[Reporter’s Notebook] Collateral Damage to 'Duty-Free Limit Supplement' from Premature 'Direct Purchase Policy'

Current Duty-Free Limit Set at $150 per Overseas Purchase
Unlimited Direct Purchases Lead to Frequent Abuse of Duty-Free Allowance
Withdrawal of Ban on Non-KC Certified Imports...
Duty-Free Limit Adjustment Must Not Be Overlooked

The government's overseas direct purchase regulation measures, which caused significant social turmoil, appear to be settling with the de facto withdrawal of the ban on direct purchases of products without the Korea Certification (KC) mark and an official apology from the Presidential Office. However, the supplementary overseas direct purchase measure announced alongside it, which involved adjusting the duty-free limit, is also at risk of falling through.

Among the government's direct purchase measures announced on the 16th was a plan to revise the current overseas direct purchase duty-free limit of $150 or less (and $200 or less in the U.S.). However, as the controversy over KC certification intensified, the adjustment of the duty-free limit also sank beneath the surface. On the 19th, Lee Jung-won, Deputy Minister of the Office for Government Policy Coordination, stated in a briefing regarding the review of lowering the duty-free limit, "It is only under consideration; no direction has been decided."

The adjustment of the overseas direct purchase duty-free limit has been steadily called for, as there is severe reverse discrimination against domestic companies. Currently, for overseas direct purchases, customs duties and value-added tax are exempted up to $150 per purchase on the same site on the same day. If a consumer orders up to $150 duty-free daily from three platforms such as AliExpress, Temu, and Shein, they can purchase up to $164,250 (approximately 222.72 million KRW) annually without customs duties.

The problem is that cases of abusing this duty-free limit are frequent. For example, on the 13th of last month, the Busan Customs Office of the Korea Customs Service caught two companies smuggling and selling Chinese-made hidden cameras and recorders worth 130 million KRW, violating customs laws. They exploited the institutional loophole of the duty-free limit by continuously purchasing small quantities without formally declaring imports and selling them, which is illegal. According to a survey conducted in March this year by the Korea Federation of SMEs targeting 320 small and medium-sized enterprises (manufacturing and wholesale/retail), 53.1% of the affected SMEs cited 'price competitiveness deterioration due to excessive duty-free benefits' as the main type of damage caused by overseas direct purchases. Because of this, there are growing calls to lower the per-purchase limit or introduce an annual limit like China’s '4.8 million KRW per year.'

However, as the government announced a premature overseas direct purchase policy, the discussion on adjusting the duty-free limit is at risk of being scrapped, raising concerns in the industry. Looking at overseas cases, the UK, Australia, and New Zealand have already abolished VAT exemptions, and the European Union (EU) abolished VAT exemptions in 2021 and will abolish customs duty exemptions starting in 2028. While the barn is in poor condition and it is obvious that we will lose our cattle, major countries have already begun 'barn repairs.' We must not postpone essential system improvements due to haphazard policy announcements.