Mi­crosoft trou­bles dent free trade deal in S. Korea

The Washington Times Weekly - - Geopolitics - BY GUY TAY­LOR

U.S. and South Korean of­fi­cials signed a “mem­o­ran­dum of un­der­stand­ing” on an­titrust is­sues in Washington, cast­ing a spotlight on the in­ner work­ings of an in­creas­ingly com­plex trade re­la­tion­ship be­tween the two na­tions that crit­ics say has ben­e­fited Kore­ans far more than Amer­i­cans since the Obama ad­min­is­tra­tion pushed through a much-touted free trade deal three years ago.

While U.S. of­fi­cials cast the mem­o­ran­dum in a pos­i­tive light, its sign­ing last week came just two weeks af­ter Seoul made head­lines by im­pos­ing strict con­di­tions on Mi­crosoft’s oper­a­tions in South Korea as the price for ap­prov­ing — af­ter a two-year de­lay — the U.S. soft­ware gi­ant’s ac­qui­si­tion of Nokia’s de­vice busi­ness.

Sources fa­mil­iar with the quid pro quo say the South Korean Free Trade Com­mis­sion (KFTC) fi­nally agreed to al­low Mi­crosoft to draw rev­enue from Nokia prod­ucts in Korea only af­ter Mi­crosoft ac­cepted spe­cific mar­ket con­trols to pro­tect Sam­sung, the gi­ant Korean “chae­bol” whose busi­ness rep­re­sents roughly 28 per­cent of the na­tion’s GDP.

De­spite the free trade ac­cord, one source de­scribed the con­trols de­manded by the KFTC as “com­pa­ra­ble to what Mi­crosoft agreed to in China” in or­der to do busi­ness there as well.

Mi­crosoft de­clined to com­ment for this story. But news of its trou­bles in Korea comes against a back­drop of harsh crit­i­cism from Democrats in Washington, who last year ac­cused the Obama ad­min­is­tra­tion of turn­ing a blind eye to prob­lems in the U.S.Korea Free Trade Agree­ment.

Demo­cratic Reps. Louise McIn­tosh Slaugh­ter of New York, Rosa L. DeLauro of Con­necti­cut and then-Rep. Ge­orge Miller of Cal­i­for­nia com­plained in a joint state­ment in April 2014 that there has been an over­all drop — not in­crease — in to­tal U.S. ex­ports to South Korea since the 2012 free trade deal went into ef­fect, de­spite prom­ises the coun­ter­com­plaint to the World Trade Or­ga­ni­za­tion — a dis­pute that is ex­pected to be re­solved by the end of this year.

An en­tirely sep­a­rate set of po­ten­tially con­tentious is­sues sur­rounds the high-tech and mo­bile de­vice sec­tor and cen­ters on cases like that in­volv­ing Mi­crosoft’s and Nokia’s de­vice busi­ness, a for­merly Fin­nishowned op­er­a­tion that has man­u­fac­tur­ing as­sets in South Korea.

Two sources, who spoke anony­mously with The Times, said con­cerns are high among U.S. busi­ness lead­ers over the con­duct in such cases as South Korea’s free trade agency, the KFTC.

“The con­cern is that peo­ple in the KFTC are not giv­ing proper con­sid­er­a­tion to due process in the in­ves­ti­ga­tions they are car­ry­ing out against for­eign com­pa­nies, as well as against some do­mes­tic com­pa­nies in­side Korea,” said one of the sources. “The sense is that these of­fi­cials are tak­ing an ag­gres­sive ap­proach in the spirit of try­ing to es­tab­lish a level play­ing field for small and mid­size do­mes­tic com­pa­nies, and some­times that ap­proach traps big­ger Korean com­pa­nies as well as for­eign tech com­pa­nies.”

But, the source added, “this is com­pli­cated and nu­anced stuff, and I don’t think it would be ac­cu­rate to say the trade agree­ment is some­how be­ing vi­o­lated as these is­sues play out.”

An of­fi­cial at the Korean Em­bassy in Washington de­fended the KFTC’s han­dling of the Mi­crosoft-Nokia case.

“Both sides, Mi­crosoft on one hand and the [KFTC] on the other, reached an agree­ment,” said the of­fi­cial, who asked not to be named. “This case is un­der the realm of com­pe­ti­tion law in Korea, and I don’t think it has any­thing to do with the free trade agree­ment. … The U.S. has the same kind of com­pe­ti­tion law of its own, the Sher­man Act.”

The of­fi­cial also said that there was noth­ing out of the or­di­nary about KFTC Chair­man Jeong Jae-chan’s trip to Washington last week — a visit high­lighted by Tues­day’s sign­ing of the an­titrust mem­o­ran­dum of un­der­stand­ing.

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