Microsoft troubles dent free trade deal in S. Korea
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.