Unclear guidance, vague terms in AI Basic Act leave businesses in limbo

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Korea’s revised Basic Act on the Development of Artificial Intelligence (AI) and the Establishment of Foundation for Trustworthiness, also known as the AI Basic Act, took effect on Jan. 22 as the world’s first comprehensive legal framework for AI.

With the broad new obligations on companies that develop or deploy AI technologies, industry players are scrambling to interpret the new regulations, amid growing concerns over its vague standards and rising uncertainty about the business risks they may trigger.

The regulations seek to balance AI innovation with safety and public trust in AI, creating a national governance framework centered on a national AI committee chaired by the president. It mandates an AI master plan every three years, reinforced powers for the presidential committee and government support for research and development, training data infrastructure — including open test beds at public institutions, — and special measures for small and medium‑sized enterprises and startups.

On the industry side, the act obliges AI-generated content to be disclosed as such, mandates transparency measures such as watermarks and imposes risk controls on systems classified as “high-impact.”

But as the first business week of the revised act unfolded, with about a year of grace period for implementation of the new rules, companies are left navigating murky definitions and unclear standards, prompting fears that it could slow innovation and complicate compliance.

Lee Seong-yeob, a professor at Korea University's Graduate School of Management of Technology, said the new framework risks dampening development incentives if engineers begin second‑guessing whether their work might inadvertently breach the law, especially in the fast-paced AI field.

“Because AI development and deployment cycles are so short, compliance must be repeated with each new version, making regulatory requirements a potential barrier to AI development and deployment,” he said.

“For Korea, which aims to move up in AI, what is supposed to be a minimum safety net could end up functioning as a significant hurdle.”

An automotive vision display is seen at an LG Electronics booth during CES 2026 in Las Vegas, Jan. 6. AP-Yonhap

Mandatory transparency, yet unclear guidance

Under the act, entities that develop or use AI for commercial purposes must notify users when content, such as images, video, audio or text, is generated by AI by using visible watermarks or other clear indicators.

However, for many firms, the practical details remain incomplete, especially around when a watermark is needed and who exactly must apply it. While the law clearly assigns transparency obligations to providers that directly offer AI products and services to users, it excludes general users and companies that only rely on AI as a creative tool, which could create loopholes and uncertainty in the regulatory perimeter.

In practice, companies, including animation and webtoon studios, that use generative tools are not defined as AI service providers and therefore are exempt from labeling duty, while platforms hosting or distributing AI‑assisted works also face fewer obligations unless they themselves operate the underlying models.

Much deepfake or misleading content comes from overseas apps beyond Korea’s legal reach and only a few global tech giants meet the high threshold for the act’s requirement to appoint a local representative subject to Korean jurisdiction.

AI‑generated content from smaller overseas services or reposted by individuals may continue to evade systematic labeling, undermining the act’s transparency goals, observers note. Some also warn that it is unclear what would happen in cases where watermarks are removed or damaged by users, since obligations stop at service providers.

Artificial intelligence-generated images by Karlo / Courtesy of Kakao Brain

The content sector, including gaming and media, also expressed concerns that rules on watermark application could impair productivity and diminish the value of creative output, as AI‑assisted work could stigmatize content as being of lower value.

“We hope the system will be implemented to support industry growth rather than a regulatory‑first standpoint,” a gaming industry insider said. “There are concerns that these regulations could become a burden on industrial development. Now that the law is in force, we also hope there will be sufficient support so that those on the ground can adapt smoothly to the new framework.”

High-impact AI still undefined

Equally contentious is the law’s provision on high-impact AI systems, defined as those that could significantly affect human life, safety or fundamental rights. The act intends to classify and impose additional safeguards on high-impact applications, such as autonomous vehicles, health care diagnostics and infrastructure operations.

However, the legislation and early guidance stop short of defining quantitative thresholds, such as specific error rates, coverage ratios or incident probabilities, that would automatically push a system into the high‑impact category.

Vague terms like "significant impact" and "risk of harm" also raise concerns that they would leave too much room for regulators’ judgment, complicating companies’ investment planning for large‑scale AI deployments. If businesses cannot reliably predict whether a model will be treated as high‑impact, they may delay launches or shift projects abroad rather than invest in additional documentation, audits and impact assessments at home.

Participants visit Law Expo Seoul in Gangnam District, Seoul, Dec. 3, 2025. Yonhap

Lee, the professor at Korea University, noted that the very concept of high impact is hard to determine in advance, pointing out that this is one of the key reasons why other countries, such as the United States and China, have so far avoided predefined classifications.

“As AI keeps evolving, it is very hard to draw a clear line in advance for what counts as high impact or high risk. In the end, even if we update the standards as much as possible for now, there will still be the problem that they must be continuously revised every time new technologies are developed,” he said, noting the current grace period should also be used to fine-tune the legislation.

“During this one‑year period, the law technically applies, but there are no penalties, so I think we should move quickly to revise it while we are still in this preparation phase.”

During the grace period, the government has ensured temporarily easing of inspections and fines while operating a support desk that has already seen inquiries about the AI Basic Act surge since the law took effect.

Tech companies have begun reorganizing internal governance to get ahead of the new rules and formalize compliance playbooks.

Major telecommunications companies said they are reviewing their companywide compliance frameworks and setting up internal risk management protocols involving law, security and ethics teams.

Tech giants, such as Naver and Kakao, are also moving to align their products with transparency obligations, having previously introduced internal AI governance and risk frameworks on a voluntary basis.