South Korea’s New Digital Competition Bill: A Step Backward for Innovation and Investment

Commentary by Kati Suominen

Published August 16, 2024

After the withdrawal of a digital antitrust bill in South Korea earlier this year, digital competition policy discussion is heating up again in Seoul with a proposed Online Platform Antitrust Regulation Act. Proposed in July by National Assembly representative Kim Nam-geun, this bill could be detrimental to the competition it seeks to encourage.

The South Korean bill mimics the Korea Fair Trade Commission (KFTC)'s Platform Competition Promotion Act that was withdrawn earlier this year but will likely be reintroduced. It also echoes the European Union's Digital Markets Act (DMA), which targets major platforms and empowers regulators to preempt potentially anticompetitive practices before they materialize. Kim Nam-geun's bill also targets "market-dominant" digital platforms with significant market influence, specifically those with an average market capitalization of at least KRW 15 trillion (USD 11.0 billion, or one half of the prior bill, making this version more expansive), annual revenues of KRW 3 trillion (USD 2.2 billion), and over 10 million monthly users.

The bill, like its predecessor, is designed to prohibit potentially anticompetitive behaviors before they even manifest, barring practices like self-preferencing, where platforms prioritize their own products, and tying, where users are incentivized to use additional products from the same company. From the platforms' perspective, tying is a great deal for consumers, who gain access to platforms' integrated and interoperable services. The bill restricts platforms from limiting users' ability to access third-party services. It also requires platforms to disclose their algorithms, a rule that could expose proprietary technologies and undermine incentives to innovate.

The companies most likely to be caught in the bill's net are major U.S. companies such as Google, Meta, Microsoft, Apple, and Coupang-the so-called "Amazon of South Korea"-as well as South Korean firms Naver and Kakao.

In a unique twist, the bill establishes a mediation council within the Korea Fair Trade Mediation Agency to mediate disputes between online platform brokers and online platform users. This may be another ex ante measure to prevent seemingly anticompetitive conduct and to likely create new work and costs for targeted platforms to attend to complaints.

There are three further challenges regarding the bill.

First, the bill risks creating an unlevel playing field in South Korea's digital economy, especially if no Chinese tech companies are targeted. Excluding Chinese companies would undermine competition, as U.S. and South Korean platforms would be hampered from pursuing their key value drivers such as interoperable services, while Chinese companies would have free rein. It would also possibly pose security challenges-after all, Chinese tech firms have been scrutinized globally for their data practices and their implications for national security.

Second, the bill may only raise costs for the South Korean small and medium-sized enterprises (SMEs) and consumers it seeks to protect. Commentators Haeyoon Kim and Simon Lester have valuably highlighted that South Korean competition policy should be viewed through a South Korea-specific lens. Unlike Europe, where tech regulation targets foreign tech giants, South Korean tech regulations are heavily inspired by local dynamics-a sense by some segments that large local platforms do not treat their users fairly. This notion is ingrained in commentary from the KFTC and Kim Nam-geun, who sees in his bill a way to shield small businesses and consumers from "excessive fees." Kim Nam-geun has also cited as troublesome the fact that the South Korean delivery company Baedal Minjok, the fashion company Musinsa, and the accommodation company Yanolja each have over 50 percent market share in their respective verticals. However, the Korea Platform Seller Organization has pointed out that a digital antitrust law could ultimately only raise costs for small and medium companies that leverage the large platforms, a concern that the Scholl Chair has also flagged with the DMA.

Third, the bill may have unintended consequences, similar to the DMA. For example, while Google has been barred from self-preferencing under the DMA, it has stopped aggregating flight and accommodation information on its search page, instead featuring links to third party aggregators such as kayak.com. This, however, is only increasing the revenues of these third-party platforms at the expense of airlines and hotels that now have to pay the platforms intermediation fees, something they did not have to do with Google. The Korean Venture Business Association has warned that by stifling platforms that have grown to a certain size, the South Korean bill could inadvertently discourage venture investment into platform startups and deter foreign investment, ultimately deterring innovation.

South Korea's antitrust bills might suggest that competition policy is turning against big tech and that the DMA is becoming the global default, but the debate on digital competition policy is unsettled. The Scholl Chair competition policy tracker shows notable recent activity but also diverse approaches, with most countries still mulling over bills that have been introduced or studying the competition landscape. In the United States, the American Innovation and Choice Online Act, which was introduced in 2022 and aims to address supposed anticompetitive practices, has all but vanished from the news and faces challenges in gaining broad-based support. Similar bills remain on hold and under vigorous domestic debate in markets such as Brazil, India, and Thailand.

South Korea has made a breathtakingly rapid journey from a poor rural nation into a global digital superstar in a matter of decades. Its impressive climb has been the result of policies that have historically focused on promoting technological advancement and consumer welfare through competition and investment in the country's digital backbone and businesses. The antitrust drive, while aimed to boost competition, may only end up stifling it, creating unlevel playing fields for the digital players and their SME users that South Korea has sought to champion.

Kati Suominen is an adjunct fellow (non-resident) with the Europe Program at the Center for Strategic and International Studies in Washington, D.C.

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