The Fair Trade Commission (FTC) of Korea has decided to promote the enactment of a platform competition promotion act, which will designate large platforms that dominate the market as market dominators and prohibit them from engaging in unfair competition practices such as getting preferential treatment and tie-in sales. Experts predict that Naver, Kakao and Coupang, among others, will be the key targets of the platform competition promotion act, as the FTC will regulate large platforms by preparing an act stronger than the current Fair Trade Act.
The FTC reported a plan to establish the platform competition promotion act to President Yoon Suk-yeol in a cabinet meeting on Dec. 19. “Recently, the voices of small businesses and consumers have been growing, pointing out the problems of big companies in the field of online platforms,” President Yoon said in the meeting. “This administration will strongly enforce laws against behaviors that abuse monopoly power to hamper fair competition and damage consumers’ rights.”
The platform competition promotion act designates a company as a dominant platform operator based on quantitative and qualitative conditions including revenue, the numbers of users and market shares. It will prohibit four types of behaviors on these platforms: unfair preferences that expose platforms’ products more than competing products; tying which forces users to purchase other products along with platforms’ services; restricting multi-homing, or prohibiting platform users from using third-party platforms; and preferential treatment, or the demand of more favorable trading conditions than other platforms.
If the FTC determines that a company is in violation of the act, it is expected to impose fines that are higher than those of the current Fair Trade Act and issue a business suspension order. Under the current Fair Trade Act, fines imposed on market-dominating operators are up to six percent of their sales, but under the platform competition promotion act they are highly likely to rise to 10 percent.
In response, the Digital Economy Confederation comprising Korean IT associations said in a statement, “It is tantamount to handing down a death sentence to domestic platforms in the face of fierce competition with overseas platforms. Baseless and hasty regulations will devastate domestic platforms, causing operators to lose sales channels, and will lead to a huge loss in consumer benefits.”
Regulating relationships between platforms and merchants was a key issue for the previous Moon Jae-in administration. Instead of leaving such relationships to self-regulation, the Yoon Suk-yeol administration focused on preventing platforms from engaging in monopolistic behaviors. The platform competition promotion act differs from the existing Fair Trade Act in that it proactively singles out a few large platforms to put them under government control.
Under the Fair Trade Act, in order to determine dominant players in the market, the FTC has to define the market and calculate market shares. However, the platform competition promotion act eliminates this need. It will designate large platforms that meet certain conditions as market dominating platforms in advance. They will be subject to regulations regardless of any illegal behaviors.
Domestic platform companies have reacted strongly. They argued that if platform companies engage in unfair trades, the current antitrust laws are sufficient to sanction them, and the new act would create redundant regulations.
Concerns are growing that the act will reverse discriminate against domestic companies. This is because it will hinder the growth of Korean companies in the domestic market where foreign big tech companies are already active. “It will weaken the global competitiveness of domestic companies in the face of fierce competition with overseas big tech players,” an industry insider said.