SEOUL - The United States and South Korea are in a deadlock over details of a US$350 billion (S$449 billion) investment fund the two countries agreed to as part of a broader trade deal, with a top Seoul official warning that even the shipbuilding partnership is at risk if they fail to narrow the differences.  

Speaking at a forum on Sept 9, Kim Yong-beom, director of national policy at South Korea’s presidential office, said Seoul has been emphasizing to US officials that it cannot accept the same terms as Japan’s US$550 billion investment pledge finalised last week, citing the disparity in the size of the two economies and the potential repercussions on the foreign exchange market.

“Without an agreement, it will be difficult for the MASGA project to even get off the ground,” Mr Kim said, referring to Make American Shipbuilding Great Again, a term Seoul coined for reviving the US shipbuilding sector. Mr Kim said the US had presented South Korea with a draft similar to the one Japan accepted, but Seoul has maintained it cannot agree to those terms. 

“The circumstances facing South Korea and Japan are fundamentally different,” Mr Kim said, pointing to Japan’s currency swap arrangements and the yen’s role as a reserve currency.

While it’s important to determine who makes the fund’s investment decisions and how the profits are shared, the more pressing issue for South Korea is figuring out how to secure and manage US$350 billion from the foreign exchange market, he said.  

The US$350 billion fund is a central pillar of the trade deal that preserved a 15 per cent tariff on imports from South Korea, but the two countries remain divided over how the fund will operate. Mr Kim said in August that the investment pledge would be structured mainly as loan guarantees rather than direct capital injections.

The deadlock comes amid other points of tension between the two nations. The detention of hundreds of South Koreans in a

in the state of Georgia threatens to make Korean companies more reluctant to invest in the US even as they are encouraged to do so as part of the trade deal.

Last week, President Donald Trump finally signed an executive order implementing his trade agreement with Japan, with a maximum 15 per cent tariff on most of its products. 

The deal, including the investment pledge, was struck in July. But it has taken weeks to be formalised as Washington and Tokyo haggled over its terms. A memorandum of understanding detailing the funding pledge showed that Japanese imports may face higher tariffs if the country doesn’t fund Mr Trump’s selected investments. 

Mr Trump has yet to sign an executive order to lower auto tariffs for South Korea as agreed, so the two countries have also been holding working-level talks to follow up on their July deal.

“The auto industry is important, and narrowing tariff differences is also important, but a figure of US$350 billion could deal too great a shock to our entire economy that we cannot rush just to secure a tariff reduction in the auto sector,” said Mr Kim. BLOOMBERG