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May 23, 2008

May 23, 2008. Do We Need FEZs? Why?. Evaluation of the Past Five Years. What to Do. Do We Need FEZs? Why?. Newly designated FEZs. Existing FEZs. 1. FEZs in Korea. International trade; aerospace logistics. Cutting-edge manufacturing; logistics business with China.

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May 23, 2008

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  1. May 23, 2008

  2. Do We Need FEZs? Why? Evaluation of the Past Five Years What to Do

  3. Do We Need FEZs? Why?

  4. Newly designated FEZs Existing FEZs 1. FEZs in Korea International trade; aerospace logistics Cutting-edge manufacturing; logistics business with China Parts and materials; marine logistics Cutting-edge manufacturing; tourism and leisure Advanced materials; marine logistics Service industry; parts and materials

  5. 2. Why Not Make All of Korea an FEZ? Tianjin-Binhai Aims to be a next Pudong Korea’s FEZs Shanghai-Pudong Rapidly emerging as China’s economic hub Shenzhen Symbolizes economic opening of China Hong Kong Business hub of East Asia Singapore Business hub of Southeast Asia Dubai Rapidly emerging as economic hub of the Middle East

  6. 1 FEZs promote reform of regulations. • 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 MedicalInstitutions(submitted to the National Assembly in 2007) • Special Act on Jeju Special Self-Governing Province (2006) 3. Top Three Reasons We Need FEZs • Fair Trade Act (revised draft announced in 2008) 6

  7. 2 FEZs will help Korea catch up with competitor nations. 3. Top Three Reasons We Need FEZs Level of development Number of years in existence 8 years 12 years 16 years 20 years

  8. 3 FEZs will boost sluggish foreign investment. Foreign investment trends 3. Top Three Reasons We Need FEZs S. Korea World US$ billion US$ trillion 1.2 30 Attractive investment opportunities • High value added industrial clusters • High profile airports and ports World 0.8 20 South Korea 0.4 10 Favorable living conditions • International educational and medical institutions • High-tech cities and tourism facilities 0 0 2004 2005 2006 2007

  9. Evaluation of the Past Five Years

  10. Stagnant economic growth Inconvenient transportationand housing High corporate tax rate Foreign Hospital Act yetto be enacted Insufficient tax cutsand cash grants Limits on remitting profits overseas FEZs Singapore Hong Kong China 1. Place of Korea's FEZs Excessive labor regulations and inadequate English skills

  11. 2. Evaluating the Past Five Years 1. Lack of economic freedomslower development 2. Lack of special incentivesinsufficient FDI 3. Lack of independence and expertiseinefficiency in management No taxes No labor conflicts No mandatory employment of nationals No limits on remittance of funds overseas Swift response Emphasis on capability Development ofnew strategies 80% of players are foreign nationals Excellent infrastructure and incentives 11

  12. What to Do

  13. Policy Objectives Develop sites Become international business hub Attract FDI Measures to Promote FEZs Accelerate development Improve investment climate Enhance management efficiency 1. Shorten approval period 2. Expedite development of new FEZs 3. Build highly advanced Ubiquitous City 4. Enhance brand value of FEZs 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 13

  14. Currentprocess Responsible committee or committees Concerned central government agency Local FEZ Authority Municipal or provincial leader Application MKE FEZ Committee Approval Concerned central government agency Proposedchange Application MKE FEZ Committee Approval Municipal or provincial leader 1. Simplify Approval Process About 12 months 5 months Move from sequential approval process to simultaneous/parallel approval process Shift to coordinated deliberation system Establish joint consultative body Developers can apply directly to MKE for approval

  15. Prompt establishment of new FEZ Authorities • FEZ Planning Office in each FEZ is preparing to launch FEZ Authorities • Three new FEZ Authorities will be launched within Q32008 Promote Differentiated Growth Model of FEZs • Yellow Sea FEZ to specialize in automobiles, IT, biotechnology, value-added logistics • Daegu-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 Support to attract investors and developers • Promote and distribute information on best practices 2. Expedite Development of Newly Designated FEZs

  16. 3. Develop Ubiquitous City 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 Establish Necessary Facilities • Plans include consolidated city operation center, intelligent traffic system 16

  17. 4. Enhance Brand Power of FEZs • Promote eye-catching landmarks Landmarks • Songdo’s 151-story Incheon Tower, Cheongna City Tower • Actively solicit bids from world-famous architects • Develop popular tourist destinations Tourism andLeisure • Incheon’s Yongyu Muui area, Gwangyang’s Hwayang area, and Saemangeum’s Gogunsan Islands • Various theme parks and other cultural attractions • Publicize FEZs overseas Active Promotion • Run ads in overseas broadcasts, journals, and on the Internet • Advance the FEZ brand concept

  18. Noksan, Busan 186 Pudong, China 106 Shenzhen, China 30 5. Expand Supply of Affordable Industrial Complexes Expand supply of industrial complexes on long-term lease for the exclusive use of foreign-invested enterprises • Supply will increase gradually, up to 10% of total industrial complexes • Rental fee: about 1-5% of the total cost of creating the industrial complexRental period: maximum 50 years Purchase price of industrial complexes (1,000 won/㎡ ) Carry out reclamation work on Section 11of the Songdo area in Incheon • Work on Sections 1-10 is under way or already completed • Section 11 will be developed as an industry/university/research institute cluster

  19. 6. Create an Investment-Friendly Environment Greater incentives for foreign-invested companies • Offer more corporate and income tax breaks over a longer period 50% for 2 Years 100% for 3 Years Present 50% for 2 Years 100% for 5 Years Revised • Plan to increase incentive budget for strategic target Ease regulations for the convenience of foreign investors and workers • Set up special immigration desks for foreign investors • Simplify visa application procedure (Local FEZ Authority will process forms)

  20. Attract world-class universities and research institutions to create a knowledge-based economic zone • Target: 5 universities and 10 research institutions by 2012 7. Create an Attractive Educational Environment Reduce regulations affecting foreign educational institutions • 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 Attract world-class educational institutionsto improve the living environment for foreign families • 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

  21. 8. Provide World-Class Medical Care Legislate Special Act on Establishment of Foreign Medical Institutions that Nurture medical tourism industry • Allows establishment of profit-orientedforeign hospitals • Foreign hospitals can offer a wider scope of subsidiary services • Any business established by a foreign national in accordance with the Commercial Act will be eligible • Hot springs, tourism and hospitality,international conferences, etc. • Allow profit-oriented medical services to foreign patients • 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) • Develop tailored medical tourism products • Promote target country-specific • marketing

  22. 9. Create Attractive Living Spaces High-quality housing complexes • Serviced residences, villages equipped with golf courses, and many other diverse choices • Sophisticated exterior and interior design • Various conveniences for foreign residents 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

  23. 10. Increase Efficiency by Promoting Competition Encourage competition among FEZs • FEZs will be eligible for operation funds and new project funds • Evaluation criteria: amount of FDI attracted, efficient use of funds, number of foreign educational institutions • Increase rate of support for operation of FEZs based on performance (40%→100%) • FEZs will be expanded or dismantled, and projects scaled up or down, based on performance 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

  24. 11. Introduce Special Act on FEZs Specify more exemptions from currently required procedures Specify additional exemptions from other laws • More development planswill automatically beestablished/modified to conformwith FEZ development plans • Rental Housing Act: Elimination of caps on rent, key money • A broader range of provisionswill automatically beapproved/authorizedwhen a development project isapproved • Immigration Control Act: Simplify visa application procedure

  25. Future Plans • 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 • 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 • 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 25

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