Aftermath of China’s Retaliation
As the number of Chinese tourists has decreased after the Chinese government banned the country’s travel agencies from selling Korea-bound package tours in response to the THAAD dispute with Korea, new duty-free operators, which should open their stores as early as the end of this year, are concerned about the business. Although the number of duty free stores in Seoul has more than doubled from 6 to 13 in two years, including four more duty-free stores selected last year in a third round, the number of Chinese tourists has shown a rapid drop.
According to duty free industry sources on July 3, the Chinese government hasn’t lifted its retaliatory measures against Korea yet unlike the earlier rosy forecast that it will happen soon in the second half of this year. Accordingly, new duty-free operators, which is to open stores at the end of this year including Hyundai Duty Free, Shinsegae DF and Top City, are in anxiety. In particular, Hanwha Galleria decided shut down the duty-free shop in the Jeju International Airport on July 3.
They have asked the Korea Customs Service (KCS) to delay the start of business now. However, it is still unclear when the Chinese government will remove a ban on travel agencies from selling its tour packages bound to Korea and whether the number of Chinese tourists will back to previous levels even if the Chinese government lifts the ban. Accepting the request of the industry in April, the KCS has allowed duty-free operators to delay the opening of stores by up to 30 days more than once if they want to and delay longer after reviews if the extension is needed. In addition, it has enabled them to extend the time for payment of patent commissions to be imposed this year or make divided payments within a year when the decrease of sales in duty free stores continues.
The industry is concerned if it will face the same crisis in 1995 again. At that time, 10 out of 29 duty free stores in the country shut down at once. In 1985, the government changed its duty-free operator systems from permit to license to operate a duty free shop. It thought that the number of foreign tourists would grow before the Olympic Games. The number of duty free stores increased from 10 to 34 in a flash. Japanese tourists were the major customers of duty stores. However, the number of Japanese tourists decreased after the collapse of bubble in the Japanese economy. In the end, 10 duty free stores closed down in 1990 alone, and only 20 duty stores survived until 1999.