The provinces of South Korea and Japan are looking to deal jointly with their shared issues, such as low birth rates and aging population, encouraged by a recent restoration of shuttle diplomacy between the leaders of the two countries for the first time in 12 years. This development indicates that provincial diplomacy between the two countries is also being put back on track after a six-year hiatus caused by the Korean Supreme Court‘s ruling in 2018 that ordered Japanese companies to pay compensation to Korean victims of wartime forced labor.

“The Korea-Japan Governors meeting will resume in Japan on Dec. 2, with the participation of governors of 17 metropolitan cities and provinces in Korea and 47 prefectures in Japan,” said Governor Lee Cheol-woo of North Gyeongsang Province said during a recent interview with Maeil Business Newspaper at his office. “We will discuss ways to cooperate on our pending issues such as low birth rates, aging population and local extinction.”

Lee currently heads the Association of City and Province Governors of Korea.

He asserted that the government should not simply draw up a policy based on a population relocation to provincial areas but should also come up with measures to induce companies to move to provincial areas by offering them groundbreaking tax support, such as differentiated corporate taxes. The following are excerpts from the interview.

- There are reports that a dialogue channel between the heads of metropolitan governments of Korea and Japan will resume. Please tell us about it in more detail.

▷ I recently met with Hirai Shinji, president of Japan’s National Governors’ Association in Tokyo and agreed to resume our stalled Korea-Japan governors’ meeting in December this year. This is a consultative body involving 17 metropolitan city and provincial governors in Korea and 47 prefectures in Japan. It started in 1999, but it has not been held since the last meeting in Busan in 2017 as the bilateral relationship deteriorated.

- What issues are you going to discuss?

▷ South Korea and Japan share common issues, including low birth rates, an aging population, and regional extinctions. We plan to discuss ways to cooperate on those issues. We also plan to regularize our dialogue channel going forward.



- The situation surrounding regional extinctions is serious.

▷ The key is to decentralize power to local governments. As economic power is concentrated in the capital area, the country’s development has reached its limit. Korea may not be able to open the era of $50,000 per capita income if it fails to decentralize power to local governments. 63 percent of Korea’s territory consists of mountainous areas. Our land is small, but its usage is poor. There is an urgent need for the central government to hand over large part of its development authority to local governments to increase development efficiency.

- Businesses need to move to provinces.

▷ Currently, Korea’s total fertility rate is 0.78. The country will perish unless investment in local communities grows in this serious low-birth and aging situation. We should offer differentiated corporate tax rates to companies relocating their headquarters to provincial areas and bring inheritance taxes closer to the level of exemption. Companies relocating to provinces currently benefit from a partial exemption of corporate taxes but this is not enough.

- In the first place, a special law on balanced regional development is necessary.

▷ The Yoon Suk Yeol government proposed a special law on balanced regional development in November last year, which is currently pending in the National Assembly. If the special law is passed, it will lead to the establishment of special zones that will offer various tax benefits to companies relocating to provincial areas and will implement customized public education for children of employees at relocating companies. It is necessary to expedite the bill and drastically reduce corporate and inheritance taxes for companies relocating to provincial areas.

- How is North Gyeongsang Province attracting businesses?

▷ We are taking a region-specific approach so that the regions in the province can compete in attracting companies. North Gyeongsang Province is creating a national industrial complex for small modular reactors (SMRs) as a new growth engine for future generations, and Gyeongju was recently designated as a new national industrial complex. We plan to accelerate follow-up measures such as a preliminary feasibility study for the city. For Pohang, a key place for battery production, we will establish a specialized complex for batteries to help the city secure global technological prowess.

- What’s your strategy to attract Tesla Inc.’s Gigafactory to Pohang?

▷ Recently, the government has expanded tax credits for electric vehicle manufacturing factories. In particular, Pohang has an excellent EV ecosystem as it is close to automobile parts and battery complexes and it has also good logistics infrastructure such as Yeongil Bay. Few places have this level of competitive edge.

By Kim Jung-hwan, Park Dong-hwan, and Yoon Yeon-hae

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]