Zones not free or economical

The government decided to revamp its plans for Korea’s free economic zones, which have stalled. Areas that have made no significant progress attracting foreign investment and have been left undeveloped for years will be transformed into general industrial zones, while other areas that have yielded results through differentiated projects will be given subsidies. The regulations for establishing foreign educational and medical institutions, whose strictness has hampered FEZ development, will be loosened. Although belated, it is fortunate that the government has decided to overhaul FEZs across the board, recognizing the seriousness of the issue.

These zones have been a national project since the Roh Moo-hyun administration, part of a bid to make Korea an economic hub of Northeast Asia by attracting foreign investment. But from the outset doubts have arisen over whether they will succeed considering their relationship with regional politics. FEZs have been designated as rewards to specific regions, leading to poor foreign investment and lots of apartment buildings for Koreans. With no foreign capital or companies coming in, some of the zones have ended up as typical bedroom communities.

The six FEZs scattered across the country - Incheon, Busan-Jinhae, Gwangyang, Hwanghae, Daegu-Gyeongbuk and Saemangeum-Gunsan - have attracted total net foreign investment of $8.5 billion over the past seven years. Of that, 95 percent has been concentrated in real estate development and leisure. Foreign direct investment involved with actually bringing the offices of foreign firms to Korea totaled $1.9 billion, or just 2.5 percent of overall FDI. These results are so poor they hardly merit the term “free economic zone.”

The major culprits behind these failures are recklessness in designating FEZs, leading to a failure to differentiate them, and stiff regulations on educational and medical facilities. Korea had free economic zones in name only, with no economic feasibility or freedom.

Although the government’s decision to reform free economic zones is positive, the planned improvements still leave much to be desired. Making the six FEZs compete for aid will take care of the problem in the short term, but is not a fundamental solution. If the government intends to develop the zones into economic hubs competitive with Singapore or the Pudong New District in Shanghai, it should instead reduce the number of FEZs. Meanwhile, strict restrictions on amendments to development plans might prevent the conversion of buildings to apartment complexes, but it won’t build our international competitiveness. All this means it is likely that FEZs will grow sluggish once again if foreign educational and medical institutions fail to be built.

The government needs to consider more drastic measures. If it cannot improve the situation in the FEZs due to its consideration of local sentiment, they will become bait for national controversy, just like Sejong City and the “innovative cities” project.