"To Enhance Duty-Free Industry Competitiveness, Passenger Commission Fees Must Be Legislated"

'Strategies to Enhance Global Competitiveness of the Duty-Free Industry' Seminar
"If Left to Duty-Free Shops' Self-Regulation, Price Wars Will Repeat"

There was an opinion that the limit on referral fees should be set by law to enhance the competitiveness of the domestic duty-free industry. Referral fees refer to the compensation paid by duty-free shops to local travel agencies, tour guides, and overseas travel agencies in Korea to attract foreign tourists.

On the 30th, a seminar titled "Measures to Enhance 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 a seminar held at the National Assembly on the 30th titled "Measures to Enhance the Global Competitiveness of the Domestic Duty-Free Industry," Joo Sung-joon, a lawyer at the law firm Bae, Kim & Lee LLC, who presented on "Analysis of the Current Status of Duty-Free Shop Referral Fees and Improvement Measures," said, "Under the duty-free industry structure, the balance of power has shifted to buyers, triggering competition in referral fee rates among duty-free operators. Due to overheated competition, it is difficult to normalize the situation through the industry's voluntary efforts, so legal control is necessary."

When distinguishing the forms of referral fees, incentives such as gift certificates and points given to customers are included in addition to the cash commissions paid to travel agencies. Before COVID-19, cash used to attract daigou (personal shoppers) was small, so the proportion of referral fees was only about 30% of group tour sales, but in 2022 it approached 52%. In the past, customers enjoyed more direct benefits such as gift certificates and points rather than commissions, but after COVID-19, reliance on daigou increased, and the proportion of cash paid to travel agencies also became excessively high.

As referral fees increased, the profits of the domestic duty-free industry shrank significantly, and national competitiveness greatly declined. The total size of the domestic duty-free industry in 2019 was 12.88 trillion won, ranking first in the global duty-free industry, but now China has taken that position. The operating profit margin was as high as 6% in the past but recorded -7% in 2020 and has continued to show negative figures since then. Meanwhile, China has shown a growth rate of around 23% over the past five years, supported by its duty-free shop promotion policies.

Lawyer Joo pointed out, "High referral fees not only distort the competitive situation but also indirectly have a negative impact on consumer welfare. If fees are excessive, competition is restricted not through price or service but through providing excessive benefits, which is also problematic under the Fair Trade Act."

Lawyer Joo argued that it is necessary to regulate the limit of referral fees flowing to travel agencies at an appropriate level through amendments to the Customs Act. He added that the appropriate referral fee limit should be set as an upper limit based on the maximum fee rate during the period estimated to represent normal competition before COVID-19. Lawyer Joo analyzed, "It is reasonable to amend the Customs Act, which regulates duty-free shops and defines the authority of the Korea Customs Service. If left to the duty-free industry's self-correction, destructive competition that threatens the market's existence will inevitably repeat."

Meanwhile, Yoo Shin-yeol, chairman of the Korea Duty Free Association, who attended the seminar, also emphasized, "The vulnerabilities of the duty-free industry were clearly revealed through COVID-19, and with the halt of foreign tourists, duty-free shops are facing a demand cliff. We should use this time to strengthen the industry's fundamentals by analyzing and resolving the structural problems of excessive referral fees and the fundamental issues of the license fee imposition system."

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