The recent financial crisis has pressed the Korean government to further accelerate liberalization of investment in order to improve the local financial and business environment. Foreign direct investment (FDI) in Korea has decreased in the first half of 1998 to USD 2.5 billion, a 44.9% decrease from the same period in 1997. However, the recent trend has shown substantial month-to-month increase. As of November 1998, aggregate FDI had already equaled 1997 total FDI of USD 7.0 billion.

Korea imported USD 2.4 billion in technology in 1997. The U.S. and Japan contributed 60.8% and 20.9% of the imports, respectively. The government of Korea has promoted international cooperation in R&D in various forms. At the governmental level, the International Joint Research Program, which started in 1985, has played the major role. So far, 906 joint projects have received a total of USD 41 million in support from this program. The government-sponsored research institutes are also involved in boosting cooperative international R&D efforts. Large firms have actively pursued strategic technological alliances with leading multinational corporations(MNCs).

As Korea has been losing competitiveness due to rising labor costs, restructuring the industry to improve the competitiveness of Korea's high technology and high value-added production has become an increasingly important part of the national agenda. In order to implement this agenda and to provide alternatives to those workers displaced by financial and corporate restructuring, the government has emphasized the promotion of small and medium-sized firms, especially new ventures. While beginning in the 1960s, venture business only began to emerge in the 1980s as a viable concern. There were about 1,500 venture enterprises with more than 70,000 employees in Korea as of 1996. Both public and private organizations are involved in the promotion of venture businesses.

The most ambitious national agenda adopted by the new government is the knowledge-based nation building for the 21st century. According to the plan, a substantial amount of new investment will go towards information infrastructure, development of new knowledge-based industries, improvement of the science and technology environment, and education reforms.

Many barriers and problems hindering technology-related investment and joint ventures with foreigners still need to be overcome. However, the recent efforts of the government, such as the enactment of the Foreign Investment Law, as well as actions by other public and private organizations to reform the economy and improve the investment climate, promise to induce more active involvement of foreign partners. The strategy to build a knowledge-based economy will also render a favorable environment to induce increased FDI.

Increasing Foreign Direct Investment (FDI) is one method through which Korea can overcome its economic crisis and implement successful restructuring. For this purpose, the further use of Industrial Free Zones (IFZs), which provide incentives and exceptions from normal regulations, is now being considered. The idea for expanding the usage of IFZs is derives from the new Foreign Investment Promotion Act as the promotion of Foreign Investment Zones (FIZs: Table).
Table. Criteria for designation of FIZ

While there are no FDIs designated as FIZs yet, provisions in the Act seem to generate significant confusion in actual implementation. Therefore, further review and discussions on the specific measure and process to promote FDI inducement by way of the FIZs is indispensible to maximize its effect.

In this context, a case study on the IFZs seen in various forms in other countries can be useful. This paper analyzes and compares IFZs in foreign countries including the U.K., China, Mexico, Philippine, Japan, and Malaysia, and also in Korea. Korean IFZs studied include the Industrial Park for Foreign companies and the Free Export Processing Zone. In addition, current and potential problems in the newly conceived FIZs have been studied.

Based on analysis of the above-mentioned IFZs, we proposed three key strategies in terms of the IFZs to induce FDI. The first strategy is to increase efficiency of existing Fenced Industrial Free Zones such as the Free Export Processing Zone and Industrial Park for Foreign Companies. Second is to prepare measures to efficiently manage the FIZs. Third is to designate the International Free Zone as a long term strategy of economic development in Korea.

Assessment of IMF Emergency Financial Support Programs in East Asia and Prospects for Strengthening the International Financial ArchitectureHyoungsoo Zang and Yongkul Won

Despite strong financial and policy interventions by the International Monetary Fund (IMF), the East Asian financial crisis has continued to worsen beyond expectations. And as the contagion effects of the crisis carried over to other regions, there have been an increasing number of critical and skeptical views on the operative role of the IMF.

Given the haunting experience of the East Asian financial crisis, restructuring the IMF-led international financial system as well as designing policies for the future crisis-prevention through international cooperation are emerging as urgent issues.
This study intends to analyze and assess the implications of the emergency financial support mechanism of the IMF and its management of the financial crises in Korea, Thailand, and Indonesia. We also discuss prospects for strengthening the international financial architecture, and suggest policy directions for the Korean government.

The structure of this study is as follows: In Chapter 2, we have analyzed the causes of the East Asian financial crisis, and offered an explanation of the basic nature of the crisis in order to assess the IMF's crisis-resolution programs.

In Chapter 3, we have chronologically analyzed the development and background of the East Asian financial crisis. We then evaluated and summarized policy measures of the affected governments and the IMF prior to and after the crisis.

In Chapter 4, we have evaluated the IMF's emergency financial support mechanism from the post-event perspective. We have given emphasis to analyzing whether the currently controversial IMF financial programs have had a positive effect on the recovery efforts of East Asian economies, as well as assessing the timeliness and promptness of the IMF's intervention. To do this, we have examined the theoretical basis and potential problems of the IMF's macroeconomic program, and evaluated the microeconomic restructuring programs for the affected East Asian countries. In the course of assessment, the high-interest-rate policy of the IMF is examined both theoretically and empirically.

In Chapter 5, we have summarized the increasingly important issue of improving the current IMF-led world financial system, the need for which has been well demonstrated by the enduring effects of the financial crisis in East Asia. And then we have discussed issues, such as regulating short-term capital movements and burden-sharing of private international creditor institutions, which are likely to become a focus of attention in future discussions on the necessary alterations of the international financial architecture.

In Chapter 6, we have discussed what the implications of the new international financial structure are for the Korean economy and the appropriate policy responses.

Finally, Chapter 7 presents the conclusion of the study.This study recognizes that the East Asian financial crisis primarily resulted from reaction to panic and temporary illiquidity, and was further exacerbated by the failure of affected governments to respond with the appropriate policy measures. Furthermore, the prompt response of the IMF to the requests of the East Asian countries in crisis enabled the maintenance of their external payments. By putting a cap on the panic in the international financial market, the IMF has proven its raison d'?ochtre. The IMF's East Asian financial program comprises the traditional policy of restraining aggregate demand and the relatively new structural restructuring policy. In particular, the financial program requires the East Asian countries to comply with its demand for rigorous restructuring in the weak financial sector, which is considered a fundamental cause of the crisis.

This study's ex post assessments are such that the policy of restraining aggregate demand and the accompanied high-interest-rate policy of the IMF failed to grasp the intrinsic nature of the East Asian crisis. The episodes of frequent revisions of the IMF financial program in the course of dealing with the crisis have proved its ineffectiveness. We point out that the program may have at times intensified the crisis. Considering the IMF's structural adjustment programs, although the direction for financial and corporate restructuring has been set apropos, a question should be raised as to whether the IMF had not overly demanded in light of the difficulties in the process.

Had the IMF emphasized a more intensive restructuring of short-term external debts in the private sector and maintaining sufficient foreign exchange liquidity in early stage of the crisis, instead of its policy of restraining aggregate demand, the situation would be more benign. Such measures would have reduced uncertainty and thereby insured continued capital flows into the corporate sector. Furthermore, attempts should have been made to enhance the health of financial institutions in the early stage of the crisis. The financial and corporate structural reforms should have been the focus of ensuing measures.

Maintaining the working framework of the IMF and World Bank, and strengthening the function and role of the IMF are likely to be the direction of changes in the international financial architecture. Consensus will be reached easily on enhancing transparency of information and strengthening prudential regulations while the principle of capital account liberalization in the long run will not be disputed unless there is a fundamental change in the trends of globalization and trade liberalization. Thus, remaining issues of debate will concern the regulation of short-term capital movement and burden sharing by private international creditors in times of crisis.

There have been numerous discussions on how best to regulate short-term capital flows, but realistically, there are few effective measures that may be taken. Dimming any prospect for direct capital control is the opposition from the United States and most other major industrialized countries. This study notes that regulations on short-term capital movements are likely to be conducted within the framework of orderly capital account liberalization of the IMF. Nevertheless, a scheme will be initiated by early 1999 to strengthen the information disclosure of, and prudential supervision of hedge funds and other highly leveraged financial transactions.

There is a wide consensus on the principle that international private creditors and investors should share the burden of resolving the financial crisis. However, it may take some time for the international community to reach an agreement on what specific measures should be adopted. For instance, burden sharing through debt reduction by private creditors will not likely materialize soon.

Due to the recent trend of globalization and surging flows of international capital movements across borders, the IMF does not have sufficient funds to mitigate the negative effects of the international private capital volatility, and thus can no longer play the role of the international lender of last resort. The IMF may well have the authority to declare a temporary debt payment standstill for a crisis country and subsequently organize negotiations on debt restructuring.
This study recommends that the Korean government advocate in principle the need for a systematic burden sharing of international private creditors. Nevertheless, Korea would not get much out of the establishment of the prospective schemes of burden sharing, such as collective action clauses or debt reductions. The scheme, if implemented, is likely to result in a rise in debtors' financing cost of the capital in the international financial market as a result of the increase in the credit risk. Even in the case of external debt reductions, it would damage investors' confidence. Moreover, history tells us that the benefit of external debt reduction is no greater than the long-term cost, incurred by the loss of international confidence.

Lessons of the East Asian financial crisis suggest that strong macroeconomic fundamentals and sound policies are indeed indispensable and necessary conditions for the prevention of a financial crisis, but not sufficient. A small open economy's effort alone could maintain economic stability in the gigantic and volatile ocean of the international financial market. In this context, the importance of a multilateral financial organization that commands the international financial order must be emphasized. However, the organization should exercise the power with prudence, under justice and supervision.

A Case Study on the WTO Dispute Settlement Mechanism：United States - Restrictions on Imports of Cotton and Man-Made Fibre UnderwearWook Chae & Chang-Bae Seo

1. Claims at the Panel Stage

On March 27, 1995, a formal complaint was made to the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) by Costa Rica over the restriction of imports of cotton and man-made fibre underwear imposed by the United States. A panel was established by the DSB on March 5, 1996 accordingly to the complaint made by Costa Rica on February 22, 1996, that the import restriction measures imposed by the United States on textiles from Costa Rica were in violation of the Agreement on Textiles and Clothing (ATC).

The panel concluded that the import restriction measures imposed by the United States was not valid, with the final report of the panel being circulated to WTO members on November 8, 1996. In an appeal by Costa Rica to the Appellate Body on one aspect of the Panel's conclusion supporting the United States' backdating of the effectivity of its transitional safeguard measure, the Appellate Body ruled in favor of Costa Rica on that particular point. The report of the Appllate Body was circulated to WTO members on February 10, 1997 and adopted by the DSB on February 25, 1997. In a DSB meeting held on April 10, 1997, the United States announced that it has ended the measures subject to the dispute as of March 27, 1997 and since has not reinstated the measures.

The dispute arose from complaints by Costa Rica which argued that while the Harmonized Tariff Schedule of the United States (HTSUS) provides the basis for a type of outward processing regime which enables products re-imported to the US under the HTSUS with partial exemption from US duties, the transitional safeguard measures imposed by the United States solely on textiles imports from Costa Rica were in violation of the ATC and GATT rules. Accordingly, Costa Rica requested that the Panel, on the basis of Articles 2, 6 and 8 of the ATC, recommend to the United States the immediate withdrawl of the measure. The United States, in turn, requested the Panel to reject Costa Rica's argument as it had complied with the obligations under the ATC.

The major point at issue in the dispute can be classified into 5 categories:
On the standard of review, Costa Rica requested the Panel, based on the general principles of GATT rules and the provisions of the DSU, to undertake an analysis and monitor the following five aspects: compliance with the procedural rules; proper establishment of the facts; objective and impartial evaluation of the facts in the light of the rules of the ATC; proper exercise of discretion in interpretation of the rules; and compliance with the rules. However, the United States argued that the standard of review of the "fur felt hat" case should be applied equally to the pending case and should, accordingly, be based on whether a safeguard action was properly taken at the time that the decision was made.
On the burden of proof, while Costa Rica emphasized that the burden of proof in a dispute settlement proceeding under the DSU for the purpose of determining the consistency of a import restriction measure with Article 6 of the ATC fell upon the importing Member, the United States argued that the burden of proof fell upon Costa Rica.

On Article 6 of the ATC, Costa Rica argued that the United States had failed to comply with the two principles applicable to the adoption of a safeguard measure under Article 6 of the ATC, establishing the sparing application of the transitional safeguard, and the consistent application of the transitional safeguard with the provisions of Article 6.1 of the ATC and the effective implementation of the integration process under the ATC. On the other hand, the United States argued that Article 6 of the ATC did not include more detailed procedures for investigation, nor did it provide more specific definitions to interpret the standard of law to applied and thus the appropriate standard ot apply to the importing country's determination was a standard of reasonableness.

On the determination of serious damage or actual threat thereof, Costa Rica noted that most of the information initially provided by the United States regarding the issue at hand were based on the purported existence of serious damage to the US industry and did not consider the existence of threat of injury. The United States maintained that since the ATC did not provide separate requirements for determinations of threat of injury and, thus, had not been employed in the CITA determination of March 1995, the determination by the United States of serious damage or actual threat of thereof was fully consistent with Articles 6.2 and 6.3 of the ATC.

On the existence of a causal link, Costa Rica claimed that since the United States failed to demonstrate the existence of a causal link between the supposed increase in imports and the supposed serious damage or actual threat of serious damage to the domestic industry, the United States consequently violated Articles 6.2 of the ATC. However, the United States stressed that export restraint settlements with other countries were not within the Panel's terms of reference and thus was not a matter to be considered by the Panel. They argued that the restraint on Costa Rican underwear was imposed in a broader context.

2. Panel Findings
In regard to the major points of issue in the textile dispute between Costa Rica and the United States, the Panel made the following findings:

(ⅰ) the United States violated its obligations under Article 6.2 and 6.4 of the ATC by imposing a restriction on Costa Rican exports without having demonstrated that serious damage of actual threat thereof was caused by such imports to the United States' domestic industry;

(ⅱ) the United States violated its obligations under Article 6.6(d) of the ATC by not granting the more favorable treatment to Costa Rican re-imports contemplated by that sub-paragraph;

(ⅲ) the United States violated its obligations under Article 2.4 of the ATC by imposing a restriction in a manner inconsistent with its obligations under Article 6 of the ATC; and
(ⅳ) the United States violated its obligations under Article Ⅹ:2 of the General Agreement on Tariffs and Trade 1994 and Article 6.10 of the ATC by setting the start ofthe restraint period on the date of the request for consultations, rather than the subsequent date of publication of information about the restraint.

The Panel recommended that the DSB request the United States to bring the measure challenged by Costa Rica into compliance with the United States' obligations under the ATC. The Panel further suggested that the United States bring the measure challenged by Costa Rica into compliance with United States' obligations under the ATC by immediately withdrawing the restriction imposed by the measure.

3. Claims at the Appeals Stage
On November 11, 1996, Costa Rica notified the DSB of the WTO of its decision to appeal certain issues of law covered in the Panel Report and legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the DSU, and filed a Notice of Appeal with the Appellate Body, pursuant to Rule 20 of the Working Procedures for Appellate Review. Costa Rica's appeal only concerned the Panel's finding recognizing backdating the effectivity of United State's transitional safeguard measure and the Panel's legal interpretation recognizing the imposition of a backdated quota by such a safeguard measure. The United States, on the other hand, argued that a transitional safeguard measure was imposed on Costa Rica pursuant to Article 6.10 of the ATC, stressing that no provisions of the ATC or of the GATT prohibits the setting as the initial date of a transitional safeguard measure of the date of the public notice announcing the request for consultations.

4. Appellate Body's Findings
With regard to the issues raised in the appeal, the Appellate Body found that the Panel erred in law on the issue relating to the setting of the initial date of the transitional safeguard measure. In addition, it concluded that the Panel went outside the limits of the ATC by taking its assumed premise literally that Article 6.10 is "silent about the initial date from which the restraint period should be conducted" and describing the issue as "a technical question regarding the opening date of a quota period". However, the Appellate Body's conclusion leaves intact the conclusions of the Panel that were not the subject of appeal. Therefore, the Appellate Body recommended that the DSB request the United States to bring its measure restricting Costa Rican exports of cotton and man-made fibre underwear into conformity with its obligations under the ATC.

5. Implications
The dispute provides standards and guidelines on various legal and economic issues for future disputes. In addition, it provides various implications for developing countries in utilizing the WTO dispute settlement procedure by affirming the effectiveness and credibility of the procedure.
As a legal issue, the Panel's findings clearly prohibits retroactive application of the effectivity of a safeguard measure and reaffirms the need to prove the existence of increase in imports and serious damage or actual threat thereof prior to imposing a transitional safeguard measure. Also, the findings and conclusions in this dispute has become a precedent case which stresses the importance of Article Ⅲ: 2 of the GATT 1994 in order to apply an appropriate legal analysis.

With respect to the economic aspects, an importing country must render Most-Favored Nations treatment to the re-imported products, while providing a clear standard of review in showing damage to the domestic industry. Moreover, Article 6.2 of the ATC provides that an importing country must not only provide proof of burdenin determining serious damage or actual threat thereof, but also demonstrate the existence of a causal link between the supposed increase in imports and the supposed serious damage or actual threat of serious damage to the domestic industry.

Institutionalizing International Emissions Trading Under the Kyoto Protocol: Implications for KoreaAeree Kim

The international community reached agreement at the Kyoto Conference to reduce green house emissions through an emissions trading system. Following adoption of the Kyoto Protocol, the operational methods and implementation mechanisms of the emissions trading system became the subject of intense debate. At the 4th Conference of Party (COP-4) held in Buenos Aires, Argentina in 1998, a detailed work plan for an emissions trading system was agreed upon.
At this conference, Korea announced its intention to first reduce green house gas emissions on a voluntary basis and then, beginning in the third implementation period (2018∼2022) of the Kyoto Protocol, become subject to the legally binding emissions reduction target. Joining the Kyoto Protocol, however, presents significant challenges to Korea, the greatest of which are presented by ever-increasing domestic energy demand and an industrial structure dominated by manufacturers that inefficiently consume high amounts of energy. Thus, there is an urgent need for Korea to develop multi-dimensional strategies to reduce green house gases. In doing so, Korea must fully understand and involve itself in the current debate concerning actual implementation of the Kyoto Protocol.

Under the framework of the emissions trading system, a ceiling on allowable worldwide emissions is established. From this ceiling, individual emissions quotas are established for each country. Any excess or shortfall emissions may then be traded with other countries. The hope is that through such a trading system, green house emissions targets can be efficiently realized.

There are already some emissions trading systems operating around the world. An SO2 emissions trading system in the US has contributed to a successful and efficient reduction of SO2 emissions. The success of this program is attributed to a comprehensive yet thorough monitoring and implementation system. Also, through first establishing a clear set of procedures and regulations concerning trading and monitoring, the US system has achieved a high level of transparency and a reliable market mechanism. The criteria of emissions trading regulations were little changed following inception of the system, which has further contributed to stable market prices.

However, not all attempts to reduce unwanted emissions through a system of trade have been so successful. One of the main obstacles to success in other countries is difficulty in converting from the former system of environment regulations that emphasized strict caps on individual polluters to the more flexible emissions trading system.

Norway is one of only a few countries that impose a CO2 tax. Despite a widespread desire to convert its current direct tax into an emissions trading system, such hope has yet to be realized. The main obstacle is that conversion to an emissions trading system would lower government tax revenues. Those supporting emissions trading counter that the system would allow greater production levels than under the former system as trading would more efficiently allocate gases to those industries most in need of emissions producing materials. In addition, some of those supporting the introduction of emissions trading further propose a free allocation by the government to those emitters likely to suffer the greatest under the new system. Preceding emissions trading with free allocation of emissions allowances would reduce production losses and adjustment costs the new system would potentially inflict.

Even if formal agreement regarding an emissions trading system reached, this does not ensure effective implementation. Despite Switzerland's implementation of an emissions trading system for volatile organic compounds (VOCs) five years previously, the trade of such emissions remains insubstantial. The lack of vitality in the market is largely attributed to frequent change of emissions regulation criteria. Further preventing effective implementation are complex trade procedures and inflexible market operations.

In addition to the examples of success and difficulties of emissions trading be observed at the domestic level, the Montreal and Oslo Protocols represent two examples on emissions trading being implemented at the international level. While they provide much applicable knowledge in institutionalizing emissions trading under the Kyoto Protocol, there are differences between these two protocols and the Kyoto protocol. For example, in the Montreal protocol, which was adopted to control ozone depleting substances (ODS), the number of emissions sources is small. Accordingly, transaction costs are low and monitoring is relatively easy. On the contrary, emissions sources of green house gases are diverse and numerous. Thus, in order to reduce transaction cost and monitor the emissions thoroughly, streaming down the kinds and the number of emissions sources should be considered.

Despite the promise of meeting green house gas reduction targets through trading emissions allowances, many components of the trading system remain controversial. Developing countries accuse the system of lacking equity and transparency. Many countries also insist that the emissions trading system be only supplemental to real emissions reduction in each individual country. Also, there is the problem of transparency due to the difficulties in monitoring procedures and measuring some green house gases. In its operational methods and implementation mechanisms, such as participation of the private sector, reporting and monitoring and punitive measures for non-compliance need to be developed further.

One of the most pressing issues is disagreement regarding a ceiling on the total amount of emissions any country may trade. The EU continues to insist on the need for a ceiling while the US maintains that any restraints on trading will distort market principles and weaken the cost efficiency of reducing green house gases. Specifically, the EU insists that hot air, the term used to denote the amount which actual green house emissions of Russia and Eastern European countries during the first implementation period (2008-2012) fall below 1990 levels, not be included in the international trading market.

The EU desire to prevent hot air from being traded is based on the belief that it goes against the underlying principle of the Kyoto Conference, which is the reduction of green house gases. The EU also contends that hot air trade will fail to encourage development of the needed technology for emissions reduction. Furthermore, the EU claims that no reliable figures of 1990 emissions by Eastern Europe and Russia exist, thus accurate assessment of hot air is difficult.
Aside from these components, the level of participation must be decided. In order to carry out precise monitoring, a system that designates which private entities may be involved in emissions trading must be devised. Furthermore, a formal market must be established through which formal emissions brokering activities may take place. As mentioned earlier, the number and range of green house gas emitters is enormous. Thus, to enable efficient monitoring, facilitate market transparency and the exchange of information, a formal location of exchange needs to be established.

As for the issue of non-compliance, liability and punitive measures remain unsettled. Consensus has been achieved to some extent that responsibility for non-compliance should ultimately fall to the country selling a portion of its allotted emissions allowance. Giving responsibility to the seller rather than the buyer spreads incentive to meet quotas and will likely lead to side agreements insuring buyer compliance with emissions quotas. Periodic deadlines must also be established when compliance may be measured.

Emissions trading under the Kyoto protocol may face potential conflicts with the WTO as limiting trade within Annex 1 countries (developed economies) and the quota system may be found in violation of GATT's 'non-discriminatory trade principles.' However, the emissions trading system would fall under WTO rules only when emissions allowances are classified as a commodity rather than capital assets. As confrontation between the respective legal systems of the Kyoto Protocol and the WTO is likely, a method of resolving such disputes must be devised.

The international emissions trading system on green house gases is on the verge of being realized. At the COP-4, member countries agreed to reach a final decision concerning the flexibility mechanism by the year 2000. As debate on institutionalizing the international emissions trading proceeds, Korea must formulate strategies as to how to integrate itself into the coming global emissions trading system. The first step in preparation of joining the trading system is to introduce an emissions trading system domestically. Emissions trading has shown great success in efficiently reducing emissions and Korea should learn from the already existent examples. Green house gas reduction also provides an opportunity to boost industrial competitiveness through reducing energy waste. On the other hand, failure to initially introduce an emissions trading system domestically will put Korea at a disadvantage once it begins participating in the international emissions trading market.

Along with the introduction of an emissions trading system at the domestic level, it is imperative that Korea be engaged actively in international debates concerning emissions trading. Such involvement will not only allow Korea to share in molding the system in which it will soon participate, it will also provide Korea with the information needed to establish domestically the optimal emissions program. Presumably, this is the intent of the Kyoto Protocol-to provide each country with the necessary impetus to realize development that is sustainable, more effective.

A Case Study on the WTO Dispute Settlement Mechanism:U.S.-Measure Affecting Imports of Wooven Wool Shirts and Blouses from India

1. Claims at the Panel Stage
India claimed that the United States violated Article 6 of the Agreement on Textile and Clothing ("ATC") in imposing the safeguard measure. India brought the matter before the DSB, arguing that the United States nullified or impaired benifits accruing to India under the ATC. However, the United States rejected those claims, arguing that it had complied with all the requirements of Article 6 of the ATC. Major issues in the dispute are as follows:
On the issue of burden of proof, India argued that, since the transitional safeguard measure taken by the the exceptions. On the other hand, the United States argued that India, as the party making the claim, bore the burden of presenting a prima facie case of violation before panel.
On the issue of standard of review, India argued that the task of the Panel was to determine whether the United States had observed the requirements of Article 6 in good faith, not whether it had acted reasonably. On the other hand, the United States responded that the task of the Panel was to consider whether the US authorities could reasonably and in good faith have determined that serious damage or actual threat thereof existed, not whether serious damage or actual threat thereof existed as such.
On the role of the Textiles Monitoring Board("TMB"), India asserted that the United States had failed to obtain the endorsement by the TMB of the proposed safeguard measure. On the substantive requirements of Article 6 of the ATC, India argued that the US determination had not met the requirements of Article 6 of the ATC in terms of economic factors and data to be considered for determination of serious damage or actual threat thereof as well as causation. The United States rejected the claims, arguing that it had complied with all the requirements of Article 6 of the ATC.

2. Panel Findings
The Panel supported the main claims of India, and made the following principal findings and conclusions:
o On burden of proof, the Panel found that since India was the party that initiated the dispute settlement proceedings, it was for India to put forward factual and legal arguments in order to establish that the US restriction was inconsistent with Article 2 of the ATC and that the US determination was inconsistent with Article 6 of the ATC;
o On the standard of review, the Panel found that its function was limited to making an objective assessment of the facts surrounding the application of the specific restraint by the United States, and of the conformity of such restraint with the relevant WTO agreements;o On the role of the TMB and DSU processes, the Panel concluded that its was required to make an objective assessment as to whether the United Sates respected the conditions of Article 6.2 and 6.3 of the ATC at the time of the determination by the United States;o On the substantive requirements of Article 6 of the ATC, the Panel found that the United States had not met its obligations, since of the eleven economic criteria mentioned in Article 6.3 of the ATC, no information or comment was provided by the United States in respect of productivity, inventories and exports;

3. Claims at the Appeals Stage
Although India agreed with the overall conclusions of the Panel, it appealed certain of its findings of law:
o on burden of proof, India contested the Panel's finding that India had the obligation to establish that the United States had violated Article 6 of the ATC, or that it had the obligation to present a prima facie case to that effect;
o on the relationship between the TMB and the DSU process, India asserted that the Panel's finding on TMB powers denied exporting Members two important procedural rights:the right to hold consultations on a proposed transitional safeguard action on the basis of specific and factual information, and the right to a review of a transitional safeguard action by the TMB.
o on the general powers of the TMB, India asserted that the Panel made statements giving the TMB powers that went far beyond those attributed to it by the ATC.
o on whether the Panel should have made findings on all the issues raised, India argued that the determination on the two issues that the Panel did not make findings on was necessary to resolve the dispute.
The United States disagreed with India's claims, arguing that:
o the Panel correctly required India to meet the burden of going forward with the evidence;
o the Panel's discussion of the TMB and its powers was mere obiter dicta, and that in any case nothing in the text of the ATC supported India's assertion; and
o the Panel did not err by declining to rule on all claims made by India.

4. Appollate Body's Findings
The Appellate Body upheld all the Panel findings under appeal. In particular:
o On burden of proof, it agreed with the Panel that it was for India to present evidence of an argument sufficient to establish a presumption that the transitional safeguard determination by the United States was inconsistent with its obligations under Article 6 of the ATC;
o On the relationship between the TMB and the DSU, the Appellate Body did not consider the comment by the Panel on this issue to be "a legal finding or conclusion" which the Appellate Body" may uphold, modify or reverse"; and
o On the issue of judicial economy, the Appellate Body agreed with the Panel that nothing in Article 11 of the DSU required the panel to examine all legal claims made by the complaining party.

5. Implications
The dispute provides good guidelines for developing relevant logics in the future disputes regarding the legal and economic issues as follows;
First, it is found that the party initiating a dispute settlement proceeding has the burden of putting forward factual and legal arguments in order to establish its case, while the defending party as respondent has the burden of demonstrating that it has complied with the relevant conditions of application of the provisions which it invoked.
Second, in establishing damages, all the relevant variables including those specified in the relevant provisions should be examined in order to provide an accurate picture of the dynamics of the industry concerned. In doing that, the reliability and representativeness of the data is crucial.
Third, in order to justifiably impose a restraint, it is crucial to establish that an increase in imports, not some other factors, is causing serious damage or actual threat thereof in the domestic industry. To prove it, it is strongly desired to make comparison between the current situation and the situation in the absence of the import surge, which may require econometric analysis to forecast future trends in various economic indices.

Present Condition, Problems and ProgressingDirection of Chinese State-owned Enterprises' ReformSuk-Heung Suh
This study arranges progressing process, present condition of Chinese state-owned enterprises' reform, and management state and performance of state-owned enterprises and investigates new progressing direction of reform since the 15th Party Conference.

Chinese state-owned enterprises have failed in changing management mechanism and improving management state in spite of various reform efforts made until now. So in the 15th Party Conference, Jangzemin, general secretary, offered general reform plan based on 'reform and reorganization'.

Its essential contents are as follows. The first is reforming traditional enterprise management system and management mechanism in terms of individual state-owned enterprise, making modern enterprise substance aiming market economy. The second is in terms of general state-owned economy reorganizing state-owned enterprise's arrangement stategically, Which is dispersed too widely. The motive of this 'reforming and reorganizing' comes from the recognition that state-owned enterprise is suffering from difficulty because of (1)state-owned enterprise's irrational management mechanism and (2)irrational arrangement of limited state-owned capital.

It is expected that from now according to this plan the changing into stock companies of the large and medium sized state-owned enterprises will accelerate. It must be true that the changing into stock companies of the large and medium sized state-owned enterprises will more clarify property-right relation and expand management autonomy. But the problem is suggested not only the simple expanding of stock companies but also how they will realize mechamism change that is, the original purpose of stock company.

In addition, it is expected that they will greatly reorganize state-owned economy and actively propel enterprises group fostering policy through the unification and M&A of enterprises. Especially China has set the goal at fostering five to ten international super-large enterprises groups. And also it is expected that such phenomena will be more full scale as bankruptcy of insolvent enterprises and changing into share-holding cooperative enterprises, selling or lease to private person of medium and small sized state-owned enterprises. It is expected that in this process by the inevitable lay-off of surplus employees, there will be considerable social agitation and trouble.

Stubborn defense of currencies depleting foreign currency reserves led to financial crises in Korean and Thailand. This resulted in both countries agreeing to implement restructuring and liberalization measures in exchange for much needed assistance from the International Monetary Fund and other international financial institutions. Since the outbreak of the financial crisis in 1997, both countries have continued to work closely with the IMF and have made great strides toward recovery.

Demonstrating the success of Thailand's response, many foreign investors have made significant recommitment or continued commitment to the country. Investment from the EU, the US and Japan have all increased lately. In addition to the improving prospects of the domestic economy, investors are drawn to the lower labor and raw material costs offered since the fall in the value of the baht.

The Bank of Thailand announced that foreign direct investment (FDI) totalled USD 7.6 billion in 1998, the highest level in the country's history. A total of USD 2.1 billion was invested in the banking sector, with the remainder going to the real sector. Of the USD 5.5 billion investment in the corporate sector, USD 4.5 billion went towards equity investment. Japan was the largest investor in 1998, accounting for one-third of total inflows into Thailand, followed by the United States with a 17% share and Hong Kong with a 9% share.

The industrial sector received 47% of non-bank FDI in Thailand, followed by 18% in trading and holding companies and 13% in financial institutions, mostly in retail banking. Investment in the machinery and transportation sectors accounted for 31% of total industrial investment in 1998, followed by 17% going to the oil refinery sector, 16% in the ferrous and non-ferrous metals sector and 9% in the petrochemical sector.

The majority of foreign investment to Thailand in 1998 was used to boost the the financial structure and efficiency of local firms. Almost none went towards increasing production capacity. This trend will likely continue until recovery has been realized and positive growth has continued for a number of years. Meanwhile, worries of a widespread takeover of key Thai industries by foreign investors have proved largely unfounded. In a survey of 50 leading industrial firms in Thailand, only 14% of foreign investment in 1998 was characterized as investment intended to rest corporate management away from domestic control.

To further take advantage of the benefits of foreign investment, in June 1998, the Thai Government announced a series of measures designed to help revive the economy by attracting increased foreign investment. Such measures would also indirectly improve efficiency and the competitiveness of Thai industries, and decrease unemployment through the creation of new jobs.

These measures included the relaxation of restrictions on the location of export promotion zones. Such zones, in which foreign companies targeting exports out of Thailand may set up operations and receive various incentives, may now be established anywhere in the country, with the local governments given largely free reign as to what incentives they want to provide. Foreign companies will be able to import most raw materials and other intermediary goods intended for exports, and also machinery using higher technology, duty-free. Meanwhile, guidelines governing the evaluation of expansion projects by foreign companies have been clarified. Such investment must surpass the former company's one-year sales by 80% and increase employment by either 500 employees or by 50% of the prior level. For projects meeting these criteria, an income tax waiver for 3 years will be provided if the project is located in the Bangkok area and up to 5 years for projects outside of the capital.

Applications for these expansion projects must be submitted to the Board of Investment (BOI) no later than December 31, 1999.Other amendments under the Alien Business Laws that will boost foreign investment and presence in the Thai export sector will also be studied and implemented. The BOI will cooperate with the public and private sectors to study which agricultural and agro-industry activities can be added to the list of activities in which foreign companies may be eligible to receive incentives. Research will be conducted to determine measures to encourage foreign companies to provide greater levels of training, engage in increased levels of research and development and to apply environmental protection measures more widely. An environment will be created to revive the real estate sector by enabling foreign companies to purchase a specified number of existing buildings, within a given time frame. The liberalization of BOI Investment Laws and Alien Business Laws will be implemented to ensure all of the above take place.Despite these increased incentives to foreign investment in Thailand, Korean direct investment in Thailand has continued to fall, while that of Japan and most advanced western nations increase. This is largely due to Korea's own credit crunch and falling credit ratings making finding needed financing impossible.

As for Korean companies already operating in Thailand, performance has varied according to the type of sales targeted. Broadly, export-oriented Korean affiliates in Thailand have outperformed those affiliates relying mostly on domestic Thai sales due to the domestic economic difficulties. However, even export-oriented affiliates have not escaped difficulties as financial support from their parent companies back in Korea has been substantially reduced, forcing them to often totally fend for themselves. Particularly, in the case of those exporters that must first obtain raw materials from Korea, troubles of the home-based companies have interrupted a smooth supply of raw materials.
Meanwhile, those companies relying on sales to the domestic Thai market have had to try to reverse strategies and increase export sales.

Overall, the coping strategy of Korean affiliates operating in Thailand is an increase in the localization ratio of production. However, Thailand shows the greatest promise of recovery among those Asian economies suffering from the financial crisis. Thus, to capitalize on the eventual revitalization of the economy Korean companies must maintain a Thai presence and implement and pursue new investment strategies vis-a-vis the country. However, such investment is unlikely to be implemented unless government support is forthcoming. Such support is exactly what Japanese government is actively providing its own country's firms operating in Southeast Asia. Similar action by the Korean government would ensure continued competitiveness by Korean firms in the region and prevent Koreans from missing out on the substantial opportunities provided by still promising potential of Thailand.

The introduction of the Euro and its impact on Korea-EU tradeChong-Wha Lee, Cheol-Won Lee, Hoo-Young Chung
The introduction of the euro will likely be the most influential event affecting the international monetary environment since the institutionalization of the Bretton Woods system. Based on the economic size of the euro area, its integration of the intra euro markets, and the commitment to a stable currency by member countries, the euro will eventually, if not immediately, challenge the dominant position of the US dollar in world financial markets.

Prospects are for a stable and strong euro. Supporting this view are the sound fundamental economic conditions of the euro countries and strong initial euro demand coming from the integration of European capital markets. Furthermore, European economic recovery beginning last year continues and to expected to last well into 1999. Euro countries in 1999 are expected to realize a current account surplus of USD 200 billion; whereas the US is expected to run a deficit of more than USD 250 Other factors spurring robust euro demand will be the European Central Bank (ECB) billion. placing top priority on price stability. Thus, the ECB is likely to follow the anti-inflationary policy of the German Bundesbank.

Among the euro zone countries, the positive effects stemming from the euro will be summarized as follows. The elimination of transaction costs and hedging costs will increase the amount of internal trade. Price transparency in goods, services, capital, labor markets will increase and accelerate the unification of the markets and this will enhance competition among firms. The euro making pricing comparisons of all products sold inside the euro area instantaneous will boost competition and cause prices to merge at levels likely lower than existed in the pre-euro days.

The euro will increase competition among financial institutions as it pressures the area's financial markets to unify. Assurance of one interest rate and one exchange rate will boost euro-wide financial market activity as both liquidity and merger and acquisition activity increase. In addition to the increased interest of investors within the euro in financial markets, foreign investors are also expected to show higher interest in the euro area market.

The ECB will be in charge of EU-wide monetary policy whereas fiscal policy will remain under each individual member's control. Therefore, in case of symmetrical shocks, such as a fall in oil prices, an EU-wide response is needed to respond to the changed financial conditions and the member countries will normally rely on the ECB's single monetary policy. The recent(3rd December 98) interest rates cut in the euro area adopted to respond to the growing world economic crisis is one such example. However, when asymmetric shocks occur, such as the unification of Germany, and changes are only needed by individual members, then that member alone will implement the needed fiscal measures.One of the largest potential disagreements within the euro area may center around the proper exchange rate of the new currency. The ECB prioritizes price stability above all else. Meanwhile, the currently left-leaning governments dominating major European capitals want to see policies that prioritize job-creation. Based on last month's lowering of interest rates, it seems as though the job-creationists currently have the upper hand as the ECB was coerced into lowering interest rates.
As for exchange rates, again conflict arises between the ECB, which favors a strong euro, and individual governments, which are more concerned with maintaining the competitiveness of exports. However, both the ECB and the individual euro area governments are more concerned with intra euro conditions than with international factors. Thus, the euro exchange rate will not be given a high priority in economic policy making. This 'benign neglect' may lead to high fluctuations between the euro, the dollar and the yen.

Yet another area of conflict between euro authorities and individual member governments is the 'growth and stability pact' which will subject any country with a budget deficit exceeding 3% of GDP to fines. As individual euro members may now only rely on fiscal measures to deal with domestic problems, many euro members find this measure too restrictive. While economic conditions are currently relatively benign in Europe, once recessions hit, the 'growth and stability pact' is highly likely to be a hotly debated topic.

The goal and indeed the likely effect of the euro is stronger European growth and in the long-run, the region's demand for import will likely increase. However, as intra-euro competition increases due to the previously-mentioned factors, thereby boosting the competitiveness of euro firms, the area's exports are also likely to increase, pushing a number of non-euro exporter aside.While in the mid- to long-term, the introduction of the euro will likely boost European growth and thereby korean export opportunities in the region, in the short-term, Korean firms are likely to be challenged by the changes in euro trade structure. Furthermore, as intra-euro area competition heightens, this may further increase the use of anti-dumping measures against korea. Thus, even if the euro proves to be a strong currency relative to the won, in the short-term, the euro area will likely prove to be a difficult market for Korean exporters.

The combined domestic market capitalization of all 15 EU equity markets is currently half of that in the US. However, this gap will surely narrow as the huge European market is largely unified under the euro. Futhermore, a leading factor behind the preference for dollar denominated securities in international trading is the currency's low exchange rate and interest rate volatility.

However, as liquidity and size of the European financial market increase, the euro's interest rate and exchange rate volatility will likewise decrease.As European financial market instruments are to grow more advanced and numerous, the interest of European investors in investment products outside of conventional bank deposits and loans will certainly increase. This increased sophistication of euro investors, compounded by the likely higher economic growth for the area, portends higher foreign direct investment by euro countries. To capitalize on this opportunity, Korean firms and financial institutions should accelerate ongoing reforms and implement a transparent system that will lure the optimal amount of euro investment.

Ultimately, the euro is expected to decrease the international dependency on the dollar as a currency of settlement, especially in Eastern and Western Europe and in Africa. Thus, the Bank of Korea should prepare for the increased euro usage by increasing the share of euros in its foreign reserves. The central bank of China currently keeps 60% of its foreign reserves in dollars and 15% each in deutsche marks and yen. However, China plans to change its foreign reserve holdings to 40-50% in dollars and 30-40% in euros. In addition to public institutions, private financial institutions must also alter the composition of their portfolios based on the future importance of the euro. As the euro is likely to be a strong currency, the tendency is to denominate assets in euros and debt in dollars. According to the German Deutschebank, in the long term, 30-40% of world financial assets will be denominated in euros and the share of euros in the foreign reserves of the world's central banks will amount to 25-30%.

In raising the level of euros in its reserves, Korean public and private entities should give strong consideration to issuing euro denominated bonds as the euro will likely continue to have low interest rates. International organizations, such as the Asian Development Bank(ADB), is considering a large euro exposure and the government of the Philippines is considering issuing USD 50 billion in euro denominated bonds.

While it would be premature to conclude that the euro will soon gain stature in international markets equal to that of the dollar, the euro is off to a strong and promising start. Furthermore, major international financial institutions have implemented or are on the verge of implementing major buy orders for the currency. Korea should not allow itself to be forced into a catch-up policy concentring its euro policy. Instead, Korea must rise to the challenge to realize the benefits the advent of the euro can bring.

TILF and Ecotech have been pursued in an unbalanced way during the APEC's development. While developed economies emphasize the role of the private sector in promoting Ecotech, developing economies argue that governments should also play at least a complementary role in order to maintain the momentum of the APEC trade and investment liberalization process (TILF) that has accelerated recently. Redirection of developed economies' ODA policies in favor of APEC could alleviate financial limitations of Ecotech, promoting many concrete and practical programs and balancing Ecotech with TILF. In this context, we have discussed the possibility of the existence of a positive link between international trade and aid. Also, a recipient economy's tariff can be reduced by more aid. Empirically, we found that donors with high export/GNP ratios provide less ODA to recipients with smaller export shares. While all donors provide more ODAs to recipients with lower per capita income, except the U.S., Japanese ODA policy is directed toward APEC and France and German are against it. The U.S and U.K have no particular favor or disfavor on the APEC.

Therefore, as further liberalization of TILF programs will bring about higher trade interdependence, more aid from APEC developed economies could not only improve its own welfare but also promote APEC liberalization process. An obvious implication is that strengthening of Ecotech through more ODA toward the APEC and acceleration of TILF are mutually re-enforcing.