Direction Between Innovation and Regulation According to the AI Basic Act

Korea enacted the Framework Act on Artificial Intelligence on January 21, 2025, and it will enter into force on January 22, 2026, making Korea the second country in the world, following the European Union, to legislate a comprehensive AI framework law. The key components of the Act can be summarized as:
(1) establishing a system to promote AI development and build trust,
(2) fostering AI technology development and the AI industry, and
(3) ensuring AI ethics and trustworthiness.

Recent domestic and international AI-related developments include the following. At the international level, (1) China’s DeepSeek released a high-performance AI model developed at low cost, intensifying global technological rivalry between the United States and China; (2) the second Trump administration in the United States repealed AI-related executive orders issued under the Biden administration, signaling a shift toward regulatory relaxation; and (3) within the EU, some member states have begun strengthening industrial promotion policies rather than emphasizing regulation, thereby joining global competition more actively. At the domestic level, controversy has emerged over whether the AI Framework Act places greater emphasis on industrial promotion or regulation, highlighting the challenge of finding an appropriate policy balance in subordinate legislation.

With respect to the AI Framework Act, firms have expressed positive expectations, including: (1) reduced policy uncertainty due to the establishment of legal standards; (2) strengthened AI promotion and support policies; and (3) improved national AI competitiveness. At the same time, however, they have raised concerns regarding: (4) ambiguity surrounding the scope of “high-impact AI,” which may result in overly broad application; (5) increased regulatory burdens on firms and potential difficulties in attracting foreign investment; and (6) insufficient substantive communication with industry stakeholders, leading to limited reflection of industry perspectives in the legislative process.

The global regulatory trend for AI is assessed to be shifting from hard regulation toward soft regulation. Major economies are increasingly prioritizing industrial policies that promote advanced sectors such as AI and biotechnology, as well as green transitions, rather than imposing stringent regulations on emerging industries. At the same time, they are focusing on economic security in response to global supply chain disruptions and accelerating efforts to create high-quality jobs, signaling a broader shift toward a new industrial policy paradigm.

From the perspective of regulatory economics, attempting to control an industry such as AI—which innovates at an unpredictable and rapid pace—through rigid regulation is inefficient and may have substantial negative effects on industrial development. In drafting subordinate legislation under the AI Framework Act, it is therefore desirable to strengthen channels of communication between industry and government, place greater policy emphasis on industrial promotion, and design regulatory measures in a more flexible manner.



I. Introduction

II. Recent AI-Related Issues

1. Expectations of Firms

2. Concerns of Firms

III. Mixed Expectations and Concerns Regarding the AI Framework Act

1. Expectations of Firms

2. Concerns of Firms

IV. AI Regulatory Trends in Major Economies

1. Global Trends in AI-Related Legislation

2. Growing Shift from Hard Regulation to Soft Regulation

3. Changes in the Global Regulatory Climate for AI

V. Global Economic Policy Paradigm: A Return to New Industrial Policy

1. Increase in Industrial Policy Initiatives and Contributing Factors

2. Conditions for Successful Industrial Policy

VI. Review of the AI Framework Act from a Regulatory Economics Perspective

1. The “One Size Fits All” Nature of Regulation

2. A Proportional Regulatory Approach

Appendix 1: Article 1 (Purpose) of the AI Framework Act and Industry Recommendations on Subordinate Legislation
Appendix 2: Article 2 (Definitions), Paragraph 4 (Items A–K) of the AI Framework Act

References

Korean version: https://www.cfe.org/20250317_27401