On December 2, 2021, the Ministry of Trade Industry and Energy (MOTIE) published a notice announcing an amendment to its Notification on Export/Import of Strategic Items (the "Amendment"), which became effective on the same date, except the annexes revising the list of Strategic Items (defined below).

Background

In Korea, export of technologies is regulated primarily by two statutes. The Foreign Trade Act regulates exports of technologies meeting the definition of "Strategic Items" under multinational export control regimes (e.g., the Wassenaar Arrangement, the Nuclear Suppliers Group, the Missile Technology Control Regime and the Australia Group). The term "Strategic Item" encompasses both goods (including software) and technologies, which can be divided into (i) "dual use" items, or items with both regular commercial and military applications (materials, production equipment, electronics, information security, sensors, lasers, marine, and aerospace); (ii) nuclear items; and (iii) military items.

In addition, the Act on Prevention of Divulgence and Protection of Industrial Technology (the "ITA") regulates exports of items classified as "national core technologies" (NCTs), which are defined as industrial technologies that may have a detrimental effect on national security and development of national economy if misappropriated, due to their substantial strategic or economic value.

"Export" of technologies as covered by the above statutes is broadly construed by MOTIE, and in connection with NCTs, MOTIE has expressly included in the scope of "export" the transfer or transmission of 1) technical documents for the purpose of submission to litigation or arbitration in a foreign country as evidence or 2) results of a research conducted by a subsidiary or affiliate in Korea to a foreign affiliate or headquarters. An exporter is required to obtain a license in order to export Strategic Items, and to either file a report or obtain approval prior to exporting NCTs.

The ITA also regulates mergers and acquisitions involving a foreign investor and a Korean company possessing NCTs, if the foreign investor acquires at least 50% of the shares of the target Korean company (the "Target Company") (or will become the largest shareholder and will have substantial control over the management of the Target Company). The Target Company must report such an acquisition to MOTIE prior to the closing of the transaction, and the transaction may not be finalized until MOTIE issues its approval or acceptance.

Key Changes under the Amendment

1. Change to the validity period of an export license for Strategic Item technology 

Prior to the Amendment, a license involving export of Strategic Item technology as defined in the regulations was valid for either one year, or for the duration of the license agreement. Under the Amendment, the validity period is now limited to one year. This is in line with licenses involving export of Strategic Item goods or software, which is already limited to one year. 

2. New reporting requirement for exports of Strategic Item technology 

Prior to the Amendment, exports of Strategic Item goods/software and "Strategic Item" technology were handled differently where an exception to the license requirement for Strategic Item exports applied. For Strategic Item goods/software, even if a license exception was available, the exporter still was required to file a report regarding the export to MOTIE within seven days after the export. However, Strategic Item technology subject to a license exception could be exported without filing any report.

However, under the Amendment, Strategic Item goods/software and Strategic Item technology will now be treated the same, and both types of Strategic Items are subject to the reporting requirement even where a license exception applies. Further, the exporter now has the option to file the report to MOTIE either prior to the export, or after the export. 

3. New publication of checklist to confirm whether "catch-all" license is required

Even if an item to be exported is not considered a Strategic Item, if it is suspected that the item can be used to manufacture, develop, utilize or store weapons of mass destruction, missiles or conventional weapons, the exporter is still required to obtain an export license (a so-called "catch-all" license). Pursuant to the Amendment, MOTIE has published a checklist to provide guidelines for exporters in determining whether a contemplated export may require a "catch-all" license before export. This appears to be part of MOTIE's general recent efforts to try to improve compliance with "catch-all" licensing requirements.

Potential Impact

The trade war between China and the U.S. continues to escalate into a "cold war" in the area of advanced technologies, and the U.S. Congress is reviewing a proposed "Innovation and Competition Act" to significantly increase federal investment in research in the semiconductor, 5G, and other technical fields, and to establish a critical supply chain resiliency program to challenge China's efforts to displace the United States as the world's leading technology superpower. Korea recognizes the need to improve its own technical competitiveness and to protect its industries in the semiconductor, battery, and other technical fields, and to establish a system for expanding the development of core strategic technologies and industries in order to ensure supply chain resilience and economy and national security. Thus, in addition to the Amendment, the National Assembly of Korea is reviewing a bill called the "Special Act on Strengthening and Protecting Competitiveness in National Core Strategic Industries" proposed on October 22, 2021. The bill also includes provisions on regulation of (i) exports involving NCTs and Strategic Items, and (ii) foreign mergers and acquisitions of Korean companies possessing such technologies, similar to those in the ITA.

Accordingly, we recommend that you review whether technology you intend to export or transfer to a foreign country may constitute (1) a Strategic Item requiring an export license, or a non-Strategic Item that still requires a "catch-all" license, and (2) an NCT requiring prior approval or reporting. We also advise evaluating whether your company has adequate policies or systems in place to comply with all relevant export controls.