New Korean legislation undermines Internet norms and raises broad trade concerns

On September 8, Korean National Assembly Member Rep. Young-chan introduced an amendment to Korea’s Telecommunications Business Act, dubbed the “Netflix Free Ride Prevention Act.” This bill, a consolidation of six similar bills introduced over the past year, suffers from all the same flaws of its predecessors, and does nothing to address the international concerns that have been raised about those bills. If passed, this legislation would (1) directly undermine well-established global norms that enable the exchange of Internet traffic and (2) likely violate Korea’s trade obligations by targeting U.S. content providers and requiring mandated contracts and fees for any company meeting arbitrary data transfer thresholds. This unreasonable fee-extraction and explicit discrimination against a subset of suppliers is inconsistent with a range of trade obligations Korea has undertaken, in particular under the Korea-United States Free Trade Agreement (KORUS).

A further analysis of the trade and policy implications of these bills (including this latest version) is available here.

The legislation seeks to solve an alleged problem unique to the Korean market. Korea’s three dominant Internet access suppliers (ISPs), who together control access to over 90% of Korean Internet subscribers, have long complained about an issue they term “reverse discrimination,” their purported inability to impose the same excessive fees that they have succeeded on imposing on similar Korean online services suppliers (e.g. Korean search, video, gaming and communications applications) onto foreign firms offering content and applications to Korean consumers. Since foreign firms have the option of exchanging traffic outside of Korea, and offer popular video, gaming and other applications that Korean consumers demand, foreign firms have so far been able to rebuff unreasonable demands by ISPs. 

There is a more affirmative approach here that the Korean government should support and which would not disadvantage foreign suppliers: Korea could prohibit ISPs from charging such fees to any content and application supplier, domestic or foreign. This would both help domestic content suppliers and have the additional benefit of preventing ISPs from handicapping foreign and domestic competitors to the ISPs’ own video and gaming offerings.  

With their market power, and help from legislators, however, the ISPs seek the opposite: a regulatory mandate to impose unreasonable fees on all major companies that depend on Korea’s telecommunications networks to reach internet users. Not only does this upend longstanding global norms governing the exchange of Internet traffic—a process which operates everywhere else in the world based on voluntary agreements that typically involve no direct payments between content suppliers and ISPs—but it also implicates the range of trade obligations detailed further in this analysis.

These obligations include KORUS Article 14.2 (Access and Use), which requires Korea to ensure that all U.S. service suppliers are offered access to and use of any public telecommunications network or service on reasonable and non-discriminatory terms and conditions.

Additionally, the legislation could run afoul of KORUS Article 14.5 (Competitive Safeguards), a provision which obligates Korea to “adopt or maintain appropriate measures for the purpose of preventing suppliers from engaging in or continuing anticompetitive practices.” 

Finally, the legislation breaks sharply with open Internet principles articulated in KORUS Article 15.7 and the recent Declaration for the Future of the Internet, through which Korea has committed to uphold a free and open Internet.

Moving forward with this legislation will undermine Korea’s position as a leader in digital policy, and negatively impact its participation in bilateral and plurilateral initiatives promoting the benefits of digital trade.

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