Lawmakers aim to curb top duty-free operators

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Lawmakers aim to curb top duty-free operators

Top players Lotte Duty Free Shop and The Shilla Duty Free accounted for 80 percent of all sales in the duty-free industry during the first half of this year, triggering concerns of excessive market dominance.

Sales by Lotte Duty Free, the top operator, accounted for 50 percent with 2.29 trillion in sales, while Shilla had 30 percent with 1.35 trillion won ($1.14 billion) in sales, according to the Korea Customs Service report released upon the request of Rep. Shim Jae-chul of the ruling Saenuri Party.

Lawmakers from the ruling and opposition parties have brought up the need to constrain the big players.

“The duty-free industry is dominated by the two companies, so we need to adopt measures to regulate them,” said the lawmaker.

Shim also accused Lotte and Shilla of paying only a fraction of their profits for licensing fees submitted to the government. He said that the operators paid 0.6 percent of their operating profits last year in fees. Of the total sales of 8.3 trillion won last year, the fees accounted for a mere 0.05 percent at 4 billion won.

Chief policy maker Kim Jung-hoon of the Saenuri Party echoed Shim’s accusations earlier this month. “The duty-free industry benefits from the government because the government’s licensing imposes barriers to new players,” he said. “So, the government should be allowed to take a part of sales and use it in policy making and implementations.”

Along with the move to impose more fees, Shim says he is pushing forward a bill aimed at preventing dominant market players from applying for licenses to operate new duty-free shops.

Lotte expressed regret over the criticism. “We achieved good earning results based on our business strategy and know-how after passing the review of the government,” a Lotte Group official said. “It is unfair to call it a monopoly. Instead, Lotte should be credited with promoting tourism in Korea.”

The political push comes as Lotte waits for the government to renew its rights to operate duty-free shops in Sogong-dong and Jamsil.

Although the duty-free shops came under fire, sales have been strong. Despite the outbreak of Middle East respiratory syndrome in June, the industry proved resilient during the first half of this year, according to the report.

Combined sales of duty-free shops in the country rose by 22 percent to 4.6 trillion won during the first half of this year.

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