ATC230913: Report of the Portfolio Committee on Trade, Industry and Competition on its study visit to the Republic of Korea, dated 5 September 2023

Trade, Industry and Competition

Report of the Portfolio Committee on Trade, Industry and Competition on its study visit to the Republic of Korea, dated 5 September 2023

 

The Portfolio Committee on Trade, Industry and Competition, having visited the Republic of Korea (hereafter referred to as South Korea) from 11 to 14 April 2023, reports as follows:

 

1. Introduction

 

Industrialisation has resurfaced as a critical driver of economic development and a tool for job creation. This new age of industrialisation has led to a paradigm shift towards decentralised production, the development of new global production value-chains and business models, which requires modernisation of the manufacturing sector.

 

The Reimagined Industrial Strategy is the centrepiece of the South African government’s vision. The Strategy is coordinated by the Presidency and puts emphasis on concrete actions to support sectors. It presents a multipronged approach to industrial development, building partnerships with the private sector and organised labour to unleash job-creating investment. The Special Economic Zone (SEZ) Programme forms an integral part of the Reimagined Industrial Strategy, which is purposefully structured to stimulate local and foreign direct investment (FDI). The SEZ Programme also plays a critical role in supporting the implementation of South Africa’s Economic Reconstruction and Recovery Plan. Furthermore, SEZs are intended to play an important role in the African Continental Free Trade Agreement, as South Africa positions itself to become a vibrant manufacturing hub on the African Continent.

 

The implementation process of the SEZ Programme requires collaborative efforts from all spheres of government to ensure that the roll-out of the Programme is efficient, integrated and well-coordinated. It is only through cooperation at national, provincial and local government levels that South Africa can successfully build an inclusive economy.  Inter-governmental relations, both horizontally and vertically, are therefore important in achieving the set objectives of the Reimagined Industrial Strategy. The efforts of pursuing a coordinated framework through the District Development Model approach has presented an opportunity for the creation of a balanced ecosystem for integrated development.

 

In further pursuit of this objective, government is currently reviewing the role of the private sector in the ownership, management and operation of industrial parks as this may improve the effectiveness of the industrial parks. This is notwithstanding the key role of government to ensure that SEZs and industrial parks operate optimally and are adequately resourced. 

 

One of South Africa’s key concerns is to grow its manufacturing base, which has been declining. There has been a greater focus on industrialisation and localisation. In this regard, government has been developing and implementing sectoral Master Plans through a process of social compacting with business, organised labour and experts in the relevant fields. The Master Plans seek to improve industrial capacities and sophistication in these sectors, with a focus on becoming more export-oriented, facilitating skills development, greening the economy, and reclaiming domestic market space lost to imports. Furthermore, South Africa is pursuing a policy of transformational and inclusive growth with a focus on decentralising the economy through the establishment of SEZs and the revitalisation of its Industrial Parks.

 

Given that the mandate of the Committee is trade, industry and competition, including the regulatory and standards architecture, which requires regular and informed oversight, it undertook a comparative study visit to South Korea in relation to policies that support and facilitate industrial and regional development, as well as investment promotion.

 

Industrial policy remains one of government’s key policy tools to address the issue of unemployment, inequality and poverty. Therefore, it is important that the Committee actively engages government, and domestic and international stakeholders to see how it could be a conduit for the successful implementation of industrial policy. As a result of this, there has been a number of policy discussions within the Committee regarding the ownership and potential privatisation of SEZs and Industrial Parks, given their implementation challenges. Therefore, it became important for the Committee to investigate how other countries, that had gone through a similar economic development process, have dealt with such challenges.

 

1. Purpose of the study visit

The Committee had identified South Korea as a case study for its study visit. The main purpose of the visit was to engage them on their industrial development policies, and their use and management of SEZs to support industrial development, particularly to grow a more decentralised economy. The focus was on engaging key government departments and industry stakeholders in this regard, and to visit a few SEZs in South Korea.

 

South Korea has had a similar approach to developing its manufacturing base as South Africa by moving from import substitution to export promotion. The following factors were considered pertinent given South Africa’s policy objectives:

• Although South Korea is not a naturally resource rich country, it focuses on exporting value-added goods, which is a policy objective of the Department of Trade, Industry and Competition (DTIC).
• South Korea provides a wide range of support to exporters in this regard.
• It makes use of regional global value chains to increase competitiveness.
• It has a broad number of types of SEZs, with a redefinition of their SEZs to become more inclusive and supportive of domestic industries as well as encouraging greater innovation in new industries.
• Legislation such as the Foreign Investment Promotion Act that helps the government with its targets of investment attraction and job creation.

 

The Committee’s main objectives for the study visit were to understand the following:

• South Korea’s industrial development and localisation policies and how this has been used to facilitate job creation, and to support and promote investment into the manufacturing sector, in particular, the use of policies to facilitate deeper industrialisation across and within sectors.
• Mechanisms to assist investors, such as One-Stop Shops; and to integrate the rural economy into the mainstream economy.
• The development of the green economy, given its growing importance in light of climate change and its impact on economies globally including South Africa.
• Its legislative and regulatory stance and the roles of the state versus private sector with respect to ownership.

 

1. South Korean stakeholders visited

During its study visit to South Korea, the Committee engaged the following stakeholders:

• Global Knowledge Exchange and Development Center (GKEDC) of the South Korea Development Institute (KDI)
• Ministry of Trade, Industry and Energy (MOTIE)
• South Korea Trade Promotion Agency (KOTRA)
• Incheon Free Economic Zone (IFEZ)
• DHL South Korea Ltd
• HD Hyundai Heavy Industries (HHI)
• Busan Techno Park
• Busan-Jinhae Free Economic Zone (BJFEZ)
• Busan Port Authority (BPA)

 

1. Delegation

The following Members and staff undertook the study visit:

• Ms J Hemans (African National Congress (ANC)) (Chairperson and Leader of the delegation)
• Mr S Mbuyane (ANC)
• Ms R Moatshe (ANC)
• Mr C Malematja (ANC)
• Mr M Cuthbert (Democratic Alliance (DA))
• Mr D Macpherson (DA)
• Ms K Hlonyana (Economic Freedom Fighters)
• Mr F Mulder (Freedom Front Plus)
• Mr W Thring (African Christian Democratic Party)
• Mr A Hermans (Committee Secretary)
• Ms Z Madalane (Researcher)

 

1. Outline of the report

Firstly, the report provides an overview of the South Korean economy, as it relates to FEZs. Secondly, it describes the implementation of the impact of industrial policy, its implementing vehicles and agencies, the impacts thereof on the South Korean economy, labour market and environment. Thirdly, it provides the Committee’s key observations from the study visit. Fourthly, it lists acknowledgements and sets out the Committee’s recommendations to the Minister of Trade, Industry and Competition for consideration by the National Assembly.

 

 

 

1. An overview of South Korea’s economic development and the key factors behind its rapid industrialisation

 

During its study visit, the Committee engaged the GKEDC, which forms part of the KDI. The GKEDC provides a platform to encourage learning, and exchange knowledge regarding South Korea’s 70-year socio-economic development experiences following the South Korean War. The KDI was established in March 1971 by the South Korean government to provide in-depth and practical analysis for the development of appropriate economic policies in South Korea. As the first domestic social science think tank, KDI was tasked with designing the nation’s economy towards prosperity. Starting with a team of 12 economists, the KDI quickly became a driving force behind the economic and social development of the nation. Over the past five decades, the Institute has expanded its research to encompass a broad range of fields including macroeconomics, finance, social security, labour, industry, trade, competition policy, and the North-South Korean economy. Its work has made significant contributions to the formulation of sound policies and the implementation of institutional reforms.

 

1. Overview

Dr J Kim[1] presented on the economic development of South Korea since the 1960s. He informed the Committee that South Korea had received over US$13 billion in aid between 1945 and 1995, which contributed towards its recovery after the wars, and facilitated the transformation from a rural, agriculturally based economy to a modern, industrial nation while maintaining an average growth rate of 9%. The export-focused, market-friendly industrial policies, the development of human capital, respect for science and technology, and strong governance were the main drivers of South Korea’s economic success in the 1960s.

 

South Korea was an agrarian society, with farmers making up about 70% of the population.  In contrast to South Africa, South Korea lacks natural resources; as a result, it was forced to import raw materials, parts, and machines that could not be produced locally and use it to build factories. Squid and other fish were among South Korea’s most important items for export in the 1960s since it lacked a manufacturing sector. He emphasised that due to its lack of mineral resources, South Korea was unable to rely on mineral resource-based exports. Therefore, South Korea adopted an industrialisation strategy that relied on exports and targeted goods from light industries. This export-oriented/outward looking industrial strategy consisted of importing raw materials and semi-finished goods, adding value through a skilled labour force, and exporting the finished goods at a favourable exchange rate.

 

According to Dr Kim, despite South Korea having been one of the world’s poorest nations at the time, it had human capital of the highest standard, enabling its citizens to produce finished goods that could be sold on the global market, specifically in the United States of America (USA). This reality encouraged the growth of labour-intensive industries like textile, apparel, and footwear production, where South Korea enjoyed a comparative advantage partially due to its low wages. As a result of low wages, South Korea began to produce finished manufactured goods like electronics and textiles in the 1960s, which ensured foreign dollar influx. This was an example of South Korea’s export promotion strategy, and as a result of its export-oriented industrial policy, the country’s export share of gross domestic product (GDP) had increased dramatically. This resulted in South Korea gaining foreign currency, which it utilised to buy more capital goods, raw resources, and component parts. Therefore, the opening of South Korea’s economy had been defined by these market-friendly policies that promoted economic development through the manufacture of labour-intensive goods in industries where it could gain a competitive edge.

 

In order to compete globally, the government supported the development of new technologies and improved effectiveness through incentives. After the economy opened up, it transitioned into heavy industries, with semi-conductor, automotive, and petrochemical items making up the bulk of its export basket. This resulted in South Korea subsequently joining the developed economies, as evidenced by its rising export percentage of GDP.

 

Table 1: South Korea’s seven major export items (share of total exports, %)

	1961		1970		1980		1993		2021
1	Iron ore	13,0	Textile, clothes	40,8	Textile, clothes	28,8	Electronics	29,5	Semi-conductor	19,8
2	Tungsten	12,6	Plywood	11,0	Electronics	11,4	Textile, clothes	19,3	Automobile	10,7
3	Raw silk	6,7	Wig	10,8	Steel product	9,0	Steel product	8,0	Petro-chemical	8,5
4	Anthracite	5,8	Iron ore	5,9	Footwear	5,2	Chemical product	5,6	General machinery	8,2
5	Squid	5,5	Electronics	3,5	Ships	3,5	Automobile	5,5	Petroleum product	5,9
6	Other fish	4,5	Confectionary	2,3	Synthetic resin	3,3	Ships	4,5	Steel product	5,6
7	Graphite	4,2	Footwear	2,1	Metal product	2,3	General machinery	3,7	Ships	3,6

Source: Kim (2023)

 

The South Korean government continued its pursuit of capital- and technology-intensive heavy industrialisation plans throughout the 1970s. This had only been possible due to General Park Chung-Hee’s military leadership, which supported the defence, heavy, skilled, motor, ship, and auto industries through the National Security Council, demonstrating that South Korea had taken control of its own development.

 

1. Economic development from the 1960s onwards

Due to low domestic savings, and to implement its outward-looking industrial strategy, South Korea required significant foreign currency to make capital investment. Although exports increased, foreign currency receipt was still low and South Korea had not yet been in a position to build up foreign reserves. Also, during this period, the US aid had declined significantly, and aid received had been through concessionary loans geared toward military assistance.

 

This deadlock had been broken by South Korea’s restoration of diplomatic ties with Japan, with the primary objective having been to obtain restitution, despite the vehement hostility of its populations. The resumption of these diplomatic ties had been supported by the US because it would lessen the burden on US aid provision to South Korea.  When relations between the two countries had been normalised in 1965, Japan agreed to pay reparations of US$800 million in funding for economic cooperation, with US$300 million in grants, US$200 million in concessionary loans, and US$200 million in commercial loans. The South Koreans had been of the view that this was its retribution for the 36 years of colonial occupation by the Japanese.

 

A substantial sum of money had been allocated to enhance the industrialisation effort in South Korea. This paved the way for Japanese capital, components, and technology to enter the country. The “Law of Operation and Management of Japanese Reparations” was enacted to prevent the misappropriation of funds for political objectives. One of the key provisions was that the most serious offense with regard to the misappropriation of funds would carry a death sentence. This law effectively discouraged politicians and other public servants from engaging in corrupt behaviour.

 

In 1965, the South Korean government had set out to build a steel mill as the centrepiece of its heavy and chemical industrialisation strategy as part of its first Five Year Economic Development Plan. However, they had been unable to obtain the funding on the global financial market to begin the project. Given the low demand for steel at the time, there had also been significant concerns about the financial viability of such a choice.

 

Table 2: Allocation of Japanese Reparations Fund

Project	Amount (US$’000)	Ratio (%)
Agriculture (irrigation and agricultural production expansion program)	39	7,8
Fishery (fisheries promotion and fishing boat construction)	27	5,4
Manufacturing Purchase of raw materials (textiles, fertilizers, chemicals, etc) Construction of POSCO Promotion of SMEs	278 133 119 22	55,6 26,5 23,9 4,5
Science and Technology  Equipment for practical training for the vocational schools Equipment/facilities at KIST	20 6 3	4,0 1,2 0,6
Social Infrastructure Construction of Soyang-River Multi-purpose Dam Gyeongbu (Seoul-Busan) Expressway Improvement of Railway system Construction of Yongdong Thermal Powerhouse Expansion of Waterworks (Kwangju City, Taejeon City, Cheongju City) Construction of Namhae Bridge Rehabilitation of Han-river Bridge Power Distribution facilities Expansion of out-of-town Telephone lines	90 22 7 20 2 4   2 1 4 4	18,0 4,4 1,4 4.2 0.4 0.8   0.4 0.2 0.7 0.8
Total (Reparation funds in the form of grant and public loans)	500	100.0

Source: Kim (2023)

 

Despite these impediments, the South Korean government had persisted in its efforts to construct a steel mill. Japan in recognising the mutually beneficial security and economic ties with South Korea, since the opening of relations and payment of reparations, had supported the decision of the South Korean government to build an integrated steel mill by investing a portion of the reparations budget for that purpose. The Pohang Iron and Steel Company (POSCO) would later emerge from this. A total of 27% of the reparations budget had gone towards purchasing raw materials, with 24% going towards building POSCO. 

 

The reparations fund had also been used to purchase furnishings and facilities for the South Korean Institute of Science and Technology, as well as for equipment for vocational schools. More than 50% of the reparation funds had been used on promoting the manufacturing industries, which saw the transition from an agrarian economy to an industrial economy. The initial plant’s funding came from Japan, and with the help of Mitsubishi and other Japanese businesses, cutting-edge facilities had been built. The industrialisation push had been critically dependent on Japan’s reparations, and it would not have gotten off the ground as quickly without the normalisation of relations between the two nations.

 

Since South Korea was a former colony of Japan, many South Koreans stayed in Japan and had achieved great success. Consequently, the inward direct investment by South Korean ethnic groups in Japan had been another factor helping South Korea’s industrialisation. Around this time, Japan had started to lag behind other nations in labour-intensive industries like textile and electronics. As a result of the normalisation of relations, South Korean ethnic businesses in Japan had begun to look at South Korea as a potential location for the relocation of their manufacturing plants and pre-owned machinery in these sectors.

 

At the time, South Korean wages had been 20% lower than those in Japan, so South Korean ethnics started to directly invest in the relocation of their production facilities. The majority of the investment had been used to import pre-owned facilities producing clothing, nylon, wigs, electrical products, and other consumer goods. Between 1963 and 1964, South Korean ethnics had invested a total of US$35 million dollars of Japanese capital in the South Korean manufacturing sector to secure its cheaper labour.

 

Mr L Won-man, a member of the South Korean ethnic group, had proposed that South Korea should compete with Japan in the low-tech industries indicated above. It would help South Korean products to be more competitive in the global market, if their wages were 20% lower than their Japanese counterparts. He had also advocated in favour of building an industrial complex outside of Seoul that may draw South Korean ethnic entrepreneurs with their managerial, financial, and entrepreneurial talents, as well as networks of global markets. He had favoured the concept of “process trade” that would enable South Korean businesses to benefit from Japan’s manufacturing and marketing prowess by importing raw materials, processing them locally, adding value, and exporting the final goods to the USA. The South Korean government had reportedly embraced the plan and had moved forward with encouraging the development of low-tech enterprises and industrial complexes, according to Dr Kim. The country’s economic transition had been largely a result of the considerable economic expansion and industrialization that followed.

 

1. Guro Export Industrial Park

The Guro Export Industrial Park was the first industrial complex established in South Korea to promote export-oriented manufacturing businesses. In 1967, 18 companies owned by Japanese ethnics, two foreign companies, and 11 domestic companies had moved into the Park. In order to promote these export-oriented light industries, the government provided the necessary support with respect to the exchange rate, tax incentives, and export subsidies, among others. The government then focused on the expansion of the Export Park, with textiles initially being the largest export item. However, from 1985, electrical and electronic goods became the largest export item.

 

The “Triangular Trade Structure” emerged as a result of the normalisation of relations with Japan and the deployment of South Korean troops to the Vietnam War to support US forces. Japan became the primary supplier, and the US served as the primary consumer of South Korean products in exchange for South Korea’s support in the Vietnam War, with the US opening its textile market to South Korea.

 

1. Securing skilled workers and engineers

The South Korean government recognised that a dynamic skilled workforce would be essential to move towards an industrial strategy centred around exports, which could promote the government’s objectives of structural and economic transformation. As mentioned earlier, in the 1960s, South Korea’s economy relied on unskilled and semi-skilled labour, concentrated in the textile, footwear, and apparel manufacturing sectors. However, this export-oriented industrial strategy required a highly skilled workforce for the industrial complex to operate optimally and to grow heavy chemical industries in the future. Hence, resources were redirected to ensure a highly skilled workforce was developed, and that the supply of skilled employees being developed through the educational system was connected to the needs of the economy.

 

South Korea had typical labour-surplus economic conditions in the early 1960s, with a modest domestic market. In order to provide the workforce required to deliver on the government’s comprehensive economic growth plan, the vocational education and training system had to be reorganised. Due to systematic planning and standardisation, the majority of formal technical and vocational education was delivered through the state’s educational system. The government had to boost enrolment in vocational schools in the 1960s to produce technicians for labour-intensive light industries.

 

Furthermore, the government had undertaken a major structural shift in the 1970s to promote the growth of heavy chemical businesses. The demand for skilled workers and technicians had been further exacerbated by the rapid structural transformation. In response, the government had to expand secondary technical and vocational education. This resulted in reorganising the existing five-year junior technical colleges (comprising three years of secondary and two years of post-secondary programs) into two-year junior vocational colleges designed to foster technicians and engineers capable of performing specific technical tasks in the heavy and chemical industrial fields in tandem with the rapid structural shift to those industries.

 

1. Societal prejudice

Because South Korea had a well-established social hierarchy, people with technical and vocational skills had been historically scorned in society. Government officials were at the top of the hierarchy, followed by farmers, merchants, and technicians. Therefore, the youths at the time showed no interest in becoming technicians. Also, the younger population received no incentives to enrol in technical schools and become technicians.

 

Training precision technicians had been a prerequisite for the policy of developing and promoting the heavy and chemical industries (defence industries). The defence industries demand exceptionally, highly skilled precision technicians who are able to cut iron to sizes smaller than 1/100 mm precision. Precision technicians were critical as poor product quality would have led to bankruptcy. Therefore, South Korea had to make certain advances in the technical and vocational educational system with an emphasis on hands-on training. The objective had been to provide 2 400 hours of free technical instruction at the vocational schools, shifting from theory to practical training.

 

To do this, the government had established technical high schools, one in each province, to balance regional development.  They had also dispersed the incentives throughout the schools, providing young people incentives such as scholarships and, most importantly, exempting them from military service. This had been crucial because, in South Korea, every male was required to complete three years of military service. In spite of being exempt from military service, it was still challenging given the social hierarchy, as 8 000 South Korean young men travelled to West Germany to work as coal miners until the late 1970s.

 

Since actual skills development had been the primary objective of mechanical technical schools, their curricula had been more narrowly focused. General education and special technique training had been included in the curriculum, with a general education to special technique training ratio of 40:60. The ratio of theory to practical training in the special technique curriculum was 30:70, and the minimum number of hours of practical training required over three years was 2 400 hours, or three hours per day for each student.

 

1. Kum-Oh Mechanical Technical School

In terms of facilities and instructors, the Kum-Oh Mechanical Technical School certainly was one of the most prestigious technical institutions in Asia. It served as a model for other industrial technical colleges. The Japanese reparation fund had been utilised to compensate for the recruitment of Japanese instructors, the training of the school’s instructors in Japan, and the acquisition of technical training equipment. Although there had still been a strong anti-Japan sentiment in South Korea at the time, the government nevertheless sought to offer the best training available by employing Japanese teachers over a three-year contract.

 

Eight Japanese teachers, some of them being retired educators, worked at the Kum-Oh School for three years, until the first classes graduated. Casting, welding, machining, heat treatment, and forging were their areas of specialisation. The school’s admission standards were quite high, with an emphasis on intellectual capacity, moral character, and physical strength. First and foremost, the potential students’ middle school grade point average (GPA) should have been in the top class (Intelligence). The prospective pupils’ social skills and moral character should be reflected in the middle school principal’s recommendation letter. The candidates were selected by the education committees in each city and province. After a series of aptitude tests, physical examinations, and interviews, the students were finally admitted. Successful students received complete scholarships that covered all costs, including books, clothing, and housing.

 

Industrial vocational schools used to lack the proper ethical standards, which discouraged excellent performers from studying there. Students pursuing mechanical technology would then be graduating with the knowledge and abilities required to pursue careers as precision technicians after overcoming the odds and being admitted. Of the 400 new students in the class of 1976, 121 had been their respective schools’ valedictorians, 256 had been in the top 5%, and only 23 had been in the top 10%. They had been sons of rural farmers, with the majority of these pupils coming from disadvantaged backgrounds. Vocational school students had excelled in the International Vocational Training Competitions (the Vocational Olympics), winning nine times in a row from 1977 to 1991. They had also started obtaining their technical licences. The President at the time had praised the students, who were honoured with a ticker-car parade, treated as social champions, and declared to be the architects of the modernisation of South Korean businesses.

 

The South Korean university system had been severely underdeveloped in the 1960s, with the curricula at engineering institutions not applicable to the needs of the industry. At the time, the South Korean government had begun to promote heavy industries; as a result, the government began to put more emphasis on practical training, matching one area of study with one local technical university within driving distance of a nearby industrial complex. It had also increased the entrance quota on heavy and chemical industry (HCI) related majors. This entailed coordinating academic requirements with business needs of the nearby industrial complex. For example, considering its proximity to the Changwon Machinery complex, Busan University’s engineering college concentrated on machinery. Similar to how Kyungpuk University’s engineering college specialised in electronics to support Kumi Electronics Industrial Complex, Cheonnam University’s engineering college focused on chemistry to serve the Yeocheon Petrochemical Complex. By improving employability and enhancing the competitiveness of local firms, the university-industry collaboration had assisted students in matching their education and abilities to the requirements of the local industries, thus supporting local job creation.

 

The partnership between the university and the industry had been quite successful, especially in the instance of Kyungpuk University. Graduates from the engineering programme at Kyungpuk University, which focused on electronics and electricity, had been employed by Samsung Electronics in the Kumi Industrial Complex and advanced to executive positions. The current chief executive officer (CEO) of Samsung is a Kyungpuk graduate.

 

 

1. Development of Free Economic Zones in South Korea

 

The Committee engaged the MOTIE and the GKEDC on the development and regulatory framework of FEZs in South Korea. The MOTIE is responsible to provide a foundation for economic growth through the areas of commerce, trade, investment, industry, and energy, particularly the development of FEZs.

 

 

1. Evolution of the Special Economic Zone Systems

Dr J Hong[2] asserted that during the 1997 International Monetary Fund (IMF) Foreign Exchange Crisis, South Korean society had been severely impacted. Numerous businesses had failed, and many South Koreans had lost their employment. At that time, South Korea had limited foreign currency and was looking to attract foreign investment. This resulted in the development of SEZs in South Korea in response to that crisis.  SEZs in South Korea were heavily promoted to draw FDI and address shortfalls in foreign capital. The establishment of the Foreign Investment Zone, the creation of the customs-free zone, and the creation of the FEZs in 2003 represented phases in the evolution of the South Korean system for attracting FDI.

 

Launched in 1970 as the nation’s first SEZs, the FEZs evolved into the Free Trade Zone in 2000 and then the Customs Free Zone in 2004. It now continues as a Free Trade Zone. To encourage foreign investment, the Foreign Investment Zone system had been implemented in 1997.

 

In order to attract foreign investment, boost national competitiveness, and balance regional development, the South Korean government developed the FEZ starting in 2003. Two more FEZs had been established after the first one had been established in 2003, in Incheon. There were currently nine FEZs in South Korea, with two of them having been established in 2008, two in 2013, and two more in 2020.  The Incheon FEZ, which is close to the Seoul Metropolitan Area, is the most prosperous.  The second is in Busan, the second-largest city in South Korea, which is close to a significant port and an international airport. The South Korean government intends to build a brand-new international airport in Busan. However, there are a number of smaller FEZs, with the economic performance of the FEZ in the East Coast being low. Businesses were averse to locating in FEZs where economic performance was not significant. Many countries are currently pursuing the development of SEZs, but it is important to select locations that are preferred by investors.

 

1. Legal framework for the establishment of a FEZ

The MOTIE is the custodian of the Special Act on Designation and Management of FEZ of 2002, which serves as the formal legal foundation for the creation of the FEZs. The objective was to establish a SEZ that contributed to the facilitation of Free International Trade/Business. Benefits associated with establishing a business within an FEZ, would be de-regulation, numerous incentives, and high-tech corporate infrastructure. For foreign investors, the FEZ would be a top-tier location for doing business and relocating.

 

In 2003, South Korea introduced the FEZs by adopting a number of deregulation initiatives, specially designated zones designed to enhance the working and living conditions for foreign-invested businesses in South Korea. In 2003, the FEZ system was developed to promote South Korea as an economic vehicle for Northeast Asia, with the combination of industry, commerce, housing, and education.  The objective was to balance regional growth while making it the commercial and economic hub of Northeast Asia.

 

Geographically speaking, South Korea is situated in the heart of Northern Asia, one of the world’s three most prosperous regions. The region comprises 147 cities with a population of more than 1 million people, and it is located between China, the second-largest economy in the world, and Japan, the third largest. The original goal was to establish a hub for Northeast Asia with the ideal business and living environments. In addition, it serves as a transportation hub and offers geographic benefits for accessing the 1,6 billion-person Northeast Asian market. According to the South Korean government, the FEZs were intended to become business, logistics, and high-tech sector centres. These are interchangeable, and the South Korean FEZs’ current responsibilities include guaranteeing global competitiveness, as such, the pursuit of the development of global and high-tech industry hubs. There were currently discussions of reducing regulations in the FEZs.

 

1. Rules and legislative framework for FEZs

In terms of the legislation, a FEZ Committee is established within the MOTIE to support FEZs and perform the affairs regarding the FEZs. This Committee is chaired by the Minister of Trade, Industry and Energy, with support of a vice-chairperson, ex officio members, and commissioned members.

 

This Committee deliberates on and passes resolution on matters concerning:

• the main policy and system with regard to FEZs;
• formulation of master plans for FEZs;
• designation, revocation of designation, and the alteration of designation, of a FEZ;
• development plans for FEZs under Article 6;
• the provision of administrative services necessary for foreign-invested enterprises to conduct their business in FEZs;
• the coordination of opinions with the heads of central administrative agencies and Mayors/Do Governors in connection with FEZs;
• exclusion from application of special cases concerning the handling of administrative affairs of local governments, etc. under Article 27(2); and
• other matters prescribed by Presidential Decree and necessary for the designation and management of FEZs.

 

The FEZ also includes a planning office with personnel from the Ministries and Local FEZ Authorities on secondment. All of these officials work for the government, supporting the FEZ Committee and coordinating the activities of the nine FEZs. Each of the nine FEZs are administered by an FEZ authority, which stands in for the district’s municipal government. As the FEZ is being developed, these authorities provide businesses a one-stop shop offering a variety of services.

 

1. One-stop Administrative Service

MOTIE (Central Government) and the FEZs Authorities (Local Government) provide a One-stop Administrative Service to investors wishing to invest in South Korea’s FEZs. The One-stop Administrative Service offers business consulting, information and advisory services, and administrative services.  The types of services offered are outlined in the table below.

 

 

 

 

 

Table 3: Types of services offered by the One-stop Administrative Service

Source: Ministry of Trade, Industry and Energy (2023)

 

1. FEZ incentives

Based on the Special Act on Designation and Management of FEZs, the Foreign Investment Promotion Act, and municipal ordinances, the Korean FEZs provide a variety of financial and site support for cash incentives, infrastructure, and rent. The FEZ provides exemptions and reductions in national taxes, such as tariffs, as well as municipal taxes, such as acquisition and property tax, for foreign companies and developers. Companies also obtain a five-year 100% tax exemption on imported capital goods with regard to the associated import tariffs. Companies are exempt from 100% of the acquisition tax for up to 15 years in accordance with municipal legislation, as well as from the property tax for the same period.

 

Furthermore, by easing regulations, FEZs support international businesses and developers. Companies are not required to fill open positions with locals, the elderly, or those with disabilities when it comes to labour. Companies may increase the terms and conditions of employment, and unpaid leave is permissible. Additionally, firms are excluded from Seoul regulations in the metropolitan areas, and businesses in urban areas are allowed to clear transactions up to US$100 000 directly through foreign currency transfers.

 

Additionally, the South Korean government provides cash incentives to companies based in the FEZs by assisting with the costs of purchasing land and buildings, paying rent, funding construction, and funding employment awards. It also supports the construction and improvement of infrastructure, such as roads, trains, airports, water and sewage systems, and waste treatment facilities. It provides financial assistance for start-up expenses related to building and operation setup, as well as a 50-year authorisation for foreign companies to lease public and national lands. It also provides financial assistance for the establishment, operation and construction of the education and research facilities.

 

Table 4: Incentives offered within FEZs

Category	Details
Tax reductions or exemptions	Local tax reductions or exemptions (100% and for up to 15 years) Reductions or exemptions of tariffs for 5 years for capital goods imported
Location Support	Rental fee reductions for state-or publicly owned, long-term lease (50 years)
Cash Grant	Factories and research facilities, Employment and learning/training
Infrastructure	Roads, parks, waste disposal facilities, etc.
Learning and research institute support	Initial operation cost, construction, establishment, and preparation, etc.
Eased regulations on labour	Exempt from the mandatory requirement of employing the disabled Loosened regulation on temporary workers Unpaid holidays for employees
Relaxed regulation on foreign exchange	No reporting if the transactions are US$100 000 or lower

Source: Ministry of Trade, Industry and Energy (2023)

 

1. Business and living environment

South Korea is one of the most desirable business destinations globally. According to the World Bank’s “Doing Business 2019” report, South Korea was ranked fifth as a business-friendly nation. It is the third-largest market in the world and has signed Free Trade Agreements (FTAs) with 59 countries. South Korea has concluded FTAs with the USA, the European Union and China, and as a result of the FTA with China, global investors are able to access the Chinese market first. Therefore, South Korea can export products to every country in the world.

 

An important selling feature for the South Koreans in the FEZs is the high quality infrastructure. The Incheon International Airport, which is adjacent to the Incheon FEZ, offers direct flights to 173 places in 52 countries and averages 71 million passengers a year. Connectivity to all regions across the country is made possible with access to ports, highways, and railways. This ensures a reliable distribution system using the nation’s rail, maritime, and highway networks.

 

Basic infrastructure, such as electricity, water, and gas, is offered in the FEZs, including excellent information and communication technology (ICT) networks. Electricity, and access to water for industrial use are provided at a discounted rate.

 

The FEZ offers an ideal living environment with high levels of security and safety for both families and businesses. Additionally, it allowed prestigious universities, high schools, and elementary schools to set up operations within the FEZ. It also provides advanced medical facilities, with every residential area having its own medium-sized hospital and pharmacy.

 

Every FEZ offers a methodical and expert One-Stop solution to any business looking to locate. Each FEZ appoints a project manager to support the investor throughout the investment process, from the first evaluation of the investment to managing the process and dealing with follow-ups. Furthermore, it offers administrative support for legal, accounting, and tax management, and assists potential investors by guiding them in making sound business decisions.

 

Through different institutions and regulatory reform, the FEZs have made impressive strides toward enhancing the commercial activity of foreign-invested companies and living standards within the FEZ. As of 2021, cumulative FDI performance was US$20,5 billion, with a growth rate that increased from 29% in 2009 to 90% in 2021. In addition, tenant businesses and employment sales have recently increased by 10% annually.

 

1. Designated Free Economic Zones

Since 2003, FEZs have been established in Incheon, Busan/Jinhae, and Gwangyangi. Nine areas, totalling 275 km2, have been designated as FEZs and are already operational. These are outlined in table 5 below.

 

 

 

 

 

 

 

Table 5: Free Economic Zones in South Korea

Name	Key Strategic Industries	Transportation Infrastructure	Employment	Number of Companies
Gwangju	Future vehicles Smart energy Artificial Intelligence (AI) convergence	Gwangju Airport	1 048	24
Ulsan	Future Mobility Future chemical materials Hydrogen/low-carbon energy	Ulsan Airport, Ulsan Port	2 096	74
Incheon	Bio/healthcare Smart manufacturing Aviation/complex logistics Knowledge/ tourism services	Incheon International Airport, Incheon Port	96 641   28 727 (FCIC[3])	3 481     206 (FCIC)
Busan - Jinhae	Complex logistics/ transportation Smart transportation equipment Advanced materials/parts/ equipment Bio/healthcare	Kimhae Airport, Busan New Port	56 666   12 278 (FCIC)	1 893   168 (FCIC)
Gwangyang Bay Area	Functional chemicals Green energy Metal materials/parts Logistics/transportation	Gwangyang Port	17 592   1 848 (FCIC)	645   38 (FCIC)
Daegu - Gyeongbuk	ICT/robot Medical/bio Future mobility	Daegu Airport	29 888   1 634 (FCIC)	905   28 (FCIC)
Chungbuk	Bio/health Smart IT parts Air mobility Energy materials/parts	Cheongju Airport	3 756   459 (FCIC)	83   9 (FCIC)
Gyeonggi	Future mobility Medical/Bio Hydrogen energy Logistics/conventions	Pyeongtaek Port	393   22 (FCIC)	16   3 (FCIC)
East Coast	Recreational tourism/leisure Hydrogen energy Advanced materials/parts	East Sea Port	55   0 (FCIC)	3   0 (FCIC)

Source: (2022 & 2023)

 

1. Policy direction of the FEZ

The MOTIE announced its vision and strategy for FEZs on 22 October 2020, in response to changes in the industrial environment, such as the emergence of new industries and reorganisation of global value chains. Its objective is to become the global centre of new industries leading innovative growth, targeting new investment of US$50 billion, both internationally and domestically. Furthermore, it seeks to encourage new companies to join FEZs, thereby creating 200 000 additional jobs. 

 

The FEZ Act was revised in May 2021, which provides the institutional foundation for each FEZ to select key strategic industries. These should centre on new high technology and regional specialised industries and establish performance-oriented development plans based on this.

 

By introducing a new vision, it seeks to create an innovative ecosystem with the proper programmes to strengthen the capacity of tenant companies in each district and foster cooperation on projects among companies, universities and research institutes. With this programme, the South Korean government plans to support the growth of individual tenant companies while creating an environment in which voluntary changes and cooperation between innovative entities could take place. This is to ensure that FEZs become the centres for industrial innovation.

 

With new innovation within the financial industry prompted by the advances in ICT, challenges emerged within commercialisation as a result of regulations. Therefore, the South Korean government enacted the Special Act on Support for Financial Innovation in response to changes within the financial industry to address these regulatory challenges by introducing a programme called the “financial regulatory sandbox”. This programme’s primary objective is aimed at creating safe and accurate financial regulations while taking into account public priorities like promoting new industries and safeguarding consumers. This would further enhance regulatory reform capacity that would facilitate investment in new industries. Furthermore, it would strengthen collaboration between the FEZ authorities and the South Korean Institute for the Advancement of Technology, developing supporting systems to identify sandbox initiatives, thus, assisting the deregulatory applications for tenant firms.

 

1. Lessons from the South Korean experience

Dr Hong highlighted the following key lessons learnt from the South Korean experience:

 

1. Pursuit of economic logic rather than political purposes: Politically driven FEZs do poorly economically. Instead, they should be carefully planned using rational economics. One should guard against politicians that want the central government to designate FEZs in their regions, as FEZs should be where resources would be concentrated. Currently, there are too many FEZs in South Korea, some of them exist purely based on political reasons.

 

1. Efforts to strengthen the competitiveness of the national economy: Notwithstanding the rationale of FEZs being enclaves, the competitiveness of the economy and the investment environment are absolutely linked to their success. Therefore, it is critical to have a vibrant and strong economy, otherwise the FEZs would lose their competitiveness.

 

1. Strengthen links with the domestic economy: FEZs should be a vehicle that facilitates the structural transformation of the economy. To ensure this transformation, the following aspects are critical elements of this transition (i) encouraging investment from domestic firms into the FEZs, (ii) strengthening backward linkages with supply chains as well as the value-addition (forward linkages), and (ii) encouraging the movement of labour and entrepreneurs between FEZs and the domestic economy.

 

1. FEZs test beds for a better society: A prosperous FEZ would lower the dependence on incentives, such as tax breaks and cheap labour, in the long-run. This would facilitate a more effective environment to develop firm level competitiveness and sustainability. 

 

 

 

 

1. South Korea Trade-Investment Promotion Agency (KOTRA)

 

The KOTRA was established under the South Korea Trade-Investment Promotion Agency Act in 1962 to contribute to the development of the national economy by undertaking trade promotion, investment facilitation between domestic and foreign companies, and supporting industrial technology cooperation. It is also tasked with assisting foreign companies to identify quality products and companies in South Korea. In 1995, KOTRA was renamed the South Korea Trade-Investment Promotion Agency, with the added function of attracting FDI. The main industry focus areas for KOTRA, among others, are the automobile and construction equipment industries.

 

Major roles undertaken by KOTRA include:

• Expanding medium- and small-sized enterprises’ (SME) business in overseas markets.
• Supporting small-sized enterprises to extend their business abroad.
• Overseas market information production, spread and consulting.
• Attracting FDI into South Korea.
• SME Global Business Training and attracting foreign professionals.
• Improving national branding, supporting international development cooperation and supporting munitions trade.
• Undertaking projects requested by the Government.

 

By creating trade delegations in collaboration with local government and institutions, KOTRA provides foreign nationals the opportunity to interact with South Korean businesses, including SMEs.  It supports and develops customised marketing services and opportunities for South Korean SMEs for the global market. Furthermore, it utilises its global network, by arranging one-on-one business meetings between South Korean companies and foreign buyers.

 

One of the main objectives of KOTRA is to assist domestic companies to find global partners with the purpose of helping South Korean companies to enter global value-chains. The Global Partnering Programme facilitates grant funding in research and development (R&D) in order to form cooperative business partnerships involving technological cooperation, product sourcing and equity investment. Through organising exhibitions and pavilions, KOTRA provides the platform for domestic companies to engage with foreign buyers to buy SOUTH KOREA.  Through the South Korean Auto parts Plaza (KAP), which is a combination of seminars and business consultations for overseas projects such as civil engineering, construction, transportation, infrastructure, energy and power-plants, KOTRA creates the vehicle for SMEs to participate in the global procurement market and establish business partnership between South Korean SMEs and global automobile manufacturers.

 

By creating an attractive business environment and promoting domestic investment by foreign businesses, KOTRA contributes significantly to the promotion of South Korea as a hub for global commerce. Additionally, it offers complete services for outbound investment by South Korean businesses, as well as inbound foreign direct services.

 

Regarding inbound investment, Invest South Korea (IK) offers specialised investment support through its one-stop service, including pre-investment consultation, investment execution, and post-investment process. KOTRA further promotes South Korea’s investment climate through IK Week, South Korea’s largest international investment forum, by giving potential investors opportunities for business meetings and site visits. Furthermore, KOTRA supports the settlement of foreign-investment companies in South Korea by providing an Aftercare Service, through the Foreign Investment Ombudsman, and Home Doctor service, among others.

 

Through its relationships with foreign investment promotion agencies and consultancy companies, KOTRA offers vital outbound investment information to South Korean businesses. In order to facilitate cross-border merger and acquisition activities, it connects local businesses seeking foreign investment with possible South Korean buyers, primarily for small and medium-sized business deals. In addition, through partnerships with foreign businesses and venture capitalists, it supports South Korean start-ups and those preparing to establish a business abroad.

 

Through its Global Human Resource Partnership, KOTRA supports the recruitment of South Korean nationals to work internationally, and to connect foreign expertise with South Korean businesses. This happens through forums such as Seoul Career Vision, employment forums, and overseas job fairs, where KOTRA facilitates job interviews with foreign companies. Additionally, Contact South Korea facilitates the recruitment of international expertise, such as engineers, among others, by setting up interviews, as well as advising on the visa application process.  

 

In its promotion of intergovernmental partnerships, KOTRA provides support to economic delegations by developing economic cooperation agenda and hosting economic partnership events for summit diplomacy.  Furthermore, KOTRA promotes the full utilisation of FTAs by advising South Korean businesses and foreign buyers on trade matters emanating from the implementation of these agreements. In order to accelerate the economic growth of partner nations, KOTRA promotes international development cooperation programmes like the Knowledge Sharing Programme (KSP).

 

Furthermore, KOTRA operates as a global business think tank in South Korea based on data gathered by more than 125 overseas offices throughout the world. It provides news on trade and trade regulations, legislation, analyses on the international economy, and investment, as well as relevant on-site interviews. In addition, KOTRA hosts international seminars attracting South Korean and foreign experts in many fields.

 

1. Invest South Korea (IK)

The national investment promotion agency, IK, was founded in 1998 as a part of KOTRA, under MOTIE, to encourage FDI in South Korea. The Investment Consulting Centre provides administrative support to investors. In 1999, the Foreign Investment Ombudsman was added to offer aftercare services to international companies. It was relaunched as IK in 2003, and the Investment South Korea Plaza, a company incubation hub, opened in 2006. The Foreign Investment Committee is the highest decision-making body for FDI, with IK charged with attracting FDI through the implementation of government strategies and policies.

 

Initially, it supported only inbound FDI, but since 2018 it supports both inbound and outbound investment. IK is responsible for promoting South Korea as the preferred destination for FDI, managing projects and providing aftercare services that would enhance South Korea’s position as a global hub for business, innovation and growth. Currently, KOTRA has a broad global network of 129 offices in 84 foreign countries to be close to their markets, get the most up-to-date information, and create the smallest network for its target businesses. These include 36 investment promotion offices in 20 nations that are regarded as financial and industrial hotspots for investment promotion; however, this does not imply that KOTRA only encourages FDI from those 20 countries. Of the 36 investment promotion offices worldwide, 13 are located in Europe, nine in North America, six in China, four in Japan, three in South Asia and Oceania, and one in the Middle East.

 

1. Invest South Korea operations

Informed by the Foreign Investment Promotion Act, IK provides a one-stop service from pre-investment to investment stage, to the post-investment stage. It is led by 14 project managers, that provide customised service to each investor. These project managers actively participate in investment promotion activities to meet their regional and quarterly investment targets in collaboration with investment promotion officers placed in IK’s overseas offices. Furthermore, they provide advice on incentives, identify possible investors, connect domestic partners with overseas investors, and produce industry studies.

 

IK provides prospective investors information on a variety of subjects during the pre-investment phase, including incentives, and on industrial trends. Additionally, government officials assist with visa applications, business registration, and the application of national legislation and local governances. Regarding the investment stage, it assists investors in choosing company locations and identifying potential business partners and offers administrative support to launch their businesses.

 

During the post-investment stage, project managers assist businesses in trying to resolve any grievances and challenges faced. The One-stop system is under one roof, the foreign investor support office, with service providers through cooperation with the Investment Consulting Centre.

 

The Office of the Foreign Investment Ombudsman ensures that the necessary aftercare service is provided as it is critical in ensuring future reinvestment in South Korea. These one-stop services are a critical element in preventing investment failure and provides comprehensive support and services for those interested in doing business in South Korea. The IK Market Place (IKMP) offers a platform that makes it easier for South Korean SMEs, start-ups, and local governments seeking new investment projects to connect. IK uses the IKMP as a tool to advertise and promote South Korean businesses through its overseas offices to attract foreign capital. As of February 2023, a total of 290 South Korean companies were registered on the IKMP.

 

The IK Plaza is another tool that assists foreign companies investing in South Korea and operates as an incubating facility. It provides dedicated office space, secretarial and reception services, as well as investment consulting services through the Investment Consulting Centre that facilitates the settlement of foreign investors.  As part of the one-stop service, IK provides a Red-Carpet Service to prospective investors such as facilitating site visits and meetings; free accommodation, transport and interpretation services, including airport pick-ups; and fast-tracking services.

 

Yearly, IK facilitates roundtables and holds job fairs for companies to access local expertise. During these engagements, investors have an opportunity to address any challenges and may propose policy changes for consideration to resolve any grievances that may have arisen while the company was operating in South Korea. It is also important for foreign companies to get a better understanding of South Korean culture, and to promote this, IK holds annual cultural events for investors to experience South Korean culture.

 

 

1. Site visits in South Korea

 

The following sub-sections provide an overview of the Committee’s site visits within South Korea.

 

1. Incheon Free Economic Zone

The Committee visited the Songdu International Business District, located within the IFEZ. The IFEZ had become a focus of the government’s initiatives to establish a Northeast Asian economic hub for innovative global business. The IFEZ consists of three cities, namely, Cheongna, Yeongjong, and Songdu. The Songdu International City is home to the high-tech knowledge service industry, the Yeongjong International City, home to aviation, logistics, tourism and leisure complex city industries centered around the Incheon Airport, and Cheongna International City, the hub for international finance, distribution, and medical services. In terms of international trade, the IFEZ is strategically located for export to countries such as China and countries in South America.

 

The IFEZ was designated as an FEZ in 2003. The IFEZ has been developed and continues to be developed as a Smart City in a phased approach. The first phase was the infrastructure construction that was from 2003 to 2009, and the second phase was the platform-based information system integration that was from 2010 to 2016. Currently, the development was in its third phase which started in 2017 and was expected to be completed in 2030. This phase includes the identification of industries and new services.

 

These smart cities are technologically advanced urban areas, which utilise a number of electronic devices and sensors to collect specific information. This information is used to improve the operational functioning throughout the city, used frequently to manage assets, resources and services efficiently. To meet local and global demands, national and global companies are collaborating in innovation with major cities and are seeking ways to maintain its competitiveness. The IFEZ had recognised the importance of creating distinct characteristics in the three cities to lead development on the global financial frontier. As an example of its pioneering role, the Committee was informed that the Songdu bio-cluster, where all value-chain businesses closely collaborate with one another during all phases of R&D, clinical trials, reliability verification, and manufacturing, provides the IFEZ with a competitive edge.

 

Demonstration Project Evaluation Demonstration Data Provision Product Commercialisation and promotion     Citizen-centric services launching (healthcare, wholesale and retail, parking, etc.)

IFEZ Data Hub

 

Source: Incheon Free Economic Zone (2023)

 

Going forward, the IFEZ would potentially experience extraordinary innovation faster than anticipated by establishing South Korea’s own Silicon Valley.  Furthermore, the IFEZ promotes radical innovations by future generations and is creating an academic and research ecosystem where research and education are connected to technology. In addition, because the service industry is growing at an increasingly rapid rate, innovation within IFEZ is continuous and is expanding its territory, merging land, sea and sky.

 

The main strategy of the IFEZ is to “introduce cutting edge technology” coupled with other services including a port through the Incheon Port Authority; airport through the Incheon International Airport Corporation; and housing through the Incheon Housing and City Development Corporation. In addition, a global university has a campus within the IFEZ to provide skills, and financial services companies are located in the IFEZ. The IFEZ Data Hub is an example of the “cutting edge technology”. It provides a three-way model to deliver services and interact with citizens which includes Urban Management, Startup Fostering, and Citizen Participation.

 

1. DHL Express South Korea (Incheon Gateway)

The Committee also visited the DHL Incheon Hub Terminal. Incorporated in 2001, DHL South Korea Ltd., a subsidiary of Deutsche Post DHL Group, is a global logistics and support company with head offices in Incheon, South Korea. It provides logistics services including international express deliveries, warehousing solutions, mail delivery worldwide, global freight forwarding and other customised logistic services. The logistics company is the largest international express in Korea. It has 1 520 employees, 93% (1 420) of which are permanent employees. The company has seven dedicated aircrafts daily and 40 commercial flights daily and 518 vehicles transporting goods and documents to various countries and regions in South Korea. 

 

Since the opening of its gateway in 2008, DHL Express has seen a growth of over 45% in shipment volume, indicative of the growing role which the gateway plays in global and intra-regional trade. DHL has seen significant growth of e-commerce and the logistics business in South Korea, which is expected to continue growing as the third-largest e-commerce market by 2023, following China and the USA. Despite concerns that the e-commerce boom might be running out of steam in the post-pandemic era, the trend in South Korea appears to be upward over the long run driven by both increased demand, as consumers are fast adapting to online shopping, and supply where business owners seek to branch out overseas. 

 

At the time of the Committee’s visit, the company was constructing an expansion of its facility. The current facility is 19 946m2 with an investment of €35 million. The new facility is an additional 59 940m2 in which the company is investing €121 million.

 

1. HD Hyundai Heavy Industries

The Committee visited the HD HHI and received an overview of the HD HHI industries and its evolution to date. The Committee visited the Asian Memorial Hall that showcased the evolution of the company and was also taken on a site visit of the harbour to experience the extent of it harbour operations in Busan.

 

The Committee was informed that HD HHI was founded by Chung Ju-Yung in 1972, who also established the Hyundai Construction Company in 1947, and the Hyundai Motor Company in 1967. The establishment of the HD HHI and its expansion into shipbuilding had the support of the South Korean Government who at the time was adopting an export-oriented industrial policy. Mr Chung, being the visionary, recognised the sectors of the economy that the government had identified as being essential to economic growth and structured the evolution of his company accordingly.

 

Accordingly, his decision to enter the shipbuilding market was met with scepticism, however, HD HHI had received an order to build two 260,000-dead weight tonnage very large crude carriers (VLCCs) from a Greek Industrialist, despite its shipbuilding company being in its infancy stage. This order had been completed in 1974, at the same time of the completion of the world’s largest shipyard in Ulsan. A decade after its first delivery, the Hyundai Shipyard topped ten million deadweight tons in aggregate ship production, which has enabled the company to maintain the leading position in the world shipbuilding market ever since. This laid the foundation for HD HHI to become one of the leading shipbuilding companies globally.

 

HD HHI, since its success in the shipbuilding industry, expanded its business into various business units, such as industrial plants, other heavy industries such as engine machinery, electro-electric, construction equipment and offshore business development. This immediate period saw the establishment of the Engine and Machinery Division, and the Heavy Electric Machinery Division, among others.

 

HD HHI divested from the Hyundai Group in 2002 as part of its ongoing commitment to development and growth. In 2010, the company expanded its business into the oil and green energy sectors by purchasing the Hyundai Oil Bank, an oil refinery.

 

A production volume of 100 gross tons was attained by HD HHI in 2012, making it a first worldwide. According to HD HHI, several of their business units, including the electro-electric system, construction equipment, and green energy sector, had been spun off in 2017 so that they could concentrate on their own enterprises and maintain their financial stability. The South Korean Shipbuilding and Offshore Engineering (KSOE), a shipbuilding holding company for the HHI Group, was established in 2018 with an emphasis on shipbuilding.

 

It should be mentioned that the HD Hyundai Group’s Business Portfolio is split into the maritime, industrial, and energy sectors. HHI, Hyundai Mipo Dockyard, and Samho Heavy Industries are all part of the KSOE (marine) and specialise in shipbuilding and offshore development. The Hyundai Global Services provide aftercare service for the lifecycle of the delivered vessels. These services relate to retrofitting, or any requirements identified by the owner. The company provides excellent technical support for all HD HHI supplied vessels, employing a proactive and scheduled maintenance system with the support of professional engineers and qualified technicians. The newly formed Avikus joined the group to improve the automatic navigation system.

 

Through its diverse business portfolio, HD HHI informed the Committee that it is augmenting customer satisfaction by attaining synergy. With a broad product line-up and a differentiated quality management system, HD HHI was currently the market leader in the world of shipbuilding. It reacts to market and customer demands by timeously developing new ships that are extremely efficient and eco-friendly.

 

The largest engine producer in the world, HD HHI, has state-of-the-art production facilities and accounts for around 35% of the global two-stroke engine market.  HD HHI informed the Committee that it independently developed and produced two- and four-stroke engines, as well as propulsion systems. By doing this, they were solidifying their position as the top integrated machine maker in the general industrial and power generating sectors as well. Additionally, HD HHI was enhancing customer values by delivering market-leading products and gaining technological competitiveness via the development of core technologies centred on the needs of customers.

 

Health, safety, and environmental management are HD HHI’s top priorities. To provide a clean and safe working environment, the company actively develops and adopts eco-friendly measures to minimise risk factors. One of HD HHI’s key advantages is the tight synergistic interaction amongst all its affiliates.

 

Furthermore, the Committee was informed that through combined sales and material purchases, HD HHI has built an ideal shipbuilding collaboration system with Kunden Depot Dockyard and Kundis Hummel Heavy Industries. The shipbuilding and maritime industries are also given a boost by HD Hyundai Global Service, which offers turnkey solutions and full after-sale services for engines and ships. Through improved quality, expansion of local models, and customer support services, HD Hyundai Site Solutions was seeing rapid growth.

 

1. Busan Techno Park (Jisa Complex)

Busan Techno Park was jointly established in 1999 by the MOTIE, the Ministry of SMEs and Startups, and Busan Metropolitan City, as a non-profit foundation with the purpose of integrating infrastructure for fostering local industries as a regional innovation base for industry, academia, institute and government, and leading the revitalisation of the local economy by exploring and nurturing new technologies. It leads the development of future industries including biomedical, intelligent information systems and clean energy. It further provides convergence of local traditional industries, and ICT industries to help Busan become a sustainable growth city. In particular, the Techno Park’s mandate is to promote and support SMEs in Busan and revitalise local industries and the local economy. In this regard, it:

• Provides testing and accreditation services:

• Accredited testing and calibration institution by the Korea Laboratory Accreditation Scheme (KOLAS);
• Designated as the International Electrotechnical Commission accredited testing laboratory and accreditation by the Korea Accreditation System (KAS);
• Service Quality Certification by the KAS;
• Designated as an accredited testing laboratory by the Ministry of Food and Drug Safety (MFDS); and
• Established an electric wave testing system for electric vehicles.

• Promotes Innovation Support for R&D:

• Tech-Startup Accelerating Programme;
• Promotion of National Innovation Cluster;
• Power Semiconductor Commercialisation Centre;
• Medical Industry Technology Centre;
• Big Data Innovation Centre;
• Pseudorymised[4] Information Support Centre; and
• Jisa Science Complex.

• Embarks on strategic planning for Industry-University Cooperation.

 

Busan Techno Park has seven strategic areas in which its work is based, namely:

 

Table 6: Strategic and focus areas of the Busan Techno Park

Strategic Area	Focus Areas
Planning of Strategic Industrial Policy in Busan	Policy planning to foster Busan regional strategic industrial Discovering mid to long-term leading projects for future vision Discovering and planning of future New Industries
Industrial Innovation Based on Government-Industry-University Collaboration	Expansion of the foundation for regional industry-academia cooperation Pioneering technological innovation based on industry-academia cooperation Support for universities and talents based on regional demand
Corporate Support by Growth Space	Strengthening of an integrated support system for Small and Medium Enterprises Establishment of Industrial Complexes and R&D equipment leasing Transfer of innovative technology and support for global commercialisation
Creating a Digital Transformation Ecosystem	Expansion of infrastructure for industrial digital transformation support and establishment of cooperation system Activation of technology startup and investment ecosystem Activation of industrial ecosystem link to Busan Blockchain Regulation Free Zone Activation of industrial linkages through data-utilisation infrastructure
Intensive Nurturing of Future leading industrial	Improving competitiveness of Future Aviation Industry in Busan Innovation of machine technology related to AI Leasing innovation in marine and fisheries based on smart technology Leading the healthcare industry in an aged era (fostering infrastructure industries in preparation for the aging society)
Promotion of Energy Conversion for Carbon Neutrality	Transition to the hydrogen-based energy ecosystem Expansion of growth engines based on power semiconductors Strengthening of corporate support capabilities in the eco-friendly vehicle parts industries Consolidation of the foundation for fostering the safety industry
Promotion of Environment, Society, Governance (ESG) Management	Future oriented management innovation Establishment of mature labour-management relations based on communication Expansion of organisational integrity Creation of social value in reflection of the characteristics of the organisation

Source: Busan Techno Park (2023)

 

The Techno Park management noted that it currently has 200 tenant companies manufacturing or providing a variety of services such as product identification testing, cosmetics production, power semiconductors manufacturing, and electromagnetic wave testing. The areas highlighted included:

 

• Ulsan Techno Park Initiative and Support: The Techno Park is an initiative supported by the small and medium venture corporations and the City of Busan. The central government is called the Ministry of Small and Medium Enterprises and Startups. Both central government and the metropolitan are invested in the Techno Park.

 

• Planning of Strategic Industrial Policy in Busan: There is a particular role played by the metropolitan in setting policy, particularly industrial policy. Industrial policy in many countries is understood to be the responsibility of national government. The national government is responsible for industrial policy working with the Busan City (and other cities). The cities/metropolitan areas propose strategic areas they want to focus on to the national government for final decision.

 

• Collaboration between Government, industry and academia: Government decides on strategic sectors, industry decides what skills are needed to promote these sectors, and through collaboration with universities the requisite skills are developed. However, it should be noted that the approach is not a top-down approach where government suggests sectors to industry. Instead, it is a collaborative approach where industry can also propose sectors which the city/metropolitan area can focus on developing to the government.

 

• Energy sectors: The Techno Park supports the universities doing research on renewable energy and supports companies producing renewable energy through funding received from the central government. Currently, the Techno Park is supporting hydrogen and solar energy initiatives/projects.

 

• Nurturing Industries: The Techno Park provides financial support; R&D support to the university and companies; industrial space and equipment leases at lower prices to companies; and marketing support to ensure that companies attend exhibition shows. Financial support is approximately US$1 000 to participate in exhibition shows. Since inception, the Techno Park has provided financial support of approximately US$90 000.

 

1. Electromagnetic Wave Testing Centre

The Committee visited the Electromagnetic Wave Testing Centre at the Busan Techno Park. The Centre has four categories/industries that it supports, namely: (i) translating national government strategy to Busan strategy, (ii) vehicle testing – provides information and testing services to vehicle manufacturers, (iii) providing information to companies on policy direction of central and Busan government, and (iv) providing electromagnetic wave and reliability testing services.

 

The Centre is an authentic verification testing institution with two parts, namely electromagnetic wave and suitability testing and reliability testing. For the electromagnetic wave and suitability testing, it has equipment for such services and provides certification for Korean car manufacturing companies. For the reliability testing, the Centre performs environment evaluation testing. It was the first to develop the electromagnetic wave vehicle testing in Korea and performs electromagnetic tests for electric vehicles and excavators. Its main clients are Kia Korea and Hyundai motor industries.  In addition, it does defence weapons testing.

 

1. Busan Port Authority (BPA)

The Committee visited the BPA which manages the Busan North Port, Busan New Port and Jinhae New Port. The BPA was established in 2004 to develop the Busan Port as one of the world’s two largest container transhipment hubs. 

 

The BPA is mainly responsible for port construction, port operation, port redevelopment, and port management. Furthermore, it was mandated to ensure R&D of smart port construction technology including the development of Internet of things (IoT) technology between equipment in the port to evolve into an AI port equipped with an optimised cargo handling system, establishment of eco-friendly port facilities including the conversion to eco-friendly loading and unloading equipment, introduction of new and renewable energy within port facilities, and high efficiency of port facilities.

 

The BPA presented on the history of the Busan Port, its strategic offerings, current developments and future plans. The Busan Port is strategically located to connect Europe and the Americas. The Busan Port was first opened in 1876 as South Korea’s first container terminal. In 1978, the first terminal, the Jaseongdae Terminal became operational, other terminals were opened since, including the Sinseondae Terminal in 1991, Gamman Terminal in 1998, New Gamman Terminal in 2002, and the first phase of a new port in 2006. The New Port was further developed in stages between 2009 and 2012.  In 2015, the development of phases 2-1 to 2-3 of the New Port included the opening of the Busan Port International Passenger Terminal for the Northeast Asian cruise market, which the BPA is responsible to maintain and operate.

 

Busan Port has four specialised ports, namely the:

• New Port: New Port Northeast Asia International Logistics Centre Port;
• North Port: North Port Passenger, Cruise-centred New Marine Tourism Port;
• Gamcheon Port: General Cargo and Marine Product Processing Port; and
• Dadaepo Port: Fishing Port and Leisure Centre Port.

 

Since it was first opened, the Port has grown almost 45 times. In 2021, Busan Port became the world’s seventh largest port after the ports of Shanghai, China; Singapore; Ningbo-Zhoushan, China Shenzhen, China; and Guangzhou Harbour, China respectively.[5] It is also the second busiest transhipment hub port, after the Port of Singapore. It has a global network connecting 500 ports in 100 countries, and 50 shipping companies, with 15 000 ships using the Busan Port annually. Its state-of-the-art facilities and excellent human resources ensure that the Busan Port provides shipping and port logistics services 365 days a year, 24 hours a day.

 

In 2017, the Busan Port handled approximately 20 million shipping containers due to its “maximizing the punctuality, efficiency and productivity of shipping services based on four specialized port facilities”[6]. The BPA stated that the Busan Port handled 25 million shipping containers in the 2022/23 financial year. According to the BPA, it aims to increase the port’s capacity to 30 million shipping containers by 2030, thereby making it the leading global logistics hub. Of the four port sections that form Busan as mentioned above, the New Port and the North Port have become the major ports in Busan because they continue to be developed while the other ports have reached their peak due to their location (surrounded by residential areas).

 

The New Port reclaimed land has been designated and is being developed as a free trade zone, the Busan Jinhae FEZ. The FEZ is a large-scale complex business space with high value-added logistics, incentives and tax benefits, and expanding optimal infrastructure and dock facilities. This resulted in 69 companies (64 logistics companies, five manufacturing companies) locating in the FEZ. Companies in the FEZ will have access to logistics, packaging, assembly, and other services. The development creates quality jobs and revitalises the South Korean economy.

 

1. Busan Port Strategic Offering

The Busan Port is located in between China and Japan, therefore, it is easy for North America and Europe to ship goods to the Busan Port to be redistributed to cities in China and Japan in smaller ships.

 

It is also globally competitive as it is connected to the rest of the world. It is well connected to China, Japan, America, and Southeast Asia, which means it is connected to major economies. In 2021, 54,1% of the container cargo handled in Busan Port was for transshipment, 23% were exports and 22,9% were imports.

 

Table 7: Busan Port Competitiveness (2021)

Service	Level of Competitiveness	Ranking
Transshipment Ports Globally	12 273 (Unit: 1,000TEU[7])	2nd largest (the largest is Singapore)
Number of Weekly Service in Major Asian Ports	279 Units	3rd largest (after Singapore and Shanghai)
Share of Container Volume by Domestic Ports	22 706 (Unit: 1,000TEU)	1st or largest accounting for 76% of all container volume in South Korea followed by Incheon (11,2%) and Ganging (7,1%)
Share of Transshipment Volume by Domestic Ports	12 273 (Unit: 1,000TEU)	1st or largest accounting for 96,7% of all transshipment volume in South Korea followed by Gwangyang (2,6%) and Incheon (0,4%)

Source: Busan Port Authority (2022)

 

The Port is also deep enough to accommodate the largest ship in the world. The BPA intends to expand the new port even further, to continue developing the North Port, and to continue investing in overseas logistics infrastructure. There will also be more container terminals in the west part of the New Port. This will increase the number of operational berths to 45 berths from 23 berths. In terms of overseas logistics infrastructure, currently, the BPA has three companies, a logistics company in Rotterdam, Netherlands, started a joint venture; a logistics company in Barcelona, Spain in 2022; and a joint venture with an Indonesian company for a warehouse in Surabaya, Indonesia.

 

1. Government Involvement

The BPA informed the Committee that its existence and operations are informed by the government’s policy direction, particularly the MOTIE. In this regard, as an entity of government they receive support from various government departments and entities including the MOTIE, and the Ministry of Oceans and Fisheries (MOF).

 

The MOF is the custodian of the port, the BPA needs to seek approval from the Ministry for any development in the port. The State, Central Government, own the port infrastructure. The BPA is the landlord to the port operators. Private companies can lease the land for a period of 30 years with an option to extend by 20 years. Private companies operate the terminals. Currently, there are six terminal operators in the New Port.

 

The ports’ electricity is mainly supplied by the South Korea Electricity and Power Company (equivalent to Eskom). In addition, a small portion is self-generated through solar panels.

 

1. Investment in the Port

South Korea uses public-private partnerships for investment in its ports. The BPA informed the Committee that Government investment was insufficient for the development required, therefore, a public-private partnership strategy had been developed. As a result, since 1996, the BPA has attracted private sector investment into the Busan Port for the development of the port. Hence, the government owns the port infrastructure, and private operators own the operating rights.

 

1. Busan Jinhae Free Economic Zones

During its visit to the Busan Port Authority, the Committee was also briefed on the BJFEZ and shown a 5D simulation of the FEZ and its future/planned developments. The BJFEZ was designated in 2003 and is mainly located in two towns, namely Busan and Jinhae of the Changwon, Gyeongnam province, hence its name. It spans 51,2 km2 covering five metropolitan areas and 23 districts. Thus far, the development of the FEZ has been completed in 13 districts, with eight districts under development, and two being planned for future development. The BJFEZ is the second largest FEZ in South Korea after the Incheon FEZ. It is regarded as the “Global hub for international Business and Logistics” and caters for advanced manufacturing, Pharmaceuticals, Healthcare and Education, IoT and R&D.

 

Given its location, the BJFEZ takes advantage of and contributes to South Korea’s core business, in particular, the fact that South Korea is ranked first in shipbuilding accounting for 90% of global production; fifth in automotives manufacturing, accounting for 50% of global manufacturing; and sixth in the production of machinery, 40% of global production. The BJFEZ is surrounded by towns which are strategic for various sectors such as Busan (Port and Automobile), Geoje (Shipbuilding/offshore services), Sacheon (Automobile/Aerospace), Chamgwon (Mechatronics), and Ulsan (Automobile and Shipbuilding).

 

BJFEZ is the premier logistics hub in Northeast Asia, with the Busan port being the sixth largest port in terms of volume. BJFEZ is home to about 90% of the world’s top-tier shipbuilders, including HHI, Samsung Heavy Industries, and Daewoo Shipbuilding and Marine Engineering. It has the world’s seventh largest cluster of auto industries, including subcontractors of automobile companies (Renault Samsung Motors, Hyundai Motor Company, GM, etc.). The BJFEZ is also a hub of digital industries with value chains of electric vehicles built around Korean Environmental Solutions for e-Mobility (KORENS EM) and a cluster of global companies’ data centres. 

 

The BJFEZ is part of the New Port which is currently being developed and is expected to be finished by 2040. It is also close and has easy access to the Busan Port which is the largest port in the country and one of the largest globally. Furthermore, it is part of the Gadeok International Airport that is currently being developed with planned completion in 2029 and has easy access to the Gimhae International Airport. In addition, it has access to road transport. Therefore, it is referred to as a Logistics Tri-port (Sea-Air-Land).

 

 

 

 

 

 

 

Table 8: Incentives offered by the BJFEZ

Business/ Industry	Reduction Rate	Requirements
		FDI Amount (US$)	Number of Full Time Employees
Technologies for New Growth Engine	100%	Over $1 million	-
Advanced Manufacturing	100%	Over $5 million For manufacturing, material, components, equipment
		Over $2,5 million	Over 200
	90%	Over $2,5 million	150-200
	75%	Over $5 million	-
		Over $2,5 million	70-150

Source: Busan-Jinhae Free Economic Zone (2022)

 

Its key incentives include:

• 100% rebate on customs duties of imported capital goods for five years.
• 100% rebate on acquisition taxes for 15 years.
• 100% rebate on property tax for seven years and a further three years in Busan, and for ten years and a further five years in Jinhae.
• Cash grants for business operations in the New Growth Engine, High-Technology, Material, Components, Equipment, and R&D sectors, among others.
• Rent reductions (these are shown in the table below along with the requirements for receiving such reductions).

 

 

1. Key observations

 

Based on its engagements, the Committee made the following key observations:

 

1. Through the Committee’s meetings with various government officials and agencies, it became clear that the political environment in which the industrialisation programme was implemented, was under President P Chung-hee’s dictatorial leadership. As a result, the way their industrialisation programme was implemented may not work for countries that operate on democratic principles, such as South Africa.

 

1. The South Korean government adopted a multi-pronged approach to achieve its export-driven industrial policy; it took into consideration all factors necessary to enable industrialisation including infrastructure development, FDI, and business buy-in, as well as skills development.

 

1. During President Chung-hee’s administration, the government prioritised industrialisation and strengthening its ties with the US and Japan, as key elements for South Korea’s economic development and sustained growth.

 

1. Given its lack of natural resources and low industrial base, the development of the South Korean economy was dependent on the social compact between government and business.

 

1. The South Korean government had made an intentional decision to identify and select industries that would serve as the catalysts for industrialisation. It did so by focusing on these industries’ capabilities rather than the nation’s lack of mineral resources.

 

1. South Korea had benefited from a trading environment that was more accommodating because of the less restrictive rules of the General Agreement on Tariffs and Trade prior to the establishment of the World Trade Organisation (WTO) in 1995.  Prior to 1995, their industrial and trade policies could be implemented with minimal opposition regarding trade regulations, specifically localisation strategies could be applied to both private and public sectors. Subsequently, local procurement strategies can only be applied to the public sector in accordance with the WTO rules. 

 

1. In addition, the Japanese and US governments supported the South Korean economy. The Treaty on the Basic Relations between Japan and the Republic of Korea, which was signed in 1965 and restored diplomatic relations between South Korea and Japan, led to the transfer of skills and support of expatriates who invested in the industrialisation programme. The US granted unlimited access to its markets for its goods during this period.

 

1. Workers’ rights were severely curtailed during this time. At the start of the industrialisation in the 1970s, there had been no trade unions nor collective bargaining permitted. Therefore, during the period, when there were no labour laws in place, the government was free to implement any policies it deemed necessary to acquire low-cost labour without providing any form of worker protection. However, this gave rise to labour movements that fought to secure greater protection for workers. 

 

1. The government provided support to business owners at the time to ensure their participation in the nation’s industrial development, and their support for the development of new industrialists. In this regard, the government developed and implemented policies to ensure the strengthening of the domestic industry to ensure that the support provided improved industries’ competitiveness, rather than protecting them from competition.

 

1. The government acknowledged that to promote economic growth, investments in infrastructure, machinery, human resources, and innovation would be necessary to meet its industrial goals. As a result, it made it easier to create products that were globally competitive.

 

1. As a result of its investment in innovation, South Korea was able to develop new industries in which it could have a competitive advantage, and in some cases, became the world leader within those industries.

 

1. Furthermore, investment in education and training was critical to ensure industrialisation and sustainable economic growth. Therefore, government focused on all levels of education namely primary, secondary, and tertiary. Particularly, to create the skills and expertise required by the economy, it established relationships between vocational training institutions, universities, and government.

 

1. It has promoted innovation and skills development within FEZs by linking or locating specific universities that specialise in the focus areas of each FEZ. Furthermore, government has provided specific financial support for small and medium enterprises for research and development.

 

1. The government recognised that it had to promote the value of vocational training to influence social perception at the time.  Therefore, government provided the necessary incentives to encourage students to pursue vocational training in areas identified as critical for economic development.

 

1. South Korea’s array of free trade agreements with individual countries and economic blocks, including with China, along with its transportation and logistics hubs placed it in a favourable position to be a key trading gateway to Asia and the world.

 

1. Good governance was essential to South Korea’s economic development since it ensured businesses performed well, increased output, and unlocked new opportunities. Additionally, it decreased risk, promoted quicker growth, and increased reputational clout.

 

1. This increased accountability and transparency was underpinned by greater coordination among all relevant departments and entities, as well as at national and local government led by the President at the time.

 

1. The development of the Korean industrial policies has been people centred. Therefore, social buy-in by all citizens and business was critical for the success of the implementation of the industrial policies.

 

1. Despite changes in administration, the approach to South Korea’s industrial policy and the focus on identified sectors remained consistent with adjustments to address changes in the landscape, such as technological advances. This had been essential to its sustained economic success.

 

1. In its designation of FEZs, it was critical for the South Korean government to ensure that the necessary transportation infrastructure was in place. To facilitate the easy movement of manufactured goods, each FEZ is situated near a port, an airport, or both. Access to ports and airports is essential, as South Korea’s strategic goal is to serve as an international trading hub for exports to China and Japan.

 

1. Coordination and support among the various levels of government were critical elements for the success of FEZs.

 

1. Within FEZs, labour laws are flexible, namely there are no mandatory requirements for people with disabilities, regulations protecting temporary workers are relaxed, and unpaid public holidays for employees are permitted.

 

1. Support for international investors located within FEZs includes easing of tax and foreign exchange laws. Investors, for instance, are permitted to conduct transactions up to US$100,000 without any obligation to report such transactions. Investors could be eligible for a tax rebate or receive a waiver from tariffs when importing capital goods for five years.

 

1. South Korea’s FEZs attract more domestic than foreign investors. This illustrates the flexibility and incentives provided by FEZs that local businesses can take advantage of if they relocate to a FEZ.

 

1. The South Korean FEZs establish communities and facilities for the employees and owners of companies located within the FEZ to ensure that they do not have to travel far to work and amenities.

 

1. South Korea does not focus on the number of FEZs it has established but rather on their effectiveness in contributing to industrialisation and economic growth. It attributes each FEZs’ success on its location and quality of infrastructure. Where FEZs are not as successful, the government implements the necessary changes to support their efficient development. The government is also considering the expansion of successful FEZs and/or their infrastructure.

 

1. Foreign investors can identify an area where they intend to be located to be considered by the government for designation. Upon designation, this area would attract specific incentives as well.

 

1. There appears to be a strong public-private partnership approach in South Korea in terms of the development and operation of public infrastructure. Examples of these are the establishment of the electromagnetic wave testing for electric vehicles.

 

1. In the case of the Busan Port, there is a public-private partnership at the Busan Port with the government owning the port and its infrastructure and private companies operating the port. This is facilitated through contracts between the Busan Port Authority and the private companies for the provision of services at the port.

 

 

1. Acknowledgements

 

The delegation of the Portfolio Committee on Trade, Industry and Competition wishes to thank H.E. Ms Z N Dlamini, Ambassador to the Republic of Korea, for the quality of the programme developed by a most competent team. Furthermore, the Committee would like to thank Ms S Sardha, Economic Counsellor, and Mr K Jin, Marketing Officer, for the excellent support provided during our visit. Their presence during our visits with government entities and other stakeholders, provided the guidance and clarity when the language barrier become a challenge, with Mr Jin availing himself to provide the necessary clarity and Ms Sardha providing the necessary economic guidance when required.

 

The Committee also wishes to thank its support staff, in particular the Committee Secretary, Mr A Hermans, the Researcher, Ms Z Madalane, the Content Advisor, Ms M Sheldon, and the Committee Assistant, Ms Y Manakaza, for their professional support and conscientious commitment to their work. 

 

The Chairperson of the delegation thanks all Members for their active participation during the process of engagement and deliberations and their constructive recommendations made in this report.

 

 

 

 

 

 

 

 

 

1. Recommendations

 

Informed by its deliberations, the Committee recommends that the House requests that the Minister of Trade, Industry and Competition should consider:

 

1. Engaging with the relevant Ministries to consider the development of a government-led vocational training strategy to ensure the supply of sector-specific skills that would promote and enhance its current industrialisation drive. 

 

1. Engaging institutions of higher learning, both locally and internationally, in conjunction with the relevant Ministries, to encourage the establishment of satellite campuses and/or programmes within Special Economic Zones to support sector-specific skills development for each Special Economic Zone.

 

1. Promoting public-private partnerships in the ownership and/or management of Special Economic Zones and its enabling infrastructure, such as for water, energy and waste management.

 

1. Establishing good governance structures within Special Economic Zones to prevent corrupt activities and maladministration of Special Economic Zones, and to ensure effective implementation to improve investor confidence and attract investment.

 

1. Establishing an inter-governmental co-ordinating body, including provincial and local representatives, reporting to him/her to monitor progress in the development of Special Economic Zones and to unblock challenges as they may arise.

 

Report to be considered.

 

 

References

 

Busan Techno Park (2023). Busan Techno Park. Presentation to the Portfolio Committee on Trade, Industry and Competition, Busan: 14 April.

 

Busan Port Authority (2022). Busan Port, The Global Hub Port that Connects the World - Busan Port Authority Brochure.

 

Busan-Jinhae Free Economic Zone (2022). Busan Jinhae Free Economic Zone: Where your success awaits.  www.bjfez.go.kr/eng

 

Incheon Free Economic Zone (2023). Incheon Free Economic Zone Smart City. Presentation to the Portfolio Committee on Trade, Industry and Competition, Incheon: 12 April.

 

Kim, J. (2023) Korea’s Economic Development: Key factors behind rapid industrialization. Presentation to the Portfolio Committee on Trade, Industry and Competition, Seoul: 11 April.

 

Ministry of Trade, Industry and Energy (2022). Korean Free Economic Zones: Major statistics. https://www.fez.go.kr/fezstat/eng/index.html

 

Ministry of Trade, Industry and Energy (2023). Status of K-Free Economic Zones. Presentation to the Portfolio Committee on Trade, Industry and Competition, Seoul: 11 April.

 

World Shipping Council (2021). The Top 50 Container Ports. https://www.worldshipping.org/top-50-ports

 

 

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[1] Dr Joon-Kyung Kim, Honorary Professor of the KDI School and 14th President of the KDI

[2] Dr Jin-Ki Hong, Honorary Research Fellow of the Korean Institute for Industrial Economics and Trade

[3] Foreign Capital Invested Companies

[4] Pseudonymisation means the processing of personal data in such a manner that the personal data can no longer be attributed to a specific person without the use of additional information.  Such additional information must be kept carefully separate from personal data.

[5] World Shipping Council (2021)

[6]

[7] TEU refers to a twenty-foot equivalent unit, which is a measure of volume in units of twenty-foot long containers.