The USMCA, concluded in 2018, strengthened automotive rules of origin (ROOs) to promote regional production—raising the regional value content (RVC) threshold and introducing requirements on North American steel/aluminum purchases and labor value content (LVC)—while also providing flexibility mechanisms such as phased implementation and the Alternative Staging Regime (ASR). However, operational uncertainty persists, as a dispute over whether the roll-up provision is permitted in calculating vehicle RVC—specifically, the treatment of non-originating materials used in core parts—has remained unresolved even after the panel ruling. Furthermore, related provisions such as the Section 232 side letters, the joint review mechanism, and the Rapid Response Labor Mechanism (RRM), combined with domestic politics, stakeholder interests, and negotiation leverage, are further amplifying this uncertainty.

North America’s automotive market is structured around the United States, with Mexico increasingly serving as a key production base. Supply-chain analysis indicates that the North American content of vehicles produced in the region is typically around 70 percent.

Korean manufacturers also show a relatively high regional content of about 50–60 percent, but the share of Korean-origin content remains substantial at roughly 40 percent. Trade patterns likewise point to a strengthening of a U.S.-import / Mexico-and- Canada-export structure, particularly for light vehicles and automotive parts. Around the USMCA’s entry into force, Korea’s export share of light vehicles and parts destined for the United States increased, and investment−particularly in U.S-based production of auto parts and secondary batteries−also rose. These changes, however, should be interpreted in light of various external factors beyond ROOs, including U.S.–China tensions, the electrification transition, and the COVID-19 pandemic.

In implementation terms, the USMCA automotive ROOs have only recently entered the early stage of full implementation due to phased application and the use of the ASR. The stringent requirements of ROOs, the unresolved dispute, and external shocks have combined to increase firms’ compliance burdens associated with claiming preferential treatment, leading some firms to forgo preferences. As a result, tariff-paying imports—particularly Mexican auto parts entering the United States—have tended to rise. Origin verification, especially for automotive parts, has also increased, and certification and verification procedures related to steel/aluminum purchases and LVC have imposed substantial burdens on both enforcement authorities and firms. Stakeholder positions diverge sharply across issues, with competing views on maintaining the current framework and implementing administrative and technical improvements, versus strengthening ROOs.

The 2026 joint review is expected to go beyond a simple assessment of operation, raising the possibility of revisions to, and an extension of, the agreement, further increasing uncertainty in the North American market. It is widely anticipated that this joint review is unlikely to reach an agreement and will instead transition to the annual review phase. Considering the already stringent requirements of automotive ROOs, firms’ compliance burden, the EV chasm, and the continued use of Section 232 measures, a major upward revision of the ROOs thresholds appears unlikely. The joint review is more likely to focus on resolving outstanding disputes, easing certification and verification burdens, improving the competitive environment among manufacturers under Section 232, and strengthening trilateral cooperation on economic security and critical minerals. In response, Korean firms should pursue a strategy centered on expanding U.S. production while leveraging Canada (as a base for batteries and critical minerals) and Mexico (as a supplementary production base), and should enhance their origin management systems to prepare for intensified post origin verification. The government should strengthen support for SMEs and mid-sized firms and proactively advance research on “Korea-tailored” ROOs that reflect the transition toward electrification and software-defined vehicles (SDVs).

The objective of this research is to conduct an in-depth analysis of the AI industrial strategies, key policy frameworks, and ecosystems of Saudi Arabia and the UAE, alongside case studies of Korean companies entering these markets. Based on this analysis, the study aims to propose policy implications and government support measures to facilitate the strategic expansion of Korean AI companies into the region, incorporating a comparative evaluation of the distinctive characteristics of each country’s AI sector.

Saudi Arabia and the UAE, the focal points of this study, are leading Arab oil-producing nations whose geopolitical and economic influence has grown significantly since the mid-1970s oil crisis. Today, AI technology is emerging as a cornerstone of their socio-economic transformation, driven by substantial financial resources and strategic advantages in renewable energy. By fostering advanced AI capabilities and robust industrial ecosystems, these countries seek to reduce their dependence on oil, enhance economic efficiency, and secure sustainable drivers of future growth.

While South Korea and these two countries share the common challenge of building sovereign AI ecosystems to become leading players in the global AI industry, they are uniquely positioned to complement each other’s strategic gaps through mutual cooperation. South Korea is well placed to leverage the vast capital reserves and strong policy commitment of Saudi Arabia and the UAE toward AI integration. This environment provides fertile ground for Korean AI startups to attract investment and scale into the Middle Eastern market.

At the same time, Saudi Arabia and the UAE can benefit from South Korea’s expertise in areas ranging from data center infrastructure to AI semiconductor supply chains, while collaborating on AI-driven initiatives to strengthen their domestic manufacturing bases. Ultimately, by maintaining balanced cooperation with both the United States and China, South Korea and these Gulf countries can establish strategic partnerships for mutual growth, further deepening the economic ties that have evolved since the 1970s.

Following an overview of the foundational industrial strategies for AI development in Saudi Arabia and the UAE, Chapter 2 examines key policy frameworks and the current status of AI infrastructure, R&D, and startup ecosystems, as well as regulatory environments and AI service adoption. Both countries intensified their AI initiatives in the late 2010s as part of a strategic transition from oil-dependent economies to knowledge-based economies. To this end, they are implementing comprehensive industrial policies, including the formulation of national AI strategies, the establishment of dedicated national agencies and state-owned enterprises, and the expansion of international cooperation with global technology leaders.

However, these two countries exhibit distinct characteristics that defy simple categorization as similar Arab oil-producing economies. Differences in economic and population scale, the proportion of native citizens, industrial structures, and openness to foreign investment result in diverging strategic priorities. For instance, while Saudi Arabia emphasizes a “self-reliant” sovereign AI model centered on domestic development and its internal market, the UAE pursues an “open” sovereign AI framework that leverages global networks, international talent, and the open-sourcing of its proprietary Falcon model.

Furthermore, reflecting the UAE’s federal structure, Abu Dhabi and Dubai are spearheading distinct AI trajectories. Abu Dhabi prioritizes the development of robust infrastructure by constructing large-scale data centers through strategic partnerships with U.S. technology firms and developing Arabic-specific LLMs. In contrast, Dubai positions itself as a global gateway, serving as a premier testbed for AI startups and facilitating diverse pilot projects to attract international innovators.

Chapter 3 analyzes the AI industry ecosystems of Saudi Arabia and the UAE using key indicators such as cloud service market size, semiconductor trade volume, AI research output, and venture capital investment. Driven by strong leadership, national strategic visions, and substantial capital, both countries are experiencing rapid growth across these dimensions.

Saudi Arabia is aggressively expanding its data center infrastructure and increasing semiconductor imports to ensure stable AI development and deployment. While its global share of AI research publications—a proxy for sovereign AI capability—is rising, its research productivity (measured by publications per million people) remains relatively modest.

Meanwhile, the UAE is spearheading the “Stargate UAE” project to strengthen its AI data center and cloud infrastructure. Notably, as of 2023, its semiconductor imports exceeded those of Saudi Arabia by more than fourfold. Through proactive global talent acquisition and open research collaboration, the UAE has developed the capability to produce proprietary Arabic large language models (LLMs), with its AI research productivity now surpassing that of the United States.

In terms of international cooperation, both countries maintain a strategic balance, avoiding overreliance on either the United States or China while leveraging cutting-edge global technologies. Furthermore, although venture capital investment appears lower than in major economies, this reflects a distinctive market structure in which AI investment is predominantly driven by state-owned enterprises rather than the private venture sector.

Chapter 4 examines South Korea’s AI policies, implementation framework, and support systems for overseas expansion. It assesses the competitiveness of the domestic AI industry by analyzing national statistics and global AI indices. Furthermore, the chapter identifies the patterns and characteristics of market entry into the Middle East through sector-specific case studies of Korean AI companies in Saudi Arabia and the UAE.

Regarding the policy framework, although the national AI agenda has gained momentum under the current administration, challenges remain in coordinating inter-ministerial interests and formulating efficient and detailed policies. Notably, a comprehensive support system tailored to the Middle Eastern market has yet to be fully established.

In terms of market structure, while the Korean AI market is expanding rapidly, a clear bifurcation exists: a small number of large corporations lead the development of large-scale models and infrastructure, while a large number of startups dominate the AI application sector. This division is also reflected in their market entry strategies in the Middle East; large corporations primarily focus on large-scale AI platforms—such as data centers and smart cities—whereas startups concentrate on specialized AI application services.

By country, Saudi Arabia currently accounts for a higher number of Korean market entries than the UAE. In Saudi Arabia, cooperation is expanding across the entire AI value chain—from infrastructure to development and application. In contrast, in the UAE, Korean companies are primarily entering AI application sectors, particularly in healthcare and transportation.

Chapter 5 outlines strategic frameworks for Korea–Middle East AI cooperation and proposes support measures to facilitate the expansion of Korean AI startups into the region.

First, it is imperative to establish high-level strategic partnerships. Given that Saudi Arabia and the UAE predominantly adopt a “top-down” approach driven by strong central leadership, establishing an integrated bilateral cooperation framework—comprising senior government officials and key corporate stakeholders—is essential to ensure seamless market entry.

Second, the joint development of “AI green infrastructure” should be prioritized. This entails the synergistic integration of the Middle East’s abundant renewable energy resources with Korea’s AI semiconductors and data center capabilities.

Third, fostering AI talent and establishing joint R&D platforms are critical for both South Korea and Gulf oil-producing countries. This can be achieved through collaborative research with leading institutions and the development of joint degree programs.

Fourth, joint AI solution demonstration projects should be actively promoted. To bridge the gap between R&D and commercialization, private sector participation should be encouraged through large-scale pilot initiatives.

Fifth, the establishment of a dedicated cooperation fund is essential for the timely implementation of strategic projects. By providing financial support for joint ventures, technology transfer, and pilot programs, both sides can accelerate the realization of their shared strategic objectives.

Meanwhile, to facilitate the international expansion of AI startups, the following concrete support measures are proposed.

First, it is necessary to consolidate fragmented support policies currently dispersed across multiple ministries and agencies into an integrated support system. Such streamlining would prevent inefficient competition over performance metrics among government bodies and eliminate duplication in budget allocation.

Second, as startups entering the Middle East often face barriers related to investment, labor, and tax regulations, as well as unfamiliar commercial practices and complex bidding procedures, establishing a unified market intelligence platform is essential. The systematic provision of country-specific market entry information would significantly reduce information search costs and mitigate entry risks for startups.

Third, the initial market entry phase entails substantial costs, including in-depth market research, brand positioning at trade exhibitions, and the establishment of local offices. Government-backed partial funding for these upfront expenses would incentivize startups to pursue opportunities in the Middle East more proactively and serve as a catalyst for attracting subsequent private investment.

Fourth, to address supply–demand imbalances and potential conflicts of interest within the nascent AI ecosystem, the support system should promote value-chain collaboration. This can be achieved by expanding R&D funding for collaborative projects among startups at different stages of the value chain and by providing incentives for mutually beneficial cooperation.

Beginning in the 2000s, as Central and Eastern European countries began to join the EU in earnest, new manufacturing production bases within the EU were established in Central and Eastern Europe. This marked the beginning of a full-scale expansion of Korean companies targeting the EU market. This expansion was concentrated in the V4 (Poland, Hungary, the Czech Republic, and Slovakia) countries between 2006 and 2007. From the late 2010s until recently, Korean companies’ expansion into Central and Eastern Europe shifted to investments in batteries, electric vehicles, renewable energy, and R&D, shifting investment patterns toward eco-friendly and cutting-edge industries and key supply chains. Recently, LG Energy Solution and its partners completed their secondary battery expansion in Poland, while SK Innovation, Samsung SDI, and their partners completed their secondary battery expansion in Hungary. These efforts not only address the EU’s comprehensive environmental regulations and supply chain restructuring but also establish a bridgehead for entry into the European market. Meanwhile, as part of China’s global supply chain restructuring strategy, large-scale greenfield investments are continuing, focusing on eco- friendly electronic components and finished automobiles. Hungary is establishing itself as a key base for China’s European expansion strategy.

With 20 years having passed since Korean companies began expanding into Central and Eastern Europe, it is crucial to assess the progress made, analyze the challenges they face, and explore solutions. The V4 region is currently emerging as a major production base in the EU. Local investment and expansion by both Korean and Chinese companies, particularly in the battery sector, have led to a labor market environment nearing full employment. Consequently, recruiting difficulties are the most significant obstacle for Korean companies operating in the region. The V4 government has recently adopted “protection of strategic industries” and “selective acceptance of foreign capital” as key economic policies. Investment policies are evolving, with a focus on welcoming foreign investment in strategic sectors and emphasizing linkages with R&D investment. China’s recent aggressive investment in Central and Eastern Europe, including Hungary, is expected to impact the local management environment for Korean companies already operating in the region. Therefore, it is crucial to develop a response strategy that goes beyond mere competition and builds on the strengths of the Korean companies operating in the region.

This study assessed the 20 years of Korean companies’ expansion into Central and Eastern Europe (CEE). It examined their motivations and strategies and analyzed their performance over the past 10 years. It also examined the prospects and challenges facing Korean companies’ expansion into CEE. Based on this analysis, it presented policy implications, including implications for the recent expansion of Chinese companies.

Compared to the initial 10 years of CEE accession, Korean companies’ investment in CEE over the past 10 years has been primarily focused on the EV and EV battery sectors, responding to EU policies. Conversely, compared to the initial 10 years, the focus on manufacturing, particularly automotive and electronics, has eased somewhat. Furthermore, Korean companies’ sectors of expansion have expanded to encompass a wider range of sectors, including biotechnology, energy, defense, and medical services. The positive correlation between Korean companies’ investment and exports remains robust over the past 10 years. Consequently, this suggests that the large-scale investment by Korean companies in CEE has led to a sustained increase in Korean exports to the region, rather than a temporary one. This could counter the traditional concern that “foreign direct investment will hollow out domestic industries.” In other words, it aligns with recent major analyses showing that, in an era of global supply chain fragmentation, the expansion of overseas direct investment by Korean companies actually leads to increased regular employment and sales at domestic parent companies.

Recently, relations between China and the V4 countries have been complex and nuanced, driven by economic interests as well as political and strategic factors. Chinese investment patterns have also varied across the V4 countries. Hungary, which has shown the most pro-China stance, has become a key investment destination for Chinese companies not only within the V4 but also within Europe, thanks to its government’s proactive investment promotion policies. Slovakia, which has historically had relatively minimal relations with China, is also showing signs of change by attracting Chinese investment in electric vehicles and batteries. Hungary and Slovakia have diverged from the EU’s China policy, adopting a more favorable stance toward Chinese investment. In contrast, Poland and the Czech Republic, in solidarity with the EU’s China strategy, are adopting a more cautious approach to relations and expressing caution regarding Chinese investment. Comparing the investment landscape of Korean and Chinese companies in the V4 reveals significant differences in the countries of investment, timing, sectors, and key issues. While Korean companies focused on the automotive industry in the mid-2000s, primarily in the Czech Republic and Slovakia, they have recently focused their investments in Poland and Hungary, focusing on EV batteries. In contrast, Chinese companies have been making large-scale investments in the EV and EV battery sectors, particularly in Hungary, since 2020. Korean companies, which have established European manufacturing production bases in the V4 since the mid-2000s, are currently facing challenges due to rising prices, soaring production costs, and labor shortages in the V4 economies. Meanwhile, Chinese companies, which have recently focused on the EV and EV battery sectors in Hungary and are currently in the prototype production stage with plans to commence full-scale production soon, are facing changing negative perceptions of China among EU citizens and EU-level regulations on China.

To address the immediate challenges identified in the evaluation of Korean companies entering Central and Eastern Europe, companies should first strengthen their ESG management and corporate social responsibility (CSR) capabilities at the corporate level to enhance their local image and avoid being subject to EU regulations. Furthermore, given the recent strengthening of the EU’s economic security strategy, they should closely monitor the new regulatory trends resulting from these changes and comprehensively assess their impact on Korean companies. Furthermore, the recent large-scale expansion of Chinese companies into Central and Eastern Europe requires a fundamentally different approach based on the differences between the two countries. Korean companies should leverage the already established cooperative foundations across the V4 to respond to China’s large-scale expansion into Hungary. In the remaining three countries, excluding Hungary, cooperation can be strengthened by actively leveraging the reluctance of European global OEMs to rely solely on Chinese companies due to geopolitical risks and frequent tensions between the EU and China.

The V4, where Korean companies have the largest presence in Europe, is no longer a region with the lowest production and labor costs in the region. Accordingly, the manufacturing- and V4-centric strategy for entering Central and Eastern Europe is no longer viable. Furthermore, the large-scale expansion of Chinese companies into Hungary is expected to intensify competition with Korean companies already operating in the region and exacerbate labor shortages. In other words, a comprehensive reexamination of the fundamental framework for Korean companies entering Central and Eastern Europe is necessary. Therefore, a new mid- to long-term strategy for entering Central and Eastern Europe for Korean companies should consider three key elements: first, reassessing entry goals; second, expanding entry regions; and third, diversifying and deepening entry sectors. In addition to the company-level entry strategies discussed so far, government support should be provided to address issues that companies cannot address on their own, such as employment and labor shortages, competition with Chinese companies, Korea-EU and Korea-V4 cooperation, and improving local living conditions.

Since the end of World War II, the European Union’s (EU) defense and security architecture has relied almost entirely on the US-centered North Atlantic Treaty Organization(NATO). While integration at the EU level has made significant progress in the economic and financial integration, defense and security remain relatively underdeveloped due to ongoing tensions between member states’ sovereign authority and supranational leadership. However, the outbreak of the Russia-Ukraine war in 2022 marked a fundamental turning point in Europe’s security landscape. Not only was it the first full-scale war on the European continent since World War II, but it also coincided with renewed criticism from the Trump administration regarding the EU’s excessive dependence on NATO and demands for increased defense spending. As a result, the EU came to recognize more acutely the necessity of securing strategic autonomy and strengthening its own defense capabilities. In response, the European Commission announced a strategy to reinforce the defense industrial base and build an autonomous and competitive defense posture by 2030, launching full-scale policy efforts to enhance the competitiveness of EU-based defense firms and promote joint procurement.

Even before the Russia-Ukraine war, the EU had sought to enhance cooperation among member states through mechanisms such as Permanent Structured Cooperation (PESCO), the European Defense Fund (EDF), and the Coordinated Annual Review on Defense (CARD). PESCO provides a framework for closer cooperation in defense and security, with 75 projects currently under development, while the EDF supports the development of innovative defense technologies and equipment with a budget of €8 billion for the 2021-27 period. The EU Defense Innovation Scheme (EUDIS) aims to foster an innovation ecosystem for start-ups and small and medium-sized enterprises (SMEs). Following the war, however, the EU has adopted more proactive, immediate, and robust defense measures. Notably, the Act in Support of Ammunition Production (ASAP) aims to supply one million rounds of artillery ammunition to support Ukraine, with a particular emphasis on expanding manufacturing capacity within the EU. In addition, the European Defense Industrial Strategy (EDIS) - the EU’s first-ever defense industrial strategy - encourages member states to invest more, better, and collectively. The Security Action for Europe (SAFE) initiative is a €150 billion loan-guarantee program designed to support joint weapons procurement and represents the largest defense-related financial instrument ever established at the EU level. Furthermore, the European The Defense Industry Programme (EDIP) will provide €1.5 billion in grants between 2025 and 2027 to strengthen the EU’s defense posture by enhancing industrial competitiveness and promoting joint procurement. The EDIP consists of three pillars: strengthening the competitiveness and responsiveness of the European Defense Technological and Industrial Base (EDTIB), improving the timely availability and security of the supply of defense products, and supporting Ukraine’s Defense Technological and Industrial Base (DTIB). Together, these measures aim to ensure the sustained development of Europe’s defense industry and establish a supply chain capable of rapidly procuring critical materials during crises.

Nevertheless, the EU defense market faces a structural challenge of fragmentation. With 27 member states operating under different procurement systems and regulatory frameworks, building a pan-European defense procurement market remains difficult. As a result, as of June 2023, 76% of weapons procured by EU member states were imported, with the United States accounting for a dominant 63% share. Defense industries within the EU, are primarily concentrated in France, Germany and Italy and, the EU aims to use these countries as anchors for a renaissance of the European defense industrial base. In this process, the EU’s defense industrial innovation roadmap emphasizes that disruptive technologies - such as artificial intelligence, quantum, cyber capabilities and space- based systems - are fundamentally transforming the nature of warfare. Accordingly, the EU highlights a ‘spin-on’ development approach that rapidly integrates cutting- edge civilian technologies into the defense sector.

Meanwhile, the South Korean government has set itself the goal of becoming the world’s fourth-largest defense exporter by 2027 and has designated advanced defense industries as a national strategic sector. In its Defense Science and Technology Planning Document for 2025–2039, the Defense Acquisition Program Administration (DAPA) has outlined a roadmap to secure ten strategic technologies, including AI, manned–unmanned teaming, quantum technologies, and space capabilities. In addition, the government plans to provide comprehensive support for overseas expansion by defense firms through the establishment of a “K-Defense Export Fund” and expanded tax incentives. Korea’s defense industry is particularly competitive in terms of mass-production capacity, rapid delivery, high performance relative to cost, and strong government backing. Poland has emerged as a key partner, accounting for a substantial share of Korea’s defense exports, with major platforms including the K2 main battle tank, the K9 self-propelled howitzer, and the FA-50 light attack aircraft. However, Korea’s level of core technological capability in advanced domains remains at approximately 82% of that of the most advanced countries, indicating a need for further improvement, and its export structure remains overly concentrated in a limited number of markets.

As the EU actively seeks to enhance its own defense competitiveness, particularly by supporting EU-based defense firms and prioritizing European-origin products in joint procurement- there is a risk that Korean defense companies may face growing barriers to entry in the European market. Nevertheless, the potential synergies arising from the complementary strengths of Korea and the EU should not be overlooked. While the EU excels in advanced technology, Korea has strengths in production capacity and cost efficiency. Moreover, as the EU seeks to reduce excessive dependence on the United States while enhancing its internal defense capabilities under the banner of strategic autonomy, Korea could be a valuable partner. This, in turn, suggests new opportunities for Korean defense firms. Accordingly, this study proposes the following policy recommendations.

First, Korea should pursue the joint establishment of defense industry clusters in Eastern Europe, centered on existing major export destinations such as Poland and Romania. By building maintenance, repair, and overhaul (MRO) facilities and localized production systems, Korean firms can meet “Made in Europe” requirements. Defense companies should analyze the industrial ecosystems of individual Eastern European countries and differentiate their roles accordingly. For example, Poland could serve as a hub for tank and self-propelled artillery assembly and maintenance, while Romania could be developed as a base for artillery ammunition and component production. By creating a horizontally integrated supply chain, Korean firms can secure continuous orders across the EU. Second, a strategic and reciprocal offset framework is needed. Rather than focusing solely on exports, Korea should design models that combine localized technology transfer with industrial cooperation to secure a sustainable position in the EU market. At the government level, the scope of offset recognition should be negotiated in advance, and guidelines for technology protection should be established to prevent excessive demands for technology transfer. At the same time, firms should design technology-transfer models that are phased and conditional, and which contribute to local industrial development while preserving technological sovereignty. Long-term contracts with local firms and the operation of technical training programs will be essential to facilitate natural integration into EU supply chains.

Finally, Korea and the EU should expand their joint R&D initiatives in advanced and disruptive technologies of shared strategic importance, such as AI, space, and cyber capabilities, and operate joint testbeds. The establishment of a Korea–EU joint defense innovation fund would allow risks to be shared through co-investment, while institutionalized cooperation between Korea’s Agency for Defense Development and EU research institutions could support joint research on reconnaissance satellites, military PNT (positioning, navigation, and timing), and AI-enabled battlefield experimentation. At a corporate level, Korean companies should form multilateral consortia with EU firms in areas such as AI-based battle management systems and drone swarm operations and actively participate in joint prototype development.

This study explores policy directions for restructuring the global production networks (GPNs) of South Korea's major industries in response to the escalating U.S.-China strategic rivalry and the worldwide expansion of protectionist, inward-looking industrial and trade policies. Global production networks refer to cross-border production systems in which various stages of the manufacturing process required to produce final goods are distributed across multiple countries. This study specifically focuses on analyzing GPNs formed through active foreign direct investment (FDI) by Korean companies.

This study has four main research objectives. First, it empirically analyzes how Korean companies' outward foreign direct investment (OFDI) has shaped the overseas sourcing structure of domestic production and export patterns through global production network (GPN) formation, and further examines its effects on firm performance and employment (Chapter 2). Second, it examines the trends and underlying factors driving GPN reorganization through shifts in OFDI by Korean and global multinational corporations amid the intensifying U.S.-China strategic competition since the first Trump administration (Chapter 3). Third, it assesses the strategic importance of the United States, China, and the Global South as key hubs for Korea's future GPN restructuring, and proposes country-specific policy directions by analyzing their characteristics as production cooperation partners (Chapter 4). Fourth, building on these findings, it recommends industrial, trade, and ODA policy measures to enhance the effectiveness of Korea's GPN restructuring efforts (Chapter 5).

This study distinguishes itself from previous global supply chain (GSC) research by examining Korea's supply chains through the lens of global production networks (GPNs) developed through long-term foreign direct investment (FDI), analyzing the necessity and key factors for restructuring, and identifying priority policy tasks. The specific contributions of this study are as follows:
First, it empirically demonstrates that GPN formation through OFDI substantially explains changes in both the overseas sourcing structure and (intermediate goods) export patterns of Korea's major industries (Chapter 2, Sections 1 and 2).
Second, using long-term firm-level panel data (2006-2022) and instrumental variables, it shows that OFDI significantly increased both froms’ domestic sales and employment (Chapter 2, Section 3).
Third, by analyzing cross-border investment data from global multinational corporations, it documents shifts in industry-specific OFDI flows from the 2010s to the present (2024) and identifies key characteristics of the ongoing GPN restructuring (Chapter 3, Section 2).
Fourth, through surveys of experts and business leaders across ten major industries of South Korea, it compiles assessments of GPN restructuring needs, key risks and opportunities, and policy demands, providing foundational data for analyzing the drivers of current GPN restructuring trends (Chapter 3, Section 3).
Fifth, drawing on literature reviews, statistical and econometric analyses, overseas field research, surveys, and expert consultations, it presents priority policy tasks for GPN restructuring with respect to the United States, China, and five key Global South countries (Chapter 4).
Sixth, it proposes a systematic and comprehensive roadmap for Korea to effectively restructure its GPNs during the era of U.S.-China strategic competition by organizing domestic policy directions into three categories: industrial policy, trade policy, and Official Development Assistance (ODA) policy (Chapter 5).

Education is central to human capital accumulation, productivity growth, and social mobility. While global progress has been substantial in expanding access to primary education, participation in secondary and tertiary education remains uneven in many developing countries. The Philippines exemplifies this challenge: despite improvements in basic education, structural barriers—ncluding financial constraints, labor-market uncertainty, and skills mismatches—continue to limit access to higher education and weaken incentives for households to invest in university study. Scholarship programs are therefore a key policy instrument for easing financial constraints and expanding participation in higher education in the short run.

This report evaluates the impact of a local university scholarship program implemented by the Cagayan de Oro City government in the Philippines. Moving beyond enrollment alone, the study examines a range of student outcomes, including academic persistence, academic specialization and performance, intentions to pursue professional certification, civic engagement, and short-run psychological well-being. By doing so, the report attempts to provide new evidence on the mechanisms through which scholarships may influence human capital formation before long-term outcomes such as graduation and labor-market earnings materialize.

The analysis finds that the scholarship program leads to modest improvements in student persistence, but shows limited short-run effects on academic performance, field specialization, and most indicators of psychological well-being. Strong conclusions regarding mental health impacts are not warranted. The findings highlight the need for further research on how financial aid affects students’ educational outcomes and psychological well-being in a short run.

An important feature of the program is that, although it is formally income-targeted, the income threshold is relatively mild, and the program functions in practice more as a merit-oriented than a need-based intervention. The modest gains in persistence combined with limited broader effects suggest that merit-based scholarships alone may not be sufficient to generate sustained or multidimensional impacts, particularly in settings where financial stress, academic preparedness, and labor-market uncertainty interact.

From a policy perspective, the findings underscore the importance of careful scholarship design. Scholarships can be effective in improving persistence, but their impact may be strengthened by incorporating stronger need-sensitive components and complementary support, such as academic advising, mental-health services, or living-expense subsidies. Without such design features, merit-based programs risk producing narrow benefits or reinforcing existing inequalities.

The report also carries implications for Korea’s development cooperation strategy. While Korea’s ODA has supported Filipino students primarily through scholarships for study in Korea, this approach generates limited spillovers for the Philippine higher education system and domestic labor market. International experience—such as Australia’s in-country scholarships in Papua New Guinea and Germany’s in-region postgraduate programs—suggests that locally embedded scholarship programs, implemented in partnership with domestic universities and aligned with national skill needs, can foster more sustainable human capital development.

The report therefore recommends that Korea expand its support toward locally grounded, jointly designed scholarship and training programs in the Philippines, potentially linked with industry partnerships in strategic sectors such as digital technology, engineering, and green industries. Such an approach can simultaneously strengthen the Philippines’ domestic human capital base and support deeper economic and industrial cooperation with Korea.

Overall, the report concludes that scholarship programs are a valuable but incomplete policy tool. When carefully designed and embedded within broader education and labor-market strategies, they can contribute meaningfully to human capital development, equity, and long-term inclusive growth.

As artificial intelligence (AI) is shaping the global economy and society as a general-purpose technology, concerns are growing that disparities in countries’ capacity to adopt AI may further widen. While AI holds significant potential to enhance productivity, foster economic growth, and expand trade, its benefits could be increasingly concentrated in a limited number of leading countries and firms due to the unequal distribution of technology, capital, talent, and data. In particular, many developing countries face structural constraints in adopting AI as a result of insufficient digital infrastructure, limited human capital, and underdeveloped institutional frameworks. Over the medium to long term, these constraints risk exacerbating global growth gaps and socioeconomic inequality.

Against this backdrop, this study focuses on countries’ AI adoption capacity and analyzes disparities in AI readiness across income levels, with the aim of identifying cooperation strategies tailored to the characteristics of different country groups. It also examines the agendas, policies, and initiatives introduced by leading countries−such as the United States, China, the European Union, Japan, and Singapore−as well as by multilateral cooperation frameworks to support capacity building for AI in developing countries. Through this analysis, the study closely reviews international trends and derives policy implications for Korea’s role in this evolving landscape.

To explore customized cooperation strategies by country group, Chapter 2 employs the IMF’s AI Preparedness Index (AIPI) to assess national AI adoption capacity and analyzes the relationship between AI readiness and SDGs achievement indicators by income group. Significant disparities in AI preparedness exist across countries. Most low-income countries face urgent needs in infrastructure development and basic human capital formation. By contrast, developing countries that have achieved a certain level of infrastructure and human capital have reached a level where technology and innovation cooperation is feasible, and they have also made considerable progress in regulatory frameworks. These cross-country gaps are closely linked to differences in both the level and quality of progress toward the Sustainable Development Goals (SDGs), underscoring the need for differentiated cooperation strategies tailored to country-specific conditions.

Chapter 3 examines the policies and programs of major AI-leading countries−including the United States, China, the European Union, Japan, and Singapore−toward developing countries, analyzing government-led initiatives, public-private partnerships, and multilateral cooperation efforts. International cooperation in AI by leading countries reflects a combination of market-expansion objectives and broader goals related to geopolitical and economic stability. In the context of strategic competition between the United States and China, the role of countries that share similar positions with Korea has become increasingly important. Under these circumstances, it is desirable for Korea to support the adoption of AI based on shared values within the international community and to promote economic cooperation that facilitates its diffusion.

Chapter 4 reviews discussions on AI-related cooperation and initiatives for developing countries within major multilateral frameworks, including the G7, G20, OECD, United Nations, ITU, multilateral development banks (MDBs), and the WTO. These institutions recognize limited data access, inadequate digital infrastructure, and shortages of skilled human resources in developing countries as core challenges. At the same time, they are strengthening efforts to link development cooperation with AI ethics, safety, and standards. Such multilateral efforts complement bilateral cooperation while serving as critical platforms for coordination and the formation of global AI governance.

Based on the foregoing analysis, Chapter 5 presents Korea’s AI cooperation policy as follows. First, cooperation should be customized based on country-specific gaps, with the content and form of cooperation differentiated according to income levels and AI readiness. Second, cooperation should focus on priority areas in which Korea has comparative strengths. Korea should prioritize its areas of strength and develop cooperation projects aligned with the partner country’s level of development, while projects should be designed to contribute simultaneously to partner countries’ SDG achievement. At the same time, cooperation grounded in shared values−such as AI safety, data security, and personal data protection−should be pursued. Third, both bilateral and multilateral cooperation frameworks should be considered in parallel. While AI diffusion serves bilateral interests, it also requires participation in and contributions to multilateral frameworks, given considerations of objectives and scale. Accordingly, Korea’s active role in multilateral cooperation mechanisms is essential, and collaboration with like-minded partners will be particularly important in3 this process.

Over the past two decades, China has systematically promoted the semiconductor industry as a central pillar of its national development strategy. In recent years, this effort has intensified as technological self-reliance and supply-chain security have been elevated to core national priorities. Against the backdrop of escalating U.S. export controls and heightened geopolitical tensions, China has accelerated investments in advanced semiconductor technologies while seeking to reduce structural dependence on foreign suppliers.

China’s semiconductor development strategy can be characterized by three interrelated features. First, it is underpinned by strong state-led industrial policies. Through major strategic frameworks such as Made in China 2025 and the Guidelines for the Development of the National Integrated Circuit Industry, semiconductors have been designated as a strategic core industry. These initiatives have been supported by extensive policy instruments, including large-scale fiscal support, tax incentives, and systematic talent development and recruitment programs. Second, China has pursued the localization of critical technologies with the explicit objective of achieving technological self-sufficiency. Particular emphasis has been placed on increasing domestic production capacity in semiconductor equipment and materials, where reliance on foreign technologies has historically been most pronounced. Third, from a medium- to long-term perspective, China has sought to establish China-centered industrial clusters amid the ongoing reconfiguration of global semiconductor supply chains, thereby fostering a domestically anchored semiconductor ecosystem.

Despite these sustained policy efforts, China’s semiconductor industry remains heavily dependent on foreign technologies in several critical process stages. This dependency is especially evident in extreme ultraviolet (EUV) lithography equipment, advanced electronic design automation (EDA) tools, cutting-edge manufacturing equipment, and specialized materials. These structural vulnerabilities have become primary targets of U.S.-led export control measures. In particular, the strengthened restrictions implemented since October 2022 have imposed material constraints on China’s ability to produce advanced semiconductors. Empirical evidence indicates that China’s semiconductor imports from the United States declined by approximately 31 percent following the implementation of these measures—a contraction more than three times larger than that observed for non-sanctioned items.

The main policy effects identified through Event Study and Difference-in-Differences (DID) analyses can be summarized as follows. First, U.S. export controls have functioned not as a temporary shock but as a persistent structural constraint, with their impact concentrated on key process inputs such as high-performance chips, high-purity materials, and advanced manufacturing equipment. Second, although import substitution through alternative sourcing channels initially mitigated some of the supply disruptions, these channels have become increasingly constrained over time. Third, the coordinated export controls imposed by the United States and its allied countries have exerted sustained pressure on China’s capacity to secure alternative supply sources, further tightening supply-chain bottlenecks.

Importantly, the policy effects have exhibited a dynamic temporal pattern rather than a one-off disruption. Semiconductor imports fell sharply in 2022, showed partial adjustment in 2023, and declined again in 2024, suggesting that export controls have generated cumulative and reinforcing constraints rather than transitory effects. This pattern underscores the structural nature of the restrictions and highlights the growing difficulty China faces in sustaining advanced semiconductor production under an increasingly restrictive external environment.

From an academic perspective, this analysis contributes to the existing literature by providing quantitative evidence for policy effects that have often been discussed primarily in qualitative terms. By empirically tracing both the magnitude and temporal evolution of import reductions, the study offers a more rigorous assessment of how export controls reshape semiconductor supply chains over time.

Several policy implications emerge from these findings. Korea faces both risks and opportunities as China advances its semiconductor self-reliance strategy amid global supply-chain reconfiguration. In the short term, Korea may benefit from opportunities to supply advanced equipment and materials to China, partially filling technology gaps created by U.S. export restrictions. In the longer term, however, Korea must simultaneously safeguard its proprietary technologies and strengthen supply-chain resilience. This calls for a dual strategy that combines the strategic utilization of production bases in China with reinforced domestic capabilities aimed at sustaining technological leadership.

In conclusion, China’s semiconductor industry is undergoing rapid transformation under the combined pressures of external constraints and internal strategic realignment. As competition and selective cooperation among major economies reshape the global semiconductor landscape, Korea stands at a critical strategic juncture. Carefully calibrated and balanced policy responses will be essential to maximize emerging opportunities while effectively managing long-term risks. This study provides an empirically grounded framework to inform such strategic decision-making, offering deeper insights into the evolving structure of global semiconductor competition than those available in previous research.

Brazil, Latin America’s largest economy, maintains high tariff and non-tariff barriers but has shifted toward open trade policies since President Lula’s 2023 inauguration. While the Trump administration’s trade disruptions accelerated this shift, Brazil’s diversification reflects deeper structural imperatives driven by three core motivations:

First, reducing trade concentration with specific partners to mitigate risks amid rising global protectionism. Second, overcoming premature deindustrialization through industrial cooperation. Brazil deindustrialized at income levels far below advanced economies, prompting Lula’s New Industrial Policy (NIB) to revitalize manufacturing. Trade agreements serve as institutional frameworks for technology transfer, investment attraction, and supply chain integration beyond market access. Third, expanding multilateral trade to secure strategic autonomy, reducing dependence on major powers while strengthening Brazil’s negotiating position within the U.S.-China bipolar structure.

Following these priorities, Brazil concluded agreements with the EU (December 2024) and signed FTA with EFTA (September 2025). Also Brazil conduct various industrial cooperation with European countries. Analysis of these trade agreements and industrial cooperation reveals key characteristics:

Brazil adopted sector-differentiated opening strategies, protecting strategic industries while liberalizing manufacturing to enhance competitiveness. Brazil secured policy autonomy for industrial tools including export tax authority, exclusion of the public health system (SUS) from procurement commitments, restricted bidding for innovation projects, and offset requirements. Services and investment followed positive-list approaches—fully opening manufacturing-related sectors while minimally opening strategic areas and preserving space for domestic preferences. The agreements introduced environmental norms linking trade to sustainability to promote cooperation in sustainable development. However, European agricultural protections through geographical indications and tariff-rate quotas may limit Brazil’s market opening benefits. In industrial cooperation, Brazil seeks to encompass technology transfer, joint development, local production, and workforce training beyond simple product supply.

Implications for Korea-Brazil relations include: Korea’s value as a diversification partner given Brazil’s high concentration with China and the EU; urgency to resume stalled TA negotiations during pro- diversification administrations like Lula’s; cooperation opportunities in NIB priority sectors, particularly critical minerals (Brazil holds all 10 Korean strategic minerals and ranks second globally in rare earths); balancing Brazil’s policy autonomy with opportunities for Korean companies rather than demanding unconditional liberalization; establishing long-term government cooperation platforms beyond past episodic efforts; and activating private sector cooperation through industry associations given the TA’s likely lengthy timeline.