Investment Scale Accounts for About 20% of GDP, "Commercial Reasonableness Exception" Hides Risks, South Korea's "Special Law on Investment in the U.S." Sparks Controversy

Why did the Korea-U.S. Investment Act pass quickly under external pressure?

【Global Times Special Correspondent in Korea, Li Zhiyin】 Against the backdrop of the U.S. continuously increasing trade pressure, Korea’s institutional arrangements for U.S. investment were rapidly legislated and moved into implementation within a short period, but policy disputes and risk concerns also grew. Although the law is seen as an important institutional tool for Korea to expand U.S. investments and ease tariff pressures, Bloomberg’s analysis on the 17th indicated that U.S. investment expenditures already account for about 20% of Korea’s GDP and roughly 80% of its foreign exchange reserves, posing a significant burden on the Korean economy.

On March 6, a large amount of cargo at Busan Port was waiting to be shipped for export. (Visual China)

Disputes over rationality quickly became prominent

According to Yonhap News Agency on the 17th, South Korean President Yoon Suk-yeol chaired a State Council meeting to review and approve the “Special Law on Korea-U.S. Strategic Investment Management” (hereinafter referred to as the “U.S. Investment Special Law”), providing a legal basis for the previously promised approximately $350 billion U.S. investment during Korea-U.S. tariff negotiations. The law was passed by the National Assembly in just five days and entered the administrative promotion stage, with official implementation scheduled three months after announcement.

In January this year, U.S. President Trump publicly pressured Korea, accusing it of not fulfilling previous agreements and warning that tariffs on Korean products could be raised back to 25%. Recently, the U.S. further announced the initiation of a Section 301 investigation, a trade sanctions tool, continuing to exert high pressure on Korea. Amid escalating external pressure and domestic legislative deadlock, Korea’s political parties accelerated negotiations as the deadline approached, ultimately passing the law.

However, as the law was enacted, disputes over its rationality quickly surfaced. One focus was the “business reasonableness exception clause” in the law. According to Article 3, Item 3, even if an investment project lacks sufficient profitability, it can still proceed if justified by national security or supply chain stability. Public opinion generally believes this arrangement could pose operational risks. The Hankook Ilbo reported that this mechanism might allow projects lacking commercial rationality to gain institutional approval. If investments fail, related losses could be borne by public funds, raising concerns about “fiscal spillover risks.”

Korean civic groups and labor unions reacted strongly to this issue. The civic group “Participatory Alliance” argued that allowing investments to bypass commercial rationality means there are no longer any red lines for U.S. investments, and under the “national security” framework, some projects could bypass legislative oversight. The Korea Confederation of Trade Unions criticized that, given the shaky legal basis of U.S. tariff measures, Korea still insisted on legislating the law, which lacked rationality. Incorporating social security funds like employment insurance into investment sources could deviate from their original functions. Additionally, the law’s exemption clauses, profit-sharing structures, and the “prior reporting” supervision mechanism were criticized for potential risks and imbalanced benefits.

Beyond content disputes, the legislative process itself was questioned. The law was approved in the National Assembly with 226 votes in favor and only 8 against, indicating minimal opposition. The independent Korean media Voice of the People criticized that for a major law involving $350 billion, the legislative review was severely insufficient, and such an attitude might even send the wrong signal to the U.S. that Korea can be persistently pressured.

At the implementation level, there are also disagreements over the establishment of the “Korea-U.S. Strategic Investment Corporation.” The Chosun Ilbo cited a parliamentary review report stating that establishing this agency would bring significant fiscal and administrative costs, and as a limited-term operation body, it might face issues with debt management and unclear responsibilities upon dissolution, increasing institutional uncertainty. The report also suggested that existing policy financial institutions like the Korea Investment Corporation or Export-Import Bank could undertake related functions to reduce risks and costs, but these proposals were ultimately not adopted.

Prioritizing U.S. energy support

With the law enacted, Korea’s U.S. investments have entered the concrete implementation stage. The Korean government has dispatched practical delegations to the U.S. to negotiate investment implementation plans. According to Asia Economy, industry insiders revealed that the most promising companies for U.S. investment projects include energy-related enterprises such as liquefied natural gas (LNG), nuclear power, and electricity, with the LNG export terminal project in Louisiana being the most advanced.

The Wall Street Journal reports that by 2024, about 60% of U.S. LNG exports will be supplied to Europe and Asia via terminals in Louisiana. However, due to rising construction costs and approval issues, recent investment projects have been significantly delayed. There are reports that the U.S. government has requested Korean participation in investments. Currently, Korea relies on Middle Eastern countries for about 19.7% of its natural gas imports. Daxin Securities analyst Choi Jin-young said, “When Qatar faces force majeure issues related to LNG exports, U.S. energy becomes Korea’s only alternative.”

Meanwhile, Korea-U.S. industrial cooperation is also advancing, especially in shipbuilding. Korea is negotiating with Pennsylvania to expand cooperation and has requested faster approvals and better supporting policies. Centered on the shipyard acquired by Hanwha Ocean in Philadelphia, Korea plans to increase annual capacity from about 1.5 ships to over 10 ships, building a localized supply chain system.

According to the Korea International Trade Association, as of March 2025, more than 2,500 Korean companies and branches operating in the U.S. are involved in manufacturing, wholesale and retail, semiconductors, and auto parts. Recently, LS Electric, a Korean electromechanical manufacturer, announced plans to expand its U.S. factory, which is seen as another significant sign of Korea’s accelerating investment in the U.S.

Bearing greater investment pressure than Japan and Europe

As Korea’s U.S. investments gradually take shape, the economic pressures on Korea are becoming more apparent. Bloomberg’s analysis on the 17th pointed out that the U.S. forcing allies like Korea to include investment requirements in trade agreements aims primarily to reduce the U.S. trade deficit. The report states that by 2025, the U.S.-Japan trade deficit will be about $47 billion, while the U.S.-Korea deficit is slightly larger at $49.5 billion. Both Korea and Japan rely heavily on U.S. security policies, leaving little room for bargaining in trade negotiations with the U.S.

Korean industry insiders told the Global Times that the passing of the U.S. Investment Special Law reflects Korea’s real dilemma amid changing global economic patterns. The simultaneous promotion of U.S. investment, shipbuilding, and energy cooperation indicates that Korea-U.S. relations are shifting from policy commitments to industrial integration.

Cui Bingyi, honorary president of the Korea International Economic Association, pointed out that in absolute terms, Korea’s commitment of $350 billion in U.S. investment is lower than Japan’s $550 billion and the EU’s $600 billion, but when measured as a percentage of GDP, Korea’s investment scale in the U.S. is close to 20%, significantly higher than Japan’s 13.3% and the EU’s 3.3%. This means that with a relatively limited economy, Korea bears higher investment pressure on the U.S., further amplifying the policy risks involved.