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outh Korea's industrial base has historically sprouted from its chaebol, or family- owned conglomerates, well- known leaders in such fields as semiconductors, electronics and automobiles. Will a new era of free trade – including a landmark free trade agreement with the U.S. – spawn an equally new era of more diverse corporate facility investment? The country's pivot point in Asia may be part of the answer.
   In a nation of nearly 49 million people once closed by nature, transport, work force and technical infrastructure may open things up like never before. Witness DHL's February announcement to expand its complex at Incheon International Airport. Other recent projects include flat- panel display plants in Gumi and Tongyeong; metals plants in South Chungchong, Ulsan and Yeongju; and IT projects in Seoul from Google and SAP.
   Incheon, 50 miles (80 km.) south of Seoul, is making great strides with its Incheon Free Economic Zone, one of several FEZs the government has developed. But earlier this year the Korean government rejected a major three- line semiconductor plant expansion from Korean firm Hynix, citing environmental concerns over the expansion's proximity to the Namhan River, which flows into a major water- supply reservoir.
   In late March, Yonhap news agency reported that Hynix was now looking at Cheongju, 36 miles (58 km.) further south, for its plant, with an estimated investment of up to US$6.4 billion. The company issued a statement that it was considering "seriously" a project in Cheongju, and had already signed a deal for the $32- million purchase of the land. According to Yonhap, the new plant would employ 2,000 and export more than $3 billion worth of goods annually.
   The project would be in addition to a 17,793- sq.- ft. (1,653- sq.- m.) clean room the firm is already installing in Cheongju to accommodate expanded flash memory chip production.
   However, in early April, in comments to reporters, new Hynix CEO Kim Jong- Kap, fresh from 31 years in Korean government – including a post as Vice Minister of Ministry of Commerce, Industry and Energy – said Hynix would resurrect its Incheon plan, which would take place in phases and attract an investment north of $15.4 billion.
   The new plan would include expansion of every process at the company's home complex there except copper- using processes, which were the main reason for the original plan's rejection by regulatory authorities.    DHL's pledge to increase its planned investment from $50 million to $75 million at Incheon International Airport coincided with its 30th anniversary of doing business in South Korea. The freight expansion is projected to take its annual processing capacity there to 7 million tons by 2020.
   Korea's case for similar operations may have been helped in mid- March when Incheon International Airport was named by Geneva- based Airports Council International as the best international airport in the world for the second straight year.
   In the meantime, the Incheon airport is adding flights and investing in rail infrastructure as it seeks to become a global logistics hub.
   But another kind of hub – in financial services – is on the minds of Korean economic developers and finance officials, who recently launched their Financial Hub Korea program. Building on regulatory and policy reforms designed to open up financial markets, the effort includes the 2006 launch of a graduate school of finance at the Korea Advanced Institute of Science and Technology as well as a financial skills network center.
   In the realm of business support and daily life infrastructure, Invest Korea Plaza, the first business incubation complex for foreign investors, opened on Nov. 2, 2006; Yong- San International School opened in August 2006; and foreign educational foundations are now allowed to establish and operate foreign educational institutions ranging from elementary schools to universities in FEZs.
   The nation's three FEZs in Busan- Jinhae, Incheon and the Gwangyang Bay area offer foreign investors a 100- percent abatement of corporate and income tax and a flat 17- percent income tax rate for foreign corporate executives.
   The financial hub goal has several factors working in its favor, led by a renewed emphasis on services productivity. In its analysis of the effects of the new Korea- U.S. Free Trade Agreement, the country's Ministry of Finance and Economy (MOFE) noted, "The KORUS FTA is expected to contribute to TFP [total factor productivity] growth driven by enhanced competition and upgraded system throughout the entire economy … Eased entry barriers and regulations will facilitate competition, translating into productivity growth.
   "In particular, productivity growth in services is expected," continued the MOFE report. "Since the 1990s, services contribution to productivity has been negative."
   The rosy forecast builds on a package of comprehensive measures introduced in December 2006 to boost the country's services competitiveness, driven in part by a need to diversify slightly from its historical emphasis on export- driven manufacturing.
   "Against such backdrop, [Korea] has been called upon to foster high- end services including finance, logistics, design and consulting," said the Ministry. "This will create quality jobs as well as making direct contribution to enhancing manufacturing competitiveness."    Published reports indicate that the South Korean Unification Ministry is preparing incentives for companies to locate facilities in the Kaesong Industrial Complex in North Korea.
   The Financial Times reported that a 1- million- sq.- ft. (93,000- sq.- m.) site would be set aside for foreign companies. The 16,000- acre (6,480- hectare) complex was launched in 1999 by Hyundai Group founder Chung Ju Yung, in an agreement

Invest in Korea Financial Hub Korea National Tax Service

with the North Korean government, to take advantage of low wage labor.
   While no major conglomerates have operations there, The Wall Street Journal reports that 22 companies currently have operations there, where wages are as low as $58 a month.
   "We will promote the Gaeseong Industrial Complex more rapidly to make up for the delayed schedule," said Minister of Unification Lee Jae- joung at a February press briefing. "We will also expand the supporting system to raise the international competitiveness and improve the investment environment to develop and enlarge the project in a stable way."
   But moving forward in Kaesong was only a topic for study in the just- concluded Korea- U.S. Free Trade Agreement. No goods from the complex will enter the U.S., but a committee will look at the potential for the future. Korean leaders have much more in mind.
   "The two sides agreed to establish the Committee on Outward Processing Zones on the Korean Peninsula, paving the way for the goods manufactured in the Gaeseong Industrial Complex to be recognized as Korean- made products," said South Korean President Roh Moo- hyun in an April address to the nation.
   "The benefit of this agreement should expand to cover the whole area of North Korea, let alone the Gaeseong Industrial Complex, in the future," he said.