Korea says US investment deal mirrors Japan's, rejecting lopsided claim

South Korea's industry ministry said Monday that its strategic investment memorandum with the United States contains the same safeguards as Japan's, rejecting a television report that Korea alone was disadvantaged in the deal and that a 67 trillion won ($50.2 billion) Alaska LNG construction bill is not a commitment it has accepted.

The ministry issued the rebuttal a day after JTBC reported on Oct. 31 that Seoul would shoulder the Alaska liquefied natural gas project's construction costs regardless of whether the venture made money. The government said the project will be reviewed with Washington on commercially reasonable terms, without accepting the report's premise.

At the centre of the dispute are two agreements signed separately with the US. The ministry said Article 26 of the Korea-US memorandum and Article 22 of the Japan-US memorandum carry the same language: nothing in the document may conflict with the applicable laws of either country.

It also pointed to a clause it said Japan's memorandum lacks. The Korea-US memorandum states a principle of "commercial rationality," and the same principle was written into the special law governing the Korea-US strategic investment.

"We specified the principle of commercial rationality in the memorandum, which is not included in Japan's memorandum, raising the possibility of recovering our investment, and reflected this principle in the Korea-US strategic investment special act," Kim Jung-kwan, the minister of trade, industry and energy, said.

The ministry also disputed the idea that the two countries invest differently. Both memorandums, it said, require funds to be put directly into a special purpose vehicle managed by the United States as project investment, and both countries commit money to projects agreed with Washington. The difference lies only in how each country raises the money at home, with financing and foreign-exchange market conditions, funding stability and cost shaping the choice.

"Korea and Japan each inject funds as 'investment' into projects agreed with the United States under the memorandums they signed," Kim said. "They merely adopt different methods in the process of raising those funds internally, taking into account each country's financial and foreign-exchange market conditions, funding stability and cost."

Where the two deals do diverge, according to the ministry, is in how returns are split. Korea uses an umbrella structure in which a 5:5 split is maintained until the principal and interest on all projects in the portfolio are recovered, so losses from a slow-paying project are offset by earnings from others. Japan settles profit and loss project by project, and once a given project's principal and interest are recovered its split shifts from 5:5 to 1 for Japan and 9 for the US.