In recent years, the U.S. has expressed concerns about digital trade regulation in a number of other countries, with the focus tending to be on the the EU due to its large market and active regulatory efforts (although it sounds like USTR and the European Commission are getting along at the moment). South Korea has emerged as a recent target though, with several op-eds arguing that Korean regulation could hurt U.S. companies and help China. I was talking to my friend Haeyoon Kim about this, and it turns out the Korean tech market is a bit unique because of its strong domestic players. With the EU, the allegation is that European regulators are going after U.S. tech companies; in South Korea, any tech regulation is likely to hit Korean companies hard as well. This intrigued me enough that I decided to move beyond my usual focus on specific digital trade agreement obligations and exceptions and write a piece with Haeyoon about the broader tech regulatory fight as it relates to U.S. concerns with South Korean regulation, titled "Digital Trade Wars: What U.S. Policymakers Need To Understand about South Korea’s Tech Regulation." Here's an excerpt:
In the past few years, US tech companies and their advocates have leveled strong criticisms against digital regulation around the world. While the European Union (EU) has been the main target, proposed regulation in other countries has also raised concerns. Recently, there has been a push from a range of Washington, DC policy voices, including several former Trump administration officials, against South Korea’s proposed digital regulations. While it is true that the Platform Competition Promotion Act (PCPA), initiated by the South Korean Fair Trade Commission (KFTC), could impact major US tech companies operating in the country, the digital platform ecosystem in South Korea differs from that of Europe and many other places: South Korea features its own domestic competitors, and it is these local companies that may bear the brunt of the impact from any regulation. Indeed, the PCPA is now colloquially referred to as the “Nekao (Naver + Kakao) Regulation Law,” underscoring its potential impact on two major South Korean tech companies. In crafting a response to any South Korean regulation, US policymakers and advocates need to be aware of the uniqueness of the Korean digital market.
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Understanding the South Korean Digital Market
What many of the arguments coming from the United States overlook is the distinctive nature of the South Korean digital landscape, where domestic tech companies are prominent. While US tech companies are the worldwide leaders in search, video-sharing, social media, and e-commerce platforms, the dynamics vary in each foreign market, and in a few countries, including South Korea, there are powerful homegrown competitors.
South Korea boasts robust online platforms, featuring domestic versions of nearly every online service, ranging from food delivery to banking. For example, South Korea’s domestic tech giant, Naver, has long dominated the nation’s online search market, accounting for 59.25 percent as of February 19, 2024, standing out as a rare case globally of a market not dominated by Google. Another example, Kakao, which runs a popular messenger app, Kakao Talk, has over 48.5 million active users (4Q 2023 data) out of a population of 50 million. The ride hailing service it also provides, Kakao T, holds a dominant position as the market leader, with a share of over 90 percent.
At the same time, it is important to acknowledge that there are major US tech companies – such as Google and Meta – who are big players in the South Korean digital market, which is why US policymakers are raising this issue. Chinese tech companies, especially e-commerce platforms, like Temu operated by Pinduoduo and AliExpress by Alibaba, are rapidly penetrating the market, but the overall South Korean digital platform ecosystem today remains predominantly influenced by Korean and American tech companies. However, while there are foreign players, it is crucial to recognize the significant role played by South Korean tech companies, outside of the traditional chaebols, in shaping discussions around regulation in the country. This dynamic has implications for how Americans should view and approach these regulatory developments.
South Korea vs. the EU
Unlike the EU, which crafted the DMA with foreign big tech companies in mind, the concerns arising in Seoul regarding the implications of the PCPA on the competitiveness of local platforms are significant. Indeed, while the proposed Act is expected to address both domestic and foreign companies, given the nature of the South Korean digital market, it is possible that the regulations will be enforced mainly against domestic ones, which could allow foreign companies to gain a competitive advantage in the market.