The Internet is a marvel of our modern world. A file that gets uploaded can be viewed and downloaded only seconds later, half a world away. This core function of the Internet is its strength, and it is at risk of being undermined by South Korean policymakers that seek to impose discriminatory fees targeting U.S. companies. Such proposals not only sap efforts to deepen economic cooperation between the U.S. and Korea but also threaten to encourage governments around the world to tax cross-border data flows. As President Biden meets with South Korea’s new president, Yoon Suk-yeol, later in May, we encourage the Korean government to consider the global implications of their approach and to prevent this issue from becoming a bilateral trade irritant that would ultimately hurt Korea’s consumers and digital economy.
How does it work now?
Content providers, regardless of where they are in the world, need to access the Internet to host their content. To do that, they pay the companies that provide the Internet’s infrastructure, known as Internet Service Providers (ISPs), to access the Internet and make their content available to users around the world. Users can then reach that content by paying “access fees.” Everyone pays “access fees” to their local ISP and in return the world is at your doorstep.
How would this change?
Korea’s National Assembly is considering several bills that would effectively require foreign content providers to sign mandatory contracts with Korean ISPs and pay a “delivery fee” for their content to reach Korean end users. The addition of a “delivery fee” disrupts the very “access fee” model that built the Internet. While this itself raises significant policy questions, Korea’s approach goes further as it would target foreign content providers to pay the “delivery fee”— effectively asking them to pay twice. The discriminatory nature of the legislative proposals has caught the eye of the U.S. government. In its 2022 National Trade Estimate, the Office of the U.S. Trade Representative (USTR) stated that, if enacted, the legislation “would raise concerns under Korea’s international trade obligations.” These measures, therefore, would become an unnecessary source of tension in the U.S.-Korea trade and investment relationship.
What is the potential impact?
Differential treatment between domestic and foreign content providers stands in stark contrast to the obligations under the U.S.-Korea Free Trade Agreement (KORUS). Furthermore, such fees would effectively act as a first-of-its-kind government-imposed fee on cross-border data flows, risking a dangerous global precedent. Korean authorities may believe these actions will bolster its digital competitiveness, but in reality, they would have harmful repercussions for both business and consumers in the U.S. and Korea. Furthermore, it could undermine bilateral cooperation and potentially deter companies from investing in Korea’s digital economy.
The way forward
Some argue that Korea is taking these steps to advance the interests of Korean content providers. More likely, Korea is looking to ensure sufficient investments are being made in its digital infrastructure and would prefer foreigners help foot the bill. The goal of world-leading infrastructure is universally understood by governments and is shared by all those who rely on the Internet ecosystem, including content providers. Introducing a “delivery fee” is a significant complication to how the Internet works globally – but by targeting foreigners, Korea would be both violating its international commitments to the U.S. and setting a dangerous precedent of a government-imposed tax on cross-border data flows. Instead, Korea could consider enhancing its global connectivity by encouraging joint investments from U.S. and Korean companies, which would be beneficial for Korea’s digital exports and digital economy. The Korean government could also encourage competition and cooperation across network providers and online service providers to lower costs and enhance the quality of service for all Internet users.
As the new South Korean administration considers policies in this area, they should uphold their international commitments, support cross-border data flows, and consider the holistic nature of the Internet ecosystem.
Story by Sean Heather, U.S. Chamber of Commerce
Sean Heather is Senior Vice President for International Regulatory Affairs & Antitrust.