KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

I. Background and Purpose

▶ Background and Purpose of the Study

○ Previously, ‘security’ was discussed only in the military domain, but now it overlaps with supply chain issues related to commodities such as energy, raw materials, and food, as well as issues of cybersecurity, technological hegemony, and environmental issues such as climate change response, all of which are important factors in establishing a country’s economic security.

○ In response to the use of the economy as a diplomatic tool and the weaponization of economic and industrial interdependence among nations, national security in the economic sense, or “economic security,” is defined as the protection of a country’s interests from such economic attacks, and is not limited to any one sector, from manufacturing to supply chain, cyber, technology, and the environment, and claiming economic security and protecting the citizen’s interests from external economic attacks becomes more challenging.

○ In order to guard economic security in Korea, which menas protecting the country and national interests from attacks by economic means, we must first start with supply chain issues in the fields of trade, commerce, and 

logistics, which are the first to be affected by economic attacks from other countries, and then expand the contents to include measures for self-reliance on food and medicine, which are essential for the survivalof the people, securing competitiveness by preventing the outflow of advanced technologies that are the mainstay of industrial development, and ensuring export routes even with due diligence in the supply chain by introducing carbon neutrality, but in each area, we must derive measures considering the current situation in Korea. 

○ It is essential for Korea to secure and strengthen its “economic security” that our laws and institutions be reviewed and supplemented as soon as possible to determine wheter they can sufficiently respond to trends in legal system development and policy implementation in other countries to strengthen economic security.

○ The  purpose of the study is to identify deficiencies in the current laws and systems through a review of issues in each field related to economic security and a review of current laws and bills in Korea, and to suggest directions for legislative reform that can serve as a basis for strengthening Korea’s economic security by comparing relevant laws and policies of major foreign countries.

 

▶ Scope and Method of Research

○ Based on academic and policy materials related to economic security, I will study laws related to economic security in major foreign countries and domestic laws, bills, and international agreements, but among all areas related to economic security, I will focus on laws related to trade and commerce, energy, medicine, and food that can converge into the supply chain agenda. In addition, laws in various fields such as high technology, cybersecurity, and environment that can affect economic security in a broader sense were considered with a focus on economic security-related provisions, and the latest laws and policies related to economic security of trading partners and major countries that have a significant impact on Korea’s economic security were also included in the review.

○ Based on theories related to economic, political, and sociological aspects of economic security, literature research analyzing current laws and bills in Korea, relevant laws and international agreements of major countries abroad, and comparative research reviewing overseas cases are used as research methods, and expert opinions are collected and reflected through expert forums, workshops, advisory meetings, and written contributions.

 

Ⅱ. Contents

▶ Analysis of laws and policies related to economic security

○ Supply chain sphere including energy and mineral resources

- As Korea is an energy-poor country, it is difficult to develop new energy  resources in the short term, so it is necessary to stabilize supply and create a reserve for uncertainty. The current laws in the relevant fields have deficiencies as a basis for policy implementation, and it is difficult to implement the laws in practice.

- The current energy and resource-related laws are structured to respond to crises piecemeal and after the fact, lacking a system for establishing and implementing energy and resource security policies:　key minerals are designated separately in individual laws and may fall outside the scope of supply and demand stabilization measures, domestic supply stabilization measures are ineffective, and the scope of stockpiles does not match the scope of key minerals, etc.

○ Pharmaceuticals

- The National Essential Drug List has been designated since 2017 through the National Council for Stable Supply of Essential Drugs, and the list of essential drugs and the list of drugs whose production, import, and supply have been discontinued are updated from time to time through MFDS press releases and the Korea Drug Safety Agency website, and the Korea Center for Rare and Essential Drugs collects domestic and international supply chain information related to rare and essential drugs. The Council operates a stable supply base and monitoring system for rare and essential drugs, including serving as a supply measure for outsourced manufacturing and import procurement of drugs that are not distributed in Korea.

- The Pharmaceutical Act stipulates the establishment of a stable supply base for national essential drugs and provides for administrative, financial, and technical support if necessary, which should be invested in R&D and facility investment of raw material drug companies and support for attracting and retaining human resources.

- The raw material pharmaceutical industry needs to actively utilize tax incentives and drug pricing policies to increase R&D and facility investment, and the advanced bio sector needs to be supported to further develop and take the lead.

○ Food

- Korea does not have a dedicated food security department like Japan’s Ministry of Agriculture, Forestry and Fisheries’ Food Policy and Security Office, and does not have a food security policy that is accessible to the general public can be pointed out as problems.

- In order to secure farmland for food security, the current farmland law has limitations for food security, and it is necessary to prevent overdevelopment and excessive diversion of farmland and to preserve adequate farmland by linking food sufficiency goals with appropriate farmland preservation measures.

○ Cybersecurity

- There is a protection system for key information and communication infrastructures under individual laws, but the legal framework for solidifying cybersecurity is still insufficient.

- Currently, there is no unified system for responding to cybersecurity threats at the national level, with each government ministry protecting its own areas of jurisdiction under separate laws and regulations, so in the event of a national cybersecurity crisis, there is a risk that each ministry may have confusing roles or overlapping tasks, which could hinder a quick and integrated response.

○ High Technology 

- The most important task of establishing economic security through the development of science and technology and filling the gap is to properly and promptly select promising or strategic technologies that need to be fostered and protected, as different individual laws define different types of technologies that need protection and support: National High-Tech Strategic Technologies in the Act on Special Measures to Strengthen and Protect the Competitiveness of National High-Tech Strategic Industries, National Core Technologies in the Act on Prevention of Industrial Technology Leakage, Advanced Technologies and Products in the Act on Industrial Development, and Core Strategic Technologies in the Act on Strengthening the Competitiveness of Materials, Parts and Equipment

Industries, National Core Technology in the Act on Prevention and Protection of Industrial Technology Leakage, Advanced Technology and Products in the Act on Industrial Development, Core Strategic Technology in the Act on Special Measures to Enhance Competitiveness of Materials, Parts and Equipment Industry, New Growth and Original Technology and National Strategic Technology in the Act on Limitation of Tax Exemptions, and other overlapping and differently defined technologies.

- It is necessary to examine the issue of harmonization with other laws for each functional measure, as there is a possibility of overlapping regulations with bills specialized for specific functions of economic security measures, and it is necessary to examine the differentiation and practicality of technologies that are otherwise provided for in individual laws.

- While technological independence and technology protection, which foster and protect technologies to enhance science and technology innovation capabilities, have recently emerged as trends in Korea’s science and technology industry policy along with the US-China technological hegemony competition, legislative measures should be developed to strengthen international cooperation and flexibly respond to rapid changes in the international environment.

○ Environment

- Environmental regulations directly affect the competitiveness of our industry, such as CBAM and supply chain due diligence, so it is necessary to actively respond to global carbon reduction and climate change response from the economic and industrial sides.

- In addition, environment and technology security, environment and biosecurity, environment and energy security, and environment and cybersecurity are also directly or indirectly affected, so the organization, implementation, and application of regulations for environmental protection should be considered in parallel with the overall review of economic security.

 

▶ Economic security laws and policies of major countries

○ USA

- Recognizing the importance of energy security, the U.S. has an energy surplus and has legislated a reserve system; supporting domestic energy production, especially clean energy development; taking a decarbonization strategy and legislating ways to reduce energy costs for consumers; and investing in community and environmental justice.

- In the case of pharmaceuticals, through the enactment of executive orders and various related laws, the States will diversify the import lines of raw pharmaceuticals mainly from allied countries in the short term, implement

strategies to strengthen the supply chain in the long term, and strive to establish a supply chain system by mandatorily applying the digital supply chain management system for pharmaceuticals to raw pharmaceutical starting materials and raw pharmaceuticals, improve the quality of pharmaceuticals and transparency of the supply chain through digital supply chain tracking, and establish a government-wide supply chain structure and risk analysis system. 

- In the case of food with a high self-sufficiency rate, relevant legal policies focus on support policies for low-income people as national nutrition rather than stabilizing overseas supply chains or stockpiling food, and allocate budgets for farm support and environmental conservation.

- The States improve national cybersecurity, including the implementation of a zero trust structure, and international cooperation to ensure cyber threat resilience, with the Cybersecurity and Infrastructure Security Agency (CISA) serving as the cyber defense agency and national coordinator.

- Prevent technology leakage by controlling the export of emerging and enabling technologies through the Export Control Reform Act (ECRA) and the EAR Export Commerce Control List (CCL), which allows for a broader and freer determination of the scope of control by reflecting both the reasons for control and related factors described in laws and regulations.

○ EU

- The European Union seeks joint responses at the EU level, such as diversifying energy sources and import methods; and Design institutional arrangements to ensure that countries work together to protect energy security, such as establishing stockpiling guidelines for each energy source, requiring centralized stockpiling organizations in each country, and imposing gas supply solidarity obligations across member states.

- With the Common Agricultural Policy as the main agricultural policy, various measures have been devised to strengthen the income security of agricultural producers and manage sustainable agriculture, such as environmental payments and market measures for emergency support for farmers, in order to ensure food security. Similar to Korea, Switzerland, which has a low food self-sufficiency rate, has established a national stockpiling and domestic production system. The Federal Office for National Economic Procurement (FONES), which oversees the overall business of supplying goods in case of emergency, maintains and operates a mandatory stockpiling system, but it is characterized by the fact that the federal government decides the type and amount of goods to be stockpiled, while private companies manage the stockpiles.

- Establishing an integrated cybersecurity certification system for member states through the enactment of the “Cyber Resilience Act” and striving to develop capabilities such as advancing cyber defense technologies, while also strengthening partnerships externally to ensure cybersecurity.

- Modernizing export controls by adopting a new Export Control Regulation (2021/821) to strengthen the export control system, including by effectively responding to emerging technology leakages and protecting Member States’ interests and values through a more integrated approach to export controls at the global level, EU provides a stronger basis for working with third countries to support a level playing field and enhance international security.

○ Japan

- Japan establishes an energy basic plan based on the Energy Policy Basic Act, including support for decarbonization measures and mineral resources, setting oil reserve targets under the Petroleum Reserve Security Act, and strengthening resource diplomacy to develop overseas resources, while securing energy and resource sector security through the recently enacted Economic Security Promotion Act and basic guidelines.

- In terms of food, the basic plan is based on domestic production, but imports and stockpiles are appropriately combined and utilized, and emergency food security measures are stipulated in the Basic Plan and Emergency Food Security Manual, all of which have their legal basis in the Food, Agriculture and Rural Affairs Basic Law.

- In the field of cybersecurity, the government is pursuing simultaneous digital transformation and cybersecurity based on the Basic Act on Cybersecurity, securing the safety of cyberspace, and strengthening cooperation with allies to this end, while simultaneously establishing pan-ministerial measures and reflecting the R&D of technology verification systems to respond to supply chain crises in its strategy to strengthen economic security through the establishment of cybersecurity.

- In preventing technology leakage, in addition to the existing technology export license system under the Foreign Exchange and Foreign Trade Act, the government announced a strategy to strengthen industrial espionage measures by expanding the scope of reporting to universities, which were previously excluded from prior notification, and mandating the disclosure of information on self-sufficient cooperation from overseas.

○ China

- In response to the U.S. export control measures to many countries, it can be expected that the government will intensify its management and control of rare earths among key minerals under the Export Control Act.

- For example, the amendments to the Science and Technology Progress Law include new sections on basic research, regional science and technology innovation, international science and technology cooperation, and supervision and management, as well as an international response strategy for high and critical technology areas; the amendments to the China Technology Export Prohibitions and Restrictions List add 23 high-tech items to the list, including genetic engineering, 3D printing, aerospace, drones, information security, cryptography, and artificial intelligence.

○ UK

- UK has established guidelines and support measures for raw material security, including rare earths, through the “Raw Material Security Action Plan.” Recently, the government established the “Energy Security Strategy” and proposed the “Energy Security Bill” to more actively respond to the economic security measures of various countries, showing our commitment to establishing energy security.

- The food sector is largely self-sufficient and therefore has a different approach to food security than South Korea, including consultation between government departments on land use, the use of private companies in responding to disasters such as disease and pests, support for skilled labor in the agricultural sector, and collaboration with food suppliers to improve the resilience of the food supply system, A wide range of policies are directly or indirectly linked to the UK’s food security policy, including securing overseas food production sites and expanding the domestic agricultural production base, improving international trade relations and seeking to diversify import sources, and recognizing these policies as key elements of the national development strategy and ‘nationalizing’ them to be managed and reported directly to Parliament.

- In cybersecurity, the “National Cyber Strategy” establishes and implements detailed action plans in each field with the goal of strengthening the cyber ecosystem, building a resilient digital Britain, leading cyber power essential technologies, promoting global leadership for a safe and developmental international order, and strengthening national security by detecting, blocking, and preventing threats in cyberspace.

○ International Treaties 

- The GATT security exception (Article 21) has played a minor role due to the lack of cases in which it has been invoked, but the legal debate on the security exception has emerged in recent years as the United States has invoked the security exception, citing economic security as the international trade law basis for popular state control legislative measures.

- In the WTO system, the GATS Security Exception (Article 14.2), TRIPS Security Exception (Article 73), and the WTO Revised Agreement on Government Procurement (Article 3.1) all introduce and provide for security exceptions. 

- The four export control regimes are multilateral export control mechanisms introduced to secure international peace and security and are different from the current export control of goods and technology for economic and security purposes between countries.

- In addition, the launch of the TTC between the U.S. and the EU has deepened bilateral trade and economic relations, and the launch of the IPEF seeks economic cooperation between the U.S. and the Indo-Pacific region.

▶  Ways to improve legislation to build a stronger foundation for economic security

○ Legal issues in building a foundation for economic security

- (Emergency response) In the event of an emergency, it is necessary to establish a committee under the Prime Minister’s Office to ensure that the governance organization can operate nimbly and that interdepartmental cooperation is possible, and the recovery of the industry through support for the damage suffered during the emergency should be included in the emergency response plan, so it should be reflected in the law.

- For continuous and constant crisis management, it is necessary to install an early warning system as stipulated in the revised “Material Parts and Equipment Industry Act” and the pending “Basic Supply Chain Bill”, but it is necessary to monitor all situations that may pose an international threat to the national economy through inter-ministerial cooperation, beyond the scope of supply chain stability items targeted by the “Material Parts and Equipment Industry Act” and the “Basic Supply Chain Bill”. In addition, international cooperation through trade agreements must be carried out alongside efforts to increase domestic production in order to secure and stockpile resources that cannot be relied on overseas, and this is necessary for the development and advancement of advanced technologies.

- A comprehensive law covering all areas of economic security is needed to fill the gaps and overlaps in individual laws.

- (Governance) The governance system of the Economic Security Control Tower should be under the Prime Minister, who is responsible for directing and supervising each ministry, and consideration could be given to establishing the “Basic Guidelines for Strengthening Economic Security” by Prime Ministerial Decree to stipulate the measures that can be implemented, and the participation of agencies belonging to the President’s Office in the committee will also be essential for rapid interdepartmental implementation of the committee’s decisions, cooperation with the international community, and rapid response and information sharing within the executive branch in establishing mid- and long-term national strategies, and dissemination and implementation of policies.

- The ineffectiveness of the preparedness and response measures of individual laws is due to their fragmentation, which can be complemented by the enactment of integrated laws and the formation of committees, but the participation of the President’s Office in the committee is necessary to ensure the effectiveness of policies and laws.

○ Significance and limitations of pending bills

- The “Basic Bill for Supporting Supply Chain Stabilization for Economic Security (Supply Chain Basic Bill)” limits the issue of economic security to issues that occur in the supply chain, so issues other than the limited supply chain, such as cyber attacks that disrupt the online financial network or 5G, are not discussed, There is a problem that issues that pose a threat to Korea’s industry and economy, such as the loss of national technological competitiveness due to the leakage of advanced core technologies such as 5G and quantum computing, are left out of the discussion, and there is an overlap with other laws and bills in the designation of regulatory targets and response mechanisms, and difficulties in commercial law regarding the adequacy of the establishment and operation of the fund and the emphasis on economic security as a basis for supply chain stabilization measures also need to be improved.

- The three bills related to resource security, such as the “Special Bill on National Resource Security,” are specialized in supply chain security, just like the “Supply Chain Basic Bill,” and lack provisions for other economic security measures, and the strengthening of the supply chain of key resources in the “Resource Security Act” is expected to overlap with the supply chain stability of economic security items in the “Supply Chain Basic Bill,” resulting in overlapping functions and conflicts in implementation, so it is necessary to adjust the regulatory targets and mechanisms.

- The two bills related to cybersecurity, such as the “National Cybersecurity Bill,” are also limited in their ability to respond to and manage cybersecurity among the many other factors that can affect economic security, and to respond to economic security issues that do not end with cybersecurity but will operate in connection with the entire defense, including logistics, trade, finance, food, health, science and technology, etc. 

- The “Special Food Security Bill” complements the existing Farmland Act, which has limitations in preventing the decline of farmland and increasing food self-sufficiency, but needs to be supplemented with specific planning regulations to secure adequate farmland, and the basis for supporting the acquisition of overseas grain terminals, which will add effectiveness to the importation of imported food into Korea, but needs to be supplemented with support measures to secure overseas grain distribution networks. However, as in the case of the previous pending bills, it is insufficient as a response to the overall economic security beyond the food sector, as the target of regulation is limited to the food sector.

○ Toward enacting a consolidated Economic Security Act 

- Economic security threats that appear in one area interact with responses in other areas, causing unforeseen consequences, and therefore measures to prepare for and respond to economic security threats must be considered in all areas and coordinated with other areas even when taking countermeasures in one area. Therefore, a legal foundation is needed to provide the basic direction of the entire system and policy, not specific to individual laws in each area, and to ensure unity and systematization through a comprehensive overview of matters that need to be specified in detail in individual laws, which should eventually be implemented in the form of a Foundational Economic Security Law. 

- On the other hand, special laws can effectively respond to the implementation of specific legislative policies and arouse the public’s interest in specific policies, thereby facilitating the achievement of legislative objectives. The more special laws there are, the more complex the legal system becomes, which can lead to a decrease in the public’s understanding of the law and a decrease in trust in the legal system. However, the integrated law on economic security is more appropriate in the form of a special law because the integrated law must stipulate the contents to be applied in advance of the existing individual laws, while individual laws in various related fields already exist.

○ Highlights of Economic Security Special Act

- A special law on economic security should include the establishment of an economic security committee under the Prime Minister’s Office, but including agencies under the President, to ensure a nimble and resilient system suitable for emergency response that can encompass all ministries, support for the rapid and complete recovery of damage caused by emergencies, and institutionalize financial, tax, and funding support for the recovery of industries.

- In addition, similar to how the “Supply Chain Basic Bill” establishes the basis for each ministry to operate an early warning system, it should be legislated to implement a system that can monitor all factors that may affect the weakening of industrial competitiveness on a macro level, not just the supply chain, and to ensure that the system is coordinated across ministries, a committee should be established in the Prime Minister’s Office, including

members of presidential agencies as committee members, to maintain an organic relationship with the head of the executive branch.

- The special act should provide tax incentives and R&D support to essential economic and security items, services, and industries designated by each ministry to enhance competitiveness and maintain or lead the way, and provide the institutional framework to actively utilize international cooperation systems such as IPEF and promote advanced technology development through active exchanges with various third countries.

○ Commission Act Format

- If there are already general, special, and individual laws in each area that require coordination of regulations and targets, adding a basic law that unifies all areas on top of that may actually reduce efficiency and lead to confusion.

- If the (tentative) Economic Security Committee can play a role in linking the ministries’ respective laws so that they can develop a common development plan from a macro perspective of national economic security, create a basis for data linkage and consultation, and plan and implement measures in a mutually beneficial manner in the event of an emergency, rather than enacting a consolidated law, it may be worthwhile to consider enacting regulations to establish the committee.

- In order for a committee law to be effective in all areas, the committee would need to be empowered to actually influence ministry policies and coordinate the direction of practical implementation, and a detailed implementation plan would need to be stipulated to ensure that this power is actually implemented.

 

▶ Conclusion

○ When examining the factors related to economic security in each area, it can be seen that individual laws are already organized to respond to each area in their own way, and some are constantly being revised to fill in the gaps. 

○ However, there are also limitations due to the fragmented response of individual laws. Considering that an economic security crisis in one area affects other areas and creates greater threats, a comprehensive control tower is needed to comprehensively consider economic security crises, even those limited to the jurisdiction of individual ministries, and respond to them before they develop into other economic security issues, which requires a special economic security law that operates in advance of economic security measures established by individual laws and the organization of a committee through each ministry.

○ The “Special Law on Economic Security” provides for a committee under the Prime Minister’s Office as an emergency response system that can respond closely and recover quickly, and as a standing reserve system, not limited to supply chain items, all ministries can monitor factors that may affect the country’s industrial competitiveness in relation to economic security and provide early warning and response through the committee when an abnormality is detected, thereby preventing overlapping protection and support targets in various individual laws within the same ministry, as is currently the case.

○ The committee should be chaired by the prime minister, with the heads of relevant central government agencies as members, and include presidential agencies to ensure that all ministries and the executive branch are working together in emergency response and preparedness.

○ The “Special Law on Economic Security” should also provide for R&D, tax incentives, and support in each field, and should be based on utilizing international cooperation systems and active exchanges.

○ There may be legislative economic reasons for having a committee law only to avoid having a special law again on top of each ministry’s individual law or ministry’s basic law, but the committee law alone is insufficient to support integrated coordination of economic security-related issues across all ministries at the center, so it is preferable to enact a “Special Law on Economic Security” that includes the formation of a committee.

Ⅲ. Expectations

○ This study establishes a legal framework to strengthen the country’s economic security and provide direction for the enactment and revision of economic security-related legislation.