Korea delays MOU ratification amid tariff concerns

The government and the ruling Democratic Party have reportedly decided not to submit the memorandum of understanding, or MOU, on South Korea-U.S. tariff and security negotiations for parliamentary ratification. The main opposition People Power Party has called for ratification, but officials say a prolonged dispute could delay cuts to U.S. import tariffs on Korean cars and parts, potentially causing serious harm to domestic companies.

Instead of submitting the ratification request, the Ministry of Economy and Finance and the Democratic Party plan to push legislation this month for a “Special Act on Investment in the United States” to support $35 billion in U.S.-bound investment. South Korea and the United States have agreed that tariffs reduced to 15 percent will be applied retroactively from the first day of the month in which the government submits the bill establishing the U.S. investment fund. If submission is delayed until next month, Korean auto exporters would have to bear a full month of higher tariffs.

After the United States imposed a 25 percent tariff on all imported vehicles in April, Hyundai Motor Group faced $1.6 billion in U.S. export tariffs in the second quarter and $3 billion in the third quarter. Once the tariff rate drops to 15 percent, the burden is expected to decrease by roughly $400 million per month. If the special legislation is delayed due to ratification debates, Korean automakers would have to compete in the U.S. market under the 25 percent tariff, while European Union and Japanese competitors, which signed MOUs with the U.S. earlier, have been paying only 15 percent since Aug. 1 and Sept. 16, respectively.

Korean automakers are particularly vulnerable to high tariffs because their U.S. production share is lower than that of Japanese rivals. To increase local output, Hyundai Motor Group has pledged $26 billion over four years for facilities such as MetaPlant America in Georgia, a significant financial commitment. The group has also announced plans to invest 125.2 trillion won by 2030 to counteract domestic manufacturing hollowing.

The South Korea-U.S. tariff negotiations, initiated under the Trump administration, have created a substantial investment burden for South Korea, comparable to a natural disaster. It is a heavy load but an unavoidable choice to preserve an economy that has relied on exports for growth. For companies anxiously awaiting parliamentary decisions, the MOU ratification issue should no longer be treated as a matter of political contention.