Position on unfair transactions in tobacco sales in expressway rest service areas

SEOUL, South Korea, Oct. 21, 2020 /PRNewswire/ -- AMCHAM supports free, fair, and mutually beneficial trade between the Republic of Korea and the United States of America.

According to a research AMCHAM conducted with Korea Distribution Association (KODIA) to establish a distribution order for closed distribution channels, it has been confirmed that although Korea has been portrayed as an exemplary country that effectively combatted COVID-19 in 2020, its expressway rest service areas still operate under a closed and secluded distribution policy.

Currently, continued monopolistic acts such as handling and selling only certain tobacco manufacturers' products in expressway rest service areas have unfairly deprived consumers of their right to choose and further limited fair transactions. Such practice has grossly limited sales opportunities for expressway rest service area operators, causing them significant economic losses.

First, 45% of consumers who do not use products from certain tobacco manufacturers are deprived of their tobacco brand options when visiting expressway rest service areas.

According to a consumer survey, 45% of consumers do not use products from specific tobacco manufacturers, but they experience inconveniences when expressway rest service areas they visit do not sell their preferred products. In addition, 42.3% of respondents thought negatively about the exclusive sales structure of tobacco in expressway rest service areas.

Second, expressway rest service area operators are not able to improve the satisfaction of their users by selling only products from certain tobacco manufacturers, resulting in economic losses.

According to in-depth interviews and present condition surveys of expressway rest service area operators, all that participated were aware of the need for improvement to improve customer satisfaction and ensure product diversity. However, due to the long-standing tacit practice of selling only the products of certain tobacco manufacturers, the autonomy of choosing tobacco trading partners has not been followed.

Third, such exclusive sales practices continue in the midst of tacit agreement despite the Fair Trade Commission's 2015 fine and corrective orders.

In 2015, the Fair Trade Commission imposed a punitive fine of KRW 2.5 billion and issued a corrective order for a certain tobacco manufacturer that prevented the display of its competitors' tobacco products at expressway rest service areas. The Tobacco Business Act stipulates that tobacco trading partners make self-regulating transactions and receive tobacco, but their autonomy has not been maintained. Institutional measures will be needed to fundamentally address such unfair transactions.

Chairman James Kim of AMCHAM said, "At a time when more and more Korean companies are successfully competing in the international market thanks to fair and transparent global business standards, the Korea Distribution Association's study shows that Korea-unique regulations in certain distribution channels such as expressway rest service areas still have a significant impact on companies' ability to fairly compete and do business here in Korea. These remaining barriers in rest service areas operated by the state-owned Korea Expressway Corporation should be harmonized with global standards to create a truly level playing field for businesses and consumers."

AMCHAM will continue to make various efforts to create a fair and transparent business environment.

[Reference] Key findings of Korea Distribution Association (KODIA)'s 'Study on the establishment of fair distribution order in closed distribution channels'

1. Results collected from a factual survey of 502 expressway rest service area users and consumers with experience in purchasing tobacco found in expressway rest service areas

• 45% of consumers do not use products from specific tobacco manufacturers,
• 42.3% of respondents had a negative view on (negative 34.7%, extremely negative 7.6%) expressway rest service areas only selling one specific brand of tobacco
• The biggest reason for their negative view was the narrow choice of tobacco, followed by the seeming violation of consumer rights protection, and the hope that the monopolistic structure will be resolved.
• In addition, for the perception of whether the monopolistic structure should be resolved, the reason of "guaranteeing consumer choice" received the most votes.
• It is estimated that the economic damage caused by the monopolistic sales structure recognized by consumers will result in an annual endurance cost^[1]of KRW 2.4 billion won to 68 billion.

2. Results of in-depth interviews and present condition surveys of 5 expressway rest service area operators (14 expressway rest service areas in total)

• All 5 expressway rest service area operators were aware of the need to sell multiple tobacco brands. They said many consumers look for brands other than those of a particular tobacco manufacturer, and there are many requests for improvement.
• All expressway rest service area operators were aware of the need for improvement to protect consumers' purchasing rights and provide options, and to ensure product diversity with a large assortment of brands.
• If multiple tobacco brands were to be handled/sold, the expected average revenue is more than KRW 300 million won and the expected sales growth is more than 12%.
• The sales and introduction of multiple brands of tobacco in expressway rest service areas are recognized by their operators as having significant economic value and the need for improvement is agreed upon.

SOURCE AMCHAM