Free Economic Zones as New Centers of Competition
Free Economic Zones as New Centers of Competition
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  • 승인 2005.01.01 12:01
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Cho Soung-ik

Deputy minister for FEZ at the Ministry of Finance and Economy

Korea's Strategy to Become the 'Hub of hubs' As part of South Korea's survival strategies to cope with rising competition with other countries in the global economy, Free Economic Zones (FEZs) were launched along with the enforcement of the 'Free Economic Zones Act in July 2003. Developing Free Economic Zones is also one of the nation's key strategies to advance the Northeast Asia hub project, whereby Korea will assume a central commercial, financial and logistical relationship with neighbors Japan and China. The region has been emerging as a global economic powerhouse with a population of 1.5 billion, four times that of Europe, accounting for nearly 20 percent of global gross domestic production. With neighboring China growing fast as a global manufacturing hub, South Korea has encountered competitive difficulties with its manufacturing industries. In order to counter this trend, the FEZs are designed to house globally competitive businesses that are fingered to become knowledge-based growth engines, and so replace manufacturing. A major emphasis is placed on attracting these industries via foreign direct investment. The government designated three FEZs, Incheon, Busan/Jinhae, and Gwangyang in the fall of 2003. In the spring of 2004, their respective authorities were established to promote industrial development, procurement of foreign investment, and provision of one-stop services. In addition, the government decided last year on the criteria for financial assistance for building additional infrastructure. After having provided 23.9 billion won in emergency funding for projects in dire need of early implementation, some 110 billion won will be newly funded in 2005 in order to support activities in infrastructure development. In the foreign investment sector, there were some visible achievements made. This includes the US$12.7-billion investment in the New Songdo City Project by the Gale Company, a US$3-billion investment in Yongjong/Chongla by HRH, US $1.5 billion by Pyne to build the New Songdo container port, and similar commitments were made by AMEC, IBC II and China City worth US$2 billion each. Since China will be hosting the 2008 Beijing Olympics and the 2010 Shanghai World Expo, the government plans to complete the first phase of the Free Economic Zone project before 2008. By doing so, the government hopes that the three Free Economic Zones can secure the status of economic centers in Northeast Asia. The Case for Free Economic Zones Korea IT Times held an interview with Cho Soung-ik, deputy minister for FEZ at the Ministry of Finance and Economy. Deputy Minister Cho is in charge of the Free Economic Zone Planning Office which was established to provide systematic support to enable the world's leading corporations to operate their businesses in Korea in the best environment. The following are excerpts from the interview:
The Song-do knowledge/information industrial comples's DEC.
Q: Free Economic Zones in Korea face stiff competition from such cities as Shanghai, Hong Kong, and Singapore. In comparison to these cities, what benefits can the somewhat belated Free Economic Zones in Korea provide to foreign investors A) First of all, there is a geographical advantage. Korea is situated at the center of the region, with China and Japan, the two economic pillars of the region, sitting next to us. Moreover, Korea has not only quality manpower together with its status as an 'IT powerhouse', but there are some advantages that can complement shortcomings found in rival cities. Shanghai, for instance, has the benefit of an enormous domestic market. However, it still is insufficient in terms of social and economic infrastructure, technology, and living environment, as well as operating systems to support the Zones. In the case of Hong Kong and Singapore, they are vulnerable in terms of domestic market size and growth potential. Nevertheless, people in such countries say that they are the de facto business hubs of Asia. However, I think Korea can become 'The hub of hubs in view of various factors, such as economic strength, market size, population, and growth potential, and so forth. In fact, there are not that many countries that have experience in almost all industries, including textiles, petrochemicals, steel, automobiles, electronics and the IT industry. Therefore, people overseas are looking to Korea as a nation with ample business opportunities. Q) What lessons can we learn from free economic zones overseas A) In the case of Shanghai, for instance, it is stipulated that for foreign investments of less than US$30 million, every administrative process from the application to its approval shall be completed within twenty days. In view of such speedy service, I think we should try harder to provide better services in terms of decision-making, attitude of government workers and deregulation. In this context, Free Economic Zone Authorities have been set up to provide comprehensive 'One-stop services'. However, as we feel that such a task cannot be accomplished by civil servants alone, they have outsourced some 20 percent of their work to the private sector so that they can recruit specialists with good proficiency in English. Q) Some people have expressed a concern that Free Economic Zones in Busan and Gwangyang will be less competitive than that of Incheon, pointing out the risk of overlapping investments as all these cities try to attract foreign capital to make headway in distribution systems, high-tech industries, and tourism. What is your opinion on this A) It has been generally known that all of the countries of Singapore and Ireland are run like free economic zones. Accordingly, there is not much to speak of in terms of ree Economic Zones as they have turned their whole of their countries into places where it is relatively easy to run businesses. In our case, however, it is a bit difficult to make the whole country a free economic zone. Thus, we are trying to concentrate on specific regions by designating certain areas free economic zones. The choosing of Incheon, Busan/Jinhae, and Gwangyang as host cities of free economic zones was made possible through careful consideration of location and other various factors. They are thought to have the best business environment for Korea to advance to become the hub for distribution and economic activities in the Northeast Asian region. However, it is true to say progress made in Incheon has been relatively swift as redevelopment, in fact, began in the mid-1980s. Nevertheless, the government plans to make these free zones have complementary relations with each other through well-planned division of roles. The government plans to facilitate these zones to attract specific types of industries and clients, thereby maximizing the synergy among the three regions, together with the elevation in their 'brand image as free economic zones'.
Gwangyang Bay of Hwayang Area Development Plan Map
Q) What benefits and incentives, such as tax breaks, has the government prepared for those interested in investing in these regions A) In addition to tax benefits, the government offers various benefits as stipulated in the 'Free Economic Zones Act. The major benefits include package settlement concerning various licenses and financial assistance. For manufacturing companies making an investment of over US$10 million, for instance, corporate and income taxes will be exempted for three years with a 50-percent reduction for the following two years. The same benefits will be applied to tourism and distribution businesses with investments of more than US$10 and US$5 million, respectively. In the case of land lease, similar reductions will be offered along with financial assistance for the establishment of amenities. Furthermore, exceptions will be made to such regulations as compulsory employment and paid-leave systems and those restrictions on building factories within the Seoul metropolitan region. Q) How can the government better facilitate those interested in investing in FEZs A) Even though we are currently at the initial stage of signing MOUs, there has been some US$22 billion of foreign investment committed during the past year. Accordingly, a couple of years from now foreign investments will come in concrete form through their formal agreements. For the past two years or so, we have been concentrating on the hardware side of the project, organizing and designating and so forth. From now on, I think we should accelerate our drive for attracting foreign investment by taking into account 'Software', that is people who will come, live and work in the Zones. During the period we have been operating under related laws, we found that there were some shortcomings. For instance, New Songdo City is expected to house some 250,000 people by the year 2020. That will be 15 years from now, and we think that among them there will be some 50,000 to 70,000 foreigners. And yet, many of the foreigners residing in Korea say that despite the country having many merits, hospitals and schools here do not meet their expectations. Taking this into account, we plan to entice the very best among prominent hospitals and schools around the world. Currently, MOUs have been signed and these facilities are scheduled to open by the year 2008, coinciding with the completion of the first phase of Songdo project. Q) Some people have voiced opposition to the government's plan to make revisions to bills concerning the Free Economic Zones. What message would you like to deliver to the general public A) I think it is very important to have public awareness about the Zones in order to enable all foreign and local companies to be winners by opening up markets. As President Roh has repeatedly said, Korea is a open trading partner of the world. We can hardly make a living if we were to close our doors. However, from the standpoint of the public, their concerns about national competitive strength and national survival are understandable, as industries that have not yet fully opened lag in competitive strength even more. Therefore, we cannot fully open all industries at once. Even so, we have to have the ability to cope, through gradual means, and gain competitive strength. In this case, Free Economic Zones can be viewed as playing the role of forerunners for a more open trading future for Korea. -KH Lee (myohyangjiri@yahoo.co.kr)-

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