Geopolitical Risk in Global Data Regulation: South Korea's Data Sovereignty Policies and Their Impact on Tech Sector Investments

South Korea's evolving data sovereignty policies have become a focal point of geopolitical tension and a critical factor for tech sector investments. As the country navigates a complex regulatory landscape shaped by national security concerns, EU-inspired frameworks, and U.S. trade pressures, multinational tech firms face a high-stakes balancing act between compliance, market access, and geopolitical alignment.

A Regulatory Framework Rooted in Risk and Innovation

South Korea's Framework Act on Artificial Intelligence Development and Establishment of a Foundation for Trustworthiness (AI Framework Act), enacted in December 2024, exemplifies its dual focus on fostering innovation and enforcing accountability. The law introduces a risk-based approach, imposing strict oversight on "high-impact AI" systems in sectors like healthcare and energy, while mandating transparency for generative AI outputs and requiring foreign providers to appoint local representatives, according to a South Korea's New AI Framework Act: A Balancing Act Between Innovation and Regulation report. Complementing this is the Personal Information Protection Act (PIPA), enforced by the Personal Information Protection Commission (PIPC), which has intensified scrutiny of data breaches and introduced tools like the AI Privacy Risk Management Model to mitigate privacy risks, as described in a Data Protection & Privacy 2025 - South Korea guide.

These measures align South Korea with the EU's regulatory ethos-particularly the GDPR-while diverging from the U.S.'s preference for open digital trade. The AI Framework Act's emphasis on data localization and cross-border transfer restrictions has drawn criticism from Washington, which views such policies as barriers to global data flows essential for U.S. tech firms, according to the same South Korea's New AI Framework Act: A Balancing Act Between Innovation and Regulation report.

Geopolitical Tensions: EU Alignment vs. U.S. Opposition

South Korea's regulatory choices have deepened its alignment with the EU, a trend evident in its Platform Competition Promotion Act, modeled after the EU's Digital Markets Act (DMA). This legislation imposes ex ante obligations on dominant platforms, restricting practices like self-preferencing and data hoarding, as noted in the Data Protection & Privacy 2025 - South Korea guide. Critics argue it disproportionately targets U.S. firms like Google and Apple, with the U.S. Trade Representative (USTR) warning of retaliatory measures if the law proceeds, as reported in the South Korea's New AI Framework Act: A Balancing Act Between Innovation and Regulation report.

The U.S. has also raised concerns over South Korea's data localization requirements, particularly in the case of Google's repeated requests to export high-resolution map data. Despite Google's arguments that such data is critical for navigation services, the South Korean government has delayed approvals since 2025, citing national security risks, as noted in a South Korea delays decision on Google's request to export map data Marketscreener report. This mirrors past rejections in 2007 and 2016, underscoring a consistent policy stance that prioritizes sovereignty over foreign access.

Meanwhile, South Korea's proposed Prevention of Free-Riding on Networks Act, which would require foreign content providers to pay network usage fees, has further strained U.S.-Korea relations. The U.S. Chamber of Commerce has labeled the measure discriminatory, arguing it violates principles of net neutrality and could disrupt global digital services, according to the South Korea delays decision on Google's request to export map data Marketscreener report.

Investment Implications: FDI Trends and Corporate Adaptation

Foreign direct investment (FDI) in South Korea's tech sector has shown mixed signals. While overall FDI pledges declined by 18% in the first nine months of 2025 due to global trade uncertainties, the AI sector bucked the trend, with FDI rising 25.7% to $1.79 billion, as reported in a FDI pledges to Korea down 18% through Q3 amid trade uncertainties JoongAng report. This growth is driven by investments in AI data centers, autonomous driving, and robotics, reflecting South Korea's strategic push to dominate the AI economy.

However, regulatory complexity remains a hurdle. Companies like Meta, Microsoft, and OpenAI have had to appoint local privacy representatives under PIPA, a requirement that increases compliance costs, as noted in the Data Protection & Privacy 2025 - South Korea guide. Meanwhile, Google's map data standoff highlights the risks of overreliance on foreign data infrastructure in a market where national security concerns can override commercial interests, as described in the South Korea delays decision on Google's request to export map data Marketscreener report.

Strategic Investments Amid Regulatory Uncertainty

Despite challenges, South Korea is making bold investments to solidify its position in the global tech landscape. A $35 billion AI-driven data center project in South Jeolla Province, set to open in 2028, exemplifies this ambition. The facility, designed to be fully managed by AI, underscores the government's commitment to leveraging AI for infrastructure and global competitiveness, as reported in a A Big Data Center Planned in South Korea Could Be Built and Run by AI Wall Street Journal article.

Yet, such projects must navigate a fragmented regulatory environment. Overlapping jurisdictions among agencies like the Korea Fair Trade Commission (KFTC) and PIPC have created compliance uncertainties, potentially deterring investment, as noted in a The New AI Regulation in Korea: Problems of Jurisdictional Overlaps Network Law Review article. The government's Digital Bill of Rights, a non-binding framework promoting innovation and fair access, aims to address these issues but has yet to resolve jurisdictional conflicts, according to the The New AI Regulation in Korea: Problems of Jurisdictional Overlaps Network Law Review article.

Conclusion: Navigating a Fractured Global Tech Landscape

South Korea's data sovereignty policies reflect a strategic pivot toward data protection and platform accountability, aligning with EU norms while clashing with U.S. priorities. For investors, the key challenge lies in balancing opportunities in South Korea's AI-driven economy with the risks of regulatory fragmentation and geopolitical tensions.

As the U.S. seeks to counter China's influence through open digital trade alliances, South Korea's regulatory choices will test the limits of global cooperation. For now, the country's tech sector remains a high-stakes arena where innovation, compliance, and geopolitics intersect.