagnosis from the EAI analysis that "the unification of the control tower is urgent" [3] remains valid for the investment negotiations. As long as the current fragmented structure is maintained—with the Ministry of Trade, Industry and Energy handling nuclear power, individual negotiations between the ministry and companies for semiconductors, and the Ministry of Foreign Affairs and Ministry of National Defense each involved in security issues—the room for the U.S. to apply individual pressure on a track-by-track basis will remain.