Recent Amendments to South Korea’s Fair Trade Act: Implications for Corporations

South Korea has recently undertaken significant amendments to its Fair Trade Act, aiming to enhance market competition, regulate dominant digital platforms, and protect consumer rights. These legislative changes carry substantial implications for corporations operating within the country.

1. Overview of the Amendments

On September 9, 2024, the Korea Fair Trade Commission (KFTC) announced a legislative initiative to amend the Fair Trade Act. The proposed amendments target dominant platforms with significant market influence, focusing on post hoc violations rather than prior designation. The criteria for identifying such platforms have been tightened, emphasizing those with solidified monopoly power, such as platforms holding over 60% market share and 10 million users or a combined 85% market share among three or fewer platforms. The regulations encompass services like brokerage, search, video, social networking services (SNS), operating systems, and advertising. Prohibited behaviors include self-preferencing, tying, multi-homing restrictions, and most-favored-nation clauses. Enforcement measures have been strengthened, with increased fines from 6% to 8% of related sales and the introduction of an interim suspension order system.

2. Key Provisions and Their Implications

• Stricter Identification Criteria: The amendments focus on platforms with entrenched monopoly power, setting specific thresholds for market share and user base. This approach aims to ensure that only platforms with substantial market dominance are subject to these regulations, thereby preventing potential overreach.
• Prohibited Practices: The amendments explicitly prohibit anti-competitive behaviors such as self-preferencing, tying, multi-homing restrictions, and most-favored-nation clauses. Corporations must review and potentially revise their business practices to ensure compliance with these prohibitions.
• Enhanced Penalties: The increase in fines from 6% to 8% of related sales signifies a more stringent enforcement stance. Corporations found in violation may face substantial financial penalties, underscoring the importance of adherence to the amended regulations.

3. Implications for Corporations

• Compliance Obligations: Corporations, especially those operating digital platforms, must conduct thorough assessments of their market positions and business practices to determine if they fall within the scope of the amended Act. This includes evaluating market share, user base, and specific practices that may be deemed anti-competitive.
• Operational Adjustments: Businesses may need to implement significant changes to their operations, such as altering platform algorithms to prevent self-preferencing, modifying contractual agreements to remove prohibited clauses, and ensuring that their practices do not unfairly restrict competition.
• Legal and Financial Preparedness: Given the heightened penalties, corporations should prepare for potential legal challenges and financial implications arising from non-compliance. This includes setting aside reserves for potential fines and engaging legal counsel to navigate the complexities of the amended Act.

4. Comparative Perspective

The amendments to South Korea’s Fair Trade Act share similarities with regulatory frameworks in other jurisdictions, such as the European Union’s Digital Markets Act (DMA). Both aim to regulate dominant digital platforms and promote fair competition. However, South Korea’s approach focuses on post hoc identification of violations, whereas the DMA employs a more prescriptive, ex-ante approach. Corporations operating internationally must be cognizant of these differences and tailor their compliance strategies accordingly.