The Finance Ministry is set to unveil amendments to regulations on duty-free businesses in the coming weeks. It seems that operators are busy calculating gains and losses from a possible revision of business clauses.
Forthcoming changes to regulations governing the duty-free business are sparking both hopes and concerns among key stakeholders, such as Lotte, Shilla, Shinsegae and Doosan.
Doubtless, current operators may be worried about a reduction in their share of the pie if the government eased barriers for attraction of new market entrants. One of their arguments is that heated competition might bring about rampant irregular marketing practices and a deterioration of profitability.
Their arguments are less than convincing. Developed countries are inducing strong competition, judging that duty-free stores can make great contributions to gross domestic product. Some countries regard it as an export business beyond the traditional concept of tourism.
Further, considering that duty-free operations are not connected to national security or the protection of Korea’s exclusive industries, there is little reason to guarantee the incumbent operators their long-standing oligopolistic status. Two big operators take up nearly 80 percent of the market.
As the number of inbound tourists, including Chinese, steadily increases, visitors are facing inconveniences from a shortage of duty-free stores in Seoul and other cities, including Jeju.
The Finance Ministry should closely look into the case of Japan, which is carrying out a full-fledged effort to attract as many Chinese and other tourists as possible by drastically lifting regulations in the tourism and service sector.
The present regulations require each provincial city to report an on-year increase of 300,000 foreign tourists. In addition, the percentage increases of both the number of foreign visitors and sales of the cities’ duty-free stores should also surpass 50 percent.
Under instruction from President Park Geun-hye to ease the requirements, the Finance Ministry, in coordination with the Korea Customs Service, has been holding public hearings. The government is reportedly close to reaching a decision on several propositions — including an extension of the current five-year business license term for duty-free stores to 10 years and raising the license fees by up to 20 times.
Earlier, the Korea International Trade Association said the duty-free industry should be liberalized. Its chairman urged large Korean companies to do more to find business opportunities overseas, rather than remaining complacent with their status quo in the domestic market.
Now it is time for businesses to be judged by the market, not by the government. Duty-free operators also cannot rely upon the protection of government-issued licenses for survival.
Simultaneously, the ministry needs to map out ways to mitigate the side effects of intense competition among incumbent operators and newcomers.
