Lee's insistence on 'commercial reasonableness' clause becomes Korea's shield against Alaska LNG pressure

As US President Donald Trump steps up pressure on South Korea to invest in the Alaska liquefied natural gas project, a phrase that President Lee Jae Myung fought to the last to include in last year's tariff negotiations — "commercial reasonableness" — is drawing renewed attention. Washington has been treating a large-scale Korean investment as a foregone conclusion, but Seoul is holding firm, saying it will not commit unless the project's viability is assured. Analysts say a key reason Korea can maintain that position is the "commercial reasonableness" clause enshrined in the final stretch of last year's negotiations.

At the White House on Friday (local time), Trump was asked why Korea had not confirmed its investment in the Alaska project. "If they don't want to, that's OK with me. I'll just charge them more," he said. Trump had earlier cited the Alaska LNG pipeline as one of the targets under Korea's strategic investment package for the United States, and US Commerce Secretary Howard Lutnick said Korea's Alaska investment would exceed $50 billion.

Seoul tells a different story. In the official action plan the two countries released Thursday, the Alaska LNG venture — dubbed "Project North" — was classified not as a confirmed investment but as a project "under initial review." The two sides agreed to determine whether to proceed only if conditions of commercial reasonableness under the strategic investment MOU and requirements under South Korean domestic law are both met. The Ministry of Foreign Affairs drew a line, saying "nothing has been decided regarding whether to invest or how much."

Even as Trump treats the investment as settled, one of the foundations allowing Korea to hold to its "undecided" stance is precisely the "commercial reasonableness" clause.

In plain terms, the principle is: Korea invests only in projects that make financial sense. The strategic investment MOU the two countries signed on Nov. 14 last year stipulates that, when selecting projects from a $200 billion US investment package, only investments deemed "commercially reasonable" — after consultation with the Korean side — may be recommended to the US president. Seoul noted at the time that, unlike Japan's investment MOU with Washington, Korea's agreement contained the added phrase "commercially reasonable" — language that did not come easily during negotiations.

At a press conference at Cheong Wa Dae's Yeongbingwan on Sept. 18, Lee said he had insisted that the phrase "commercial reasonableness" absolutely had to appear in the agreement, and that the two sides had remained at odds over the issue. "We couldn't reach a compromise on this until 7:30 in the morning the day after the second summit," he said. "Fortunately, we got the phrase 'commercial reasonableness' in, just as we wanted." Lee called it "an extremely difficult achievement — language no other country has."

With specific investment talks now under way, including over the Alaska LNG project, the "commercial reasonableness" clause is once again in the spotlight. "We will only pursue projects that are commercially reasonable. That is also what the law requires," Lee said. He raised questions about how invested capital would be recovered, how profits would be shared and how losses would be handled, adding: "Our working-level negotiators are having a hard time, and I myself lose sleep worrying about this."

The principle is also written into law. The Korea-US Strategic Investment Act, which took effect last June, defines "commercial reasonableness" as the governing standard for outbound investment to the United States. Article 2, Paragraph 5 of the act defines the term as "an investment judged, in accordance with the principle of good faith, to generate sufficient cash flow over the life of the investment to repay principal and interest as prescribed by presidential decree."

The Alaska LNG project now under discussion has become the first real test of that standard. The US side has proposed measures to make the project more attractive if it moves forward — including improved conditions for Korean companies to supply equipment and materials, tariff reductions on project inputs such as steel, a guaranteed long-term LNG offtake contract on economically viable terms, and priority access to Alaska LNG for Korea. Ultimately, whether those terms add up to a project that can return principal and interest will be the central question in any investment decision.

At last month's press conference, Lee said: "National interest is truly important. I believe we must not be swayed by impulse, or by any relationship, pressure or coercion."