Explainer-Why South Korea cannot make the same US trade deal as Japan

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FILE PHOTO: A general view shows HD Hyundai Heavy Industries Ulsan Shipyard in Ulsan, South Korea, December 29, 2023. HD Hyundai Heavy Industries/Handout via REUTERS/File Photo

SEOUL - South Koreas negotiations with the U.S. on a trade deal to lower tariffs have stalled amid concerns over the foreign exchange implications of a $350 billion investment fund, part of an agreement reached with President Donald Trump in July.

WHAT HAS JAPAN AGREED TO?

South Korean officials, who had argued that the package would mostly comprise loans and guarantees with limited direct investment, said last week they could not accept terms similar to those of a $550 billion investment package finalised this month by Japan.

Tokyo agreed to transfer money within 45 days after the U.S. selects a project, and that available free cash flows from investments would be split evenly until they reached an allocated amount, after which 90% would go to the U.S.

U.S. Commerce Secretary Howard Lutnick said on Thursday that there would be no flexibility for Seoul. The Japanese signed the contract. The Koreans either accept that deal or pay the tariffs. Black and white, pay the tariffs or accept the deal.

HOW IS SOUTH KOREAS SITUATION DIFFERENT FROM JAPANS?

Since South Koreas deal was announced in late July, there have been concerns among market participants that the resulting dollar demand will overwhelm the domestic currency market, depressing the won .

Since suffering traumatic capital flight during a financial crisis in the late 1990s, South Korea has retained