South Korea approves arrivals area duty free outlets at airports

On 27-Sep-2018 South Korea’s Ministry of Strategy and Finance announced plans to establish arrivals area duty-free outlets gradually at international airports, representing the end of a debate dating back to 2003, if not earlier.


Summary:

  • South Korea’s Ministry of Strategy and Finance announced plans to establish arrivals area duty-free outlets gradually at international airports;
  • The first will debut in May or Jun-2019 with a six month trial at Seoul Incheon International Airport and could spread to other international airports;
  • Incheon International Airport is already the world’s largest airport by duty-free revenue;
  • According to the Government ministry, 86.7% of survey respondents said they would use airport arrivals area duty-free outlets if they were available.

The introduction of arrivals area duty-free shops will start in May or Jun-2019 with a six month trial at Seoul Incheon International Airport, the world’s largest airport by duty-free revenue. Depending on the success of this trial, establishment of arrivals outlets at other international airports, including Seoul Gimpo International Airport and Daegu Airport, would follow in 2020. Busan Gimhae Airport may be the sole exception, owing to lack of available space at its passenger terminals.

Interestingly, only small and medium sized enterprises will be permitted to bid for and operate the outlets, meaning major retailers in the region like Lotte Duty Free, Shilla Duty Free and Shinsegae Duty Free will be excluded. Sale of tobacco and products subject to quarantine will be prohibited at the outlets, and purchases will be capped at USD600 per person.

In its announcement the Ministry of Strategy and Finance noted that arrivals area duty-free outlets are in operation at 149 airports in 73 countries, including regional rivals like Hong Kong International Airport, Beijing Capital International Airport, Tokyo Narita Airport and Singapore Changi Airport.

In particular, the Ministry noted that Japan had passed legislation permitting the operation of these outlets in Apr-2017, and has since recorded the launch of arrivals area duty-free outlets at Narita, Tokyo Haneda Airport, Osaka Kansai International Airport and Nagoya Chubu Centrair International Airport. Mainland China introduced the outlets in Beijing and Shanghai airports in 2008 and significantly expanded the facility to at least eight airports in 2016. Increasing the competitiveness of Incheon and other South Korean international airports against regional rivals is one of the stated aims of the new inbound duty-free policy.

Another aim, as stated by South Korean President Moon Jae-in in Aug-2018, is to convert overseas spending into domestic spending. Rather than South Korean nationals purchasing duty-free items at a foreign airport prior to departure, President Moon would like them to make their purchases on their return, on arrival at Incheon or Gimpo or Jeju. The Ministry of Strategy and Finance expects this to be particularly convenient for South Koreans wanting to purchase duty-free glass bottled liquor and cosmetics items, as the risk of breakage during transit is removed. Foreign tourist arrivals will also be encouraged to purchase souvenirs and gifts at the new outlets.

According to the Ministry, 86.7% of respondents to an Aug-2018 South Korea National Opinion survey said they would use airport arrivals area duty-free outlets if they were available. Cosmetics and perfumes proved to be the most popular category, with 62.5% of respondents stating that they would purchase these items from arrivals area outlets, followed by purchases of fashion apparel with 45.9% and fashion accessories with 45.4%.

Long-time advocates of arrivals area duty-free outlets in South Korea no doubt received the recent announcement with enthusiasm. Incheon International Airport Corporation (IIAC) has applied for, and failed to receive, approval to establish such outlets at Incheon Airport on seven occasions. Less enthusiastic perhaps are Korean Air and Asiana Airlines, who opposed IIAC’s most recent application on the grounds that it could result in congestion and delays in the baggage collection process for passengers at the airport. One imagines the potential for loss of inflight duty-free revenue was also a motivating factor for the airlines.