Opinion

US must resist South Korea's high-tech power grab

By 

Michael O'Reilly

 

August 30, 2022 06:00 AM

The U.S. high-tech industry has produced one of the greatest innovation stories in history, resulting in millions of jobs and trillions in investment and economic growth.

For this reason, foreign nations look at the U.S. technology industry as an imposing economic locomotive built to disrupt the future. American-led technology creates huge economic value globally. But rather than thoughtfully dealing with any growth problems, some would rather derail it with flawed, self-serving schemes that target U.S. success and make consumers pay the price.

One of the latest, more perverse cases was hatched in South Korea. Seoul has introduced a "streaming and online tax" designed to install new "fees" on U.S. online content providers to funnel money directly to South Korean internet service providers. Such unprecedented overreach to impose new burdens only on one foreign country is shortsighted. It should be summarily rejected. Every country has a legitimate right to oversee business practices in its own nation. It is in our collective economic interests for nations to treat our respective companies fairly when considering new regulations, fees, and obligations.

This stance held true during the Trump administration when European countries attempted to impose a flawed digital services tax regime on American high-tech companies. The Biden administration has defended these same U.S. companies abroad.

It is thus frustrating to see South Korea pursue such a troubled, anti-U.S. policy. Seoul enjoys favorable U.S. relations and trade treatment. It also benefits from vast U.S. security guarantees that are largely funded by U.S. taxpayers. This allows South Korea to limit its own military spending in the face of North Korea's significant threat. Why is South Korea taking punitive action against U.S. interests?

Painted as a way to fund growing broadband infrastructure, Seoul's proposed new fees punish U.S.-based internet content providers, which are only guilty of bringing entertainment and consumer services to Koreans. It would be just as harmful to free trade for U.S. officials to target Korean companies and impose a fee on them for use of networks in the United States, be they levies against Hyundai for use of our roads or LG for use of our electric grid. Should U.S. companies charge K-pop artists for making extremely popular videos that are streamed in the U.S.?

Interestingly, the South Korean legislation is reportedly driven by the popularity of U.S. content that allegedly has increased internet traffic. They say "content" has supposedly forced local ISPs to invest and expand their network capacity. While those claims are debatable and seem to be a function of traditional consumer demand, their purported remedy is fraught with unintended consequences, including punishing Korean broadband users. Moreover, other non-U.S.-related internet traffic, such as video calling, financial services, and stock trading, generates high peaks and volumes at certain times, also introducing capacity problems for ISPs.

More pointedly, most of the costs of South Korea's legislation would likely be passed to consumers. Other internet goods and services could see increases as well. Heavy broadband usage is a sign of a successful product and happy customers for Korean ISPs who will continue to rely on this connectivity. Don't misunderstand me, these companies should be free to establish additive fees on very high-traffic broadband users consuming above set amounts.

Instead, Seoul's proposed fee would place a bull's-eye on every other content provider on the internet, large or small, especially those located outside of the country. Consequently, South Korean online content companies should ready themselves as they, too, may soon face a mandate for fees from ISPs in other nations, should this precedent spread globally.

There remains hope that South Korea's new government will see the light and reverse course on negative actions toward U.S. online content providers and Korean consumers. President Yoon Suk Yeol has shown his support for upholding a market economy and strengthening ties between the two countries. But the U.S. should actively fight any effort to curtail internet innovation.

Michael O'Reilly is a private consultant, former Federal Communications Commission commissioner, and prior longtime congressional staff member. His consulting firm provides advice to a select group of telecommunications and technology companies. It does not represent or provide any work for an internet service provider on the issue discussed in this op-ed.