This report analyzes the problems of the current international monetary system under given circumstances of a weakening dollar and the decreasing weight of the US Economy in the world. This study tries to figure out whether there will be changes in the current international monetary system and, if so, the possible picture of new system. As alternative international key currencies, EURO and Yuan are proven, in diverse aspects, as international key currencies. This report suggests the introduction of an Asian regional currency and makes the case for a multi-polar international currency system, starting with the East Asian Currency Unit between Korea, China and Japan.
The first issue concerns the search for a possible alternative international monetary system. SDR has been regarded as a substitute for the dollar, as it already has worked as an international currency since the launch of the Bretton-Woods system. SDR’s advantage is that the currency is not bound to specific national interests. However, there is no private market where the SDR might be traded. SDR also requires an international central bank, which the IMF is not likely to become.
Another alternative may be a multi-polar international monetary system in which the dollar, Euro and probably the Yuan would compete with each other. The result of this study shows that the dollar still dominates other currencies with regard to GDP, volume of financial assets, size of the financial market as well as military power. The EURO has a strong potential to be a key currency considering trade volume, well-developed financial markets and internationalized financial institutes. The Yuan, however, will take quite a while before coming onstage as a global key currency. The major weaknesses of the Yuan are capital control, a shallow financial sector, financial depression, inefficient financial system and relatively high political risk. This result implies that the international monetary system will be dominated by the dollar for the foreseeable future. Then a bi-polar system with the dollar and EURO may slowly emerge to replace the current system. A tri-polar system with the dollar, Euro, and the Yuan will only emerge after a relatively long time.
The tri-polar system may be easier to establish if Asian countries introduce a regional currency instead of a national currency, the Yuan, as that regional currency will not be subject to vicissitudes of China’s domestic conditions. An Asian regional currency will get the credit on the market more easily than the Yuan. The fastest way to introduce an Asian regional currency will be to start in a small but influential group involving China, Japan, and Korea. The three countries account for over 80% of Asia’s GDP and cooperate with each other institutionally. They have already established the trilateral cooperation secretariat, and are connected by a currency swap arrangement. If the three countries would initiate efforts to establish an Asian regional currency, other countries will join afterwards.
In addition to the factors explained above, this study shows how the three countries may create a regional currency and how that currency can be used. A set of exchange rates beginning in 2000 to November 2011 is calculated and attached as an example in the appendix.

This study focuses on implementing strategies for the Korea-EU FTA at government and firm levels, and reviews EU’s recent trade policy for suggesting policy responses in the post-FTA era. Korea-EU FTA has entered into effect since July 2011 and it is de facto Korea’s first FTA with large trade partners. It is expected that this FTA will have tangible economic effects on the Korean economy. However, an FTA is only a framework which defines trade relations between two countries and it would be more important to develop appropriate strategies on how to actually utilize the FTA.
This study has four purposes. First, it reviews potentially important trade issues between Korea and the EU in the post-FTA era. For that, this study analyzes EU’s trade policy since 2000. Particular attention is paid to recent institutional change in the EU’s legal system since the implementation of Lisbon Treaty and EU’s new trade policy in the period 2010-2015. Second, this study tries to forecast how the FTA will influence sectoral trade flow between Korea and the EU. In order to answer this question, this paper analyzes trade specialization and complementarities between the two trade partners. Third, this study presents in-depth analysis on FTA implementation procedures, potential trade conflicts, non-tariff barriers and implications of EU’s competition policy on Korean firms. In addition, market penetration strategy for the government procurement market is also discussed. Fourth, this paper tries to invite policy makers and business stakeholders to revisit  existing FTA policies that Korea has pushed forward since late 1990s. Korea will have more than 20 FTAs with different trade partners and over 90% of Korea’s total trade will be covered by FTAs by 2020. Considering this development, this paper suggests coordination of different FTAs and how to respond to this development at the firm level.   

 

Investment into Indonesia from Korea had already begun in the 1980s, while Vietnam became an investment destination for Korea beginning in 1992 following the establishment of diplomatic relations. The scale of investments into Indonesia remained far larger than those into Vietnam in the 1990s, with investment into the latter picking up during the 2000s. Investment into Vietnam, for its part, was concentrated in the materials industry such as textiles and clothing. Over half of Korean investment into each country goes into the manufacturing sector: the majority of investments into Vietnam is received by primary metals and textiles industries; whereas food processing, electronic parts, computer, visual/audio/communications equipment manufacturing are the major recipients of Korean investments into Indonesia. Mining is second after manufacturing in terms of level of investment in both countries. Mining is followed by real estate/rentals and construction in Vietnam; and wholesale/retails and agriculture/forestry/fisheries for Indonesia.
A summary of the results of an in-depth survey for Korean companies in Vietnam and Indonesia in 2011 are as follows. On the question of areas of local policy with the most impact on business operations, labor and tax administration were selected for Vietnam, whereas labor stood out in the case of Indonesia. In order to deal with ‘deteriorating labor situations’ firms induce competition among workers through disbursement of regular incentives as well as holding fast to the principle of annual negotiation for wages. The annual negotiation for wages was also an important principle among Korean firms in Indonesia, while also fostering loyalty to the firm through CSR activities. Also, whenever labor costs rise, they are offset by increased productivity in both countries. In cases where inflation causes costs of raw materials to rise, firms in both countries combat rising costs through corporate campaigns to economize and reduce waste, system of rewards, and raising factory prices.
On the other question of an area where ‘information is most necessary for domestic market entry,’ firms in both countries pointed out taxes and labor. In Vietnam, such information is provided by the Korean government agencies and related organizations, the local Korean community, and the local government. In Indonesia, firms acquire the needed information mostly through the local Korean community and the internet. There also calls by firms in both countries for the Korean government to work with the local government to create opportunities for procuring information on a more frequent basis, as well as set up a  system for exchange of information between Korean firms and the government.
The survey also shows that companies are engaged in earnest efforts at localization, by involving local personnel in decision-making, in addition to improving their perception among the public through community activities as part of fulfilling their CSR. But when conflicts arise in spite of all effort, Korean companies in Vietnam usually resolve them through agreed settlements with the parties concerned or Korean law firms; while companies in Indonesia also make attempts at agreed settlement, or seek help from a local legal firm.
In terms of ‘strengthening operational capability’, firms in Vietnam pointed to securing a professional workforce and labor management as the most important. Professional personnel were also considered important among companies in Indonesia, in addition for competitiveness in prices. Plans for expanding the organization among companies in Vietnam were general and across the board. Companies in Indonesia were more specific, with expansion planned for such departments as production, design, R&D, and marketing; whereas departments related to raw materials procurement, accounting/taxes, and labor management would be maintained at present levels for the most part. The majority of the requests among companies above for government assistance were made during the planning stages for making investments, or at the very early phases following entry into each country.
In terms of average annual total sales for Korean companies in each country during the 2009 fiscal year, Korean companies in Indonesia outperformed their counterparts in Vietnam by 3.9 times, and recorded 3.5 times the amount in cost of goods sold. Cost of sales and administration were also higher in Indonesia, by approximately 2.7 times; but nonoperating expenses were at similar levels. Nonoperating expenses, however, were higher than cost of sales and administration in Vietnam, pointing to greater expenses from loan interest payments, loss in value of local currency, and losses from investment into liquid and real assets; compared to Indonesia. Corporate taxes were much higher in Indonesia than in Vietnam. The average number of local workers employed in manufacturing firms were similar, about 770 in both countries.
According to Data Envelopment Analysis on Korean manufacturing in both countries, firm's efficiency is increased with ① greater length of sales operation ② location in Central regions - Ho Chi Minh area - Hanoi (Vietnam, in order) and regions other than Jakarta – Jakarta region (Indonesia, in order). However, the impact from ③ the presence of local executive/management on efficiency of operations was not significant.
Eliciting implications for Korean government policy would mean continued efforts for ① the establishment and strengthening of the system of information exchange between firms and local governments ② provision of an in-depth analytical/systematic information on local macroeconomic policy and economic trends ③ creation and active promotion of a local professionals database ④ construction of a production network and survey of corporate S&D related to entry into service markets ⑤ survey of time and location of entry and training programs. Corporate strategies should include the following consideration: ① earnest desire for entry into the domestic market ② maintaining sound labor relations and prompt response to rising wages ③ securing professional workers ④ experience in the local market and sound location.

 

 

International prices of major crops rose dramatically from late 2006 through mid 2008. Price collapsed dramatically in the second half of 2008 with the onset of the financial crisis. This episode is often referred to as the “2008 agflation”. It seems that such a price swing appears again. Between early June 2010 and February 2011, the price of grain increased sharply, surpassing the 2008 peaks that had spread anxiety among policymakers and low income consumers around the world.
A number of studies have discussed the factors which lie behind the 2008 agflation. A large number of potential explanation is avaliable. Those given greatest prominence are i) rapid economic growth, particularly in China and other Asian economies, ii) decades of underdevelopment in agriculture, ⅲ) low inventory levels, iv) depreciation of the US dollar, v) speculative influences.
However, there is still in debates of whether grain prices have become more variable. When looked at in the long term, there is little or no evidence that volatility in international agricultural commodity prices, as measured using standard statistical measures is increasing and this finding applies to both nominal and real prices. Volatility has, however, been higher during the decade since 2000 than during the previous two decades and this is also the case of wheat and rice prices in the most recent years (2006~2010) compared to the nineteen seventies.
To answer a basic question has grain price volatility risen? this study sets up GARCH (Generalized Autoregressive Conditional Heteroscedasticity)-type models and measures exact volatilities for rice, wheat, corn, and soybeans, which are important for food security of net food importing countries. The GARCH model is now the standard procedure for modelling volatility in financial markets. GARCH specifies an ARMA (AutoRegressive Moving Average) process for the variance scedastic process followed by a time series to yield an estimate of the conditional variance of the process at each date in the sample. To summarize, this analysis has generated three conclusions;
a) International rice and wheat price volatility was generally higher over the past two decades than in the nineteen seventies and eighties, the major exception being soybean.
b) Although many grains exhibited high volatility over three year periods 2006-08, and this volatility persists to the present, these volatilities are generally in line within historical experience, except rice.
c) There is weak evidence that volatility levels may be increasing relative to historical levels across the grains. However, we will need to wait for a few more years to now whether this is indeed the case
There is also considerable empirical evidence that the volatility in agricultural prices has changed over the recent decade. It is not only the levels of prices which have had powerful effects, but also their volatilities. Increasing volatility is a concern for agricultural producers and for other agents along the food chain. Price volatility can have a long run impact on the incomes of many producers and the trading positions of countries, and can make planning production more difficult. Moreover, adequate mechanisms to reduce or manage risk to producers do not exist in many markets and/or countries. Therefore, an understanding the nature of volatility is required in order to mitigate its effects, particularly in developing countries.
In order to examine the nature and determinants of volatility in food crops, this study sets up both the dynamic panel model and the system equation models. The dynamic panel regression approach is useful for catching a number of key variables which can explain grain volatility as a whole, while the system equation approach has advantages of considering the interrelation among each crop. The results of the analysis can be summarized as following.
There is convincing evidence that many of the candidate variables have an impact on grain volatility. Inventory-use ratios have significant effects on grain volatility, being negatively affected. For some individual commodities, the relationship does appear to be stronger, with wheat the clearest example. Oil price volatility has a positive impact on grain price volatility. Thus, the recent coincidental high volatility in oil and grain prices is symptomatic of a connection between grain price volatility and oil price volatility. The link between oil prices and grain prices is likely to arise through the impact of energy prices on the costs of production, along with the alternative use of some crops for biofuel production. Therefore, we would expect the link between oil price volatility and grain prices to continue or strengthen as the biofuels sector grows. Likewise, exchange rate volatility was found to influence the volatility of agricultural prices. Thus, perhaps unsurprisingly, if the global economy is experiencing high levels of volatility these will also be reflected in agricultural prices.
Higher inflation volatility tends to increase grain price variation. The sensitivities vary quite widely across commodities, but in most cases the relationship is highly significant. Higher levels of the U.S. inflation, also have a consistent impact to most gains, being significantly and positively affected. Higher futures market volumes increase the volatility in grains. The effect is statistically significant, but economically small.
Policy options to reduce the grain price volatility

a) Emergency food reserves
Relatively smaller food security emergency reserves can be used effectively and at lower cost to assist the most vulnerable. Unlike buffer stocks that attempt to offset price movements and which act as universal subsidies benefiting both poor and non-poor consumers, emergency food reserves can make food available to vulnerable population groups in times of crisis. In addition, emergency reserves of relatively small quantities of staple foods will not disrupt normal private sector market development which is needed for long term food security.

b) International safety nets
In times of crisis, contingent and compensatory financing facilities are important mechanisms assisting countries to avoid major fiscal deficits, and lower the cost of imported food, while maintaining key social assistance programmes. The World Bank is currently helping countries deal with the food crisis through instruments to help manage short-term impacts, including grant funding for rapid response in the poorest and most vulnerable countries and expedited use of International Development Assistance (IDA) and International Bank for Reconstruction and Development (IBRD) funds under programs such as the Global Food Crisis Response Program (GFRP), as well as increased Regular IDA and IBRD lending, policy advice and technical assistance.

c) Risk management for governments
For price risks, the principal instruments that could be used to manage the price volatility of food import bills are futures and options contracts (financial instruments) or over the-counter (OTC) contracts (physical instrument). The main difference between them is that financial instruments can provide a country with a cash payout to enable them to offset higher food prices for physical imports, whereas physical instruments seek to manage price and supply risk and provide for the physical import of the food. Both types of instruments are offered by financial institutions and traders.
By buying futures contracts, a government which wishes to protect itself against a possible grains price surge “locks” in a price agreed at the time the contract was concluded. With futures contracts the country will obtain greater certainty over the price, but not flexibility. Call option contracts “lock” in a maximum price, but with no obligation to buy at that price if market conditions are favourable for the government (i.e. if prices have moved lower). The country will still be able to benefit from lower prices after the agreement, as they do not have to purchase at the agreed price. This approach provides certainty about a maximum price and flexibility.
Significant investment is needed to overcome the lack of technical expertise on the use of these instruments in developing countries. Experience has shown that engaging developing and emerging countries on risk management takes a sustained effort to build capacity to the point where decision-makers are comfortable with the use of risk management tools. Globally there is a need to learn lessons from countries such as Mexico that have become sophisticated in developing a framework for analyzing risks and taking innovative steps to manage those risks.
Finally, it is important to recognize that there is no single risk management tool that will meet the diverse needs of countries exposed to price volatility, particularly given the complexity of local market and policy environments. Solutions need to be highly customized, drawing on a mix of different tools and responses. A successful approach to strengthening risk management frameworks in low income countries will need to build on existing capacities, create platforms which allow private sector market participants to be part of the solution, and find ways to overcome the major constraints to greater use of risk management tools: weak legal/regulatory frameworks, poor credit standing, and a lack of knowledge, understanding, and confidence about how to use these tools.

We analyze the effectiveness of capital control in 2000’s by using EPFR (Emerging Portfolio Fund Research) dataset. In the chapter 2, we first summarize the status of emerging countries’ capital control before and after 2000. International capital flows have been increased since 1990’s. The global financial crisis after Lehman Brother’s collapse has interrupted the international capital flows since 2008. The capital flows to emerging markets, however, have resumed after the global financial crisis. The two main reasons of increasing capital flows to emerging markets are the increased liquidity due to monetary easing during crisis and the relative resiliency of emerging countries’ growth. Brazil, Chile, Columbia, Malaysia and Thailand introduced capital controls in 1990’s and Brazil, Columbia, Croatia, Thai, Indonesia and Korea has used capital controls in 2000’s. In particular, the number of countries, that is imposing, capital controls, increased after the Global financial crisis due to emerging concerns about sudden stop’s of foreign capital flows.
In chapter 3, we analyze the capital flows before and after capital controls imposed in selected countries. We select the countries with enough time-series data after the capital controls in order to have meaningful analyses. They are Brazil, Columbia, Thailand, Indonesia and Korea. We find that capital inflows in our sample countries do not show any statistically meaningful changes after imposing the capital controls in general. The capital flows to bond funds of Columbia has been contracted after capital control, but the capital flows to other countries have even been increased after capital controls.
In Chapter 4, we analyze the effectiveness of capital controls with the controlling variables including international capital markets’ variations and domestic macroeconomic and financial market variations. We could not find the statistically meaningful effects of capital controls on the capital flows or the capital market variations. As an exception, the forward position regulation of Korea has reduced the capital flows to bond funds. All capital controls have not affected the volatility of stocks or foreign exchange markets. The international capital markets’ volatility has affected the capital flows in most countries. If the domestic capital market is less volatile than the international markets, then the international capital flows into that country.
The capital controls in general could not have not affected the capital inflows, so it is more important to reduce the domestic market’s volatility. We only find 2 cases of statistically meaningful regulations of capital controls out of 7 cases. Therefore, we recommend to focus on policies of the domestic market stabilization in order to stabilize the capital flows.

This paper is an analysis of the Korean public’s perception on foreign aid and how their attitudes have changed over time, through a face-to-face survey involving 1,000 respondents. The survey questions include various aspects of foreign aid such as motives for aid giving, level of support for aid, priorities in aid policy, effectiveness of aid as well as access to relevant information. To find the determinants of their attitudes and perceptions on aid, the paper examined the relations between individual characteristics such as age, income level, education and the level of participation in volunteer activities; with their response patterns. It also reviewed the results of past surveys conducted in Korea as well as in other donor countries such as EU to gain a more comprehensive understanding of the Korean public’s opinion on aid within various time series and country context.

Overall, the Korean public appears highly supportive of foreign aid. Case in point, nearly 90 percent of respondents expressed support for the Korean government for providing aid to developing countries, which is a significant improvement compared to the 62 percent recorded in 2005. Despite the increasing support, the level of awareness on aid and global development initiatives such as MDGs among the Korean public is relatively weak. Particularly, the younger generation showed the lowest level of awareness and it provides a clear policy implication for education and programs for raising awareness for this age group. The unique characteristic of Korea as a ‘former-recipient-to-donor’ influenced the public opinion, especially older generations, as they emphasized that Korea’s provision of aid is to return what it had received from other countries in the past. But this particular background is an exception, as the Korean public seems to be driven more by humanitarian and egalitarian motives while economic interest still influences Korea’s ODA policy in practice.

In terms of policy priorities for foreign aid, sub-Saharan Africa attracted the most attention, followed by various Asian regions, in the provision of Korean aid. As for the sectors, the survey result showed that majority of Koreans think that government aid is most effective in the form of assistance in social and economic infrastructure, and most of the Korean public maintains positive attitudes concerning Korea’s ODA. Among those who are skeptical about Korea’s contributions to developing countries, there are concerned over the capacity of developing countries to manage the aid received as well as efficiency and effectiveness of the Korean government’s aid delivery system.

As the newest member of the DAC, Korea has initiated various reforms to advance the volume and quality of its aid. It is thus critical to monitor the public opinion on foreign aid to gain support and pursue the Korean government’s ambitious aid policy goals in the future. While a high level of public interest and support on ODA is an encouraging sign, there is still much to do for the Korean government. It needs to implement better-targeted and strategic public awareness programs considering that the awareness level is closely related to the support level. Also, it needs more rigorous policy measures to boost its aid efficiency and effectiveness lest public confidence decline for the lack thereof, and the also ensure that the information be widely shared.

The world’s economies are actively promoting “green growth” as the way to overcome the global economic crisis, the energy crisis, climate change, and to gain momentum for new growth.
First of all, the effects of climate change intensifying around the world has given urgency to the task of coordinating global action among countries. Also the volatility seen in wildly fluctuating energy prices is fueling fears of a global energy crisis due to temporary energy imbalance and energy speculation. Until now, world economic development was based on overwhelming dependence on fossil fuels. However, the limited fossil fuel reserves and environmental pollution are putting this type of development to an end. Furthermore, the current global financial and economic crisis provides legitimacy for a more active investment in the green energy sector for many countries, to boost growth momentum and reduce dependence on foreign fuels.
Meanwhile, despite the withdrawal from the Kyoto Protocol, the United States acknowledged the need to develop the clean energy sector since the late 1980s. Accordingly, the U.S. government established a national energy strategy supporting research and technology development in clean energy and eco-friendly cars as a potential source of industrial growth.
Energy technology is a combination of a diverse range of technologies, which necessitates long-term, massive investments. In case of developed countries, federal/central governments can play a leading role by implementing national energy plans to support energy technology development until its commercialization and employment. In case of the United States, the Department of Energy is in charge of the “National Energy R&D Portfolio.” In February 2003, the Bush administration announced the “Hydrogen Fuel Initiative” which provided $1.7 billion to develop hydrogen-powered fuel cells, hydrogen infrastructure and advanced automotive technologies over the next five years. The Bush administration continued its efforts to reverse America’s growing dependence on foreign oil. In the 2006 State of the Union Address, President Bush announced a 20% increase in clean-energy research and revealed his plan to make ethanol practical and competitive within six years.
President Obama, in the wake of the global financial crisis, is continuing US efforts to develop clean energy technology. The climate change bill could reset the US government’s approach on green growth, being one of the legislations President Obama heavily advocated. In June 2009, the bill had passed in the House of Representatives. However, its chances of passing the Senate vote are slim.
Despite setbacks in enacting the climate change bill, President Obama fully recognizes “green growth” as America’s new engine of growth. In the 2011 State of the Union address, President Obama showed a firm determination to continue investment in clean energy technologies. In doing so, President Obama set a new goal: that by 2035, 80% of America’s electricity will come from clean energy sources such as wind, solar, nuclear, clean coal and natural gas. Detailed measures to achieve this goal was outlined, which includes introduction of 1 million electric vehicles on the road by 2015 and the elimination of $4 billion subsidies to oil companies.
Canada already recognized that low-carbon green growth is essential to sustainable growth. Since 2005, the Canadian government actively began investing in clean energy and technology. Specifically, the Canadian government is implementing policies related to greenhouse gas reduction, environment technology development, infrastructure investment, and environmental protection. Above all, the Canadian government is focusing on the renewable energy development, such as achieving international competitiveness in hydrogen production technology and fuel cell technology. In the 2007 budget, $2 billion was allocated for renewable energy development alone. Considering Canada’s dynamic low-carbon green growth action, close attention to Canada’s growing clean energy market is needed for better cooperation in the near future.
In addition, Canada is a well known eco-friendly country, its attitudes towards the environment driven by the close attention of its citizenry to environmental problems and backed up by strict government regulations. Environmental issues tend to be the major campaign issues during the election period, and federal and local governments have systematic evaluation processes to prevent environmental pollution from fossil fuel exploration. Recent opposition on the oil sand development by native Canadians and strict federal government regulations have given rise to much uncertainty in the Canadian oil industry. Yet, there are assumptions that the Conservative Party of Canada, the majority party, is implementing Canada’s ‘ecoAction’ plan−Canada’s national energy plan−to merely avoid criticisms that the party is not attentive enough on environmental issues. But regardless of the ruling party, it is the direct support to the citizens which the Canadian government has aimed at, while simultaneoulsly reducing industries’ dependence on government support.
In tandem with the green growth movement in the global community, Korea is also adopting policies to adapt to climate change and implementing “green growth” for sustainable development. As in the case of the US and Canada, major economies are designing national green growth strategies for sustainable growth with special focus on renewable energy industries. Green growth has now become vital for development of the world’s nations, and is no longer a matter of choice. Considering that Korea has not yet reached the levels of the developed countries in renewable energy in terms of technology and power-generation capacity, the Korean government should continue to provide full support to Korea’s renewable energy industry via tax credits and investment incentives under sustainable national development plans.

I. Introduction

II. Literature Review

III. Original Sin and Capital Volatility

IV. Data and Model
1. Data
2. Stylized Facts
3. Empirical Model

V. Empirical Results
1. Effects of Liberalization on Volatility for All Countries
2. Effects of Liberalization for Groups with and without Original Sin
3. Which Matters, Original Sin or Institution?

VI. Conclusion

References

Appendix

Over the last three decades the volatility in international capital flows has shown an increasing trend in both emerging economies and advanced countries. This study investigates how capital account liberalization affects capital flow volatility using 34 country panel data. Overall, we find that the level of financial openness increases capital volatility. However, after we divide our panel data based on whether or not a country can borrow abroad in its own currency, namely ’original sin’, the effect of financial openness appears differently in each group. While in original sin free groups capital openness has no significant effect on capital volatility, it increases the volatility significantly in original sin groups. Also when the sample is limited to countries which established good quality in their institutions, the difference remains between the two groups. It means that the different effects of capital openness on the volatility should be attributed to differences in international status of currencies rather than in institutional quality. This finding suggests that emerging economies whose currencies are not internationalized should be more cautious of capital account liberalization.

I. Introduction
II. The Case of Upstream Subsidies
1. Case Study in a Nutshell
2. Countervailing of Indirect Subsidies under WTO Disciplines
3. Pass-Through Analysis
4. Arm’s Length Transactions

III. The Case of Privatization
1. Case Study in a Nutshell
2. Company vs. Owner
3. Fair Market Price

IV. Clarification Initiatives and Implications for Korea
1. Overview of Proposals
2. Some Implications for Korea

V. Conclusion

References

Indirect subsidization of domestic industries can occur where, for example, a financial contribution is provided to one entity but the associated benefit goes to another. This may materialize where (1) a financial contribution to an upstream producer results in a benefit to a downstream producer, or (2) privatization of a subsidized state-owned enterprise leads to the transmission of the subsidy to a post-privatization enterprise. A number of dispute cases initiated in the World Trade Organization have addressed both situations and resulted in substantial jurisprudence that cast light on some controversial issues on indirect subsidies. This paper examines the main findings made in case law, discusses subject-related Doha Round proposals and their possible implications for Korea.

The Republic of Korea is currently trying to engage Turkmenistan, which has gigantic natural gas resources, in order to promote cooperation in the area of energy resources development. However, Korea’s chances of energy resources development cooperation with Turkmenistan are limited, because of higher level of technology possessed by Western countries in gas extraction and Chinese activities involving provision of enormous loans to Turkmenistan.
Turkmenistan, like other energy rich countries, is attempting to change its energy-dependent economic structure and to develop manufacturing industries. Korea’s participation in energy resources development in Turkmenistan would require that Korea address Turkmenistan's need for industrial development.
The solar energy industry is one of the fastest growing among industries in general, and Korea intends to promote it as a Green Growth industry. The solar energy industry includes several sub-industries such Concentrated Solar Power (CSP) and Photovoltaic (PV) industries. The PV industry can be further subdivided into polysilicon manufacturing, solar cell manufacturing and etc.
Turkmenistan has much potential for the development of a solar energy industry. First, with Uzbekistan, Turkmenistan has the biggest solar resources among the former Soviet countries, as the level of insolation in southeastern Turkmenistan is similar to a number of countries in the Middle East. Second, Turkmenistan already has markets for its electricity exports such as Turkey, Iran, and other countries in the vicinity. Also, Turkmenistan is relatively close to the EU, with a large demand for renewable electricity. The fact that Turkey will be connected to Europe’s electricity network presents an added advantage in this regard. Third, the price of electricity, the core factor with respect to the competitiveness of the PV industry, is very low. Fourth, potential for the development of the domestic PV market in Turkmenistan is high, because it needs to supply small distributed generation systems for about 73% of the population for whom power is not supplied through the electricity network.
Given the above, there is great potential for industrial cooperation between Korea and Turkmenistan, especially in the PV industry. The global PV market is becoming polarized, with a market for low-efficiency, cheap solar cells on one side and the one for highly efficient expensive solar cells on the other. Though Korea currently possesses the requisite technology, it is in need of a market. Turkmenistan is both able to export electricity and offers the cheapest price for power. Also, it has the possibility to develop the domestic PV market.
Korea and Turkmenistan will thus need to cooperate with each other in the following. First, they need to construct a 150MW ISCC (Integrated Solar Combined Cycle) power plant as a pilot project with Turkey in order to export electricity to Turkey in the short term. In the long term, pure CSP (Concentrated Solar Power) plants will need to be built in order to export solar power to the EU. 
Second, in the PV industry, Turkmenistan needs to try to develop polysilicon manufacturing industry based on cheap electricity. Korea needs to cooperate with Turkmenistan in the polysilicon industry by contributing high technology. For the mid term, Turkmenistan needs to develop a solar cell manufacturing industry based on domestic demand for small (2~4 kW) solar power generation systems.
Third, Korea needs to provide export loans(about 1 bil. dollars) to enable Turkmenistan to develop the previously mentioned industries. Approximately 500~600 mil. dollars may be needed to develop a polysilicon manufacturing factory with an annual production capacity of 6,000~7,000 tons. And another 440 mil. dollars would be needed to build a 150 MW ISCC power plant.
If such cooperation is indeed realized, great synergy effects for both Korea and Turkmenistan can be expected. Korea can support its solar industries as green growth industries by providing production sites and markets for the related companies, while Turkmenistan can foster new manufacturing industries with world class competitiveness, which would help the latter diversify its industrial structure. Also, based on the deepened economic relationship, Korea may participate in Turkmenistan’s energy resource development.