South Korea’s ‘scandal-hit’ duty free sector could be set to undergo a revival under a new government licensing scheme expected be announced by the end of the month.

 

A meeting held between senior duty free shop officials and Korean Finance Minister Kim Dong-yeon at Incheon Airport on Tuesday directly addressed the latter’s plans to reveal new regulations before the end of September, sources in Korea have confirmed to TRBusiness.

 

Lotte Duty Free, Shilla Duty Free, Shinsegae and SM Duty Free are among the operators understood to have attended the meeting.

 

The move represents an important step in reforming a bidding system mired in controversy due to its alleged links with the multi-million dollar corruption scandal involving former President Park Geun-hye and aide Choi Soon-sil.

 

As reported, this resulted in multiple investigations and raids on offices including the Korea Customs Service (KCS), which is responsible for issuing licences, based on claims relating to the illicit selection of duty free operators linked to Choi; who was subsequently found guilty and jailed for corruption.

 

SCORING SYSTEM REVIEW?

During the confirmed meeting held at Incheon Airport, the Finance Minister was quoted in reports from sections of the *Korean media as laying out a  ‘task force’ to assist the plan from the offset. 

**Another unverified report quoting a high-ranking government official also claims the bidding scores of candidates could be opened to scrutiny when new licences are made and existing ones re-examined, but the plan could derail over fears that the judges’ scores could be subject to ‘lobbying’ and accusations of ‘bias’ upon disclosure.

As such, TRBusiness would like to clarify that the exact mechanics of how any new system could work are at this stage unclear.

 

However, any changes at all will offer hope to airport operator Incheon Airport Corporation (IIAC), who earlier this year indicated to TRBusiness that changes to the concession model would be most welcome in order to ‘level the playing field’ for international bidding.

 

[As reported by TRBusiness, Incheon Airport management is currently facing a ‘request’ from Lotte Duty Free to reduce its minimum duty free guarantees on product categories to avoid returning ‘all business licenses’ on its four five-year concessions. These were awarded in 2015 and generated nearly $1bn in sales at Incheon Airport last year. See: https://www.trbusiness.com/regional-news/asia-pacific/lotte-officially-applies-to-incheon-for-contract-relief/126579-Ed].

 

IS THERE A GENUINE APPETITE FOR RADICAL CHANGE?

Doug Newhouse adds: Senior South Korean retail sources also told TRBusiness directly yesterday that they are hoping that Tuesday’s high-level meeting with Deputy Prime Minister Kim Dong-yeon will now lead to a much better system of awarding duty free contract licenses.

 

This follows the aforementioned gross irregularities and favouritism identified in the previous licensing award system under President Park Geun-hye (now jailed) – assisted by her friend and confidante, Choi Soon-sil (also jailed).

 

Park’s former government also stands accused by Korea’s State Audit Agency of directly influencing the license awards made by former officers of the Korean Customs Service – some of whom are now awaiting trial after being removed from office in what can only be described as ‘a mess’.

 

The Moon government is also apparently keen for its ‘Task Force’ to be seen to be working with independent experts to make recommendations as to how any future licensing system might work.

 

‘TRUST’ IN ANY NEW SYSTEM MUST BE BUILT…

However, based on the dire track record of the previous administration, many are wary that it takes care to seek ‘independent advice’ from sources which have no business agenda of their own.

 

As reported here and confirmed to TRBusiness by senior retail sources, the government is signalling that it is keen to undertake this major review shortly – especially now that all of the big downtown licenses have been tendered.

 

These sources also confirm that the government wants to address this review – or at last initiate a serious discussion process – before the end of this month.

 

One suggestion currently being discussed is total transparency itself. The thinking behind this would require the details of all duty free bids, contract assessments and final monetary bid details – offered, requested, or both – to be laid out and published in the open for all to see in every contract/tender prior to any award process.

 

Any changes to any terms or conditions – pre, mid, or post-bids – would then be transparent to all, as mentioned above– and subject to further comment and scrutiny if reasonable objections are raised.

 

THE INTERNATIONAL DIMENSION…

Another big issue relates to those qualified to bid. For example, major international duty free retailers have long been excluded from bidding independently for South Korean airport and downtown duty free contracts in recent years, with DFS Group the last big retailer to hold any meaningful concession in the early days of Incheon Airport some 20 years ago.

 

If changes along the lines outlined by the new Moon government are finally made, then it might even lead to a new era of retail competition at the airport and/or downtown if ‘any deregulation’ forms part of this.

 

Stay close to TRBusiness for further updates on this story.

*Yonhap News Agency report

*The Korea Herald Report

**ChosunBiz report