Incheon International Airport Corporation, the operator of South Korea’s largest airport, requested that the Incheon Free Economic Zone remove 12.61 million square meters of airport land from the free economic zone, according to people familiar with the matter on July 10. This area accounts for 73% of the zone.
An area designated as a free economic zone receives various benefits, such as tax breaks and increased floor area ratios for development projects. While free zones have been adjusted due to a lack of development results, this is the first time a project implementer has sought a cancellation, stating that it does not want the designation. The city of Incheon has balked at this request, arguing that the free economic zone should be maintained.
Free economic zones are special areas in Korea that are designed to attract foreign investment by easing regulations. Korea has nine free economic zones, including Incheon, Busan-Jinhae, and Gwangyang Bay. The Incheon Free Economic Zone, which spans the airport area, Cheongna, and Songdo, is the largest free economic zone. The area around the airport was designated as a free economic zone in 2003, but significant development only began in 2017.
The airport corporation believes the free economic zone designation offers few benefits while subjecting the airport to double regulations. Since airports are composed of multiple security zones, they are bound by the Airport Facilities Act. To build facilities, airports must obtain permits from the Ministry of Land, Infrastructure, and Transport. As part of the free economic zone, Incheon Airport also needs approvals from the Incheon Metropolitan City and the Ministry of Trade, Industry and Energy. This has unnecessarily extended the approval process, which should take three to six months, to over a year in some cases.
The airport corporation argues these procedures hinder the development of the ‘aviation maintenance (MRO) complex,’ a key initiative. “To attract global aviation companies, administrative procedures should not be so cumbersome, and the free economic zone designation is a hindrance,” an airport official said. Since free economic zones implement approvals on a district basis, any individual project requires changes to the district-wide development plan, further complicating the process.
The benefits, on the other hand, are slim. The biggest incentive for attracting foreign investment, corporate tax breaks, was abolished in 2019 due to EU concerns over tax equity. The 50% floor area ratio increase is inapplicable due to airport altitude restrictions. While property tax reductions benefit the industries around the airport, the overall impact is minimal.
Another issue is the requirement to pay a portion of development profits to Incheon City under the Development Profit Return Act. The airport corporation argues that this is unfair, given that the benefits are insignificant.
“There are very few cases where the free economic zone designation has attracted investment,” the corporation stated, adding that eliminating inefficiencies like duplicate licenses would make it easier to attract companies. The airport has been preparing for this cancellation request for several years, including conducting a feasibility study on decertifying the zone.
