Free Economic Zone

The Korea Free Economic Zone (FEZ, 경제자유구역/經濟自由區域) is designated by law to facilitate foreign investment, and thereby to strengthen national competitiveness and seek balanced development among regions by improving the business environment for foreign-invested enterprises and living conditions for foreigners.

As of 2012, the following six FEZs have been established since 2003 to attain their own purpose.
 * Incheon (인천) since August 2003
 * Busan/Jinhae (부산/진해) since March 2004
 * Gwangyang (광양) since March 2004
 * Yellow Sea (황해) since July 2008
 * Saemangeum/Gunsan (새만금/군산) since August 2008
 * Daegu/Gyeongbuk (대구/경북) since August 2008

Jeju (제주도) is not a FEZ but a free international city. In the north to the Demilitarized Zone (DMZ), special economic zones (SEZs) have been constructed since 2002. Following the Shenzen's success, North Korea established the Sinuiju Special Administrative Region, the Geumgang Tourism Zone and the Gaeseong Industrial Complex in 2002, respectively in accordance with the relevant SEZ acts of North Korea. Of these SEZs, only Gaeseong SEZ survives the politico-diplomatic difficulties surrounding the Korean Peninsula. In the early 2012, Hwangeumpyeong (황금평) district in the Yalu near Sinuiju was designated as a new SEZ exclusively for Chinese investors.

Key words
free economic zone, foreign capital, investment environment, tax holidays

Purpose
Whe the whole opening and deregulation of an economy seems to be really difficult, a special area may be desiganted and operated as a free economic zone to disseminate its effects to other areas. Korean government under the President Roh Moo-hyun introduced the concept of free economic zones which enjoy the best business environment and living standards to promote the North Eastern Asia Hub in Korea.

Faced with the international competition increasingly heated, such free economic zones will house new prime movers like logistics and financial service industries as well as information technology and bio-technology-based enterprises. To attain the purpose as stated above, each free economic zone is supposed to induce global businesses by providing world-level economic and social infrastructure and business incentives, to develop top class urban environmnets by constructing mixed-use buildings such as sophisticated airports, harbors, office spaces as well as convenient schools, hospitals and leisure facilities.

FEZ Authorities are eager to induce foreign capital and technologies. So FEZ Authorities' policy measures are focused on:
 * Setting up "Invest Korea" projects to encourage foreign investments
 * Providing foreign investors with financial assistance and incentives including tax benefits, cash grants, etc.
 * Improving the living conditions for foreigners such as foreign schools and medical services, simultaneous interpretation services and rental housing.

Benefits of FEZ
Under the relevant law, FEZ may enjoy following incentives and special treatment that other areas cannot dream of:
 * Tax holidays: 100 percent of the income tax, corporation tax, etc. to foreign-invested entrises shall be exempted or reduced for the first three years, then 50 percent for the subsequent two years.
 * Incentives and cash grants: FEZ developers are entitled to exemption of public charges. Also State fiscal grants are provided to local development of infrastructure, and reduction of lease for the benefit of foreign-invested enterprises.
 * Special treatment: Foreign-invested enterprises are excluded from the regulation of the maximum quantity of factories in the Great Metropolitan Area. They are free of mandatory employment of the persons of distinguished services to the State and the disabled. They are allowed to apply unpaid day-offs, and the extended scope of works and period for dispatched workers.
 * Schools and hospitals: Foreigner-operated educational institutions and hospitals may be established to improve the living conditions of foreigners.

Current Status
FEZ concepts and top priority policy measures are different by each FEZ.

Incheon
IFEZ covers Incheon City, Yeongjong Island and Incheon International Airport. Taking advantage of its geographical merits, IFEZ is eager to bring in regional headquarters of multinationals and to build up international logistics business-related enterprises. IFEZ project amounting up to 26.6 trillion won is scheduled to complete in 2020.

Busan/Jinhae
Busan/Jinhae FEZ is focused on construction of Busan New Port and logistics center for which 8.4 trillion won will be invested until 2020.

Gwangyang
Gwangyang FEZ aims to build up precision chemistry, new materials and other advanced industries with investments up to 13.5 trillion won by 2020.

Hwanghae
Hwanghae (meaning the Yellion Sea) FEZ is concentrating on automobile parts, IT/BT-related industries for which up to 7.4 trillion won will be invested until 2025.

Saemangeum/Gunsan
SGFEZ is characterized by the environment-friendly industries such as new recycled energy and bio-industries, leisure and tourism, and has a plan of 5.3 trillion won being invested until 2030.

SGFEZ is divided into three sub-zones; Saemangeum Zone (Saemangeum Industrial Zone / Saemangeum Tourism Zone), Gogunsan Islands Zone and Gunsan National Industrial Complex. SGFEZ of 50.4km2 will be developed as “Hub of Biz Frontier in East Asia” by 2020 with the estimated investment of 3.9 trillion won.

Daegu/Gyeongbuk
DGFEZ covers Daegu City and Gyeongsangbukdo (Gyeongbuk Province) including such cities as Gumi, Pohang, Gyeongsan, and Yeongcheon. The Daegu-Gyeongbuk region is home to 5.5 million people and over 13 percent of the nation’s manufacturers including global conglomerates Samsung, LG, Hyundai and POSCO.

DGFEZ focuses on four major industries; IT convergence, high-tech transportation components, green energy, fashion design and medical services. DGFEZ project totalling 4.6 trillion won is scheduled to conclude in 2020.

Prospects
Korea FEZs aim to create a world class industrial and cultural complex by ushering in promising high-tech industries beyond the existing export processing zones or free trade zones. So far, FEZ policy has been concentrated on building up residential areas with insufficient foreign direct investments.

It is advisable to encourage joint development or joit venture investment between local companies and multinationals to increase foreign direct investments. In this regard, a government task force concluded at the end of 2009 that the nationwide FEZ projects performed not so good and need some changes. Most of FEZ projects were focused on a mere urban development plan, and would be modified so as to build up the original foreigners-oriented business environments as follows:
 * To allow international middle and high schools which accommodate both foreign and Korean students to be established;
 * To establish international general hospitals for profit to treat foreigners pursuant to the Presidential Decree; and
 * To make test-beds for the deregulation of foreigner-related public services.