The government plans to expand support to accelerate the development of free economic zones (FEZs), but to dramatically phase out FEZ areas whose development is sagging.

MOTIE Minister Yoon Sang-jick presided over the 59th Session of the FEZ Committee on July 3 and approved the first FEZ master plan for the period of 2013 through 2022, calling for boosting development, expanding the attracting of foreign direct investments, and differentiating the FEZs depending on each one’s regional characteristics. 

The first FEZ master plan is designed to take stock of the development of the FEZs made during the FEZ 1.0 era between 2003 and 2012 and present the new FEZ vision and development blueprint for the next decade — the FEZ 2.0 era from 2013 to 2022, said Kim Sung-jin, director general of the FEZ Planning Office.

Under the plan, regulations on the development of the FEZ areas will be eased and support for building infrastructure such as approach roads will be expanded. 

The FEZ Committee said the development of FEZs, which is now 52.5 percent complete, relatively lower than expected due to the slumping real estate sector, will be accelerated, and the development is to be completed by 2022.

The Busan-Jinhae Free Economic Zone (BJFEZ) strives to attract key businesses such as 

integrated logistics, advanced transportation/machinery parts and leisure/vacation.

The government told the FEZ Committee meeting that since 2003 when the FEZ system was introduced, the nation has seen the number of FEZs rise to eight, but development has been insufficient compared to the original plan, so selection & concentration, differentiation, and specialization strategies will be employed to boost development. 

In 2003, the Incheon Free Economic Zone (IFEZ), Busan-Jinhae Free Economic Zone (BJFEZ), and Gwangyang Bay Area Free Economic Zone (GFEZ) made their debuts, while the Yellow Sea Free Economic Zone (YESFEZ), Daegu-Gyeongbuk Free Economic Zone (DGFEZ), and Saemangeum-Gunsan Free Economic Zone (SGFEZ) were established in 2008. The 2013 addition of the East Coast Free Economic Zone (EFEZ) and the Chungbuk Free Economic Zone (CFEZ) has brought the number of FEZs across the nation to eight. Out of the total 101 FEZ districts, the development of 53 districts, or 52.5 percent, is complete or underway. 

The master plan contains the redefinition of the FEZs’ development vision as “growth centers with a global competitive edge” as well as 12 detailed tasks in four strategy categories — reinvigoration of development, improved investment environment, strategic attraction of FDIs, and differentiation/specialization.

The FEZ Committee said the FEZs’ attracting of foreign direct investments (FDIs) turned out to be more sluggish than expected. It said the FEZs attracted a combined $6.8 billion in FDIs between 2003 and 2012, accounting for 6 percent of the total amounts of FDIs the nation hauled in during the corresponding period.

The committee said related ministries will devote all energies to achieving the target of attracting a combined $20 billion in FDIs by 2022 by building the world’s top-rated business conditions for foreign investors and conducting strategic activities to lure FDIs. 

First, the committee said, the government is going to take a “choice and concentration” approach to revitalize the development of FEZs.

On top of the 58 trillion won spent on FEZs between 2003 and 2012, the central government, local government bodies, and developers will pour an additional 82 trillion won into developing the FEZs across the nation between 2013 and 2022.

Underdeveloped FEZ areas, such as the Yellow Sea Free Economic Zone, will undergo a massive restructuring, as FEZ districts without developers will be delisted from the designation of FEZs by August 2014. The combined size of the FEZs, now totaling 448 km2, will likely be reduced to around 300 sq. km2, MOTIE officials said. Until development of the eight FEZs are complete, the designation of new FEZs will be restricted severely.

The Gwangyang Bay Area Free Economic Zone (GFEZ) wants to induce

 petrochemical materials, steel-related industries, and port logistics.

The government plans to ease qualification terms for developers, expand FEZ areas in a phased manner, simplify the procedures of permissions and licenses, and diversify development fund resources. 

The government is seeking to finish the development of the eight FEZs by 2022 by concentrating its available money and capabilities on FEZ areas with a high potential for development.

The government has decided to push a plan to build the world’s top-level foreign investment environment in a bid to attract FDIs and create more jobs within the FEZ areas. 

Preferential treatment, such as the allowance of telemedicine, will be extended, and regulations on the establishment of foreign-invested hospitals will be eased to reinvigorate the service industry within the FEZs. Medical, healthcare, and multi-purpose resort pilot zones will be introduced as test-beds for deregulating the FEZs.

The Incheon Free Economic Zone (IFEZ) strives to 

attract investments into flight logistics, bio, and knowledge-based services.

The government plans to expand support for the clustering of knowledge-based services such as financing, legal services, consulting, and conventions for the Green Climate Fund, to be headquarters in Songdo, part of the Incheon Free Economic Zone, as well as for building specialized hub centers such as R&D, logistics services, and tourism-leisure industries.

The government will consider overhauling tax benefit support systems for luring foreign-invested companies into FEZs and providing cash and a package of incentive support ranging from relocation costs to the easing of regulations. Recognizing the attraction of Korean companies into FEZs to lure foreign-invested firms, the government will study ways of offering the same treatment for investment incentives to Korean companies as to foreign-invested forms so as to eliminate the so-called reverse discrimination against the former. 

It plans to select a key attraction business of each FEZ in order to accelerate the attraction of FDIs and build clusters related to the selected businesses. Three businesses of each FEZ will be selected based on district development strategies, the new government’s public pledges on regional development plans, each FEZ area’s characteristics, and growth potential. 

The government plans to establish specialized clusters by exploring and supporting key projects for clustering companies, universities, and research institutes for nurturing the select businesses of each FEZ. 

If the eight FEZs are fully developed by 2022, they will likely see their combined FDIs jump to $20 billion, the FEZ Committee said. 

The FEZs are forecast to have world-class investment conditions and the current five educational institutions and five research institutes will likely rise to 15 each. 

The FEZ committee said it expects the FEZs to evolve into growth centers of the futuristic and service industries by attracting 100 mid-sized nucleus companies, each with more than 100 billion won in sales, as well as 1,000 service companies. 

The FEZ Committee approved the provision of tax benefits to TOK Advanced Materials Korea, which seeks to build and operate a photolithography manufacturing plant within the Songdo Advanced Industry Cluster. The foreign-invested company will have their corporate tax reduced for seven years and their other tax benefits, including real estate and acquisition taxes, extended for 15 years. 

The outcomes of an evaluation of the existing six FEZs showed that IFEZ topped the overall list, followed by GFEZ. By area, DGFEZ ranked first in the category of organization and business operation, while IFEZ topped the category of FDI attraction and residence environment. GFEZ took the top honor in the category of development. 

The government has decided to offer incentives for providing operation costs, varying according to the evaluation results. FEZs found to be underdeveloped will be asked to restructure themselves on a voluntary basis, the FEZ Committee said.