[Editorial] Duty-free licensing

By Korea Herald

Audit uncovers possible link to Choi scandal; It’s time to deregulate industry

  • Published : Jul 13, 2017 - 17:39
  • Updated : Jul 13, 2017 - 17:39
State audit findings that irregularities took place in the selection of duty-free shop operators in 2015 and 2016 are enough of a shock to question the rationale of the government.

The public cannot help but feel ashamed that the president of the time issued special orders and that government officials committed illicit acts to carry them out.

The findings are expected to create a sensation as they may shed light on an unknown side of the Choi Soon-sil scandal, which led to the collapse of the Park Geun-hye administration.

According to the audit results, the Korea Customs Service selected operators of duty-free shops in Seoul on two occasions in 2015, and it dropped Hotel Lotte both times by manipulating its scores.

Without score manipulations, the nation’s largest duty-free business operator would have won the biddings.

There was suspicion that it lost the biddings because Lotte was out of favor with President Park. She made a special order to send a strong warning signal to Lotte ahead of the second bidding of that year.

In December the following year, however, the Lotte Group affiliate was selected as one of four new duty-free shop operators.

Auditors uncovered that they had been selected even though four new operators had been unnecessary.

The customs service initially decided to add one new operator in 2016, as it had licensed three new operators in July, 2015.

Then, in December 2015, President Park ordered the increase in the number of Seoul duty-free shops.

The Ministry of Strategy and Finance asked the customs service to select four more operators. The customs service distorted data to implement the order. Even though the number of foreign tourists fell that year, it cited data of a few years earlier to justify its request for proposals from potential bidders for four new licenses.

In March 2016, Park had a private meeting with Lotte Group Chairman Shin Dong-bin. Lotte then made contributions to the funds allegedly controlled by Choi, Park’s confidante. In December, Hotel Lotte won the bid.

These developments arouse suspicion that Park coerced Lotte into contributing to the funds in exchange for a duty-free shop license.

Chun Hong-uk, commissioner of the customs service, reportedly ordered the destruction of related documents as the National Assembly asked for them.

The Board of Audit and Inspection demanded disciplinary actions against 10 officials of the customs service for score manipulation and document destruction. The board also asked the prosecution to investigate Chun and three officials suspected of forging public documents.

There have been suspicions that Choi recommended Chun as head of the service.

The prosecution must investigate the bidding irregularities and all related persons, including Choi and Park, thoroughly.

The root cause of the corruption lies in outdated government regulations over duty free shops.

Problem is a licensing system which consequentially gives a few selected companies the benefits of oligopolistic competition.

As long as the government exercises an absolute authority over the selection of duty free shop operators, irregularities look inevitable.

Sales at duty free shops have plummeted due to China’s restrictions on tourism to Korea in retaliation for the deployment of the Terminal High Altitude Area Defense antimissile system in the country.

Seoul-based duty-free shops have seen their sales plummet as the number of Chinese tourists has plunged.

Hanwha Group recently returned its license to operate a duty-free shop at a provincial airport.

Duty-free shops are not the golden goose any more. There is no reason for the government to control the number of duty-free shops.

The audit findings suggest how vulnerable to irregularities the bidding for duty-free business licenses can be.

Improving evaluation methods will not be enough to solve problems.

The government needs to consider abolishing the current license system and instead adopt a report system in which anyone can run a duty-free shop if certain conditions are met. Ways to foster the free market competition should be sought after.

Now it is time for a paradigm shift in government policy on the duty-free industry.