Previously, the South Korean government pledged to establish a US$350 billion fund for US investment on the condition that the US lower its tariffs on Korean imports from 25% to 15%. The expressions of disgruntlement come amid US pressures so unilateral that the situation could scarcely be described as a “negotiation” between the two sides.
In the follow-up negotiations that have been taking place over how the investment is to be carried out and how the profits are to be distributed, Washington has been pressing for direct cash investment, while Seoul has been arguing for investment in the form of financial guarantees instead.
In terms of profit distribution, the US has been insisting on a system where it claims 90% of the profits once the principal investment has been recouped, while South Korea gets 10%.
Seoul has also requested a currency swap arrangement — a contract that would allow it to entrust the US with won and borrow dollars — in order to hedge against the potential shock to the foreign exchange market from a cash investment nearly equivalent to South Korea’s entire foreign reserves. The US has reportedly been resistant to the idea.
A more hard-line stance has recently been surfacing through the South Korean administration, with many insisting that Seoul cannot afford to follow the “Japan model” — referring to Tokyo’s agreement to establish a US investment fund of US$550 billion in exchange for having tariffs on Japanese imports to the US lowered to 15%.
Japan signed a memorandum of understanding for an arrangement that entrusts the US with discretionary powers over the investment and allows it to claim 90% of excess earnings.
Eventually, some critical mass of countries are going to realize that these shakedowns aren't worth it, and could be stuck with some Soviet-style closed economy.