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[Editorial] Duty-free shops

Shortened license terms have their downsides

Nov. 18, 2015 - 17:33 By KH디지털2

In Korea, a duty-free shop is regarded as a goose that lays golden eggs. Once you are awarded a license to operate a duty-free shop, you are expected to make money relatively easily, given the small number of duty-free shops in Korea and the steady growth in foreign tourist arrivals.

This perception underlay the revision in 2013 of the law on the operation of duty-free shops to shorten the license terms from 10 years to five years. Allowing a company to enjoy the privilege of running a duty-free shop for such a long period of time was considered to undermine economic justice.

The change made sense. But it has proven to have its problems.

Recently, Lotte Group had the license for one of its duty-free shops revoked, becoming the first company to lose a license under the revised regulation. Lotte’s setback was a shock because license renewals had previously been taken for granted.

Lotte was confident of renewing the license for the duty-free shop at the Lotte World Tower in southern Seoul because it was the third-largest one in the nation in terms of sales revenue. It even invested some 300 billion won to expand the shop, aiming to make it the world’s largest.

But the Korea Customs Office rejected its application to renew its license and awarded it to another applicant. One problem with this unexpected outcome is that the more than 1,000 employees at Lotte’s duty-free shop have suddenly become redundant.

The same thing happened to SK Networks, which has also failed to renew its duty-free license, this one for a shop at the Sheraton Grande Walkerhill Hotel. When the duty-free shop closes in a few months, its employees will have nowhere to go.

The companies that have been awarded new licenses did pledge to hire as many employees of Lotte and SK as possible, but it remains to be seen how many of them will be reemployed.

Another problem is that operating a duty-free shop has become more risky. A company that obtains a new license needs to invest substantially to make its shop competitive.

But the uncertainty about whether it will be able to renew its license five years later has increased the risk associated with pouring money into the new business. This could discourage bold investment in the sector, undermining the competitiveness of Korean duty-free shops.

Lawmakers who amended the law two years ago should find a way to address these problems.