[W Forum] Platform Hasty Legislation Must Be Stopped Immediately

Professor Kim Hyun-kyung, Graduate School of IT Policy, Seoul National University of Science and Technology

The Fair Trade Commission's proposed "Act on the Fairness of Online Platform Intermediary Transactions" and the "Act on the Protection of Online Platform Users," introduced by Assemblywoman Jeon Hye-sook, who is in charge of the Korea Communications Commission, are said to soon pass the National Assembly with the ruling party's agreement despite numerous criticisms. However, for the following reasons, these bills must be thoroughly reconsidered from the ground up.

First, the legislative rationale and grounds are insufficient and unjustifiable. These bills assume platform companies as dominant "gap" parties and assert that the platform market is a winner-takes-all or entrenched market. They fall into the illusion of directly applying the status of so-called "GAFA" global platform companies in the U.S. or Europe to Korean companies like Naver. In the U.S., Google and others maintain a consistently high market share in their main markets with no strong competitors.

However, in Korea, market shares in corresponding markets are fluid, and effective competition exists. While Google has maintained over 80% market share in search engines and online advertising since 2000 in the U.S., Korea's search engine market shares are fluid, with Naver at 52% and Google at 43%. E-commerce, delivery applications, and accommodation apps are also fiercely competitive.

Second, the most prominent basis for promoting these bills is the examples of the U.S. and the European Union (EU), but our environment is very different. In Europe, where there are no domestic platform companies, the bills are premised on checks against U.S. GAFA companies. Even within the U.S. and Europe, opposition and criticism of these bills are ongoing, and it is expected to take years for such bills to be legislated after rigorous revisions.

In contrast, Japan, which has been enforcing the "Act on Transparency and Fairness Improvement of Specific Digital Platforms" since January this year, limits state intervention and regulation to the minimum necessary and adopts a co-regulation approach between government and private sectors that respects voluntary efforts by businesses and market innovation. The law applies to only five companies?Amazon, Yahoo, Apple, Google, and Rakuten?minimizing the scope. The EU and U.S. bills also minimize their scope to about 4-5 GAFA-centered companies. However, if our bills pass, approximately 26 domestic platform companies will be subject to regulation, including accommodation, clothing, and vehicle platform operators with 20 to 100 employees who have yet to generate proper operating profits.

Third, there is insufficient consideration of the characteristics of platforms. The representative law benchmarked by these bills is the "Act on Fair Transactions in Large-Scale Distribution." However, attempting to apply similar regulations by equating large-scale distribution industries such as large marts and department stores with the platform industry is an extremely unprofessional idea. Online platform services are characterized by rapid change and mobility based on innovative technology, resulting in low market entry barriers. The characteristics of two-sided/multi-sided markets and multi-homing make it difficult to judge market dominance and competition restrictions, and market shares are highly fluid.

Excessive regulation acts as an indirect entry barrier to innovative services, damaging market diversity and variety, and platform operators may avoid or circumvent the market, leading to a contraction of platform transactions. Ultimately, this distorts the market and negatively affects consumer welfare. Despite these irrationalities, if these bills pass, they will become a typical example of bureaucratic expansion of regulatory jurisdiction by the Korea Communications Commission and the Fair Trade Commission. At the current legislative pace, this will become the world's first "platform gap relationship law," but the legislative side effects will directly lead to a decline in the national economy and harm to the public.

Kim Hyun-kyung, Professor, Graduate School of IT Policy, Seoul National University of Science and Technology