Apple, Google App Store Models Face New Threat in South Korea

South Korea is poised to become the first country to impose curbs on the lucrative app stores run by Apple Inc. and Alphabet Inc.’s Google, setting up a potential showdown with the Biden administration.

President Moon Jae-in’s Democratic Party used its parliamentary supermajority to push out of committee a bill that would ban companies from forcing developers to use their online payment systems. The ruling party’s heft in the National Assembly suggests the Telecommunications Business Act is highly likely to pass Monday when the next full session takes place.

The legislation threatens to undercut a lucrative revenue stream for two of America’s largest companies, which between them control downloads and payments for the vast majority of smartphone apps. That dominance has drawn lawsuits from developers like Epic Games Inc. who accuse Apple and Google of charging unfairly high commissions and blocking competing services.

Apple and Google have been fighting the bill and lobbying politicians to block its passage in South Korea, which is a close American security and trading partner. It’s unclear how the White House will respond, given broad efforts back home to curb the growing influence of tech companies that in past years have grown to dominate a plethora of arenas from media to commerce.

Both Apple and Google expressed concern over the bill Wednesday, saying it risks limiting local developers’ business opportunities on their platforms. Apple said in a statement the proposed changes would expose users to fraud, undermine their privacy and hinder parental controls.

“While the law has not yet been passed, we worry that the rushed process hasn’t allowed for enough analysis of the negative impact of this legislation on Korean consumers and app developers,” Wilson White, Google’s senior director of public policy, said in an emailed statement.

The bill was submitted last year, after Google said it would require all apps to use its payment system, charging up to a 30% commission on in-app purchases. That’s a model common in other parts of the world and employed also by Apple. Earlier this year, the search giant lowered commissions to 15% for the first $1 million of revenue earned by developers, in part due to a global backlash.

Under the latest version, companies that operate app stores must allow their users to pay through a variety of payment systems. It stipulates that tech giants must not “abuse their status to force their users to only use specific payment methods.”

If tech giants raise their commission fees, “content companies would have no choice but to raise their prices, which will ultimately damage consumers’ interests,” the Democratic Party said in a statement. “The burden of fees would also make it more difficult for our startups to grow.”

The bill will prevent companies from securing a monopoly over user data, said Park Seong-ho, chairman of Korea Internet Corporations Association. The legislation doesn’t violate the U.S.-Korea Free Trade Agreement because it doesn’t mention specific companies, said Park, whose organization represents local social media firms including Naver Corp. and Kakao Corp.

“South Korea is one of a few countries where Google, Apple and Facebook haven’t been able to fully conquer the market,” he said. “We’d be proud if this bill could affect the policies of Google and Apple.”