May 23, 2008

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Do We Need FEZs? Why?

Evaluation of the Past Five Years

What to Do

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Do We Need FEZs? Why?

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Existing FEZsNewly designated FEZs

Cutting-edge manufacturing;tourism and leisure

Cutting-edge manufacturing; logistics business with China

Service industry;parts and materials

International trade; aerospace logistics

Parts and materials; marine logistics

Advanced materials; marine logistics

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Dubai

Shanghai-Pudong

Shenzhen

Hong Kong

Singapore

Tianjin-Binhai

Korea’s FEZs

Rapidly emerging as China’s economic hub

Symbolizes economic opening of China

Business hub of East Asia

Business hub of Southeast Asia

Aims to be a next Pudong

Rapidly emerging as economic hub of the Middle East

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11 FEZs promote reform of regulations.

Special Act on Jeju Special Self-Governing Province (2006)

Special Act on the Development of Corporate Cities (2004)Special Act on Jeju Special Self-Governing Province (2006)Special Act on Support Measures for Land Returned by USFK (2007)Special Act on the Establishment of Foreign Educational Institutions (2005)

Special Act on Jeju Special Self-Governing Province (2006)Special Act on the Establishment of Foreign Medical Institutions(submitted to the National Assembly in 2007)

Special Act on Jeju Special Self-Governing Province (2006)Special Act on the Establishment of Foreign Medical Institutions(submitted to the National Assembly in 2007)

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Fair Trade Act (revised draft announced in 2008)

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Number of years in existence8 years 12 years 20 years16 years

22 FEZs will help Korea catch up with competitor nations.

Level ofdevelopment

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Favorable living conditions

Attractive investment opportunities

High value added industrial clusters

High profile airports and ports

Foreign investment trends

International educational and medical institutions

High-tech cities and tourism facilities

33 FEZs will boost sluggish foreign investment.

2004 2005 2006 20070

10

20

30

0.4

0.8

1.2

0

US$ trillionUS$ billion

South Korea

World

World

S. Korea

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Evaluation of the Past Five Years

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Stagnant economic growth

Inconvenient transportationand housing

Foreign Hospital Act yetto be enacted

Limits onremitting profits overseas

Insufficient tax cutsand cash grants

High corporate tax rate

FEZs Singapore Hong Kong China

Excessive labor regulations and inadequate English skills

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1. Lack of economic freedom slower development

2. Lack of special incentives insufficient FDI

3. Lack of independence and expertise inefficiency in management

No taxes No labor conflictsNo mandatory employment

of nationalsNo limits on remittance

of funds overseas

80% of players are foreign nationalsExcellent infrastructure and incentives

Swift responseEmphasis on capability

Development ofnew strategies

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What to Do

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Develop sitesAttract FDI

Become international business hub

Measures to Promote FEZs

Acceleratedevelopment

1. Shorten approval period 2. Expedite development of new FEZs 3. Build highly advanced Ubiquitous City 4. Enhance brand value of FEZs

Improveinvestment climate

Enhance management efficiency

5. Build more affordable industrial complexes 6. Improve business environment 7. Lead rest of Asia in education 8. Promote medical services, medical tourism 9. Increase availability of housing for foreigners

10. Promote competition among FEZs 11. Introduce Special Act on FEZs

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Application Local FEZAuthority

Municipal orprovincial leader MKE

Responsiblecommittee orcommittees

FEZ Committee Approval

Concerned central government

agency

Developers can apply directly to MKE for approval

Move from sequential approval process to simultaneous/parallel approval process

Shift to coordinated deliberation systemEstablish joint consultative body

Application MKE

Concerned centralgovernment

agency

Municipal orprovincial leader

FEZ Committee Approval

Currentprocess

Proposedchange

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Prompt establishment of new FEZ Authorities

FEZ Planning Office in each FEZ is preparing to launch FEZ AuthoritiesThree new FEZ Authorities will be launched within Q3 2008

Support to attract investors and developers

Promote and distribute information on best practices

Yellow Sea FEZ to specialize in automobiles, IT, biotechnology, value-added logisticsDaegu-Gyeongbuk FEZ to specialize in knowledge-based services (eg. education, medicine,

fashion), manufacturing (eg. IT, materials)Saemangeum-Gunsan FEZ to specialize in automobiles, shipbuilding, environment, tourism and leisure

Promote Differentiated Growth Model of FEZs

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Build Ubiquitous IT Cluster

Cluster of related industries (22 companies to be established in 2009)

Create Ubiquitous Environment

Gale and Microsoft to build advanced ubiquitous city

Plans include consolidated city operation center, intelligent traffic system

Establish Necessary Facilities

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Landmarks Promote eye-catching landmarks

Songdo’s 151-story Incheon Tower, Cheongna City TowerActively solicit bids from world-famous architects

Tourismand

Leisure

Develop popular tourist destinations Incheon’s Yongyu Muui area, Gwangyang’s Hwayang area, and Saemangeum’s Gogunsan IslandsVarious theme parks and other cultural attractions

ActivePromotion

Publicize FEZs overseas Run ads in overseas broadcasts, journals, and on the InternetAdvance the FEZ brand concept

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Supply will increase gradually, up to 10% of total industrial complexesRental fee: about 1-5% of the total cost of creating the industrial complexRental period: maximum 50 years

Expand supply of industrial complexes on long-term lease for the exclusive use of foreign-invested enterprises

Carry out reclamation work on Section 11of the Songdo area in Incheon

Purchase price of industrial complexes (1,000 won/ ㎡ )

Work on Sections 1-10 is under way or already completed

Section 11 will be developed as an industry/university/research institute cluster

Noksan, Busan

186

Pudong, China106

Shenzhen, China 30

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Greater incentives for foreign-invested companies

Offer more corporate and income tax breaks over a longer period

Ease regulations for the convenienceof foreign investors and workers

Set up special immigration desks for foreign investors

Simplify visa application procedure (Local FEZ Authority will process forms)

100% for 3 Years

100% for 5 Years

50% for 2 Years

Present

Revised

50% for 2 Years

Plan to increase incentive budget for strategic target

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Allow institutions to remit profits overseas

Ease restrictions on the proportion of local students admitted to foreign schools

Current maximum: 2%

Relax qualifications required of those who wish to establish foreign schools

Support the establishment of three outstanding foreign schools

(primary and/or secondary level)

Provide financial support for an elementary and a middle school in Songdo,

where the need is urgent

Target: 5 universities and 10 research institutions by 2012

Attract world-class universities and research institutions to create a knowledge-based economic zone

Attract world-class educational institutionsto improve the living environment for foreign families

Reduce regulations affecting foreign educational institutions

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Legislate Special Act on Establishment of Foreign Medical Institutions that Nurture medical tourism industry

Allows establishment of profit-orientedforeign hospitals

Any business established by a foreign national in accordance with the Commercial Act will be eligible

Allows foreign doctors to provide long-distance medical services

Allows foreign doctors, nurses, and operators of medical equipmentto work in Korea

Contains special provisionsfor the importation of foreign drugs (U.S. FDA-approved drugs only)

Foreign hospitals can offer a wider scope of subsidiary services

Allow profit-oriented medical services to foreign patients

Hot springs, tourism and hospitality,international conferences, etc.

Promote target country-specific marketing

Develop tailored medical tourism products

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Serviced residences, villages equipped with golf courses, and many other diverse choices

Sophisticated exterior and interior design

Various conveniences for foreign residents

High-quality housing complexes

Affordable, comfortable rental accommodation

The government will increase the supply of houses available for rent exclusively to foreigners

Homes will be set aside specifically for rent to employees of foreign-invested companies

Caps on rent and key money will be eliminated

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Encourage competition among FEZs

FEZs will be expanded or dismantled, and projects scaled up or down, based on performance

FEZs will be eligible for operation funds and new project funds

Enhance the expertise and autonomy of FEZ Authorities

Laws will be streamlined to permit hiring of more foreign experts

FEZ Authorities will have greater control over personnel management

Increase rate of support for operation of FEZs based on performance (40%→100%)

Evaluation criteria: amount of FDI attracted, efficient use of funds, number of foreign educational institutions

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Specify more exemptions from currently required procedures

More development planswill automatically beestablished/modified to conformwith FEZ development plans

Specify additional exemptions from other laws

A broader range of provisionswill automatically beapproved/authorizedwhen a development project isapproved

Rental Housing Act: Elimination of caps on rent, key money

Immigration Control Act: Simplify visa application procedure

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Increase funding to attract foreign educational institutions Expand industrial complexes operating under long-term leases Complete reclamation work on Section 11 in Songdo Increase availability of rental accommodation for foreigners

Offer more tax breaks

Shorten approval period

Enact Special Act on Establishment of Foreign Medical Institutions

Strengthen FEZ Authority’s control over personnel management

Simplify visa procedures

Facilitate hiring of more foreign experts

Establish VIP lanes in airports for foreign investors

Establish three new FEZ Authorities

Facilitate operation of FEZ Committee

Create competitive environment for FEZs

Promote FEZs overseas

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