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Will Korea Burn Its Digital Future Down?

Will Korea Burn Its Digital Future Down?

June 12, 2024

In his 2022 inaugural address, President Yoon Suk Yeol declared Korea would become a global innovation hub and that continued developments in science, technology, and innovation would protect democracy. However, the Korea Fair Trade Commission’s (KFTC) proposed Platform Competition Promotion Act (PCPA) reflects the opposite approach. The PCPA is an overly ambitious piece of legislation that aims to regulate online platforms operating in the Korean market. Shifting from evidence-based law enforcement to heavy-handed digital regulation could stifle the innovation Korea needs and lead to various unintended consequences. As the Korean proverb goes, it’s unwise to “burn down the hut to catch a bedbug.”

Inspired by the European Union’s (EU) Digital Markets Act (DMA), the act fails to appreciate the important differences between European and Korean digital markets. Korea’s high-tech and digital markets are strong and dynamic. Alongside foreign competitors, Korean tech titans like Samsung Electronics, SK Hynix, and LG Electronics continue to blaze trails on the global stage in areas such as artificial intelligence. Further, the information and communication technologies industry contributed 67,843.4 billion won to Korea’s GDP in the 4th quarter of 2023. The Korean e-commerce market is particularly strong, with Coupang, Naver Market, and Gmarket continuing to lead the charge. Altogether, Korean digital markets do not show any signs of market failure that would indicate the necessity of enhanced regulations, such as those outlined in the PCPA.

European digital markets are very different. Because the EU has been implementing heavy-handed interventions for so long, it has no major tech companies. Whereas countries like the United States and Korea have worked to foster digital innovation for decades, the DMA doubles down on the EU’s longstanding hostility toward large firms and targets American tech giants almost entirely. As such, rather than foster European innovation, the DMA is effectively a prime example of precautionary antitrust or a knee-jerk reaction to its failure to create a thriving digital market, instead relying on its comparative advantage of regulation.

The DMA has already been met with sharp criticism because of its harmful effects on innovation and consumer welfare. For example, users have suffered through a more cumbersome interface on Google, requiring more searches to get the expected results. Moreover, the DMA’s obligations vis-à-vis Google have led to drastic reductions in online traffic and revenue for companies within the hotel sector, with some experiencing losses of up to 50 percent. It has led to an upsurge in traffic for intermediaries like TripAdvisor, but picking winners and losers is not the same as helping consumers or small businesses.

On top of that, the PCPA’s potentially strict provisions could prohibit pro-competitive behavior. For example, per se bans on self-preferencing would condemn behavior that is not only ubiquitous across the digital economy but almost always leads to a better user experience by integrating various products and services and increasing the platform’s competitiveness. For example, although often a target of antitrust scrutiny, Google utilizes tools like search defaults on Android to improve user experience, enhance the quality of its search product through increased scale, and increase inter-brand competition with rivals like Apple’s iOS.

As ITIF has previously noted, only technological progress can deliver the growth, productivity, and scale necessary to enable the Korean economy to compete with the rest of the world, especially China. When viewed within the broader lens of Korea’s strategic interests, the PCPA presents additional issues: it weakens Korean tech companies while bolstering China’s position in the Korean market. For instance, restrictions on Korean platforms could cripple their ability to compete with established Chinese giants like Alibaba, Temu, and TikTok. This could not only stifle Korean innovation but also force entrepreneurs to become increasingly dependent on Chinese technology, ultimately harming Korean national security.

The PCPA may be a way to use competition and economic policies to serve popular domestic political goals. However, Korea should not let the political wins lead to policy changes that have long-lasting and serious negative effects on its digital markets. Also, Korean policymakers should not get caught up in the perceived global trend toward digital regulation by molding to the EU’s DMA. Rather than yielding to the Brussels effect—Korea should consider what is best for its national development and consumers.

Considering Korea’s digital markets are strong and do not demonstrate any market failure, the PCPA is a solution in search of a problem, and Korea should prioritize fostering innovation through its existing and robust law enforcement tools. Instead of going down a road that would make Korea a technology follower, Korean policymakers and consumers should oppose the PCPA and continue the path towards being a technological leader. Letting short-term politics get in the way of long-term innovation and economic growth would amount to Korea burning down its digital house to catch a perceived “bedbug.”

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