FEZs Pick Up Speed in Attracting FDIs

Seek to further relax restrictions to evolve into free international cities fitted with top-notch management and living conditions.

Fours years have passed since the inauguration of the Free Economic Zones across the nation - the Incheon, Busan-Jinhae and Gwangyang Bay Area FEZs. The FEZ Planning Office is now shifting its FDI attraction strategy from development project to accommodating foreign-invested tenant corporations, foreign medical and educational institutions and high-tech clusters that will have a great spill-over effect on the development of the FEZ. The following are the excerpts of a written interview with Song Jae-jung, director General of Planning Bureau at the Free Economic Zone Planning Office with NewsWorld - Ed.
Question: As part of efforts to develop Korea into a business hub of Northeast Asia, the government has set aside the Incheon, Busan-Jinhae and Gwangyang Bay Area free economic zones. Would you tell our readers about the development process of each FEZ and steps to ameliorate restrictions?
Answer: The IFZ Planning Office has focused on the institutional and infrastructure revamp at an initial stage - a three-year period after the inauguration of the free economic zone system. It has strived not only to conduct development projects, but also to conform all standards to global ones. Restrictions have been eased in such fields as education, medical care and housing lest employees of foreign companies should experience inconveniences. The office has ameliorated restrictions and regulations so that hospitals and foreign schools can be established within the FEZs and an environment corresponding to that of free international cities can be created by making rates of total floor area and ground housing area to the plot size flexible for the construction of structures within the FEZs. Less than $10,000 worth of foreign currency can be transacted without permission and official documents are offered in English. Besides, foreign companies are exempt from labor-related restrictions and the ones imposed on the Seoul Metropolitan area as well as paying taxes - corporate and income taxes.
Projects for developing the FEZs have so far made some progress. First, in the case of the Songdo international business complex, one of the leading projects in the Incheon Free Economic Zone, a convention center and an international school broke ground during last year. Entering the year 2007, the projected POSCO headquarters, 65-floor Asia Trade Center, Central Park, Convention Center & Hotel and a projected cluster for ubiquitous IT infrastructure followed suit. In late last year, Morgan Stanley announced a $350 million equity investment into the Asia Trade Center, business and commercial facility projects worth a combined $3 billion in New Songdo City.
A preferred foreign negotiator has been selected through an international bidding for a project to develop the Cheongna district, a strong point with proximity to Seoul, into an international financing and tourism/leisure complex, and a contract is to be singed. In February this year, Lotte E&C and Macquarie inked an agreement on the construction of a theme-park golf & country club.
Incheon International Airport, located in the Yeongjong District, which topped the "Best Worldwide"ranking by the IATA/ACT's AETRA survey for the second straight year last year, is set to be developed into a world-class airport hub city of aviation logistics and tourism. Lippo Group, a prominent Chinese-owned business group, inked a deal to develop the Unbok leisure complex into "China Town"in November 2006 and a related special purpose company (SPC) was established last month.
In the case of the Busan/Jinhae Free Economic Zone, Busan New Port has opened in January 2006 and efforts to attract tenant companies that will be accommodated in the logistics support area are under way. BJFEZ is actively accelerating its bid to attract foreign companies of high-tech machinery/materials industries into the Shinho/Busan Science Industrial Complex, and the Hwajeon industrial complex project broke ground last October.
The Gwangyang Bay Area FEZ is striving to reinvigorate Gwangyang port and attract cargoes. The Hwayang Leisure Complex in Yeosu project is set to be launched in connection with Yeosu bid to host the 2012 World Expo.
If an amendment bill of the Free Economic Zone Act, which was approved by a meeting of ministers on the relaxation of administrative restrictions last November and now submitted to the National Assembly, is given a nod, it would facilitate FIZ development projects and foreign direct investments.
It would lay an institutional groundwork not only to provide FEZ authorities with autonomy and professionalism in undertaking development projects, but also to dramatically simplify the procedures related to development. The FEZ Planning Office is seeking to continue to ease or revamp restrictions related to development through additional regulation revisions.
In a related development, the FEZ Planning Office plans to allow medical foundations who open medical institutions within the FEZ to engage in such ancillary businesses as hot spas. Foreign companies which meet the required conditions for investing $5 million into the tourism field will likely be allowed to open a casino for an exclusive use by foreigners. The plans are part of measures the FEZ Planning Office seeks to take to reduce restrictions to the extent that the FEZ can be evolved into a world-class city.
Q: Would you elaborate on plans to establish international schools within the FEZ?
A: The development of physical hardware is important to invigorate the FEZ, but the software side - an improvement of a living environment for foreigners and foreign companies - needs to be complemented. Unlike the existing industrial estates that focus on attracting foreign investments into manufacturing fields, the FEZ is designed to accommodate multinational corporation headquarters and evolve into a free international city fitted with top-notch management and living conditions. In this regard, we are striving to attach priority into the quality of foreign investments rather than the quantitative side. In particular, the establishment of prominent schools and hospitals is the key point of the "Quality of Life Project designed to upgrade the rung of the value of a Free International City a step higher.
The Incheon Free Economic Zone plans to accommodate a prestige international school (K-12) as part of the efforts to improve foreigners"living conditions. International School Services sealed an MOU on the operation of New Songdo International School whose opening is scheduled for September 2008. Negotiations on the establishment of an international school in the Yeongjong area are under way.
The Gwangyang Bay Area FEZ will see a branch of Shipping and Transport College in Rotterdam opening in March 2008, Korea's first foreign college to open with a FEZ..
Q: What steps do you adopt to alleviate restrictions concerning the establishment of foreign hospitals?
A: The FEZ Planning Office is seeking to amend the Free Economic Zone Act in a bid to reduce restrictions concerning the establishment of foreign hospitals. First, we plan to expand the entities qualified for the opening of foreign hospitals, now limited to foreigners (foreigners, foreign corporate body and international economic institution). The proposed revision would allow corporations under the Commercial Code to open foreign hospitals. We plan to expand the scope of subsidiary businesses of foreign hospitals and foreign medical corporations. They would be allowed to do business in such business areas as hot spas and hotel business in addition to parking facilities and other business permissible under current law in an effort to help them provide foreign patients with medical treatment and vacation. We are seeking to legislate a special act that would stipulate the establishment of foreign hospitals and license guidelines for foreign medical staff.
Q: Does the FEZ Planning Office have any plans to hold an overseas IR session designed to boost foreign investments ?
A: We have spent much of the time to revamp relevant systems and built up infrastructure in an initial stage following the establishment of the FEZs. Such groundwork has begun to yield some tangible fruits in attracting FDIs. The FEZ Planning Office is ready to step publicity activities in a more aggressive fashion during 2007, marking the fourth year since the inauguration of the FEZ.
The FEZs jointly participated in MIPIM 2007, the world's property market held in Paris March 16-19 to promote FDIs. We are now studying a plan to make the IR rounds of Americas and Europe, dubbed "FEZ KOREA IR,"around September or October. Considering the industrial characteristics of each region in the United States, we plan to hold an IR session on Los Angeles port and entertainment industry in Los Angeles; on marine logistics, bio-tech, medical fields in the nearby Silicon Valley; aviation/logistics, bio-tech and leisure industries in the central city of Chicago; and financing, education and medical industries in the eastern city of New York. We place priority into making IR road shows to Europe, a region of less concern. The IR sessions will be tailored to target specialized areas in a bid to dramatically boost foreign investments from the region - on the logistics sector in the global logistics center of Amsterdam; on advanced manufacturing, BT/IT and financing in Frankfurt; on high fashion, convention industry, and tourism/leisure in the internally-renowned cultural city of Paris; and financing and real estate development in the global financing center of London. Each FEZ will adopt its own differentiating strategies designed to tailor their target industries in a more aggressive approach for planning IR sessions in which representative of leading corporation of each target city will be invested. The IR sessions will be performance-oriented through collaboration with such relevant organizations as kotra.
Q: Would you specify the status and future plans of foreign investments according to each FEZ?
A: The FEZ endeavors not only to improve a business-friendly environment conducive for attracting FDIs but also to create conditions suitable for foreigners's living. According to a strategy of focusing on the development concept of each FEZ, the three FEZs signed a total of 34 contracts worth a combined $208 million by 2006.
The Incheon FEZ is accelerating a leading project to develop an international business complex in New Songdo. A main contract is to be signed on the preferred negotiator of a bid for the development of the Cheongna District.
The BJFEZ is making its utmost to accommodate such foreign companies of state-of-the-art machinery and materials industries from such countries as Japan, the United States and Hong Kong into the Shinho-Busan Science Complex. During this year, it is striving to step up marking activities to attract foreign medical and educational institutions as well as investments into high-tech industries and R&D fields.
The Gwangyang Bay Area FEZ has successfully accommodated tenant corporations in the logistics support development area. It plans to reinforce an intensive drive to attract FDIs in such priority sectors as steel, assembling machine, precision chemicals, new materials and logistics with high feasibility.
The FEZ has been now undertaking projects to build up infrastructure. Foreign investments related to development projects have been so far primarily done, but from now on, its focus on FDIs will be on accommodating prominent foreign tenant companies. Put on the priority marking activities list will be such categories that will have a great spill-over effect on the development of the FEZ - foreign-invested companies, foreign universities, R&D centers, and cutting-edge clusters.
To this end, local FEZ authorities are expanding the scope of filling job positions of the FEZ in an open, contract-based system, while aggressively strengthening efforts to publicize the FEZ through domestic and overseas IR session, invitations of promising corporations and joint publicity activities with related organizations. nw

Song Jae-jung, director General of Planning Bureau at the Free Economic Zone Planning Office at the MOFE