US and Japan Require Notification for Even 1% Foreign Equity Shift, Korea Still at 50%

FDI Becomes a Channel for Technology Leakage
Japan Dramatically Lowered Threshold in 2019
US Also Intervenes When Security Risks Are Identified
Industry: "Regulations Are Far Too Lax and Need Revision"
Indirect and Greenfield Investments Remain Blind Spots

There is a growing call to urgently address the 'security blind spots' in the foreign direct investment (FDI) system, as FDI is increasingly being exploited as an indirect route to siphon off Korea's advanced technologies. While major developed countries are meticulously scrutinizing even a 1% equity stake and tightening their regulations, Korea continues to maintain a high threshold of '50% equity,' effectively leaving the door open for technology leakage.

According to a report titled "Review of Improvement Measures for the Foreign Investment Security Screening System," released on January 14 by the Korea Economic Research Institute (hereinafter KERI) and commissioned to Professor Jo Sujeong of Korea University Law School, Korea only subjects foreign investors to a security review by the Ministry of Trade, Industry and Energy if they acquire more than 50% of a domestic company's voting shares. This stands in stark contrast to the global trend of treating technology security as a matter of national survival and tightening the screening network accordingly.

Japan and the US: '1% Security Microscope' vs. Korea: '50% Negligence'

Japan began tightening regulations from a national security perspective by amending the Foreign Exchange and Foreign Trade Act (FEFTA) in 2007, and in 2019, it dramatically lowered the threshold for foreign voting rights acquisition subject to review from 10% to 1%. In particular, it designated defense, strategic technologies, and critical infrastructure as "core sectors," requiring prior notification for even a 1% change in equity, thus operating a "security microscope." In addition, the Japanese government is pushing ahead with the establishment of a new inter-ministerial screening body, aiming for launch this year.

The United States also expanded the authority of the Committee on Foreign Investment in the United States (CFIUS) to an unprecedented level through the Foreign Investment Risk Review Modernization Act (FIRRMA) enacted in 2018. Not only simple mergers and acquisitions (M&A), but also minority stakes in companies in 27 key technology (TID) sectors, such as aviation and semiconductors, as well as real estate acquisitions near military facilities, are now subject to review. The U.S. has made clear its intention to intervene immediately if an investment, even if it is less than a 1% stake, is deemed to pose a security risk.

The European Union (EU) also adopted security screening as a core policy instrument through its "Economic Security Strategy" in 2023, following the release of integrated guidelines in 2019. The equity thresholds for screening in member states range from 10% to 25%, which is less than half of Korea's threshold. Recently, the EU has further tightened its net by expanding the scope to include strategic industries such as media and critical raw materials, and by pushing for mandatory adoption of the system across all 27 member states.

Industry circles argue that the 50% equity threshold is far too lax to filter out foreign investments targeting domestic advanced technologies. They are calling for an immediate revision of the screening criteria to prevent technology theft and management interference through minority stake purchases.

Blind Spots in Indirect and Greenfield Investments... "Technology Security Is Now a Prerequisite for Alliances"

The increasing complexity of investment forms, coupled with the system's inability to keep pace, is also a critical problem. "Indirect investments," where investors conceal their identities through subsidiaries or funds, and "greenfield investments," where new factories are built from scratch, are prime examples of blind spots.

The EU expanded its screening scope to cover private technologies and indirect routes after the 2016 incident in which German robotics leader KUKA was acquired by a Chinese company, resulting in a technology leak. However, Korea still relies on an outdated M&A-focused system, raising concerns that it is inviting similar technology leakage incidents.

Experts especially warn that technology security has now become a "prerequisite for alliances" between countries, going beyond mere industrial protection. In a situation where the United States is demanding stronger investment screening from its allies, countries with weak security systems risk being excluded from the global supply chain. Professor Jo Sujeong emphasized, "There is an urgent need for institutional improvements to block indirect investments of unclear origin and bypass export routes." To this end, KERI has recommended four key measures to the government: expanding the scope of screening, lowering the equity threshold for screening, introducing screening for greenfield investments, and enhancing monitoring of indirect investments.