Free Economic Zones
Waiting in the Wings

Laying institutional foundation for becoming a Biz Hub of Northeast Asia

Three years have passed after Korea's Free Economic Zones - Busan-Jinhae, Incheon and Gwangyang Bay - were created as the magnet of foreign investments with the goal of making the nation a financial, logistics and business hub of Northeast Asia. FEZs, armed with institutional reforms, are now waiting in the wings to take a leap forward.
Cho Sung-ik. deputy minister of the Planning Office of FEZ at the Ministry of Finance and Economy, said, "FEZs, entering the fourth year, have only laid an institutional foundation for attracting foreign companies and hospitals as some major achievements have been made so far."Incheon, Busan-Jinhae and Gwangyang Bay FEZs go into high gear for full-fledged development with the launching of leading projects, and foreign investments are unsatisfactory, at an initial stage, yet on the rise, Deputy Minister Cho noted in a speech during an international conference marking the third anniversary of the establishment of FEZs at Hotel Shilla in Seoul on July 6.
The international conference, titled "From FEZs to a Northeast Asian Business Hub: Challenges and Future Directions,"was organized by the Korea Institute for International Economic Policy. The sponsors of the conference included the Planning Office of Free Economic Zone,
Incheon Free Economic Zone Authority (IFEZA), Busan-Jinhae Free Economic Zone Authority (BJFEZA) and Gwangyang Bay Area Free Economic Zone Authority (GFEZA) and Korea Land Corporation. Sponsored by AMCHAM, EUCCK, Korea Chamber of Commerce and Industry, the Federation of Korean Industries, Invest Korea, and IBC Forum.
In his opening ceremony speech, Deputy Prime Minister-Minster of Finance and Economy Han Duck-soo, recognizing the significance of FEZs as a business and logistics center of Northeast Asia, reconfirmed the government's firm determination and support.
"The competition for a regional business was already very stiff. Hong Kong, Singapore, Dubai (UAE) and Shanghai were there much earlier in the race to become a global business and logistic hub,"Deputy Prime Minister Han said.
"Nonetheless, the FEZ initiative was the best possible strategy for us to grow into a Northeast Asian economic hub. Because we are confident in our ability to provide world-class business and living environment, optimizing the opportunities and advantages we had.
It aimed at attracting foreign investment through opening, brining more jobs and creating added value to our economy,"he said.
Han said he was deeply impressed and even humbled by Dubai's unique development model. However, he said, "he must be cautious not to replicate their experiences, given the differences in economic systems, cultural aspects and they started when the times were different from today. We have to be original and creative in this process. We need to embrace the lessons and move beyond."Attended by about 200 people, including government officials related to FEZs, businessmen and experts, the international conference comprised of three sessions with eight speakers presenting themes and discussions.
Given the Korean economy, which suffered difficulties with the bitter aftermath of the 1997-98 financial crisis, Korea needed a catalyst to expedite its strides and returning to normal. Against this backdrop, the Korean government began the FEZ initiative.
WHY KOREA's As one of the three economic blocs of the world, Northeast Asia serves as a driving force behind future global economic growth and accounts for 21 percent of global GDP, 25 percent of global population and 15 percent of global trade.
Korea is strategically located between the giant economics of China, Japan, which are the world's largest single market and the world's second largest economy, respectively. Fifty-one cities with populations exceeding 1 million are located within a 3.5-hour flight of Seoul, while 700 million people live within a 1,200 km radius of Seoul.
In addition, Korea functions as a gateway to Northeast Asia for companies taking full advantage of its world-class airport and ports. The world's 10th largest economy with a population of 50 million, massive foreign exchange reserves, a competitive industrial base, excellent IT infrastructure and a highly educated and motivated workforce combine to make investment opportunities in Korea highly attractive.
Korea benchmarked best practices abroad in a bid to make its institutions confirm with global standards and practices. The nation has also pushed ahead with legal and institutional reforms in order to make sure that the zones are a business-friendly and family-friendly environment.
Three years ago, the government designated 100,000 acres for logistics infrastructure in Incheon, Busan-Jinhae and Gwangyang as FEZs. It is actively developing these areas to provide foreign-invested companies with optimal business and living conditions.
Foreign-invested companies entering the FEZs are entitled to a variety of benefits and support in terms of business and living conditions such as the application of loans and regulations that meet global standards, tax breaks, land provisions at affordable prices, favorable treatment of labor, education and health care services and special housing prices for investors. Foreign-invested companies in the zones are given such tax reductions as income and corporate tax exemptions for the initial three years and 50 percent reductions for the following two years; tariff exemption for capital goods imports for three years; acquisition, registration, property and aggregate land tax exemptions for the initial three years and 50 percent reductions for the following two years; and a flat 17 percent income tax for foreign corporate executives.
The central government supervises financial support, regulation improvement and related agencies through the Planning Office of Free Economic Zones established under the Ministry of Finance and Economy.
Three independent authorities, one in each FEZ, provide one-stop administrative services.
A dispute settlement body has been created to establish order in international transactions by resolving commercial disputes arising in the FEZs in a fair and speedy manner.
Korea has publicized the FEZs under the slogan "Make it Bing in Asia."It has a dual purpose: A message to Koreans that the nation can become a center of Asia based on the phenomenal economic growth over the past 50 years and a vision of success to investors that they can achieve a great accomplishments in Asia and growth future value by investing in Korea's Free Economic Zones.

Incheon FEZ
Incheon FEZ (IFEZ), Korea's first of its kind, has been in the vanguard in attracting a slowing yet consistent flow of foreign investments into the area.
Designated on August 11, 2003, IFEZ covers a total area of 51,755 acres, comprising of Songdo New City, Cheongna and Yeongjong districts.
IFEZ with a planned population of 480,000 will channel approximately $15 billion to build up infrastructure during the period between 2003 and 2020.
Boasting excellent geological advantages as Incheon International Airport, the world'third largest, and Port of Incheon, IFEZ is gaining the momentum for development. The Incheon Free Economic Zone Authority (IFEZA) is trying to capitalize on its competitive advantages of Incheon and benefits of a FEZ to realize a vision of Northeast Asia's leading city for business and living.
IFEZA is adopting a four-hub development strategy calling for the construction of four hubs ? Business Hub, Logistics Hub, IT-BT Hub and Leisure & Tourism Hub.
Specifically, authorities are setting their sights on building Songdo International Business Center, Convention Center, Cheongna Finance Center and Yeongjong International Business Center under the Business Hub plan. The Logistics Hub plan calls for the development of Incheon International Airport, Port of Incheon, Free Trade Zone and High-tech Logistics Complex. The IT-BT Hub plan visualizes the construction of ubiquitous-IT custer, Knowledge-based Industrial Complex and Bio-technology Industrial Complex. The Leisure & Tourism Hub plan envisions the construction of Yongyu-Muui Tourism Complex and Cheongna Leisure & Sports Complex/Theme Park.
As part of its efforts to differentiate itself, IFEZA wants to transform IFEZ into an "intelligent city"ensuring connection to computer networks anytime and anywhere. IFEZ will be equipped with the world's best amenities with over 36 percent of the area being allocated for green space for abundant parks and leisure facilities. The FEZ area will have cutting-edge transit systems such as personal rapid transit (PRT) and light rail transit (LRT) to minimize pollution and congestion.
Leading the pack of investors into IFEZ are the U.S, developer Gale Co. and POSCO E&C, which join forces to develop the Songdo New City. Stanley C. Gale, chairman of the Gale Company, USA, said, "We are managing $12.7 billion to develop Incheon's New Songdo City into Korea's most up-scale urban environment."Take a look into the major achievements in attracting foreign investments, to name a few. Gale and POSCO will build an international business center on 1,362 acres of reclaimed land. Construction of the Convention Center began in 2005 and construction of the 65-floor landmark Northeast Asia Trade Center will begin in 2006.
Korea KT&G , Nextol Corp., J. Stephan & Co. and the world-renowned U.S. pharmaceutical company VaxGen founded Celltrion and began operations in July 2005.
A consortium led by the British company AMEC is the contractor of the project to build Incheon Bridge linking Incheon Int'l Airport and Songdo New City. The project began in 2005 and is scheduled to be completed in 2009.
GM Daewoo will invest approximately $28 million into automobile proving ground development and $70 million into R&D facilities.
Together with Portman Holdings of the U.S., Hyundai E&C, Samsung Corp. and SYM will build the 151-story (610 meter-high) Twin Incheon Towers that will be constructed by 2010 on 1,568 acres that are close to the International Business Center.

Busan-Jinhae Free Economic Zone
The Busn-Jinhae Free Economic Zone (BJFEZ) has a competitive edge as it is strategically situated as the gateway to major locations ? an access to a market of 1.4 billion people within a 3-hour flight.
BJFEZ has Busan port, which serves as a major port along the North American and European trunk routes and also has accessibility to trans-continental railways. Busan port ranks fifth in the world following Singapore, Hong Kong, Shanghai and Shenzhen. The FEZ has such infrastructure as Gimhae International Airport, Bullet Train and Busan-Japan ferry/cruise as well as hotels and convention centers.
The FEZ opened New Port early this year with the goal of becoming a logistics hub of Northeast Asia. By 2011 New Port will have 30 berths. The project will cost US$7.6 billion in government and private investments.
BJFEZ has the world's leading industries in its neighboring cities, including shipbuilding and automobiles in Ulsan and mechatronics in Changwon, shipbuilding in Geoje, aerospace in Sacheon, and logistics and tourism in Busan, producing a synergetic effect. Automobile plants near the zone account for 45 percent of the nation's total capacity. Renault Samsung Motors has a plant in the zone.
The neighborhood industrial belt has made the Busan Science & Industrial Park, now in operation in the FEZ, a magnet of foreign investments. The science and industrial park with an area of 496 acres has attracted nine foreign companies and 118 domestic firms specializing in such fields as automotive parts, mechatronics, new materials and R&D centers. The Hwajeon Industrial Complex, to break ground soon, will accommodate auto parts, R&D centers, mechatronics, shipbuilding equipment plants.
BJFEZ also aims to become the region's tourism hub. Real estate developer Emerson Pacific Inc. and the Morgan Stanley Real Estate Fund Inc. will jointly invest some $160 million in the development of the Namsan Amusement Park. Development of Sonw Box resort and Ungdong Resort are also planned.
Myeongji New International City will offer residential, commercial and business functions as well as public park space for recreation. Plans include the construction of international schools & hospitals, shopping centers, and seven recreational/ leisure facilities.

Gwangyang Bay Area FEZ
The Gwangyang Bay Area Free Economic Zone (GFEZ) aims to serve as an international maritime logistics center and an industrial cluster for petrochemicals and steel industry in Northeast Asia. GFEZ consists of the Gwangyang, Yulchon, Shindeok, Hadong and Hwayang districts. These five areas will house leading international business, logistics, manufacturing, international complexes and leisure facilities.
Port of Gwangyang is one of the world's fastest growing ports with cargo volumes surging over 20 percent per annum. The port, an ideal place with natural advantages, deep waters and safe from storms, has advantages such as port using cost, transfer cargo incentives and permission for foreign liners'coastal transportation.
GFEZ has attracted many international companies, including Hong Kong conglomerate Hutchison Whampoa, which will participate in the $40 million port operation scheme. The Dutch logistics firm Steiweg will invest $35 million to construct cargo terminals designed to handle international containers being transported from Europe to China and Japan.
In order to create Northeast Asia's leading trans-shipment container port, 33 berths will be completed by the year 2011 with expected total capacity of 8.33 million TEUs per year.
Gwangyang Port's East Hinterland covering 1.95 square km will increase the trans-shipment capabilities of the port by attracting global leading logistics companies.
Korean giant steelmaker POSCO is also a big investor in the bay area with France-based SMSP.
The port's Seaman's Club will be finished soon and the new Marine Center with its 22-story twin tower is under construction.
The Yulschon District is undergoing changes with Meiya Yulchon Power Plant having started commercial operations. Yeosu and Hwayang will be developed into a leisure complex by 2012. The Yeosu Petrochemical Complex accommodates more than 100 petrochemical Korean and international companies. The Gwangyang area has POSCO steelworks and Hyundai Steel Corp, with a combined production of 17 million tons of steel per annum. nw

(Clockwise) An international conference is in session in celebration of the third anniversary of creation of Free Economic Zones; Cho Sung-ik, deputy minister of the Planning Office of FEZ at the Ministry of Finance and Economy,; former minister of construction and transportation Koh Byung-woo; the staff of the Planning Office of FEZ during a ceremony marking the third anniversary of creation of FEZs; and the participants of an anniversary reception (from left)Lee Hwan-kyun, IFEZA commissioner,; Oh Kap-won, KNSO commissioner,; Cho Sung-ik,; Chang Soo-man, BJFEZA commissioner,; and Baek Ok-in, GFEZA commissioner.