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Development of the IT Industry and Structural Transformation: Focused on IT Cooperation with Russia, Kazakhstan and Uzbekistan
This study is designed as a primary study to objectively analyze the economic meaning and potential of digital sector cooperation with Russia, Kazakhstan and Uzbekistan to derive implications for presenting new directions for prom..
Minhyeon Jeong et al. Date 2021.12.30
ICT Economy, Economic CooperationDownloadContentSummaryThis study is designed as a primary study to objectively analyze the economic meaning and potential of digital sector cooperation with Russia, Kazakhstan and Uzbekistan to derive implications for presenting new directions for promising cooperation. With the advent of the so-called “fourth industrial revolution era” just around the corner, the goal of the study is to discuss what the development of the digital industry means to the economies of the three countries, examine the characteristics of individual countries, and get policy clues on how cooperation with Korea should proceed in the future. To this end, this study performs the following four main analyses. First, the economic meaning of IT technology cooperation with three countries, Russia, Kazakhstan, and Uzbekistan, is viewed from the perspective of industrial transformation. Second, the effect of IT technology cooperation between Korea and Russia on the Russian economy is quantitatively estimated through the analytical framework of the structural transformation. Third, to supplement the limitations of theoretical discussions and derive customized cooperation directions for each country, we examine the current status and policies of the IT industry in the three new northern countries in detail. Fourth, we identify as objectively as possible which IT technology will have a high cooperation effect between Korea and Russia.Chapter 2 is the first chapter of the main topic and was conducted to achieve the first and second research objectives. Section 1 briefly discusses the traditional characteristics of the structural transformation based on the experience of high-income countries. Section 2 discusses why the traditional structural transformation is not well represented and often delayed, centering on the recent middle-income countries’ experiences. Section 3 examines the structural transformation of the three countries in the New Northern Region. Section 4 examines how IT technology innovation can play a role in solving the delay in the structural transformation. In order to analyze this economically, a theoretical model is constructed based on the intuition that IT technology innovation has a positive effect on improving productivity in the service sector. Furthermore, by numerically approximating the theoretical model for Russia with available data, we quantitatively estimate how helpful IT technology innovation can be to the problem of delay in the structural transformation that Russia has to solve.The conclusion of the analysis is positive. This is because the economy can naturally move from the “bad equilibrium” to the “good equilibrium” through technological innovations in the IT sector. According to the new structural transformation model considered in this paper, we can theoretically prove that the proportion of production in general manufacturing, including the IT sector, increases when IT technology innovation helps improve service industry productivity. Here, the increase in productivity of the service industry with advances in IT technology is based on the intuition that IT technology innovation can alleviate search and matching friction existing in the service industry. The quantitative analysis of how positive IT technology cooperation with Korea affects the long-term growth rate of resource-dependent middle-sized countries showed that if the positive effect of current productivity improvement in the Russian manufacturing sector rises by 173%, Russia’s long-standing delay in industrial structure can be resolved.Chapter 3 is the second chapter of the main topic and was prepared to achieve the third purpose of this study. In other words, it is a chapter prepared to compensate for the limitations of generality and universality of the theory. The individual characteristics of the three New Northern countries dealt with in this paper are analyzed in-depth. In the last section, by briefly comparing and analyzing the status of IT industry development and the governments’ development strategies, we derive the individual characteristics of these countries in the IT industry and development strategies as much as possible.As a result of comparing and reviewing the current status of the IT industry in the three countries using the best data available, we conclude that the level of development in the IT industry is similar to that of Russia and Kazakhstan, while Uzbekistan is relatively lagging. These differences in industrial development are reflected in differences in transition strategies to the digital economy and IT industry development strategies of the three countries. In particular, Russia and Kazakhstan, which are highly dependent on natural resources, are considered to be more interested in transforming the economic structure through the development of the IT industry. Specifically, Russia’s policy focus is on improving existing IT infrastructure and related systems and enhancing the practical competitiveness of the Russian IT industry in the global market. On the other hand, Kazakhstan has a policy focus on improving existing IT infrastructure and related systems, but no specific policy has been prepared to develop the IT industry. Finally, in Uzbekistan, the establishment of IT infrastructure should be prioritized, and accordingly, this becomes the most important policy goal. There is still no national policy for developing the IT industry like Kazakhstan. Both Kazakhstan and Uzbekistan have yet to have IT companies to secure competitiveness in the global market, so national strategies and policies for developing the IT industry are expected to differ from Russia’s.In Chapter 4 we objectively identify which IT technology field can maximize the effectiveness of cooperation between Korea and Russia. We statistically analyzes technology patent data registered by Korea and Russia over the past five years. Chapter 4 examines which technological cooperation has a strong synergy effect and a positive propagation effect, and infers the immediate “need for technological cooperation” based on this. As a result of patent citation analysis, we find that the cooperative synergy between Korea’s semiconductor-related technologies and Russia’s digital computing or data processing will be prominent, reflecting each country’s technological comparative advantage. In addition, when using the network analysis method, we find that such technological cooperation has a high scope of the propagation effect and immediate influence of cooperation as well as synergy effect of cooperation. -
Ten Years of Korea-EU FTA: Achievements and Way Forward
The year 2011 marked the 10th anniversary of the free trade agreement (FTA) between Korea and the European Union (EU). The Korea-EU FTA was Korea’s first FTA with a major trading partner and the first case of the EU’s “next gen..
Dong-Hee Joe et al. Date 2021.12.30
Economic Relations, Economic CooperationDownloadContentSummary정책연구브리핑The year 2011 marked the 10th anniversary of the free trade agreement (FTA) between Korea and the European Union (EU). The Korea-EU FTA was Korea’s first FTA with a major trading partner and the first case of the EU’s “next generation”FTAs.At the 10th anniversary of its entry into force, this report looks back on the meaning of the Korea-EU FTA and analyzes its impact on the bilateral economic relationship between the two economies.Followingthe entry into force of the FTA, Korea’s export to the EU stagnated, while Korea’s import from the EU increased, particularly during the eurozone crisis in 2011-2013. Among the EU member countries, Korea’s major export partners include not only large Western European countries such as Germany, United Kingdom and the Netherlands, but also the Central and Eastern European Countries (CEECs) such as Poland, Slovakia and Czech Republic.In particular, Korea’s export to the latter countries increased substantially after the FTA enteredinto force.Also, Korea’s import from the CEECs more than tripled after the entry into force of the FTA, though Western Europe’s share still remained much larger. Industrial products take a large share both in Korea’s export to and import from the EU, while consumer products and high-tech equipment also take a big share in Korea’s import from the EU. Both Korea’s export to and import from the EU diversified after the entry into force of the FTA.The EU is the second largest (about 14 percent) foreign investor in Korea and the largest destination (about 41 per cent) of Korea’s investment abroad. The EU’s investment in Korea was larger than investment the other way around before the FTA, but the opposite becametrue after the FTA. Western Europe receives most of Korea’s investment in the EU, but Poland and Hungary’s share is rapidly increasing in recent years. The EU’s investment in Korea comes mostly from Western Europe and Malta. While Korea’s investment in the EU is concentrated in services (about 62 per cent), manufacturing’s share is rapidly increasing in recent years. The EU’s investment in Korea is more balanced between services (about 53 per cent) and manufacturing (about 44 per cent).This report’s econometric analyses show that the FTA increased Korea’s aggregateexport to and investment in the EU, especially in the CEECs. The FTA is estimated to have reduced Korea’s export to the EU in some industries, which can be explained by Korean manufacturers’ relocation abroad, including to the EU.As for Korea’s import from the EU, the FTA is estimated to have increased the volume from western Europe and diversity from the CEECs. This latter effect is likely to have lowered the import price and strengthened the supply chain of Korea.This report presents four industries as showcases of the FTA’s role in strengthening the bilateral economic relationship between Korea and the EU, namely the automotive, battery for electronic cars, semiconductor and pharmaceutical industries. In the automotive industry, intra-industry trade has increased substantially after the FTA. Korea’s import of final products (e.g., cars) has increased, and Korean car makers’ production in the EU, especially in the CEECs, has increased, which is reflected in the increase of Korea’s intermediate goods, resulting in an increase of Korean car makers’ market share in the EU. In the electronic-car battery industry, where the rapidly increasing demand and short supply in the EU leaves a substantial excessive demand, Korean manufacturers fill the gap, not only by exporting the final product, but also building production facilities in the EU. This likely contributes to the European Green Deal. In the semiconductor industry, where Korea’s sourcing of capital goods and inputswas heavily concentrated, suppliers from the EU helped Korea to diversify its supply chain. In pharmaceuticals, Korea’s fast reaction to the surge in demand for the necessary equipment in the EU during the COVID-19 pandemic helped the EU’s fight against the pandemic.To shed some light on the future development of the Korea-EU FTA, this report analyzes three recent trade agreements entered into bythe EU, namely the EU-Canada Comprehensive Economic and Trade Agreement (CETA), EU-Singapore FTA and EU-Japan Economic Partnership Agreement(EPA). CETAtook a balanced approach in market liberalization in agriculture, abolished tariffs on manufactured goods and liberalized services and public procurement. Unlike in Canada’s other trade agreements which adopted investor-state dispute settlement(ISDS) clauses, CETA adopted the EU’s Investment Court System (ICS) as its investment dispute settlement mechanism. During the ratification process of the EU-Singapore FTA, the European Court of Justice decided that investment is a shared competence, not the EU’s exclusive competence. This led to separate agreements for trade and investment. The EU-Singapore FTA allows for cumulation of ASEAN in its rules of origin. It is also the first of the EU’s FTAs to include provisions on corporate social responsibility (CSR).The main interest of the EU in the EU-Japan EPA was to lower the non-tariff barriers (NTBs) withinJapan.The EPA took a gradual approach in market liberalization in agriculture, abolished tariffs on manufactured goods and substantially reduced the NTBs. It is also the first trade agreement to incorporate the Paris Agreement. As for investor protection, it failed to come to an agreement due to the difference in preference between the EU (ICS) and Japan (ISDS). The two parties also agreed to continue discussion on digital trade and data protection. Considering the features of these agreements, the Korea-EU FTA may, in the future, include more normative features such as the Paris Agreement, CSR and ESG (Environment, Social, Governance). Also, the EU is likely to push for the ICS as the investment dispute settlement mechanism.This report also analyzes some of the EU’s requests for revision of the FTA, namely on direct transport and re-entry after repair. On direct transport, the EU requested to change the current, single consignment criterion to non-manipulation criterion to allow separate transport from third countries. The EU requested to abolish tariffs on goods re-entering after repair, especially for aircrafts. The EU argues that Korea will benefit from the increased competition in the market for such services. These issues are likely to be raised again in the future.Within the framework of the TSD chapter of the FTA, the EU argued that Korea’s domestic legislations violated the ILO principles and that Korean government did not makedue efforts to ratify the ILO core conventions. The two sides started official discussions on this issue in January 2019, and an expert panel was requested in July 2020. To resolve this issue, Korea made major changes in the corresponding legislations and ratified the ILO core conventions.This report finishes with proposals infour areas for further deepening the economic cooperation between Korea and the EU beyond the FTA, namely hydrogen economy, digital economy, start-up and audio-visual co-production. -
New International Tax System and its Impact on Investment of MNE
As digitalization of the economy accelerates, tax avoidance by multinational enterprises (MNEs) becomes a more serious and sophisticated issue to address. The issue can be attributed to several characteristics of firms in the digi..
Sangjun Yea et al. Date 2021.12.30
Tax, Overseas Direct InvestmentDownloadContentSummaryAs digitalization of the economy accelerates, tax avoidance by multinational enterprises (MNEs) becomes a more serious and sophisticated issue to address. The issue can be attributed to several characteristics of firms in the digital economy, these being: discrepancy between the permanent establishment where the corporate income tax is levied and the location where substantial business activity is performed, high reliance on intangible assets in production that are movable across jurisdictions, and the intricacy of applying transfer pricing rules to new business activities. Due to these features, MNEs have been able to easily shift earned income from a country with high corporate income tax (CIT) rates to one with low CIT rates and lessen their tax burdens by taking advantage of extant principles of the international tax system and bilateral tax treaties between countries.In order to tackle the base erosion and profit shifting (BEPS) issue of MNEs under the digital economy, the OECD and G20 launched an inclusive framework (IF) joined by 141 countries and has conducted discussions on a new international tax system. As a result, in October 2021, two major revisions on the current international tax system – the Two-Pillar solution on BEPS – were agreed upon by 139 IF member countries, including G20 members, to take effect in 2023.The IF’s final agreement on the Pillar 1 and Pillar 2 is as follows. Pillar 1’s scope is limited to a group of MNEs whose annual revenues exceed 20 billion euros with above 10% profitability. This allows market countries to levy a portion of MNEs’ profits net of the 10% of the revenues, in proportion to each country’s size of revenues sources. The tax base alloted to eligible countries is called “Amount A.” Pillar 2 intends to impose global minimum CIT rates above 15%, under which MNEs’ affiliates are obliged to pay top-up taxes up to 15% if affiliates in other jurisdictions pay low taxes that amount to the effective CIT rates in short of 15%. Pillar 2 applies to a group of MNEs whose annual revenues exceed 750 million euros. The introduction of this new international tax system will clearly have a major impact on MNEs’ investment and value chain decisions.This study mainly focuses on the Two-Pillar solution on BEPS, exploring how this affects the investment and production decisions of MNEs, and provides implications on Korea’s FDI policy.In Chapter 1, we briefly explain the background of the OECD BEPS projects and the main schemes of the Two-Pillar solution finally agreed upon by the IF.In Chapter 2, we identify which MNEs are encompassed within the scope of Pillar 1 and Pillar 2, and look at the firms’ locations and distributions across industries. Using Orbis financial data on MNEs, we find that Pillar 1 applies to MNEs whose headquarters and affiliates are located mostly in the US, China, and the UK. Also we find that the MNEs in the scope of Pillar 1 are distributed among varied industries uniformly. It also features that more consumer facing businesses are included in the scope of Pillar 1 than automated digital services companies. In the case of Pillar 2, we find that MNEs in the scope of Pillar 2 are located in broader jurisdictions including the US, China, Japan, the UK, Cayman Islands, British Virgin Islands, Hong Kong, and the UAE. We also show that MNEs in the scope of Pillar 2 are distributed among various industries uniformly.In Chapter 3, we document the evidence of MNEs’ profit-shifting through intangible assets by testing empirical models with Orbis financial data. Our findings indicate that, firstly, as subsidiary companies face higher CIT rates in their jurisdictions, they tend to have less amounts of intangible assets; secondly, in jurisdictions with low CIT rates, the subsidiaries are more likely to have a higher level of profits than those with high CIT rates; thirdly, companies’ profits are likely to be more responsive to the difference between the CIT rates of a parent company and its subsidiary when the industry relies more on intangible assets in production; and lastly, MNEs’ profit-shifting occurs more in the service industry and tax havens than in the manufacturing industry and non tax havens.In Chapter 4, inspired by Wang (2020)’s profit-shifting model, we newly develop a multi-country general equilibrium model featuring firms’ decisions on profit-shifting to minimize tax burden, as well as making location choices for multinational production and exports given the Two-Pillar solution on BEPS. We consider three scenarios where either Pillar 1 or Pillar 2 are introduced or where they are both introduced to disentangle the economic impacts of Pillar 1 and Pillar 2, separately. From these exercises, we find that CIT rates and an increase in IFDI (OFDI) due to introducing the Two-Pillar solution are positively (negatively) correlated. Korea is expected to benefit from introducing Pillar 1 because MNEs with conduit firms located in other jurisdictions with low CIT rates for tax-planning might relocate their production sites to Korea when the tax advantages are partially offset by Amount A. However, these benefits may be diminished when Pillar 2 is introduced because setting global minimum CIT would increase the overall tax burden of MNEs and thereby reduce the return on R&D investment, FDI incentives for production, and exports. For the case of Korea, the former effect slightly dominates the latter effect; thus, the IFDI in Korea increases after the Two-Pillar solution is introduced.Based on these results, in Chapter 5, we suggest unleashing regulatory interventions in FDI policy could be more effective than reducing CIT rates to attract foreign investment. Also we suggest the Korean government may play a supportive role in MNEs’ reorganizing value chains when Pillar 2 is introduced and the tax burden imposed on MNEs harms their competitiveness. -
The Internationalization of SMEs via Digital Platforms: Findings and Policy Implications
The global e-commerce market has been rapidly expanding due to the development of digital platforms. When compared to traditional methods, internationalization via digital platforms has significantly reduced the cost of entering o..
Kyong Hyun Koo et al. Date 2021.12.30
Trade Policy, Electronic CommerceDownloadContent
Summary정책연구브리핑The global e-commerce market has been rapidly expanding due to the development of digital platforms. When compared to traditional methods, internationalization via digital platforms has significantly reduced the cost of entering overseas markets, which is expected to open up new opportunities for small- and medium-sized enterprises (SMEs) with limited capital or manpower. However, few studies have been conducted on domestic SMEs internationalization via digital platforms. Furthermore, little is known about the effects of relevant policies on SMEs’ use of digital platforms and internationalization.Aiming to fill this research gap, this study collects data on Korean SMEs’ online exports (i.e., exports via e-commerce), the most representative type of SMEs’ internationalization through digital platforms, establishes stylized facts, and investigates the effects of Korean SMEs’ online export support policies. Based on the findings, we also provide policy implications.In Chapter 2, we first conduct a survey on domestic SMEs’ online exports using a sample representing domestic SMEs registered as official e-commerce firms as of June 2021. Based on survey results, we document basic descriptive statistics on SMEs’ online exports behavior and investigate their main issues and policy demands.Chapter 3 outlines Korea’s online export support policies for SMEs and explores the effects of five major online export assistance programs on SMEs’ online exports. For the estimation of the effects, we combined the survey data from Chapter 2 with information on the firms participating in the programs, which are provided by the Ministry of SMEs and Startups and Korea Enterprise Data (KED).Chapter 4 analyzes the characteristics of the e-commerce market and major digital platforms for major partner countries of Korean online exports. Furthermore, the characteristics and challenges of SMEs who export online are investigated in greater depth per partner country. The United States and China are the first countries to be studied, respectively representing developed and developing countries with substantial domestic online markets and super-sized digital platform firms. Among the emerging countries in the ASEAN region, Vietnam and Indonesia are chosen since the former has the highest imports from Korea and the latter has the largest population in that region.Lastly, we provide policy implications in Chapter 5 based on the findings above, such as assisting SMEs in improving their online export capability, removing new-type trade barriers arising from cross-border e-commerce activities, protecting domestic SMEs from abuse of major foreign digital platforms’ monopoly status, and so on. -
A Mutual Cooperation Between Local SMEs and Local Korean SMEs in the New Southern Countries
This study attempts to suggest the way of win-win cooperation between local small and medium-sized enterprises (SMEs) and local Korean SMEs in the New Southern country. For this purpose, it first investigates the theoretical backg..
Choong Lyol Lee et al. Date 2021.12.30
Economic Cooperation, Business ManagementDownloadContentSummaryThis study attempts to suggest the way of win-win cooperation between local small and medium-sized enterprises (SMEs) and local Korean SMEs in the New Southern country. For this purpose, it first investigates the theoretical background, current their mutual relationship and cases of previous cooperation of major companies.The motivation for this study started with the following observational motivations. First, Korean SMEs in the New Southern countries have been marginalized from the local government’s policy support. In general, SMEs in most countries face many difficulties compared to large enterprises. As a result, their governments carry out various policies to support them. They may give financial support or technical assistance. Governments of the New Southern countries are not exceptions. They manage many programs to support them. Despite this fact, Korean SMEs in the New Southern countries have a difficulty to receive them. Mainly, the governments of the New Southern countries recognize them not as their owns companies but as Korean companies.Second, Korean SMEs in the New Southern countries are excluded from the support of the Korean government. Legally, they are locally registered companies and the promotion and development on Korean company are not an assignment of Korean government.Third, Korean SMEs in the New Southern countries have been unable to utilize their opportunities to cooperate with local companies. For example, they may reduce their costs by procuring parts and raw materials from local companies or to create new customers by using local sales channels. They may get some advises during the labor dispute. Frankly, these activities are very limited.This study, starting from these problems, presents a theoretical analysis and examines the recent activities of local SMEs as well as Korean SMEs in New Southern countries. Four countries of Indonesia, Thailand, Vietnam, and India of were selected as main analysis target countries. The economies, business environments, and the current activities and policies of SMEs of these countries were examined. It tells that the economies of these four countries are growing very rapidly, and their governments have been implementing various policies to revitalize their SMEs.Meanwhile, in order to examine the status of Korean companies of these four countries, their business activities were examined by country and by industry. It shows several interesting facts. For example, the number of Korean companies in Vietnam has increased rapidly in recent years, while that of Thailand has been stagnant. It is shown that Korean companies in Indonesia and Vietnam are mainly in the labor-intensive industries such as clothing and textiles, whereas those in Thailand and India are centering on industry of electronic parts or automobile parts. It is because wages in Vietnam and Indonesia are still relatively low while per capita income and wages in Thailand have already reached a considerable level in 아세안. It was also interpreted that the reason SMEs entered India centered on the automobile and electronic parts industries was because they were partners of Samsung Electronics' factories near Delhi and Hyundai Motor's factories around Chennai.It also checks the previous cases of the win-win cooperation relationship between foreign companies and local companies. Surprising, very little win-win cases were observed between local SMEs and Foreign SMEs. However, the win-win relationship between foreign global companies and local SMEs appeared in various forms. In other words, many foreign companies have provided various types of assistance to local SMEs such as management consulting or training for employees of local SMEs. It is because cooperation with local companies that provide raw materials and parts locally is essential for foreign companies to improve their productivity or their product quality. Also, they recognized that cooperation with local companies played a very important role to raise the local sales.Based on these analyses, this study recognized the possibility of cooperation between Korean SMEs and local SMEs and suggested several policy measures. At this time, the role of the government was included because both Korean SMEs and local SMEs lack the financial and business capabilities to implement them. In other words, it is to suggest a method of promoting cooperation between Korean SMEs and local SMEs led by the government. Here are some of major conclusions.First, several win-win cooperation models were presented. In this win-win cooperation model, Various organizations and agents such as local SMEs, local Korean SMEs, local central and regional governments, the Korean government and local embassies, public institutions of both countries such as KOTRA, Korean development cooperation organizations, SME promotion and consulting organizations, university research institutes, etc. will participate to carry out the policies and programs.Second, major policies and programs include (1) a network establishment project between local Korean companies and local companies, (2) a local manpower capacity building program, and (3) a corporate consulting program etc. In the process of carrying out these, administrative tasks such as financing for win-win cooperation projects and selection of institutions in charge of win-win cooperation projects had to be resolved. In addition, some examples of win-win cooperation programs of Indonesia, Vietnam, Thailand, and India are presented. It should be reminded that all of these programs must be customized to be implemented in the New Southern Policy counties because their economic and culture environments are quite different. Finally, the principles and precautions to be observed by the government are presented -
The Asia-Europe Meeting (ASEM) at 25: Background, Main Achievements and Policy Implications
This study was conducted to analyze the background factors and achievements of the ASEM process over the past 25 years since its establishment and to draw policy implications for Korea.After the Introduction, Chapter 2 reviewed, i..
Sung-Hoon Park et al. Date 2021.12.30
Economic Cooperation, Multilateral NegotiationsDownloadContentSummaryThis study was conducted to analyze the background factors and achievements of the ASEM process over the past 25 years since its establishment and to draw policy implications for Korea.After the Introduction, Chapter 2 reviewed, in a detailed manner, the background factors of and the roles assigned to the ASEM process. Especially, ASEM was identified as an inter-regional cooperation mechanism between the two continents – Asia and Europe – that was established in order to fill the ‘missing link’. The intention of European countries to intensify cooperative relationship with Asian countries that had been increasingly recognized as ‘the potential center of global economic growth’ was a mian background factor that led to the establishment of ASEM. Also crucial was the desire of Asian countries to diversify their diplomatic relationship and to cultivate the biggest internal market provided by the European integration process. In addition to its traditional role to foster and enhance the cooperative relationship between Asia and Europe, the ASEM process also contributed to strengthening the intra-regional cooperation within Asia by providing them with motivations to establish the ASEAN+3 and the East Asia Summit (EAS), which can be regarded as a very positive by-product.Chapter 3 was fully devoted to the evaluation of ASEM cooperation. First of all, the study looked into the agenda items of twelve summit meetings held until October 2021 in order to identify the main direction of cooperation in the ASEM process. Also, the study thoroughly investigated the cooperation agenda discussed and the frequncy of ministerial meetings, and found out that the ASEM process has been well-balnaced between political and economic policy areas. As a result of qualitative evaluation of the ASEM process, the study brought into discussion the following five main weaknesses of the ASEM process, especially compared to other internaitonal cooperation bodies, such as the APEC process. (i) unclear long-term vision; (ii) very low degree of institutionalization with no physical secretariat; (iii) too much comprehensive cooperation agenda leading to a low degree of concentration and focus; (iv) non-binding characteristics leading to no meaningful commitment of members; and (v) low visibility of the whole process.Chapter 4 examined the trends and characteristics of the ASEM enlargement through indicator analysis. The European Commission’s Joint Research Center created a sustainable connectivity indicator and analyzed the degree of connectivity between Europe and Asia by collecting basic data from ASEM member countries. As a result, it was confirmed that significant achievements were made between the two regions in terms of trade, investment, movement of people, institutional and political connectivity, and joint research between the Asian and European regions. However, the European Commission’s Joint Research Center’s Sustainability Connectivity Indicator is not only Europe-centered, but the data is collected at a specific point in time. In order to supplement weakness of the Sustainability Connectivity Indicator, we created a new governance indicator that shows the degree of connectivity between the three pillars of ASEM. New indicator clearly illustrates trends and characteristics within and between the two regions in the process of ASEM enlargement. Furthermore we examined changes in Korea’s status in the process of ASEM enlargement using the governance indicator. According to analysis results Korea showed a high growth rate far exceeding the average of ASEM member countries in all areas including the public sector, market, and civil society. And compared to the early days of ASEM, Korea’s relative standing of nowadays has risen significantly. In particular, the degree of improvement in areas such as pulic administration, market environment and welfare was remarkable.Chapter 5 presents Korea’s strategies for the upcoming 25 years of ASEM based on Korea’s achievements within ASEM. The future strategies will be was proposed focusing on areas where Korea can demonstrate intellectual leadership within ASEM. Indicator studies have shown that within ASEM, Korea has set a best practice in the areas of market opening, social security and deregulation. In addition, the Asia-Europe education cooperation program is also a major area in which Korea can demonstrate its intellectual leadership in the future. Future strategies proposed by Korea, such as market opening, social security, deregulation and education, are expected to make a significant contribution to the process of overcoming the challenges ASEM member countries are facing in the post covid-19 era. -
Exchange Rate Predictability Based on Market Sentiments
Central bankers, policymakers, and market participants need to predict the future exchange rate movement. However, a well-known puzzle is that exchange rates are difficult to forecast using observable macro fundamental variables. ..
Hyosang Kim et al. Date 2021.12.30
Financial Policy, Exchange RateDownloadContentSummary정책연구브리핑Central bankers, policymakers, and market participants need to predict the future exchange rate movement. However, a well-known puzzle is that exchange rates are difficult to forecast using observable macro fundamental variables. Meese and Rogoff (1983) report that the random walk model is better at predicting exchange rates in out-of-sample forecasts than models reflecting changes in economic fundamentals. A large body of literature has found that, in attempting to solve the Meese‐Rogoff puzzle, the random walk beats fundamentals-based models for periods up to a one‐year forecasting horizon.This study intends to examine whether the market sentiment index of the foreign exchange market, along with the standardized fundamental-based models, helps predict the exchange rate. Based on the market sentiment index data, we try to predict the exchange rate based on the contrary opinion investment strategy used by foreign exchange market dealers. We also examine whether machine learning models incorporating a wide range of economic data and market sentiment indices can improve exchange rate forecasting.This study mainly consists of four parts. Chapter 2 re-examines whether fundamental-based models can have prediction power on exchange rates. We examine developing market currencies, including the Korean won, in addition to major currencies. The Taylor-rule model has short-term predictability on the Canadian dollar, Swiss franc, and British pound among major currencies. For most models we analyze, emerging market currencies tend to show higher long-term and short-term predictability than major currencies. However, there is a significant variation in the predictive power of fundamental models over currency and period.In Chapter 3, the market sentiment index and Bloomberg’s exchange rate forecast are tested in terms of their ability to predict exchange rates. To compare the exchange rate predictability fundamental-based models in Chapter 2, we make them in identical conditions: the data is transformed to monthly, and a single linear equation model is used. Both the market sentiment index and the Bloomberg exchange rate forecast demonstrate high short-term exchange rate predicting power against the Euro. However, they have lower exchange rate forecasting power to other major currencies than the random walk model.Chapter 4 examines the exchange rate forecast based on the contrast opinion investment strategy used by foreign exchange market dealers. The exchange rate is predicted based on four indicators (daily sentiment index of futures market participants, the distance between the spot exchange rate and the maximum exchange rate, the yield of the past exchange rate, and the volatility of the past exchange rate). Those indicators are made based on the imperfect market theory. Among the indicators, the distance between the exchange rate and the maximum exchange rate has the best predictive power. For forecasting horizons ranging from one week to five years, we find that it outperforms the random-walk model in both in-sample and out-of-sample projections.As various machine learning algorithms have been developed and the quantity and quality of data accessible for analysis have improved, there have been an increasing number of studies that seek to market analysis based on machine learning algorithms in recent years. Chapter 5 uses fundamental variables and a market sentiment index to predict exchange rate fluctuations using machine learning algorithms. As a result of the analysis, we find that the exchange rate predictions based on the machine learning models are generally superior to the linear model. Among the machine learning models, the convolutional neural network has the best exchange rate forecastability.Chapter 6 summarizes the research results and suggests implications. Although this study examines the predictive power of exchange rates of various models, it is difficult to explain and identify the cause. Thus, more studies are necessary for discussing the causality. In sum, we test various models for predicting exchange rates and find some empirical results that could beat the random-walk model. -
Analysis of domestic and foreign policies to enhance social stability and inclusion in the post-corona era: Focusing on public health, childbirth and childcare, real estate, and taxation of financial
This study aims to examine the negative impact of the COVID-19 crisis on social and economic stability and inclusiveness, and to suggest the necessary policy direction to deal with it. To this end, the historical experiences of pa..
Myungheon Lee et al. Date 2021.12.30
Economic Reform, Economic DevelopmentDownloadContentSummaryThis study aims to examine the negative impact of the COVID-19 crisis on social and economic stability and inclusiveness, and to suggest the necessary policy direction to deal with it. To this end, the historical experiences of pandemic diseases were reviewed, and the relationship between the effects of the COVID-19 crisis on the labor market by gender and the effect of family-friendly policies were analyzed. In addition, the causes of the instability in the housing market and the direction of policy improvement were discussed. Finaly, the current situation of taxation policies on financial assets were reviewed and the theoretical analysis and internatinal comparison were carried out.First, according to studies on the epidemic of infectious diseases in the past, pandemic diseases caused greater socio-economic costs by impeding the formation of human capital beyond direct costs such as casualties. Therefore, it was confirmed that an active response is required to minimize the damage caused by such diseases, and the implementation of an intensive quarantine policy was effective in alleviating the long-term economic stagnation. However, as the recent COVID-19 pandemic has been continuing for a long time, it is becoming difficult to sustain a high-intensity quarantine policy. The current policy is difficult to maintain because the individual’s marginal cost is likely to increase rapidly due to the economic damage accumulated over a long period of time. Therefore, compensation for losses to the self-employed and small business owners, where the cost of quarantine is concentrated, is an urgent issue. In particular, the main tasks are to prepare a rational basis for assessing the amount of damage and to ensure prompt payment.Second, by examining the gap in gender labor market performance by country due to the COVID-19 health crisis and analyzing the relationship with family-friendly policies, it was attempted to suggest what constitutes an appropriate family-friendly policy in the post-COVID-19 era. As a result of empirical analysis, it was found that the effect was different depending on the type of family-friendly policy. It was estimated that the existing cash grants to families had a positive effect on the employment of men and women during the health crisis. However, it was found that service support for the family and the period of maternity and paternity leave had little effect on the employment of men and women during the health crisis. The result that the cash support system acts as a buffer against economic shocks during a catastrophic crisis implies that it is important to support households so that they can respond flexibly. On the other hand, if social distancing is enforced, the use of childcare services or the use of the parental leave system may be limited. When a catastrophic crisis occurs in the future, it is necessary to establish a policy response strategy in consideration of the function of such family-friendly policies.Third, it was attempted to suggest a desirable policy direction by analyzing the instabilities in the housing market in Korea after the outbreak of the COVID-19 crisis and comparing the real estate policy system in Korea with major foreign countries. First of all, in the short term, the housing market of major countries is changing significantly due to the anxiety caused by Corona 19. However, from the perspective of the housing system, it is not considered as a shock enough to fundamentally change the housing system. From a longer-term perspective, Korea’s housing system has a transitional character in which productionism, liberalism, and even conservatism and social democracy are mixed. In the mid- to long-term, the government-led mass production method has considerabel drawbacks, so it is inevitable to change to a supply method that utilizes the creativity of the private sector to meet various private housing demands. Considering the direction of housing policy in relation to housing finance, housing welfare, rental market, and taxation in the housing system in relation to these housing systems, the following tasks are derived. ① A system that supports loans, taxes, and rentals centered on home buyers for the first time in their lives is needed. ② It is necessary to prepare a plan to build a new public housing support system, including housing benefits, by raising the public rental inventory ③ It is necessary to transform the individual-oriented rental market into social lessors (social enterprises, non-profit organizations such as cooperatives, or publicly supported rental housing), rental companies, and lessors who can contribute to society as professional and capable as REITs. ④ Regarding taxation, it is desirable to minimize the tax burden on one house per household and institutionalize the property tax as a financial resource that can be used for procurement of local financial resources and regional development rather than from the viewpoint of housing price stabilization.Fourth, in relation to the issue of income and property inequality, which became more prominent during the Corona crisis, from the perspective that the overhaul of the financial asset-related taxation system can act in the direction of reducing the disparity in asset allocation by income class. Theoretical considerations and comparisons with major foreign countries lead to the following conclusions. First, it can be concluded that it is necessary to lower the deduction limit set at 50 million won per year. Second, it is necessary to expand the scope of taxable income to increase the effect of total profit and loss. Third, it does not seem necessary to maintain the existing securities transaction tax with the imminent imposition of taxation on the gains on transfer of listed stocks by small investors. Fourth, it is necessary to give preference to long-term holding by imposing a lower tax rate on transfer gains obtained by trading stocks held in excess of this for one year. -
Latest Development in Subsidy Regulation: Foreign Subsidies, Climate Change-related Subsidies, and Currency Undervaluation Subsidies
In response to today’s rapidly changing global trade environment, countries have continued to make changes to their policy objectives and instruments to address new and emerging issues such as supply chain restructuring and resho..
Cheon-Kee Lee et al. Date 2021.12.30
Trade Policy, Industrial PolicyDownloadContent
SummaryIn response to today’s rapidly changing global trade environment, countries have continued to make changes to their policy objectives and instruments to address new and emerging issues such as supply chain restructuring and reshoring, climate change, and currency undervaluation. To this end subsidies have been playing a particularly important role, and are expected to be used more broadly across different sectors in the coming years. While controversies over government subsidization are likely to continue at the international level, the United States and the European Union have proposed at the domestic level to expand the scope of subsidy regulation and to tighten regulation on newly emerging subsidy types beyond the traditional boundaries set by international trade rules. Among a number of the latest developments on subsidy regulation, this study primarily focuses on (ⅰ) transnational subsidies granted by a government to enterprises active in other foreign countries (hereinafter “foreign subsidies”); (ⅱ) green subsidies for climate change mitigation; and (ⅲ) subsidies related to currency undervaluation.As for foreign subsidies, the European Commission’s proposal of May 5, 2021 aims to regulate not only distortions caused by subsidies granted to products, but by subsidies related to supply of services, foreign investments, concentrations, and public procurements. Behind the proposal, there were the Commission’s concerns that foreign governments could distort fair competition in the EU’s internal market by providing subsidies across the border to enterprises established and active in the EU. According to the Commission, the current international and regional disciplines such as the WTO SCM Agreement, the EU Anti-subsidy Regulation, EU state aid law, the EU Public Procurement Directive, and the EUMR have not effectively addressed market distortion caused by foreign subsidies, especially where the beneficiaries of a financial contribution are located beyond the granting authorities’ jurisdiction, i.e., within the EU internal market. In this vein the Commission’s proposal defines a foreign subsidy as where a third country provides a financial contribution which confers a benefit “to an undertaking engaging in an economic activity in the [EU] internal market” and which is limited, in law or in fact, to an individual undertaking or industry or to several undertakings or industries.The proposed regulation provides for (ⅰ) notification-based, ex ante investigations for concentrations and public procurement participation and (ⅱ) an ex officio and ex post investigation for all other market situations. EU undertakings that have received a financial contribution from foreign governments and are involved in a concentration and a public procurement procedure in the EU are obligated to notify all foreign financial contributions received in the three years preceding the notification.Although it appears that the most immediate target of the foreign subsidy regulation would be China, it cannot be ruled out at this point that the EU’s other trading partners, including Korea could also be significantly influenced depending on possible amendment of the text in the final Regulation.There also remain a number of issues that need to be addressed in the following legislative process, particularly in the trilogues between the Commission, the European Parliament and the European Council. Firstly, the Commission’s proposal can be criticized for not being detailed enough to help affected businesses to prepare the regulation in advance. Secondly, the requirements for triggering the notification obligation are based on whether a financial contribution exists, regardless of the existence of benefits or specificity, possibly leading to additional administrative and economic burden. Thirdly, the proposed regulation covers all cases of financial contributions including those related to inter-company transactions between affiliates, and those received by subcontractors and suppliers. Required to notify all information related to financial contribution received from foreign governments, businesses could be exposed to disclosure of proprietary or confidential information. Lastly, concerning the Commission’s excessively broad authority under Chapter 2 of the proposal to investigate foreign subsidies granted in the previous ten years, this study submits that an additional mechanism is needed to limit the Commission's investigative power by reducing the limitation period and adding higher trigger threshold for ex officio initiation of investigations.With respect to green subsidies for climate change mitigation, it is noteworthy that as the Paris Agreement came into force accelerating global collective action to address climate change and many countries have implemented environmental measures affecting their domestic and exporting industries, the interaction or so-called “linkage” between trade and the environment has become increasingly prominent. For instance, while the largest trading countries such as the U.S. and the EU stress the need to tighten regulations on industrial subsidies, they have granted a substantial amount of subsidies for R&D and domestic production of EV batteries on the grounds that emission reduction in the transportation sector is key in achieving the goal of carbon neutrality by 2050 they have pledged under the Paris Agreement. This shows the dilemma and contradictory position of these countries on green (yet industrial) subsidies for climate change, which may distort competition in the market.For another example, when countries with an emission trading system or “ETS” provide free allowances, the subsidy problems arise from the trade law perspective. Most countries currently operating an ETS allocate a certain amount of carbon emission for free in order to prevent risks of carbon leakage and to maintain market competitiveness of their carbon-intensive industries. The problem is that the current WTO subsidy rules do not contain provisions for environmental exceptions to these subsidies. Likewise, many countries do not allow these exceptions under their domestic laws. In the case of the United States, in December 2020, the Department of Commerce (DOC) made an affirmative determination in a CVD investigation for certain steel products from the EU that free allowances given selectively to some of the covered installations under the EU ETS are a countervailable subsidy. It is notable that in December 2021, the DOC made a similar determination with respect to Korea’s ETS (K-ETS) in a countervailing duty administrative review for certain steel products from Korea that 100% free allowances allocated only to a part of the covered entities as opposed to 97% free allowances to the rest of the covered entities are a countervailable subsidy.With respect to subsidies related to currency undervaluation, the U.S. implemented in April 2020 a revised regulation applicable to countervailable subsidies related to currency undervaluation. It has maintained that some of its trading partners intentionally devalue their currencies to provide a competitive advantage to its export industries. Over the years several bills were introduced to impose CVDs on currency manipulation, but failed to pass Congress. Then in 2020, the DOC revised the Code of Federal Regulation (CFR) at the administrative level and laid the basis for CVD imposition against countries where their currency is undervalued due to government intervention.Following the revision, in May 2021 the DOC made an affirmative determination for Passenger Vehicle and Light Truck Tires from Vietnam (C-552-829) that Vietnam’s currency undervaluation is a countervailable subsidy while in an investigation on twist ties from China (C-570-132) the DOC decided to postpone the final determination due to procedural reasons and a final determination has yet to be made.As the revision was made only recently and there has been only one case where currency undervaluation is determined as a countervailable subsidy, the current DOC’s methodologies appear to be still incomplete in many aspects. Notably, some of the changes made to the regulation and the DOC’s reasoning in C-552-829 appear particularly problematic and may be open to a legal challenge in terms of compatibility with the WTO SCM Agreement. For instance, grouping all “enterprises that buy or sell goods internationally” as a group of enterprises or industries or a “traded goods sector” is too broad an approach to determine specificity, possibly constituting a violation of Art. 2.1 of the WTO SCM agreement. It has also been pointed out that the methodology the DOC resorted to in calculating benefit in C-552-829 could lead to overestimation of the amount of benefits, in violation of Art. 14 of the same Agreement.In conclusion, firstly, as regards the foreign subsidy regulation proposed by the EU, there is concern that it could incur significant compliance costs for affected businesses, as they are burdened to trace and monitor virtually all financial contribution directly or indirectly from foreign governments for the past three years prior to notification of concentration or participation in public procurements procedures in the EU. In order to minimize risks, affected businesses are advised to prepare a comprehensive database on their supply chains and financing methods related to overseas production and production facilities within the EU or third-country facilities leading to the EU market.They are also advised to understand that the foreign subsidy regulation is being prepared and will be implemented in conjunction with EU's latest movement to secure regional supply chains. The EU is providing large-scale incentives to encourage internal production of items critical to EU’s regional supply chain restructuring. As has been generally witnessed in a number of cases, these incentives are provided on condition that a certain percentage of value or particular items or components be produced within the EU. As a result, client companies that produce finished goods in the EU may prefer companies with local manufacturing facilities in the EU to companies exporting across the border their intermediate goods or components to the EU, so they can receive incentives offered for local production. In addition, in the case of certain industries, if client companies and upstream producers are not logistically close to each other, stable cross-border supply to the EU can become difficult due to border measures such as ADs or CVDs imposed at the EU level. Then the problem occurs when it gets difficult for companies to independently mobilize sufficient financial resources to establish or acquire overseas production facilities in the EU and they receive financial support from the government. For instance, companies could receive preferential finance from state-run banks, or SOEs or state-run banks could directly participate in overseas investment through equity infusion. From the EU's point of view, this can be seen as a foreign subsidy.Secondly, regarding green subsidies for climate change, the study submits that the future direction of international trade rules should be to promote climate change mitigation rather than hinder it. In order to resolve tensions arising from the overlapping climate and trade objectives, it is necessary to seek ways to recognize exceptions for green industrial subsidies in the international trade system. A climate waiver can be one way. It would be also fruitful to consider reintroducing a non-actionable subsidy provision similar to now-defunct Article 8 of the WTO SCM Agreement with or without a sunset clause, or at least establishing a rebuttable presumption in favour of such subsidies.As regards CVD investigations related to free allowances under the K-ETS it should be noted that the DOC is not saying that a free allowance itself is a subsidy; but an additional 3% free allocation to a select few entities is, compared to 97% free allowances granted to all of the entire covered entities under K-ETS. Therefore, as a short-term strategy, it is advised that the Korean government first explore various ways to tweak the system based on the logics the DOC presented in reaching the affirmative subsidy determination, rather than reviewing the overall system in a hurried manner.For parts of the DOC's reasons that appear less than convincing or without sufficient explanation, the Korean government or companies subject to the CVD investigation may raise a rebuttal or request additional explanation in subsequent administrative reviews, or file a complaint before the U.S. Court of International Trade (CIT). While it would not be easy to refute the DOC's determination when it is directly based on statutes or case law, this study suggests there still is room for dispute in areas where the DOC exercises its discretion powers without explicit and detailed guidance in the statutes.Thirdly, as regards the U.S. efforts to regulate currency undervaluation as a countervailable subsidy, companies that operate in countries where currency is determined to be undervalued in the DOC’s investigations will have to be mindful of a possible CVD imposition by the U.S. if they engage in local reinvestment or currency exchange activities in those countries. Unlike most cases where subsidies are limited to specific enterprises or industries, currency undervaluation is related to almost all exporting industries. Therefore, once the DOC makes an affirmative subsidy determination against a certain product by reason of currency undervaluation of a certain exporting country, there is a potential risk that a similar decision would be made in all of the following CVD investigations on different products exported from that country to the U.S.Last but not least, efforts are needed to induce the above new types of subsidy regulation to be publicly discussed for a multilateral solution. Since unilateral measures are not based on mutual consent between countries, even if the objective should be justified, it is difficult to expect meaningful effects in the mid-to-long term. International cooperation is very much needed, in order to effectively respond to cross-border spillover effects these types of subsides could lead to. Therefore, the first priority at this point is to derive a higher minimum standard that all countries can multilaterally agree to with respect to international subsidy regulation. -
Inter-Korean Cooperation in Post COVID-19 Era
In the post-COVID-19 era, changes in the international political and economic order are likely to be conspicuous. First of all, in the strategic competition between the two great powers, the US and China, the existing conflict has..
Moon Soo Yang et al. Date 2021.12.30
Economic Cooperation, North Korean Economy North KoreaDownloadContentSummaryIn the post-COVID-19 era, changes in the international political and economic order are likely to be conspicuous. First of all, in the strategic competition between the two great powers, the US and China, the existing conflict has intensified with the outbreak of COVID-19, and some are concerned about the possibility of the emergence of a new Cold War. In addition, border opening, which is the key to globalization, has almost ceased since COVID-19, and as the belief in mutual benefit through border opening and exchanges has collapsed, the flow of globalization will recede, and the nation-first trend is expected to expand. Although the global economy has recovered from the shock of negative growth in 2020 and is recovering to a certain extent in 2021, it is still in a situation of economic uncertainty with the possibility of sluggishness in the manufacturing and service industries along with the contraction of global trade.
In addition, the global value chain (GVC), which was built at the global level beyond borders to pursue cost reduction and efficiency amid the wave of globalization and free trade, is facing a crisis due to COVID-19. In particular, the importance of securing a stable supply chain is growing after experiencing rapid instability in production and supply due to the suspension of production in certain countries and the contraction of global logistics due to COVID-19. Therefore, there is a movement to reorganize GVC in this direction, and furthermore, re-shoring is newly in the spotlight, and this trend is expected to accelerate in the future.
In the case of Korea, due to the prolonged social distancing caused by COVID-19, most economic actors experienced a non-face-to-face relationship between economic activities and socio-cultural relations. Accordingly, digitalization is rapidly spreading in various socio-economic fields. In addition, investment for the digitalization of overall corporate management, such as the expansion of telecommuting, customer management and sales through digital platforms, and the digitalization of R&D, is also expanding. This acceleration of digitization can be a new opportunity factor for the Korean economy, which has strong international competitiveness in the ICT industry.
In the case of North Korea, various non-face-to-face activities have been greatly expanded since COVID-19. In response to the global pandemic crisis, North Korea has implemented an extreme border blockade policy and strongly controls the movement of residents between regions in the country, but on the other hand, it greatly expands non-face-to-face activities by utilizing the information and communication networks it has built in the past. have. These activities are linked to the knowledge-based society emphasized by Chairman Kim Jong-un, so it is expected to continue even after the pandemic subsides. Notable movements include △expansion of supply of various personal terminals, △expansion of factory automation and unmanned facilities, △expansion of e-commerce, △rapid expansion of distance education, and △expansion of telemedicine. The biggest change among these is the increase in video conferencing. In the past, it was partially used in education, but it has been greatly expanded during the pandemic crisis, and even important meetings of party and government organizations are being conducted via video.
As such, both South and North Korea are actively promoting the digitization of socio-economic relations amid the pandemic crisis. Therefore, if it is used for inter-Korean exchanges and cooperation, there is enough room to advance inter-Korean exchanges and cooperation. In addition, the digitalization of inter-Korean exchanges and cooperation has the advantage of increasing the receptivity of the North and South Korean authorities, especially the North Korean authorities, of exchange and cooperation projects by reducing the political and social risks as well as the economic cost of inter-Korean exchanges and cooperation in the early and mid-term.
What kind of inter-Korean exchanges and cooperation will be promoted in the post-COVID-19 era? First of all, you can think about resuming your existing business. In the case of the Kaesong Industrial Complex, in the post-COVID-19era, the industrial complex’s function and development direction are expected to be re-evaluated. Currently, ideas are being proposed, such as the South-North health and medical cooperation industrial complex that produces materials to respond to infectious disease crisis or COVID-19 vaccines, the eco-friendly technology complex, and the outpost for digital cooperation. In addition, a new cooperative project called the establishment of a digital platform for inter-Korean exchange and cooperation projects will be possible.
Concerns about the digitalization of exchange and cooperation projects are not small in North Korea and South Korea in South Korea, and this may act as a stumbling block for project implementation. It is a great political burden for the North Korean authorities to reveal the gap between the two Koreas in digital capabilities. Therefore, the project itself should be promoted gradually/phased, and the resolution of the information gap between the two Koreas is raised as an important task. In South Korea, concerns that inter-Korean economic cooperation through digital could lead to the expansion of North Korea’s hacking capabilities and hacking means act as a barrier. Therefore, efforts should be made to dispel national and international concerns about inter-Korean cooperation in the digital field, such as the ‘Inter-Korean Agreement on the Peaceful Use of Software Technology’. In addition, in order to utilize inter-Korean economic cooperation in the GVC reorganization process, production and supply through inter-Korean economic cooperation projects should be more stable than in other regions when a global infectious disease occurs. At the same time, the issue of amending the inter-Korean exchange and cooperation laws to regulate and promote economic activities with North Korea through the framework of the legal system regarding the process and results of the activities is strongly raised. Lastly, since the necessity and importance of multilateral cooperation is expected to increase in the post-COVID-19 era, it is necessary to actively seek multilateral cooperation with governments of major countries, international NGOs, and international organizations.