Recent regulatory proposals on competition in digital markets, such as the EU’s Digital Markets Act and Digital Services Act, emphasize the importance of ensuring fair competition in markets to sustain innovation and avoid long-term monopolies. There is a growing concern that markets are becoming increasingly concentrated, with a small number of data-rich companies gaining prominent positions in horizontally or vertically linked markets and large user bases. This report identifies considerations for introducing policies to mitigate the market power of data-rich global digital platforms and protect the openness of digital ecosystems for potential new entrants. To this end, we examine data-related regulatory trends in major countries and theoretically discuss the implications for inter-platform competition when data gives digital platforms a competitive advantage. We then focus on data portability, the most prominent data-related regulation of digital platforms, to explore the impact of data portability regulation on digital platform competition.

This study largely consists of five main parts. Chapter 2 outlines the basic characteristics of the platform economy, including its multi- sided nature and indirect network effects, and describes the role of data in the platform economy, in order to better understand the discussion that follows. Indirect externalities are prominent in digital platforms, which are intermediaries that allow multiple independent groups of economic actors to interact through digital connectivity, due to their two-sided market nature. If one side can initially attract a certain number of people to the platform, it becomes easier for both sides to attract additional platform users in a virtuous cycle through indirect network effects, making it easier for market tipping than in other markets. In these digital platform markets, data is utilized to improve the quality of services provided by the digital platforms and to expand their user base. Digital platforms collect, process, and analyze personal-level data generated from users’ interactions with the platform after obtaining their consent. As more data is accumulated, search and recommendation results are tailored to the user, which increases the utility or profitability of the platform for both users and merchants. Digital platforms can also collect and use data to create new business opportunities. By merging with other digital platforms, or by entering the market for complementary services, digital platforms can create additional commercial value by combining their own data with that of other platforms.

In Chapter 3, we examine the current state and future prospects of antitrust regulation in key countries, focusing on issues related to data concentration. While the need to regulate data concentration on global digital platforms has been increasingly recognized as monopolies impede sustainable innovation, appropriate regulatory measures have not been implemented due to the potential negative impact on innovation through regulation of digital platform data and the risk of falling behind in competition in the global marketplace, both domestically and globally, if there are competing domestic players in the country. In the U.S., five antitrust bills targeting digital platform companies were introduced in the U.S. House of Representatives in June 2021, but all but the Merger Filing Fee Modernization Act were abandoned. The EU has emphasized privacy and personal data protection and has included the right to data portability in the GDPR, which to some extent limits the tendency of global digital platform companies to monopolize data. In addition, the EU recently enacted the EU Digital Markets Act(DMA) and the EU Digital Services Act (DSA). Through the DMA, gatekeepers are obliged to ensure the free portability of data generated through end-user activities and to provide business users and authorized third parties with free access to and use of data, including personal information. In China, where domestic platform companies dominate the local market, no specific laws or policies have been issued to address the issue of data monopolization by dominant platforms. In South Korea, where there is significant competition between domestic digital platforms and foreign platforms, the KFTC has been strengthening its regulatory focus on platform monopolies. The KFTC considers each operator’s ability to collect, retain, and utilize data, gaps, and the possibility of competitors’ access to data when assessing market dominance, and is expected to consider the effect of increasing entry barriers through data and the possibility of transferring dominance in platform merger reviews. The Online Platforms Bill, which stipulates data portability so that dominant platforms can safely move data from user to user with the user’s consent, has beenproposed, but there are also warnings that it could act as a de facto regulation of domestic platforms and stifle innovation.

In Chapter 4, we explore the impact of data on competition among digital platforms, based on the findings in the previous literature. First, we review the findings on whether more data gives digital platforms a competitive advantage. While more rigorous analysis is still needed, as that many of the analyses are based on limited levels of firm data, most previous studies suggest that more data has a largely positive impact in terms of making predictions about consumer profiles, preferences, and behaviors. And if data gives digital platforms a competitive advantage, how does this affect competition between platforms, based on prior research? We summarize prior research that has modeled the process by which digital platforms gain a competitive advantage from data, by using data collected from consumers as an input to innovation activities to provide higher quality services to consumers. We find that there is a first-mover advantage among platforms competing for R&D investments based on data. Unless the initial quality of the entrant’s service is sufficiently high, the first mover will invest aggressively, and the difference in demand between the two platforms will not decrease once it occurs. The effect of a data sharing policy as a policy to address this problem is that competitors who are somewhat competitive in initial service quality or who can compete with the market leader in terms of innovation efficiency will decide to enter the market and engage in innovation competition in the market over a long period of time. The welfare effects of data sharing policies are ambiguous but generally positive.

In Chapter 5, we examine the impact of data portability regulation on competition on digital platforms as data portability regulation is one of the most prominent data-related regulations. In particular, we analyze the consequences for competition between gatekeepers and potential market entrants given the asymmetric nature of data portability regulation in the recently implemented EU DMA, where obligations are imposed only on market dominant firms. We find that when data portability regulation is imposed only on the market leader and the entrant is less productive, the entrant, despite its lower productivity, can leverage the rent from tying future consumers in the initial price competition phase and eventually displace the gatekeeper and capture the market. In such cases, regulatory asymmetries can lead to the displacement of efficient producers by inefficient producers, thereby reducing social welfare.

In Chapter 6, we discuss the implications for data-related competition policy for digital platform markets. We assess economic benefits and costs of policy measures related to limiting the ability of market- dominant platforms to collect more user data and combine different datasets, such as reducing data retention periods, restricting combinations between different data, limiting app pre-installation and default settings, and restricting lines of business. We also examine measures to improve access to data from dominant platforms, divided into two categories: data sharing by a broad range of users and data sharing by specific users, taking into account the general direction of adoption and the characteristics of different types of digital platform markets.

For the purposes of this study, export measures refer to the general policies by which a country imposes restrictions on the flow of its exports as a means of achieving certain objectives. Modern export measures can be broadly categorized into export restrictions, export controls, and economic sanctions based on their objectives, targets, and underlying laws. The number of export measures imposed by governments has increased in all three categories in recent years. Understanding the impact of export measures along global supply chains, where companies are intertwined in complex trading relationships, is an essential step in developing policy responses to achieve the goal of supply chain stabilization. This study aims to improve the overall understanding of export measures by examining the background and economic effects of export measures, an area which has received relatively little attention in the literature on international trade, and the changes in supply chains as a result of export measures.

In Chapter 2, we examine some of the most prominent examples of export measures dating back to the Industrial Revolution, examining the policy objectives they sought to achieve, the extent to which they actually helped to achieve those objectives, and the circumstances under which they were successful as policy instruments. We also examine several studies analyzing the economic effects of export measures in the post-Cold War era, and suggest recommendations for implementing and responding to export measures.

The main findings of Chapter 2 are as follows. Export measures during the Industrial Revolution were primarily aimed at preventing the outflow of advanced technologies. At the time, export measures had many characteristics similar in context to the present-day U.S.-China hegemonic rivalry in that there were competitions between leading countries with advanced technologies and countries trying to catch up, the international movement of manufacturing equipment and technicians was recognized as a major channel of technology spillovers, and laggard countries enjoyed technology spillovers which might infringe on intellectual property rights from leading countries. However, over time, export measures have become less effective in preventing technology leakage because improvements in intellectual property rights systems and the sophistication of production technologies have made technology spillovers involved in offshoring of manufacturing equipment and technicians less efficient. This suggests that the effectiveness of high-tech export control today may also change depending on the strengthening of IPR norms and the path of technological development.

The post-World War II period was characterized by export measures that were implemented primarily for national security reasons. In particular, the CoCom, a multilateral export control system organized by the United States and its allies, was effective in controlling the flow of military goods and related technologies to the communist bloc in the early stages of the Cold War. The success of the CoCom is attributed to the sharp confrontation between the West and the Communist bloc and the slow pace of the development in cutting-edge technologies. However, over time, industrial diversification, accelerating technological change, and the sophistication of global supply chains and value chains have rendered the CoCom system increasingly ineffective, as countries have different interests and trade patterns with the Communist bloc, and it has become more difficult to detect export-controlled items. These limitations are also observed in the later multilateral export control organizations. The success of multilateral export control regimes can only be ensured if they are flexible and aligned with the interests of countries and reflect the rapid pace of technological development. To this end, export control regimes should be designed to reduce the incentives for countries to deviate, for example, by differentiating the items subject to export control or by introducing an export license system that takes into account the economic necessity of the exporting party. In addition, a bottom-up system based on efficient information sharing should be introduced to ensure that market decisions are reflected quickly.

Modern export measures implemented in the post-Cold War era have not only failed to achieve their intended goals, but have had negative long-term effects. Export control policies implemented by the U.S. to maintain a competitive edge in the aerospace industry have not served to strengthen U.S. industrial dominance. During the 2007-2008 food crisis, restrictions on grain and food exports from Russia, Ukraine, and Southeast African countries actually increased price volatility in their home markets. In particular, wheat export restrictions in Russia and Ukraine resulted in price misalignment with international markets, increased price volatility, and market uncertainty, which discouraged wheat producers from investing, in turn reducing industrial productivity in the medium to long term. Timber export restrictions in the U.S., Canada, Costa Rica, Indonesia, and Ghana have led to inefficient resource allocation and a long-term decline in the productivity of the country’s timber industry. China’s export restrictions on rare earths served their purpose in the short term by increasing the market power of Chinese rare earths in international markets, but over time, China’s market power declined again as rare earth production outside of China increased, substitutes for rare earths were developed, and more countries began to recycle rare earths. The Chinese Ministry of Commerce’s technology export controls restricted potential demand from companies in related industries, lowering corporate profits and increasing the transaction costs of new technologies, leading to a decline in investment as the benefits of R&D investments diminished. Export measures can have unexpected economic spillovers, so when they are unavoidable, countries should work with like-minded countries to reduce uncertainty and build policy safety nets to protect economic entities that are vulnerable to the economic impact of export measures. Ultimately, given that export measures can have negative impacts on both the target and the enforcing countries, international cooperation on reducing export measures is recommended.

In Chapter 3, we categorized contemporary export measures into three categories based on purpose, target, and international law or regime: export restrictions, export controls, and economic sanctions. We carefully examined the legal and institutional basis and practices of each type of export measures, and drew implications for each type of measure.

Export restrictions are policies that prohibit or limit exports for the purpose of meeting demand within the exporting country, protecting the environment, and preserving natural resources. Such restrictions are generally prohibited under Article 11 of the GATT, but they are allowed in exceptional cases such as shortages of essential goods, environmental protection, and natural resource protection. Examples of export restrictions include China’s restrictions on rare earth exports and Indonesia’s restrictions on nickel ore exports. The Chinese and Indonesian export restrictions went to WTO dispute settlement, but China lost at the Appellate Body and Indonesia’s appeal is stalled. The WTO disputes have confirmed that disguised export restrictions are unlikely to pass through the WTO’s general exceptions. However, the paralysis of the WTO Appellate Body left no realistic alternative. To prevent a domino effect of export restrictions on raw materials or necessary products, it will be necessary to explore medium- and long-term cooperation among countries that are affected by export restrictions, and in the short term, bring unjustified export restrictions to the WTO.

Export controls are measures that prohibit or restrict exports for security purposes, mainly military goods and dual-use items. In WTO disputes, they are recognized under the GATT Article 21 security exception. Prominent examples of export controls include the U.S. export controls on semiconductors to the People’s Republic of China in 2022 and the Chinese export controls on germanium and gallium in 2023. China requested WTO dispute consultations regarding the U.S.’ export controls, but the U.S. claimed a security exception and stated that the WTO panel did not have jurisdiction to hear the case. As the U.S. and China continue to compete for technological supremacy, it is likely that export control measures will continue to escalate. The United States imposes export controls to prevent China from acquiring advanced technologies that could be diverted for military purposes, citing security threats to its own security. Korea should actively work with the United States to ensure access to advanced semiconductor- related technologies. On the other hand, it is a noteworthy change that China is implementing export restrictions on critical raw materials in the form of export controls. The international community must work together to prevent the spread of arbitrary and unilateral export measures driven by the security logic of countries.

Economic sanctions are measures of pressure on countries that violate international law through trade restrictions. Under WTO agreements, economic sanctions can be justified through the GATT Article 21 security exception. Examples of economic sanctions that have gone through the WTO’s dispute settlement process include the United States’ Cuban Freedom and Democratic Solidarity Act and Russia’s restrictions on the passage of goods from Ukraine. The U.S. Cuban Freedom and Democratic Solidarity Act restricted EU sugar exports to Cuba, which was found to be in violation of Article 11 of the GATT, but the U.S. reached a political settlement with the EU and the case was closed without a definitive ruling in the WTO dispute settlement process. Russia’s restrictions on the transit of goods from Ukraine were found to violate Articles 5 and 10 of the GATT, but Russia was able to justify the measures before the panel by pointing to the economic sanctions it was facing at the time from the United States, the EU, and other countries as evidence that a security exception applied. Economic sanctions are a frequently used tool in the international community, but they can lead to conflicts with third parties or sanctioned states. To resolve these conflicts, sanctioning states tend to opt for political solutions rather than seeking legal judgment from the international community. In a world where national economies are increasingly interdependent due to the development of global supply chains, economic sanctions against other countries can negatively impact the trade of intermediate goods with third countries. Moreover, if the level of sanctions is high, there is a possibility that the sanctioned country will take countermeasures against the sanctions and justify them through GATT Article 21, as in the Russia-Transit case. Therefore, rather than implementing outright sanctions, a more desirable approach is to utilize alternatives such as “smart sanctions” that minimize the risk of human rights violations against the people of the sanctioned country and maximize the effectiveness of sanctions. In this regard, it is important for the Korean government to actively advocate for smart sanctions to the international community.

Chapter 4 empirically analyzes the impact of cross-border economic sanctions on global value chain participation. Export sanctions enforced from 1950 to 2022 were analyzed using GSDB data. The statistics related to global value chain participation are forward participation calculated through the world input-output table, and exports of consumer, intermediate, and capital goods, for which data were collected from linking WITS data with BEC codes.

The results show that cross-border export sanctions reduce the forward participation of the sanctioned country in the target country. In particular, exports of intermediate and capital goods are reduced, while exports of consumer goods and raw materials are not significantly affected. While sanctioned countries may seek to divert exports to third countries to offset the reduction in exports to the sanctioned country, as a case study, we analyzed the effect of export diversion in a sanctioned country that had implemented export sanctions against Russia in 2014 and found that the diversion of intermediate and capital goods exports to third countries also decreased. These results suggest that economic sanctions can cause economic losses to sanctioned countries.

We also find that U.S. sanctions generally have a negative impact on Korean exports of intermediate goods to sanctioned countries. As a case study, we examine the U.S. sanctions against China in the late 2010s and find that Korean exports of intermediate goods to China are diverted to third countries during the sanctions, with an increase in exports to the ASEAN region. In the case of consumer goods exports, we find that exports to third countries outside of China decreased, but exports to North America increased, offsetting the overall decrease. These results suggest that Korean firms may have responded to the difficulties in exporting intermediate goods to China by relocating their production bases to the ASEAN region or strengthening their trading relationships with ASEAN firms. This emphasizes the strategic importance of the ASEAN region in the formulation of Korea’s foreign economic policy.

Chapter 5 presents a theoretical model to analyze the rationality of U.S. and China’s export control policies. The model is not limited to the case of the United States and China, but provides a general framework for analysis that can be applied to other bilateral relations.

The U.S.-China technology rivalry is mutually exclusive in terms of security. U.S. exports of advanced technology to China enhance China’s military capabilities, posing a threat to U.S. security. On the other hand, for China, acquiring advanced technologies presents not only an economic benefit but also an opportunity to enhance its military capabilities. To reflect this reality, our model assumes that there are opposing externalities that arise from the export of high-tech items to both countries.

The security threat posed by U.S. exports to China can be viewed as an externality that arises from U.S. firms’ pursuit of profits. This is because firms may export advanced technologies for economic gain without considering the negative impact on their country’s national security. As a result, governments have an incentive to take measures such as export controls and enhanced outbound investment screening to limit corporate profiteering and protect national security.

Export controls on advanced semiconductor goods and technologies mean imposing the highest level of security taxes on exports of these items. As a result, advanced semiconductors and related services are produced in the U.S. mainland. On the other hand, the likelihood that the Chinese government would impose strong export restrictions on critical raw materials demanded in the semiconductor production process depends on the magnitude of the military benefits China derives from attracting U.S. companies to establish advanced semiconductor production facilities on its soil. If China does not see a significant military benefit to positioning U.S. advanced semiconductor production facilities on its soil, it may seek to secure economic benefits by simply exporting raw materials to advanced semiconductor production facilities on the U.S. mainland. However, if China has a significant military interest in attracting advanced semiconductor production facilities to its territory, it may be willing to enforce raw material export restrictions to attract U.S. companies.

Thus, if U.S. export control measures continue, the trigger for a break in the U.S.-China supply chain for advanced semiconductor production will paradoxically be the failure of China’s semiconductor rollout. If China’s semiconductor drive succeeds and China’s non- economic benefits from U.S. advanced semiconductor companies’ investments in China are not substantial, the Chinese government will have no incentive to maintain its raw material export control policies. This is in the same vein as the demise of export control policies in the late Industrial Revolution.

Our model also analyzes a scenario where the externalities generated by the export of high-tech goods are positive for both countries. In this case, the developed country does not consider export restrictions, while the developing country has an incentive to restrict raw material exports in order to enjoy the externalities from the developed country’s investment. This is similar to the case of Indonesia’s export restrictions on nickel ore.

The U.S. high-tech export controls will make it more difficult for U.S. high-tech companies to invest in China in the future. Korea should strengthen its export control management system to avoid being labeled as a conduit exporter of high-tech goods to China, and increase penalties for unlawful technology leaks that undermine national interests. It should also work with key commodity producers and seek cooperation with similarly situated advanced manufacturing nations for joint countermeasures and supply chain diversification to counter potential arbitrary export restrictions on raw materials by some countries. Ideally, but challengingly, the country will also need to actively participate in international efforts to stabilize the WTO system.

Chapter 6 summarizes the analysis in the preceding chapters and sets out the implications and policy recommendations derived from the analyses in each chapter.

This report analyzes the changes in China’s outbound direct investment (ODI) policies and approaches in response to the evolving external economic cooperation environment in China. By examining the shifts in China’s ODI strategies, the report also explores the impact of regional strategies and economic cooperation relationships during the transition from Hu Jintao’s second term to the Xi Jinping administration, using regional ODI data. Finally, based on the characteristics of China’s ODI, the report presents the risks and suggested responses for South Korea.

In Chapter 2, we examined the changes in China’s ODI strategy. China’s ODI is closely related to its reform and opening-up policy. Since the reform and opening-up policy, China has pursued the simplification of regulations and the easing of restrictions on ODI. During the second term of the Hu Jintao administration, the ODI system encouraged overseas expansion, including by private enterprises, and witnessed significant regulatory simplification. The approval process shifted from a stringent examination system to an approval system, and there was a decentralization of government authority from the central government to local governments, which contributed to the easing of FDI regulations.

During the first term of Xi Jinping administration(2013-2017), China’s ODI began to experience rapid growth in scale and expansion of investment scope across various industries. The broadening scope of China’s ODI is attributed to the sustained effects of regulatory relaxation and the implementation of China’s new economic cooperation strategy, the ‘Belt and Road Initiative(一带一路).’ Since the beginning of the second term of Xi Jinping administration in 2018, amidst escalating tensions with the United States, Western countries have initiated measures to counter China’s influence. In response, China has strategically used economic development initiatives to interpret ODI as a supportive method of national development strategies. Emphasizing goals such as stabilizing supply chains, enhancing global corporate capabilities, entering emerging markets, and advancing the Belt and Road Initiative, China pursued an ODI strategy. There was a notable decline in M&A activity in the technology sector, which had previously been subject to strict regulations in developed countries. Meanwhile, there was a gradual expansion of greenfield investment in developing countries, which offer favorable conditions for market entry and resource acquisition.

From the second term of Hu Jintao to the second term of Xi Jinping administration, China’s ODI policies significantly influenced China’s actual OID. During this period, China consistently relaxed administrative regulations on ODI, while simultaneously increasing the level of management over investment areas. As a result, from the first term to the second term of Xi Jinping administration, China’s ODI rapidly expanded in scale. In addition China’s intention to position ODI as a supportinvemethod for national development was gradually manifested, as the country’s national economic development strategy became more defined.

Chapters 3 to 5 of this study analyze China’s ODI strategies in key regions are analyzed. The analysis covers the period from the second term of the Hu Jintao administration to the second term of the Xi Jinping administration, based on chronological, enterprise-type, investment-type, and sector.

Chapter 3 analyzes China’s investment strategy and current status in the United States and the European Union. China’s ODI in the U.S. and the EU has three main characteristics. First, regulations focused on advanced countries have affected China’s overseas expansion. Particularly, the Trump administration’s tightened regulations on China’s investment in advanced technology sectors since 2017 have led to a decline in M&A investment. Similar regulatory trends have been observed in the EU region, resulting in a decline in China’s investment in the EU. Second, there has been a shift from state-owned enterprises to private companies and a transition from brownfield to greenfield investments. The change in investment subjects became evident during the transition from Hu Jintao’s second term to the Xi Jinping administration, with a gradual increase in overseas investment by private enterprises. While brownfield M&A investments were prevalent in the earlier period, there was a shift toward greenfield investments due to changes in the M&A investment environment during Xi Jinping administration. Third, the motives and key investment sectors of China’s outboundinvestments have changed over different periods. During Hu Jintao’s second term, investment in the U.S. and the EU focused on the energy sector. In Xi Jinping’s first term, investment focused on real estate, finance, transportation, and technology. In Xi Jinping’s second term, there was a greater emphasis on investment in the transportation and logistics sector. These changes are interpreted as reflecting shifts in China’s investment motives due to policy changes by the Chinese government.

Chapter 4 investigates China’s ODI strategies and current status of China, focusing on the ASEAN and the Middle East regions since the second term of the Hu Jintao administration. China’s ODI in Asia has been characterized by close cooperation between the Chinese government and the target countries. Factors such as the level of economic cooperation, U.S.-China strategic competition, the Belt and Road Initiative, resource acquisition, market expansion, and the demand for new cooperation related to green and digital transformation have influenced China’s strategies. Over different periods, there have been changes in the key investment regions and countries, as well as the objectives and directions of investment. Particularly, since the beginning of the Xi Jinping administration, China’s investments in Asia has emphasized the integration of the Belt and Road Initiative and ODI. The Xi Jinping government actively promotes the overseas expansion of Chinese companies based on the Belt and Road Initiative, highlighting the coordination of Belt and Road projects with investments in the ASEAN and the Middle East regions. The Chinese government actively uses ODI in developing countries as a means of external promotion of the Belt and Road Initiative and facilitating the overseas expansion of Chinese companies. It is necessary to monitor China’s overseas investment trends, by recognizing that China is increasing investment cooperation with the ASEAN and the Middle East not only from a political and diplomatic perspective but also for economic security, pursuit of national interests, and the promotion of new growth industries.

Chapter 5 examines China’s ODI in Africa and Central and Latin America. In these regions, China has focused its investments primarily on the energy and metals & mineral sectors, a trend that can be linked to the Chinese government’s main goal of securing raw materials. The most significant investments have taken place since the Hu Jintao administration. However, during the Xi Jinping era, with the announcement of the Belt and Road Initiative, China has expanded its investments not only in energy and metals & mineral sectors but also in transportation, logistics and agriculture. China has actively engaged in economic cooperation and diversified investment in various sectors through forums such as the China-Africa Forum and the China-CELAC Forum, enhancing economic collaboration through consultations with each region. China’s ODI has significantly increased in Africa and Latin America, in part because these countries have actively sought foreign investment for their own infrastructure improvement and economic growth, which was in line with the objectives of Chinese investment. However, a change in the pattern of China’s ODI can be observed after the announcement of the Belt and Road Initiative in 2013. Following the Belt and Road Initiative, China actively cooperated with developing countries to develop supply chains and increased investment in Africa and Latin America.

Based on the previous analysis, this study proposes three policy recommendations, including △strengthening government cooperation channels for ODI △creating momentum for ODI in emerging markets such as green and digital sectors △strategically expanding policy initiatives for Korea-China cooperation in third countries.

First, China adopts a strategy to promote ODI by providing incentives through policies encouraging companies to expand abroad domestically. Externally, it adopts a strategy to facilitate companies’ overseas expansion by utilizing various channels of intergovernmental agreements and foster an environment of economic cooperation. This includes using government agreements to build regional cooperation through bilateral government communication channels, and multilateral cooperation bodies such as BRICS and BRI. China has consistently applied this strategy of promoting ODI through government agreements until the second term of Xi Jinping administration. This is seen as an effective strategy to address new concepts of economic security and uncertainties in the international community, such as supply chain blockage. South Korea has also adopted a similar approach in the Middle East through its “One Team Korea” strategy, which coordinates ODI through government-to-government agreements. Given the growing importance of ODI in developing countries, especially in resources and emerging industries sectors, and heightened national security concerns, there is a need for joint responses from government and business. Therefore, it is crucial for South Korea to actively consider engaging in government-to- government discussions through bilateral and multilateral summits with strategically important regions. At the same time, the use of business forums should also be thoroughly explored.

Second, during the Xi Jinping administration, China has begun to strengthen the link between ODI and the national development strategy. In particular, given the increasing importanceof climate change mitigationand digital economic growth for future national competitiveness, there is a concentrated effort on ODI strategies in emerging areas such as green and digital sectors. This focus was also underscored during the high-level forums of the Belt and Road Initiative (BRI) in October 2023 as well. It is noteworthy that the strategic industries selectedby China for new ODI momentum are also critical for South Korea. As emerging industries gain prominence, securing markets becomes closely linked to a nation’s overseas production capabilities. Especially in regions such as Latin America, Africa, and the Middle East, where developing countries are focusing on resources and emerging industries, various forms of support are crucial for South Korean companies to enhance competitiveness and secure comparative advantages.

Third, there is a strategic need to expand South Korea-China cooperation in third countries. South Korea’s ODIand China’s ODI overlap significantly. China strategically defines minerals, energy, and advanced technology as key resources and invests heavily in green and digital sectors. Competitive dynamics between South Korea and China are already emerging, especially in intermediate goods production. While this may be a constraint on South Korean companies’ ODI, it should be strategically leveraged as a new opportunity. South Korea has a history of joint investment with China in third countries, particularly in energy, utilities, and infrastructure. Building on this foundation, there is a need to strengthen strategic cooperation in new areas, including strategic industries for both countries.

South Korea faces a dilemma between responding to an invitation from a climate club advocating for rapid carbon reduction and addressing the domestic burden of decarbonization, rooted in its carbon emission-intensive industrial structure. The Korean government must strike a balance between the goals of achieving climate neutrality and sustaining economic growth. These two issues represent a kind of Gordian knot, notoriously difficult to untangle. Yet, the reality is stark, and the urgency of the climate crisis is undeniable. In this context, this paper aims to introduce the theory of the climate club. Utilizing this framework, we examine the G7-initiated climate club and the GSSA as real-world case studies.

In chapter 2, we analyze the global carbon reduction effort by examining investment data from the International Energy Agency (IEA) and FDI markets to analyze the investment patterns in the climate and environmental sectors at both government and private firm levels. This reveals a disparity between inward and outward investment patterns. We also observe that the main destination for investment is renewable energy, yet capital flow into fossil fuels remains substantial. This reflects the varied levels of NDC (Nationally Determined Contributions) achievements between the G7 and developing countries, which amplifies concerns over carbon leakage and the issue of competitiveness in developed countries. Based on these findings, we recognize the increasing number of new initiatives concerning climate change. Among them, due to their inclusiveness and comprehensiveness, the IDA, IFCMA, IDDA, Breakthrough Agenda, FMC, JETP are particularly noteworthy.

Chapter 3 identifies the issues surrounding climate clubs through the case studies of the G7-led climate club and the US-EU-led Sustainable Steel and Aluminum Agreement currently under negotiation. The G7 climate club aims to be open, cooperative, and inclusive, supporting the efficient implementation of the Paris Agreement and its subsequent decisions. The activities of the Climate Club are structured around three pillars: Pillar I focuses on leading transparent and ambitious policies for achieving carbon neutrality; Pillar II is concerned with industrial transition; and Pillar III strengthens climate cooperation and partnerships. The climate club is scheduled to officially launch at the United Nations Climate Change Conference (COP28) in 2023.

Negotiations for the GSSA are distinguished by several points: the United States is proposing punitive tariffs on certain steel and aluminum imports; the goals extend beyond climate objectives to include resolving steel and aluminum trade disputes, addressing global overcapacity, and resolving mutual concerns regarding the EU’s Carbon Border Adjustment Mechanism (CBAM) and the United States’ Inflation Reduction Act (IRA). The United States hopes to link the potential imposition of punitive tariffs with membership in the GSSA. On the other hand, the EU is opposed to imposing punitive tariffs and suggests that, as long as it is in accordance with international law, GSSA member countries should be granted full discretion to adopt and implement their own climate policies based on international cooperation on climate and trade. The EU also proposes introducing ‘permitted’ environmental subsidies that would not allow the imposition of countervailing duties by GSSA members.

Although the discussions around these two climate clubs are developing in different ways, they both presuppose the acceleration of carbon neutrality in greenhouse gas-intensive industries. Moreover, while it is theoretically possible to link climate decarbonization and trade issues within a single agreement, the current negotiations for the G7 initiative and GSSA show that dealing with such issues in practice is an exceedingly difficult task. In the G7 climate club, as the membership expands, issues initially discussed, such as carbon pricing and CBAM, have disappeared from the negotiation table. The GSSA is showing limitations in terms of effectiveness, as long as significant greenhouse gas emitters do not join the GSSA.

In Chapter 4, we analyze the economic utility of each country according to the participation incentive structure that determines the stability of a climate club, using a computable general equilibrium model. Building on previous research, we identified the dilemmas inherent in international-level climate cooperation bodies and reviewed various solutions to these dilemmas. In a situation where only small, stable climate clubs or large, inefficient climate clubs can emerge according to theoretical models, this study explains the increasing dilemmas faced by the proliferating real-world climate clubs. It also analyzes the differences in the effects of cooperation depending on its form through counterfactual analysis. Additionally, by conducting a simulation analysis of China’s role in climate trade cooperation, we have determined that the role of major countries, especially China, is critical for climate clubs to effectively contribute to achieving carbon neutrality. The findings of Chapter 4 suggest that, under the constraints of legalized carbon neutrality targets of key countries, cooperation is needed to reduce the costs of carbon emission reduction. Ultimately, this implies that investment in the renewable energy sector and the sharing of its outcomes will be essential.

Chapter 5 analyzes the opportunities and challenges that our industries will face with the emergence of climate clubs. This analysis was conducted through industrial statistical surveys and in-depth interviews with experts from selected industries, which include steel and cement due to their rapid advancement in decarbonization discussions, as well as the chemical industry, which is highly dependent on trade and has a high carbon intensity.

For the steel industry, joining a climate club is viewed positively due to the potential for leading standards, supply chain cooperation, and possible exemptions from the Carbon Border Adjustment Mechanism (CBAM). Concerns include increased pressure to enhance Nationally Determined Contributions (NDCs) targets and stricter carbon regulations. Issues raised by the steel industry involve worries about decarbonization pressures, weakened competitiveness in green markets for blast furnace steel producers, conversion concerns related to CBAM, insufficient green energy infrastructure, and a scarcity of steel scrap. Policy recommendations stress the importance of early involvement in setting international standards to reflect domestic perspectives, especially regarding carbon emission calculations for different production methods and discussing prohibition of export restrictions on necessary steel scrap among climate club members. An urgent need for the steel industry is expanded government support for electric arc furnace introduction and hydrogen-based steelmaking.

The cement industry suggests that climate club standard development should account for the characteristics of each country and proposes the establishment of a council to discuss the safety of cement. Despite the high proportion of process emissions making greenhouse gas reduction challenging, there is a need for domestic policy improvements. This includes revising the domestic cement production structure centered on Portland cement, and establishing standards for blended cement that emits less carbon.

The petrochemical industry in Korea has reached its limit for emission efficiency within the current energy infrastructure and advocates for paced discussions on low-carbon transitions in climate clubs. The industry emphasizes the need for development and stable supply chains for alternative raw materials like bio-naphtha. It calls for an overhaul of the domestic emissions trading system to secure emission rights and contribute to the NDC.

The plastic industry is not directly targeted by direct emission regulations or carbon border adjustment mechanisms, hence they view joining a climate club positively as it could lead to the adoption of international standards and best operational practices. The plastic industry looks forward to an improvement in domestic recycling policies to align with international standards, by participating in climate clubs and benchmarking foreign exemplary cases. Overall, Chapter 5 highlights that the advent of climate clubs presents both opportunities and challenges for those industries, with the need for domestic industries to adapt to international standards and decarbonization goals while advocating for supportive policies and innovations to maintain competitiveness.

In conclusion, Chapter 6 synthesizes the preceding analysis to articulate a cohesive set of principles, strategic directions, and policy recommendations for South Korea’s engagement in climate club negotiations aimed at carbon neutrality. Our policy blueprint extends beyond the confines of the G7 climate club and GSSA, encompassing a broader vision for climate and trade cooperation across multiple countries.

Principles and Strategic Directions for Climate Club Negotiations: 1. WTO-Coherent Climate Trade Framework: Advocate for a climate trade policy that aligns with existing WTO regulations to ensure a fair and level playing field. 2. Collaborative Climate Club Dialogues: Foster climate club discussions grounded in shared efforts for cost-effective carbon mitigation, shifting the focus from competitive dynamics to collective action. 3. Support for Transitioning Regions and Industries: Increase support mechanisms for regions and industries most impacted by the shift towards green energy, facilitating a just and equitable transition. 4. Multilateral Cooperation Against Green Protectionism: Utilize climate clubs as platforms for multilateral collaboration to counter green protectionism and safeguard economic security within the international marketplace. 5. Balanced Climate and Trade Objectives: Ensure that climate club deliberations simultaneously advance carbon neutrality and uphold the integrity of global trade, avoiding distortive effects.

Policy Cooperation Pathways within Climate Clubs: To catalyze technological advancement and expedite the transition to a low-carbon economy, we propose: Prioritization and Investment in Climate Technologies: Channel investments into high-priority climate technologies. Collaboration on Technical Standards: Work in concert with international partners to develop and harmonize technical standards for new technologies. Creation of Climate Tech Markets: Stimulate markets for products incorporating climate technology and enhance the attractiveness for private investments. Global Low-Carbon Supply Chains: Construct robust supply chains that support the distribution of low-carbon products globally. Standardization and Dissemination of Technologies: Promote the standardization of low-carbon technologies and facilitate their broad dissemination.

Focal Points for Climate Club Cooperation: Foster cooperation in standard certification processes. Engage actively in the delineation of clean hydrogen standards. Collaborate on investment initiatives that accelerate the transformation of production processes to low-carbon models. Emphasize the pivotal role of digital technologies in achieving carbon neutrality.

Trade Policy Considerations: Introducing a system of permissible subsidies to mitigate trade conflicts. Ensuring stability in the supply chains for achieving carbon neutrality. Encouraging broader participation in climate-related initiatives. Crafting a Korea-centric climate club strategy that aligns with our national interests, enhancing economic security, and effectively navigating global trade complexities. The policies and strategies delineated herein are designed to position Korea at the vanguard of international climate policy, driving forward the global agenda toward a sustainable and prosperous low-carbon future.

This report examines how EU’s ‘open strategic autonomy’ has been developed and realized facing recent changes in the global trade landscape, especially in areas such as supply chain, energy transition, immigration, and security integration. In response to the fragmentation and blocization of the global economy, which manifested in the US-China strategic competition, the COVID-19 pandemic, and the Russia-Ukraine war, the EU has sought to strengthen the competitiveness of its own high-tech and strategic industries and reduce its dependence on foreign countries (strategic autonomy). At the same time, it seeks to continue cooperation with like-minded countries with shared values and interests to address challenges that require global effort (openness).

 Chapter 2 defines open strategic autonomy in more detail and investigates how it has been implemented in the supply chain sector. The industrial and trade policies that have been published since the inauguration of the current EU Presidency in 2019 embody the concept of open strategic autonomy, which is defined as “strengthening competitiveness Executive Summary in the region to defend EU interests without relying on other countries, while continuing to cooperate with partners who share the values and interests.” After the Russia-Ukraine War, the EU continued its efforts to identify areas of weakness in the EU’s competitiveness and to localize and diversify its supply chains. This strategic shift was reflected in a series of supply chain legislation such as the European Chips Act, Critical Raw Materials Act, Net-Zero Industrial Act, and Corporate Sustainability Due Diligence Directive. The EU sets targets for the share of home-produced goods and provides various support measures such as subsidies, tax benefits, R&D investment, and workforce training. In addition, the legislation emphasizes bilateral and multilateral strategic partnerships, reflecting the open strategic autonomy of the region to continue cooperation with like-minded countries.

Chapter 3 investigates energy policies of the EU and EU Member States. The energy crisis brought on by the Russia-Ukraine war illustrated how overdependence on a single country can have a profound impact on the EU economy. In response to the energy crisis, the EU sought to phase out or suspend energy imports from Russia, diversify its energy import sources, increase the production of renewable energy, and promote energy efficiency. The energy policies of Germany, France, Finland, and Poland are then examined as case studies. Germany’s recent energy policy has been characterized by an increased use of renewable energy sources, the closure of all nuclear power plants, and an increase in hydropower generation. France, on the other hand, has maintained a high reliance on nuclear power, while persistently investing in renewable energy to achieve climate neutrality by 2050. Finland is a low-carbon country with a high share of renewable energy, and has been importing energy from neighboring countries such as Norway and Estonia after the outbreak of the Russia-Ukraine war. Poland is the most fossil fuel-dependent country in the EU, and as such, it is expected to face the Executive Summary • 259 most difficulties in implementing EU-wide green transition policies. Therefore, Poland aims to overcome this limitation by starting a nuclear power project. It is common to all four countries that they are trying to expand renewable energy while developing alternative energy sources such as nuclear and hydrogen power. Increasing energy independence through the development of alternative energy sources is expected to increase the EU’s strategic autonomy in the energy sector.

 Chapter 4 analyzes the trend of Ukrainian refugee influx to European countries and their impact on the labor markets, through literature review, fieldwork and statistical analysis. Immediately after the outbreak of the Russia-Ukraine war, there was a large influx of Ukrainian refugees to European countries, and EU member states actively accepted refugees by invoking the Temporary Protection Directive. The refugee influx to Europe is characterized by a high proportion of women and children and a high number of highly educated and skilled workers. The empirical analysis in this chapter, using microdata from UNHCR, shows that access to language training is significantly and positively associated with a refugee’s probability of employment. While the impact of refugee flows on the labor markets of host countries still needs further studies, an increase in the labor force with no significant impact on labor market conditions is observed so far. While Europe has been welcoming Ukrainian refugees, it showed a very different attitude towards migrants and refugees from the Middle East and North Africa, including Syria. This could be explained by an attempt to overcome the security threats posed by the war through solidarity with Ukraine, a country with a similar position. This illustrates one aspect of the EU’s tendency to selectively accept migrants and refugees to defend its interests and provides evidence that the EU’s commitment to open strategic autonomy is also observed in the area of immigrant acceptance.

Chapter 5 focuses on the changing concept of strategic autonomy in the EU’s security sector after the war. While the need to strengthen the EU’s defense capabilities in response to the immediate security threats of war has intensified, Europe’s strategic autonomy has remained an elusive goal, even as its security dependence on the United States has increased dramatically. The accession of traditionally neutral countries such as Sweden and Finland to the US-led NATO alliance signals a growing preference for increased US-dependent defense capabilities. However, the EU has pursued a strategy of strengthening its own security and defense capabilities independent of NATO. The provision of arms and munitions to Ukraine and the implementation of training missions to Ukraine’s armed forces are examples of such moves. The EU’s efforts to establish a common market for defence procurement have also been partially realized with the passage of the European Defence Industry Reinforcement through Common Procurement Act. The EU’s strategic autonomy in the security field will be determined by its progress in establishing relations with the United States and NATO, building a regional defence industry ecosystem, supporting Ukraine’s post-war defence build-up, and security cooperation with Indo-Pacific countries.

Chapter 6 presents policy implications for Korea based on the above findings. The EU’s expanding support for local industrial competitiveness is likely to pose challenges for Korean exporters, but there are also opportunities for Korea to take advantage of this. European Chips Act, Critical Raw Materials Act, Net-Zero Industrial Act are all concerned about expanding bilateral and multilateral cooperation with trusted partners. In addition, the EU’s recent supply chain legislation is characterized by weak geographical discrimination, so it is expected that Korean companies with a local presence will be able to enjoy similar benefits as EU companies. Taking advantage of the EU’s favorable aspects of its foreign and economic policies will not only benefit our companies, Executive Summary • 261 but will also allow us to make a joint contribution to addressing global challenges that require international cooperation, such as the reshaping of the international order, supply chain pressures, climate change response, and labor supply shortages. To this end, Chapter 6 identifies areas where we can expand our cooperation with the EU in the energy, immigration and security sectors. Finally, the challenges of the changing global trading environment faced by the EU are the same challenges faced by Korea, and we need to learn from the EU’s responses and use them to develop strategies tailored to our own circumstances. While it is beyond the scope of this report to formulate a specific foreign economic and economic security strategy for Korea, the EU case analyzed in this report is expected to serve as an important reference point.

To provide meaningful policy recommendations to achieve the Sustainable Development Goals (SDGs) according to the UN’s 2030 Agenda for Sustainable Development, the report “Assessing Vietnam’s Progress towards Sustainable Development Goals: A Comprehensive Review” provides an overview of Vietnam’s progress in implementing the SDGs. Accordingly, the report reviewed and analyzed legal documents, collected reports and statistical data related to the SDGs to review the process of integrating SDGs into socio-economic development strategies and plans of ministries, branches, and localities in Vietnam. The report also identifies factors affecting the effectiveness of SDGs implementation to point out Vietnam’s difficulties, challenges and opportunities in the process of implementing SDGs at the provincial level. To have a more comprehensive, multi-dimensional view when evaluating the progress of implementing the SDGs, the report chooses Indonesia, Myanmar and Laos for case studies to compare the progress of national SDGs implementation in the ASEAN region compared to Vietnam.

The report uses a flexible approach, including both qualitative research methods and quantitative research methods.The report clarifies difficulties, challenges and opportunities, as well as draws valuable lessons on implementing the SDGs for Vietnam. The report also provides insights into the nationalization of the SDGs, attracting and allocating financial resources, monitoring and evaluation, international coordination and cooperation, raising awareness about the benefits of sustainable development and encourage stakeholders to participate in implementing the SDGs in Vietnam. Thereby, the report proposes recommendations for Vietnam, as well as offers implications for Korea.

Since gaining membership to the WTO, China has expanded its global influence based on its expanded economic power, extending to trade. In response to strategic competition with the United States and efforts by major countries to contain its growing influence, China has increasingly felt the need to establish a global order that it can lead or where it can enhance its influence. Consequently, China is actively pursuing a state-led strategy to strengthen its influence across all dimensions. The expansion of China’s global influence has intensified competition and conflict with advanced countries such as the United States, while also strengthening ties among developing and emerging countries. This situation increases external uncertainties for South Korea, necessitating appropriate responses. Therefore, this study analyzes, evaluates, and forecasts China’s strategies for enhancing its global influence in economic, diplomatic, and security aspects, and explores potential response strategies for South Korea.

In Chapter 2, we examine the changes in and characteristics of China’s global influence index, as analyzed by major global institutions, to assess the degree of change in global influence during the Xi Jinping era. We then analyze the relationship between these changes and China’s national goals and foreign strategy shifts, identifying China’s strategies to expand its influence amidst intensifying conflicts with the United States and stronger economic security initiatives.

Chapters 3 to 5 focus on analyzing and evaluating China’s strategies to enhance its global influence in economic, diplomatic, and security fields during the Xi Jinping era.

Chapter 3 analyzes and evaluates the strategies to strengthen influence in the economic sector, divided into trade and finance. In trade, China’s strategies have led to growth as an exporter of intermediate goods through trade sophistication, securing a supply chain advantage, strengthening trade security through export controls, expanding regional economic cooperation networks such as the RCEP, increasing trade and investment with Belt and Road Initiative partner countries (exporting standards), and securing overseas markets/resources. However, there are also limitations, such as reliance on foreign core technologies, low-level FTAs centered on developing countries, increasing side effects of the Belt and Road Initiative, emerging competing platforms, and stronger actions on the part of advanced countries to contain and counter China’s trade, investment, technology, industry, and international standards activities.

In the finance sector, China’s strategy has shown some achievements in international monetary and financial system reform and role expansion, and in establishing a yuan liquidity supply network through bilateral/multilateral currency and financial cooperation. However, institutions like the AIIB and NDB still require extended periods of time to grow into alternative multilateral institutions that can take the place of established ones like the IMF and ADB. Additionally, efforts such as forming offshore yuan markets, capital account liberalization, and establishing an international payment system have made progress, though China’s capital account liberalization has not yet reached the level of advanced countries. As a result, cross-border yuan capital transactions increased rapidly during the Xi Jinping era. China’s Cross-Border Interbank Payment System (CIPS) is gradually expanding its number of members and transaction volume. Meanwhile, policies such as leading participation in international financial standard-setting and yuan oil transactions have yielded limited success, and the proposal to expand the use of SDR as a reform measure for the international monetary and financial system has not been widely accepted internationally.

Chapter 4 analyzes China’s strategies to enhance its influence in diplomacy, focusing on global partnerships, international development cooperation, and climate change negotiation responses. In global partnerships, China is expanding its influence through bilateral, small/multilateral cooperation systems, and public diplomacy. A notable feature is the global partnership strengthening strategy targeting Taiwan, with a focus on cooperation with developing countries and neighboring Asian countries, and the pursuit of public diplomacy leveraging strengthened economic power and rich cultural assets, though the effects have been minimal.

In development cooperation, China’s strategy has achieved significant results in expanding the provision of public goods to recipient countries, utilizing the Belt and Road Initiative platform, and leveraging regional cooperation mechanisms. A significant proportion of recipient countries have positively assessed these policies, noting contributions to trade and investment growth, infrastructure gap reduction, and economic/technological development, as well as improved political relations. As China advances the development goals of recipient countries and achieves sustainable development goals, its influence in international development cooperation governance and related international standards fields is growing.

In the field of climate change response, China has strengthened communication with developing countries through BASIC and LMDC groups within global climate governance, consolidating developing countries’ positions and enhancing negotiation power to assert their interests. However, strengthening China’s influence in climate governance requires China to expand its active responsibility for carbon neutrality.

Chapter 5 analyzes China’s strategies to enhance influence in the security sector, divided into resource security and maritime security. In resource security, China’s strategy has generally been successful in securing a supply chain for key minerals through the development and control of owned minerals and active overseas mineral investment. According to our evaluation, China is enhancing its own resource security in direct response to U.S. sanctions, strengthening cooperation with third countries other than the U.S., and promoting technological independence.

In maritime security, China is building a strong navy capable of far-seas operations, expanding maritime security activities, and constructing naval bases at strategic high-value locations. Domestically, it is strengthening maritime jurisdiction, law enforcement capabilities of the coast guard, and enhancing its ability to comply with international law in maritime disputes, thereby strengthening its legal warfare capabilities. The use of maritime militia as a grey zone strategy disrupts the actions of conflict countries, and stronger law enforcement measures by its coast guard have strengthened China’s influence in the South China Sea.

Chapter 6 comprehensively summarizes the contents of this study and presents implications for policy. Based on a comprehensive analysis of the characteristics, evaluation, and prospects of China’s global influence strengthening strategy, the study summarizes impacts and prospects by field, and examines the responses of major countries to China’s strategy to strengthen its influence in each field, suggesting response strategies for the Korean government.