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Measures to Re-define Functions of Free Trade Zone According to Changes in Foreign Investment Factors
Report No. 2014-01 Research Manager Lee, Sung-Woo
File

Among the four major purposes for free trade zones in Korea, foreign investment attraction, trade promotion and facilitation of international logistics are considered to be achieved well above the certain level. However, it requires time to see the purpose of regional development as it was recently introduced.

China has continued to introduce new institutions, keeping up the changing conditions. It opened Shanghai Pilot Free Trade Zone in 2013 following Bonded Area (1999), Foreign Trade Zone (2000), Bonded Logistics Zone (2003) and Bonded Port (2005). Unlike the free trade zones in Korea, that restrict business types, it’s relatively free for service business to move in the free trade zones in China.


Korea’s free trade area systems do not keep up with the global environment. The governance structure and similar systems are duplicated and mixed and conflict with customs laws. Such issues require solutions. Among existing functions of the free trade zones, the two functions with high possibility of conflict, strengthening of trade function and regional development, should be separated and re-aligned to properly operate free trade zones in Korea.


The dualized institutional structure is suggested as follows. The zones with high connectivity with global value chains and frequent foreign investments such as the capital area, southeast area and central area are selected as leading regions (First-Class Free Trade Zone). The areas with a bigger local development function such as Gangwon area and Jeonbuk area is separated as a special area (Second-Class Free Trade Zone).


The institutions that should be newly introduced or enacted in the leading areas are as follows. It is necessary to improve the business environment-related institutions, which include introduction of cluster support and promotion system, post-evaluation support system, efficient management and operation of foreign investment committee and transition of move-in methods, reduction of inventory management obligations, simplification of export and import declaration process and mitigation of access control.

The following are the policy direction proposals for the special areas. It is necessary to increase incentives to free trade zones, relax the regulations on move-in qualifications and export ratio and to give preferential treatment to small- and medium-sized company tenants.


And it is necessary to revise the free trade zone law and system, newly enact integrated laws on foreign investment attraction, analyze riffle effects of foreign investment attraction, establish standardized evaluation index and statistics for added values of the free trade zones and improve governance and management, operation systems.


At the same time, it is necessary to promote best practices, develop and strengthen free trade zone-related business models, establish systematic business attraction strategies and establish growth foundation for sustainable investment.

Research Project Report 상세보기
Measures to Re-define Functions of Free Trade Zone According to Changes in Foreign Investment Factors
Report No. 2014-01 Research Manager Lee, Sung-Woo
File

Among the four major purposes for free trade zones in Korea, foreign investment attraction, trade promotion and facilitation of international logistics are considered to be achieved well above the certain level. However, it requires time to see the purpose of regional development as it was recently introduced.

China has continued to introduce new institutions, keeping up the changing conditions. It opened Shanghai Pilot Free Trade Zone in 2013 following Bonded Area (1999), Foreign Trade Zone (2000), Bonded Logistics Zone (2003) and Bonded Port (2005). Unlike the free trade zones in Korea, that restrict business types, it’s relatively free for service business to move in the free trade zones in China.


Korea’s free trade area systems do not keep up with the global environment. The governance structure and similar systems are duplicated and mixed and conflict with customs laws. Such issues require solutions. Among existing functions of the free trade zones, the two functions with high possibility of conflict, strengthening of trade function and regional development, should be separated and re-aligned to properly operate free trade zones in Korea.


The dualized institutional structure is suggested as follows. The zones with high connectivity with global value chains and frequent foreign investments such as the capital area, southeast area and central area are selected as leading regions (First-Class Free Trade Zone). The areas with a bigger local development function such as Gangwon area and Jeonbuk area is separated as a special area (Second-Class Free Trade Zone).


The institutions that should be newly introduced or enacted in the leading areas are as follows. It is necessary to improve the business environment-related institutions, which include introduction of cluster support and promotion system, post-evaluation support system, efficient management and operation of foreign investment committee and transition of move-in methods, reduction of inventory management obligations, simplification of export and import declaration process and mitigation of access control.

The following are the policy direction proposals for the special areas. It is necessary to increase incentives to free trade zones, relax the regulations on move-in qualifications and export ratio and to give preferential treatment to small- and medium-sized company tenants.


And it is necessary to revise the free trade zone law and system, newly enact integrated laws on foreign investment attraction, analyze riffle effects of foreign investment attraction, establish standardized evaluation index and statistics for added values of the free trade zones and improve governance and management, operation systems.


At the same time, it is necessary to promote best practices, develop and strengthen free trade zone-related business models, establish systematic business attraction strategies and establish growth foundation for sustainable investment.

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