Korea is cracking down on Kakao and Naver — but will it be enough?

Home > Business > Industry

Korea is cracking down on Kakao and Naver — but will it be enough?

Published: 10 Sep. 2024, 19:08 Updated: 10 Sep. 2024, 19:41

LEE JAE-LIM
lee.jaelim@joongang.co.kr

Victims affected by delayed payments from TMON and WeMakePrice protest in front of the Financial Supervisory Service's office building in western Seoul on Aug. 25. [YONHAP]

Concerns are growing over the tightening of antitrust regulations on platform operators. Experts argue that recent proposed sanctions reflect a shallow understanding of the market and question whether they would impact foreign tech giants like Google as harshly as they would Korean firms.

The July collapse of Qoo10-owned platforms TMON and WeMakePrice, which left sellers ticketing outside the company's Seoul offices attempting to recoup millions of dollars in unpaid earnings, has drawn renewed public criticism to the dominance that certain large e-commerce companies are perceived to hold over the Korean market.

Korea's Fair Trade Commission (FTC) had, since late 2023, been floating a bill called the Platform Competition Promotion Act that would've aimed to place certain dominant platform operators under heavier watch and required them to prove that their businesses complied with its antitrust rules. But that plan, as of Monday, has changed: The antitrust regulator is now, instead, pushing to revise two existing sets of legislation, the Monopoly Regulation and Fair Trade Act and the Act on Fair Transactions in Large Franchise and Retail Business.

The biggest departure from the previous plan is that the FTC would designate platform operators who are at risk of abusing market dominance while evaluating their case, rather than creating a list in advance. The new proposal would also raise corporate fines to 8 percent of a firm's annual revenue from their prior 6 percent and grant the agency power to temporarily halt the business of platforms suspected of anticompetitive practices.

In detail, the revision would aim to ban four anticompetitive practices — preferential treatment of a platform’s own companies, tie-in sales, restrictions on multihoming and demands for favorable management — across the six online service sectors of e-commerce, search engines, video streaming services, social media, operation system software and advertisement platforms.

Protesters demonstrate against illegal deepfake content in Jung District, central Seoul, on Friday. [NEWS1]

Global Big Tech firms such as Google and Apple, as well as domestic companies Naver and Kakao, would likely see the greatest impact should the revised regulations pass. Domestic e-commerce giant Coupang is likely to avoid the sanctions as its market share falls below the FTC's 60 percent threshold.

Why is antitrust regulation suddenly the talk of the town?
Recent worldwide events have emphasized the pressing need for governmental control over globally popular platform operators among industry insiders. A U.S. jury ruled Google's Play Store an illegal monopoly in December, resulting in a $700 million fine. Apple has been found guilty of anticompetitive behavior on various counts over the past several years related to its attempts to ban Epic from the App Store. Korea's own Qoo10 debacle slammed sellers and consumers with losses in the trillions of won.

However, industry insiders worry that the FTC's revised sanctions might stifle Korea's online market rather than fixing its problems.

The success of failure of online platforms is dependent on users’ choices. While players that gain an early lead may maintain their dominant positions, such occurrences are becoming more rare nowadays as new services more consistently emerge online, experts say.

“It is questionable whether it is appropriate to apply ubiquitous standards without fully understanding online platforms, which move and operate across borders, like living organisms,” said one anonymous industry insider.

Others feel that domestic regulations are lenient toward foreign companies, making it too easy for them to evade tax duties. Google Korea, for instance, only paid 15.5 billion won ($11.5 million) last year, when the Korean Financial Management Association estimated that it owed 518 billion won based on its presumed domestic revenue.

Although the government continues to press Big Tech players such as Google and Meta to pay up, the companies have been mostly avoided those nudges and retaliated with administrative litigation. This is evidence, some experts say, that the firms would likely evade antitrust legislation in a similar manner.

“It’s unrealistic for us to actually march up the doorsteps of Big Tech headquarters for a probe,” said Professor Lee Hwang of Korea University’s School of Law. “No matter how good the intentions and justifications are, it would only stifle domestic platforms if the same kind of hurdles are applied to both Big Tech and domestic companies.”

What about foreign laws?
The European Union's Digital Markets Act (DMA), which went into effect in March, aims to regulate U.S. Big Tech companies such as Google and Apple. It ultimately aims to provide opportunities for European platforms to grow in a market where they currently have little presence.

U.S. lawmakers once sought to pass the Ending Platform Monopolies Act, which would've forced large companies to sell businesses that conflicted with each other, and a slew of related bills to regulate online services, but none passed.

Certain agencies within the country, however, are making continued efforts to crack down on Google and its competitors with varying degrees of success. Federal Judge Amit Mehta ruled Google a “monopolist” in August, in a major victory for the U.S. Department of Justice, for monopolizing the online search market in violation of antitrust law. The department filed another lawsuit Monday accusing the company of anticompetitive practices to lock businesses to its tools in the ad tech industry.

The Japanese government passed a DMA-similar law in June restricting tech giants like Apple and Google from blocking third-party app stores and prioritizing their services in search results.

What are the next steps?
Experts agree that platform malpractice should be strictly regulated through amendments to existing laws but also emphasize that a broader perspective is necessary to fairly manage the market.

“We need to consider, from a broader viewpoint, how to protect our security, sovereignty and market competitiveness from Big Tech,” Prof. Lee said.

He added that approaching the issue more concretely, limiting the regulatory scope to specific sectors as Japan has done, could be another option.

Others called for organizing an expert group with deep understanding of the platform industry.

“Recently in Germany, the government has been directing efforts to form a department with the authority to investigate, supervise and enforce actions against platform operators,” said Prof. Jung Hye-ryun of Korea National Police University. “We need to strengthen expert organizations that can improve and effectively implement these systems.”

BY HONG SANG-JI, LEE JAE-LIM [lee.jaelim@joongang.co.kr]