Ministry of SMEs and Startups

The Korean government held a committee meeting for designatingregulation-free special zones chaired by Prime Minister Chung Sye-kyun at the Government Complex in Seoul on July 6 (Monday). During the meeting, it newly designated seven special zones and added empirical businesses to two already designated special zones.
 

 
The Korean Ministry of SMEs and Startups (hereinafter referred to as MSS, Minister Park Young-sun) announced that it has finally designated seven new special zones during the special zone committee meeting held, chaired by the Korean prime minister. For the designation, advance consulting and subcommittee meetings were first held for 17 zones (14 new and additional 3 to the existing) that local governments hoped for from early January to supplement their plan’s business viability and innovativeness. Then, a deliberation committee (chaired by the minister of MSS) deliberated the planbefore the final designation.
 
The newly designated zones are Busan (marine mobility), Daegu (mobile cooperating robots), Ulsan (genome service industry), Gangwon-do Province (liquid hydrogen industry), Chungcheongnam-do Province (switch to hydrogen energy), Jeollabuk-do Province (carbon convergence and fusion industries), and Gyeongsangbuk-do Province (hemp for industrial use). In addition, empirical businesses have been added to the existing special zones of Busan (blockchain) and Daejeon (bio-medical).
 
The new designation of Chungcheongnam-do Province, which hitherto had not been designated as a special zone, has finally made the entire country as regions designated as regulation-free special zones.
 
The third group of special zones designated this time around is distinct in that some zones were designated for the medical and non-face-to-face fields to enhance the ability to respond to infectious diseases such as COVID-19; somezones for Green New Deal in order to build the base for the use of hydrogen and other new energy; some zones for connecting regional industries using regional specialty industries and infrastructure; and other zones for the effective pursuit of government policies in line with changing environments both in Korea and globally.
 
The 42 main areas to be exempted from regulations include fields that were difficult for industries to access because of social conventional wisdom like utilizing genome information (Ulsan) and hemp for industrial use (Gyeongsangbuk-do Province), as well as fields with unreasonable application because of existing standards like liquid hydrogen (Gangwon-do Province) and blockchain financial services (Busan). The new designation alsoallows the common use (Daejeon) of pathogenic organism research facilities that individual companies had to be furnished with and access to markets with difficult entry barriers for small and medium enterprises (SMEs).
 
Once a local government business is designated for a special zone, it can develop new technologies without the constraint of regulations and advance into new businesses. This is forecast to largely help the local economy such as increased quantity of quality jobs and investment in the region.

 
The latest new designation is expected to generate KRW 1.5 trillion in sales and 4,390 new jobs, and draw 174 companies into the zones during the zones’ designation period (2020-2024). In the long-term, until 2030, sales of KRW 12.6 trillion, employment effect of 57,374 new jobs, and the drawing of 1,544 companies are expected (estimation of local governments).
 
The first and second groups of previously designated special zones are also making tangible achievements: they drew KRW 270.9 billion in investment, 100 companies into the zones, and 13 companies established factories.
 
* (Drawing of investment) Gyeongsangbuk-do Province drew investment (January
2020) worth KRW 100 billion from GS E&C, while Jeollanam-do Province drew investment (June 2020) worth KRW 64.3 billion from 5 companies, including special zone business subsidiaries such as MASTA electric vehicle.
 
*(Moving in of companies) A total of 100 companies (58 in the first group of special
zones and 42 in the second group of special zones) completed their move into the zones. In particular, Sejong drew Phantom AI, an autonomous vehicle company based in Silicon Valley, United States (March 2020).
 
* (Construction of factories) Jeollanam-do Province had Cammsys (September 2019),
Daepoong Electric Vehicle (May 2020), and other electric vehicle companies establish factories in the province. In Gyeongsangbuk-do Province, the construction of a battery recycling factory has started (February 2020-).
 
An examination of the zones newly designated this time around shows the
following characteristics by type.
 
Special zones for the medical and non-face-to-face fields in order to enhance the
capability to respond to infectious diseases include the following:
 
➀Ulsan will get to develop technology to respond to infectious diseases using
human genome information for the first time in Korea.
 
ㅇBio data like genome information was so far researched for public purposes only
and were strictly limited, largely limiting the development of the Korean medical and bio industries. Allowing the use of human genome information for industrial use in the special zone in Ulsan will provide the opportunity to foster new industries based on genome, such as supporting the development of diagnostic markers, vaccines and medicine, by building and utilizing a bio data pharm.*
 
* Infrastructure that turns medical and genome information in Korea and globally
into databases and utilizes artificial intelligence (AI) and super computers to analyze
them.
 
➁Daegu will get to open an era of robots that can work even while on the move.
 
ㅇ Mobile cooperating robots that can be interlocked with manufacturing processes
will get to be developed to enhance productivity. Korea will get to lead the global standards in the cooperating robots field, which is still in its infancy, by preparing safety standards and connecting the robots with smart factories. In addition, non-face-to-face prevention of epidemics in indoor spaces utilizing mobile robots is expected to enhance the safety net of epidemics prevention.
 
Special zones designated for Green New Deal new energies will help build an entire lifecycle ecosystem base for the liquid hydrogen industry.
 
➂Gangwon-do Province will get to create a value chain of producing-storing
-transporting-utilizing liquid hydrogen.
ㅇ Allowing Korea’s first empirical business for liquid hydrogen*, which is in the
starting stage overseas as well, will help create an entire lifecycle value chain** that will enable producing, storing, transporting, and using liquid hydrogen. Applying liquid hydrogen into new mobility (ships and drones) industries will help Korea lead the global hydrogen industry.
 
* Compared to gas hydrogen, it boasts of 11 times more efficient transport, 350 times
 more stability, and 1/21 times more efficient recharging facility area
 
** Empirically testing production facilities of liquid hydrogen – manufacturing
storing containers –transporting in tank lorries – building charging facilities – using it in mobility, etc.
 
➃Chungcheongnam-do Province will get to upgrade hydrogen fuel cell power and
hydrogen charging systems for enhanced convenience when using hydrogen in daily
life.
 
ㅇAllowing composite exhaust* of hydrogen fuel cells used in houses and buildings
is expected to alleviate the cost and area burden of individual exhaust installation. The empirical use of long-distance hydrogen drones for door-to-door delivery in islands and marine surveillance, as well as the measuring of charging amount at hydrogen charging facilities, are expected to create diverse hydrogen economy models.
* Composite exhaust: integrated installation of several fuel cell exhaust pipes into one
 

 

 
Special zones connected to local specialty industries and infrastructure are as follows:
 
➄In Gyeongsangbuk-do Province, the cultivation of hemp* for industrial use will be
allowed for the manufacturing and export of medicine and medical supplies.
 

* Hemp: means hemp plant and extract thereof with less than 0.3% hallucination
compounds (THC). It is different from marijuana, which has a high hallucination level, and is used as a material for non-hallucination industries.
 

ㅇ Hemp was hitherto impossible to even access because of legal regulations and
social conventional wisdom. However, the World Health Organization (WHO) and other United Nations (UN) agencies have started alleviating the regulations*, and a growing number of countries are legalizing it**. In consideration of the market’s growth***, its cultivation and material extraction are allowed for industrial use limited to exports. Cannabidiol (CBD), which is effective in treating epilepsy, dementia, and neural diseases, among others, is extracted from hemp. The preparation of a base for its industrialization, that is the manufacturing of products and their exports for medical purposes, is highly expected.
 
* WHO “recommended exempting CBD from being regulated (January 2019)” to the UN Office on Drugs and Crime.
** About 50 countries worldwide are allowing the cultivation and use of hemp for medical purposes and it is being commercialized.
*** The global market prospects for hemp: KRW 9.3 trillion in 2019, 24% average annual growth rate until 2022 (Hemp Business Journal, 2019)
 
ㅇ Furthermore, building and empirically testing a safe management system for the
entire lifecycle of the hemp industry utilizing blockchain (cultivating-extractingCBD-manufacturing and exporting raw materials for medicine and medical supplies) are expected to be pursued for its strict safe management.
 
⑥Busan will get to lead the eco-friendly small and medium ships market with the
commercialization of LPG fuel ships.
 
ㅇ Busan will prepare the safety standards for drying and sailing small and medium
LPG ships, which are highly effective in reducing marine environment pollution such as fine dust and are highly economical, by empirically testing them. It will thus respond to the international trend of reinforcing regulations on the emission of air pollutants from ships and secure new technologies to dominate in advance the LPG ship global market, which is in the early stage.
 
* LNG: price (KRW 1,344/t), bunkering (charging low temperature liquid of 120℃ below zero with high pressure of 250bar -> need separate facility)

LPG: price (KRW 799/ℓ), bunkering (charging liquid of 15℃room temperature with low pressure of 15bar -> no need of separate facility)

 
⑦Jeollabuk-do Province will get to be one step closer to commercializing carbon materials*
that are lighter and stronger than steel.
 
* Weight : 1/4 of steel; strength: 10 times that of steel
 
ㅇ The province plans to manufacture ships, hydrogen containers, and firefighting water
tanks using carbon fiber developed with Korean technology and prepare the safety standards for the commercialization of carbon convergence and fusion products. This is to create a new market with products made of carbon materials and prepare the base for their global advancement.
 
Special zones for which empirical businesses have been added to existing special zones
are as follows:
 
➀Busan will get to expand its empirical business using blockchain technology to the
financial field.
 
ㅇ The goal is to build a new business model with enhanced safety and efficiency in
 financial transactions by lowering the transaction cost and allowing the empirical testing of real estate fund investment and transaction services* based on blockchain. This is to be realized by connecting finance and the infrastructure of industries that the region is strong at. The empirical businesses of finance, medicine, data transactions, and other areas that impact people’s lives, have been added to the existing logistics, tourism, and public safety service businesses in order to create new value and a data-based economy.
 
* [Details of service] Creating public offering funds for investing in real estate inside the special
zone and for transaction platform businessesto mediate, sell, and distribute digital certificates to general investors based on blockchain that can guarantee the original copy, security, and reliability of the certificates.

 
[Protecting investors] Preparing mechanisms to protect investors by limiting the investment ceiling (KRW 20 million for general investors and KRW 40 million for investors fulfilling certain income qualifications), real estate goods (to those in Busan), investor qualifications (people with accounts at Busan Bank), and scale of beneficiary certificate issuance (KRW 500 billion).

 
➁Daejeon will get to share common research facilities (BL3*) for pathogenic organisms
with bio startups.
 
*Biosafety level (BL) 3: research facilities withcomplete blockage, limited entry into corridor, and high-performance filters applied
ㅇThe greatest difficulty faced by bio startups developing vaccines and medicine is
the absence of research facilities for pathogenic organisms. Providing such facilities would solve the problem of the high entry barrier at the early stage. Furthermore, building a system to support at once the entire lifecycle of the bio industry by connecting them with existing special zone businesses mainly working on diagnoses, would help speedily diagnose infectious diseases and develop vaccines and medicine for them.
 
* Common operation of a bank with substances derived from human bodies (Chungnam
National University Hospital, Daejeon Eulji Medical Center, and Konyang University Hospital) and simplifying the procedures for the advancement of in-vitro diagnosticmachines into the market.
 

The ministry will support the budget for the research and development of, as well as the infrastructure for empirical projects that would enable the smooth operation of the seven special zones newly designated this time around and the two businesses added to the existing two special zones. It will also continue to work hard to implement policies that would vitalize investment and draw companies into the zones.
 
In particular, it plans to create demonstration funds for the zones worth KRW 42 billion during the second half of this year for focused investment in SMEs and venture firms inside the zones, such as innovative companies.
 
* (Scale of creation) Fund of funds investment worth KRW 25 billion ->creation of KRW 42 billion (60% investment ratio)
** Creating venture funds of KRW 30 billion (within 3) operated by venture capital
and angel funds of KRW 12 billion (within four) operated by the Creative Economy Innovation Centers, among others
 
The third group of special zones designated this time include many businesses requiring safety management for empirical testing, such as hydrogen, LPG ships, hemp, and robots. As such, strict follow-up management is demanded.
 
The ministry will thereforelaunch and operate a “safety committee” within each local government, wherein research agencies, experts, and relevant organizations related to empirical testing technology participate. It will equally prepare a management system so that safety would be checked at each empirical testing stage from before starting the testing. It also plans to prepare for negligent accidents by supporting up to KRW 15 million or a maximum of 50% of the liability insurance premium so that businesses operating in the zones would be able to enroll in liability insurances.
 
The ministry will also appoint department chairpersons as ombudsmen of the special zones, as with the first and second groups of special zones, in order to regularly check the safety of each zone separate from the safety management committee. It will operate a worksite checking force consisting of representatives of relevant ministries, experts, regional SMEs and Startups offices, and the Korea SMEs and Startups Agency (KOSME), to reinforce the supervision of the sites’ follow-up management.
 
In particular, KOSME, which will newly participate in the worksite checking force, is an agency specializing in financial support and commercialization of SMEs. As such, it is expected to contribute to supporting the commercialization of the companies participating in the zones and to spreading their achievements made by supporting not only their follow-up management using its 14 regional offices in regions outside the Seoul metropolitan area, but also their finance and sales path development.
 
“Our attitude for overcoming the COVID-19 crisis and responding to the switch to a digital economy may be summarized into the four words of swiftness, transparency, innovation, and autonomy,” MSS Minister Park Young-sun said.
 
“We will support the zones and get rid ofregulations that act as stumbling blocks when companies in the zones try to swiftly advance into markets; work hard to manage and supply data safely and transparently; develop new markets with innovative technologies and services; and enable innovative venture firms and startups to autonomously participate in markets as protagonists of the digital economy,” Park continued.
 
During the meeting on this day, Chung emphasized the fostering of strategic regional industries through the zones as a key task and one of the “top 10 agenda for regulation innovation” as a way to recover economic vitality in the post-COVID-19 world.
 
 

 
“The government will take the lead to discover areas in need of national policies and help promising regional industries grow so that the zones would be effectively connected with national strategies for the development of new industries,” Chung said.
 
Furthermore, Chung asked each ministry, as well as municipal and provincial governments to work hard together,strictly evaluate the achievements made in the existing special zones, as well as supplement and develop areas in need of support so that theexisting and new zones would settle as a key means for leading the balanced development of the country and the innovative growth of the regions.

 
 
□ Newly Designated Zones