Incentives such as Rent Reduction and Below-Cost Sale for Domestic Investment Companies in 'Knowledge and Bio Sectors' Located Outside the Capital Region

Promulgation of Partial Amendment to the Economic Free Zone Act Approved by the Cabinet Meeting

'Free Economic Zone 2.0, 2030 Vision and Strategy' Follow-up Measures
Selection of Core Strategic Industries by Free Economic Zone
Establishment of Development Plans to Foster Core Strategic Industries

[Sejong=Asia Economy Reporter Joo Sang-don] Going forward, advanced technology products and core strategic industries within free economic zones located in non-metropolitan areas such as Businjinhae, Gwangyang Bay Area, and Daegu-Gyeongbuk will receive incentives such as rent reductions and sales below development cost, similar to those provided to foreign-invested companies. The purpose is to expand the scope of incentive recipients to revitalize investment in the currently sluggish free economic zones.

The Ministry of Trade, Industry and Energy announced that the partial amendment to the "Special Act on the Designation and Operation of Free Economic Zones," which includes these provisions, was approved at the Cabinet meeting on the 8th.

Since the introduction of the free economic zone system in 2003, the development rate has increased from 29% in 2009 to 60.1% in 2015, and 89.8% in 2020. The number of resident companies grew from 4,656 in 2016 to 6,143 in 2019, with sales increasing from 71.1 trillion won to 111.3 trillion won during the same period, and jobs rising from 132,000 to 183,000.

However, foreign direct investment (FDI) performance within free economic zones has sharply declined recently, dropping from 2.3 billion USD in 2016 to 1.02 billion USD in 2019. The COVID-19 pandemic is accelerating reshoring, where companies that had moved overseas are returning to domestic operations.

In response, the government announced the "Free Economic Zone 2.0, 2030 Vision and Strategy" last October through the National Policy Review and Coordination Meeting, which includes providing investment incentives to domestic companies as well. The amendment bill containing the main points of this strategy was passed by the National Assembly plenary session on the 21st of last month and approved at this Cabinet meeting.

An official from the Ministry of Trade, Industry and Energy explained, "Free economic zones have been operated mainly focusing on development and attracting foreign investment, with insufficient roles in creating new growth engines and supporting innovative growth. Incentives previously provided only to foreign-invested companies will now also be offered to domestic companies, but limited to advanced technology products and core strategic industry investors located in non-metropolitan areas, considering the financial burden of incentives and the undesirability of concentrating economic power in the metropolitan area."

This amended law selects core strategic industries by free economic zone, provides incentives to investors in advanced technology products and core strategic industries, establishes development plans to foster core strategic industries, and specifies the role of the Free Economic Zone Authority to promote these efforts. According to the amendment, the head of the Free Economic Zone Authority requests the Minister of Trade, Industry and Energy to select core strategic industries with the approval of the relevant city or provincial governor. The Minister then selects and announces the core strategic industries after consultation with central administrative agencies and review and resolution by the Free Economic Zone Committee. When selecting core strategic industries, considerations include ▲ industries with significant technological and economic ripple effects that contribute to the development of related industries, and ▲ industries that contribute to fostering and specializing according to the characteristics and conditions of each free economic zone.

Investors in advanced technology products and core strategic industries located in free economic zones in non-metropolitan areas will receive locational benefits such as ▲ sales below development cost ▲ exclusive land occupancy ▲ allowance of private contracts ▲ rent reductions ▲ long-term leases of national and public land and permission to construct permanent facilities.

Additionally, city and provincial governors are required to establish and implement development plans for free economic zones every five years to efficiently promote the basic plans of the zones. The development plans include the development goals of the free economic zones, evaluation results of the previous development plan's implementation and performance, current status and condition analysis of core strategic industry attraction, key tasks for the next ten years, and plans for fostering and specializing core strategic industries. The Free Economic Zone Authority is responsible for requesting the selection of core strategic industries, fostering and specializing them, establishing development plans, discovering regulatory innovation tasks for new industry promotion by resident companies, fostering and supporting new industries and companies, developing innovative technologies through joint research and development among industry, academia, and research institutes, and establishing and implementing domestic and foreign investment attraction measures.

The Ministry of Trade, Industry and Energy plans to promptly prepare an amendment to the enforcement decree concerning delegated matters such as the "core strategic industry selection procedure," and proceed with legislative procedures including public notice immediately after the law is promulgated on the 15th. The law will be enforced three months after promulgation (September 16).

An Sung-il, head of the Free Economic Zone Planning Division at the Ministry of Trade, Industry and Energy, said, "Free economic zones need to strengthen the foundation for global new industry development for innovative growth in addition to existing development and foreign investment attraction to respond to global environmental changes. We will cooperate with local governments to ensure that free economic zones lead regional economic revitalization through innovative growth by faithfully implementing the provisions stipulated in the law."

This content was produced with the assistance of AI translation services.