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Uneven competitionSouth Korea rethinks retail rules after Coupang exploits regulatory blind spots

South Korea's debate over retail regulation has finally caught up with reality. After more than a decade of treating large discount stores as a threat to be contained rather than a sector to be governed, the ruling Democratic Party of Korea and the government are considering relaxing overnight delivery restrictions on big-box retailers.

The shift is overdue. It exposes how rules designed to protect small merchants reshaped the distribution market in ways lawmakers never intended.

Under the Distribution Industry Development Act, large discount stores and corporate supermarket chains face strict operating limits, including suspending operations from midnight to 10 a.m. and closing twice a month. These restrictions extend to online orders, barring overnight packaging and delivery work.

Online-only platforms operate under no such constraints. Coupang's dawn and overnight delivery services expanded precisely during the hours when offline retailers were legally prohibited from operating.

These rules were introduced in 2013 with clear intentions. Lawmakers sought to protect traditional markets, curb late-night commercial activity and limit excessive overnight labor. But as consumer behavior shifted toward e-commerce, the restrictions became a barrier to adaptation rather than a shield for small merchants.

Large discount stores were prevented from responding to demand that had already moved online. Consumers followed convenience, and regulation quietly redirected market power.

That reality is now shaping policy. At recent working-level meetings between government officials and the Democratic Party, discussions focused on revising the law so that e-commerce transactions would be exempt from business-hour restrictions.

On Thursday, Rep. Kim Dong-ah of the Democratic Party introduced a bill allowing large retail stores to carry out overnight packaging, shipment and delivery for online orders without reopening physical outlets.

The argument behind the change is pragmatic rather than ideological. Restrictions meant to restrain scale instead accelerated it by pushing consumers toward platforms with fewer obligations. Coupang's rise illustrates the result. Its annual revenue now exceeds the combined sales of domestic large discount stores, a gap widened by years of uneven regulation.

The political backdrop matters. Until late last year, the Democratic Party defended extending business-hour limits through 2029, framing them as a minimum safeguard for small merchants.

That position softened as criticism of platform dominance intensified. A major data leak involving tens of millions of users at Coupang underscored how lightly regulated some digital giants had become.

As one ruling party lawmaker later argued, meaningful oversight of platforms requires changing the distribution structure that generates their profits.

Opposition has been swift. Labor groups and small shop owners have rallied outside the National Assembly, warning that allowing overnight delivery at large discount stores could further concentrate consumer demand and weaken local commercial districts. Merchant associations argue that once logistics scale shifts, neighborhood commerce rarely recovers.

The main opposition party has gone further. Rep. Kim Sung-won of the People Power Party introduced a separate amendment last week that would abolish not only the overnight delivery restriction but also business-hour limits and mandatory closure days altogether.

The government and the Democratic Party considered lifting mandatory closures but decided against it after small merchant groups voiced opposition. For now, the compromise focuses narrowly on online operations.

That caution reflects political reality. Retail regulation in South Korea has never been solely about economics. It is also about employment, urban neighborhoods and electoral geography. But gradualism carries its own costs.

Allowing big-box retailers and large discount stores to compete on delivery hours will not dismantle platform dominance overnight. Even industry insiders concede that a single legal revision cannot unwind years of accumulated advantage.

Still, correcting a regulatory imbalance is a necessary starting point. Rules that freeze incumbents in an earlier era do not protect competition. They quietly decide who the winners are in advance.(END)

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