July 8, 2025
SEOUL – South Korea has long prided itself on its technological sophistication, a nation of 5G networks, semiconductor giants and integrated mobile ecosystems. Yet the legal and regulatory machinery governing its economy remains ill-suited to the demands of the industries it claims to champion.
A modest but telling countermeasure has been the “regulatory sandbox,” a policy tool that grants temporary exemptions from outdated laws, allowing innovative companies to test new services or products without being immediately stifled by red tape.
Introduced in 2020, the system has yielded tangible, if limited, results. According to the Korea Chamber of Commerce and Industry, 518 firms that participated in the scheme between 2020 and May 2025 created 6,900 jobs and added 980 billion won ($722 million) in revenue. Most were small and medium-sized enterprises, underscoring how heavily rigid rules weigh on those least able to manage them.
Yet the sandbox remains the exception, not the norm. Its impact is curbed by slow-moving bureaucracy, narrow scope and weak follow-through. Despite promising signals, successive Korean governments have failed to convert ad hoc relief into systemic reform.
The global trend toward deregulation makes South Korea’s regulatory stagnation even more conspicuous. Europe, once a champion of corporate oversight, is now retreating from some of its more burdensome interventions. France and Germany have jointly pressed the EU to shelve its proposed Corporate Sustainability Due Diligence Directive, citing the competitive strain it would impose. The EU is also reconsidering its approach to AI regulation, increasingly concerned about falling behind the US and China in strategic technologies.
Emerging markets are acting just as decisively. Vietnam, for example, aims to cut corporate regulation by 30 percent in pursuit of an 8 percent growth target. South Korea, by contrast, is tightening legal frameworks just as its peers seek flexibility.
The cost of this approach is no longer speculative. In the 2025 competitiveness rankings by the International Institute for Management Development, South Korea fell seven places to 27th overall. More strikingly, it dropped 21 places in the “business efficiency” sub-index, a decline driven by lower productivity, reduced corporate adaptability and mounting internal hurdles. This is a clear warning that the regulatory environment is not merely lagging but actively undermining competitiveness.
The drag on emerging industries underscores the risks. Drone logistics, autonomous driving and telemedicine — sectors advancing rapidly elsewhere — remain mired in legal uncertainty at home. The case of Tada, a homegrown ride-hailing platform hit by legislative hurdles, offers a cautionary tale. In South Korea, innovation is often not outpaced by the market but obstructed by the state.
One proposal that warrants serious consideration is the “mega sandbox,” a plan to let local governments establish experimental regulatory zones for high-potential sectors such as urban air mobility or AI. Backed by the KCCI and business leaders, the idea represents a step toward structural reform. But real change will require more than decentralization. It demands political willingness to tolerate risk, loosen central control and embrace a culture of experimentation.
President Lee Jae Myung has pledged to eliminate rules born of administrative convenience rather than public need. Yet the country’s recent history is littered with unfulfilled promises of reform.
Regulation is not inherently counterproductive. Well-crafted rules protect markets, consumers and institutions. But frameworks that persist out of habit do more than hinder efficiency — they dissuade ambition.
In a global economy defined by speed, adaptability and innovation, South Korea cannot afford to remain an economy where the space to imagine is narrower than the rules that constrain it. Policy must do more than referee. It must create the space to play.
