The economic environment of MERCOSUR has been rapidly changing after the emergence of market-friendly governments in Argentina and Brazil and the possibility of starting negotiations for a Korea-MERCOSUR trade agreement is growing. This study is designed to respond to such circumstances and to provide a new breakthrough in the development of previously stagnant bilateral economic relations. The study focuses especially on cooperation among firms, which has recently attracted attention as one of the new cooperation measures between Korea and MERCOSUR.
  In line with these research objectives, the study consists of six chapters. Chapter 2 depicts MERCOSUR’s recent economic environment developments in depth. In addition, we review the results of MERCOSUR’s productive integration policy while considering the rapidly reorganizing international division of labor structure. Finally, we analyze the major changes in the MERCOSUR trade policy and present its future prospects after the emergence of a new government in favor of FTA policies in Argentina and Brazil.
  Chapter 3 explores and analyzes cases of cooperation between firms through which we draw implications for Korean firms wishing to cooperate with MERCOSUR firms. In particular, based on the inter-firm bridge model, the study divides the various types of cooperation into the categories of manufacturing/production, logistics/infrastructure, distribution/marketing, financial cooperation and R&D/technical cooperation.
  Chapter 4 uses quantitative analysis techniques to identify promising areas of cooperation between Korea and MERCOSUR. The study uses revealed comparative advantage (RCA) to identify potential areas of cooperation within the export sector between Korea and MERCOSUR, and the input-output tables provided by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) for the investment sector. In addition, the study proposes future cooperation areas based on MERCOSUR member countries’ level of participation in the global value chain and the level of product integration among the member countries.
  Chapter 5 suggests ways to invigorate cooperation among firms of Korea and MERCOSUR, compared to the current state of cooperation. First, based on the results of surveys conducted by industry associations in four countries, we analyze the cooperation demand, preferred cooperation method and proposals for the government. Then we summarize the results of the above research to elucidate ways to stimulate cooperation at the firm level, and suggest ways to support such cooperation at the government level.
  Finally, Chapter 6 summarizes the results of the study and suggests a comprehensive plan for strengthening cooperation between Korea and MERCOSUR. First, both governments and firms must swiftly recognize the rapid changes within the economic environment of MERCOSUR and prepare countermeasures. MERCOSUR’s two major countries, Argentina and Brazil, are facing major changes in the external trade environment such as the end of the primary product boom caused by slowing economic growth in China and the rise of protectionism within developed countries following Brexit and the Trump administration taking office, and are actively pursuing open policies to secure new growth engines. In particular, the upcoming EU-MERCOSUR FTA is expected to have a significant impact not only on the advancement of MERCOSUR’s foreign trade norms but also on the entry of firms to those markets from non-FTA nations. In the MERCOSUR market, the entry of Korean companies, which compete with their EU counterparts, may also be affected in the export sector, in particular due to tariff cuts. The Korean government and its firms should precisely identify and respond to MERCOSUR’s internal and external changes in the business environment, and prepare joint strategies to cope with such changes.
  Second, Korea should actively utilize the MERCOSUR Trade Agreement (TA) as a turning point in the development of the economic relationship between Korea and MERCOSUR. As the recession of the MERCOSUR member countries has worn on, interest in the MERCOSUR market by the Korean companies and the government has been in marked decline: the suspension of Korean Air’s Sao Paulo operations in September 2016 is one such symbolic event. The TA between the two, however, will be a boon to invigorate the importance of the MERCOSUR market in Korea and to revitalize stagnant cooperation. As we lack cooperation channels with MERCOSUR, we need to use the TA as a platform for expanding cooperation. For this purpose, it is necessary to stipulate a separate chapter of business cooperation within the FTA agreement and to use it as an institutional channel for future cooperation between companies from the two regions.
  Third, the two regions should build various forms of sustainable platforms for business cooperation. In previous surveys and interviews with companies from both sides, we have identified a high degree of interest in building business cooperation channels. However, most of the cooperation channels between the two regions are only temporary or one-time events. In order to meet the cooperation demands of both regions, it will be necessary to establish lasting, diverse channels of cooperation. A Korean Desk, for example, should be established within the investment promotion agencies of MERCOSUR countries to identify and help establish business partners among enterprises. A MERCOSUR Technology Innovation Center or MERCOSUR Export Incubator could also serves as helpful channels to support Korean SMEs with the technological capabilities necessary to enter the MERCOSUR market. In addition, it is necessary to establish a B2B cooperation platform with regional development banks, including the Inter-American Development Bank (IDB) and Development Bank of Latin America (CAF), which have large financial mobilization powers and business networks in Latin America.
  Fourth, a comprehensive cooperation strategy at the regional integration level is needed. Cooperation with MERCOSUR remains at the level of individual member countries rather than MERCOSUR as a whole. It will be necessary to pursue an integrated cooperation strategy in parallel with bilateral cooperation as a means to complement the gap between bilateral cooperation through multilateral cooperation at an integrated level. Deployment of integrated local currency payment systems between Korea and MERCOSUR, participation in the MERCOSUR production integration program, establishment of an export incubator targeting the MERCOSUR market and operation of a Korea-MERCOSUR business council are among the potential co-op initiatives that can be implemented across MERCOSUR.
  Finally, Korean firms need to establish a strategy to accurately understand and utilize the strategic value of business aspects present within MERCOSUR member countries and companies. In particular, in order to establish an entry strategy aimed at the MERCOSUR integrated market, it will be necessary to accurately grasp the characteristics of the market of individual member countries. For instance, though their value as end-consumer markets lags behind Brazil and Argentina, Paraguay and Uruguay’s potential as a production and logistics base for entry into the Brazilian and Argentine markets is relatively high. One example is THN, an automobile parts company aimed at the Brazilian market that has built production bases in Paraguay due to its simplified labor management and low wages. In addition to the diversification of target countries, a change in the paradigm of entry mode is required; we need to move beyond simple exports or investment measures to more sophisticated, collaborative relationships such as strategic alliances, joint ventures, and technical cooperation with local companies. Hana Micron’s technological cooperation and Dongkuk Steel-POSCO-Vale’s joint venture (CSP) are examples of new possibilities for cooperation between the two regions. 

  The global trade slowdown since 2012 is reputed to be very astonishing in that it was unpredictable in terms of the magnitude. This trade slowdown was cyclical in that it mainly resulted from the global economic recessions especially in China and Europe. Also, this phenomena can be explained by structural reasons such as the fall in the income elasticity of trade, that is, the rise in income does not contribute to the trade expansion as it used to. This study aims to investigate the structural change in global trade mainly using the world input-output database and to decompose the change in value added exports into three relevant factors.
  This study reveals that the composition of global commodity demand has changed in recent years and the share of intermediate goods to the total import has declined as the low economic growth rate, low price level, high interest rate, and high unemployment rate have dominated the global economy since 2012. Chinese re-balancing turns out to have reduced the demand for import from the world as China, the global factory, transitioned from an export-oriented development strategy to policy focusing on domestic demand. The global value chain turns out to have diminished since the global financial crisis, thereby contributing to the global trade slowdown. The non-tariff barriers such as anti-dumping duties, TBT, and SPS, among others, have been more prevalent in recent years while the average tariff rates in most of the countries have been falling since the mid-1990s.
  On the other hand, this paper estimated value added exports (VAX) by using the World Input-Output Database released in 2016, in order to analyze causes of the recent global trade slowdown. We also decomposed the change in value added exports into the three factors of value-added coefficients, change in input structure, and change in final demands. According to the results, the change in value added exports in Korea are largely explained by the change in input structure, and change in value-added coefficients. Since 2012, the increase in final demands has played a major role in the recovery of value added exports at world level, while in Korea, increase in input structure explains more of rise in value added exports. That is to say, the change in value added export is cyclical at the world level, while structural in the case of Korea.
  The findings of this study indicate that it is crucial for Korea to reinforce the core competence of domestic industries in line with the following. First, Korean industries need to diversify their export products and gear up for standardization of parts and materials, thereby pursuing preemptive industrial restructuring. Second, Korean industries need to strengthen the knowledge intensity of high-skilled labor and make the best of global value chains. Third, the Korean government needs to support processes to improve transaction practices and incentive systems for large companies and small- and medium-sized companies, thereby establishing a fair market mechanism. Finally, the Korean government will need to contribute to multilateral as well as regional trade liberalization. 

  2017 marks the 5th year of Kim Jong Un’s reign, and evaluating the economic performance during this period is meaningful in that by doing so we can measure the future direction of the North Korean economy. However, despite the great efforts made to survey the North Korean economy, there is still only a superficial understanding regarding its economic size, industrial policies, industrial situation, and factories.
  The purpose of this study is to provide a new type of perspective through analyzing new kinds of data to help evaluate the North Korean economy. To this end, we provide a comparison between the industrial policies of the Kim Il Sung and Kim Jong Il regimes and the industrial policies emphasized since Kim Jong Un came to power. We then analyze the North Korean import and export data by industry, technology level, and utility purposes. Finally, this research considers the changes in North Korea’s industrial policy and import and export statistics to assess the economic situation of North Korea and the outcomes of its industrial policy after Kim Jong Un’s incumbency, and predicts the effect of sanctions on North Korea’s economy.
  Specifically, Chapter 2 provides an analysis of the transition process of North Korea’s industrial policies and those that have been emphasized after Kim Jong Un came into power. Section 1 analyzes the implications of North Korea’s foreign relations development strategy in light of its industrial policy. We show how the establishment and emphasis of the three major policy lines for North Korean industrial policies (i.e., the policy of autonomous national economic construction, the policy of parallel development of economy and nuclear weapons (byungjin policy), and the policy of prioritizing heavy industry development while simultaneously developing agricultural and light industries) evolved based on changes in its external circumstances (e.g., the inter-Korean armistice, Sino-Soviet dispute, competition with South Korea, collapse of the socialist economy). Section 2 summarizes the industrial policies of the Kim Jong Un regime, and then identifies the commonalities and differences vis–à–vis the previous Kim Il Sung and Kim Jong Il regimes. Based on a content analysis of the New Year’s address and Rodong Sinmun, North Korea’s state media, as well as interviews with North Korean defectors and people who have visited North Korea, we explain the pragmatic nature of emphasizing short-term achievements and avoiding large-scale heavy industries investment, focusing on the parallel pursuit of economic construction and nuclear armed forces construction, which are the characteristics of the Kim Jong Un regime.
  Chapter 3 jointly analyzes the changes in industrial policy and import composition. Section 1 summarizes the industrial policies proposed in Chapter 2 and summarizes the various issues and solutions that can be raised when linking each industrial policy with changes in import composition. In addition to industrial policies, we also considered the proliferation of the market and foreign currency usage in North Korea, economic growth and increase of income, preference for science and technology (resource consumption and production cost reduction), and inflation. In Section 2, we analyze the changes in import composition with three methodologies. First, we analyze the characteristics of the change in imports from before Kim Jong Un’s leadership to the early years of his leadership. There are three time points in this respect: 2005 (during Kim Jong-il’s rule), 2010 (end of the Kim Jong-il regime), and 2015 (the beginning of Kim Jong Un’s rule). Group 1 consists of items whose imports decreased in both 2010 and 2015, Group 2 consists of items whose imports increased in both 2010 and 2015, Group 3 consists of items that increased in 2010 but decreased in 2015, and Group 4 consists of items that decreased in 2010 but increased in 2015. Industrial categories (grouped in 2 digit HS code levels) consist of twelve types - agriculture, fisheries, chemicals, electronics, wood, machinery, minerals, plastics and rubber, metals, clothing, transport equipment and others. Second, North Korean imports are analyzed in terms of changes in the share of intermediate goods, capital goods, and consumer goods. Through this, we confirm whether North Korea has succeeded in implementing the policies of localization and normalization of industry, which it has emphasized. Third, we analyze the technology level of imported goods in North Korea. The level of technology was analyzed from the three aspects of “change of technology level by industry,” “change of technology level by purpose of use,” and “change of technology level by both industry and purpose.” In short, North Korea shows the characteristics of industrial and technological development at a level similar to South Korea in the 1970s and 1980s. Through analyzing the level of technology in North Korean import goods, we discover how North Korea is utilizing advanced overseas technology.
  Chapter 4 analyzes changes in the composition of exports. In addition, we summarize the changes in industrial and trade policies prompted by changes in external conditions of countries similar to those of North Korea. Based on the above discussion, we also show how sanctions against North Korea would impact its economy. Chapter 4 differs from Chapter 3 in that exports are affected by factors compared to imports. While imports are affected by changes in domestic industrial policies, socioeconomic economic activities and consumption trends, exports are mainly influenced by external factors such as strengthened international sanctions against North Korea and the slowing growth of the Chinese economy. Section 1 summarizes the industrial policies linked to exports. In Section 2, we analyze the changes in the composition of each group by industrial sector, the change of percentages by usage purpose, and the change of technology level among industries in accordance with the three methodologies of Section 2, Chapter 3. In Section 3, we select a transitional country with similar economic and industrial policies to North Korea, and then investigate the industrial policy that the state has pursued to respond to changes in its trade environment (reduction in economic income of major trading partners, economic crisis, etc.), after which we analyze the consequent ripple effect. Finally, Section 4 analyzes the effects of international sanctions on the North Korean economy.
  In Chapter 5, we analyze the linkages between foreign trade and industrial policies, and propose policies to normalize inter-Korean economic cooperation. Section 1 assesses and forecasts the present and future of the North Korean economy. At present, the North Korean economy seems to be gradually recovering from poverty and chronic economic downturn, albeit very slowly. As long as the strengthening of sanctions against North Korea continues, it is unlikely that its economy will continue on the path of normalization and improvement. Section 2 assesses the outcome of Kim Jong Un’s industrial policy. We find that the industrial policy newly emphasized by the Kim Jong Un regime is projected to some degree on the changes in import statistics. However, due to limitation of data, we could not clearly distinguish Kim Jong Un ’s byungjin policy from Kim Il Sung’ s and Kim Jong Il ’s policies. Section 3 predicts the impact that sanctions against North Korea will have on its economy. In the mid- and long-term, sanctions against North Korea will inevitably have a negative impact on its economy. However, the short-term impact is likely to depend on how North Korea responds. Section 4 suggests proposals for inter-Korean economic cooperation based on the above discussion. 

  The World Bank estimates that US $1.5 trillion, or 2 percent of global GDP, is paid each year in bribery. Moreover, as globalization advances and economic integration deepens, this corruption undermines and distorts fair competition in international transactions as it induces misallocation of resources. The OECD (Anti-Bribery Convention of 1997) and the UN (Anti-Corruption Convention of 2003) have established legally binding standards to fight against corruption. Korea is a party to the OECD (United Nations) Anti-Bribery (Corruption) Convention, and is actively engaged in anti-corruption activities in the international community, including the G20 and APEC. However, over the years Korea has been ceaselessly embroiled in bribery scandals, which has damaged its global image and reputation. According to the 2016 survey of CPI (Corruption Perception Index) conducted by Transparency International, Korea ranked 52nd place out of 176 countries, a rank plunge by 15 steps compared to the previous year.
  From this point of view, this study aims to empirically examine how corruption affects trade, economic growth and welfare. Based on these empirical findings, policy implications and suggestions for the successful implementation of anti-corruption policy will be drawn. These evidence-based analyses and policy suggestions can then be used to form a public consensus on the benefits of successfully implementing anti-corruption policy.
  Chapter 2 explores anti-corruption efforts taking place in the international community. The members of the OECD concluded the 1997 OECD Anti-Bribery Convention and 2009 Recommendation. In addition to these measures, the OECD published the Guidelines for Multinational Enterprises to combat bribery in international business transactions. In 2003 the United Nations Convention against Corruption (UNCAC) was concluded at the UN, making it the most comprehensive and universal of international anti-corruption instruments, and currently state members are undergoing Implementation Review. The G20 is biannually publishing the G20 Anti-Corruption Action Plan and has been releasing its High-Level Principles series on several anti-corruption issues. The APEC, OAS, EU have also been contributing to the enhancement of anti-corruption policies and capacities in the region. The WTO failed to conclude anti-corruption norms but some regulations in the Government Procurement Agreement and Trade Facilitation Agreement have been designed to improve transparency and tackle corruption. Free trade agreements initiated by the U.S. such as the KORUS FTA and TPPA include anti-corruption provisions and the contents of those provisions have evolved over time.
  In Chapter 3, we attempted to examine the inefficient and ineffective elements embedded in Korean anti-corruption policy and its implementation. We also utilize the outcome of surveys produced by the Transparency International (TI), the International Institute for Management Development (IMD), World Economic Forum (WEF) and Korea’s Anti-Corruption and Civil Rights Commission. The results of the analyses are as follows: ① Inefficiency of government anti-corruption policy, ② Low public awareness of anti-corruption participation, and ③ Lack of ethical awareness of corporations are identified as the key factors that hinder the efficiency of anti-corruption systems.
  In Chapter 4, we use the Novy (2013) model to empirically measure the effect of corruption on trade costs. The correlation between corruption control and trade costs was estimated using the corruption perception index of the Transparency International as a proxy variable and the corruption control index of the World Bank as an alternative index. According to the estimation outcome, the trade cost decreased by 0.406% when the corruption perception index increased by 1%. On the other hand, when we apply the World Bank’s Corruption Control Index as an alternative index, a one-point increase in the control index is expected to yield a 21.7% reduction in trade costs.
  In Chapter 5, we attempted to measure the economic effects of corruption on trade and welfare by using a computable general equilibrium (CGE) model. In the first scenario, in which we assume an improvement in Korea’s level of anti-corruption to the average level of APEC economies, exports are expected to increase by 3.84% over the medium to long term. Meanwhile, when Korea’s anti-corruption level rises to the OECD average, in which scenario trade cost is assumed to be reduced by 11.973%, real GDP increased by 8.36% and the welfare increase amounted to about $158.3 billion. Also, taking into account the additional effects of capital accumulation, real GDP gain could reach up to 23%.
  In Chapter 6, based on the previous analysis, we propose the following policy suggestions. First, Korean businesses should establish ethical management principles to correct illicit business behavior. In addition, as addressed by the OECD Policy Framework for Investment, Korean companies should be more actively responsive to societal expectations communicated for instance by inter-governmental organizations, within the workplace, by local communities and trade unions, or via the press. Second, the Korean government should take concrete steps to fight corruption, and take the UK Anti-Corruption Plan and US FCPA and Criminal Code as reference points for establishing “zero tolerance” practices. Third, the Korean government may consider delegating a powerful level of authority to corruption prevention organizations in the manner of Singapore and Hong Kong, and building an effective anti-corruption system by reinforcing education on the harmful effects of corruption. Finally, there is a need for policy consideration to provide stronger protection for so-called “whistleblowers” to facilitate the process of reporting cases of public and private corruption and foreign bribery.
  This study contributes to the academia in that it is the first attempt to estimate the correlation between levels of corruption, trade costs and trade. However, despite the many advantages of the CGE model, it is inevitably subject to interpretation of the estimates, which in turn cannot be technically captured by the structure and characteristics of variables used in the quantitative analysis. In order to conduct an empirical analysis which is more realistic in its approach, we will continue to develop a GVC corruption index that takes an in-depth approach to new areas of ​​corruption occurrence and value added factors.
  In addition, while this study analyzed the effects of corruption on trade and trade costs using the corruption perception index and corruption control index, we cannot rule out the possibility that corruption levels in a country bear a close relationship with the stage of development or institutions of the country. The challenge of analyzing the effect that interactions between the system and level of corruption have on trade costs remains a task for future study. 

  The entry pattern of Korean small- and medium-sized enterprises (SMEs) into Southeast Asia was influenced by the ASEAN FTA in 2007 and the global financial crisis in 2008. SMEs that have entered the market with the aim of utilizing the low-wage labor force have been placing the most importance on entering the local market since 2007. In addition, after the global financial crisis in 2008, large corporations reshaped their production network rapidly to Southeast Asia, but not to SMEs, which were vulnerable to risk. Fortunately, since 2014, SMEs’ investment in Southeast Asia has recovered to pre-2008 levels, mainly in Vietnam and Indonesia.
  As Golovko and Valentini (2011) pointed out, it is possible to measure the business performance of the enterprise to the extent that the small- and medium-sized enterprises enter the overseas market. While many Korean SMEs have moved into Southeast Asia, there are still very few studies that have conducted fundamental research into their management status. Instead, there have been abundant studies about how to enter Southeast Asia in order to meet the needs of Korean companies that want to go there. Considering the shortage of information on the management status of Korean SMEs participating in the regional production network (RPN) Korean large corporations have newly established in the Southeast Asian region, data on the Korean SMEs in Southeast Asia is required to prepare the future direction and the support policies for the SMEs. This study was conducted to meet this demand.
  The second chapter summarizes how the economy of Southeast Asia is affected by changes in the external environment, such as slowing growth in the Chinese economy, low prices of raw materials, collapse of mega-FTAs, and the recent strengthening of protectionism. Fortunately, Vietnam, which is the largest investment destination of Korea, still maintains a market-opening tendency even though the top leadership of the Communist Party in 2016 was composed of conservative figures. Despite the USA withdrawing from the TPP negotiations, the Vietnamese economy has not been adversely affected because the opacity of the Vietnamese economy has been largely eliminated in the process of joining the TPP, and the opening trend has been maintained, such as pushing for an FTA with the EU. However, as Vietnam opens its market, Korean SMEs that have entered Vietnam may face various exposure risks such as intense competition within the market. Indonesia is striving to foster its own industry through various trade policies. For example, a company that wishes to export ore stones should meet the requirements for construction of a smelter facility and payment of export tax in Indonesia. Beginning from January 2017, LTE mobile phones can only be sold locally if they use more than 30% of domestic parts.
  Changes in the international trade environment can affect policies in Southeast Asian countries. There was concern that policy changes in each country could affect the performance of Korean SMEs. However, we find that Korean SMEs in Southeast Asia were not directly affected by the policy changes in Vietnam, Myanmar, Indonesia and Cambodia. Instead, we find that the Korean SMEs have been influenced by domestic policy changes, such as rising labor costs and tax collection, rather than changes in the international trade environment. Most SMEs only supply the amount of the orders from large companies. On the other hand, 58.2% of Korea’s parent companies expect long-term changes in the international trade environment.
  Chapter 3 analyzes the investment strategy of Japanese SMEs in Southeast Asia. We examine the response of the Japanese government and SMEs to changes in domestic and international economic conditions in Southeast Asia. Based on the results of the survey, we introduce this case as a benchmarking example to Korean companies and the government. Japan’s investment in Southeast Asia is centered on manufacturing rather than non-manufacturing. Japan regularly conducts surveys to identify the status of Japanese SMEs located in Southeast Asia. Japanese small and medium-sized enterprises (SMEs) emphasized the use of low-cost labor force when they first invested in Southeast Asia, but they are more concerned with demand in Southeast Asia than cheap labor force over time. This means that Japanese SMEs have entered Southeast Asia and built a production network to participate in the local market. The Japanese government’s policy of supporting small and medium-sized enterprises to enter the overseas market sees overseas expansion as a new opportunity for job creation and export. In particular, it supports fundraising, risk avoidance, intellectual property rights, and business restructuring not only before and during the business preparation phase but also at the entry phase and beyond. As the international trade environment has changed recently, the proportion of reshoring from Southeast Asia to Japan is low. However, the Japanese government provides funds for overseas business restructuring in order to support the regional supply chain and business restructuring in accordance with the integration movements in Southeast Asia.
  Chapter 4 analyzes the management status and business performance of SMEs entering Southeast Asia through surveys. Based on the results of the analysis, it is possible to prepare a support plan for the enterprises that have entered into Southeast Asia, including the business restructuring of Korean SMEs. Korean SMEs have suffered from complex administrative systems, cultural differences, change of attitude by license agencies and investment partners, among others. Small- and medium-sized enterprises with large sales have less barriers to administrative procedures through their securing some degree of bargaining power with local governments and the central government. Meanwhile, most of Korean SMEs entering Southeast Asia relied on the Korean head office (parent company) for financing. Only 25% of respondents use local financial institutions. In particular, when SMEs enter Southeast Asia, the guarantee of a parent company was essential for local financing. Therefore, financial support for the parent company should be made available.
  Korean SMEs in Southeast Asia purchase raw materials at 31.8% from local sources, 46.3% from Korea, and 21.9% from third countries. Therefore, it is concluded that Korean companies make a great contribution to Korea’s export to Southeast Asia. In addition, production facilities, including used equipment and new facilities, accounted for 54% of all facilities run by Korean SMEs in Southeast Asia. Therefore, it is reasonable that Korean SMEs that have entered Southeast Asia contribute to Korea's export growth rather than lowering Korea’s exports. In terms of total sales of Korean SMEs by region, domestic sales account for 47.2%, exports to third countries account for 37.2%, and that to Korea accounts for only 15.6%. On the other hand, there was no empirical evidence that decisions to invest in Southeast Asia had a negative effect on the management index, sales, production scale, number of employees, R&D workforce of the Korean parent company. In the case of plastic/non-metal companies, sales, production volume, number of employees, and R&D workforce have all declined. However, this sector has mostly moved to Southeast Asia from Korea due to environmental issues.
  Localization is being emphasized to improve the sustainability of SMEs located in Southeast Asia. Most of the decisions directly related to production, such as delivery, employment, and selling prices, are made locally, but investment decisions are made by Korean parent companies such as new market development, new product development, expansion of production facilities, and financing procurement. In terms of profitability, SMEs that perform various functions such as production, sales, and research and development are more profitable than SMEs that perform only production functions. Satisfaction with profitability is not as good as expected in cases where Southeast Asia is simply used as a production base. Therefore, it is necessary to carry out activities across the value chain such as production, R&D, and sales through localization. Consulting support is needed to set the appropriate range of decisions related to the value chain. On the other hand, there was no relationship between business function and growth of SMEs. It is possible that the Korean parent company considered the local branch in Southeast Asia as a tool to generate short-term profit without establishing a long-term development plan for the local branch. This is because SMEs have been located in Southeast Asia due to the needs of buyers or large corporations. On the other hand, SMEs are able to cope with changes in the situation flexibly because their capital size is relatively small compared to large corporations. In terms of corporate sustainability, it is necessary to establish a long-term growth plan. The long-term development plans of Korean SMEs include plans to grow together with local SMEs in Southeast Asia, and Southeast Asia and Korean SMEs can grow together if they are deeply rooted in the host country. Also, considering the demographic structure of Korea, there is a limit to continuous export of commodities, so it is necessary to share the fruits of growth through equity investment or M & A in local companies.
  The SMEs’ recognition of the change in international trade environment did not affect their profitability and growth. While Korean SMEs were expected to have a long-term impact on changes in the international trade environment, they did not recognize the need for immediate action. This is because the SMEs responding to the survey supply most of the products to large multinational corporations rather than directly exporting them. Finally, in Appendix 2, we analyzed the evaluation of management performance between Korean parent SMEs and their branch subsidiaries in Southeast Asian to date. Empirical results show that there is no difference in profitability between the parent SMEs and their local subsidiaries. However, the profitability and growth potential of local branch subsidiaries were higher than the profitability and growth potential of Korean parent SMEs, despite the recent changes in trade and investment policies, the development of high value-added industries, and the launch of AEC. In the long term, the Korean parent SMEs think that the performance of the local branch subsidiaries is better than theirs. This result confirms that Korean SMEs would transfer their production facilities to Southeast Asia, so it is necessary to differentiate the location of their value chain between the Korean parent company and its local subsidiaries in Southeast Asia in the long run. On the other hand, the Korean parent SMEs, which lack accurate information about the local situation in Southeast Asia, would be more optimistic about the given situation. That could be a risk for their management. In particular, special attention should be paid before parent SMEs decides to enter into new markets.
  Based on the above results, the direction and implications of SME support policy for the Korean SMEs working in Southeast Asia are presented as follows. As the global production network expanded, Southeast Asia became the outpost of Korean production. In the survey of Chapter 4, many raw materials and capital goods were procured from Korea (see Figure 4-22). It was also confirmed that 54% of capital goods were imported from Korea. Therefore, it is necessary to consider expanding support for SMEs entering Southeast Asia as an export expansion plan. In Chapter 3, Japan recognizes the importance of supporting Japanese SMEs in Southeast Asia and various measures are implemented to support overseas SMEs. It is time to reevaluate the value of SMEs entering the market. Meanwhile, local subsidiaries in Southeast Asia have more information on Southeast Asia than Korean parent companies (see Appendix 2, Figure 16). If a domestic firm that wants to enter Southeast Asia or a company that wishes to start a business in Southeast Asia can be linked with the SMEs that have run in the market, this would increase the likelihood of success. Since private companies will not easily share their information for the benefit of other new comers, it is necessary to establish a support policy for enterprises that will enable SMEs to collaborate each other.
  In addition, as we have already confirmed, local subsidiaries in Southeast Asia and Korean headquarters, and domestic firms in Korea have established a strong relationship through production networks. Therefore, these firms expanding abroad does not necessarily mean the loss of jobs in Korea, but instead that new opportunities are brought to Korea. In addition, the establishment and localization of local subsidiaries in Southeast Asia is a process of growth for the company. Consulting support should be increased not only for SMEs seeking to enter Southeast Asia but also for SMEs already in the market. In addition, restructuring of regional production networks in Southeast Asia should be supported. For this purpose, this study suggests the direction of support policy for enterprises entering into Southeast Asia, considering that it is important to build a reciprocal ecosystem through collaboration between the enterprising companies and new entrants. First, it is necessary to construct a research infrastructure to grasp the status of SMEs entering Southeast Asia. As confirmed in Chapter 3, Japan checks local reactions and responses through surveys of Japanese SMEs in Southeast Asia whenever the international trade environment changes (see Figure 3-10, 3-11, 3-12, Table 3-10). Since we form the Korean SME support policy under the situation where we do not fully understand the current status of Korean SMEs in Southeast Asia, the effectiveness of the policy has come under doubt. Therefore, we need to construct an infrastructure that enables us to conduct periodic surveys upon SMEs abroad, like the case of Japan.
  Second, it is necessary to provide a tailored support plan based on the understanding of the status of Korean SMEs in Southeast Asia. Since most support policies for the Korean SMEs are concentrated in the pre-export promotion and overseas expansion stages, the support for Korean SMEs that already entered into Southeast Asian market is relatively poor. It is time to provide broad support for the Korean SMEs that are functioning to increase Korea’s exports. According to the results of this study, it is necessary to make efforts to produce solutions on a case-by-case basis as the difficulties felt by the Korean SMEs in Southeast Asia are different across countries. In particular, since Korean companies report various labor- and tax-related difficulties, it is necessary to establish a specialized center in the relevant field and cultivate relevant experts locally. If the relevant professional qualifications system is not available locally, it is necessary to support the formation of professional qualifications system through bilateral negotiation. ODA funds, CSR (corporate social responsibility) or CSV (creating shared value) funds can be utilized as a source of funds for this purpose.
  Third, it is necessary to prepare a plan to support the restructuring of business in line with the reorganization of regional production network in Southeast Asia. As seen in Chapter 3, as the economic conditions of China and Thailand change, the Japanese government encouraged its firms to adapt to the China plus One strategy and Thai plus One strategy. With the launch of the ASEAN Economic Community at the end of 2015, it has formed a single market and a single production base in this region. Along with these changes, the promotion of the mega-FTA involving ASEAN, changes in industrial and trade policies in each country have an impact on the overall economic structure of Southeast Asia. This policy change and the change of surrounding conditions in Southeast Asian countries are demanding the reorganization of the regional production network in Southeast Asia. Therefore, it is necessary to provide a plan to support Korean SMEs that entered into Southeast Asia in order to freely restructure their business. In the meantime, in order to diversify Korea’s production network concentrated in Vietnam, it is necessary to prepare support plans for Korean SMEs there to restructure their business.
  Fourth, it is necessary to establish a plan to create a linkage between the current Korean SMEs in the market and new Korean entrants of SMEs. As mentioned earlier, incumbent SMEs in the market have much more information about the local area than newcomers. The survey in Appendix 2 confirms that the local subsidiaries have more local information than the Korean head office in Seoul. It is necessary to establish an incentive system for incumbent SMEs to share information with new entrants of SMEs. Moreover, Korea has to work as a direction setter of the ASEAN regional production network by constructing a long-term roadmap.
  Finally, it is absolutely necessary to train regional experts on Southeast Asia for this purpose. The survey pointed out that communication and cultural differences are the biggest obstacles to Korean SMEs who have recently entered Southeast Asia (see Figure 4-36). Regional experts are needed to expand mutual understanding. There can be no doubt that the activities of regional experts will help strengthen economic cooperation between the two regions. 

Executive Summary

1. Introduction

2. Summary of Regional Trade Agreements in Africa

3. Methodology and Data
3-1. Empirical Strategy
3-2. Data

4. Results

5. Conclusions

References

Appendix 

  Africa is one of the most economic-integrated continents by a number of regional trade agreements in the continent. There are about 30 bilateral and multilateral trade agreements within the continents so that each African coun-try is a member of at least one regional trade agreement. Trade between Afri-can countries, however, barely exceeds 10% of the total trade of Africa, which is much lower than other continents’ intra-regional trade share. This discrepancy between many regional trade agreements and small intra-continent trade share tells that regional economic integrations in Africa are very unsuccessful trade liberalization policies to promote trade. This paper examines a reason why trade liberalization policies in Africa fail. In particular, we investigate the impact of trade agreements in Africa on trade conditional on financial market development and political instability. An empirical study finds that Africa countries’ poor financial market accessibility and political instability are key barriers to trade integration in the region. These two factors can explain most disadvantage of African countries in their intra-regional trade. In a dynamic regression, the two factors depress the long-run growth of trade due to trade liberalization in the region significantly, while African continent dummy variable that captures other unobserved trade obstacles in the region has much less effect on trade compared to the literature on Afri-can regional economic integration. 

  The northeast region of China is historically an area of active exchange with Korea, due to its geographical proximity, language and cultural similarities, abundant natural resources, advanced level of manufacturing and transportation infrastructure, expanding consumer market, and active foreign investment inflow policy. However, as the recent economic downturn in the Northeast has continued, economic exchanges such as trade and investment between Korea and Northeast China have diminished and entered the worst phase since the establishment of Korea-China relations. In this time of deteriorating economic relations, this study intends to seek a new economic cooperation strategy for Korea in the Northeast China region. The Northeast is not only still an attractive land of opportunity, but also an important base of cooperation for the realization of the new North Korean policy introduced by the Korean government this year, or the “new economic map” for the Korean Peninsula.
  Economic growth has been slowing since the Chinese economy entered the so-called “new normal” stage in 2013. However, in the case of the Northeast region, the common problems experienced by the Chinese economy have been exacerbated by structural problems, making it an area with the lowest growth rate. Accordingly, the Chinese government announced a new Northeast Development Plan in 2016 that promotes system reform, restructuring, encouraging innovation, and ensuring public welfare. In the new plan, reform and innovation are emphasized as the first priority policy task, while economic efficiency and reform, such as the reform of state-owned enterprises and administrative systems, are carried out as well. The new development plan also emphasizes the improvement of investment environments, expansion of the state-owned enterprise mixed ownership system, manufacturing innovation and advancement, and the establishment of an open foreign platform. Under the new development plan, the three provinces of Northeast China are expected to move away from the quantitative growth trend centered on past investments, and instead concentrate on reform and qualitative development for future marketization and efficiency.
  In the midst of a severe recession in the Northeast economy, economic exchanges such as Korea-Northeast trade, investment, and local enterprise performance are also decreasing. Trade fell by an annual average of 0.86% since 2012, when medium-term growth began. Exports of major items, excluding organic chemicals, have fallen sharply, and exports are becoming dominated by single items. Investment fell to US$770 million (US$150 million) in the period of 2012–2016, far below the US$2.69 billion (US$540 million a year) total investment generated between 2007 and 2011. By industry, total investment in manufacturing from 2007 to 2011 was US$11.9 billion, while the service industry recorded US$1.37 billion. The period from 2012 to 2016 saw these investments fall by US$650 million in manufacturing and US$120 million in services. Overall investment has shrunk significantly regardless of industry.
  The business difficulties of local companies is becoming more pronounced, with the majority of Korean companies enduring acute difficulties in their operations. This situation is caused by problems within the Northeastern provinces themselves, such as: ① lack of sensitivity to market changes and a poor business business environment due to the economic structure centering on resource-oriented and heavy industries; ② small economic size compared to other regions; ③ low level of financial services and lack of financial supply to private companies; ④ randomness of local government policies at various levels, and high flexibility to simplify policy implementation, lack of standardization, and lack of transparency; ⑤ low external openness, and lack of institutional and systemic policy support by local governments. In addition, the problems of local companies have been identified as well, such as ① a lack of understanding of local culture, systems and policies (localization), ② weakening of preferential policies and strengthening of regulations, ③ an increase in the cost ratio (raw material costs and labor costs), ④ decreased competitiveness due to preferential treatment of domestic enterprises and the rise of Chinese enterprises, ⑤ lack of coherence in implementation of related policies in China, ⑥ influence of external (political) problems, ⑦ difficulties in local financing due to lack of financial services, ⑧ lack of their own strategies to advance into the Chinese market. In the case of Korean banks that have entered China and Northeast China, they have shown poor performance in terms of growth potential and profitability, and displayed limitations in their development by failing to compete with local banks. The major obstacles for Korean banks to grow in the Northeast region have been: (1) difficulties in positioning and localizing as a local bank, (2) difficulty in accepting systemic risk, (3) regulations and management policies of strict supervisory institutions, and (4) the reduction of Korean companies and their entry into the market.
  As such, the situation in the Northeast’s economy, industry, Korea- Northeast trade, investment, and entry are all not favorable. However, China’s central government is taking measures to overcome the downturn in China’s Northeast economy, and the 13th Five-Year Plan, a comprehensive edition of the new Northeast Development Plan in 2016, will be introduced to overcome the recession. In addition, while the Korean government is newly introducing the “New Economic Map on the Korean Peninsula” and its new North Korean policy, the need to deeply understand the Northeast region, which is the key link between Eurasia and the Korean Peninsula, continues to increase.
  In light of the above, this study has divided the important tasks of the Northeast Economic Cooperation Strategy into their respective stages.
  When considering the long-term improvement of ROK-China relations and the possibility of mitigating issues on the Korean Peninsula, we propose the following stages of economic cooperation with the Northeast region. Phase 1: Innovation and maintenance of an economic cooperation model and platform of the enterprises and companies that enter the Northeast. Phase 2: Active response according to the successful achievement of the new Northeast development policy. Phase 3: Strengthening economic relations between South and North Korea and the Northeast province in relation to the improvement of inter-Korean relations. Based on this step-by-step strategy, we have devised the following detailed policies.
  In the short term, the priority task of Northeast economic cooperation is to provide the institutions and enterprises that are already in the Northeast region of China to create conditions for continuous economic cooperation even under the difficult circumstances. For example, it is necessary to devise a platform that provides detailed information on changes in the investment environment of the three Northeastern provinces of China. Next, we need to revitalize the matching system between the emerging growth industries in the Northeast region and the Korean companies, which is proposed in the new Northeast Development Plan. These projects can be implemented in the form of a private- partnership exchange platform led by the private sector and supported by the government authorities, which can enhance the flexibility and efficiency. In addition, it will be possible to consider establishing a research center (or a council) to strengthen monitoring of the Northeast economy.
  In the long term, after inter-Korean relations have improved and North Korea has gradually opened up, it will become possible to consider a land route between Korea and the three Northeast provinces. This would make it possible to plan a joint development strategy between South Korea, North Korea and China, and to design a cooperation strategy by utilizing the Northeast region as a bridgehead for economic cooperation with China and the Eurasian region. In addition, Korea could promote the development of the Yalu and Tumen River international tourism zones in the Yellow Sea region and the Far East Sea region, respectively, in line with the Korean Peninsula New Plan. Finally, after reunification, it will become possible to construct a trans-border industrial belt in the northern part of the Korean Peninsula. 

  The Regional Comprehensive Economic Partnership (RCEP) is an ongoing multilateral trade agreement involving ASEAN member states, Australia, China, India, Japan, South Korea and New Zealand. With the global trade slowdown, the importance of the RCEP including various dimensions, such as trade in goods, trade in services, investment, trade facilitating measures, competition, intellectual property, e-commerce, is increasing. In this study, I conduct GVC analysis to identify the intra -regional trade and production network of RCEP-participating countries (RPCs). This study provides a number of indicators that capture the RCEP value chains, and provides a picture of the economic integration within the region. Through this work, we can identify the economic significance of the comprehensive multilateral agreement amid growing complexity of production networks. This study also investigates the level of liberalization in tariffs of ASEAN+1 FTAs, then provides specific policy implications for RPCs to leverage engagement in RCEP value chains.

  This study aims to draw some implications for Korea to develope its FTA policy, by reviewing the financial services regulations of Korea’s Free Trade Agreements (FTAs) and compare them with other major countries’ so-called ‘Best’ FTAs.
  In the second chapter, the study overviews the financial services regulations of Korea’s and major countries’ FTAs. The financial services regulations of Korea’s FTAs indicate significant deviations, especially in terms of definition and scope, depending on the timing of the signing and the other Party. On the other hands, those of the Trans-Pacific Partnership (TPP) and the Comprehensive Economic and Trade Agreement (CETA) are also reviewed, with some changes identified, which were not found in Korea’s FTAs. It is evaluated that these parts needs to be further scrutinized for Korea’s amendment negotiations with countries which are parties of those FTAs. In the TPP, the Article 11.17 on the performance of back-office functions mentions on avoiding the imposition of arbitrary requirements. In the CETA, the definition of the financial institution clearly regards a branch as a financial institution.
  In the third chapter, the study analyzed the provisions on prudential measures of Korea’s and major countries’ FTAs. In Korea’s FTAs. those provisions can be classified into three types: Kor-US FTA type, Kor-EU FTA type, and GATS type. In the TPP, the term of prudential reasons newly added the phrase of “as well as the safety, and financial and operational integrity of payment and clearing systems” to the existing “the maintenance of the safety, soundness, integrity, or financial responsibility of individual financial institutions or crossborder financial service suppliers.” The CETA also newly added the reasonableness requirement.
  In the fourth chapter, the study reviewed relevant dispute settlement cases. In the NAFTA case of Fireman’s Fund Insurance Company v United Mexican States, the tribunal viewed that the article 1410(1) of the NAFTA is not a self-judging provision but requires a State-Party to establish an affirmative defense. In the WTO case of Argentina Financial Services, the Appellate Body found that the Panel did not err in finding, that “paragraph 2(a) of the Annex on Financial Services covers all types of measures affecting the supply of financial services within the meaning of paragraph 1(a)” of the Annex. It means that although the GATS Annex on Financial Services stipulates prudential measures under the title of domestic regulations, the prudential measures are not limited to domestic regulations but they can be measures relating to market access, national treatment or most favored nation treatment.
  As a conclusion, from these findings this study draws some implications for Korea to develope its FTA policy. First, there is a possibility that room for the financial authority to take prudential measures might be narrowed by incorporating the investment chapters and its articles on investor-state disputes system (ISDS), and the domestic regulation chapters without limiting the extent incorporated. Such attempts are observed in the CETA. Other newly added parts in the TPP and the CETA identified in this study need to be further scrutinized for Korea’s amendment negotiates with the countries which are the parties to those FTAs. Second, Korea should review the financial service regulations of its FTAs to make some necessary amendments. Particularly, it will be good if the lessons of the WTO case are reflected into Korea’s FTAs. 

   In the past decade, China has emerged as a key partner of Southeast Asia across trade, investment, and infrastructure development. Southeast Asian economies have significantly benefited from the strong economic growth of China over the years, but the resulting dependency on China has created political and economic vulnerability in the region. The challenge is how to steer these relationships toward more mutually beneficial ones.
   Bilateral trade reached $395 billion in 2015, accounting for 15 percent of the region’s external trade and making China Southeast Asia’s top trading partner. Yet, cross-country variation in China’s share of exports to the total trade is huge, ranging from 5 to 38 percent among major countries, while China’s share of total trade with the region has been rather stable in recent years. Amid a marked expansion of trade, Southeast Asia’s trade deficits are rising fast since 2011. This coincides with the ASEAN-China Free Trade Area (ACFTA) entering into force and the onset of the new wave of investment in the region’s electronics sector, especially in Vietnam.
   Intermediate goods account for more than 50 percent for both Southeast Asia’s exports and imports with China, reflecting the establishment of a regional production network across East Asia. Among intermediate goods, the shares of semi-finished goods have risen in both Southeast Asian exports to and imports from China. At the same time the shares of parts and components, which usually are higher value-added than semi-finished goods, have declined in both directions. This may suggest that China may be producing more parts and components domestically, thus relying less on imports. China now has a strong electronic components industry, especially for commonly used and medium- and low-end components. On the other, the decline of parts and components of Southeast Asia’s imports from China also suggest that some Southeast Asian economies may be diversifying imports of parts and components away from China.
   Although relatively smaller in share to the total trade, agricultural trade is a strategic area for bilateral economic relations, especially in the form of Southeast Asian agricultural exports to China. Agriculture is a critical sector for most Southeast Asian countries, with a large share of employment and major political importance. With the demand rising in China, China’s food imports from and investment in the agricultural sector of Southeast Asia is likely to increase. This creates both opportunities and difficult challenges for the region’s countries. For trade in services, tourism is one of the key sectors between China and Southeast Asia. The growing number of Chinese tourists to Southeast Asia has created a tourism boom in local economies, but has also presented risks as well as challenges.
   China’s FDI in Southeast Asia is growing fast from a low base. Its FDI into the region reached $8.3 billion dollars in 2015, increasing more than 2.4 fold from $3.5 billion dollars in 2010. This makes China the fourth-largest investor in Southeast Asia, following the EU, Japan, and US, although its growth rates are higher than the top three investors. China is not a dominant investor in the wealthier countries of the region while its presence is overwhelming in lower income countries. The sectoral distribution of China’s FDI suggests that finance, real estate, and manufacturing are important sectors. The extent to which China, especially its private companies, invests in the region’s manufacturing will have a large impact on Southeast Asia’s development. China’s investment in the manufacturing sector of Southeast Asia is limited compared to other investor countries, but is still much larger than its investment in Africa and Latin America, which tends to be concentrated in natural resources and construction. China’ state-owned enterprises (SOEs) and policy banks are capturing global attention by their large infrastructure projects and massive loans. Nonetheless, it is Chinese private companies who will play a more important role in transforming the regional economic relations. China used to function largely as a major processing hub in the global value chain but has increasingly expanded into the role of a supplier of intermediate inputs for assembly operations in other developing Asian economies. Yet it may also be moving toward establishing its own production chains led by Chinese private firms.
   Although Cambodia is the key partner for China in the region, its small size and low level of development makes it difficult to be developed into a platform for China’s region-wide cooperation. China’s investment in the region is concentrated in Singapore, Malaysia, and Indonesia, but these economies are relatively developed and highly open to international competition, limiting China’s dominant influence. The Philippines is an interesting case where its political ties with China are expanding rapidly despite significantly weak preexisting trade and investment relations with China.
   Infrastructure development is the most visible area of China’s rising economic influence in Southeast Asia under the Belt and Road Initiative. Responding to huge demand for infrastructure development in the region using its large capital, China is implementing large-scale development projects in transport and energy infrastructure and developing special economic zones across the region. China is building a high-speed railway in Laos and Indonesia and participating in a project in Thailand. The “Pan-Asia Railway Network,” also known as the “Kunming-Singapore Railway,” is an ambitious transport infrastructure project now incorporated into the Belt and Road Initiative with an aim to integrate China’s Southwest with mainland Southeast Asia. The Asian Infrastructure Investment Bank, formally proposed in 2013 and established in 2015, is a major instrument for China’s Southeast Asia strategy focused on infrastructure development. The Thai-Chinese Rayong Industrial Zone in Thailand and the Sihanoukville Special Economic Zone in Cambodia are success cases of China-led SEZ development in the region. Chinese private companies, especially in the garment and footwear sector, are well represented in these SEZs.
   Korea needs to respond to the changing economic landscape in Southeast Asia proactively and constructively. China’s deeper engagement in Southeast Asia may place competitive pressures on Korean business interests, yet China’s expanding business networks and China-financed infrastructure improvement are likely to offer more business opportunities for everyone, including Korean firms. Korea needs to make greater efforts in the fields of innovation and productivity enhancement, in addition to paying greater attention to labor and environmental standards compliance in its FDI and infrastructure development, taking lessons from some of the backlashes against China’s investment activities. Finally, Korea and Southeast Asia have mutual interests in diversifying their economic relations away from over-dependency on China, as recent economic and security events have clearly suggested.