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Reforming the International Financial Architecture
The recent Asian financial crisis which first began in 1997 has raised a critical question on the adequacy of the existing international financial architecture and provided an impetus for discussion on how it can be modified or re..
Il SaKong et al. Date 2000.12.30
DownloadContentSummaryThe recent Asian financial crisis which first began in 1997 has raised a critical question on the adequacy of the existing international financial architecture and provided an impetus for discussion on how it can be modified or redesigned.
There have already been many reports and policy recommendations put forward regarding this issue. However, these reports and policy recommendations are frequently criticized because emerging market views are not fully recognized and their concerns are not fully reflected, although emerging markets are most vulnerable to the systemic risks of the global financial system.
For this purpose, an international conference was organized by the Institute for Global Economics and the Korea Institute for International Economic Policy to concentrate on discussing these critical issues among Group members and international experts. -
The Cost of Protection in the Agricultural Market in Korea and Its Implication
The Cost of Protection in the Agricultural Market in Korea and Its ImplicationYoo Cheul Song·Ji Hyun Park There are two different views on opening the agricultural market. One is that agricultural market should be opened to impr..
Yoo Cheul Song et al. Date 2000.12.30
Agricultural policyDownloadContentSummaryThe Cost of Protection in the Agricultural Market in Korea and Its Implication
Yoo Cheul Song·Ji Hyun Park
There are two different views on opening the agricultural market. One is that agricultural market should be opened to improve the consumers welfare. The other is that agriculture needs special protection because it has multi-functionality such as food security. Therefore, we investigated the cost of protection in the agriculture in Korea by using the computable partial equilibrium model. We measure the cost of protection in 12 agricultural goods including rice, beef and pork. The increase in the consumer welfare and decrease in the producers welfare in the case of eliminating protection is about 9 trillion and 73 billion won and 6 trillion and 952 billion won, respectively. It implies that one person in the economically active population bears 420 thousands won. It also implies that maintaining one job in these products costs 17 million and 820 thousands won. We also investigated the cases of agricultural market opening in Korea and find that it has positive effects such as decrease and stabilization in the consumer price. -
Issues in Korea-U.S. Trade Disputes: Six Sectoral Issues
The United States has been Korea's largest trading partner, and while the two countries have enjoyed substantial benefits from the mutual trade relationship, there has also been some substantial trade friction. Currently, the Uni..
Junsok Yang et al. Date 2000.12.30
Environmental policyDownloadContentSummaryThe United States has been Korea's largest trading partner, and while the two countries have enjoyed substantial benefits from the mutual trade relationship, there has also been some substantial trade friction. Currently, the United States is experiencing record high trade deficits, but unlike the past, such trade deficit has not become a political problem. In fact, most Americans seem to be unconcerned about the trade deficit. The trade deficit has not been emphasized in the 2000 Presidential elections. Such lack of concern is probably due to the extended period of economic growth in the United States, where the unemployment rate is at a historical low, and productivity is increasing steadily.
Due to the lack of general concern about the trade deficit, most of the bilateral trade problems between Korea and the United States have tended to concentrate on certain politically sensitive, or economically strategic industries. In this report, six industries in particular are examined: Distribution of beef, steel, automobiles, semi-conductors, intellectual property rights, and government procurement. At first glance, there is little similarity between the six industries. Problems in the distribution of beef and the automobile industries deal with market barriers in the Korean market; problems in the steel industries deal with American perception of unfair Korean exporting practices and American market barriers; problems in semi-conductors deal with offshore implementation of American anti-dumping laws; and intellectual property rights and government procurement are "new issues" in trade, areas which are only now coming into importance in the trade arena. The report looks at the individual issues in detail. For beef distribution, Korea has maintained separate distribution channels which does not seem justifiable according to the WTO. For steel, the American firms seems to have used the Asian financial crisis as an excuse to lobby for protection and government assistance which it had always wanted. In semi-conductors, the "Big Deal" merger, as well as reduction in production by Korean firms to prop up international prices seems to have gotten the attention of the American anti-trust authorities as being a possible anti-competitive act. In automobiles, the American manufacturers have steadily asked for, and received reductions of market barriers in the Korean market, but the import share of the automobile market have remained below 1%. However, such low market share may be due to the lack of effort by American firms to market their products properly, as well as the ban on the imports of Japanse automobiles which has only recently been lifted.
The American government and businesses have also asked for stricter intellectual property rights and protection of such intellectual property rights. While the Koreans have strengthened the intellectual property laws, and have improved enforcement of these laws, Americans are still not satisfied with various specific areas of these laws, as well as what they perceive are still "too-weak" levels of enforcement.
Finally, in government procurement, the Americans have recently accused the Inchon International Airport Corporation (IIAC) of discriminating against foreign firms, arguing that IIAC was effectively a part of the Ministry of Construction and Transportation(MOST), thus bound by the non-discrimination obligation of the WTO Government Procurement Agreement. The WTO dispute settlement panel found that, because IIAC is not a legal sub-entity of MOST, it is not subject to the provisions of WTO GPA.
As seen, the problems in each industry seems distinct and separate. However, there are some common threads linking these disparate problems. Lurking in the background of all these issues is the American perception of collusion between the Korean government and businesses. In some industries, the two agents collude to keep Americans out of the Korean market, in some industries, the two agents collude to give unfair advantages to Korean exports in the US markets. In intellectual property rights, the Korean government sometimes bend the rules to give unfair advantages to Korean businesses. These perceptions are sometimes worsened by the opaque relationships between the Korean government and businesses. Thus, in order to reduce bilateral trade friction between Korea and the United States, one of the primary tasks of the government must be to counter the American perception that the Korean government and businesses are engaged in collusive acts against American firms, and make as transparent as possible, the relationships between the Korean government and businesses. -
AFTA-CER Linkage and Korea's Policy Options
AFTA-CER Linkage and Koreas Policy OptionsYongkul WonDespite the continuing efforts for trade and investment liberalization on a multilateral level by the GATT/WTO, regional trade agreements (RTAs) shows no sign of diminishing all..
Yong Kul Won Date 2000.12.30
Economic integration, Free tradeDownloadContentSummaryAFTA-CER Linkage and Koreas Policy Options
Yongkul Won
Despite the continuing efforts for trade and investment liberalization on a multilateral level by the GATT/WTO, regional trade agreements (RTAs) shows no sign of diminishing all over the world. Rather, the world has witnessed rapid expansion and deepening of major RTAs. Having recent development in the global trading environment in mind, this study traces and examines the dialogue process to make a formal linkage between ASEAN Free Trade Area (AFTA) and Australia-New Zealand Closer Economic Relations Trade Agreement (CER). In particular, the study is to critically evaluate the possibility of a free trade agreement (FTA) between them and its implications on regional as well as global trading environment. In doing so, the study intends to provide some policy suggestions for Korean government that has recently changed its policy direction on regionalism toward a positive way.
Formally started in 1995, AFTA-CER linkage dialogue has successfully identified and widened cooperation areas, especially in trade facilitation area. Based on the recommendation by the High-level Task Force established in 1999 to look into the possibility of an AFTA-CER FTA, ASEAN and CER economic ministers recently agreed to work towards a Closer Economic partnership (CEP), a similar concept to FTA. The CEP between AFTA and CER is intended to strengthen the international bargaining position of both regions and send a positive signal to investors of both regions commitment to continuing liberalization. While the linkage dialogue apparently looks smooth, there are several obstacles to overcome to proceed further and bring concrete results such as lack of mutual confidence and starkly different stages of economic development among participating countries. AFTACER FTA has multi-faceted implications on regional and global trading environment. First of all, the FTA may cause another blow to the APEC that has already been stumbling since its failure to implement both Early Voluntary Sectoral Liberalization (EVSL) and Accelerated Trade Liberalization (ATL) initiatives. The FTA is also believed to take an effect on agricultural sector negotiation in the coming WTO new round. Considering that many of the proposed FTAs member countries have participated in Uruguay Round as a member of Cairns Group, the FTA may well act an aggressive role for liberalization in agricultural sector. On the other hand, the FTA may trigger another round of regionalism waves all over the world in case that multilateral trade liberalization talks led by the WTO stall.
Even though the possibility of the AFTA-CER FTA seems not so high for now, Korean government needs to be prepared for each and every possibility. As a long-term response, regional studies on ASEAN and CER area should be encouraged. It should also be considered whether Korea is to join the AFTA-CER FTA when realized. It may be advisable to form a FTA with influential countries to raise bargaining power in the coming global trade negotiations. But for now, it is most important to have closer relationships with AFTA and CER in private as well as governmental levels so as for them not to evolve an exclusive FTA. -
The Role of IT and Financialization in the Recent American Growth
The Role of IT and Financialization in the Recent American GrowthYoung-Soo Lee and Hwanjoo SeoThe upswing in the US economy since the early 1990s has provided researchers with interesting topics. For example, topics like the econo..
Young-Soo Lee et al. Date 2000.12.30
Economic developmentDownloadContentSummaryThe Role of IT and Financialization in the Recent American Growth
Young-Soo Lee and Hwanjoo Seo
The upswing in the US economy since the early 1990s has provided researchers with interesting topics. For example, topics like the economic effect of information technology, financialization, volatility of the stock market, changing corporate governance, and income inequality have been extensively studied. This study places emphasis on how information technology (IT) and the prosperous stock market created a structural change in the US economy rather than examines the recent change in the US economy overall. In other words, it is mainly studied how the spread of IT and advance in the financial system have affected the 1990s, named New Economy. The studies with focus on new production paradigm or digital economy argue that the US economic boom is ascribed to static and dynamic economies of scale resulting from industrialization of information and informatization of industries. Consequently, it is assumed that the development and diffusion of IT transformed the US economy into the regime of high growth and productivity. On the contrary, from the views that stress financialization especially in households, the US economic boom is compounded of changes in labor market and corporate governance alongside in financial market, and increase in consumption. That is, they argue that the US economic boom or demand expansion is attributed to a mixture of the flexible labor market, boost of the stock market through maintaining low interest rates, and increase in consumption of durable goods.
This study tests variously these two hypotheses for structural change. To begin with, the dynamic characteristics of IT and financial sector are inspected using the database of Bureau of Economic Analysis and Board of Governance of Federal Reserve System. After that, to examine the long-run features of related time series, unit root test and cointegration test are conducted, which are followed by cusum test, F-test, and test with dummy variables for structural change finally. The results are as follows. First, it is observed that IT has enhanced efficiency of non-information capital and also contributed increasingly to growth of labor productivity since the early 1990s. Second, the influence of financial assets in a form of stock has swollen on consumption since 1993. It is examined that the expanding consumption are associated with increasing stock possession of households by investing funds including pension funds. Although the clear conclusions are not achieved regarding time division and structural change, the results indicate that the contribution of IT to labor productivity growth and the influence of wealth in a form of stock on the consumption have been rapidly expanded since the early 1990s, especially 1993. -
The Expansion of Global Conglomerates into Asia after the Economic Crisis and Its Implications
The Expansion of Global Conglomerates into Asia after the Economic Crisis and Its ImplicationsYoungho Park With the spreading phenomenon of the so-called globalization, wester..
Young Ho Park Date 2000.12.30
Overseas direct investmentDownloadContentSummaryThe Expansion of Global Conglomerates into Asia after the Economic Crisis and Its ImplicationsYoungho Park
With the spreading phenomenon of the so-called globalization, western conglomerates have accelerated in expanding into the Asian region because they considered the changing investment environment had resulted from extensive restructuring and market liberalization after the economic crisis.
While in the past, overseas direct investment of western conglomerates had focused on North America and Europe owing to the relatively high entry barrier of the Asian region, after the crisis, they turned towards the Asian region, observing the region's dynamic economy based on the market liberalization and the huge market size. To respond to this new circumstance, Japanese companies are also seeking new strategies to penetrate into the Asian market along side their own difficulties of domestic economic recession and business restructuring. Thus, the competition between developed countries is intensifying to grasp the Asian market.
One of the most striking patterns which emerged in the investment behavior of western conglomerates in Asia following the economic crisis is enlargement of mergers and acquisitions (M&A) between borders. Before the crisis, the greenfield investment was a major pattern of investment because of Asian countries' restrictions on acquisitions with foreign capital. However, following the crisis, market liberalization expanded and M&A type direct investments are still rapidly growing. This is due to perfect harmony of the interests of countries concerned to overcome the crisis by attracting foreign capital and the interests of foreign companies preferring M&A.
It is predicted that the investment of western conglomerates will continue to grow due to Asian countries successfully handling and overcoming the crisis. Moreover, due to the ongoing process of financial reform and greater market liberalization in the sector of information telecommunication (IT) and distribution, western conglomerates with competitiveness will increase their investment in those particular sectors.
It could be possible to interpret these phenomena, the rapidly growing expansion of western conglomerates, as one of the tactics for strengthening the control in Asian market and further, taking the leadership in the international economy. It will lead to new competition and change in the cooperative structure of the Asian region.
Consequently, this changing situation provided us with both opportunities and challenges at the same time. We cannot ignore the significance of expansion of western conglomerates into the Asian region since Korean companies had focused traditionally on investment in the Asian region. We need to seek new Asian investment strategies through continuous monitoring and benchmarking on global conglomerates into Asia. -
The Prospect of Japanese Economic Cooperation with North Korea and the South Koreas Preparation
The Prospect of Japanese Economic Cooperation with North Korea and the South Koreas Preparation Jiho ShinSince the inter-Korean summit meeting, which has accelerated bringing ab..
Ji Ho Shin Date 2000.12.30
Economic integrationDownloadContentSummaryThe Prospect of Japanese Economic Cooperation with North Korea and the South Koreas Preparation
Jiho Shin
Since the inter-Korean summit meeting, which has accelerated bringing about a new order on the Korean peninsula, the South has been showing keen interest in Japans economic cooperation with the North. This is because the economic conditions of the North will be greatly influenced by when and how Japan, the second-largest economy, will pursue economic cooperation with the North. Future South-North economic cooperation strategies will be hugely affected by the outcome of this decision.
Japan has made efforts to improve relationships with the North by gradually and steadily promoting economic exchanges with them. However, Japanese companies have been passive in and even negative toward their cooperation with the North since the mid-1970s, when the North could not repay trade loans to Japan. A series of events during the past ten years, such as suspicions of nuclear arms development and the firing of a Daepo-dong missile, have aggravated Japanese public sentiment toward the North. The only Japanese-North Korean tie has been Japanese food aid for famished North Koreans. In contrast, however, North Korea hopes to revive economic support from Japan.
The economic cooperation between Japan and North Korea will only start in earnest after the normalization of diplomatic relations between these two countries. But it will only be possible when the problems involving the missile firing and the Norths kidnapping of Japanese citizens are resolved.
If the normalization of diplomatic relations between the two countries is realized, Japan will likely provide financial assistance worth USD 5~10 billion to the North in the form of goods and services. No doubt, this will hugely affect the future economy of North Korea, whose economic scale is currently minimal. The Souths role in this is to make preparations in advance to see that these funds are used effectively. First, South Korea should shift its previous view on the economic cooperation with the north from focusing only on bilateral cooperation between the two Koreas to focusing on the economic recovery of the North by cooperating with Japan and international financial organizations. Second, it should ensure that Japanese financial assistance should serve to bring about systemic reforms in the North Korean economy that can lead to the improvement of its efficiency. Finally, the South should seek ways to actively participate in this process. -
WTO New Round: Preparing the Negotiation on Agriculture
WTO New Round: Preparing the Negotiation on AgricultureYoo Cheul Song·Ji Hyun Park(KIEP)Jaeok Lee·Myong Keun Eor·Jeong Bin Im(KREI)Agricultural trade is now under the WTO principles after the Uruguay Round. Each member country ..
Yoo Cheul Song et al. Date 2000.12.30
Multilateral negotiationsDownloadContentSummaryWTO New Round: Preparing the Negotiation on AgricultureYoo Cheul Song·Ji Hyun Park(KIEP)Jaeok Lee·Myong Keun Eor·Jeong Bin Im(KREI)
Agricultural trade is now under the WTO principles after the Uruguay Round. Each member country has changed its agricultural policy following the result of Uruguay Round. They lowered the average tariff rate on agricultural products in OECD countries to 36%, but it is much higher than the average tariff rate on all products. Developed countries use the specific tariff and mixed tariff, which make their tariff system less transparent and they use a tariff rate quota that prevents imports over a certain level. However, WTO member countries follow their schedules on domestic subsidy reduction.
The negotiations on agriculture are now underway as the built-in agenda in WTO even though the launch of New Round failed at the 3rd Ministerial Meeting. Tariff cuts, minimum market access, special safeguards, blue box, domestic and export subsidies, export credit and genetically modified organism are expected to be on the main agenda of the agricultural negotiations.
Korea has carried out its promise to the WTO after 1995 and the influence of the Uruguay Round on the agricultural sector was not critical because Korea was allowed to have flexibility on major products. However, it is expected that new negotiation on agriculture will have a huge effect on Koreas agricultural sector because it will cause tariff cuts and reduction on domestic subsidies.
Therefore, the Korean government should form a negotiation plan that helps to facilitate structural reforms in the agricultural sector. The Korean government should keep in mind the basic position of maintaining a reasonable time to prevent the collapse of the agricultural sector even though it should open the market eventually. -
WTO Negotiation on Trade in Service Its Impacts and Strategies
WTO Negotiation on Trade in Services: Its Impacts and Strategies June-Dong Kim Jang-Yung Lee Han-Young Lee Yong-Kyu Kim Jung-Hee Choe Jang Hur Jang-Won LeeThis study aims..
June-Dong Kim et al. Date 2000.12.30
Multilateral negotiationsDownloadContentSummaryWTO Negotiation on Trade in Services: Its Impacts and Strategies June-Dong Kim Jang-Yung Lee Han-Young Lee Yong-Kyu Kim Jung-Hee Choe Jang Hur Jang-Won Lee
This study aims at recommending strategies for WTO services negotiation by analyzing the current status of and probable impact on some of the key service subsectors, namely financial, telecommunication, maritime and air transport as well as the movement of natural persons.
Services negotiation has the purpose of liberalizing trade in services and thus will bring economic benefits. For example, it is estimated that liberalization of financial services will increase production by US$80 billion in five years. Similarly, liberalizing telecommunication services will increase GDP by 2.4% and consumer welfare by 2.3% in the next six years.
To ensure these benefits, it is necessary to establish proper strategies for the negotiation. In the financial services, there is likely to be growing pressure to liberalize services in the mode of cross-border supply and consumption abroad as well as in the area of new financial instruments. To lessen the possible side effects of liberalization, some prudential measures on these services must be scheduled.
In the telecommunication services, there will be demands to increase foreign equity limits on facility-based service providers. In raising the limits on foreign shares, the public interest of telecommunication services should be taken into consideration. Also, some of the key regulations including those on interconnection need to be reviewed according to the WTO disciplines.
Maritime service is strategically important since future negotiation will expand opening of the foreign market. It needs to focus on countries that are less open and lack transparency in order to upgrade overall openness of this sector.
In air transport service, the issue is whether to include air traffic rights in the GATS. Since the current bilateral system reveals some inefficiencies, it is better to consider some of the air traffic rights multilaterally. Also nonscheduled and freight air transport can be included in the GATS to accommodate their needs.
The issue of movement of natural persons (mode 4) is sensitive but the Korean government needs to be positive in its negotiation. It is an important factor to encourage developing countries to participate in the services negotiation and Korea also can promote exports of her middle-skilled workers.
The government needs to recognize that liberalization of trade in services is in our interests. Hence, it can utilize the WTO services negotiation in promoting further liberalization and deregulation. However, to prepare for the possible side effects such as unemployment due to liberalization of mode 4, it needs to establish proper social safety nets and effective reeducation programs. -
Early Policy of Reform and Opening in China and Vietnam and the Direction of Reform in North Korea
Early Policy of Reform and Opening in China and Vietnam and the Direction of Reform in North KoreaMyoung-Chul Cho·Ihk-Pyo HongFrom the late 1980s until the mid 1990s, North Korea experienced a great difficulty with system mainten..
Myoung-Chul Cho et al. Date 2000.12.30
Economic reform, North Korean economyDownloadContentSummaryEarly Policy of Reform and Opening in China and Vietnam and the Direction of Reform in North Korea
Myoung-Chul Cho·Ihk-Pyo Hong
From the late 1980s until the mid 1990s, North Korea experienced a great difficulty with system maintenance, with continuing food shortages, economic deterioration and international isolation in the wake of the breakdown of the socialist bloc. In light of this, there was posed the possibility of an early breakdown of the North Korean system. Kim Il-sung's death in 1994 especially raised such expectations both at home and abroad. However, the North Korean system began to show signs of gradual settlement once over the year of 1998. Based on the confidence in the stability of the system, North Korea has recently begun to pursue external opening and system reform of a North Korean style to show a rather progressive attitude in inter-Korean relations, and also to actively engage in a variety of diplomatic activities on the international scene.
In view of the stabilizing trend and developments in the North Korean system, a great number of studies on South-North Korean integration or on the transformation of the North Korean system, based on the premise of an early breakdown of North Korea and abrupt integration of two Koreas seem to be unable to reflect the various possible processes of integration and the realities of North Korea. North Korea in economic transition is especially likely to look to a reform and opening policy of partially adopting a market economic system while maintaining the socialist framework as in the case of China and Vietnam. Thus, a comparative study of the initial conditions of gradual reform and opening in China and Vietnam and the present realities in North Korea seems to be in order to provide some suggestions on the forecast and prospects for system change and reform directions in North Korea.
This report is designed to delve into the initial conditions and the foci of reform in transition to a socialist market system in China and Vietnam so as to ascertain their differences and similarities with the form, speed and reform policy North Korea can take at present in terms of economic transition. To that end, the policy and process of reform and opening are divided here into three categories: change in proprietorship, liberty of economic activities and construction of market infrastructure.
First, as for the change in proprietorship constituting the core of economic transition, China and Vietnam turned to the method of gradually expanding the non-state sector, allowing the enterprise or economic activities of individuals or foreign investors, recognizing private proprietorship, rather than hurrying to privatize national property in an across-the-board way in the initial reform process. This is in contrast with Eastern European countries, and will provide some suggestions for the North Korean process of reform.
Second, the economic liberalization policy is aimed at departing from the state-run economic plan and establishing as the economic principles the economic activities based on the free will and responsibility of the individuals. The Chinese and Vietnamese policies in this line include mainly: strengthening of independent management rights of individual production units, curtailment or abrogation of production subsidies to companies, gradual liberalization of commodity prices, partial admittance of business establishment and commercial activities, liberalization of foreign trade and expansion of foreign investment.
Third, construction of market infrastructure should go along two lines: financial and monetary. China and Vietnam, aware that these two lines are the most important in economic reform, came up with a variety of active macroeconomic policies. North Korea will also have to carry out radical reform of the financial and monetary systems and thus guarantee the free flow of capital in order for the privatization and liberalization policy to bear fruit in the market.
As mentioned above, China and Vietnam have adopted the gradual step-by-step reform and opening policy under the management of the Party and government while maintaining the basic framework of socialism. This will be a rather probable alternative for North Korea at present. In addition, a comparative study of China and Vietnam, both having experienced territorial division due to ideological differences, though different in characteristics and details from Korea, may also suggest some lessons to Korea in expanding inter-Korean economic relations and constructing a joint economic community. The difference between China and Vietnam on the one hand and North Korea on the other hand lies in that the former two do not have to worry about possible system instability during the process of marketization of the economy owing to the existence of a possible "absorber country," while the latter has to worry about the existence of such a country, which acts as a hindrance on the path of marketization and external opening. Hence comes also the importance of the roles of the South Korean government and neighboring nations in inducing the stable reform and opening policy of North Korea.
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