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Selection and Focus to be Key Strategies for FEZs

The key message of the Korean government’s first basic plan for free economic zones (FEZ), released Wednesday, are selection and focus.

The Korean government will strip of FEZ designation the zones that are unlikely to be developed and focus its support on others where development is underway or likely to attract investment.

It plans to attract foreign direct investment of USD 20 billion and more than 100 domestic and foreign companies with KRW 100 billion in sales between 2013 and 2022.

However, some point out that it may be difficult to reach the target, as neighboring countries including China and Southeast Asian countries are also establishing free economic zones to attract global companies.

◇ A Signal for Free Economic Zone Restructuring

Free economic zones were introduced in 2003 with the aim to attract global companies to enhance the competitiveness of Korean industries.

Areas in Incheon, Busan-Jinhae and Gwangyang Bay were first designated as free economic zones and the Yellow Sea, Daegu-North Gyeongsang and Saemangeum-Gunsan areas were added in 2008. The number of free economic zones increased to eight (101 districts, total size 448 km2) this year with the East Sea and North Chungcheong areas.

However, developments of only 53 districts (52.5 percent of all FEZs) are underway or completed, and 48 districts, or 249 km2, which is more than half the total size of all FEZs, still do not have development plans.

About 60 percent of the Daegu-North Gyeongsang area, 52.2 percent of the Gwangyang Bay area, 50 percent of Saemangeum-Gunsan, 38.1 percent of Busan-Jinhae and 29.6 percent of Incheon are still undeveloped.

In particular, all five districts in the Yellow Sea area remain undeveloped, making it the most undeveloped among the eight areas. Four of the districts still do not have developers and citizens are requesting the cancellation of the designation of one district, leading to a low possibility of development.

Some forecast that the Yellow Sea area may be the first to be restructured. If the area does not finalize a developer by August 2014, it could lose its free economic zone status.

The budget played an important role in the Korean government’s decision to restructure the free economic zones.

With an increase in the welfare budget resulting in a large cut in infrastructure development, the Korean government decided it does not have the capacity to maintain all 101 districts.

A wasted budget and overlapping investment during changes in administration have drawn criticism.

Among free economic zones, 39 districts overlap with free trade zones, foreign investment zones, research and development areas, industrial complexes and advanced medical complexes.

The Korean government has set a target to reduce the size of free economic zones to be less than 300 km2 through restructuring, however some forecast that the size may decrease further based on global economic circumstances and foreign investment.

A MOTIE official noted that significant sums of money are spent to organize free economic zones, but the government faces a difficulty due to its financial conditions. He added that finances will be provided where necessary and projects will be promoted in stages.

◇ To Become the Global Foreign Investment Zone by 2020

The Korean government has drawn a blueprint to foster a free economic zone with high potential for development and foreign investment to become a global foreign investment zone by funding KRW 82 trillion by 2022, following the KRW 58 trillion that was invested as of last year.

The current free economic zones are to be specialized.

By considering regional development strategies, characteristics and growth potential, a free economic zone will select an industry of focus and establish a specialized industrial cluster.

According to the plan, Incheon will specialize in aviation logistics, biotechnology and knowledge service, Busan-Jinhae in logistics, advanced transportation, machinery parts and leisure, the Gwangyang area in petrochemical materials, steel-related industries and port logistics and Daegu-North Gyeongsang in IT convergence and advance medical industry.

Saemanugeum-Gunsan’s industrial complexes will specialize in automotive parts, new and renewable energy, marine leisure, the East Sea area in metal and new materials and North Chungcheong in biotechnology.

The Korean government also introduced programs to attract foreign investment.

Incentive packages that include cash support, sites, funding and deregulation are under review.

It is also reviewing a plan to provide investment incentives, which have been provided only to foreign-invested companies, to Korean companies. To attract more foreign investment, strong Korean companies are also necessary, according to the Korean government.

To facilitate the service industry in free economic zones, the establishment of foreign medical institutions will be supported with more privileges including deregulation and allowance for telemedicine.

As medical and education industries show stronger opposition to liberalization, the Korean government will introduce the concept of a pilot, to use free economic zones as test beds for deregulation.

The goal of the Korean government is to attract foreign direct investment of USD 20 billion by 2022 and 100 major domestic and foreign companies with annual sales of KRW 100 billion and 1,000 service companies.

As of the end of last year, 22 key companies including 11 foreign-invested companies and 832 service companies were registered in free economic zones.

Some are concerned that the blueprint is too optimistic compared to the global economic outlook.

The Korean government recognizes that the slow recovery of Korea’s exports and the depressed construction market due to the global economic slowdown will be the largest obstacles to the development of free economic zones.

Accelerated competition, as neighboring Asian countries including China, Malaysia, Singapore and Japan are also establishing free economic zones to attract global companies, are also a challenge.

Source Text

Source: Yonhap News (July 3, 2013)

** This article was translated from the Korean.

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