1. Background

Until now, regulatory loopholes make it possible for foreign IT companies that have no physical presence in Korea to evade compliance with Korean laws governing collection of personal information and distribution of content, which effectively creates reverse discrimination against their Korean counterparts. For example, when the Korea Communications Standards Commission (the “KCSC”) found Tumblr to have distributed obscene materials within Korea in 2017 andT requested it to voluntarily cooperate with the KCSC’s push to crack down on illegal content, the U.S. social networking service provider created a controversy by rejecting such request on the ground that it is a foreign company and has no branch office in Korea.

Against this backdrop, Korean lawmaker Seong Tae Kim came forward on October 10, 2017 with a proposal to amend the Telecommunications Business Act (the “TBA”) to lay a legal basis for applying various obligations under the TBA to foreign IT companies. Particularly, Article 4-3 of his proposal makes the TBA applicable to an “activity that took place outside Korea if it has requisite influences on the Korean market or users.” However, the proposal was met with skepticism as its extraterritorial enforceability against foreign IT companies without having any business entity or local branch in Korea remained questionable. As a response, some critics argued that the authorities should mandate foreign IT companies to designate a local agent based in Korea.

2. Mandatory local agent designation system

At an open forum held on January 27, 2018, Kim has expressed his intention to propose a bill for a mandatory local agent designation system, which requires foreign IT companies operating telecommunications business in Korea over a certain size to appoint a legal agent based in Korea. On February 21, 2018, he developed this idea into a proposed amendment to the TBA and introduced it to the Korean National Assembly.

The proposed amendment (i) requires a foreign business entity providing value-added telecommunication services to Korean domestic consumers to designate a local agent based in Korea and have it register as a value-added telecommunications service provider and comply with the TBA on behalf of the foreign business entity, (ii) expands the obligation to prevent harm to its service users and promptly address consumer complaints to qualified foreign business entities, and (iii) expands the applicability of a duty to receive a review under the Competitive Communication Market Situation Assessment System, which currently applies only to common telecommunications service providers (common carriers), to all the telecommunications service providers. Under the proposed amendment, a violation of the above provisions would be subject to administrative surcharges. According to the preface of the proposal presented by Kim, this amendment is modeled after the General Data Protection Regulation (GDPR) that the European Union will implement in May 2018.

Also, in its 2018 Major Projects Initiative, the Korea Communications Commission (the “KCC”) announced a plan to pursue a legislation to mandate foreign IT companies to designate a local agent so that they should comply with domestic regulations for protection of personal information. Under this Initiative, the KCC is expected to directly initiate or indirectly support the amendment to the Act on Promotion of Utilization of Information and Communications Network in addition to the TBA in order to introduce the local agent designation system in Korea.

In addition, the KCC mentioned to the press that it is considering various measures such as rejection or suspension of register of an application provided by a foreign IT company that does not comply with domestic laws and regulations.

3. Analysis

Even after the announcement of a plan to introduce the mandatory local agent designation system, skepticism remains over the system’s effectiveness in addressing reverse discrimination of foreign IT companies against their Korean domestic counterparts. Specifically, critics are concerned that (i) the introduction of the local agent designation system would not be a fundamental solution because the reverse discrimination issue arises from the absence of regulatory enforcement against foreign IT companies, not because such foreign companies do not have local agents; and that (ii) the impact of this system is generally limited to foreign IT companies of small and medium size because leading global IT companies have already established branch offices in Korea.

Moreover, it still remains uncertain whether the proposed amendment of TBA will be made into law without substantive modification. In particular, further discussions are necessary to determine relevant qualifications of a local agent (including whether an attorney or a law firm may serve as a local agent), the duties and responsibilities of a local agent, and the extent of sanctions and penalties for failure of a local agent to fulfill such duties and responsibilities. To this end, the passage of this proposed legislation warrants continued attention.