As the first designation of the Peace Economic Zone approaches at the end of the year, concerns have been raised that current levels of support will not create sufficient investment incentives in border regions. This is due to the lack of a specified scale for government funding and the fact that benefits such as corporate tax reductions and subsidies largely adhere to existing regulations.
The Korea Institute for Industrial Economics and Trade highlighted these issues in a report on August 26, titled 'Development Tasks for the Peace Economic Zone for Peace and Joint Prosperity on the Korean Peninsula.' The Peace Economic Zone aims to establish industrial and tourism complexes in border areas to lay the groundwork for inter-Korean economic cooperation and serve as a hub for joint prosperity.
The report noted that nearly half of the 17 cities and counties designated for the Peace Economic Zone are experiencing population decline, and their financial independence is below the national average of 48.6%. This indicates that these areas face challenges in independently establishing a foundation for inter-Korean economic cooperation or creating opportunities for regional growth.
Additionally, overlapping regulations from the capital region, military facility protection zones, and environmental regulations have restricted development and investment for decades. The geopolitical risks associated with inter-Korean relations have created a 'risk premium' unique to border areas, making it difficult to ensure the success of the economic zone without enhanced incentives compared to other regions.
Experts predict that government funding and regulatory relaxation will be crucial for the success of the economic zone. The Korea Institute for Industrial Economics and Trade emphasized the necessity of a government funding plan, given that the establishment of the Peace Economic Zone is a national objective aimed at building a foundation for inter-Korean economic cooperation. They called for an increase in the scale and ratio of government support, as well as an expansion of corporate and local tax reductions, and the provision of subsidies and workforce support for investment companies, advocating for incentives at the highest domestic level.
Regarding the significant obstacles posed by regulations in the capital region, military, and environmental sectors, the report suggested that regulatory exceptions should be institutionalized specifically for the designated zones. It also proposed amending the Inter-Korean Cooperation Fund Act to facilitate the creation of a 'Peace Economic Zone Activation Investment Fund' to serve as a catalyst.
The report cautioned against a development approach where individual cities or counties create economic zones in isolation. Increasing the number of standalone zones could limit their interconnected effects and overall impact. Therefore, it recommended the development of complex economic zones that combine industrial and tourism/cultural elements, encouraging collaborative development among multiple cities and counties.
It stressed that resolving overlapping regulations, providing substantial incentives, and securing funding are multi-departmental issues that require cooperation among relevant ministries. It suggested that each department should promptly establish necessary support systems and consider integrating the Peace Economic Zone Committee with the government’s coordination functions, such as the Office for Government Policy Coordination, to enhance its deliberative capabilities.
Through these measures, the report posits that while the primary goal remains the establishment of a foundation for inter-Korean economic cooperation, the economic zone can also be utilized as a space for peace and economic cooperation at the inter-Korean, Korean Peninsula, and global levels even before the resumption of inter-Korean cooperation. Kim Soo-jung, head of the North Korea and Northeast Asia team at the Korea Institute for Industrial Economics and Trade, stated, 'The Peace Economic Zone is the starting point for establishing a foundation for cooperation, a 'virtuous cycle of peace and economy.' To transform the border area, which has been a symbol of division and conflict, into a space of peace and prosperity, the strongest level of support among existing domestic economic zones must be provided.'
* This article has been translated by AI.
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