Duty-Free Industry "Passenger Commission Fees Should Be Legislated"... Government Says "Self-Regulation Efforts First" (Comprehensive)

Duty-Free Industry "Considering Collusion Issues, Legalize to Set Price Caps"
National Assembly Legislative Research Office Also "Will Harm Duty-Free Industry... Alternatives Needed"
Government Official 'Reluctant'... "A Matter to Deliberate"

The domestic duty-free industry has requested that the government set a legal cap on commission fees paid for customer referrals to enhance market competitiveness. Excessive commissions paid to travel agencies and others to attract tourists have long been considered an issue requiring reconsideration by the National Assembly. Both the duty-free industry and the National Assembly agree that reforming commission fees is necessary, drawing attention to whether normalization can proceed through legislation.

On the 30th, a seminar on "Enhancing the Global Competitiveness of the Domestic Duty-Free Industry" was held in the 2nd Seminar Room of the National Assembly Members' Office Building.
[Photo by Minji Lee]

At the seminar on "Measures to Enhance the Global Competitiveness of the Domestic Duty-Free Industry" held at the National Assembly on the 30th, the normalization of excessive commission fees was a major topic of discussion. During the COVID-19 pandemic, duty-free shops sold products through daigou (personal shoppers) as overseas tourists sharply declined. Reliance on daigou increased, and as competition among companies intensified, commissions paid to daigou and local travel agencies rose to as much as half of sales revenue. In fact, before COVID-19, the cash used to attract daigou was small, and commission fees accounted for only about 30% of group tour sales, but in 2022, this figure rose to 52%.

In this process, the strength and status of domestic duty-free shops were significantly weakened. According to Statistics Korea, the size of the duty-free industry was 12.88 trillion won in 2019, ranking first in the world, but it has since been overtaken by China. Operating profit margins once reached 6%, but after recording -7% in 2020, they have remained negative to date. Meanwhile, China has shown a growth rate of around 23% over the past five years, supported by policies to foster duty-free shops.

Currently, the duty-free industry is making self-help efforts to reduce commission fees to 30-40% following the transition to an endemic phase. The Korea Customs Service has also stated that excessive commissions will be reflected in the renewal review criteria for duty-free shops and has requested restraint in commission fee competition. However, since the duty-free industry is competition-based, if companies attempt to ease commissions through mutual agreement, it could raise collusion issues, making legislation a common consensus.

Yoo Shin-yeol, president of the Korea Duty Free Shop Association, emphasized, "During the COVID-19 period, there was no choice but to raise commission fees to sell products in the Chinese local market," adding, "The current duty-free sales structure is greatly distorted, and a process to lower commissions through legislation is necessary."

The commission fee issue was also commonly pointed out in the "National Assembly Audit Issue Analysis" published this month by the National Assembly Legislative Research Office. The report stated, "Excessive commissions cause cutthroat competition among duty-free shops, damage the reputation of the Korean duty-free industry, and weaken the competitiveness of small and medium-sized duty-free shops," and emphasized, "It is necessary to examine the commission fee issue and prepare reasonable alternatives through continuous discussions."

At the seminar, Ju Seong-jun, a lawyer at the law firm Bae, Kim & Lee, who presented on "Analysis of Duty-Free Shop Commission Fees and Improvement Measures," argued that it is necessary to regulate the upper limit of commissions paid to travel agencies through amendments to the Customs Act. He said that an appropriate commission fee cap should be set based on the maximum commission rate during the period before COVID-19, which reflects a normal competitive environment. Lawyer Ju analyzed, "It is reasonable to amend the Customs Act, which governs duty-free shops and defines the authority of the Korea Customs Service," adding, "If left to the industry's self-correction, cutthroat competition that threatens the market's existence will inevitably recur."

However, regarding the industry's request for legislation on commission fees, government officials showed some reluctance. Kim Young-min, director of the Customs System Division at the Ministry of Economy and Finance, explained, "Expecting the government to resolve this through legal means is quite difficult," and added, "If Chinese group tourists return, the pressure on commissions will naturally decrease." Kim Woo-chul, director of the Bonded Industry Support Division at the Korea Customs Service, said, "The fact that commission fees have risen to 50% is shocking, but it should be seen as a phenomenon that occurred during the exceptional period of COVID-19," and stated, "Rather than proposing a solution like legislation based on a single phenomenon, it is necessary to consider various approaches."

This content was produced with the assistance of AI translation services.