South Korea Unveils World’s First ‘AI Basic Act’, Overtakes Europe; Startups Voice Concerns

South Korea has moved ahead of the European Union to introduce the world’s first comprehensive Artificial Intelligence law, the AI Basic Act, marking a major milestone in global tech regulation. While the government has projected the move as a step toward becoming one of the world’s top three AI powerhouses, the announcement has triggered unease and resistance among local startups, who fear the law could slow innovation.

The development places South Korea ahead of the European Union’s AI Act, which is expected to come into force in 2027. According to a report by news agency Reuters, the Korean government aims to balance rapid AI development with safeguards against misuse and systemic risks.

What Is the AI Basic Act?

Under the new legislation, companies using AI in high-risk and critical sectors will be required to ensure human oversight. These sectors include:

• Nuclear safety
• Drinking water production
• Transportation systems
• Healthcare services
• Financial and monetary operations

The law mandates stricter accountability where AI decisions could directly impact public safety or essential services.

Mandatory Disclosure and Labelling

One of the most debated provisions requires companies to inform users in advance if they are interacting with AI-powered products or services. Additionally, all AI-generated content must be clearly labelled or watermarked, making it distinguishable from human-created material.

The government argues this step is necessary because AI-generated images, videos, and text can closely resemble real content, increasing the risk of misinformation, fraud, and deepfakes.

Startups Raise Red Flags

South Korea’s startup ecosystem has reacted with concern. Many founders argue that being the first country to enforce such rules puts them at a competitive disadvantage.

A survey conducted by Startup Alliance, a leading industry body, revealed that:

• Only 2% of AI-focused startups currently have a formal compliance plan
• Nearly half of the startups admit they do not fully understand the new law

Startup Alliance co-chair Lim Jung-wook said there is growing frustration over the law’s ambiguity, with founders worried it could force overly cautious development strategies and delay product launches.

Grace Period, Then Penalties

To ease the transition, the government has announced a one-year grace period, during which companies will not face administrative penalties for non-compliance. The Ministry of Science and ICT (MSIT) has also launched an AI Act Support Desk to help companies assess their regulatory obligations.

However, once the grace period ends, violations could attract fines of up to 30 million won (approximately $20,400). The government has emphasized that these penalties are significantly lower than those under the EU framework.

A Strategic but Risky Move

Officials argue that the AI Basic Act will strengthen South Korea’s position in the global AI race by promoting trust, transparency, and responsible innovation. At the same time, policymakers acknowledge the challenge of addressing startup concerns while ensuring public safety.

As the world’s first AI law, South Korea’s approach is likely to be closely watched by governments, tech companies, and regulators worldwide. Whether it becomes a model for balanced AI governance—or a cautionary tale for innovation—will depend on how effectively the law is implemented in the coming years.