South Korea’s Antitrust Enforcers Aimed at Big Tech. Then Came the Backlash.

The South Korean government unleashed a wave of panic across the internet industry: The country’s antitrust regulator said it would enact the toughest competition law outside Europe, curbing the influence of major technology companies.

The Korea Fair Trade Commission, with the backing of President Yoon Suk Yeol, said in December that it planned to make a proposal modeled after the 2022 Digital Markets Act, the European Union’s landmark law to rein in American tech giants. This bill also seemed to target South Korea’s own internet conglomerates just as much as the Alphabets, Apples and Metas of the world.

The commission said the law would designate certain companies as dominant platforms and limit their ability to use strongholds in one online business to expand into new areas.

Then last week, the agency suddenly shifted course. After a furious backlash from South Korean industry lobbyists and consumers, and even the U.S. government, the Fair Trade Commission said it would delay the bill’s formal introduction to solicit more opinions.

It’s not clear when, or even if, the bill will advance. The timing has been complicated by a critical general election in April. Mr. Yoon’s conservative People Power Party is looking to wrest control of the legislature from the opposition Democratic Party of Korea, which holds a significant majority. Surveys have found public support for regulation, and many of the constituencies the bill claims to benefit, including smaller businesses and independent taxi drivers, have typically voted for the Democratic Party of Korea.

The delay was a temporary victory for South Korean internet firms — dominant at home but with little global influence — that lobbied behind the scenes against the bill. They had argued that the legislation was unnecessary and would ultimately benefit emerging competitors from China.

Regardless of its outcome, the episode signaled a growing appetite for more-stringent regulation of technology firms in Asia. It also underscored South Korea’s concern that now mirrors America’s own apprehension about the influence of its powerful tech giants.

In South Korea, Naver, not Google, is the preferred search engine and map service. Coupang has emerged as the dominant player in e-commerce with efficient deliveries, and Kakao is a ubiquitous messaging service in the country, with a stronghold in ride hailing.

In the past, it was American tech giants who accused the country’s regulators of overreach, arguing that their protectionist policies created an uneven playing field. But this time, Korean firms led the protest.

Park Seong-ho, chairman of the Korea Internet Corporations Association, known as K-Internet, said the regulation would limit growth opportunities. The group’s members include Naver, Kakao, Coupang and the Korean units of Alphabet and Meta.

“A dominant platform here will be replaced by another in a matter of years, and this cycle will repeat,” Mr. Park said. “It’s like prematurely preventing a large, strong student with the potential to become an athlete from training out of fear he will become a bully.”

The European Union’s Digital Markets Act, which goes into effect next month, restrains the clout of so-called gatekeeper platforms that offer dominant technology services. Companies like Apple, Amazon, Alphabet, Meta and Microsoft have announced changes in how they operate to comply with the new rules.

But unlike South Korea, Europe does not have thriving homegrown technology giants whose businesses may be challenged by regulation.

Han Ki-jeong, chairman of the Korea Fair Trade Commission, said in a written statement to The New York Times that the new regulations were necessary. While the country’s digital economy has flourished, he said, “behind the innovative services and rapid growth lies frequent abuse of power by a small number of market-monopolizing platforms.”

Naver, Kakao and Alphabet declined to comment on the possible regulation.

The proposal, known as the Platform Competition Promotion Act, reflects Mr. Yoon’s own evolution on how aggressively to oversee tech companies. Two years ago, he had campaigned on the principle of “self-regulation” and minimal government intervention.

South Korea’s dependence on a web of interconnected services became clear when a fire at a facility housing Kakao’s servers knocked its services offline for more than a day in late 2022, disrupting communication across the country. At the time, Mr. Yoon said his administration would investigate whether Kakao was a monopoly and whether it needed to be regulated like “nationwide infrastructure.”

In November, Mr. Yoon called Kakao’s ride-hailing app a “tyranny” and “unethical” because it abused its monopoly status. He said Kakao Mobility Corporation, a majority-owned unit of Kakao, had gotten rid of competitors by offering low prices, only to raise them again after becoming a monopoly. He asked the commission to come up with measures to prevent abuses by dominant tech companies.

Kim Min-ho, a law professor at Sungkyunkwan University, said the shift in Mr. Yoon’s position was likely tied to the upcoming election in April, when his party will look to win over small business owners, taxi drivers and delivery service workers who have been supportive of the opposition party’s position to regulate large technology companies. Some smaller businesses have signaled support, according to the Korea Federation of Micro Enterprise, which in a survey found that 84 percent of respondents were in favor of the act.

In what is projected to be a close election, Mr. Kim said that Mr. Yoon “doesn’t want to lose voters” because there are enough people who support tech regulation to swing the outcome.

The Korean regulators also encountered protests from U.S. officials. In a statement, the U.S. Chamber of Commerce denounced the proposal as “deeply flawed.”

It added more stress to already-strained economic ties between the two countries. South Korean officials were unhappy with two laws enacted under the Biden administration, the Inflation Reduction Act and the CHIPS and Science Act, which they said threatened a couple of South Korea’s important industries: electric vehicles and semiconductors.

In a news briefing this month, Jose W. Fernandez, the under secretary for economic growth, energy and the environment at the State Department, said he hoped that South Korea would consider the United States’ concerns about the proposed bill, just as Washington listened to Seoul about its problems with the I.R.A. and the CHIPS and Science Act.

The South Korean antitrust officials said this week that they would discuss the bill with the U.S. Chamber of Commerce.

Baek Woon Sub, chairman of the Korea Platform Seller Organization, which represents roughly 1,500 internet companies, said the rules would “trickle down” and hurt small and midsize firms. These smaller players are familiar with the rules and often work across multiple major platforms.

“Eventually, we’ll have to bear the brunt of the consequences,” said Mr. Baek, who runs a small e-commerce company called EG Tech. “We won’t survive.”

When asked whether he thought the delay was a sign that the agency would water down the regulation or shelve it altogether, he was skeptical. He said he believed that the regulator was regrouping and signaling that it was listening to industry concerns.

“The Fair Trade Commission won’t change,” he said. “They’re going to come after us at the end of the day.”