The Strategic Significance of the ROK’s Incheon Free Economic Zone and Relevant Issues

|Korean Peninsula

Outwardly, the ROK’s free economic zones appear to take such cities as Singapore and Hong Kong as their benchmark, but in terms of content, they can be assessed as being oriented towards the creation of special economic zones designed for the 21st century. Special economic zones in their traditional sense mean a designated zone where the application of customs duty has been suspended (a so-called duty-free zone), and steps are generally taken to cut off the duty-free zone from other parts of the same country in order to prevent duty-free imported goods being brought into the country. The ROK’s Masan Free Export Zone and China’s Shenzhen and Shanghai special zones are typical examples of these. Duty-free zones requiring physical separation must be small in scale, so the economic activities that take place in them tend not to be types of business that involve the production of high value-added core components, but rather simple processing and assembly businesses. Amidst a situation in which it is difficult to implement liberalization measures aimed at the region as a whole, because the level of development of the national economy is low, existing duty-free zones were established in order to attract foreign companies that wished to take advantage of the lower wage costs.

In the case of the ROK, the industrial structure must be reorganized into one focused on high value-added services, and in this kind of situation there is no meaning in a duty-free zone centered on simple processing and assembly in a specific region. In other words, rather than a duty-free zone focused on simple assembly and processing, a special economic zone suited to the industrial structure and economic reality of the ROK is required. Special zones that employ a system of preferential customs duty measures are not appropriate to the present reality of the ROK’s economy and a special economic zone that can attract service industries of an international standard should be established.

Looking at the situation in terms of this aspect, the establishment of the Incheon Free Economic Zone with the objective of its developing as a special economic zone focused on such service industries as international business hubs, distribution, finance, tourism and leisure shows the direction in which the ROK’s economy should progress in the 21st century, and can be evaluated as significant in that it will act as a trailblazing initiative. Service industries account for 72% of the ROK’s economy and their weighting is likely to increase as time passes. Without growth in service industries, the achievement of an income of $20,000 would be virtually impossible and it is likely that new employment will be created due to the expansion of service industries.

Given that the Incheon region is adjacent to the border with the DPRK and lies at the heart of Northeast Asia, the prosperity of the free economic zone will simultaneously contribute to stability and unification on the Korean Peninsula. If many companies and foreigners move into the free economic zone, they will act as a constraint on armed confrontation, such as wars, while at the same time making a contribution to inducing the DPRK to promote economic liberalization.

The economic center of Northeast Asia cannot be created just by turning specific regions into special economic zones. Naturally, an advanced economic system must be constructed in order to enable the whole country to be turned into a special zone. However, it would be difficult to do that at this point in time, so free economic zones focusing on specific regions have been established. The success of free economic zones is likely to lead the way to the advancement and liberalization of the ROK’s economy. The Incheon Free Economic Zone is located at the geographic center of Northeast Asia and includes both Incheon Airport and Incheon Port, so it has more favorable geographic conditions than other regions.

The government of the ROK is formulating a strategy of developing the country into the economic center of Northeast Asia and the central state in the age of Northeast Asia, but neither a road map for approaching this in the short term nor an action plan have been presented as yet. In other words, it is easy to find details about medium- and long-term targets, but it is difficult to find out about what should be promoted now and how it should be promoted, in order to translate those medium- and long-term targets into reality. A special economic zones designed for the 21st century should first of all be created in Incheon, the city at the heart of Northeast Asia, and this should then be developed as a model for the ROK’s economy in the future.

[Translated by ERINA]