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Will new deregulation lower imported wine, liquor prices?
DECEMBER 05, 2011 03:30  
From next month, importers of wines and beers will be allowed to directly sell imported products to consumers. Retailers will also be permitted to import liquor from Chile, France and other countries.

Korea`s liquor and alcoholic beverage sector expects these measures to cut wine prices by 15 to 30 percent.

The Strategy and Finance Ministry said Sunday that it will implement revised executive ordinances of the Liquor Tax Act and new rules for the liquor tax administrative process from January next year. These deregulatory measures are the first of their kind in 29 years since Korea allowed the import of liquor in 1983.

Under law, liquor importers are banned from doing other businesses such as liquor manufacturing, distribution and sales. For this reason, importers had to distribute wines and beers they import to wholesalers and retailers or to establish independent distributors as affiliates to sell imports. For instance, LG Corp. established a company for wine importing (Twin Wine) and a separate sales company (Geovine).

The Korean government had originally introduced the system in the belief that managing distribution and supply of imported liquor in multiple phases would help increase transparency.

Transparency in domestic trade has increased due to the required use of liquor purchase cards between liquor traders and sellers, activation of credit and debit card use and the settlement of tax-certified invoices between businesses. Critics say, however, that system only adds to distribution costs through a complicated distribution structure.

The Chilean wines Montes Alpha and Cabernet Sauvignon, which are highly popular in Korea, sell for 8-9 U.S. dollars per bottle in Chile and cost up to 10 dollars to import them. Their prices in Korea, however, are 44,000 to 47,000 won (39 to 42 dollars) per bottle at retail stores in Korea, and certain five-star hotels charge more than 100,000 won (87 dollars).

This is due to extra margins of 20 percent, which is added to the prices, as these wines pass through each phase of distribution and supply, though import duties were removed after the effectuation of free trade agreements.

Kim Jong-uk, director of the environment and energy tax division at the Strategy and Finance Ministry, said, "Our analysis of the distribution process of imported liquor found that regulations on distribution is a factor that helps elevate prices."

"If the rules are revised, the phases of transaction will be reduced and competition will intensify in the course of distribution process, which in turn will help lower prices of imported liquor and spirits."

Importers and retailers also welcomed the government`s move, predicting lower prices and increased sales. Domestic wine suppliers have claimed that retail prices increased due to added price margins, because importers cannot directly sell liquor to consumers and must go through wholesalers and retailers.

With the industry`s long-demanded request met, attention is focusing on how these measures will effectively lower prices. A source at LG Corp.`s Twin Wine said, "As we will be able to directly contact consumers and restaurants without passing through a separate sales company, wine prices will decline to that extent."

Lee Cheol-hyeong, president of the retailer Wine Nara, said, "Wine prices have increased due to price margins exaggerated by importers, and if we import wines ourselves, we can cut prices by 20 to 30 percent."

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