The purpose of this study is to discuss about the economic and financial integration after the reunification of North and South Korea. The discussion mainly focuses on the financial policy tasks and responses the two Koreas should take, presupposing the North Korea’s economic situation at the final stage of the interim separated operation period. The more the economic situations of North and South Korea differ, the higher the cost would be for the integration; because the shock to the two economies will be so asymmetric that policy measures could hardly be unified. Moreover, the use of single currency may cause economic instability and generate loss, since both Koreas will not be able to use the currency that best reflects their own economy and have to abandon the autonomy of monetary policy. Then yet, oppositely remarking: the more the economic situations of the two Koreas resemble, the greater the benefits are from the economic integration and single currency use. Thus, as Optimum Currency Area (OCA) theory suggests, the proper time to terminate the interim separated operation is when the economic similarity of the two Koreas surpasses the threshold where gains and losses from integration coincide.
  In this paper, I propose policy directions and tasks for monetary and exchange rate policies in the period of integration, including the exchange rate policy, monetary policy operation, security of external soundness and foreign exchange prudential, and safeguards against crisis. Looking into detail, the exchange rate of North and South Korea’s currency will be decided upon the arbitrage rate at the termination of the separated operation; however, adjustments should be made considering the economic gap between the two economies as well as their market situations. And in the end, the rate should follow the floating exchange rate system. As for the monetary policy operation, the Bank of Korea should overhaul the correct functioning of the policy paths by taking charge of both economies and use open market operation to set the base rate in a bid to achieve price and financial stability.
  In order to manage the macroprudential risks in the process of integration, it is necessary to strengthen the foreign reserves considering the foreign debt level of North Korea, foreign currency outflow due to integration, and the second-tier foreign reserves. At the same time, we need to keep a keen eye on the moral hazards of financial companies and possibility of deepening risks. As for regulating the foreign exchange soundness of financial institutions, the authorities should impose stricter foreign currency LCR regulations to South Korean banks and non-financial institutions. In case of North Korean financial firms, we need to take a more careful approach in consideration of their financial standings and local economic situation. And since financial market instability and mass capital outflows, resulting from the North Korean financial companies’ insolvency and lack of capital adequacy, may occur at any time during the period of integration, safeguards such as the capital transaction permitting system should also be established.
  In regard of the financial industry integration, I first review the basic policy direction, regulatory supervision system, and regulation method; then discuss about the main policy tasks and responses regarding the financial market and corporate restructuring, policy finance, small loans, and financial consumer protection. The basic policy direction aims to provide efficient financial intermediary services and real support in response to new environmental changes, while building an environment that could effectively overcome potential risks and accumulate financial assets internally. In order to do that, the following should be accompanied: the improvement of regulatory supervision system, internal change by financial businesses, liquidation of insolvent corporates, frameworks for restructuring, and revision of policy financing system. In particular, given that economic participants of North Korea do not have much experience in financial services consumption, policies should concentrate in enhancing the financial accessibility and improving the financial consumer protection.
  No one can be so sure of the economic and financial situation of the two Koreas at the terminating moment of the separated operation. Therefore, the key to the economic integration is to maintain fiscal soundness while eliminating the difference in financial structure between the two Koreas and strengthening the local autonomy. This is also in line with the vision of Decentralization Roadmap as well as that of the federal system, which is currently being pursued for the local autonomy in South Korea. In order to build a comprehensive system for fiscal decentralization and local finance which not only well reflects the regional uniqueness and diversity but also well balances autonomy and responsibility, we need to integrate financial systems, such as taxation and tax administration, and secure financial stability by regulating the public expenditures.
  The local finance system should be operated in a way to give practical support to the local government, not to regulate or control it. This can be accomplished through raising the predictability of local administration; so the central government should induce the local governments to prearrange the financial adjustments plans. Moreover, taking into account the change in public expenditure structure and tax environment, such as social overhead capital investments and social security budgets, we also need disciplinary devices to control the fiscal deficits of North Korea and crisis resolution mechanisms. In case the financial situation of North Korea deteriorates, the central government should shore up funds to improve financial conditions, and there should be disciplines and interventions to reduce fiscal deficits or achieve fiscal balance. Thus, it is necessary to develop guidelines for fiscal rules and financial autonomy of local governments, in relation to financial crisis prevention and crisis intervention. 

The Chinese economy has moved away from its past high speed growth rate of 10% per year, and begun to grow at a more moderate rate between 6 and 7%. This slowdown in the growth rate is due to changes in the domestic and international economic environment, which have led to weaker contribution from manufacturing industries, exports and investment, elements that drove China’s economic growth in the past. However, China is actively pushing for a shift in the growth paradigm by responding swiftly to the new economic environment, and continues to show growth in the middle range. In particular, due to the policies for fostering the service sector, the service sector is rapidly replacing the status of the manufacturing sector, and thus the growth speed, economic structure, growth engine, employment and overall economy are being driven by the service sector.
  The Chinese government is pushing for the opening of the service sector and fostering the producer service industry through its 13th Five-Year Plan. Aiming to realize these goals, this China emphasizes a high level of open market and external cooperation, and focuses on the development of the service industry and the expansion of the service trade as it did in the past by opening policies.
  China’s service trade volume was estimated to reach $657.1 billion in 2016 and exceed $1 trillion in 2020. Among Korean exports to the mass market, the share of service exports is growing from 9.7% (2011) to 14.5% (2016), and China has emerged as Korea’s largest service market and largest service trade surplus country since 2013. The fact that China’s service trade and Korea’s exports of services to China are both expanding rapidly should serve as an opportunity to increase the role of Korea’s services trade with China in the future.
  This study seeks to explore new export engines that can boost trade in the services sector. To this end, the study examines ways to boost services trade with China based on an analysis of industries and regions with good prospects.
  In Chapter 2, a statistical analysis was performed along with an analysis of major policies to study the development of Chinese service trade at various degrees. China has announced its plans to operate a Service Trade Innovation pilot area. Together with the 13th Five-Year Plan for Service in Trade Development, these measures designate key regions that can lead service trade development and carry out pilot policies. It has also introduced a “catalogue for guidance of foreign investment” and free trade zone policies to identify China’s diverse policies and systems reforms.
  Statistics show that China’s service trade has increased 13.6 percent per year, far exceeding global service trade growth and the rate of growth for Chinese commodity trade. Korea’s exports of services to China are also growing amid China’s rapid rise in imports of services, suggesting that services cooperation with China could be a new opportunity for Korea. An analysis using the global input-output table showed that China was rapidly expanding its demand for knowledge-based services and producer services. However, since Korea is yet to secure comparative competitiveness in businesses other than wholesale and retail and real estate, it will urgently need to nurture such industries and secure comparative advantage.
  In Chapter 3, the status and policies of service trade, major barriers to trade and the levels of opening were analyzed for the medical, cultural contents and logistics industries. Foreign investment in health care is weak at 0.1%, but policies are being implemented to encourage foreign medical institutions to advance into China amid growing demand for medical services. In Korea, cosmetic surgery and dermatology have garnered high recognition, but future advances in medical care, internal medicine, examination centers and orthopedics need to be reviewed first. In the medical services sector, the China-Hong Kong CEPA has the highest level of openness.
  The market demand cultural contents is enormous in China but cannot be satisfied by China’s own ability to produce contents. Korea could consider moving ahead of the average growth rate of its cultural content market, such as for movies, animations, knowledge information, and music. However, since the Chinese government is very strict in its regulations on foreign cultural contents entering the market and the area is very closed to foreign direct investment, there are many restrictions on entering the market. Most of the services related to culture contents are classified as prohibited businesses in the “catalogue for guidance of foreign investment” and also in a separate positive list within the China-Hong Kong CEPA. In particular, it has recently been revealed that it is necessary to pay attention when entering the China market as it is widening the scope of its monitoring and standards for entry regulations, such as those regarding Internet contents services and mobile games.
  China’s logistics service trade has been growing at double-digit rates for several years, and is eager to invite foreign logistics businesses, occupying nearly 25 percent of China’s total service trade. The Chinese government is now emphasizing international cooperation in the field of advanced technology to modernize the logistics industry, especially since more detailed ways to facilitate exchanges of related technologies, products, standards and human resources have become necessary through intergovernmental cooperation. The areas with the highest demand for external cooperation to promote modernization of the logistics industry include cold-chain systems, logistics warehouses, transportation of chemicals and hazardous items, and e-commerce. In particular, although some local companies dominate the local logistics market in western China, the level of modernization is very low, so the initial focus should be for Korean companies to enter into the market and promote cooperation in the region.
  Chapter 4 analyzes the development of service trade, policy objectives in this sector, and major fostering areas in Guangdong Province, Beijing, Shanghai and Shandong, and analyzes the contents of overseas cooperation and opening policies customized to each region. First, Guangdong Province serves as a test bed for the opening of the service sector through the CEPA between China and Hongkong, and is an important benchmarking area for Korea. The original plan for Guangdong was to transition into a service-oriented industrial structure based on economic cooperation with its neighbor Hong Kong, but its focus has recently shifted to strengthening manufacturing competitiveness. As such, the area is highly likely to suggest to Korea that it is promoting the development of the producer service industry. Guangdong Province used the CEPA, free trade zones, economy cooperation platforms to push for the opening of China’s highest level of service to finance, cultural, and industrial R&D and design and professional services.
  Beijing is an area with a service-oriented economic structure and large service market, giving it an edge in the Chinese service sector and service trade in the area. In recent years, it has been nurturing service businesses that match the direction of development in Beijing and the strategic role assigned by the central government, such as culture, information technology and tourism. In particular, Beijing is pushing for a positive list of opening policies with the entire city as a service opening zone, rather than limiting this to specifically designated locations, such as free trade zones. In addition, the cultural service FDI is concentrated, and foreign investment characteristics in creating cultural contents have been allowed for the first time in China.
  Shanghai is China’s largest market for service trade and China’s first free trade zone test bed. Shanghai is well developed in logistics and transportation businesses to handle the world’s largest volume of commercial traffic, and it maintains an excellent level of corporate support and advanced management models. Shanghai manages the highest level of openness measures among Chinese free trade zones, focusing on finance, shipping, business, cultural, information technology and professional services, and has established a service trade system (service supervision and management, imports and exports, customs). New services such as in the areas of medical tourism, online education, e-commerce and remote traditional Chinese medicine services, have also been actively developed recently.
  Shandong Province has developed commodity trade at the three largest manufacturing bases in China, while service industries and service trade have been relatively delayed. Shandong Province has emphasized the development of new industries and service industries to improve labor-intensive manufacturing businesses, but still has a strong dependence on traditional service industries such as tourism, construction, logistics and transportation. However, recently, Shandong Province is considering Korea as an important partner for advancement of the regional industrial structure and development of the service industry. Shandong Province is a promising area for bilateral service cooperation in the medical, cultural and tourism sectors, for instance between Incheon and Weihai, which are presented in the Korea-China FTA regional cooperation chapter.
  Chapter 5 presents the policy implications and measures for expanding the service trade by compiling previous analyses.
  As for cultural contents, Korea’s level of openness is higher than that of China, meaning the Korean government should seek further concesions through negotiations. Currently, the BIT negotiations between the United States and China are underway with cultural contents and the Internet included on a negative list. This is the first time that China has chosen to classify cultural contents in the form of a negative list. Korea deserves to take a look at the examples provided by the U.S., especially when it comes to cultural contents, as it prepares to negotiate Korea-China FTA services. More specifically, Korea needs to closely examine the conditions cited by the United States as prerequisites for opening, and the reasons for its insistence on easing trade barriers, including opening measures accepted by China and infringing on intellectual property rights.
  China’s logistics industry is still experiencing high barriers to entry by specific business, such as air transport, water transportation, and passenger transportation; however, the CEPA concession is highly open and allows for independent or joint ventures in the Chinese market for some services that lack in supply. Shipping services have opened in the areas of ship management and inspection, container terminal services, port cargo handling, while air transport services have allowed a limited amount of independent investment for sales agents, arrangements services, handling and communication services, and the container facility management services, passenger and luggage services, luggage and friendship services, and apron services.
  Hong Kong has allowed joint ventures in some areas of inland water transportation services. In addition, in terms of road transportation services, China has refused to allow Korea to provide independent services for passenger transportation, but Hong Kong has eliminated all restrictions. Therefore, the above-mentioned application of the opening areas can be considered during the Korea-China FTA service and investment negotiations.
  It will be difficult to expect for the Korea-China FTA negotiations to lead to further opening in their respective medical service sectors, as China’s medical sector is more open than Korea and Korean medical service providers are opposed to the opening of the market. But Korea can request for China to apply the level of openness it allows to other countries. As China has allowed concessions for Hong Kong under the CEPA, Korean medical institutions can reduce their minimum investment in China from 20 million yuan to 10 million yuan, and Korean doctors can extend their short-term medical practice licenses in China for up to 6 years.
  It is necessary to take into consideration the negotiation system utilized for the China-Hong Kong CEPA when engaging in additional negotiations of Korea-China FTA services. The CEPA presents a pattern of implementing the best service opening measures for Hong Kong companies in Guangdong Province on a trial basis, after which the U.S. and China discuss whether to incorporate these opening measures into their bilateral investment treaty (BIT), followed by an opening throughout all of China. Also, the CEPA has recently been negotiating areas that are more effective, such as interconnection standards and laws in the service sector, negotiation mechanisms for resolving disputes and conflicts, and negotiation methods and plans in the Korea-China FTA service industry.
  In addition, the CEPA designates Guangdong as a test area, with a limited set of opening measures being implemented first. This opening method involves less risk than opening the entire Chinese market, allowing pilot projects to be carried out in various fields. Therefore, it is possible to consider taking preliminary test measures in certain areas of the two countries with the Korea-China FTA as well. In this case, the areas currently listed in the economic cooperation chapter of the Korea-China FTA, such as Saemangeum, Yantai, Yancheng, Huizhou, Incheon Free Economic Zone and Weihai, will be designated as the test areas.

 There has been increasing demand for new evaluation methodology to rigorously measure the causality between the results and activities in the development cooperation sector, and through this to contribute to development effectiveness. The impact evaluation is a method that can complement the shortcomings of former evaluation methodologies by rigorously measuring the impact of a project through an experimental approach. Unlike existing evaluation methods, the causal relationship between results and activity is measured by using scientific experimental methodology and econometric techniques. In addition, impact evaluation can reveal the main factors of success/failure of the development activity. Thus the result of impact evaluation can be used for future policy design and contribute to the establishment of evidence-based policy making.
  Two factors supported the rise of impact evaluation. First, awareness of the role of evaluation to enhance development effectiveness has continued to rise following the Paris Declaration. The Busan Partnership for Effective Development Cooperation in 2011 also emphasized the role of evaluation as a tool for accountability and learning, managing for development results, and eventually the input for evidence-based policy making in the international community. Second, development economists contributed to the rise of impact evaluation by developing rigorous evaluation methodology such as experimental and quasi- experimental methodologies in the setting of developing countries.
  Development agencies have begun to adopt impact evaluation to demonstrate the effectiveness of development projects. The World Bank, as a leading agency for development effectiveness, has conducted a number of randomized controlled trial (RCT)-based impact evaluations to reveal the causality between development projects and results, and to provide evidence for future policy making. The ADB, USA and Japan also recently reformed their evaluation systems and adopted impact evaluation to scientifically demonstrate the results of development projects. In comparison to other donor agencies, Korea yet lacks related policies or a system for impact evaluation. But there is an increasing demand for impact evaluation to establish evidence-based policy making and enhance development effectiveness in Korea.
  The goal of this study is to examine the trends, policies and issues of impact evaluation, and to draw policy implications for the introduction of impact evaluation in Korea's ODA evaluation system. To achieve this goal, this study first compares and analyzes the policy, evaluation system and various cases of impact evaluation from other donor agencies such as the World Bank, ADB, USA, and Japan. Second, we analyze the major issues related to impact evaluation in details. Three issues are raised and analyzed: evaluability assessment, methodology design, and feedback of the result. Third, we conduct an impact evaluation using clustered-RCT to assess the performance of a health project supported by the Korean government in Vietnam. Finally, we analyze the tasks for introducing impact evaluation into Korea's ODA evaluation system at the level of an ODA-integrated evaluation system and implementing agency. This study also proposes a mid- to long-term roadmap to reform Korea's ODA evaluation system.
  In conclusion, this study emphasizes the introduction of impact evaluation to improve result management and enhance the effectiveness of Korea's ODA. The first step for that would be to build knowledge about the importance of rigid evaluation among stakeholders. In addition, a bottom-up evaluation planning system should be set to plan the evaluation from the beginning of the project. In the short term, it is necessary to introduce impact evaluation to the fields of education, health, and agricultural as these are the fields in which impact evaluation can be carried out relatively easily, thus strengthening the evaluation capacity of Korea. In the mid- to-long term, a strategic direction should be set up to establish policies supporting impact evaluation and systematic result-based management. It is necessary to carry out impact evaluation for large flagship projects and new projects that need to establish an evidence-based policy making process. This strategic impact evaluation system will ultimately contribute to the development effectiveness of Korea's ODA. 

 As uncertainties increase within the global economic environment, the Korean government is enthusiastically seeking for a new economic growth engine through economic cooperation with Russia and the Eurasian countries. In particular, there is a growing need to expand the Eurasian trade network, based on an FTA with the Eurasian Economic Union (EAEU). In this context, building a new framework for industrial cooperation between Korea and the EAEU is strategically important. The Korean government should prepare a strategic plan to promote Korea-EAEU industrial cooperation, based on a comprehensive understanding of the industrial structures and policies of individual EAEU member countries.
  Based on this understanding, this study examines the key objectives and characteristics of each of the EAEU member countries’ industrial policies. Member countries show four characteristics in common. Firstly, they aim to foster high-tech industries by building the foundations necessary for the development of the manufacturing industry, along with promoting exports in the traditional industries. Secondly, they show closer attention to the development of alternative energy and smart power generation systems, in order to foster strategic industries. Thirdly, in line with development of the pharmaceutical industry, they place emphasis on biotechnology and new material development such as advanced biotechnology and nanotechnology. Lastly, they regard information and communication technology as one of the most promising growth engine industries, in preparation for the fourth industrial revolution. Likewise, the EAEU member countries are willing to strengthen their economic and industrial growth based on an industrial diversification strategy. In this regard, they have a common priority in four major growth engines: renewable energy, pharmaceuticals and biotechnology, information and communication technology, and food processing.
  When looking into the industrial structures of EAEU member countries, they are generally not competitive compared to that of Korea, but rather complementary, since they are concentrated in primary industrial products and the energy sector. In fact, the results of the RSCA and TSI analysis show that Korea and EAEU members are complementary in most of the industries and processing stages. Therefore, it is necessary to select promising fields for industrial cooperation, based upon consideration of future growth of the EAEU, as well as the strategies and competitiveness of the Korean economy. The promising sectors of industrial cooperation between Korea and the EAEU member countries include renewable energy, machinery, pharmaceutical and medical industry, aviation and space industry, IT, agriculture, and education.
  This study concludes with suggestions and strategies for industrial cooperation between Korea and the EAEU. Firstly, it is necessary to seek practical cooperation measures, based on understandings of the industrial policies of the EAEU as a whole, and those of individual member countries. Secondly, to formulate specific policy directions for industrial cooperation, it is necessary to establish plans for individual sectors through systematic analysis. Thirdly, to promote industrial cooperation, maintenance and efficient operation of the industrial cooperation system should be premised. Finally, Korea and the EAEU should establish a financial support system between the two economies, which will yield bigger opportunities and possibilities to cooperate in major industrial projects.

  The Paris climate agreement catalyzed international efforts to reduce greenhouse gas (GHG) emissions. Countries are actively considering various policy measures to reduce emissions themselves, as well as the external uncertainty derived from these emissions. In these circumstances, carbon pricing is a measure taken by many governments to regulate emissions from the private sector by imposing a price on emissions. As of December 2017, 42 countries and 25 local governments are levying taxes on carbon emissions, and this trend is likely to expand further.
  This study examines emissions and emission regulation policies in major countries. We further analyze various carbon pricing measures taken by the international community. Based on this analysis, we analyze the impact of carbon pricing on the global economy and derive implications for Korea.
  First, we compare the GHG emissions of major emitters, namely China, the United States, the European Union and Japan. During the review period (1995-2013), China pursued rapid economic growth, emitting GHG at a significantly increasing rate. However, this pace is slowing down recently. The U.S. and Japan show fluctuating GHG emissions during the same period. In the long-term perspective, emissions from the U.S. are at a declining rate. Likewise, the EU displays steady and visible decline of GHG emissions since 2006. These countries generate more than 80% of all greenhouse gases, mostly carbon dioxide, in the energy sector. In 2013, more than 95% of total emissions came from fossil fuels such as coal and petroleum.
  China is practicing government-led efforts to bring down its GHG emissions, for instance through the carbon trading system it piloted in 2011. The cap-and-trade system is practiced in seven regions including Beijing and is targeted to limit carbon dioxide emissions mainly. Based on this pilot, the government announced that it would expand the trading system nationwide. If realized, this would result in the world’s largest single market being formed. Furthermore, starting in 2018, the government will enact the Environmental Protection Tax Act, imposing monthly tax on activities that cause environmental pollution. Despite the adoption of various regulatory measures, Chinese measures to impose cost on GHG emissions are deemed rather conservative compared to other developed countries. The Chinese government refers to carbon emissions per GDP as the main index for environmental performance, whereas other developing countries aim to reduce their total amount of emission.
  The United States is undergoing radical policy changes since the inauguration of President Trump. President Trump has pledged to review or abolish greenhouse gas emission reduction policies set by the preceeding administration, including the Clean Power Plan. Consequently, the federal government is unlikely to pursue policies which would regulate heavy emitting industries. On the other hand, state-level emissions trading schemes such as California’s cap-and-trade system and the Regional Greenhouse Gas Initiative (RGGI) are noteworthy. Introduced in 2006, the California cap-and-trade system officially linked its emission trading with Quebec, Canada in 2014. California seeks to expand the emission market, and thus stabilize the price of emission credits, and to expand the targets to be regulated. Initiated in 2009, the RGGI is a joint initiative of nine northeastern states, targeting coal-fired power plants with a capacity of over 25MW. The Initiative aims to cut down carbon dioxide emissions produced by the power sector by 50%. The RGGI stabilizes prices through measures such as offsetting, price floor, and emission reserves.
  As the world’s first and largest emission trading system, the EU ETS regulates about 45% of GHG emissions in the region, as of 2016. The EU ETS has announced a four-phase transition plan from 2005 to 2030, stipulating emission caps to power plants, energy-intensive industries, and aviation. Thirty-one countries with varying income levels participate in the EU ETS. Compared to other trading schemes, the EU ETS specifies a relatively long implementation period (4-9 years). In addition, the system regulates more diverse sectors when compared to the U.S. regional trading system. Despite the fluctuating price of carbon credits, the EU ETS is valuable for it aims at regulating GHG emissions in a large geographical environment, including countries with different income and technology levels.
  Since the adoption of the Kyoto Protocol in 1997, Japan has made assiduous efforts to reduce GHG emissions, especially through energy- efficiency measures. In 2005, voluntary emission trading began in some regions. However, this is mandatory only in selected areas such as Tokyo and Saitama prefecture. Tokyo-ETS is the first emission trading system in Asia. It regulates energy-related carbon dioxide emissions from roughly 1,400 facilities, including office buildings. Furthermore, Japan employs a number of policy measures to reduce emissions from households and offices. For instance, it introduced a carbon tax named Tax for Climate Change Mitigation in 2012, which is deemed as the first carbon tax scheme in Asia. Japanese awareness on carbon emissions and the environment has also matured during this period.
  This study categorizes the various approaches to imposing price on emissions into three types. The first type of approach is the assumed cost of emission used when countries undertake a cost-effectiveness analysis prior to introducing carbon reduction policies. One of the examples is the Social Cost of Carbon estimate presented by the United States. With an inter-governmental working group (IWG) composed of experts, the United States calculated the cost of emissions using a climate-integrated evaluation model. On the other hand, the United Kingdom considered marginal abatement cost (MAC) in a “target consistent approach.” One other example surveyed the value of carbon emission in twenty-three OECD member countries. According to this survey, the average carbon cost (per ton of carbon dioxide) by 2020 is projected to be USD 66 for the transportation sector, USD 47 for energy, and USD 69 for other investments.
  Secondly, we categorized carbon pricing schemes and effective carbon prices as the second set of approaches utilized to impose a price on carbon emissions. We reviewed carbon pricing schemes such as emission trading, carbon tax, carbon offset, and result-based finance. We also reviewed “effective carbon rates (ECRs),” an assumed price on carbon which combines both carbon pricing and energy taxes. In 2016, the OECD established the term and produced its first review on the ECRs in forty-one countries. According to the report, the countries lacked a price-bearing mechanism on 60% of the carbon dioxide emissions from the energy sector. The adequate emission price of EUR 30 was imposed on only 10% of the emissions. The remaining 30% of the emissions were priced between EUR 5 to 30. In Korea, ECR is imposed on 88% of the carbon dioxide emissions from the non-road sector. This figure is among the highest of the surveyed countries. However, the average price imposed on carbon emissions is moderate at EUR 9.76.
  Finally, internal carbon prices voluntarily implemented by major global companies are divided into internal carbon tax, potential price, and implied price. CDP is an NGO which compiles and publishes climate change-related information from major global companies. According to the CDP report in 2017, the number of current and potential bearers of internal carbon prices reached roughly 1,389. The ratio of corporations introducing such prices has increased rapidly since mid-2010. Such a trend implies that companies are preparing for potential risks presented by climate policies, and are seeking new opportunities that may arise during the transition to a low carbon economy.
  In the following section of our report, we analyzed impacts on the domestic and international economy when major countries introduce GHG emission policies. In the scenario where carbon tax or emission costs increased in certain countries, carbon emission as well as production in the countries plummeted. Such a measure is likely to urge companies to turn to less carbon-intensive production. However, the global influence of such measures is deemed as marginal. In the second scenario, we assumed that major global economies implement the same policy (carbon tax fixed at EUR 30, coverage extended). As a result, the production and welfare increase in the U.S. and China is likely to be greater than other countries, including the EU, Japan, and Korea. In order to reduce global carbon emissions by 30%, we estimate that all countries should increase carbon taxes by EUR 8.2. Moreover, we estimate that Korea must increase its carbon tax by 50.1% if the country wishes to achieve its 2020 emission target. The analysis suggests that individual governments’ policies are insufficient to meet the global emission reduction target. That is, major countries must align their GHG reduction policies, while individual countries transform into low-emission industries and achieve technological innovations.
  In the final chapter of the study, we present ideas on how to adequately respond when the global community adopts carbon pricing. First, we suggest for private firms to voluntarily set carbon emission prices and disclose relevant information. By setting high levels of internal carbon prices, including but not limited to carbon credits, companies can reduce carbon emission and prepare for potential carbon pricing policies at the same time. Furthermore, private firms should make available climate- relevant information so that investors can consider this in decision- making.
  Moreover, we highlight the need to establish specialized agencies for climate-related investments, and to facilitate the use of financial instruments in such investments. Many countries have recently established specialized entities to enhance the effectiveness of climate-resilient investments such as green investment banks. Korea could also review the potential establishment of such specialized entities and at the same time seek out measures to support relevant investments, for instance through green bonds.
  Finally, we recommend that the government increase climate-related support to developing countries, especially considering the potential to introduce emission trading systems. In the near term, we should share our experiences while expanding related businesses. In the long-run, we could explore possible carbon market linkages. These efforts can be made in conjunction with policies to foster the development of partners vulnerable to climate change, to extend competent Korean businesses globally, and to seek out opportunities to enhance private sector participation in international development activities. 

Contents

Executive Summary

Chapter 1. Introduction

Chapter 2. Key Economic Decisions in the Course of German Unification
1. Overview
2. Focus on support for the modernization of physical capital
3. Privatization - The case of the SME campaign
References

Chapter 3. Restructuring of Industrial Enterprises in the Course of Privatization in East Germany
1. Introduction
2. Restructuring in the context of privatization in East Germany
3. Restructuring cases in East Germany
4. What do the cases under consideration show?
References

Chapter 4. Restructuring Policies in the Process of Privatization: The Case of Jenoptik
1. Privatization and Restructuring of Enterprises
2. Case of Jenoptik AG
3. Factors of Success
4. Policy Implications for a Unified Korea
References

Chapter 5. Internal Migration in East Germany After Reunification: Demographic and Economic Effects
1. Introduction
2. Three phases of East-West migration after reunification
3. The revival of major East German cities
4. The shrinkage of peripheral areas in East Germany
5. Conclusion
References

Chapter 6. Convergence Between East German Regions and East-West Migration
1. Trends of regional (in-)equality in East Germany since unification
2. How to explain the facts
3. Conclusions
References

Chapter 7. The Korean Labor Market after Reunification: Internal Migration and Unemployment Rates
1. Introduction
2. Literature Survey
3. Economic and Demographic Structures of the Two Koreas
4. Empirical Analysis and Forecasts
5. Conclusion and Policy Implications
References

Chapter 8. Analysis of Germany’s Social Security Integration for the Integration of the Social Security System in a United Korea
1. Analysis on the Integration of Germany’s Social Security System
2. Implications of the German case for the integration of a united Korea’s social security system
3. Policy suggestions for the integration of a united Korea’s social security system
References

Chapter 9. Cost and Financing of Unification: Implications of the German Experiences for Korea
1. Overview
2. Cost and financing of the German reunification
3. Implications for Korea
4. Conclusion
References

Contributors 

  The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
  The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
  In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
  In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
  In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand. 

  It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
  This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies. 

  The international trade policy environment has deteriorated continuously over the past few years. The world economy witnessed a continuous increase of protectionist trade policy measures in may countries, especially since the outbreak of the 2009 Global Financial Crisis. In addition, the still on-going Eurozone’s Sovereign Debt Crisis has led to substantial weakening of EU member states’ purchasing power, thereby contracting their overall import demand. The newly-launched Trump Administration of the US has consistently implemented ‘America-first policy’ and ‘unilateralism’ in its pursuit of external economic policies, thus further jeopardizing the international trade environment that had already been suffering from a number of threats mentioned above. Especially, the US cancelled its signature to the already negotiated Trans-pacific Partnership (TPP) agreement, and successively started to implement Trump’s promise of either cancelling or renegotiating a few seemingly unfavorable trade agreements, such as the NAFTA and KORUS FTA. All these have shattered the stability of the multilateral global trading system, which has long been supported by the strong leadership displayed by the open and liberal trade policy of the US.
  The ‘egoistic’ trade policy of the US has had deep impacts in the global trading system on the one hand, and the trade policies of many countries on the other. Partly influenced by the US move, many countries, regardless of their level of economic development, have resorted strongly to trade protectionism over an extended period, and did not yet come back to their traditional trade policy line. Even the G20 countries, that are supposed to show exemplary economic and trade policies, have been unable to keep their frequent promises to standstill and roll back protectionist trade policy measures. The soaring of ‘Isolationism’, which was expressed most impressively by the Brexit decision of the United Kingdom, is an additional factor that has the potential to further suppress the global economic and trade environment. The world economy will receive a big blow if more countries want to pull their membership out of the EU, and therefore has been watching the process of Brexit negotiation with great interest.
  On the other hand, the following two new developments are calling for more dedicated policy responses worldwide: Firstly, we have been observing an increasing fragmentation of production activities based on the expansion of 'global value chains'. Secondly, the policy of 're-shoring' with the view to expanding their economic growth potential has become increasingly prevalent in the world economy. The emergence of China as a leading economic powerhouse and ‘Make in India’ initiative of the Modi government are only two of many compelling outcomes of this new trend, which has therefore been posing enormous challenges to Korea’s road to achieving the path of sustainable development.  
  With the overall theme of 'Korea’s new trade policy direction under changing international trade environment,' this study pursued to provide policy consultation to the question of 'how can the Korean economy and more specifically Korea’s trade policy address the continuous weakening of locational advantages caused by the challenges mentioned above?' For this purpose, Chapter 2 of this study characterizes main features of recent changes in the world economic and trade order. A strong focus was given here to the analysis of the trends and implications of ‘global value chains (GVCs)’ and ‘re-shoring’, as well as the changes in the multilateral and regional trading system. Chapter 3 then was devoted to the detailed investigation of new developments in US trade policy and the proliferation of the new protectionism, which have been identified as most significant threats to the outward-oriented economies like Korea. Based on the analysis  of chapters 2 and 3, Chapter 4 identifies five challenges facing the Korean economy that bear relevance to trade policy. Based on the insights earned through the previous chapters, Chapter 5 developed the basic framework for the future direction of Korea’s trade policy. Especially, this study presented 3 long-term visions for Korea’s trade policy: ① establishment of an advanced structure of Korea’s trade policy, ② adoption of an inclusive trade policy, and ③ trade policy contributing to the stability of international trade order. Based on these three visions, the research team successfully derived five trade-policy tasks and 9 actions plans. Main rationales and contents are detailed in the report. 

  Urbanization is expected to accelerate in India in light of the rapid economic growth that has proceeded in recent years. The urban population in India is estimated to grow more than twofold by the year 2050. As urbanization progresses due to the urbanization policies carried out by the Indian government, the cities are expanding their power consumption, water supply, public transportation, communication, waste disposal, and residential convenience centers, as well as expanding their consumption markets. Against this backdrop, this research examines the process of urbanization in India and its urbanization policy, going on to analyze the relationship between urbanization and economic growth. Then this study looks into the changes in consumption and energy demand and the urban infrastructure investment that accompanies urbanization. Based on these analyses, this research suggests political directions and tasks in the urban development cooperation between Korea and India.
  The government of India is actively promoting urban development policies, such as building 100 smart cities by 2022 and rejuvenating existing cities (AMRUT), using urbanization as a driving force for economic growth. In addition, the Indian government is strengthening its efforts to resolve the existing problems of urban development by decentralizing power from the central government to the state and municipal governments, and engaging in a bottom-up style of urban development.  
  Analyses of the relationship between urbanization and economic growth indicate that urbanization causes economic growth, especially more so for medium-to-large size cities with more than 1 million populations, rather than megacities. This suggests that India needs a strategy oriented toward promoting urbanization in medium-to-large cities, as well as a strategy to resolve inefficiencies of urbanization in megacities such as Mumbai, Delhi, Kolkata and Chennai.
  The research analyzes the impact of urbanization on total household consumption, energy consumption and infrastructure investment in India based on the Divisia model and estimates market size by sector expected to be created by urbanization. The results show that in 2030, the market size for consumption, energy, and infrastructure is expected to reach about 470 billion in dollars. The consumption market, including residential and food, is expected to reach over 200 billion dollars; the energy market, including coal-fired power, will grow to about 260 billion dollars; and the infrastructure market, including communication and roads, is expected to reach over 7 billion dollars. All results are calculated by fixing the ratio of urban to rural income to the current ratio of 65:35. Therefore, in the case where the urban income rate grows bigger, or the urbanization rate faster, the size of new market creation by urbanization is expected to be even bigger. 
  As mentioned above, urbanization in India has generated enormous demand in various fields. In order for the Korean government and enterprises to utilize such demands, this study presents the following mid- to long- term cooperation directions. First, the two countries should strengthen their win-win cooperation in the urban development sector. India can utilize Korea's diverse urban development experiences to accelerate its own urbanization and economic growth, while Korean companies can take advantage of new Indian markets created in the process of urbanization. The two countries can utilize platforms such as bilateral summits, sector-based ministerial meetings, and Korea-India talks on improving the CEPA to strengthen cooperation in urban development. Second, different types of support should be used for different projects. In fields such as consumption markets, overseas expansion of hospitals, and product exports, the private sector should be at the center of cooperation. For projects that require large-scale infrastructure or huge financial procurement such as railways, construction of new town or nuclear power plants, 'Team Korea (a team including the government, public institutions, and private sector)' could take the lead in driving the project. Third, it is necessary to strengthen the Indian state and city networks. India is a continental country that consists of 29 states and 7 union territories. In order to utilize India’s urbanization in the forms of economic cooperation or business expansion, it is necessary to strengthen relationships with Tier-1, 2 cities, which have a high possibility of establishing new cities.
  In addition to the three cooperation directions mentioned above, this study proposes the following policy tasks. The first is the establishment of the 'Korea-India Urban Development Cooperation Committee.' Currently, the Urban Infrastructure & Smart Cities Committee, under the Federation of Indian Chambers of Commerce & Industry (FICCI), is in charge of facilitating the participation of private and foreign companies in urbanization and smart city projects. It is necessary to establish its counterpart organization in Korea, in order to circulate information on India’s urbanization and the smart city trend in Korea and promote Korean companies’ participation. A representative private organization with sufficient experience in overseas cooperation—such as the Korea Chamber of Commerce and Industry—would be a proper candidate for the Korean counterpart.
  The second is creating a task force for the early execution of the financial package including the EDCF. In 2015, a financial package amounting to $10 billion, including $1 billion of EDCF (Economic Development Cooperation Fund), was agreed on during the Korea-India summit meeting, but so far no projects have been implemented. The Ministry of Strategy and Finance and the Export-Import Bank of Korea should organize a task force to actively carry out related business projects.
  The third is the proposal to develop a 'Korean Industrial City' centered on manufacturing. In 2014 and also at the 2015 summit, Prime Minister Modi requested the Korean government to participate in the Smarty City Project. At the upcoming summit meeting scheduled for 2018, Prime Minister Modi will very likely repeat his request for Korea’s participation. In response, Korea should actively propose plans for a 'Korean Industrial City,' a new form of city development that is promoted as a collective effort (i.e. as “Team Korea”) between the Korean government, public entities and private developers. Towards this goal, as many stakeholders as possible should be included, such as international development banks and financial institutions, to minimize development risks. It is important to achieve success early on for a moderately sized city, and then spread the model far and wide throughout the whole of India. 

  Since the beginning of full-scale economic reform and open-door policies in China, it has utilized external opening policies to promote economic growth and integrate itself into the global economic system. In recent years, China has been actively utilizing external opening policies as a means of accelerating domestic economic reform.
  Even after the official launch of the Xi government in 2013, China is emphasizing the promotion of its external opening policy through major documents released by the Communist Party and the central government. In particular, in relation to the promotion of free trade agreements (FTAs), China has declared the basic principle of 'establishing a high- level global FTA network' in its 'Decision on Some Major Issues Concerning Comprehensively Deepening the Reform.' In 2015, the State Council issued its 'Opinions on Speeding up the Implementation of Free Trade Zone Strategy,' thereby maintaining an active stance on the promotion of FTAs.
  Korea is an important partner in China’s external opening policy and overseas economic cooperation, and the Korea-China FTA is considered the most comprehensive and highest-level FTA signed by China. In addition, the Korea-China FTA is the first FTA signed by China which provides for economic cooperation. In particular, the inclusion of provisions on local economic cooperation (Article 17.25) and the establishment of a Korea-China/China-Korea industrial complex (Article 17.26) enhances the possibility of expanding cooperation with local governments.
  While FTAs are international agreements between countries, their implementation is largely overseen by local governments. Therefore, if Korea can cooperate with local governments in China to promote bilateral pilot projects that meet the economic conditions of the region, this would boost intergovernmental cooperation between the two nations. China is already pursuing pilot policies where local governments lead efforts to expand economic cooperation with signatory countries of FTAs that have been concluded. In other words, regions such as QinZhou, the Guangxi Zhuang Autonomous Region (China-ASEAN FTA), QianHai, Guangdong Province (China-Hong Kong CEPA), Pingtan, Fujian Province (China-Taiwan ECFA), among others, are implementing pilot policies for expanding economic cooperation with local governments and other countries based on FTAs that have been concluded. In particular, in the case of the QinZhou industrial complex and the QianHai cooperation zone, a top-level consultative body led by the central government has been formed for the smooth construction of the joint industrial complex, and the sub-committees that lead the actual development of the joint industrial complex have been organized with systematic cooperation already taking place. In addition, in establishing enterprises to promote joint development, China is having its local governments take a leading role in the joint development zones, while another characteristic of these projects is that state-owned enterprises under the local government are put in charge of most of the development. However, the Pingtan Comprehensive Experimental Area differs in that it has no formal cooperation channels between the two governments, and thus cooperation projects with Taiwan have not realized any significant success.
  Korea may consider selecting Shandong as the priority area for cooperation when seeking ways to expand economic cooperation with local governments through utilization of the Korea-China FTA. Shandong Province is an area with abundant experience in economic exchanges and cooperation with Korea, and currently has various types of pilot policies for economic cooperation, including the Korea-China industrial complexes in Yantai. In particular, Shandong Province has been actively promoting the construction of Korea-China industrial complexes and a demonstration zone for Korea-China local economic cooperation in order to carry out system reform in various fields such as trade, investment service and industrial cooperation. Based on these experiences, the Shandong provincial government is striving to establish the Shandong Province Free Trade Zone. In addition, Shandong plans to promote economic growth through aggressive foreign opening measures and diversified international cooperation during the period of the 13th Five-Year Plan. Shandong intends to strengthen economic cooperation between Korea and Shandong by utilizing the Korea-China FTA, and to promote reform, industrial advancement and international competitiveness.
  Considering that Shandong province is the most active in economic cooperation with Korea and has already been conducting economic cooperation with Korea for a long time, Korea should formulate plans to utilize Shandong as a base area for expanding the performance of the Korea-China FTA, and further develop a successful cooperation model. This requires a transition to a cooperation paradigm that fits the new economic environment. Labor-intensive manufacturing and SME- oriented cooperation need to be rapidly shifted to high-tech industries, high-tech and service-oriented cooperation in accordance with the demand for cooperation and policy directions of Shandong Province. The trade and FDI of Shandong Province are mostly concentrated in low-tech industries, putting the region somewhat at odds with the policy direction of the Shandong provincial government, which is currently pursuing industrial advancement. On the other hand, the trade and investment between Korea and Shandong is centered on high-tech industries with a high level of technology, which is in line with the advanced industrial structure and export structure of Shandong Province. In recent years, the Shandong provincial government has been pursuing various cooperation pilot policies like the Korea-China industrial complexes and demonstration zone for Korea-China local economic cooperation. These policy changes are in line with Korea’s demand to promote its economic cooperation with China to a new level with the conclusion of the Korea-China FTA. In the future, Korea should use Shandong as a base and test bed for economic cooperation with China, and expand the cooperation achievements and models in Shandong Province to all regions of China. 

  The first objective of this research is to observe the changes in the global trade environment, focusing on the trade protectionism after the inauguration of the Trump administration in the U.S., while examining the Japanese government’s response to such changes, thereby drawing implications for Korea. To be more specific, this research focuses on how the Japanese government responded to U.S. unilateral trade pressures in the 1980s and 1990s, and how Japan, based on this experience, proposed and formed the U.S.-Japan Economic Dialogue. This objective is addressed in Chapter 2 of the study. The second objective of the study is to examine the competition between Korea and Japan from the perspective of free trade agreements (FTA), and analyze Japan’s FTA policy and strategy, focusing on the ASEAN-Japan FTA (AJCEP), RCEP, Korea-China-Japan FTA, the TPP 11, and the Japan-EU FTA. This discussion is covered in Chapters 3, 4, and 5 of the study.
  Chapter 2, “U.S. Protectionism and Japan’s Trade Policy,” covers the surge of trade protectionism in the U.S. during the 1980s and under the Trump administration, and looks into the responding policy adopted by the Japanese government. The results show that the U.S. trade pressure on Japan in the 1980s prompted Japan to shift its trade strategy from a “mercantilist” trade policy based on export expansion to one focusing on direct investment or strengthening business partnerships between companies. In the field of semiconductors, this pressure by the U.S. acted as a decisive factor in deteriorating the global competitiveness of Japanese companies. Regarding the trade environment under President Trump, the Trump administration’s protectionist trade policy can be summarized as: 1) prioritizing domestic law over the WTO, 2) expanding import restrictions, and 3) renegotiating FTAs. In response to Trump’s protectionism, Japan has proposed a new form of trade council to be called the U.S.-Japan Economic Dialogue, in an attempt to evade direct and unilateral trade pressure from the U.S. The Japanese government’s “TPP-oriented” trade policy or its tendency to exclude exchange rate in trade talks are noteworthy in that they show Japan’s willingness to press for its profits.
  Chapter 3, “Japan’s Regional Trade Policy in East Asia,” examines Japan’s FTA policy and strategy for East Asia, focusing on the AJCEP (ASEAN-Japan FTA), RCEP and the Korea-China-Japan FTA. First, this study predicts Japan will continue to compete with Korea in the area of FTAs, based on the fact that the KORUS FTA and Korea-EU FTA concluded in 2010 had the effect of expediting Japan’s process of concluding the Japan-EU FTA and the TPP. Second, an analysis of the trade effects of Japan’s FTAs reveals that the AJCEP and Japan’s bilateral FTAs with ASEAN had the effect of increasing (in average) the total exports and imports, and mitigating the decline of Japan’s total trade that became conspicuous after 2012. In particular, the steel and automobile sectors, which the Japanese government had focused on to expand the global value chain of domestic companies, experienced growth in exports. Third, the study reveals that Japan’s FTAs contributed to strengthening regional production networks of Japanese companies in ASEAN countries. Both the proportion of Japan’s sales to the ASEAN-4 (Thailand, Philippines, Malaysia, and Indonesia) and the proportion of Asian regional procurement and sales increased after Japan concluded FTAs with ASEAN countries. Fourth, regarding the RCEP, this study emphasizes the need to adopt common concession and agree on a broader and higher level of tariff elimination than the ASEAN+1 agreements. At the same time, it also calls for the implementation of cumulative rules of origin to help Korean companies build production networks within the ASEAN and RCEP regions. Fifth, in relation to the Korea-China-Japan FTA, this study emphasizes the importance of: 1) publicly communicating the need for concluding the Korea-China-Japan FTA through strong political leadership, 2) adopting an rather than single undertaking, and 3) eliminating non-tariff barriers for trade facilitation.
  Chapter 4, “Japan’s Asia-Pacific Regional Trade Policy,” analyzes what Korea should consider when entering the TPP negotiation, based on Japan’s trade strategy as well as TPP 11 basic agreement. First, the political and economic background of Japan’s “obsession” with TPP, even after the exit of the U.S., is the fact that the original TPP agreement had almost satisfied Japan’s demand to “sanctify” the five agricultural products in Japan, and that the economic benefits of TPP 16 (including Indonesia, Philippines, Taiwan, Thailand and Korea while excluding the US) surpasses that of RCEP. Added to that is the TPP’s trade norms—including rules of origin, e-commerce, state owned enterprise, and intellectual property rights. As such, it is predicted that the Japanese government will maintain a very tough negotiating stance in the RCEP and Korea-China-Japan FTA, based on the TPP model. Lastly, the study points out the need to review Korea’s current tariff structure, should the Korean government wish to embark on a bilateral FTA with Japan, or participate in TPP in the future. Korea’s current tariff rates is relatively high compared to Japan’s, and this could greatly restrict Korea’s negotiating power vis-à-vis Japan when entering a negotiation with Japan. In addition, such an “asymmetric” tariff structure will inevitably end up increasing Korea’s trade deficit to Japan due to the phase-in tariff reduction and elimination.
  Chapter 5, “Japan’s EU Trade Policy,” examines Japan’s EU trade policy, focusing on the Japan-EU FTA concluded in December 2017. The results of the analysis are as follows. First, the Japan-EU FTA, together with the Strategic Partnership Agreement (SPA), is important in terms of strengthening the strategic and economic relationship between Japan and the EU. Second, a comparison of the commodity market access between the EU-Japan FTA and the Korea-EU FTA revealed that the immediate tariff elimination rate was higher for Japan (96% of industrial products and 54% of agricultural products) than Korea (90.7%, 42.5%), while in regard to the period of tariff elimination for automobiles in the EU market, Japan agreed for 2 years more than Korea. Regarding the opening of agricultural markets in Korea and Japan, both FTAs reached similar level of agreements. Third, a comparison of the non-commodity market access between the two FTAs revealed that for the service sector, the Japan-EU FTA adopted a negative list approach, while the Korea-EU FTA adopted a positive list approach. Regarding investor protection, the issue was hardly raised at all during negotiations for the Korea-EU FTA, while in the Japan-EU FTA, various investor protection measures were discussed but the two sides were unable to reach a consensus, as Japan insisted on adopting the ISDS system while the EU wished to adopt the ICS system. It is estimated that the adverse effects of the EU-Japan FTA on Korea will not be large in macroeconomic aspects such as GDP, consumer welfare, employment, etc. In industries such as automobiles, automobile components and electronic devices, however, some adverse effects are to be expected. It is also noteworthy to remember that the Japan-EU FTA includes certain sectors that were not discussed in the Korea-Japan FTA, such as corporate governance, agricultural cooperation, and SMEs.