Gov't Extends Duty-Free Operational Rights to 10 Yrs | Be Korea-savvy

Gov’t Extends Duty-Free Operational Rights to 10 Yrs

A duty-free store in a Seoul department store. (Image : Yonhap)

A duty-free store in a Seoul department store. (Image : Yonhap)

SEJONG, March 31 (Korea Bizwire)The South Korean government on Thursday decided to extend the operational licenses of local duty-free stores to 10 years from the current five and have them automatically renewed in a bid to help the retail industry do business in a stable and predictable environment.

In a minister-level meeting in Seoul, the government agreed to allow duty-free operators to run their businesses for 10 years and to have their licenses automatically renewed if they haven’t violated any rules, according to the Ministry of Strategy and Finance.

“We extended the operational rights to 10 years from five in order to create a stable and predictable business environment,” the finance ministry said in a release. “The operators will be allowed to renew their licenses automatically, so that they can run their businesses in a more sustainable way.”

The government has been under fire for wavering too frequently between a soft and hard approach in customs policies as the duty-free market became one of the most prosperous businesses in tandem with a sharp influx of deep-pocketed shoppers from China.

Duty-free stores, mostly run by retail giants, such as Lotte Group, posted a combined 9.2 trillion won (US$8 billion) in sales last year, with an average 15.1 percent growth over the past decade.

In 2013, the finance ministry adopted a policy of holding an open competition for duty-free licenses every five years as a way to reduce monopolies in the market and improve the climate for newcomers.

As a result, two retailers — Shinsegae and Doosan – won licenses last year, depriving two stores of their permits.

The two losers — Lotte World Tower and SK Walkerhill — have strongly asked the authorities to give them one more chance, citing a waste of their facilities and workforce.
The Korea Customs Service will announce a set of new regulations next month, which are expected to include ways to give additional licenses to Lotte and SK.’

The move, which comes less than a year after giving licenses to five new operators through two competitions, is expected to bring strong backlash among those who already opened their shops in Seoul.

New operators have been struggling to host luxury brands that express concern over a supply glut in the capital city, left with no other options but to open shops mostly with cosmetics and middle-tier brands.

Earlier this month, chiefs of five operators — Shinsegae Duty Free, Doosan, Hanwha Galleria, HDC Shilla Duty Free and SM Duty Free — visited the finance ministry to express their opposition to the new licenses.

While the customs office can issue new licenses to a region if it draws 300,000 additional foreign travelers compared with a year ago, it remains unclear whether Seoul meets the requirement as the number of foreign travelers to South Korea slipped in 2015 in the wake of the Middle East Respiratory Syndrome (MERS) outbreak.

The state-run Korea Tourism Organization will publish the annual tourism report in August.

Duty-free sales have been on a sharp rise since 2011 thanks to the sharp rise in inbound travelers, but they also slowed last year in the wake of the MERS outbreak, according to the customs office.

Faced with criticism over the inconsistent policy, the government said it will decide the matter in a way to boost the tourism industry’s global competitiveness.

“We will try to clear out unnecessary controversies by improving transparency and fairness in the review process,” Kim Jong-yeol, a ministry official, said.


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