Amendments to the Enforcement Decree of the Foreign Investment Promotion Act came into force on August 27, 2024, bringing several noteworthy changes to Korea’s foreign investment review framework. In short, these changes simultaneously reinforce and streamline the security screening process for foreign investors in Korea.
1. Background
The following statutes govern the foreign investment review framework in Korea:
- The Foreign Investment Promotion Act (the “FIPA”)
The FIPA is the basic law that regulates foreign investment. As specified in the FIPA, Korea’s policy is to generally allow foreign investment without restrictions.1 The Enforcement Decree of the FIPA, however, sets out exceptions to this policy and subjects certain types of investments to a security screening process administered by the Foreign Investment Committee.2
- The Act on Prevention of Divulgence and Protection of Industrial Technology (the “PITA”)
The PITA specifically targets foreign investments involving National Core Technologies (“NCT”) that are developed with government subsidies. NCTs are high-value technologies deemed by the Korean government to cause a significant adverse effect on the economy and national security if divulged abroad. Examples include technologies relating to high-speed trains, lithium batteries, and 5G telecommunications. Foreign investments within the purview of the PITA are subject to screening by the Industrial Technology Protection Committee.3 - The Act on Special Measures for Strengthening the Competitiveness of, and Protecting National High-Tech Strategic Industries (the “NHSIA”)
In similar fashion, the NHSIA regulates foreign investments involving National High-Tech Strategic Technologies (“NHTST”). NHTSTs are technologies deemed by the Korean government to have considerable implications on supply chains, exports, employment, and related industries. Examples include technologies relating to AMOLED panels and animal cell culture. Foreign investments falling under the scope of the NHSIA are also subject to screening by the Industrial Technology Protection Committee.
The three statutes above work side by side. The amended Enforcement Decree of the FIPA, which came into force on August 27, 2024 (the “Amendment”), intersects all three of them.
2. Notable Changes Introduced by the Amendment
- Ex-Officio Security Reviews
The Foreign Investment Committee is now permitted to carry out security reviews on foreign investments ex-officio.4 In the past, security reviews could only be carried out after a notification was filed by the prospective foreign investor. Now, the Ministry of Trade, Industry and Energy (the “MOTIE”), the National Intelligence Service, and other competent ministries can request such reviews to be carried out – at their discretion – even before a foreign investor’s notification is filed.
- Inclusion of NHTSTs in the Security Review’s Scope
Foreign investments involving NHTSTs are now subject to security reviews conducted by the Foreign Investment Committee.5 Other types of investments screened by the Foreign Investment Committee include:- Investments that may disrupt the production of defense materials - Items or technologies subject to export control that are highly likely to be diverted to military purposes - Contracts classified as state secrets - Investments that may hinder the maintenance of international peace and security - Investments relating to NCTs
- No Duplicative Screening Processes
Prior to the Amendment, in certain cases, foreign investors contemplating investments in NCT or NHTST-related sectors were required to undergo screening by both the Industrial Technology Protection Committee and the Foreign Investment Committee. Thanks to the changes, foreign investors can now be exempted from the Foreign Investment Committee’s screening if they successfully complete the screening process administered by the Industrial Technology Protection Committee.6 - Adjustment of Review Timelines
The security screening process under the FIPA consists of (i) a preliminary review conducted by the Expert Committee7 attached to the Foreign Investment Committee and (ii) a primary review conducted by the Foreign Investment Committee itself. The Amendment extends the review timeline for the Expert Committee from 30 to 90 days8 and shortens the review timeline for the Foreign Investment Committee from 90 to 45 days.9 It should be noted, however, that the Expert Committee can further extend its review timeline for another 30 days and have up to 120 days to review the prospective foreign investment. - Prior Verification of the Security Review’s Scope and Applicability
The Amendment allows foreign investors to ask the MOTIE or other competent ministries to confirm whether their prospective investment project is subject to the security review under the FIPA.10 The MOTIE is required to give an answer to the foreign investor within 30 days, as long as no further documents are requested by the MOTIE.
3. Key Takeaways
The Amendment reflects the Korean government’s heightened awareness of national security issues tied to increasing foreign direct investments in strategic industries such as semiconductors, biotechnology and pharmaceuticals. Korean authorities can now carry out security reviews on foreign investments ex-officio even before a notification is filed by the prospective foreign investor. Accordingly, foreign investors should take advantage of the MOTIE’s prior verification procedure to clearly determine whether their prospective project or transaction is subject to a security review, before deliberating on investment decisions.
1 Foreign Investment Promotion Act, art. 4, para. 1.
2 The Foreign Investment Committee is chaired by the Minister for Trade, Industry and Energy. Its members include vice ministers from more than 10 different ministries, the director of the Defense Acquisition Program Administration, the vice chairman of the Financial Services Commission, the deputy director of the National Intelligence Service, and other government officials from time-to-time according to the Foreign Investment Committee’s agenda. Id., art. 27, para. 2.
3 The Industrial Technology Protection Committee is also chaired by the Minister for Trade, Industry and Energy. Its members include central government officials, persons nominated by the competent intelligence/investigation agency, and persons appointed on the basis of their academic and professional expertise on technology protection. Act on Prevention of Divulgence and Protection of Industrial Technology, art. 7, para. 3.
4 Enforcement Decree of the Foreign Investment Promotion Act, art. 5-2, para. 3.
5 Id., art. 5, para. 1, subpara. 2.
6 Id., art. 5-2, para. 10.
7 The Expert Committee is chaired by a senior MOTIE civil servant. Its members include senior civil servants from the Ministry of Economy and Finance, the Ministry of Foreign Affairs, the Ministry of National Defense, and the Financial Services Commission; appointees from the National Intelligence Service, the Korea Trade-Investment Promotion Agency, and the Korean Security Agency of Trade and Industry; persons appointed on the basis of their academic and professional expertise; and other persons appointed by the chairperson of the Foreign Investment Committee. Id., art. 34-2, paras. 2-3.
8 Id., art. 5-2, para. 4.
9 Id., art. 5-2, para. 5.
10 Id., art. 5-2, paras. 1-2.
2 The Foreign Investment Committee is chaired by the Minister for Trade, Industry and Energy. Its members include vice ministers from more than 10 different ministries, the director of the Defense Acquisition Program Administration, the vice chairman of the Financial Services Commission, the deputy director of the National Intelligence Service, and other government officials from time-to-time according to the Foreign Investment Committee’s agenda. Id., art. 27, para. 2.
3 The Industrial Technology Protection Committee is also chaired by the Minister for Trade, Industry and Energy. Its members include central government officials, persons nominated by the competent intelligence/investigation agency, and persons appointed on the basis of their academic and professional expertise on technology protection. Act on Prevention of Divulgence and Protection of Industrial Technology, art. 7, para. 3.
4 Enforcement Decree of the Foreign Investment Promotion Act, art. 5-2, para. 3.
5 Id., art. 5, para. 1, subpara. 2.
6 Id., art. 5-2, para. 10.
7 The Expert Committee is chaired by a senior MOTIE civil servant. Its members include senior civil servants from the Ministry of Economy and Finance, the Ministry of Foreign Affairs, the Ministry of National Defense, and the Financial Services Commission; appointees from the National Intelligence Service, the Korea Trade-Investment Promotion Agency, and the Korean Security Agency of Trade and Industry; persons appointed on the basis of their academic and professional expertise; and other persons appointed by the chairperson of the Foreign Investment Committee. Id., art. 34-2, paras. 2-3.
8 Id., art. 5-2, para. 4.
9 Id., art. 5-2, para. 5.
10 Id., art. 5-2, paras. 1-2.
