South Korean politicians are considering legislation to regulate online platforms. While the legislation is designed to provide South Korea’s Fair Trade Commission (FTC) with additional authority to regulate online platforms, the proposed legislation could spark new trade tensions with the United States.
The debate over online platform regulations originated with a 2023 FTC task force, which concluded that the Yoon administration should pursue legislation in the National Assembly similar to the European Union’s Digital Markets Act. Such legislation would set up separate regulatory standards for online platforms and allow the FTC to regulate them “ex-ante,” or before the fact of a violation. In announcing the legislative push, the FTC said that the new regulations would help to prevent unfair business practices, ease burdens on consumers such as increased fees, and help startups and small and medium sized enterprises to grow.
After pushback from domestic and foreign platforms, the FTC moved away from an “ex-ante” model and proposed amending the existing competition law, the Monopoly Regulation and Fair Trade Act. Under the FTC’s current proposal, firms would not be pre-designated for extra regulatory scrutiny as under the prior proposal any firm with a market share of 60 percent and 10 million or more users in its relevant market would be considered a dominant firm and subject to more scrutiny after the fact. In markets where three or fewer firms have 85 percent of the market and each has 20 million average monthly users or more those firms would also be considered dominant.
The current proposal would also place more strictures on the practices of market dominant firms. Unless they are able to justify why it would not limit competition, market dominant firms would be prohibited from engaging in self-preferencing (favoring one’s products or services over another firm’s product or service), tying (conditioning one service on another), multi-homing (using multiple services at once), and requiring Most-Favored Nation treatment (necessitating sellers to offer the same or better pricing as on other platforms or their own). The legislation would also increase the penalties for anti-competitive behavior for dominant platforms from 6 percent of revenue to 8 percent of revenue and allow the FTC to quickly issue cease and desist orders for the prohibited behavior.
One concern with this approach is that rather than creating space for startups, or small and medium sized firms, the legislation will create an unbalanced competitive landscape that favors large foreign firms not currently in the Korean market over established firms in Korea. Take for example, the ride-hailing market in Korea. Kakao Taxi controls 98 percent of the market and has over 13.2 million monthly average users and it is part of the larger Kakao super app that offers food delivery, digital payments, and other services and has around 45 million monthly average users.
However, should Grab or Gojek, two Southeast Asian super apps, decide to enter into the Korean market they would not face the same restrictions on services as Kakao despite having similar overall monthly average users across their entire markets. This would put the domestic firm at a disadvantage to new market entrants that are not startups. The same would be true for U.S. firms like Google that are well established in the Korean market in other online platform segments.
While Gojek is relatively similar in terms of size to Kakao, and Grab is about half the size, the calculus begins to change when considering some of the established Chinese online platforms.
TikTok demonstrated that new apps can break into markets, in this case social media, that seem to be dominated by established firms. YouTube Shorts and Instagram Reels were created specifically to compete with TikTok and limit engagement losses to TikTok.
With Chinese online platforms, such as TikTok, the economic advantage is also greater. ByteDance, TikTok’s parent company, has annual revenue more than twice that of Kakao. But beyond potential competitive advantages, Chinese online platforms also bring concerns related to the data collection and the 2017 National Intelligence Law which requires companies to “support, assist, and cooperate with national intelligence efforts in accordance with law, and shall protect national intelligence work secrets they are aware of.” With no objective court to determine whether the requested for data is legitimate, Chinese intelligence could use the data to engage in social disinformation operations or target specific individual for blackmail or espionage.
Setting aside questions about the legislation’s impact on competition and national security concerns in Korea, the legislation has become a bête noire for current and former Trump administration officials. At a time when Korea faces potential new tariffs on exports to the United States in the form of a new reciprocal tariff and 25 percent tariffs on steel, automobiles, and semiconductors, as well as the indirect impact of new U.S. tariffs on Mexico and Canada on Korean supply chains, the benefits for the Korean economy of the proposed online platform regulation are unlikely to outweigh the downside of an additional potential tariff on Korean exports to the United States.
This is not a theoretical concern. The U.S. Trade Representative (USTR) listed the proposed regulation of online platforms in its National Trade Estimate, which reviews trade barriers that U.S. firms face overseas. The issue was not listed in the 2024 report. Prior to the November 2024 election, former National Security Advisor Robert O’Brien expressed his disapproval of the proposed legislation due to national security concerns related to China, while former USTR official and now USTR Jamieson Greer expressed concerns that the legislation would discriminate against U.S. firms in the Korean market. Meanwhile, U.S. President Donald Trump has shown a willingness to use tariffs in response to digital trade barriers, such as France and Canada’s digital taxes.
The FTC’s proposal is not the only legislation under consideration in the National Assembly, and one bill supported by the majority Democratic Party of Korea maintains the use of ex ante provisions. But the FTC’s proposal demonstrates that there are potential risks from even the scaled-down version of the legislation.
Rather than providing space for startups to grow, the reforms as currently structured are more likely to provide a competitive advantage to larger platforms from China or other markets at the expense of established market players. It would also create a strange dynamic where globally smaller Korean online platforms like Kakao would only be able to compete on an equal footing with larger Chinese online platforms once they had lost market share in their domestic market.
However, the biggest impact from online platform regulation could be new U.S. tariffs targeting the law. The Trump administration’s use of trade policy suggests this is a real possibility. Should the Trump administration respond with tariffs, it would only make it more difficult for Korean firms to do business in the United States. Given that the FTC already uses existing competition law to regulate online platforms, the current proposals are a risk given the Korean economy’s dependence on trade verses online platform services.