South Korea To Introduce Stricter E-Commerce Rules to Empower Small Businesses & Startups

In a significant development aimed at tackling concerns over market dominance and safeguarding small businesses and consumers, South Korea is gearing up to introduce groundbreaking regulations targeting major online platform companies. The announcement unfolded during a cabinet meeting led by President Yoon Suk Yeol on December 20, where Korea Fair Trade Commission Chairman Han Ki-jeong revealed the government’s proposal for legislation.

President Yoon expressed profound concerns about the mounting criticism from small business owners and consumers regarding the dominance of major platform giants. The apprehension over limited choices, rising advertising costs, and commission fees eroding earnings has spurred the government into action. Yoon also voiced worries that such dominance could stifle new platform startups and dynamic innovation, emphasizing that any acts obstructing competition and undermining consumer welfare with privileged and monopolistic positions cannot be tolerated.

Dozens of online commerce players, including Naver, Kakao, Coupang, and Woowa Brothers, alongside multinational service providers like Google and Apple, operate in South Korea.

Proposed Legislation Highlights: The proposed legislation aims to designate key platform companies as “dominant platform operators” and restrict them from engaging in frequent unfair practices within the platform market.

Pre-designation of Major Platform Operators: The legislation plans to identify major platform operators with dominant market power through comprehensive evaluations of revenue, user numbers, and market share.
Prohibition of Malpractices: Key rules include the prohibition of malpractices observed in the platform market, such as self-preferencing and restrictions on multi-homing (users using competing platforms).
Sanctions with Valid Reasons: Platform operators violating the law may avoid sanctions by providing valid reasons for their actions, introducing flexibility to the regulatory framework.

The Fair Trade Commission (FTC) is taking a leading role, introducing a bill to respond to and prevent unfair online market practices. Chairman Han Ki-jeong underscored the necessity of the bill to keep up with the fast-paced market domination of e-commerce firms. Han added that “dominant platform business entities” could face corrective actions or penalty charges for their foul play. However, the FTC did not provide details about the selection criteria for “dominant” e-commerce players or the time frame for the legislation.

Support Amid Concerns for Small Businesses

The FTC revealed ongoing discussions with related ministries such as the Ministry of Economy and Finance and the Ministry of Science and ICT regarding the introduction of the Platform Competition Law to regulate the practices of monopolistic digital platform companies.

“I agree with the government’s policy direction of encouraging innovation and creating a fair platform ecosystem. If harm arises from the monopoly of platform companies, I agree that regulations should be in place,” stated ICT Minister Lee Jong-ho during a press conference.

The Federation of Small Businesses has expressed its approval of the Fair Trade Commission’s initiative to enact the “Platform Competition Promotion Act” (Platform Act). In a statement released on December 21, the federation emphasized the serious threat to the survival of small business owners posed by platform operators encroaching on alley commercial areas.

The federation urged swift enactment of the law, emphasizing the need for protection against abuses by brokerage platforms, such as utilizing user and business owner data to establish their own businesses within small districts. Anticipating that the law will address preferential treatment and other unfair practices, the federation hopes for the creation of a fair online environment and a healthy digital ecosystem through prompt legislative action and collaboration between the government and the National Assembly

Meanwhile, the domestic IT industry strongly objected to the announcement. The Digital Economy Confederation, a group of online platform organizations, protested in a statement, asserting its opposition to “the enactment of the law that will devastate the digital economy of Korea. It directly conflicts with the current government’s self-regulation policy.”

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