Lotte Duty Free has submitted an ‘unfair trade practice report’ to South Korea’s Fair Trade Commission (FTC) accusing Incheon International Airport Corporation (IIAC) of creating conditions which disadvantage the airport duty free shop operator at the airport.

 

This follows three previously unsuccessful attempts by Lotte Duty Free to try to renegotiate its Incheon Airport contracts.

 

Lotte’s complaint against the IIAC has been filed at the same time that solid signs of warmer relations have emerged between Beijing and Seoul in the last week, following the long and bitter dispute between China and South Korea over the siting of the US-supplied THAAD missile defence system on the South Korean side of the border with North Korea.

 

CHINESE TOURISM TO SOUTH KOREA ‘DECIMATED’

This dispute has decimated Chinese tourism to South Korea over the last eight months, following dictates by Beijing to its citizens to literally boycott visiting the country – resulting in a disastrous financial year for both South Korea’s tourism industry and its duty free business.

 

 

In a statement today, South Korea’s leading duty free retailer says it has filed its complaint with the FTC as a direct response to a climate which it claims offers ‘no room for renegotiation’ and onerous ‘penalties and contract termination conditions’.

 

Commenting, Lotte Duty Free said: “Due to the nature of operations, duty free shops are inevitably affected by changes in international conditions and government policies. However, Incheon International Airport Corporation has not made it possible to demand renegotiation, even if there is a change in the business environment and a corresponding decrease in sales through special agreements that exclude this specificity.”

 

The retailer added: “We negotiated the third round of negotiations with Incheon International Airport Corporation, but have failed to find a settlement point and filed a complaint with the Fair Trade Commission about unfair trade. We hope to find a consensus on the negotiations.”

 

 

LOTTE WANTS TO FIND A ‘CONSENSUS’

It also points to onerous conditions in its latest contracts [to which it originally agreed-Ed] which include ’no walk away clauses’ until retailers have operated more than half of their five-year terms.

 

By contrast, the retailer says the Korea International Airport Corporation’s Duty Free Shop at Gimpo Airport operates no such clauses, with duty free operators able to request contract terminations at any point during the tenure, provided six months’ written notice is provided.

 

A Lotte Duty Free Shop official said, “We negotiated the third round of negotiations with Incheon International Airport Corporation, but have failed to find a settlement point and filed a complaint with the Fair Trade Commission about unfair trade. We hope to find a consensus on the negotiations.”

 

INCHEON AND GIMPO ‘COMPARISON’

Having said this, there is unlikely to be any agreement on Lotte Duty Free’s claim that its contract with IIAC requires it to pay 25% of the minimum annual guarantee (MAG) ‘in the last year of the business’. Whether the FTC will see fit to compare this with the much lower 5% termination penalty that exists at Gimpo Airport – as Lotte is advocating – remains to be seen.

 

The only good news in relation to this dispute, is that the very recent thawing of diplomatic relations between Beijing and Seoul is continuing, as first indicated in the last paragraph of TRBusiness’ story on October 31 [https://www.trbusiness.com/regional-news/asia-pacific/lotte-expands-duty-free-operation-in-vietnam/130464].

 

The lead up to – and commencement of – this week’s 24th Asia-Pacific Economic Cooperation (APEC) Summit in Danang (10 November) is now expected to see South Korean diplomats and their Chinese counterparts continue their new-found ‘detente talks’ on the side-lines, with a view towards fully restoring the previously good ‘pre-THAAD’ relations.