[Lee Jae-min] Regulations threaten economic security deal

Foreign direct investment requires not just the cross-border transfer of money. It also requires a move of personnel and equipment to manage and supervise the investment. This is particularly the case for "greenfield" investment where a foreign investor builds manufacturing facilities in another country. When there is discord or disconnect between the flow of investment and that of personnel and equipment, investors find themselves on the horns of a dilemma.

That’s probably what went through the corporate minds of LG Energy Solution and Hyundai Motor, two large Korean companies, when 317 Korean workers setting up their joint battery production plant in Georgia were arrested and detained by US authorities on Sept. 4 because of alleged violations of immigration rules concerning the visa waiver program (ESTA) and visitor’s visas (B-1). While the workers were later released and returned to Korea via a chartered flight on Sept. 12, the incident has quickly emerged as yet another stumbling block between the two countries struggling to finalize tariff deals and investment plans.

Seoul has been the largest investor in the United States since 2023. It has also pledged to invest $350 billion in the United States in its "reciprocal" tariff framework deal with Washington on July 30. Korean companies also promised an additional $150 billion in investment in America at the Korea-US summit on Aug. 25. The Sept. 4 arrest and detention could not have come at a more awkward time or in a more dramatic way.

The Georgia incident shows the fragility of "economic security" deals. Unlike traditional trade and investment deals between states, which are consummated through multiyear, pan-governmental, line-by-line negotiations, economic security package settlements are arguably prone to quick, top-down decision-making to troubleshoot pending problems. Package deals are sometimes struck without necessary coordination among domestic agencies or without contemplating domestic regulatory adjustment. At times, deals are made first without mentioning contradictory domestic legislation. These deals, though much touted, then stand on thin ice.

If matters come to that, business activities of foreign investors pursuant to "economic security" package deals become vulnerable to a myriad of unharmonized domestic regulations. Labor, environment, consumer protection, workplace safety, competition, sanitary inspection, immigration and taxation, to name a few, present regulatory hurdles at every step of the way in business. Unless told otherwise or put on notice, respective agencies and authorities will simply implement their work with a siloed mentality. Under these circumstances, foreign companies making investments in the country will face a wall of uncertainty. They have to undertake business activities because of the state-to-state deals, but they don’t know what all the individual federal and local agencies will tell them in the field. I think this is probably what happened in Georgia.

So, domestic regulatory alignment is a prerequisite in pushing ahead with projects of economic security. Company relocation, expansion of investment, employee hiring, sourcing shift and supply chain reformulation cannot move forward properly without such alignment. In many countries, a divide between top-level decision makers and working-level regulators is visible. With the split in place, it may be just a matter of time before any economic security agreement on whatever topic fizzles out when an agency comes up with its own regulatory mandates, which are either outdated for a new economic landscape or uncoordinated with a national plan because of a lack of time or process.

If anything, domestic regulation is becoming tighter and tighter in sectors both old and new. As much as the economic security discourse involves the invitation and expansion of specific foreign investment, ensuing steps need to be taken in order to facilitate and hopefully protect the investment. Good faith promises from those in the highest echelon of a government are not questionable when they finalize a deal with their counterpart from another country. The real question is how all the government agencies, central and local, are informed and aligned to implement the deal. Too often, these other agencies are left on their own with their own rule books. An inevitable consequence is the application of domestic laws and regulations from the existing rule books, and then an unintended but abrupt disruption of an agreed economic security scheme.

Economic security demands multi-dimensional analyses of key national issues spanning over military, economic and technology sectors. A package deal is a natural and inevitable outcome. The "package" aspect, however, does not stop at the negotiation table with the other country. It should also apply to the domestic front, so that relevant agencies and authorities are put on the same page.

The ICE raid and detention in Georgia is a testament to the pressing need for domestic alignment, including regulatory adjustment and legislative changes, that should accompany the economic security deals that countries are eager to strike at the moment.

Lee Jae-min

Lee Jae-min is a professor of law at Seoul National University. The views expressed here are the writer’s own. — Ed.