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THE INVESTOR
February 26, 2024

Market Now

[KH Explains] Why Korea’s platform act faces backlash at home, abroad

  • PUBLISHED :February 13, 2024 - 09:43
  • UPDATED :February 13, 2024 - 09:43
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App icons are displayed on a tablet and smartphone. (123rf)

Skepticism has grown over the platform act, as the nation’s antitrust watchdog hints at a thorough review of the most contentious aspect of the bill: the preliminary designation of “monopolistic” online platform operators.

The Fair Trade Commission on Wednesday announced its decision to review the proposed act to explore whether there is an alternative to the ex ante designation that would have similar effects with less impact on the digital services market, before making a further legislative push before the general election in April.

Regarding the FTC's latest decision, experts and industry sources forecast delays in the regulator's legislative process. Some have even speculated that the act may fall apart, saying the FTC has no reason to push ahead with the bill by changing the very foundation of the platform bill.

The regulator, however, has shown a firm stance on the push for the Platform Fair Competition Act. An FTC official stressed that its decision is to "further collect opinions from the industry and academia" and its plan "remains unchanged," as it intends to undertake the major task this year.

If there is "no suitable alternative" other than preliminary designation to regulate the market, it would enforce legislative measures in line with the original plan, the official added.

Despite the watchdog's toned-down approach, industry sources continue to express concerns about the potential enactment of the legislation. As the regulator took a step back from its legislative push, some local industry players even demanded withdrawal of the legislation, pointing out the "unclear purpose and direction" of the bill.

“We have to wait and see the FTC's final decision regarding the platform act plan, but the latest gesture has only increased unnecessary confusion in the market," an official at a local platform firm told The Korea Herald on condition of anonymity.

Experts also question the necessity of the ex ante regulation of platforms, as they worry about the weakening of the competitive power of the domestic ecosystem if the bill is enacted.

Kwon Nam-hoon, a Konkuk University economics professor, cast doubt as to whether the predetermination of monopolistic market players is beneficial for the sake of prompt sanctions. "I'd suggest revising the existing Fair Trade Act that suits market changes rather than enacting the new law as the 'right action' for the emerging local market," the expert said.

The Fair Trade Commission began promoting the controversial platform act in December last year, claiming it takes too long for the regulator to investigate and regulate web and mobile platforms under the current Fair Trade Act.

The commission contends the platform act will save both time and social costs incurred in sanctioning unfair practices by allowing business operators to prove they did not commit foul play.

The watchdog decided to predesignate a number of "dominant platform business entities" as part of its efforts to ensure fair competition and safeguard customers' interests. Under the proposal, those designated platform operators would be disciplined for a range of malpractices, including favoring their affiliates, cross-selling their services along with other products as a bundle and “multihoming,” or the practice of connecting simultaneously to multiple online or mobile platforms.

Among academia and industry circles, the bill under discussion here is referred to as a Korean version of the European Union’s Digital Markets Act, which went into effect in May last year, imitating the law with the ex-ante regulation policy of labeling certain online platforms as "gatekeepers" if they serve as crucial gateways between businesses and consumers.

Although the watchdog has not yet announced specific ways to classify those groups, industry sources forecast major platform operators, including US tech giants Google and Apple and domestic firms Naver and Kakao, could be subject to regulation. They also feared a weakening in the inflow of foreign capital for investment here and obstacles to innovation across the industry for those labeled as "dominant operators."

“The DMA is a law designed to guard the EU market, which does not have a powerful native platform operator, from market-dominant business players from the US and China, but the situation is different here. Korea is home to Naver and Kakao that have the potential to compete against global big tech firms,” an anonymous expert said.

Jeon Seong-min, a business administration professor at Gachon University, criticized the regulator's lack of platform experts and advised it to "carefully study" the effects of DMA legislation both in Europe and around the world to analyze whether it is the best choice for Korea, instead of pushing ahead with its legislation plan.

By Jie Ye-eun (yeeun@heraldcorp.com)

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