[2022 National Audit] Duty-Free Industry Paid 3.9 Trillion Won in Fees to Chinese Baggage Traders in One Year

Data from Hong Seong-guk, Member of the Democratic Party, Planning and Finance Committee

Hong Seong-guk, member of the Democratic Party of Korea. (Photo by Hong Seong-guk's office)

[Asia Economy Reporter Jeon Jinyoung] Due to the impact of COVID-19, the number of travelers decreased and the dependence on Chinese peddlers known as ‘Daigong’ increased, resulting in a sharp rise in duty-free store referral fees.

According to data submitted by the Korea Customs Service to Hong Seong-guk, a member of the National Assembly’s Planning and Finance Committee from the Democratic Party of Korea, the amount spent by duty-free stores on referral fees last year reached 3.9 trillion won. Referral fees refer to the commissions paid by duty-free stores to travel agencies that facilitate purchases to attract foreign tourists and to Daigong, who conduct small-scale duty-free goods transactions between Korea and China.

The paid referral fees were 1.1481 trillion won in 2017, 1.3181 trillion won in 2018, 1.317 trillion won in 2019, 862.6 billion won in 2020, and 3.8745 trillion won in 2021. Most of these referral fees were paid by large corporate duty-free stores.

The main reason for the surge in referral fees last year was the increased dependence on Daigong to clear excess inventory. Due to COVID-19, China was locked down for a long period, and the number of foreign tourists also sharply declined, leading to increased inventory at duty-free stores. To clear this inventory, dependence on Daigong increased, and Daigong induced cutthroat discount competition among duty-free stores or even charged quarantine costs caused by COVID-19, which significantly increased referral fees.

Assemblyman Hong Seong-guk stated, “One of the industries hardest hit by the decline in tourists due to COVID-19 was the duty-free sector,” and added, “It is necessary to normalize referral fees to reduce dependence on Daigong and prevent excessive cutthroat competition among duty-free stores.”

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