WASHINGTON – For months, Apple and Google have been fighting a bill in South Korean lawmakers that they say could jeopardize their lucrative app store businesses. The companies have reached out directly to South Korean lawmakers, government officials and the public in an attempt to block the legislation, which is expected to reach a pivotal vote this week.
The corporations have also turned to an unlikely ally who is also trying to suppress their power: the US government. A corporate-funded group has urged Washington trade officials to roll back the legislation, arguing that targeting American firms could violate a joint trade agreement.
South Korean legislation would be the first law in the world to require companies operating app stores to allow users in Korea to pay for in-app purchases using a variety of payment systems. It would also prevent developers from offering their products in other app stores.
How the White House responds to this proposal represents an early test for the Biden administration: will it defend tech companies that are under antitrust scrutiny abroad while exercising the same scrutiny on companies domestically?
Washington has long opposed foreign laws that discriminate against American firms, sometimes even when it conflicts with domestic political debates. However, President Biden wants a consistent approach to his concerns about the incredible power of tech giants over trade, communications and news. He signed an executive order in July to stimulate competition in the industry, and his two top antitrust officials have long been vocal critics of the company.
The approach chosen by the White House can have far-reaching implications for the industry and shape of the internet around the world. More and more countries are following stricter regulations at Google, Apple, Facebook and Amazon and are fragmenting the rules of the global Internet.
American officials have reiterated some of the industry’s complaints about the proposal, saying in a March report that it appears to target American companies. But trade officials have yet to take a formal position on it, said Adam Hodge, a spokesman for the US trade commissioner. He said officials were still pondering how to reconcile claims that the legislation discriminates against American businesses with the belief of technology critics in South Korea and America that the legislation would level the playing field.
“We are engaging a range of stakeholders to gather facts while law is being considered in Korea and recognize the need to distinguish between discriminating against American businesses and promoting competition,” Hodge said in a statement.
Apple said it regularly engages with the U.S. government on a number of topics. During these interactions, the company discussed South Korean app store legislation with American officials, including at the US embassy in Seoul, the company said in a statement.
The company said the legislation would “expose users who purchase digital goods from other sources to the risk of fraud, undermine their privacy, make it difficult to manage their purchases,” and compromise parental controls.
A Google spokeswoman, Julie Tarallo McAlister, said in a statement that Google was open to “exploring alternative approaches,” but believed the legislation would harm consumers and software developers.
The proposal was approved by a committee of the Korean National Assembly last month against opposition from some members of the Korean government. It could be voted on in the panel’s judicial committee later this week. It then requires an assembly vote and the signature of President Moon Jae-in to become law.
The proposal would have a big impact on Apple’s App Store and Google Play Store.
According to App Annie, an analytics company, the Google Store accounted for 75 percent of global app downloads in the second quarter of 2021. The Apple marketplace accounted for 65 percent of consumer spend on in-app purchases or subscriptions.
One way software developers make money is by selling products right in their apps, like Fortnite in-game currency or a subscription to the New York Times. Apple has insisted for years that developers sell these in-app products through its proprietary payment system, which can cut many sales by as much as 30 percent. Last year, Google announced that it would follow suit by cutting more purchases by 30 percent than in the past. Developers say the fees are way too high.
After South Korean lawmakers proposed the App Store bill last year, the Information Technology Industry Council, a Washington-based group that includes Apple and Google as members, urged the U.S. Trade Representative to include legislative concerns in an annual report , in which “barriers” are highlighted “to foreign trade. The group said in October that the rules could violate a 2007 agreement that says no country can discriminate against firms headquartered in another.
Apple said it was not uncommon for an industry group to provide feedback to the sales rep. The company said the government had specifically asked for comments on potentially discriminatory laws. In a statement, Naomi Wilson, the trade group’s vice president of policy for Asia, said that she “has encouraged lawmakers to work with industry to review the app market commitments set out in the proposed measure to ensure they are are not trade-restricting “. and not disproportionately “affect American companies.
When the sales agent’s report was released in March – just weeks after Mr Biden’s candidate for the position was sworn in – it contained a paragraph that reflected some of the tech company’s concerns. The report concluded that the “requirement of South Korean law to allow users to use external payment services appears to be specifically aimed at US providers and threatens a standard US business model.”
The American report did not say the law violated the Free Trade Agreement with South Korea. But in July, the executive director of a group called the Asia Internet Coalition, which lists Apple and Google as two of its members, referred to the report when he told the Korean trade minister that the law was “causing trade tensions between the United States and South Korea.”
“The Biden government has already signaled its concerns,” the director said in a written comment in July.
American diplomats in Seoul also questioned whether the legislation could create trade tensions.
“Google said something like that, and a similar opinion was voiced by the US Embassy in Korea,” said Jo Seoung Lae, a lawmaker who supports the legislation. He added that the embassy was in contact with its staff in June and July. Park Sungjoong, another lawmaker, also said the embassy had raised trade concerns about the law.
Mr Jo said that a Google representative visited his office to speak out against the proposal and that Apple had also given “its feedback” against the legislation.
Mr Jo said he had asked the United States to provide their official position, but said he has not yet received one.
American trade officials sometimes defend companies even when criticized by others in the administration. While former President Donald J. Trump attacked a social media platform liability cover known as Section 230, his sales agent wrote a similar provision in agreements with Canada, Mexico and Japan.
But Wendy Cutler, a former official who negotiated the trade deal between South Korea and the United States, said it would be difficult for America to argue that Korean rules violate trade deals when the same antitrust issues are being discussed in the states.
“You don’t want to blame a country for potential breach of obligation while your own government is questioning the practice,” Ms. Cutler said. now Vice President of the Asia Society Policy Institute. “It weakens the case considerably.”
South Korean and American app developers have launched their own campaign for the new rules, arguing that they would not create trade tensions.
In June, Mark Buse, senior lobby manager for dating app company Match Group and a former board member of a pro-regulatory group called the Coalition for App Fairness, wrote to Mr Jo, the Korean legislature, supporting the proposal. He said the Biden government is aware of concerns about the tech giants, which makes trade tensions less likely.
Later that month, Mr. Buse attended a virtual conference on App Store Legislation hosted by K-Internet, a trade group representing major Korean Internet companies such as Naver, Google’s main search engine competitor in South Korea, and Cocoa.
Mr Buse, who traveled to Seoul this month to press for fairness on behalf of the Coalition for App, made it clear that his employer sees this as a high-stakes debate. He listed the many other countries where officials were concerned about Apple and Google’s practices.
“And all of this,” he said, “follows the lead shown by the Korean Congregation.”