South Korean media: The US is overburdening investments, the situation is urgent but the response must be cautious

¬ The US pressures South Korea "if it does not invest like Japan, the tariff will be raised to 25%"

¬ A safety mechanism needs to be set up to minimize national and corporate losses

The stalled South Korea-US tariff negotiations are expected to become a long-term tug-of-war. Both sides have been unable to narrow their differences on the $3.5 trillion (about 488 trillion won) scale of investments to the US. South Korea has tried to minimize the proportion of direct investment such as loans and guarantees from policy financial institutions in the investment fund to the US, while the US has demanded an increase in the proportion of direct investment. The two countries' positions are opposing, and the US has begun to pressure South Korea by using Japan as a lever.

US Commerce Secretary Howard L. R. 11th publicly pressured, saying, "If South Korea does not accept the Japanese model, it must bear a 25% tariff." The US-Japan agreement was criticized in Japan as if it were a "blank check for investment" and seen as an unequal treaty. The agreement stipulates that Japan must complete all $5.5 trillion (about 767 trillion won) of investments to the US during President Trump's term, with all investment targets decided by the US, and once the investment destination is determined, the funds must be transferred within 45 days. The profits will be split equally between the two countries before Japan recovers its principal, and after that, 90% of the profits will go to the US. If not agreed, the consequence will be increased tariffs.

From the perspective of South Korea's economic size, it is too harsh for the US to make the same demands on South Korea as the Japanese model. South Korea's commitment to the amount of investment to the US reaches 72% of this year's total budget, while Japan's investment to the US accounts for only 13.1% of its GDP, and South Korea's is as high as 17.5%. Japan's foreign exchange reserves are more than 3.2 times that of South Korea. In addition, Japan is a major reserve currency issuing country, which can repay external debts by printing yen, and has signed an unlimited currency swap agreement with the US.

South Korea dares to commit to large-scale investments despite its current economic size, considering that through projects such as private enterprise investment, government loan guarantees, and funding, it can barely meet the investment quota in the long run. If implemented according to the US requirements, 84% of South Korea's foreign exchange reserves (4,163 billion USD) would be invested in the US, which would cause problems with South Korea's foreign exchange liquidity. We cannot undermine the national foundation just for the investment to the US.

Since September 16, the Japanese tariff on cars to the US will be reduced to 15%, which is inevitable to put pressure on South Korean companies that also compete in this field. However, although the situation is urgent, South Korea cannot hastily sign the agreement; it must continue the negotiation calmly, ensuring that the national interest is not damaged while minimizing the loss of enterprises. Japan wrote in the investment agreement that "it shall not conflict with the laws and regulations of the two countries," which is equivalent to setting up a safety mechanism to prevent investment from damaging Japan's interests. This approach is worth referencing in our negotiations. President Lee Jae-myung said at the press conference on his 100th day in office, "We will not conduct negotiations that contradict reason and fairness." We need to emphasize the role of South Korea as a partner in the revival of American manufacturing, fully explain our situation, and find a point of convergence that meets the national interest in the negotiations.

Source: JoongAng Ilbo

Original: www.toutiao.com/article/1843410443607168/

Statement: This article represents the views of the author.