On February 3, 2022, Korea promulgated the “Special Measures Act on Strengthening and Protecting Competitiveness of National High-Tech Strategic Industry” (the “Special Act“), which aims to regulate the dissemination of high technologies of national strategic importance (“National High Technologies”) to foreign countries, and to protect and foster such technologies for the purpose of enhancing the global competitiveness of the Korean high-tech industry. The Special Act will become effective on August 4, 2022, and after that date, companies with National High Technologies will be subject to additional government regulations and protective measures relating to M&As and exports of such technologies involving foreign parties.
Proficiency in high-tech affects not only competitiveness within the industry, but also national and economic security. Trade disputes among countries now can take the form of a technology war. As such, major countries around the world appear to be overhauling and strengthening their laws and regulations to protect their high-tech industries, and the Special Act was enacted by the Korean government for similar reasons.
The Special Act sets forth measures designed to secure a stable supply chain for items relating to National High Technologies (“National High-Tech Items”), as well as providing governmental support for and additional regulation of companies possessing National High Technologies.
Technologies Expected to be Designated as National High Technologies
Subordinate regulations defining the scope and details of National High Technologies will be published in near future. It is expected that National High Technologies will include certain “National Strategic Technologies” identified in the amended Restriction of Special Taxation Act (the “Special Taxation Act”) as well as certain “National Core Technologies” under the Act on Prevention of Divulgence and Protection of Industrial Technology (the “Act on Industrial Technologies”). Some key “National Strategic Technologies” that may be included as “National High Technologies” are the following:
Adjustment Measures for Stable Supply of Items Relating to National High Technologies
Under the Special Act, if the stability of the supply chain of National High-Tech Items is disrupted due to natural disasters, drastic changes in international trade conditions, etc. and lead to significant undermining of people’s economic activities, the government may take emergency measures to stabilize supply and demand of National High-Tech Items with respect to entities, customers, persons or public institutions engaged in the business of export, import, transportation or storage of National High-Tech Items. This includes supply plans, such as domestic preferential supply of the National High-Tech Items, and measures such as stockpiling of National High-Tech Items.
Regulation of Exports and Foreign Entity M&As Involving National Advanced Strategic Technology
The Special Act requires a holder of National High Technologies to obtain approval from the Minister of Trade, Industry and Energy (the “MOTIE”) prior to (i) exporting such technology to a foreign company, or (ii) being acquired by/merged into a foreign company, or entering a joint venture with a foreign company. If the holder fails to get prior MOTIE approval in these circumstances, the MOTIE may order suspension, prohibition, or restoration to original state of the export or acquisition transaction.
Measures to Protect National High Technologies
The Special Act implements protective measures similar to those required for National Core Technologies under the Act on Industrial Technologies, requiring holders of National High Technologies to take protective measures to prevent such technologies from being improperly divulged, such as (i) designating protective zones, screening access, and inspecting personal belongings upon access, and (ii) managing personnel who leave the company after handling National High Technologies and executing confidentiality agreements.
Support for Enterprises Holding National High Technologies
The Special Act facilities government support for small and medium-sized enterprises in industries relating to National High Technologies (“National High Industries”) with respect to (i) R&D, demonstration, safety management and related infrastructure set-up, (ii) provision of personnel for R&D or operation of research equipment and development and operation of training programs for training of such personnel, (iii) priority in being designated as entities at which research personnel may discharge their mandatory military service obligations, and (iv) attracting high-quality foreign personnel.
In addition, companies operating in National High Industries are given tax benefits under the Restriction of Special Taxation Act and the Restriction of Special Local Taxation Act.
If necessary for supervision, the MOTIE or another administrative agency may order an institution, corporation or organization in a National High Industry to produce a report or data on its business, and/or allow public officials to visit the entity and inspect documents and question employees. Violation of such an order may result in a fine.
The Special Act also punishes the dissemination and infringement of National High Technologies, with stronger penal provisions than the Act on Industrial Technologies.
|Criminal Acts (examples)||Article 36 of the Act on Industrial Technologies||Article 50 of the Special Act|
|Illegal acquisition, use and disclosure for use abroad||National Core Technologies||Imprisonment of not less than three years and a fine not exceeding KRW 1.5 billion||Imprisonment of at least five years and a fine not exceeding KRW 2 billion|
|Other Industrial Technologies||Imprisonment of up to 15 years or a fine of up to KRW 1.5 billion|
As the MOTIE is expected to take follow-up measures to enforce the Special Act, including enacting subordinate regulations, companies with technologies that are likely to be designated as National High Technologies under the Special Act will need to closely monitor not only the details of the Special Act itself, but also the MOTIE's implementation plans and relevant announcements.
In addition, the Act on Industrial Technologies shall apply mutatis mutandis to the procedures for export approval, suspension and prohibition of National High Technologies, unless otherwise provided for in the Special Act. As the Special Act overlaps matters already regulated by the Act on Industrial Technologies, the Unfair Competition Prevention and Trade Secret Protection Act, and the Foreign Investment Promotion Act, it will be necessary to closely examine the relationship of these laws and how they may be adjusted or interpreted.