Fair Trade Commission Chairman Han Ki Jeong, right, speaks with American Chamber of Commerce in Korea Chairman James Kim during a special luncheon event at Grand Hyatt Seoul in this March 2023 file photo. Yonhap

The Yoon Suk Yeol administration's drive to regulate market-dominant online platforms could be evolving into a potential diplomatic dispute with the U.S., according to industry officials, Thursday.

The U.S. state and commerce departments reportedly raised their concerns regarding South Korea's proposed regulations. They conveyed these concerns by sending messages to Yoon's office, the foreign ministry, and the trade ministry late last year.

Although a Fair Trade Commission (FTC) official in charge of the matter said the agency has not received an official comment from Washington, Seoul is said to be trying to persuade the U.S. government by emphasizing that there is no intention of imposing regulations more strictly on foreign firms in favor of domestic companies.

The primary concern for U.S. firms revolves around the potential that the upcoming competition policy rules might inadvertently favor Chinese late movers, like Aliexpress and Temu, which are not expected to be affected by the regulation due to their relatively low market shares.

"It now appears the European Union's approach is contagious, as Korea's pro-tech government has tabled a Digital Markets Act-like bill that would unfairly target U.S. platforms while giving Chinese platforms a pass, a policy very much not in U.S. companies' interests," the Center for Strategic & International Studies said in a report on Jan. 11. "Korea's proposed act and the bills under discussion set limits that unfairly target U.S. companies which will, in turn end up helping Chinese companies gain larger market share."

The Washington-based think tank published a similar report last June, saying the Korean government's move primarily targets U.S. companies.

The American Chamber of Commerce in Korea (AMCHAM) has also expressed concerns on behalf of Google, Meta and other American tech giants doing business here. In response, FTC Secretary General Yook Sung-kwon visited the AMCHAM office on Jan. 11 to explain the antitrust agency's plans.

"We are arranging a closed-door hearing session between our members and FTC officials," an AMCHAM official said. "We have informed the U.S. embassy of what we have discussed with the FTC."

Last December, Robert O'Brien, former national security adviser for ex-U.S. President Donald Trump, claimed that Korea's proposed regulations to prevent unfair market activities by major online platform businesses would be a "gift" to China, warning they could cause friction with the U.S. if enacted.

While domestic IT industry and startup officials fear the move could weaken their competiveness against foreign rivals, a local consumer group began to collect signatures from people opposing the planned regulation.

"The quality of services provided by Naver, Kakao, Coupang and Baedal Minjok will get worse, resulting in price hikes for consumers," Consumer Watch said in a statement.

Despite the growing protest, the government has maintained a firm stance, supported by the president's direct order to the FTC in November, instructing them to devise measures against monopolistic online platform operators.

FTC Chairman Han Ki Jeong also told The Korea Times in a recent interview that scrutinizing monopolistic online platform firms will be the 2024 policy focus of the antitrust agency.