The amendments to the Enforcement Decree of the Foreign Investment Promotion Act proposed by the Ministry of Trade, Industry and Energy (the “MOTIE”) on December 20, 2023, were promulgated and became effective on August 27, 2024 (the “Amendments” or “Amended Enforcement Decree”). The Amended Enforcement Decree revised and supplemented the provisions relating to the operation of the foreign investment security review system and its processes by establishing Article 5(2). As a result, the foreign investment security review system has been strengthened through the establishment of a legal basis to initiate an ex officio review even in the absence of a foreign investment notification, among other measures.
The specifics of the Amendments are as follows.
1. Authorization for Ex Officio Review and Clarification of Grounds for Initiating Foreign Investment Security Review
The Amended Enforcement Decree newly established the legal basis for an ex officio review, which allows the initiation of a foreign investment security review for transactions without filing a report on the foreign investment, by providing that it may be initiated at the request of the ministers of relevant ministries or when deemed necessary by the Minister of Trade, Industry and Energy. Accordingly, a foreign investment security review may be initiated not only when there is a foreign investment notification that triggers a review by the Foreign Investment Committee, but also if requested by the ministers of relevant ministries or the National Intelligence Service, or deemed necessary by the Minister of Trade, Industry and Energy.
With respect to the review preclusion period, the Amended Enforcement Decree stipulates that the Minister of Trade, Industry and Energy may not deliberate or decide whether an investment endangers national security, in the following cases: (i) a transaction is not subject to a national security review in response to a foreign investor’s application for pre-clearance pursuant to Article 5(2)-2 of the Amended Enforcement Decree, (ii) a transaction has been approved following a foreign investment security review pursuant to Article 5(2)-6 of the Amended Enforcement Decree, and (iii) three years have passed since the notification. However, this does not include cases where a new deliberation and decision are necessary due to significant changes in circumstances after the notification.
2. Clarification of Authority to Request Submission of Additional Materials and Information
The Amended Enforcement Decree provides express grounds for the heads of the relevant administrative agency and the National Intelligence Service to request additional information and materials from the applicant during the foreign investment security review process. In the past, there had not been an explicit provision in the law authorizing the Government to require applicants to submit additional materials beyond the application and material originally submitted, although in practice, such supplemental requests were regularly made. Thus, the Amendments are intended to increase the transparency of the system.
3. Additional Grounds for Initiating Foreign Investment Security Review and Clarification of Relationship With Similar Review Procedures Under Other Laws
Article 5(1)-2b, which stipulates the specific grounds for review by the Foreign Investment Committee, has been amended to add “the case where there is high probability of leakage of national high-tech strategic technologies under the National High-Tech Strategic Industries Act,” to clarify that a foreign investment security review may be initiated even when investing in companies that possess national high-tech strategic technologies.
On the other hand, Article 5-2(10) of the Amended Enforcement Decree provides grounds to omit the security review process under the Foreign Investment Promotion Act, if the foreign investment (i) falls under Article 5(1)-2b Item 5 (i.e., high likelihood of leakage of national core technology) or Item 6 (i.e., high likelihood of leakage of national high-tech strategic technology), and (ii) has been approved following review under other laws.
4. Clarification of Grounds for Formation of Expert Committee and Authorization for Fact-Finding
The new provision provides the legal basis for the establishment of an Expert Committee for foreign investment security review, strengthening the stability of the review process.
5. Improving Effectiveness of Pre-Confirmation Procedure
In order to assist foreign investors in making prompt decisions and to promote foreign investment, the review deadline has been set at 30 days (not counting additional time required for supplementing any information) when a foreign investor requests a preliminary confirmation of whether a transaction falls within the jurisdiction of the Foreign Investment Committee.
6. Adjustment to Review Deadlines and Rationale
In order to streamline the review process by reasonably adjusting the review deadlines for each stage of the foreign investment security review procedure, the Amended Enforcement Decree (i) requires the Expert Committee to complete its review within 90 days from the date of the request for preliminary review, with a one-time extension of 30 days if necessary, and (ii) establishes a new provision that requires the MOTIE to decide whether the foreign investment constitutes a national security risk within 45 days from the date that the Expert Committee reports its review results. However, the Amended Enforcement Decree only sets the review deadlines and does not specify how to resolve a situation where the deadlines are exceeded. Therefore, it remains to be seen how it will be applied in practice.
7. Elimination of Disclosure Obligation
In the past, the Enforcement Decree of the Foreign Investment Promotion Act required public disclosure of the contents of the decision approving or prohibiting the acquisition of shares by foreigners for national security reasons, the reasons for the decision and any conditions imposed. However, the Amended Enforcement Decree eliminates this disclosure obligation.
The Amended Enforcement Decree has clarified the legal basis and procedures relating to the foreign investment security review process by establishing the legal grounds for ex officio review by relevant administrative agencies, confirming the Government’s right to request additional materials and information from the applicant and clarifying the review deadlines for each stage of the review process, among others. Companies contemplating foreign investments that may be subjected to the jurisdiction of the Foreign Investment Committee are advised to utilize mechanisms such as the pre-confirmation process to check whether the proposed investment would be subjected to a foreign investment security review.
https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=31076