[Regulation-Free City, Mega Sandbox]⑬Why Did Regulatory Exception Experiments Fail?... Local Governments' Ambitions vs. Reality

First-Generation Iksan Hanbang Medical Zone in North Jeolla Province
Competitiveness Weakened by Overlapping Concepts in Multiple Cities
Taebaek Clean Hydrogen Production and Demonstration Zone in Gangwon Province
Overambitious Push Without a Local Ecosystem Foundation
Revoked in Just Six Months... Criticism of Hasty Administration

Experts advise that before launching broad regulatory relaxation experiments through the “mega sandbox” system, it is crucial to objectively examine the structural limitations of existing region-based regulatory exception systems. They point out that it is necessary to revisit the reasons why regulatory special zones, which were divided by specific regions, failed to deliver tangible results in practice, and to design the new mega sandbox system in a way that strengthens inter-industry connectivity and execution capabilities.

Korea’s regulatory exception system has evolved in stages since the early 2000s. In 2004, the “Regional Specialized Development Zone” was introduced with the aim of revitalizing local economies and fostering industries. In 2018, the “Regulatory Sandbox” was launched to support the demonstration of new industries and new technologies, and in 2019, the “Regulatory Free Zone” was created to target both industrial innovation and local economic revitalization. Now, Korean society is moving beyond the regional level to promote a transition to the “mega sandbox,” a unified demonstration platform at the national level. Analyzing the trial and error of past systems is the starting point that will determine the success or failure of new regulatory relaxation experiments.

First-generation exception systems such as the “Regional Specialized Development Zone” have seen notable failures, such as the Hanbang Medical Zone in Iksan, North Jeolla Province. This area was designated as a regional special zone in 2005 but had its designation revoked eight years later in 2013. The original plan was to cluster Korean medicine research institutes and related companies to foster the local industry. However, as more cities nationwide-including Jecheon, Wanju, and Geumsan-began to brand themselves as “Korean medicine cities,” competitiveness faded. The zone failed to attract companies as it did not present a compelling investment appeal.

With almost no resident companies, the zone lost its raison d’etre. To make matters worse, in 2008, Iksan City announced plans for another medical cluster, the “Iksan Comprehensive Medical Science Industrial Complex,” resulting in overlapping projects. Ultimately, the Hanbang Medical Zone quietly disappeared, leaving behind only administrative slogans. It is a prime example of how a local “policy showcase” failed to translate into actual industrial development.

The Wanju Wine Industry Special Zone in North Jeolla Province is a case where the lack of policy continuity led to the failure to maintain the zone. Designated in 2005, it closed after just seven months. The original plan was to establish grape production complexes and processing plants to nurture the wine industry, but when the local government head changed, all plans were overturned. The factory’s intended use was arbitrarily changed, and the special zone business plan was modified without authorization. Administrative continuity collapsed under the “special zone” banner, as local political interests took precedence over the central government’s regulatory relaxation goals.

The Leaders County Special Zone in Hongcheon County, Gangwon Province, was designated as a regional special zone, aiming to create a multi-generational silver town. However, the project stalled due to its failure to attract 330 billion won in private capital, which was a prerequisite. The problem was that a grand plan was established without securing basic infrastructure such as water supply and road access. The land owned by the project operator was auctioned off, and the private business operator withdrew. Most notably, there was a significant disconnect with the local community. Residents strongly opposed and felt alienated by the influx of wealthy elderly people. In the end, despite the grand blueprint, the project was left with no funding, no consensus among residents, and no entity to execute it, resulting in its designation being revoked in 2012.

There have also been several failures in the “Regulatory Free Zone,” which was fully implemented in 2019. In 2023, Taebaek City in Gangwon Province was designated as a special zone for “clean hydrogen production and demonstration using forest biomass,” but the project did not last even a year. The plan was to complete phased technology verification by 2027, but the demonstration was effectively halted as participating companies faced management difficulties. As key companies lost the capacity to continue, the construction of demonstration facilities was also delayed.

Ultimately, Taebaek City began the process of early revocation just six months after the zone was designated, in November 2023. Although the city promoted a new industry model based on “forest resource-based hydrogen industry,” it is assessed that pushing the project forward without a sufficiently developed local industrial ecosystem became a stumbling block.

As the regulatory special zone was set for revocation just half a year after its launch, criticism of hasty administration was raised at the plenary session of the Gangwon Provincial Council. Gangwon Provincial Assemblyman Lee Hanyoung stated, “There should be no cases where facts are distorted and on-site conditions are misrepresented due to a reckless administrative mindset focused solely on being selected for new projects,” and emphasized, “We must consider the damages and compensation for residents resulting from the suspension of these projects.”