[Square] Distribution Regulation, from 'Blind Acceptance' to 'Let's Examine'

As the 21st National Assembly convened, a flood of bills related to distribution regulations have been introduced. The bill to extend the sunset clause on large-scale store opening restrictions and operating restrictions on large marts and corporate supermarkets for another five years, which expires in November, is just the tip of the iceberg. Bills introducing new regulations or strengthening existing ones are being proposed one after another. The industry's sighs and cries are also increasing.

Representative examples include bills to include complex shopping malls, department stores, outlets, specialty stores, and duty-free shops operated by large corporations above a certain scale in the mandatory closure targets; bills to change the administrative procedure for opening large-scale stores from the current registration system to a permit system; and bills to expand the scope criteria of the 'Traditional Commercial Preservation Zone,' where large stores cannot be built, from the current 1 km boundary of traditional shopping streets to 20 km. There is also a proposed amendment to the Large-Scale Distribution Industry Act, which designates department stores and large marts with retail sales of 100 billion KRW or more in the previous business year as large-scale distributors and prohibits unfair trade practices against suppliers or store tenants, to apply the same regulations to online malls.

Amid the COVID-19 crisis, large marts are closing unprofitable stores and implementing unpaid leave for employees. Department stores are barely holding on by taking a gamble with duty-free luxury goods sales and offering free delivery services to customers who purchase above a certain amount. Meanwhile, the political sphere is not offering incentives to boost the morale of distribution companies but is instead wielding the whip of regulation even more fiercely.

At the Distribution Innovation Forum held at the Korea Chamber of Commerce and Industry on the 24th of last month, most experts evaluated that the current distribution regulations have been ineffective over the past 10 years since their introduction. However, the government and the National Assembly are extending the enforcement period of the current regulations without thorough analysis and reflection on their effects and are competing to propose bills to strengthen regulations further. To shed the stigma of 'populism' attached to distribution regulations, the approach must change from 'blind enforcement' to 'careful scrutiny' starting now.

The introduction of regulations should not be repeatedly passed smoothly simply by citing the justification of protecting traditional markets and neighborhood commercial districts. It must be carefully examined whether the regulation is truly necessary, whether there are alternative policy measures, whether the regulation is applied only within the minimum scope and shortest period, and whether the overall benefits outweigh the losses before deciding on the introduction of regulations.

The 'balanced development of the distribution industry' or 'win-win development of large and small-medium distribution businesses,' which the government and the National Assembly cite as the golden rule basis for introducing distribution regulations, is not a simple linear equation that protects one side by suppressing the other. The answer must be sought in a higher-order equation that considers the diverse stakeholders of the distribution industry in balance and encompasses the distribution ecosystem and consumer perspectives. In particular, it should not be overlooked that large marts and complex shopping malls are also a pillar contributing to our economic development and distribution ecosystem; that as of 2019, the three major large marts had about 6,800 small and medium suppliers and approximately 6,000 small business tenants; and that about 70% of stores in complex shopping malls are small and medium merchants, who are also subjects of policy protection.

Recent trends such as the expansion of non-face-to-face consumption, the shift toward safety-conscious consumption, and technological advancements like big data, artificial intelligence, and virtual reality present both risks and opportunities to the distribution industry. Extending ineffective regulations or imposing new ones on the distribution industry at this turning point will only deepen the crisis. Wisdom is needed to choose the difficult and tedious path of innovation and coexistence rather than the easy path of regulation.

Seo Deok-ho, Director of the Distribution and Logistics Promotion Institute, Korea Chamber of Commerce and Industry

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