Korean Government Announces “Free Economic Zone 2.0: 2030 Vision and..

Korean Government Announces “Free Economic Zone 2.0: 2030 Vision and Strategies”

□ Over the past 17 years since the Free Economic Zone system was introduced in 2003,
the nine Free Economic Zones in Korea have made much progress in terms of development—the FEZs’ overall development rate stands at 89.4%. 
* Development rate: 29% in 2009 → 60.1% in 2015 → 89.4% in August 2020 (increased by 60.4%p over the last 11 years)
 
ㅇ In particular, the number of companies moved into the FEZs between 2016 and 2018 and the business performance indicators (sales, employment, etc.) have shown an upward trend—an annual average increase of around 10%.
 
【 Statistics regarding companies that recently (2016-2018) moved into Korean FEZs (annual average increase rates) 】

(Number of resident firms) 4,656 → 5,761, annual average 11.2%↑
(Sales of resident firms) 71.1Trillion KRW → 102.6 Trillion KRW, annual average 20.1%↑
(Amounts of investment) 4.2Trillion KRW → 5.0 Trillion KRW, annual average 8.7%↑
(Number of jobs) 132,000 → 167,000, annual average 12.2%↑

□ However, Korean FEZs are currently focusing only on FEZ development and foreign investment attraction by implementing measures such as offering investment incentives to foreign-invested companies. 

* △ Unlike foreign-invested companies and reshoring companies, domestic companies in FEZs don’t receive any investment incentives.

△ The government relaxed regulations for FEZs to promote their development, but is not implementing regulatory reforms to invigorate new industries.
 
ㅇ Therefore, the current FEZ system does not properly reflect changes in global business environment, such as strengthening protection of domestic industries
and intensifying competition to take the lead in developing new industries. The government needs to create new growth engines for the FEZs and support the FEZs’ innovative growth.
 
□ For this reason, the Ministry of Trade, Industry and Energy (MOTIE) laid out “Free Economic Zone 2.0: 2030 Vision and Strategies” to set a new direction for the FEZs,
offering investment incentives to domestic companies and laying the foundation for regulatory innovation to invigorate new industries.
 
   
【 Vision & Strategy 】
 
□ The new plan will be implemented in accordance with the vision of establishing “global bases of new industries that lead innovative growth.”
ㅇ The government will undertake various policy tasks related to three strategies of (1) expanding the direction of the FEZs, from developing the FEZs and attracting foreign investment
to the FEZs to achieving innovative growth of the FEZs, (2) offering incentives to high-tech and key strategic industries, and (3) implementing regulatory reforms to facilitate investment in new industries.

ㅇ By 2030, the government aims to (1) attract KRW 60tn of domestic and foreign investment to the FEZs (a cumulative investment of KRW 60tn), (2) attract 4,000 more companies
to the FEZs (a cumulative number of 10,000 companies), and (3) create 200,000 more jobs in the FEZs (a cumulative number of 410,000 jobs).
 

【 Key Strategies 】
 
1. Strengthening the foundation for the development of global new industries in the FEZs 
ㅇ Key strategic industries will be selected based on the characteristics and conditions of each FEZ.
* The Special Act on Designation and Management of Free Economic Zones (or the “Free Economic Zone Act”) will be revised to establish the legal basis for the selection and notification of key strategic industries.

ㅇ Development plans for each FEZ focusing on key strategic industries will be established. 
- The FEZ development plans will be established by FEZ Authorities every 5 years, reflecting strategies to attract domestic and foreign anchor companies
and those in upstream and downstream industries to the FEZs, visions, and specific measures. 
* Currently, MOTIE establishes general plans every 5 years, but FEZ authorities don’t establish any official plans.
 
2. Expanding incentives to support high-tech industries and key strategic industries
ㅇ The government will designate FEZs that are receiving much attention from investors in high-tech sectors as High-tech Investment Districts,
and provide companies moving into the High-tech Investment Districts with incentives in addition to those contained in the Free Economic Zone Act. 
 

ㅇ Currently, only foreign-invested companies and reshoring companies are eligible to receive location incentives*.
The eligibility for location incentives will be expanded to include domestic companies (companies related to advanced technologies/products and those in key strategic industries) in FEZs
to promote the creation of clusters of key strategic industries in the FEZs. 
* Land incentives include selling properties at below construction cost, allowing private contracts, reducing rent, and allowing moving into land for a specific use.
 
ㅇ The government will provide companies investing in key strategic industries in the FEZs with more regional investment grants (up to 10%p more
when investing in FEZs not in the Seoul Metropolitan Area) to invigorate regional economies.
 * +3%p to large companies; +5%p to mid-sized companies; +10%p to SMEs
 
3. Laying the foundation for regulatory innovation to invigorate investment in new industries
ㅇ FEZ Authorities will form consultative organizations (with KCCI, etc.) to identify regulations that affect new industries and companies willing to invest in new industries.
- In particular, the government will promote the development of regulatory sandboxes by implementing measures, such as offering financial support
for technology demonstration projects as part of the FEZs’ innovative ecosystem support programs.

ㅇ In addition, the government will ease regulations on business activities and development, including extending the validity period of E-7 visa from 3 years to 5 years,
raising the limit of foreign exchange transactions without reporting from USD 20,000 to USD 100,000, and easing requirements
for changing development plans under the authority of mayors or governors.
 
4. Strengthening infrastructure to support innovative growth 
ㅇ The government will establish programs to support innovative growth, form consultative groups based on the needs of resident companies,
and provide resident companies with support in the areas of design, marketing, and commercialization. 
* The government will invest KRW 4.2bn in 2021 and offer appropriate amounts of financial support in subsequent years (based on government measures and the total project cost).
 
ㅇ The government will create clusters of foreign education and research organizations in the Top 3 metropolitan areas in Korea
(the Seoul Metropolitan Area, the Southeastern Area, and the Southwestern Area) to secure outstanding workforces and advanced technologies,
based on which the government will promote cooperation between businesses, academia, and research institutions, so that an innovative industrial ecosystem can be created. 
* Now: 12 foreign education/research organizations (5 universities, 2 kindergartens or elementary/middle/high schools, 5 research institutions)
→ In 2030: 26 foreign education/research organizations (12 universities, 4 kindergartens or elementary/middle/high schools, 10 research institutions)
 
5. Strengthening governance to innovate the FEZs
ㅇ The government will revise the Free Economic Zone Act to state that FEZ Authorities are responsible for supporting resident companies and establishing FEZ development plans
based on the principle of innovative growth, and will gradually increase the proportion of innovative growth support teams within FEZ authorities. 
* [Proportion of tasks] Now: 5% in supporting innovative growth; 75% in administrative and development support; 20% in investment attraction support
→ After improvement: 25% in supporting innovative growth; 50% in administrative and development support; 25% in investment attraction support
※ The above plan will be implemented step-by-step based on the development stage of each FEZ Authority, the number of resident companies, and other conditions.
 
- The government will strengthen the expertise of FEZ Authorities by increasing the number of civilian experts in FEZ Authorities, mainly in innovative growth support teams,
and open the positions of directors and managers in innovative growth support teams to civilian experts. 
* The number of civilian experts (fixed term): 87 (11.4%) in 2019 → 120 (15%) in 2022 → 160 (20%) in 2025
 
ㅇ the government will support the systematic operation of FEZ Authorities by developing evaluation indicators for organizational operation and management
with the help of the Ministry of Interior and Safety and using them for organizational restructuring.
 
□ MOTIE will revise the Free Economic Zone Act and its Enforcement Decree to include legal details necessary to implement “Free Economic Zone 2.0: 2030 Vision and Strategies,”
and will take follow-up steps, including selecting and notifying key strategic industries for each FEZ according to plan.