This report examines how EU’s ‘open strategic autonomy’ has been developed and realized facing recent changes in the global trade landscape, especially in areas such as supply chain, energy transition, immigration, and security integration. In response to the fragmentation and blocization of the global economy, which manifested in the US-China strategic competition, the COVID-19 pandemic, and the Russia-Ukraine war, the EU has sought to strengthen the competitiveness of its own high-tech and strategic industries and reduce its dependence on foreign countries (strategic autonomy). At the same time, it seeks to continue cooperation with like-minded countries with shared values and interests to address challenges that require global effort (openness).

 Chapter 2 defines open strategic autonomy in more detail and investigates how it has been implemented in the supply chain sector. The industrial and trade policies that have been published since the inauguration of the current EU Presidency in 2019 embody the concept of open strategic autonomy, which is defined as “strengthening competitiveness Executive Summary in the region to defend EU interests without relying on other countries, while continuing to cooperate with partners who share the values and interests.” After the Russia-Ukraine War, the EU continued its efforts to identify areas of weakness in the EU’s competitiveness and to localize and diversify its supply chains. This strategic shift was reflected in a series of supply chain legislation such as the European Chips Act, Critical Raw Materials Act, Net-Zero Industrial Act, and Corporate Sustainability Due Diligence Directive. The EU sets targets for the share of home-produced goods and provides various support measures such as subsidies, tax benefits, R&D investment, and workforce training. In addition, the legislation emphasizes bilateral and multilateral strategic partnerships, reflecting the open strategic autonomy of the region to continue cooperation with like-minded countries.

Chapter 3 investigates energy policies of the EU and EU Member States. The energy crisis brought on by the Russia-Ukraine war illustrated how overdependence on a single country can have a profound impact on the EU economy. In response to the energy crisis, the EU sought to phase out or suspend energy imports from Russia, diversify its energy import sources, increase the production of renewable energy, and promote energy efficiency. The energy policies of Germany, France, Finland, and Poland are then examined as case studies. Germany’s recent energy policy has been characterized by an increased use of renewable energy sources, the closure of all nuclear power plants, and an increase in hydropower generation. France, on the other hand, has maintained a high reliance on nuclear power, while persistently investing in renewable energy to achieve climate neutrality by 2050. Finland is a low-carbon country with a high share of renewable energy, and has been importing energy from neighboring countries such as Norway and Estonia after the outbreak of the Russia-Ukraine war. Poland is the most fossil fuel-dependent country in the EU, and as such, it is expected to face the Executive Summary • 259 most difficulties in implementing EU-wide green transition policies. Therefore, Poland aims to overcome this limitation by starting a nuclear power project. It is common to all four countries that they are trying to expand renewable energy while developing alternative energy sources such as nuclear and hydrogen power. Increasing energy independence through the development of alternative energy sources is expected to increase the EU’s strategic autonomy in the energy sector.

 Chapter 4 analyzes the trend of Ukrainian refugee influx to European countries and their impact on the labor markets, through literature review, fieldwork and statistical analysis. Immediately after the outbreak of the Russia-Ukraine war, there was a large influx of Ukrainian refugees to European countries, and EU member states actively accepted refugees by invoking the Temporary Protection Directive. The refugee influx to Europe is characterized by a high proportion of women and children and a high number of highly educated and skilled workers. The empirical analysis in this chapter, using microdata from UNHCR, shows that access to language training is significantly and positively associated with a refugee’s probability of employment. While the impact of refugee flows on the labor markets of host countries still needs further studies, an increase in the labor force with no significant impact on labor market conditions is observed so far. While Europe has been welcoming Ukrainian refugees, it showed a very different attitude towards migrants and refugees from the Middle East and North Africa, including Syria. This could be explained by an attempt to overcome the security threats posed by the war through solidarity with Ukraine, a country with a similar position. This illustrates one aspect of the EU’s tendency to selectively accept migrants and refugees to defend its interests and provides evidence that the EU’s commitment to open strategic autonomy is also observed in the area of immigrant acceptance.

Chapter 5 focuses on the changing concept of strategic autonomy in the EU’s security sector after the war. While the need to strengthen the EU’s defense capabilities in response to the immediate security threats of war has intensified, Europe’s strategic autonomy has remained an elusive goal, even as its security dependence on the United States has increased dramatically. The accession of traditionally neutral countries such as Sweden and Finland to the US-led NATO alliance signals a growing preference for increased US-dependent defense capabilities. However, the EU has pursued a strategy of strengthening its own security and defense capabilities independent of NATO. The provision of arms and munitions to Ukraine and the implementation of training missions to Ukraine’s armed forces are examples of such moves. The EU’s efforts to establish a common market for defence procurement have also been partially realized with the passage of the European Defence Industry Reinforcement through Common Procurement Act. The EU’s strategic autonomy in the security field will be determined by its progress in establishing relations with the United States and NATO, building a regional defence industry ecosystem, supporting Ukraine’s post-war defence build-up, and security cooperation with Indo-Pacific countries.

Chapter 6 presents policy implications for Korea based on the above findings. The EU’s expanding support for local industrial competitiveness is likely to pose challenges for Korean exporters, but there are also opportunities for Korea to take advantage of this. European Chips Act, Critical Raw Materials Act, Net-Zero Industrial Act are all concerned about expanding bilateral and multilateral cooperation with trusted partners. In addition, the EU’s recent supply chain legislation is characterized by weak geographical discrimination, so it is expected that Korean companies with a local presence will be able to enjoy similar benefits as EU companies. Taking advantage of the EU’s favorable aspects of its foreign and economic policies will not only benefit our companies, Executive Summary • 261 but will also allow us to make a joint contribution to addressing global challenges that require international cooperation, such as the reshaping of the international order, supply chain pressures, climate change response, and labor supply shortages. To this end, Chapter 6 identifies areas where we can expand our cooperation with the EU in the energy, immigration and security sectors. Finally, the challenges of the changing global trading environment faced by the EU are the same challenges faced by Korea, and we need to learn from the EU’s responses and use them to develop strategies tailored to our own circumstances. While it is beyond the scope of this report to formulate a specific foreign economic and economic security strategy for Korea, the EU case analyzed in this report is expected to serve as an important reference point.

In recent years, international efforts have been made to reduce fossil fuel-based energy subsidies as the energy transition has accelerated in response to climate change. As part of a social contract, energy subsidies have been used to stabilize domestic prices and stimulate the economy, especially in the Middle East and North Africa. As a result, per capita energy subsidies in the Middle East and North Africa (hereafter referred to as MENA) have reached the highest levels in the world, and excessive government spending has also been identified as a factor preventing the expansion of social services for the most vulnerable. In light of the decarbonization trends and research showing that energy subsidies contribute to air pollution, subsidy policies are at a critical crossroads between reduction and maintenance. However, the Arab Spring in 2011 occurred in countries that attempted to reduce energy subsidies and resulted in consumer prices rises contributing to political instability.  More recently, the overall increase in energy subsidies since 2020 was also an attempt to stabilize the domestic situation by overcoming the economic downturn through the successive outbreaks of the COVID-19 pandemic and the Russian-Ukrainian war. Despite its importance, there is little research on the impact and social perceptions of energy subsidy policies in the MENA region with coverage since thelate 2010s.

To fill this gap, this study focuses on the impact of energy subsidy policies on the economy and environment, and social perceptionsof energy subsidies in the MENA region. Using satellite data such as nighttime lights and air pollution concentrations, this study examines trends in energy subsidy policies and levels in the MENA region in the 2010-2021 period. Lastly, we conducted an online survey to examine awareness of energy subsidy policy and policy reform in the MENA. Based on these findings, this study proposed recommendations for energy subsidy policy reform, taking into account the the MENA context

Chapter 2 discusses trends in energy subsidies and policy changes in the MENA. Overall, the size of energy subsidies has declined significantly since 2010. In particular, the subsidy share of GDP in 2010 reached 9%, compared to only 4% in 2016 . However, the size of the subsidies has increased again since 2016, and it is generally on the rise, with the exception of 2020, when COVID-19 took place.

Six countries included in this study(Egypt, Lebanon, Jordan, Morocco, Tunisia, and Saudi Arabia) provided energy subsidies through social contracts under authoritarian systems of government . After reducing or suspending subsidies to ease the government's financial burden, the government budget was reduced by raising domestic fuel prices. Also, governments used their budget to support the poor, improve infrastructure, and expand social protection programs. Additionally, efforts have also been made to introduce a price indexation system for petroleum products. In several countries, including Egypt and Tunisia, this process led to anti-government protests and a return to government policies. In terms of subsidy reform, Morocco and Jordan have been considered successful. This is because Morocco, in particular, had a greater chance of success because it implemented subsidy reform in the mid-2010s, when oil prices remained low. MENA countries are constrained in their ability to reform energy subsidies because they must not only stabilize their domestic situation but also make sure that external shocks do not lead to price increases.

In Chapter 3, we examine the impact on energy subsidies on economic activities in the MENA region. Upon examining the impact of energy subsidies on nighttime illuminance, it was found that both the proportion of subsidies to GDP and their per capita subsidy affected the brightness of nighttime lights. Subsidies on electricity, in particular, have increased the brightness of nighttime lights. This shows that reducing electricity rates through the payment of electricity subsidies increases electricity consumption in the home and service sectors, as well as having a positive effect on the industrial sector.

Chapter 4 examines the impact of energy subsidies on air pollution. This study analyzed emissions data of three types of air pollutants, including NO2, CO, and PM25. Expansion of energy subsidies is contributing to an increase in nitrogen dioxide emissions, which can also be attributed to an increase in industrial production, electricity production, and road traffic. Specifically, electricity subsidies and natural gas subsidies contribute to nitrogen dioxide emissions, while oil subsidies contribute to ultrafine dust emissions. Previous studies have shown that energy subsidies have a relatively small impact on carbon monoxide emissions, but, a lot of carbon monoxide is produced by sandstorms, so it is unclear whether the expansion of energy subsidies has fully contributed to carbon monoxide emissions. Additionally, we found that electricity subsidies contribute to increased greenhouse gas emissions in the electricity/heating sector, as well as oil subsidies increase greenhouse gas emissions in sectors such as transportation, manufacturing and construction. Based on these findings, it is clear that energy subsidies in the MENA contribute to air pollution, and that it is necessary to gradually reduce subsidies for electricity and oil.

Chapter 5 examines respondents' perceptions of energy subsidies in four MENA countries (Egypt, Jordan, Tunisia, and Saudi Arabia). The results of the online survey s with a total of 2,040 respondents, indicate that respondents in the MENA region generally prefer policies that reduce energy prices to those that provide social security benefits. In addition, the MENA region is unique in that it tends to oppose improving social security services as an alternative to energy subsidies. There appears to be a difference in preferences between income levels when it comes to energy subsidy policies and social security benefits. The government system should expand social security services targeting vulnerable groups in order to attract middle-income citizens . This indicates that it is important not only to improve, but also to increase awareness of groups other than low-income groups. Residents of the MENA region are more likely to agree with reducing subsidies for global efforts to combat climate change and decarbonization than with reducing subsidies for government fiscal soundness or expanding social services . A campaign to reduce energy subsidies should take this into account.

Chapter 6 presents policy recommendations based on the previous discussion results. This study highlights the need for a gradual reduction of energy subsidies in the MENA region. Our recomendations also include 1) increasing subsidies for renewable energy, 2) improving energy efficiency policies and finances, and 3) supporting small and medium-sized enterprises that may be adversely affected by subsidy reform, 4) improving and expanding public transportation systems, 5) improving social security services, and 6) reducing fossil fuel energy subsidies as much as possible.