South Korea May Regret Being First with New AI Law
On January 22, South Korea introduced its AI Basic Act, claiming to be “the world’s first comprehensive body of laws to regulate artificial intelligence.” The government asserts this legislation will propel the country into a leadership position in the global race for AI by establishing a foundation for trust while protecting the interests of its citizens.
Overview of the AI Basic Act
The new law, officially titled the Basic Act on the Development of Artificial Intelligence and the Establishment of a Foundation for Trustworthiness, comprises six chapters with 43 articles. It imposes stringent compliance requirements on both domestic and foreign companies. The law loosely defines a “high-impact AI” category, which includes applications related to nuclear safety, drinking water supply, transportation, healthcare, and financial credit evaluation. Mandatory human oversight is required for these applications, along with advance user notifications about products using such AI to meet an “explainability” requirement. A user protection plan must also be established.
Transparency and Compliance Requirements
To combat misinformation and deepfake images, the law imposes a “transparency” requirement, mandating clear watermarks or audible labels when AI outputs are challenging to distinguish from reality. Even in games and animations, labels must be included within the metadata to minimize intrusiveness. Violations of these labeling requirements can incur fines of up to ₩30 million won ($20,400) after a one-year grace period.
Concerns from Startups
Despite the government’s claims of extensive consultation prior to the law’s passage, the South Korea Startup Alliance has expressed frustration over the law’s vague language. A survey revealed that 98% of 101 local AI startups lack systems in place to comply, with nearly half unfamiliar with the law’s details. The Ministry of Science and ICT (MSIT) will oversee confirming whether a system qualifies as high-impact AI, a process that may cause delays in new service rollouts.
The Question of Being First
The urgency to be first raises questions, especially when compared to the European Union’s AI Act, which is still in a phased rollout process. The EU Act, legislated in 2024, has only implemented prohibitions on “unacceptable-risk” AI systems and limited obligations for generative AI, with further regulations to be enforced by August 2026.
A History of Legislative Populism
South Korea has a history of being a bold leader in legislation, often resulting in hasty regulatory actions. For example, in 2009, the amendment to the Information and Communications Network Act mandated real-name registration for websites after a high-profile online bullying incident led to a tragic suicide. This legislation eventually faced backlash when real-name databases were compromised in 2011. The Constitutional Court ruled the requirement unconstitutional in 2012.
Similarly, the Data 3 Law introduced in 2020, aimed to punish data breach perpetrators with severe penalties, discouraged small companies from adopting digital technologies. Revisions in 2023 shifted towards administrative fines rather than criminal liabilities.
Current Challenges and Concerns
South Korea’s legislature has shown a tendency for protectionist measures, leading to concerns about the AI Basic Act discouraging innovation. International companies without a South Korean representative but meeting revenue thresholds must nominate a domestic agent for compliance. Local companies argue that this burdens them disproportionately compared to foreign firms.
In response to industry concerns, President Lee Jae-Myung urged lawmakers to consider the challenges faced by local AI companies.
Opportunities Ahead
Despite these challenges, South Korea remains in a strong position in the AI landscape. According to Stanford University’s Global AI Vibrancy Tool, the country ranks 4th out of 36 nations based on human capital, positive sentiment toward AI, and robust Internet infrastructure. The government’s “Unicorn Bridge” program aims to support 50 AI companies with substantial subsidies.
While South Korea is well-positioned for competition, it must tread carefully. Overly aggressive regulations may lead to unintended consequences, and the nation’s history of being the first to over-regulate serves as a cautionary tale in today’s dynamic geopolitical climate.
