2013
Policy References(in Korean)
Working Papers
Journal of East Asian Economic Integration
World Economy Update

2012
Policy Analyses
Policy Analyses(in Korean)
Conference Proceedings
ODA Regional Studies(in Korean)
ODA Policy Analyses(in Korean)
Studies in Comprehensive Regional Strategies(in Korean)
Trade and Investment Study Series(in Korean)
Policy References(in Korean/in English)
Working Papers
APEC Study Series
Journal of East Asian Economic Integration
World Economy Update

2011
Policy Analyses
Policy Analyses(in Korean)
Conference Proceedings
ODA Policy Analyses(in Korean)
ODA Policy Report(in Korean)
Studies in Comprehensive Regional Strategies(in Korean)
Regional Study Series(in Korean)
Trade and Investment Study Series(in Korean)
Policy References(in Korean/in English)
Working Papers
APEC Study Series
Journal of East Asian Economic Integration
World Economy Update

The Korea Institute for International Economic Policy (KIEP) was founded in 1990 as a government-funded economic research institute. It is a leading institute concerning the international economy and its relationship with Korea. KIEP advises the government on all major international economic policy issues and serves as a warehouse of information on Korea’s international economic policies. Further, KIEP carries out research by request from outside institutions and organizations on all areas of the Korean and international economies by request.

Executive Summary

I. Introduction

II. An Economic Model of International Production Networks
1. An Introduction to Our Approach
2. Basic Elements
3. Costs Related to Parts-production Location Choice
4. Costs Related to Assembly Location Choice

III. Analysis
1. Utilizing Production Cost Advantages
2. Lowering Offshoring Costs
3. Overcoming Disadvantage from the Agglomeration Effect
4. Aligning with Immediate Upstream and Downstream Locations

IV. Economic Interpretations on India’s Weak Involvement in East Asia IPNs
1. Matching Theoretical Variables with Actual Data
2. Costs Related to Assembly and Parts Production
3. Offshoring Costs: Trade Costs and Coordination Costs α
4. Agglomeration Effects
5. Others: Historical Relationship

V. Concluding Remarks

References

Appendix

This study provides a conceptual framework to explain what kinds of difficulties a late-follower will suffer from when it tries to join pre-existing International Production Networks (IPNs). We consider the total production cost minimization problem by a multinational company (MNC) in allocating locations of fragmented production processes across borders. From the clarification of IPN-related costs, we draw out what structural disadvantages late-follower countries have and provide several policy implications to overcome these disadvantages with more targeted efforts. Especially we put India’s case in the conceptual framework of the IPNs and then look at the hurdles that make India’s participation in the East Asian IPNs hard and sluggish. Relevant data are provided in order to support the theoretical explanations.

The preliminary announcement on 'Act on support for return of overseas Korean firms' was made in July 2012. This so-called 'U-turn Bill' created a legal platform for overseas Korean wishing to return to Korea. Meanwhile, Korean free trade agreements with the European Union and the United States have officially went into effect in June 2011 and March 2012. The two FTAs marked a turning point in the overall trade environment of Korea, which enabled Korean firms to benefit from tariff elimination, of up to 100%, on export goods to the EU and the U.S. markets.
In light of the above circumstances, this research was designed to review the present U-turn policy and make suggestions on policy priorities. Given the increases in corporate U-turns, it has become an issue that requires greater attention and focus. Therefore, the two main questions were posed regarding this research: "What are the types of business/industries that are appropriate for U-turns?" An effective answer to this question would no doubt great enhance policy efficiency. The second question is "What are the responses of neighboring countries regarding U-turns and what kind of policies did they adopt?" Up until now, comparative analysis of country policy trends has only been conducted in full scale and was thus general in nature. Instead, we reviewed various specific policy cases of the U.S., Japan and Taiwan, and derived policy implications for Korea. Research methods included literature research and field study, and during the research process, Korea-EU/Korea-U.S. FTA Concession categories and other related studies were closely analyzed. Field study was conducted in Shandong and Liaoning provinces in which the most recent U-turn cases occurred.
Our findings show that there exist specific business types and industries more suitable for U-turns. Especially, businesses of the 'FTA utilizing type' are very likely to consider U-turns in terms of reducing costs of production in the long run. These firms would likely include ones that import raw materials from Korea and export it to the EU or the U.S., that import raw material from the EU or the U.S. and export it to Korea, and that import raw material from the EU or the U.S. and re-export it to the same markets. We also found that such industries as leather/wood, shoes/textiles, accessaries/glass/jewelry, plastic, machine/ electronics, vehicle are favourable to maximizing the effect of tariff elimination.
The comparative analysis of country cases also revealed meaningful implications for Korean U-turn policy. Country analysis was carried out targeting the U.S., Japan and Taiwan. The U.S. is relatively late in terms the U-turn trend, so its policy does not seem as developed as Korea's. Still, it was found that the U.S. case can provides us with insights in solving domestic opposition against U-turn policies. Meanwhile, Japan is a first mover in terms of formulating U-turn policies. Japanese U-turn policies was implemented with the aim of boosting regional economy and creating jobs, which shows a high degree of similarity with Korea. But, the study found that Korean U-turn firms tend to be export-oriented while Japanese firms aim for the domestic market. Thus it is necessary for the Korean government to adopt policies considering Korean circumstances, and not blindly follow the Japanese precedent. Taiwan is rather unique among the four countries since its U-turn policy were politically-inspired. Taiwan promoted its U-turn policy in order to decrease growing economic dependence upon mainland China. The Taiwanese case gives us useful examples in terms of using ECFA(Economic Cooperation Framework Agreement), which played a significant role in accelerating Taiwanese firms' U-turn from mainland China; the implications from Taiwan are very significant in that Korean U-turn policy is also being promoted as a result of the conclusion of the two FTAs.
However, U-turns are not the only option for Korean firms considering relocation of their production bases to outside of China. There are other alternatives such as moving to the mid-central region of China or Southeast Asia where labor costs are much lower. So, it is inappropriate to regard U-turns as panaceas.
This study is an attempt to categorize China-based firms/industry types according to U-turn suitability. This is because Korean U-turn policy needs to be applied correctly depending on priority of those types which would enhance policy effectiveness.

 This paper examines land issues in China along with urban expansion. In China, private ownership of land is prohibited. Collectively-held lands in rural area can be requisitioned for the supply of urban construction sites. Once requisitioned, the land becomes a state possession which could be distributed to the developers or other users. Land for 60~99% of urban construction sites was obtained through requisition every year since 2003. Compensation standards for such requisitions are based usually on the value of crops, and the typical amount is ten times the value of the annual produce. This compensation level is usually unsatisfactory for farmers because the selling price of the land to developers often exceeds compensation expense by ten times or even more. Due to discontent related to land compensation, tens of thousands of collective protests have occurred annually in the last five years. Land-related protests account for half of all civil protests in China.
Among the five modes of land distribution-administrative allocation, sales of right of use, leasing, investment for SOEs and management in trust; the most typical one is sales, which means local government transfers the use right to the user for a lump sum fee. Related laws clarify the maximum period of the land use contract-70 years for residence, 50 years for manufacturing, 50 years for education and culture, 40 years for business and entertainment and so on.
There are several problems related tothis land supply system. First, land itself is limited. Chinese government declared 1,211 thousand㎢ of farmland for absolute protection. As of 2011, the total area of farmland is 1,217 thousand㎢ – very close to the limit. Considering that 2,000~4,000㎢ of farmlandis requisitioned every year, the limit will soon be reached. To avoid a potential catastrophe, the government makes efforts to transform develop equivalent area of wasteland into farmland but the danger of running up against the limit still remain unresolved. Exhaustion of land is reflected in the decline of land sales income for local governmentssince 2011. At the same time, the most developed cities such as Beijing, Shanghai and Tianjin show little in the way of income from land sales compared to other developing regions.
Around the urban area, there exist non-government, collectively-held lands (Chengzhongcun) and structures (Xiaochanquanfang) illegally built on them. According to estimates, the total area of the illegal structures during 1995~2010 reached 0.76 billion㎡, or as much as 8% of total urban residential construction. In Shenzhen, where rapid urbanization occurred, the area of Chengzhongcun reaches 42% of total construction land. Inhabitants in these structures do not have protection of property rights and are often exposed to merciless demolition.
Chinese government has arranged a land system to support efficient and rapid economic development. The measurements include commercializing residential houses, introducing a leasing system and operating a bidding system for manufacturing sites. More recently, property law has been made as to guarantee the automatic renewal of residential land use right after 70 years of the current contract. In addition, collectively-held rural land has been allowed to be circulated.
On the other hand, the Chinese government, which has managed reforms in a gradual manner until now, has initiated various changes (though not yet formalized). First, as of 2012, it is said that the Ministry of Land and Resources is preparing to legalize the development of collectively-held land by its residents. By doing so, their property rights could be protected and more efficient land supply for urban construction sites could be realized. Second, in ‘Comprehensive Reform Pilot Districts’ such as Binhai District in Tianjin, many reform measures such as provision of fully satisfactory compensation for requisition and alternative land supply are under experiment. Third, structures on illegally developed land would be legalized albeit region-by-region and case-by-case. Fourth, the abolition of the ceiling for compensation level is in the works. Fifth, for handling the expired land use rights, institutional devices such as introduction of re-sale price are under discussion.
However, by far the most important reform in land management system is the introduction of the property tax. The Chinese government introduced the tax in early 2011 in Shanghai and Chongqing. The current mode of operation suggests that the tax is only for suppressing speculation but the Ministry of Finance apparently has a larger objective in sight, i.e., substitution of income from land sales which is facing a potential decline due to exhaustion of land resources and increasing compensation for requisition. In addition, the property tax can generate the virtuous cycle of investment and income. All the more, it matches up with the principle of ‘pay as you gain.’
The theoretical model of this paper assumes that as more land development takes place, and decrease future land sales, it would be more profitable to introduce the property tax. For smootherintroduction of the tax, land sales income of each region should warrant being made a priority. In addition, tax rate should be high enough to substitute the existing land sales income and the tax system on the whole should be re-designed to avoid dual taxation. In spite of its urgency and necessity, local governments are reluctant to introduce the tax due to the short-term decline in land sales income.
Based on these analyses, future prospects can be deduced as follows. First, among the five modes of land distribution, the proportion represented by sales is too large to be replaced in the near future. Second, informal development of non-national land in Guangdong Province could be expanded throughout China. Third, land requisition would not be prevailing in the developed cities in coastal region but not in inland provinces. Fourth, for the next decade, property tax would be introduced in agradual manner. Fifth, land use right expiration might not become a central issue in the near future but the market will soon realize its potential implications and policies will be required in response.
For the Korean government and enterprises, we would like to propose as follows. First, as selling is the most typical mode of land distribution, it is suggested that they gain an understanding ofits features along with contract period and prices. Second, the firms should be prepared to use collectively-held lands. Third, as the level of land requisition level is undergoing readjustment, one should be cautious about land contracts whether the land is clear or not in this term. Fourth, as property tax is under expansion, one must understand its implication on ownership. Fifth, land depreciation system could be created in the future to respond to the expiration of land use contracts.

The Environmental industry is emerging as a new engine for sustainable growth. However, an international consensus on identifying the environmental goods has yet to be established. In September 2012, APEC Leaders reached an agreement to endorse a list consisting of 54 environmental goods and reduce applied tariffs on these goods to 5 percent or less by 2015. It represents a remarkable accomplishment following several years of efforts by APEC since the Early Voluntary Sectoral Liberalization (EVSL) in 1997. It is arguable that APEC’s voluntary and non-binding principle facilitated the consensus. This breakthrough will have positive repercussions and spillovers at the bilateral and multilateral level.

This study reviews what characteristics of discussions and activities in APEC brought about the accomplishment. It also examines Korea’s competitiveness with respect to APEC environmental goods. In terms of imported goods to Korea in 2012, the applied tariff rates range from 0 to 8 percent. As of 2012, only one HS sub-heading out of 54 accords with the commitment of reducing tariffs to 5 percent or less. Regarding major trade partners for Korea-China, Japan and the United States-. Korea has the competitiveness over China, whereas there is no competitiveness vis-a-vis Japan and the United States.

Based on the analysis, this paper draws policy implications on how to deal with further discussions and to strengthen competitiveness in preparation for market liberalization, not only in the APEC region but also around the world. It is suggested that a more in-depth analysis be made to present more concrete and specific strategies for Korea’s long-term competitiveness.

Policy Analyses
12-01 China, World Economy and Korea-China Economic Cooperation

Policy Analyses I (in korean)
12-01 Economic Effects of Trade on Employment and Value Added
12-02 The Analysis of the Factors for the Stalemate of the Doha Development Agenda Negotiation and
       Implications for Its Completion
12-03 The Impact of Free Trade Agreements on Economic Performance in Korea
12-04 Empirical Analysis of Trade Liberalization: The Benefits to Korean Consumers
12-05 A Study on Interaction between Economic Openness and R&D Policies
12-06 Korea’s Green Growth Policy and Multilateral Trade Rules: Harmonization Issues and Policy   
       Implications
12-07 Designing New Climate Change Regime: A Unified Approach for Mitigation and Finance Mechanisms
12-08 Effects of Government Debts on Sovereign Credit Rate
12-09 Macroeconomic Policies during the Global Financial Crisis: Lessons and Policy Implications
12-10 Effective FX-hedge Policy Using Financial Market
12-11 Impacts of Large Disasters on Macroeconomy and Financial Markets
12-12 Causes of the European Debt Crisis and Reform of the European Governance
12-13 Trilateral Economic Cooperation: Proposal for Enhancing Economic Cooperation Dialogue Channels
        among China, Japan, and Korea
12-14 The Least Developed Countries: Key Challenges and the Way Forward for Korea’s Development
        Cooperation
12-15 Japan’s Economic Cooperation with China in the Era of G-2 and Its Implications for Korea
12-16 China’s Urbanization; Consumption, Construction and Risks
12-17 R&D of Chinese Firms: Characteristics and Implications
12-18 The Reinforcement of Economic Cooperation among China-Taiwan-Hongkong and Its Implications
12-19 Russian ODI and FDI promotion strategy of Korea
12-20 Korea’s Development Cooperation with the Mekong Region Countries
12-21 Southeast Asian Labor Migration to Korea: Origin-Country Factors and Policy Implications
12-22 Economic Cooperation between India and Selected Asian Countries: Current Status and Policy
        Implications
12-23 How to Promote Economic Cooperation with Resource-abundant Andean Countries: Focus on
        Venezuela, Ecuador, and Bolivia
12-24 Cooperation with the Middle East after the Arab Spring: Circumstantial Changes and Implications
12-25 Trends in the African Construction and Plant Building Market and Implication for Korea
12-26 The Current Situation of Marketization in North Korea and Prospects on a Change of its Economic
        System
12-27 Searching for a New Way in the American Economy after the Crisis
12-28 In Search of New Economic Path of Japan in the Post Global Financial Crisis
12-29 Financial Supervisory and Regulatory Reform of the after the Global Financial Crisis
12-41 Ways to Improve Korea’s ODA Policy Derived from European Experience
12-42 European ODA Policy and Korea-EU Development

Conference Proceedings
12-01 Economic Development Strategy in China Coastal Area in Transition: Challenges and Implications
12-02 2011 KIEP Visiting Scholars’ Paper Series
12-03 Korea and East Asia in a Changing Regional and Global Environment
12-04 Financing Regional Economic Integration and Functional Cooperation for Northeast Asia:
       A Multilateral Financial Institution for Northeast Asia

ODA Regional Studies (in korean)
        Policy Analyses I 12-37
12-01 Key Development Needs in Southeast Asia and Priority Sectors of Korean ODA
        Policy Analyses I 12-38
12-02 Key Development Needs of South Asia and Priority Sectors of Korean ODA
        Policy Analyses I 12-39
12-03 Analysis on Latin America’s Aid Demand and Suggestions for the Priority Sectors
        Policy Analyses I 12-40
12-04 Analysis on Africa’s Development Needs and Korea’s Sectorial Plan for ODA

ODA Policy Analyses (in korean)
12-01 A Study on Priority Areas and Programs for Korea’s Aid for Trade
12-02 International Cooperation for Industrial Development: Issues, Challenges and Future Directions
12-03 International Cooperation for Financial Sector Development
12-04 International Cooperation for Agricultural Development
12-05 The Educational Development and Cooperation Plan
12-06 Environment and Development: Implications for Korea’s ODA Policy
12-07 Green Economy and Sustainable Development: Issues and Implications for Korea’s ODA Policy
12-08 Benefit-Cost Analysis of ODA Projects

Studies in Comprehensive Regional Strategies (in korean)
12-01 Co-petition Strategy through Comparative Studies on the Korean and Indian Pharmaceutical Industries
12-02 Myanmar’s Transformation: International Responses and Implications for Korea
12-03 The Myanmar’s Foreign Relations and Correlation with Principle Countries
        Policy Analyses I 12-30
12-04 Industrial Cooperation between Korea and Indonesia in Java Economic Corridor
12-05 Current State of Foreign Aid in HRD in Lao PDR and Korea’s Assistance Strategy
        Policy Analyses I 12-31
12-06 Mongolia’s Investment Environment and Measures to Expand the Market Entry of Korean Businesses
12-07 The Characteristics and Implications of Sovereign Wealth Funds in Central Asian Countries:
       Kazakhstan and Azerbaijan
12-08 The Study about Kazakhstan’s Industrial Diversification Policy and Korea’s Strategy for Green Growth
       Partnership with Kazakhstan
        Policy Analyses I 12-32
12-09 Development of CAREC and Implications for Korea
        Policy Analyses I 12-33
12-10 The Strategic Connotation and Implications of the Strategic Triangle of Russia, China and India
        Policy Analyses I 12-34
12-11 The Study of Land Issues in South Africa
        Policy Analyses I 12-35
12-12 The Social and Economic Development Capacity Building in Ethiopia and Kenya: Strategies for
       Korean International Development and Cooperation
12-13 Korea’s International Development Cooperation for the Promotion of Ethiopian Small and Medium
       Enterprises (SMEs)
12-14 The Northeast Region of Brazil: Its Investment Environment and Ways to Expand Korea’s          
       Participation
        Policy Analyses I 12-36
12-15 A Study on the Characteristics of Latin American Elites
12-16 Structures and Risk Factors of Islamic Project Finance
12-17 Political Structure and Economic Policy in Iran
12-18 Major Industries in Singapore: MICE, Medical Trism Industry
12-19 Major Industries In Georgia: Transport Infrastructure and ICT
12-20 Major Industries in Mexico: Petrochemical and Renewable Energy Industry
12-21 Major Industries in Jordan: Electric Power and Healthcare
12-22 Major Industries in Mozambique: Electric Power and Agribusiness Industries

 

Trade and Investment Study Series (in korean)
12-01 Spillover Effect of Inward Foreign Direct Investment in Korea by FDI Mode
12-02 A Study on Systemic Issues of WTO Governance and Korea’s Policy Options
12-03 Investigation of China-Korea and Japan-Korea FTA Preferences and Policy Implications

Policy References (in korean)
12-01 Lessons from Mexico under NAFTA
12-02 The Structure and Policy Implications of Islamic Finance: Focused on Sukuk
12-03 A study on the Korea-China FTA Service Negotiation Strategies: Focused on the Implications from
12-04 Korea-Japan Economic Cooperation amid a New East Asian Integration with an Emphasis on FDI
       Flows
12-05 Issues on Development Aid: European Perspective
12-06 A Case Study on the Foreign Companies Inroad to the Urban Development in China
12-07 Changing Labor Environment in China and Countermeasures of South Korean Companies: Focused
       on the Bohai Economic Rim
12-08 China’s Non-Tariff Barriers and Implications for Korea-China FTA
12-09 The Analysis of Competitive Strategies of Enterprises in Shanghai Luxury Consumer Market
12-10 Analysis on the Multinational Retailers’ Entry into Central China

Working Papers
12-01 Comparative Advantage, Outward Foreign Direct Investment and Average Industry Productivity:
       Theory and Evidence
12-02 Multilateral Engagement in North Korea’s Economic Rehabilitation and Possible Establishment of
       Trust Funds
12-03 A Theory of Economic Sanctions
12-04 Election Cycles and Stock Market Reaction: International Evidence
12-05 Korea’s Monetary Policy Responses to the Global Financial Crisis
12-06 Real Frictions and Real Exchange Rate Dynamics: The Roles of Distribution Service and Transaction
       Cost
12-07 An Assessment of Inflation Targeting in a Quantitative Monetary Business Cycle Framework

APEC Study Series
12-01 Characteristics and Determinants of Cross Border Mergers in the APEC Region
12-02 APEC’s Regional Economic Integration Agenda and the Evolution of Economic Integration in the
       Asia-Pacific Region

Monographs
• Who Commands the Negotiating Table: An in-depth analysis of the IMF quota and governance
  Reform Negotiation Process in the Lead up to the G20 Seoul Summit (in korean)
• Korea-India Deepening Partnership for the 21st Century

2012 Summaries of Research Reports

In 2012 those of us at KIEP had designated four main research topics we deemed most pertinent to current circumstances, and engaged in twenty major projects in line with those topics. These include negotiations for liberalization of the services market and other multilateral trade issues in response to WTO regime reforms and other changes in the world trading environment; economic cooperation in APEC and other regional issues; and current bilateral trade issues including free trade agreements. KIEP conducted research to address changes in the macroeconomic environment surrounding Korea, such as changes the internationalization of the Korean won as a result of Korea's increasing prominence on the international economic scene, and presented basic resource materials and provided directions to prepare for changes in North Korea. Policy responses to global inequalities in light of the current rapid transnational movement of capital were forwarded, in addition to measures to facilitate Korea's entry into foreign markets and attract foreign investment. In recognition of rising demand for research on the world's regions, KIEP did not limit itself to providing data on Korea's major trading partners such as the US or China, but made efforts to provide basic data on Central/South America and Africa that had hitherto been lacking.