The government said Tuesday it will tighten regulations on cross-border mergers and acquisitions to curb leaks of high-end technologies to other countries and impose harsher penalties on offenders.

The Ministry of Trade, Industry and Energy said it has resolved to revise the related law to better prevent leaks of key technologies. The changes will take effect in February 2020, six months after promulgation.

This is a follow-up to the government’s pledge in January to eradicate leaks of industry technologies, including those related to chips and panels, amid growing concerns that South Korea may lose industrial competitiveness without proper protection of its core technologies.

The nation’s key technologies refer to technologies in 12 areas: chips, display panels, electronics, automobiles, steel, shipbuilding, nuclear energy, information technology, space, life science, machinery and robots.

One of the key aspects of the measures involve obligating companies with the nation’s core technologies to seek approval when they are acquired by foreign companies -- regardless of the government’s financial involvement in the development of such technologies.

Currently, only companies whose key technologies were developed with government subsidies are required to seek approval when foreign companies acquire them.

The government also said it would adopt punitive damage measures so that anyone who leaks the nation’s key technologies will be fined -- up to three times the actual damage caused. Anyone who infringes industry technologies, albeit not key technologies, will have to compensate -- also up to three times -- given the infringer’s superior position or scale of damage.

In addition, a person held responsible for leaking the nation’s key technologies could also be sentenced to at least three years in prison. Currently, no minimum prison sentence is applicable.

The tighter measures come amid growing concerns that Korea may lose industrial competitiveness to its rivals, mainly China, if its core technologies are not protected. There were around 150 attempts to leak industrial technologies overseas in the past five years, according to the Industry Committee under the National Assembly.

Some experts, however, say if regulations on cross-border deals become too rigid, they may have side effects in the industry, such as excessive injection of public funds in floundering companies or decline of regional economies. 

“For instance, if struggling Korean shipbuilders should be constantly given public funds because no Korean firms are willing to buy them, it can be an option for Chinese firms to buy such firms to help employment and the regional economy,” said a private equity fund manager dealing with cross-border M&As, who asked for anonymity.

Professor Yang Jun-sok from the Catholic University of Korea said there are two sides when it comes to revising the law, citing the example of SsangYong Motor, which was acquired by India-based Mahindra & Mahindra in 2011.

If Mahindra & Mahindra was not able to buy the Korean automaker on the grounds of protecting industry technologies, “SsangYong could have become bankrupt, and the regional economy would have collapsed because there was no Korean company willing to buy the firm at the time,” he said.

As for the nation’s key technologies, Yang said the government should continuously scrutinize and update the corresponding list. “If the list of the key technologies, which are fast-evolving, is outdated, the nation may protect unnecessary technologies even as key technologies are leaked.”

Currently, 71 technologies are designated as the nation’s key technologies based on several criteria, including the impact on the national economy, defense and economic welfare. The designation of the key technologies is updated every year, the ministry said.

By Shin Ji-hye (shinjh@heraldcorp.com)