The government has come under growing pressure to extend the five-year operational license term for downtown duty-free stores as experts argue the present validity could hinder the industry’s long-term growth.

There has been a heated debate since last week when authorities issued new licenses to winners of an open bid to run tax-free stores and shortened the term from the previous 10 years under a law that took effect in 2013.

Experts said the new term will pose risks and uncertainties to the country’s duty-free industry, which has become a bright spot for the country amid sluggish domestic spending, as the new operators need to make massive investments for an inventory system, infrastructure and network with no guarantee of renewal after five years. 

The new law was aimed at preventing monopolies by large conglomerates such as Hotel Lotte and Hotel Shilla that dominated with a market share of 50.76 percent share and 30.54 percent share, respectively.

A recent comment from the chief of Korea Customs Service, which supervised the open competition, has also fueled controversy. 

KCS commissioner Kim Nak-hoe said that the term “needs to be fixed to strengthen the competitiveness of the duty-free industry” in an interview with a local media outlet.

On Monday, Rep. Shim Jae-chul of the ruling Saenuri Party said he would propose a measure to amend the term to 10 years, saying insufficient time restricts the new operators from attracting overseas brands to their shops.

“We are currently deliberating to propose an amendment to expand the duty-free license term to 10 years, but a detailed timeline has not been decided on yet,” an official at Shim’s office said.

Some pointed to the inefficiency of the regulation as existing duty-free operators that have developed their specialties in running duty-free shops lost their operational rights to newcomers.

“Lotte and SK, which have been running the business for over 20 years after surviving the competition, now have to shut down their stores because of the government’s regulation, not because of their operational flaws,” professor at Chung-Ang University Kim Seung-wook said.

Korea’s top duty-free operator Lotte Group and SK Networks must each close one of their lucrative duty-free stores after the government chose to give the licenses to rival bidders Shinsegae and Doosan. 

By Park Han-na (hnpark@heraldcorp.com)