[Regulatory Republic] Native IT Companies May Lose Home Ground to Foreign Firms While Overcoming Regulatory Hurdles...

<1>Technology Development, Government Hindering Global Competition

Domestic Operators Waste Costs and Manpower Due to Regulations
Global IT Giants Often Use Stalling Tactics
Irony of Korea Regulating Only Domestic Platforms
Rising Risks May Lead to Fee Increases
Could Hinder Small and Medium-Sized Merchants

In the new year, the government has once again targeted domestic platform companies with regulatory measures. The Fair Trade Commission (FTC) announced its New Year's work plan emphasizing a "digital fair economy" as a core focus, aiming to foster an innovative ecosystem. Domestic IT companies competing globally against giants like Google and Meta (formerly Facebook) are grimacing as they remain alert to the government's legislative moves this year, following last year’s developments.

This Year’s Continued Issue: the Online Platform Fairness Act (Onpleob)

According to the FTC’s "2022 Major Work Promotion Plan" released on the 10th, the enactment and implementation of the Online Platform Fairness Act (Onpleob) was identified as a key task. This is interpreted as the FTC’s intention to push the Onpleob, which it has been promoting since last year, even more strongly this year. The FTC explained that this is "to create an innovative ecosystem where platforms and tenant businesses grow together."

The Onpleob promoted by the FTC requires platform operators such as Naver, Kakao, and Coupang to mandatorily prepare and provide contracts with tenant businesses. The contract must specify items including "the order and criteria by which product information is exposed on the online platform." Because big data is a core tool for domestic platform companies, they fear that they might have to disclose trade secrets. The FTC clarified that the entire algorithm classified as a trade secret is not required to be disclosed, but it is difficult to predict what situations might arise once the law is enforced.

Moreover, following the FTC, the Korea Communications Commission (KCC) has proposed a similar bill, leading the industry to face double regulation. The KCC also announced plans to promote the "Online Platform User Protection Act" in the new year. This bill focuses on requiring large platform companies to disclose search and recommendation information exposure criteria, obliging information sharing with service providers, and prohibiting unfairly discriminatory conditions or passing on damages to platform users. An IT industry insider lamented, "If both bills pass, there is talk that two versions of contracts meeting each standard will have to be prepared," adding, "It could mean facing similar regulations twice."

"Why at This Timing?" Industry Concerns

While global IT giants like Google dominate the worldwide market, South Korea is one of the few countries where native platforms show strong performance. Platforms like Naver and Kakao, which have established their presence domestically, have recently expanded their global businesses and are competing with overseas companies. However, they worry about wasting costs and manpower due to government regulations at such a critical time. Platform businesses need to respond quickly to market changes, but if the government forces business elements such as platform exposure methods to be mandatorily included in contracts, it becomes difficult to respond meticulously to changes.

The issue of "reverse discrimination," where regulations are less effective against foreign companies, is also raised. Unlike domestic companies that comply well with government regulations, overseas companies like Google are passive in responding to domestic laws, citing headquarters policies. It is common for foreign operators to employ "stalling strategies" or tricks, such as taking over a year just to submit data. In fact, despite the recent passage of the "Telecommunications Business Act Amendment," known as the ban on forced in-app payments, Google faced criticism for adopting a circumvention strategy that still forces the use of in-app payments.

Kwon Se-hwa, Policy Director of the Korea Internet Corporations Association, which includes Naver and Kakao, said, "Europe created the Onpleob to protect its own platforms, and the U.S. is also discussing the Onpleob to activate domestic platforms, but Korea is ironically the only country in the world trying to regulate its own platforms," adding, "Only we are dragging the digital economy into crisis because of the government. The government itself is ruining South Korea."

Experts Warn "It Will Hold Everyone Back"

Experts expressed concerns that government regulations could hinder not only companies but also small and medium-sized merchants who are tenant businesses. Increased costs and manpower burdens to comply with contract preparation and other regulations, along with growing risks, could ultimately lead to higher commissions or even business closures.

Professor Yoo Byung-jun of Seoul National University’s Business Administration Department pointed out, "When responsibility is imposed, costs for inspection and detection inevitably rise, and from a company’s perspective, it becomes preferable not to accept small or problematic businesses," adding, "This is not just a problem for Naver and Kakao; if regulations are imposed on small merchants as well, they could suffer damage."