Why KFTC should put hold on proposed Online Platform Act

By Robert D. Atkinson

Korean companies and government policy officials are rightly focused on ensuring that Korea continues its evolution from a fast follower of innovation to an innovation leader. Korea has made substantial progress in that transformation, although the Yoon administration understands more work is to be done. It is ironic then that the Korean Fair Trade Commission (KFTC) remains stuck as a fast follower. The case in point is their effort to import the European Union's deeply flawed Digital Markets Act (DMA) to regulate large technology platforms, to the detriment of Korean digital consumers and innovation.

The KFTC needs to take a time-out and wait to see the results of the EU's ill-founded regulatory experiment. The EU's DMA was a response to the supposed market power of large technology platforms, like Google and Facebook. Yet the legislation was poorly designed, focused on the wrong solution (regulatory remedies rather than anti-trust investigations) and was widely criticized by anti-trust scholars, arguing that it would reduce innovation and consumer welfare. And it appears that the KFTC's proposed Online Platform Act is similarly designed and similarly flawed.

And yet the KFTC appears to want to rush its proposal through parliament. What's the rush? There is little evidence of harm to date and no impending doom if the KFTC does not act immediately. As such, the KFTC should take a pause and study the impacts of the EU's DMA. As that law is now in effect, scholars and others will be conducting evaluations of the law and its impacts. If it turns out that the law benefits consumers and innovation competitiveness in Europe, then the case is stronger for Korea to adopt its own version. But if the law has negative impacts on consumers and innovation, which is much more likely, then Korea will have "dodged a bullet" by not imposing harmful regulations.

It is also striking that the KFTC is considering this regulatory approach given President Yoon's commitment to a more innovation-friendly regime in Korea. This gets to two other problems with the proposed KFTC regulation. First, as noted, Korea has made progress in becoming an innovation leader, and the passage of the KFTC proposal would represent a step backward. While many praise the EU as a global leader in regulation, few praise it as a global leader in innovation, particularly in digital technology. Europe has few major companies in the digital space. A major reason is that the array of heavy-handed regulations, like the GDPR, the DMA, and the forthcoming AI Act, serve as innovation limiters, making it harder and riskier for EU companies to innovate. For example, a study by the National Bureau of Economic Research found that the passage of Europe's heavily restrictive privacy law (the GDPR) led to a reduction of innovative apps by over one-third, while the entry of new apps fell by one half. The reason was simple: Europe's law made it much harder for these companies to make money.

Moreover, not only do these regulatory provisions, like the DMA and the GDPR, hurt innovation, they hurt the global reputation of the nations/regions implementing them. When global entrepreneurs and companies think of places they want to grow their companies, places like the United States, Israel, Singapore, Switzerland, and Korea come to mind, but not the EU. Korea needs to stay on this list, not join Europe.

Finally, and perhaps most troubling, the passage of a Korean DMA will "put sand in the gears" of the Korean-U.S. relationship. This is because the bill targets mostly large American companies, just as the EU DMA did. Indeed, the DMA is widely seen as an industrial policy tool to limit the competitive position of American firms. And because of that there has been increased tension between the United States and the EU. The U.S. Congress sent a letter of concern to the U.S. Department of Commerce to push back against discriminatory EU regulatory efforts, and the Department of Commerce has complained to the EU.

If the KFTC goes down a similar path it will work against Presidents Biden and Yoon's mutual summit pledges to form a united "technology alliance," something that is needed to address the China technology challenge. (It is also striking that the bill does not seem to apply to Chinese digital companies doing business in Korea.)

So rather than blindly copying Europe in efforts to over-regulate its tech economy, Korea and KFTC should take a deep breath and put their digital regulatory efforts away, or at least on hold until we can all learn the results of Europe's regulatory experiment. In the meantime, if there are any actual cases of anti-competitive conduct from digital platforms in Korea, the KFTC has plenty of legal authority to intervene.

Dr. Robert D. Atkinson (@RobAtkinsonITIF) is the president of the Information Technology and Innovation Foundation (ITIF), an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. The views expressed in the above article are those of the author and do not reflect the editorial direction of The Korea Times.