Smarter free economic zonesThe country’s liberty in assigning free economic zoning has gotten out of hand and is in need of a serious fix. Trials with liberalization in six zones - Incheon, Busan-Jinhae, Gwangyang, the Yellow Sea, Daegu-Gyeongbuk, and Saemangeum-Gunsan - scattered over six out of nine provinces have not been successful in luring direct foreign investment despite the favorable terms offered in taxes, land prices and infrastructure for resident companies.
Still, Gangwon last year applied to create a new free economic zone linking Gangneun, Donghae and Samcheok in the east coast region. If the application is accepted, all three of the country’s coastal areas will zoned as free economic districts. We don’t oppose the eastern coastal region becoming a special economic zone. If liberalization can spur foreign investment and aid local economies, there is no reason why other regions should not enjoy such a privilege.
But the problem is that free economic zone status alone does not attract foreign investment nor benefit the local economy. It can in fact only worsen competition among local governments over a limited number of foreign investors.
The current free economic zones are living proof of this. To make up for a lack of resident foreign companies, the districts are instead building high-rise apartment complexes for local residents. The policy on free economic zones needs to be more selective and focused.
In November, the government decided to remedy this by removing from the list areas with poor records of foreign direct investment while increasing the amount of support granted to more successful areas.
Since then, however, there has been no follow-up action. The government even lacks the ability to overrule economic zones protected by special law. It has also not been specific about the guidelines for what makes an area “successful” and what kind of support it can provide. With such ambiguity, the government would do well to re-evaluate its dream of fostering special economic zones to match the likes of Pudong New District in Shanghai or Singapore.
We need free economic zones in essence, not just in name. The government needs the determination and leadership to redirect its resources so that it can bolster areas with potential.
To start with, it must come up with specific and clear guidelines on which areas it should save, and which ones it should drop. Then it can move on to the next stage of providing the regulations to support its plan.