Like last year, the duty-free industry will inevitably undergo changes in market conditions due to changes in the system this year.
Photograph=Notification Regarding the Operation of Duty-free Shops. Since its first application, it has been revised close to 50 times. The revision on July 1, 2015 is the most recent change.
The duty-free shop system improvement taskforce team announced that related legal provisions will be added and supplemented with focus on changing the structure of the duty-free market. This taskforce team, organized by the Ministry of Finance and Strategy, intends to solve the problems pointed out during last year’s parliamentary inspection of government offices, such as oligopoly, license fees and the transparency of bidding evaluation.
In relation to this, the taskforce team is holding public hearings and gathering opinions from various circles. Originally it was expected that the basic structure of the improvement plan would be announced by the end of last year, but matters concerning modification of the system were postponed until the middle of this year. “As it is a sensitive issue related to improvement of the market structure, we are being very careful,” said a TFT insider. “Since the bidding in November 2015, the market structure has been changing abruptly, and we are going to review the bills proposed by the National Assembly and come up with measures.”
According to the characteristics of bonded areas, the operating policy of duty-free shops is greatly influenced by the Korea Customs Act. So since the improvement plan was announced, it seems that the structure of the duty-free market must be inevitably changed in the second half. In particular, it has been pointed out that as the ‘Notification Regarding the Operation of Duty-free Shops,’ concerning the establishment and operating policy for duty-free shops, does not contain detailed provisions fit for market trends, it lacks legal completeness.
As Kim Nak-hoe, Commissioner of the Korea Customs Service, said in his New Year’s address, it is expected that the requirements related to duty-free shop licenses will be rationally adjusted. Since his inauguration, Commissioner Kim has been calling for “reinforcement of the global competitiveness of duty-free shops,” and said in his New Year’s address, “We will provide active support to establish a duty-free shop system that will help the tourism industry.” Looking at some of the items that will be modified to a great extent this year, it seems that the 5-year license period, license fees, alleviation of establishment requirements, screening regulations and a plan to ensure co-prosperity with SMEs seems to be included in the list.
The 5-year license period, about which there has been concern since the license screening in November 2015, has been pointed out by not only the duty-free shop industry, but also the tourism industry. The existing duty –free business operators must close down their shops which have been operated successfully. The industry doubts whether their sales will be taken over by newcomers. “As licenses are changed every 5 years, an increasing number of prestigious brands are refusing to open their stores. So new duty-free business operators are having difficulty attracting brands,” said an industry insider. “If the number of tourists, not attracted by empty stores, increases, the tourism industry will be adversely affected.” To win back tourists visiting Japan, it is expected that the license period will return from 5 years to 10 years.
It is also forecast that the system improvement TFT will change license requirements. The current conditions are such that the number of tourists must be increased by 30% YoY, and more than 50% of duty-free shop sales must come from foreigners. Under the current conditions, duty-free shops can be established only in Seoul and Jeju. Efforts are being made to develop tourist products around the country, but duty-free shops are demanded because the shopping segment needs to be more attractive. Every year the number of tourists is increasing by more than 10%, but the requirements cannot be satisfied if there are special circumstances like MERS in 2015. To respond to the increasing number of tourists in 2016, Busan Metropolitan City has been considering new duty-free shops since the second half of 2015, but it failed to meet the tourist count requirement due to the temporary decline in the number of tourists. As a result, the entire tourism industry believes that realistic establishment standards must be prepared.
Meanwhile, the Korea Customs Service is working hard for win-win cooperation with SMEs. Last December the duty-free shops of large corporations raised the fund for win-win relationship with small and medium-sized duty-free shops, and the Korea Customs Service and the Korea Airports Corporation agreed to cooperate with each other to enhance their operating efficiency.
Given these changes, related industries are paying close attention to the situation. The duty-free industry hopes that the duty-free shop system will be handled as part of the plan to revitalize the tourism industry. “We must carefully study the characteristics of Chinese tourists who visit Korea for shopping,” said an industry insider. “Chinese tourists are an important axis in the global tourist market, and as the Korean cosmetics industry is booming through duty-free shops and thus had a positive influence on exports, we hope that the system will be prepared from the viewpoint of invigorating tourism.”
