If we are to revitalize exports to the EU, it will be necessary to conduct a more precise analysis on investment and trade between Korea and the Central and Eastern Europe Countries (CEEC), together with the establishment of proper strategies. This report suggests that policies ought to enhance the network of trade and investment between Korea and the CEEC by researching and analyzing the changes in the CEEC economy and features of Korean investors in the CEEC.
  First, as the business environment in the CEEC has changed since the enlargement of the EU in 2004, Korean firms in the CEEC must now reestablish the long-term strategies of their investment. Prior to 2004, the Korean firms in the CEEC realized abundant profits due to easy access to the EU market and lower wages. However, transitions in the business landscape are leading to changes in the traditional pull factors of FDI, such as low labor wages. Accordingly, it has become inevitable for firms to establish a new strategy.
  Second, improving competitiveness in the CEEC benefits Korean investors to retain faster return on investment as well as increase exports. Since the EU enlargement, Korean investors tend to provide intermediate goods from local suppliers rather than from within Korea. The aim of these Korean investors is to minimize risks associated with exchange rate fluctuations and reduce freight costs by supplying intermediate goods from local markets. This signifies that investment in the CEEC does not increase exports. To overcome this vicious circle, Korean investors should expand their value chain. It is necessary to research and find proper strategies to strengthen Korean firms’ competitiveness and diversify sales networks to realize sustainable growth. In addition, the development of high value-added materials and parts will boost competitiveness. Such changes will allow investments to translate not only into improvements in the trade balance but also the balance of services and income.
  Third, Korean firms should be prepared with strategies customized to the characteristics of each industry, as changes in the trade environment caused by the EU pursuing further FTAs have had a huge impact on the supply chain of vertical international specialization.
  Finally, it is necessary to analyze conditions of investment and establish winning investment strategies in the CEEC. Such strategies are aimed to diversify the portfolio of Korean firms in order to increase competitiveness. 

Ⅰ. Введение

Ⅱ. Теоретико-методологические подходы к изучению стоимостных цепочек

1. Теоретический анализ моделей стоимостных цепочек
2. Стоимостные цепочки в Восточной Азии: состояние и перспективы изменения

Ⅲ. Российская стратегия политического и экономического сотрудничества с КНДР: история и современность

1. Политическое и экономическое измерение отношений России и Северной Кореи: исторический аспект
2. Состояние российско-северокорейского экономического сотрудничества

Ⅳ. Роль и место Объединенной Кореи и российского Дальнего Востока в контексте стоимостных цепочек в Восточной Азии

1. Сценарии объединения Кореи и анализ роли и места Объединенной Кореи в стоимостных цепочках Восточной Азии
2. Российский Дальний Восток: характеристика состояния экономики, основные проблемы и перспективы развития

Ⅴ. Контуры будущего экономического взаимодействия России и российских компаний с Объединенной Кореей

1. Вероятные изменения в цепочках добавленной стоимости российских компаний после объединения Кореи
2. Перспективы формирования стратегии России по экономическому взаимодействию с Объединенной Кореей

Ⅵ. Заключение

References 

  Asia-Pacific is the fastest growing region in the world. Accordingly, the corporate value chains’ dynamics of development and changes is very high. The most completely included countries in the East Asian value-added chains’ network are Japan, China and South Korea, as well as some of the ASEAN countries.
  Most of the value-added chains is locked on China. The main purpose of companies that create or are included in the value-added chains is to obtain competitive advantages.
  Currently, most of the Russian, Japanese, Chinese and South Korean companies do not consider North Korea as a factor of strengthening their competitiveness.
  The inclusion of Russian companies in the East Asian value-added chains is at a minimum level. Over 70% of foreign economic relations of Russia is focused on the EU.
  Currently there are several scenarios for the future development of the value-added chains in Asia Pacific: “Euphoria”, “WTO 2.0” and “bowl of spaghetti”. At the same time none of the scenarios considers the unification of Korea as a significant factor.
  However, the unification of Korea, rather, may lead to a temporary decrease in South Korean’ competitiveness, since it requires the investment in the integration process (creation of infrastructure, training, etc.).
  Moreover, if the integration of the South will take place at the expense of South Korean public investment, in the future the South Korean company will be able to use the North Korean factor to enhance their competitiveness (cheap labor, natural resources, increasing in domestic demand, etc.).
  At the moment, the Russian strategy for the economic cooperation with the Unified Korea does not exist. This is confirmed by the lack of state-level documents that would contain at least some details of this cooperation, there is also no published corporate strategies of any Russian companies towards the Unified Korea.
  The term “Russian economic strategy for cooperation with the Unified Korea” means the Russian economic cooperation mainly with the enterprises of North Korea since the level of development, for example, South Korean or Japanese value chains, higher than Russian and their synergy rather difficult.
  Chinese corporations are building their own value chains (including within the concept of “One Belt, one Road”) and at the level of development, that does not assume cooperation.
  At the moment, the scale and number of Russian companies’ projects (joint value chains), which include North Korean enterprises or implemented in North Korea is too small, and may not indicate the presence of Russia’s economic strategy towards the Unified Korea.
  Nevertheless, currently the Russian business and scientific community is discussing a number of specific projects, that can be implemented on the territory of North Korea, and could involve North Korean companies.
  In the future, these projects could become the basis of Russia’s economic strategy towards the Unified Korea. However, it is important to note that the main condition for the successful implementation of such projects is creation the Unified Korea on the basis of North’s absorption by South.
  In general, the above mentioned may be realized only in the presence of Russia’s strategy for cooperation with the United Republic of Korea. This strategy should be based on the following principles.
   1. Northern Territory is considered to be a potential part of the United Republic of Korea.
   2. United Republic of Korea - one of the key elements of a common Eurasian space.
   3. The United Republic of Korea - an important potential customer of Russian Natural Resources and element of the Trans-Eurasian logistics system.  

序章 はじめに

Ⅰ. グローバル·バリュー·チェーンに 関する先行研究のサーベイ

1. グローバル·バリュー·チェーンに対応した統計作成の重要性

2. 国際産業連関表による分析

3. グローバル·バリュー·チェーンにおける産業の生産段階の位置づけ

Ⅱ. 韓国のFTAが経済に与える効果のケーススタディ: 韓中FTAを中心に

1. FTAの効果-動態的効果と静態的効果

2. 韓国のFTA締結·交渉状況

3. 韓中FTAに関する先行研究

4. 韓国がFTAに想定、期待するメリット

5. チリ·中国の例-妥結内容と効果の評価、重回帰分析を使用して

Ⅲ. 韓国·北朝鮮の貿易自由化が日本経済にGVCを通じて与える効果分析

1. 北朝鮮の産業連関表

2. 多国間の生産誘発効果分析

3. 北朝鮮との貿易自由化が日本経済へ与える効果

4. 北朝鮮の産業構造と日本との産業連関の変更が日本経済に与える効果分析

Ⅳ. 日本経済に望ましいGVC形成のための日本の対応戦略

Ⅴ. 結論

参考文献

  A key factor in the successful economic unification of South and North Korea will be to promote the catch-up process of the North Korean economy to the current level of the South Korean economy as soon as possible. If large differences in economic and living standards continue to exist between the two countries after unification it will be difficult to restrict migration from North to South. In that case, South Korea will have to bear an enormous social cost for accepting and assimilating those immigrants from North. Such social costs include the cost for job training, unemployment insurance, and to deal with social conflicts. To control the cost of migration from North to South Korea it will be necessary to vitalize the North Korean economy by reforming the very inefficient economic system that exists in the country.
  Trade liberalization is a very powerful driver when it comes to improving economic efficiency. The knowledge spillover effect realized through procurement of intermediate products from advanced countries is expected to contribute to upgrading North Korea’s production technology. Furthermore, the increased competition from imported goods should lead to the improvement of misallocation of production resources in the economy.
  When we analyze the effects of trade liberalization on economic development in the current economy, we should take into account not only the effects of the international trade of final goods but also those from the trade of parts and components. Multinational firms in advanced economies relocate their labor-intensive work to developing countries and have established global value chains (GVC). Hence, the trade relationship between countries has become more complicated and sophisticated in the current global economy. In addition, the establishment of GVCs has changed the nature of international trade and foreign direct investment. For example, an increase or decrease in automobile exports from China to the USA does not influence only the two countries’ economies but also influences the Japanese economy, as Japanese manufacturers export intermediate products to Chinese automobile manufacturers.
  This aim of this study is to assess the effect that inter-Korea trade liberalization will have on the Japanese and North Korean economy. In order to properly take into account the effects realized through GVCs, we employed the international input-output tables developed by the Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) in this analysis. Although we have information about international input-output relations in the industries between South Korea and Japan, we do not have this information for between North Korea and Japan. Using North Korean GDP figures by industry in 2011, and the South Korean IO table for 1970, we estimated the North Korean IO table for 2011. Then by combining export-import data in 23 sectors for the year 2000 from the United Nation’s Comtrade database, and information from the 1970 South Korea-Japan IO table, we estimated the North Korea-Japan international I-O table of 2011. By employing this estimated North Korea-Japan international IO table, we can examine the effect of trade liberalization on both economies. We assume that North Korea’s export amount to Japan increases by 10 times from that in 2000, and the assumed export amount to be about 1.7 billion dollars in 2011. We calculate the induced output effect by industry in North Korea from increased export from North Korea and Japan, and the obtained total effect is 4.5 billion dollars. The induced output effect in North Korea by industry is the largest in the textile and textile products industry, followed by basic and fabricated metals, transport equipment and electrical and optical equipment. We calculated the spillover effect to Japanese industrial production from the increase in exports from North Korea to Japan and obtained a total effect of 9.2 billion dollars. The Japanese industries benefitting the most from this rise in exports were basic and fabricated metals, textile and textile products, transport equipment and the commercial sector. These results imply that the expansion of exports from North Korea to Japan will have a larger economic benefit for the Japanese economy. The increased exports from North Korea to Japan will induce industrial production in North Korea, with this increased production leading to increased production in Japan. This is because the North Korean industries need to procure more parts and components from Japan for their incremental production. While the effect of incremental amounts of production are limited in light of Japan’s total GDP, they represent an important contribution to the output of its manufacturing industries, which are losing international competitiveness.
  The trade liberalization of North Korea is expected to have a large economic benefit for both Japan and North Korea. In order to enjoy the larger economic benefits from the liberalization of trade to Japan, Japanese industries should try to outsource labor-intensive procedures to North Korea.
 

Acknowledgements

1. Defining Contours of the India-Korea Strategic Partnership: Political and Economic Parameters
·Pankaj Jha (Indian Council of World Affairs/Director)

2. The Sweet Scent of Development: Korean Pop Culture in Latin America
·Ricardo Pagliuso Regatieri (Korea University/Research Professor)

3. Productive Integration in Mercosur and Its Implications for Korea’s Economic Cooperation with the Region 
·Uallace Moreira Lima (Federal University of Bahia/Adjunct Professor)

4. Russia’s Changing Economic and Military Relations with Europe and Asia from Cold War to the Ukraine Conflict: The Impacts of PowerBalances, Partnerships, and Economic Warfare
·Christopher Mark Davis (University of Oxford/Reader in Command and Transition Economies)

5. Russia and ASEAN in Eurasia: Value-Added for Russia-ROKCooperation
·Evgeny Kanaev (Primakov National Institute of World Economy and International Relations, Center for Asia-Pacific Studies/Leading Researcher)

6. Social and Political Transformation of the Russian Society in New Geopolitical Conditions
·Sokolov Alexander Vladimirovich (Demidov Yaroslavl State University/Associate Professor)

7. Economic Cooperation between the Republic of Korea and Republic of Uzbekistan: Actual Problems and their Solution Course
·Nigora Talipova (Tashkent State University of Economics/Associate Professor)
·Ganieva Gulnora (History Institute of the Academy of Sciences of the Republic of Uzbekistan/Associate Professor)

8. Whither Turkey’s Integration to the European Union? Economic and Political Challenges in Turkey-EU Relations
·Mahmut Tek?e (Marmara University/Professor)

9. Turkey’s Perspective on Enhancing Connectivity in Eurasia: Searching for Compatibility between Turkey’s Middle Corridor and Korea’s EurasiaInitiative
·Selcuk Colakoglu (Yildirim Beyazit University/Professor) 

  Following the 2008 global financial crisis, uncertainty is escalating in the world economy amid disruptions in the financial and foreign exchange markets of emerging economies, mounting geopolitical instabilities triggered by the spread of international terrorism, and rising protectionism in advanced countries. While the term “BRICs” signaled the emergence of new markets in the early 2000s it has since become associated with pessimistic views regarding the future of emerging markets as growth falters in Brazil and Russia.
  However, emerging markets are vastly outpacing advanced economies in terms of their contribution to global economic growth. In response to protectionism and isolationism in the sluggish global economy, Korea should act as a mediator between the advanced and emerging countries, providing the momentum for sustainable development. Thus, comprehensive and in-depth research is needed for better understanding about emerging economies. Despite increasing demands for Area Studies, there is still a lack of systematic and insightful research on emerging markets.
  In this regard, Korea Institute for International Economic Policy (KIEP) launched the “Studies in Comprehensive Regional Strategies” project in 2009 with the aim of providing readily applicable international economic policy recommendations for policy makers, as well as the public, and to expand the promotion of Area Studies across the spheres of economics, politics, society, and culture.
  KIEP carries out a mixed bag of projects as it strengthens networks with regional experts, publishes research papers, jointly holds the international conference “KIEP and Associations of Area Studies,” and invites prominent scholars from around the world. In particular, we annually call for research papers from regional experts in Area Studies and publish these papers in a single volume.
  This year, for the first time, nine prominent scholars across the world have conducted their own research in the areas of Russia-Eurasia, South East Asia, India-South Asia, and Turkey-Eastern Europe. It is our hope that this informative body of research will prove useful to broadening readers’ understanding and knowledge of Area Studies. We also hope these research papers will contribute to the lively overseas expansion of Korean enterprises and the establishment of trade policies by the Korean government, and suggest ways to overcome challenges that trouble emerging economies.
  On behalf of KIEP, I would like to express our deepest gratitude and appreciation to the referees for their rigorous and helpful reviewing of the papers, as well as the authors for their endeavors to create considerable merit in the papers. The opinions expressed in the papers are the author’s own and do not represent the official views of KIEP.
  We sincerely look forward to your continued interest in and encouragement of “Studies in Comprehensive Regional Strategies” and KIEP.
 

Acknowledgements

Abbreviations

Introduction

Ⅰ. Regional Geopolitics and Integration

1. The Changing Geopolitics in Asia
A. The Emergence of China
B. Coping with the Rise of China
2. Regional Economic Integration
A. Overview of FTAs among Asian Economies
B. Economic Interdependence in the Region
C. Trade among Countries in the Region

Ⅱ. Overview of Vietnam-Korea Relations

1. Non-Economic Relations
A. Political and Diplomatic Relations
B. Cultural Cooperation
C. Labour Cooperation
D. Tourism Cooperation
E. Science and Technology Cooperation
F. Intellectual Property
G. Education and Training Cooperation
2. Economic Relations
A. Trade
B. Investment
C. Official Development Assistance

Ⅲ. Vietnam-Korea Free Trade Agreement

1. The Two Parties’ FTAs
A. Korea’s FTAs
B. Vietnam’s FTAs
2. Vietnam-Korea FTA
A. Trade in Goods, Market Access
B. Trade in Services
C. Commitments on Investment
3. Implementation of VKFTA
A. Opportunities
B. Institutional Readiness
C. Vietnamese Enterprises’ Readiness

Ⅳ. Trade and Investment Dependence

1. Trade Dependence
A. Overview of Trade Dependence
B. Main Features of Vietnam-Korea Trade
C. Trade Dependence: Some Conventional Indicators
D. Trade Dependence Index: a Single Index
E. Conclusion Remarks on Trade Dependence
2. Vietnam-Korea Investment Relations
A. Korea’s FDI Inflows to ASEAN
B. Vietnam’s Policies on FDI Attraction
C. Korea’s FDI Inflows to Vietnam
D. FDI from Korea by Province
E. Production Linkages

Ⅴ. Trade and Investment from Gravity Model

1. Spatial Gravity Model
A. The Model Specification
B. Dependence Matrix (W)
C. Estimate the Model
D. Trade Model Results
E. The Results for FDI Model
F. Spatial Multiplier Effects
2. Trade and Investment Forecast
A. Scenarios
B. Key Findings from the Forecast

Conclusions

1. Critical Findings
2. Some Policy Remarks
3. Shortcomings and Further Studies

References

Appendix

1. The Content of VKFTA
2. Weighting Matrix
3. Summary of the Forecast Scenarios

Executive Summary

국문요약 

  The world is changing. Remarkable changes have been witnessed in East Asia where China’s emergence and the increasing bilateral/multilateral free trade agreements are shaping the economic and geopolitics patterns in the region. The facts have made regional countries become more interdependent. The trade and investment relations between any two countries have been no longer independent but influenced by the relations with the third country. This research is designed to investigate the trade and investment dependence of Vietnam on Korea given the increasing intensity of economic integration and more unstable geopolitics in the region. This research is based on network approach to investigate the bilateral trade and investment of Vietnam and Korea. As such, the relations of Vietnam and Korea are analysed taking into account the trade and investment of 13 other countries/group of countries who are large trade and investment partners of both Vietnam and Korea, including the EU, China, Australia, India, Russia, the United State, Japan, Singapore, Thailand, Indonesia, Malaysia, Cambodia, and the Philippines. The trade dependence index of Vietnam is calculated not only based on the trade structure of Vietnam, but also that of Korea as well as the power of Korea in the international market. The comparison of trade dependence by countries and by time gives critical insights about the relations. In addition, the inclusion of geopolitics into spatial gravity model is one of the innovations of this research. It allows to elaborately investigate the influences of the regional geopolitics, particularly the role of China, on the trade and investment of Korea and Vietnam as well as other major partners in the region.
  Vietnam and Korea have more than 20 years of diplomatic relations and remarkable progress has been made in improving and upgrading their ties. The strategic partnership was signed in 2009 in addition to the free trade commitments under framework of ASEAN Korea agreement (AKFTA). As a result, the trade and investment between Vietnam and Korea has increased remarkably. Korea soon becomes the biggest investor in Vietnam and the bilateral trade growth is recorded around more than 25% per year. The Vietnam-Korea Free Trade Agreement (VKFTA) in 2015 puts a cornerstone in the bilateral relation and is expected to potentially and fruitfully bring about benefits to both countries.
  The reason for such expectation is the fact that the VKFTA is more open than the AKFTA which both countries are signatories. It may benefit Vietnamese firms, indeed, both in terms of exporting more agro-products to Korea and importing better quality inputs. It also facilitates restructuring the import market of Vietnam, avoiding heavily dependence on some other markets. From another side, the FTA also facilitates the FDI from Korea because of more open commitments in service and investment. However, for Vietnam, such benefits are conditional. Poor preparation and readiness of both its institution and its domestic enterprises will hinder Vietnam from enjoying its trade with Korea.
  Given a more intensive cooperation, Vietnam is more and more dependent on trade and investment with Korea. The dependence index shows that in overall, Vietnam’s export dependence on Korea is less than other countries but inclines to increase since 2009. The same observation with a higher pace is found for import dependence in particular for auxiliary of garment and textiles, sea transport vehicles, machinery and mechanical appliances. This tendency is believed to continue because the VKFTA has taken into effect since 2015 and the expansion of FDI from Korea flowing to Vietnam will trigger a booming of import by Korean companies in Vietnam particularly the import of spare parts.
  Another note is the trade dependence is intensified over time in line with the expansion of FDI flows from Korea to Vietnam, especially from large corporations because of the shift of investment from China. This led to the argument that FDI is one of factors that make trade dependence increase.
  The FDI from Korea inflow in Vietnam has been also on the rise, largely contributed by the entry of very large firms in electronics and phones. Korea has become the biggest FDI investor in Vietnam that in turn implying an upward tendency of more investment dependence.
  Assessing the trade dependence index with Korea does not mean the dependence is good or bad because the relations between Korea and Vietnam in both economic and political aspects are warm and supportive in recent years as well as there is no territorial issue interrupting such relations. The policy implication of this dependence is different from the dependence of Vietnam on China since there remain the conflicts of sovereignty between China and Vietnam, and trade dependence may be used as an instrument for politics and sovereignty negotiation. Increasing dependence on Korea in terms of both import and export indicates that the two countries have increasingly taken advantage of the signed FTAs. However, the dependence also demonstrates the tightened relations between the two and changes in political, economic and trade situations of Korea may notably affect Vietnam. This is the common trend of integration because of increasing inter-dependence among economies.
  Further investigating the dependence suggest that even for some hypothetically unforeseen cases in which Vietnam would like to reduce such dependence, that the capacity to control international price of Korea is small, hence, Vietnam can proactively optimize the dependence either by diversifying commodities structure exported to Korea as well as diversifying export markets. From this perspective, in the context that Vietnam and Korea are accelerating the negotiation and signing new FTAs with other partners, in the near future, the export dependence of Vietnam on Korea is not a very big concern.
  The findings on the trade pattern using the spatial gravity approach suggested very intuitive evidence on the interdependence among countries. Besides other factors, FTA and geopolitical changes both determined the trade and investment. In addition, trade and investment flows of other countries also affect the trade and investment between any pairs of countries like Korea and Vietnam. The dependence of Vietnam on Korea is no longer only determined by the two countries themselves, but also the involvement of other partners.
  As an example of the advantages of spatial approach, the analysis about trade and investment multipliers indicates that Korea growth affects the trade between Vietnam and Korea, but besides the direct effect, a large part is through the interaction with other trade partners, among that the influence from Japan, China and Singapore is substantial. Similarly, the institutional improvement and wage improvement of China may have critical impact on the trade and investment between Vietnam and Korea as well as other countries in the region. This comes to the forecast that the trade and investment dependence of Vietnam to Korea will be continued, but sensitive to regional geopolitical and macro-economic issues. It implies that the KVFTA does not result in higher export to the Korean market unless supported by some favourable environmental factors such as the stable geopolitics and sound macroeconomics of Vietnam or in the region.
  The warming relationship between Vietnam and Korea is a very good environment for the trade and investment ties between the two which in turn brings about fruitful benefits for both sides. The stable regional geopolitics also plays a role for that. It, therefore, implies that keeping a stable environment in the region is not a duty of a single country or a group of countries but also of any countries  who  have  trade  and  investment  relations  with.  Both the Vietnamese and Korean governments are aware of the issue of stability in the regional geopolitics.
  From the Korean side, the relations with Vietnam bridges the relations to ASEAN. With cheap labour, large consumption market, this area should not be ignored by Korean investors. However, the role of China in this area also should never been neglected. China’s influence in ASEAN is huge, given more and more interdependence among countries and the implementation of AEC, Korean investment in this region is likely to be still slower than that of Japan or China. This issue should receive a noticeable consideration.
  With the increasing dependence and inter-dependence, the Vietnamese government should take advantage of this factor for their re-structuring economy, particularly improving the manufacturing sector toward export oriented strategy. Korea may become a good source of importing materials for exporting to other destinations, particularly the EU markets. EVFTA and VKFTA have generated great opportunities for Vietnam to eliminate the dependence on some traditional markets. In the context that TPP may be re-negotiated or cancelled, the critical improvement of the readiness of both Vietnamese and Korean firms for VKFTA is very necessary and needs to be done as soon as possible.  

  The WTO’s Tenth Ministerial Conference, held in Nairobi on December 2015, concluded with the adoption of the “Nairobi Package”, several ministerial decisions on agriculture, cotton and least-developed countries. The Nairobi Package includes a historic decision to eliminate agricultural export subsidies, the most important reform of international trade rules in agriculture since the WTO was founded. The biggest disagreement among WTO members, however, goes beyond specific substantive issues: it is about the future of the Doha agenda and the WTO’s negotiating function itself. While developing countries wished to continue with negotiations, industrialized nations, chief among them the United States, called for an end to the Doha Round. The Nairobi Ministerial Declaration also acknowledges that WTO members “have different views” on the future of the Doha Round negotiations but notes the “strong commitment of all members to advance negotiations on the remaining Doha issues”.
  In this situation, there have been significant changes in international trade since recent decades. First, trade growth has been anaemic since 2010. Already before the 2008 Global Crisis hit, the rate of growth of the ratio of global trade to GDP had slowed considerably. Most recent data show trade values declining. Second, plurilateral negotiations are rapidly widespread in the WTO. In particular, developed members have pushed for more sectoral deals like the ITA-II. Currently, a similar deal on tariff reductions for environmental goods is being negotiated. More sectoral tariff liberalization of this sort might be a good area to pursue. Along the same lines, the trade in services talks going on in Geneva could be brought formally into the WTO framework.
  Third, at the Paris climate conference (COP21) in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal, which is expected to affect a significant impact on global trade. At the heart of the Paris climate agreement are national-level plans, called Intended Nationally Determined Contributions (INDCs), to reduce greenhouse gas (GHG) emissions. Although these INDCs are voluntary, they are considered a critical first step for an agreement designed to progressively ratchet up national commitments to collectively limit a global temperature rise to 1.5 degrees Celsius above pre-industrial age levels. It is now time that we have to design a harmonization between trade and environments.
  Finally, increasing anger over globalization would rapidly spread. The unhappiness is evident in Britain's vote in June 2016 to leave the European Union and in the U.S. presidential campaign of Republican Donald Trump.
  Under the above situations, the study suggested the following as new directions of Korea’s multilateral trade policy. First, New multilateral trade policies should aim to spread benefits of trade liberalization out whole people, particularly focusing on small and medium enterprises (SMEs) and the middle class. Small businesses often find the playing field for trade is not level. While the market is generally open with no tariffs, small businesses face a strong thicket of domestic regulations and non-tariff barriers, which are hardly to be overcome by SMEs. In this respect it is important to effectuate the trade facilitation agreement at 2013 Bali Ministerial as soon as possible.
  Second, Korea should prepare for the proliferation of plurilateral negotiations led by developed countries. With the WTO now reaching 164 members, we will rarely agree on all aspects of even one issue. That means we will likely also have to be flexible on who participates. In some cases, we will have to work on trade deals between smaller groups of countries as well―so-called plurilateral agreements. At the same time, it is highly projected that various plurilateral negotiations appear in near future within the framework of the WTO, since developed countries, in particular, the U.S. pursued continuously several plurilateral negotiations such as EGA, TiSA, Fishery subsidies. Prior to joining the plurilateral negotiations, a detailed examination for the economic impacts of plurilateral negotiations should be completed.
  Third, it should fully consider free trade’s negative impact on climate. Climate change is the biggest sustainable development challenge that the international communityhas had to tackle to date. Korea joined 175 countries in signing the United Nations Paris climate agreement setting a path forward to reduce global greenhouse gas emissions. Thus, it is time that we should think how to harmonize trade policies and environmental protection policies. We have to think about environmental subsidies as green subsidies, which are allowed in the WTO system.
  Finally, Korea also should pursue the harmonization among bilateral, plurilateral, and multilateral trade policies. Particularly, long-run multilateral trade policies need to pursue the harmonization of preferential ROOs consistent with WTO rules.
  To break the current deadlock of WTO negotiations, both developed and developing countries must commit to working together to prevent the re-emergence of protectionism, and strengthening of the rules based trading system, in a way that is fair, development oriented and inclusive. This is the only basis to resolve the current crisis in the multilateral trading system and create a more secure and peaceful world. Losing the WTO as an effective forum for trade liberalization would be a setback for free trade. Despite its existing successes, there is much more the WTO could achieve, as trade liberalization is most beneficial when carried out multilaterally. It is therefore in the interests of all governments to make the WTO work by committing to trade liberalization in relation to their own protectionism. Trade is critical to development and growth. The world needs a WTO that can effectively develop global rules on the issues that matter to developed and developing countries alike. Whether Doha is dead or alive, the WTO needs to spur growth and support development. 

  This study suggests a management plan of temporary separation in the area of labor and social welfare from a medium- to long-term viewpoint in order to minimize socioeconomic impact after reunification of Korea. This suggestion should be analyzed within the two frameworks of economic policy and social policy. In particular, research on the integration of institutionalized systems bears a direct relation to the establishment of future macro-level policies at the national level. Studies on reunification conducted up to recently have been limited mainly to the micro-debate about defectors from North Korea. Therefore, they are limited in analyzing the current system and suggesting future directions in the wider area of ??social policy. Concerning these limitations, this study compares the current situation of the labor market and social welfare system in North and South Korea, critically examines the contents of social policies carried out in the past by the unified Germany, and applies this to North and South Korea in the areas of poverty, unemployment, and populace migration, which have been identified as the main tasks to address during the process of unification.
  Following a collapse of the regime, the core of North and South Korean labor and social policies would lie in dealing with the issues of extreme poverty, unemployment, and rapid migration of the population from the North Korean region. In particular, the problems of poverty and unemployment during the process of unification can have a considerable impact on the scale and nature of future migration. Migration during the unification stage can be largely classified into the phases of “migration under normal circumstances” prior to reunification, “drastic increase in migration” during reunification and “conditional migration” after reunification. Of the three phases, this study focuses on “drastic increase in migration.” Especially, through an intensive examination of the possibility of temporary segregation, this study attempts to divide the population movement into that from the North Korean region and that from other areas, such as ethnic Koreans living in China (Chosun-jok), thus deviating from a single unified policy. Through this, the study will suggest measures to mitigate the impact of sudden migration through temporary separation of North and South Korea.
  Since the unification of Germany, the integration of labor and social security has been implemented through the method of applying the West German system on East Germany, and guaranteeing living standards in the former Eastern area has prevented the rapid migration of the East German people. However, during this process, there was a surge in fiscal expenditures, which led to financial burdens and unemployment for later generations. The trend of migration by the German population shows that the migration of East German residents to West Germany decreased, while the migration of residents of other countries such as Eastern Europe continued to increase. At the time, the migration policy was set on a “cost-intensive” course on the premise that Germany could afford the costs of unification. However, such an approach would have to be carefully deliberated before being applied to North and South Korea because of the huge cost burden and possibility of social confusion ensuing. In other words, Germany intended to improve the living standards of the people in East German area in a relatively short period of time after unification, and chose an integration plan where the financial resources relied solely on the economic power of West Germany. In the case of Korea, it is suggested that there would be considerable difficulty in adopting the German approach because of limitations in financing capabilities. Therefore, it will be necessary to consider various possibilities when concerning the direction of policy. 
  The most serious problem in North Korea after unification will be mass unemployment. Concerning income assurance policy, it is desirable to adopt unemployment allowance that includes an activation policy, with the principle of “wide coverage, moderate benefit level” rather than the immediate introduction of the employment insurance system of South Korea. At the beginning of the transition, the government's direct job creation policy needs to concentrate on the creation of massive employment in the field of public works and social services, taking lessons from Korea's experience. It will be necessary to introduce the principle of proportional wages, based on calculations of real purchasing power, in order to instill confidence that living in the North Korean region is possible. The minimum wage system should also be set as the average wage or at a certain proportion of the median wage, based on the principle of proportional wages.
  The basic direction of social policy after unification is to make poverty and unemployment a top priority of policy. It will be necessary to reduce the financial burden of unification as much as possible and to provide policy alternatives to minimize dissatisfaction among North Korean residents and alleviate large-scale migrations to South Korea. This goes along with the necessity of establishing a social security system as an additional and complementary measure to various economic policies. Allocating a low level of financial burden for the North Korean region would lead to large-scale migration, while an increase in the level of burden is likely to cause discontent among South Koreans. Therefore, it is necessary to precede the process of defining the object of temporary separation more clearly, such as strictly blocking migration from the North to the South through physical measures.
  In the end, in order to contain the migration from North Korea to South Korea, policy measures should be taken to create economic conditions advantageous for people when staying in North Korea. Acknowledging the regional disparities of the two Koreas that will appear after unification, measures to reduce the gap, such as large-scale investment, investment from domestic and foreign companies through tax exemptions and SOC business expansions, have to be taken to absorb the labor force and allow the population to become economically self-sufficient. Social confusion could be minimized by establishing the principle of “get hired, then move,”  rather than allowing job-seekers to relocate before being hired when it comes to migration from North Korea to South Korea
  The basic plan for social integration of North and South Korea consists of the following three phases: the “emergency transition period,” “institutional integration period,” and “institutional settlement period.” In the “emergency transition period” where transient emergency measures are taken, the aim is to guarantee the basic standard of living in the chaotic period directly following reunification. This phase concentrates on establishing basic security levels through current systems, in-kind benefits and maintenance of the existing benefit level. In the “institutional integration period” which will mainly aim at the integration of the two Koreas, integration of social security systems based on the market economy and implementation of transitional measures to reduce institutional confusion will take place. The “institutional settlement period” will finally establish this integrated system to operate a homogeneous and united social security system for the unified Korea.
  In the case of public pension, the temporary separation plan is not to adopt the South Korean system in the North Korean region but rather to apply it gradually step by step by applying transitional types of benefits and gradually phasing in certain condition levels. In the case of health insurance, the plan also suggests the introduction and operation of a temporary separation plan by establishing healthcare infrastructure in the North Korean region and temporarily exempting out-of-pocket payments with consideration of the national healthcare system in North Korea to mitigate the impact. 
  In terms of social integration, the integration of labor and social welfare needs to be approached not simply based on the logic of power but from the standpoint of achieving mutual harmony in growth and distribution. In particular, the migration policy should reach a proper balance between various economic incentives and social policies to prevent massive migration from North Korea and to temporarily block the inflow from outside of North Korea to the Korean peninsula. Finally, approaches to institutional integration need to be more concrete in regard to viable options. This means to apply the South Korean system in a manner that reproduces the introduction, settlement, expansion and maturity stages of the South Korean system. Through these detailed discussions, we hope to contribute to the designing of policies related to reunification based on flexibility and rationality. 

  The purpose of this research is to discover an effective solution to managing North Korea's state assets during a temporary separation of the South and North, post-unification of the Korean peninsula. This study will focus on how to manage and liquidate North Korea's real estate and corporate assets and also suggest measures that are necessary during the temporary separation. Unification of the Korean peninsula is indeed one of the greatest ambitions of our people.  However, it is also considered an impending dilemma for both the South and the North. Especially when considering North Korea's unusually distorted economic status, the economic integration of South and North Korea is expected to be a considerable stumbling block.
  As a means to minimize possible confusion caused by the unification of South and North Korea, this study assumes the temporarily separated North Korean region to be the premise for analysis. This study is based on the assumption that with the political integration of the South and North, North Korea is economically separated for a limited period of time. Such an assumption narrows focus on exploring measures to managing and liquidating North Korea's state assets.
  This study consists of three main parts. The first part explores and analyzes the current condition of North Korea's land, housing and corporations. In North Korea, land is established as a socialist possession as a result of post-liberation land reform and post-war agricultural collectivization. By neutralizing the ruling class's economic base and raising poor farmers into yeoman farmers, the land reform achieved the political objective of solidifying Kim Il-Sung's support base and also the economic objective of securing state assets via nationalizing the industry. While rebuilding the country post war, agricultural collectivization was the process of completing socialistic reform and establishing socialistic property relations.
  In North Korea, housing is allocated according to hierarchy and social status. All real estate is defined as state-owned and individual ownership or construction is prohibited. The state built houses and residents were granted rights to use the housing. A characteristic of North Korean housing is that they were constructed through standardization and planned policies rather than a capitalist system, which relies on market economy. As a result, urban areas built mainly apartments while rural areas built mainly townhouses.
  North Korean corporations can be classified into various categories depending on the extent of socialization of production means, management methods and scale. In other words, North Korean businesses are similar to those of South Korea in that they are independently managed enterprises in production, traffic, transportation, distribution, and other economic fields. However, North Korean corporations can be divided into various forms according to the method of classification. That is to say, depending on the extent of socialization of the individual industry, there are state-owned enterprises or cooperative group corporations. And depending on who the management belongs to, they are classified as centrally or locally managed corporations. Corporations may also be classified as a production company or distribution company depending on the level occupied in the rebuilding process. North Korean corporations are created in 'Kombinat' form, which combines interrelated enterprises within a certain district while taking into account the relative effects between industries, availability of mass energy supply and issues of national defense. In addition, they adhere to the principle of industrial site selection, which maximizes use of domestic resources rather than relying on external resources and also show signs of being strategically located in areas that are unrelated to economic efficiency but in consideration of national defense.
  The second part is a case study of the Unification of Germany. In order to minimalize trial and error undergone by Germany during its unification, there was a need for accumulating the capacity for  privatization before the unification took place.  During the early process of privatizing East German assets, Germany had experienced a great hindrance due to insufficient information and understanding of government-owned property and lack of expertise of those in charge at the time. Korea also needs to shape a preliminary investigation plan in order to achieve a systematic accumulation of information on not only North Korea's real estate, but also its state enterprises. To do so pilot projects, such as conducting economic research on specific regions that are relatively inaccessible, are required.
  In the third part, this study presents a road map to managing the state assets of the North Korean region during the temporary separation period. The basic policy recommendations of this study are as follows: first, to revitalize the North Korean economy; second, to enhance efficiency and equity suitable for market economy; and finally, to build a common base for South and North Korean prosperity.   Also, in order to successfully manage and liquidate state-owned assets during temporary separation, a concrete road map of how to manage and liquidate land, housing, and corporate assets will be presented. The following are proposed principles of operation: first, fair valuation of property; second, preferential treatment of North Korean residents; third, contribution to supply funds for unification; fourth, investment support and attraction of foreign investors; fifth, integrated management-based organization.
  This study divides the temporary separation period into three phases for analysis: 'preparation,' 'implementation,' and 'preliminary integration' reflecting the aforementioned policy recommendations and principles of operation. During the 'preparation phase,' relative infrastructure such as consolidated legislation, organizational systems and renationalization must be established for efficient management of assets. During the 'implementation phase' privatization and nationalization of assets will take place over the course of approximately ten years. At the same time, a state asset management program is carried out by exchanging and utilizing human resources from both South and North Korea, drawing on foreign and domestic investments, and operating management funds. During the 'preliminary integration phase,' all privatization processes must be completed, and long-term preparations must take place for the integration of South and North Korean state asset management system through post-management monitoring and liquidation of funds.
  Management of North Korean real estate and corporations has a direct impact not only on the North Korean economy, but also on the economic development of the unified Korea. Hence, this study contributes to the establishment of a government unification preparation policy that can revitalize the reconstruction of the North Korean economy through the following ways: deducing effective management plans for North Korean corporations and real estate to ease the large-scale migration of North Korean residents, minimizing the possible negative impact of inter-Korean economic integration, and establishing a strong foundation for South and North Korea's coexistent development. 

  This study is an introduction to research on “Temporary Separate Operation of South and North Korean Economies after Unification,” which is the third-year theme of KIEP’s on-going Medium-Term and Long-term Unification Study. The temporary separation operation plan is a newly emerging approach for the economic integration of the two Koreas. In order to gradually promote economic integration after political unification, it will be necessary to separately operate some sectors of the economy of North and South Korea for a certain period of time.
  The policy focus is to prevent large-scale migration of the North Korean labor force to the South after unification. To provide economic incentives could be an effective policy alternative since physical interception to prevent the migration is not a desirable option. However, the economic incentive in this case cannot be an artificial increase in income as seen with the German unification process. Regarding this dilemma, the KIEP Medium-Term and Long-term Unification Study seeks to provide alternatives through concrete institutional design in three sectors: labor and social welfare; monetary, financial and fiscal policy; and state property management policy. This study provides theoretical support for the studies related to the specific design of the system by identifying the economic necessity and legal validity of the temporary separation operation.
  This study consists of two independent studies. First of all, Chapter 2 deals with the legal validity of the temporal separation operation. In this paper we examine the scope and limitations of the autonomous rights of a special administrative region (SAR) in North Korea, the constitutionality of segregation of the North and South Korean labor markets, and prospective ways to confirm the people’s sovereign opinion. First, in relation to the autonomous rights of an SAR, this paper specifies in detail the scope and limit of powers that can be granted to an SAR in North Korea in terms of executive power, legislative power, and jurisdiction, in accordance with the current Constitution, laws and ordinances.
  Secondly, regarding the constitutionality of separation of the North and South Korean labor markets, measures such as the limitation of North Korean residents relocating to South Korea, an employment permit system for North Korean workers, or the setting of discriminatory minimum wages for North and South Korea are likely to violate the essential principles of fundamental rights guaranteed by the Constitution. However, such measures could be accommodated if it is recognized that the separation of the labor market is aimed at preventing 'clear and existing risks' to the national economy, and if efforts are made to ensure basic rights, such as by limiting the separation period, and supported by a national consensus.
  Finally, it is suggested that the referendum system would be preferable when it comes to confirming the sovereign intent of the people, which is a procedure that must be followed in order for the temporary operation of the two Koreas’ economy after unification. Our recommendation is based on the fact that this involves an important policy matter that can have a profound effect on all areas of politics, economy, society, and culture, which can thus cause serious restrictions on the basic rights of residents in North Korea, and how it would take a considerable amount of time to form a unified National Assembly.
  In conclusion, it is true that this plan for the temporary separate operation of the two Koreas involves many issues which could bear relation to infringement of the basic rights of the people, and thus become subject to judgments by the Constitutional Court. However, it is pointed out that unification of the two Koreas is an unprecedented event involving political, ethical, cultural, social, economic, and constitutional issues that cannot be determined in advance, meaning that unification policies are likely to be carried out under the highest degree of political commitment.
  Next, Chapters 3 and 4 address the economic need for temporary separate operation. First, Chapter 3 deals with the economic necessity of temporary separate operation. This paper shows that the gradual integration method (the 'Special Zone Model') through the temporary separate operation could be a way to maximize the economic benefits of the unified Korea. More precisely, we estimated the appropriate cost of unification and mode of economic integration to maximize the net benefit of unification.
  These unification costs are defined as the sum of the potential growth rate reduction effect (direct cost) and the social disruption cost (indirect cost), which is followed by Korea's fiscal transfer expenditure and increase in the national debt.
  Considering the financial transfer expenditure and the potential growth rate decrease, the GDP of the unified Korea is calculated by subtracting indirect costs from the GDP of North and South Korea. The benefit of unification is obtained by subtracting the sum of GDP from the two Koreas from the GDP (GDP of the unified Korea) of when South and North Korean remain divided. According to the freedom of movement of production factors, the South and North Korean economic integration system has established five integration methods that range from a fully open system in the manner of Germany to a completely closed type. In addition, each of the integration modes are defined as the composition ratio of infrastructure construction cost (I) and social security cost (S) among financial transfer expenditures.
  As a result, the unification cost that maximizes the cumulative net benefit for 20 years after unification was calculated as 1,000 trillion won. This figure presumes that 2.5% of Korea's GDP (based on 2020 figures) is invested annually for 20 years. While Korea's national debt to GDP ratio will rise to 71% by 2039, this is regarded a level that Korea can afford to bear.
  In Chapter 4, we derive implications for estimating the appropriate cost of unification. First, the economic integration method maximizing the cumulative net profit is a special zone model. In addition, the effect of mitigating the income gap between the two Koreas is also greater when proceeding with a special zone model than with the German model. However, even in the best case, the income gap between North and South Korea is not expected to be reduced any further than the income in the North rising to 34% of South Korean levels by 2039.
  Meanwhile, this study shows that the point where the cumulative net benefit becomes positive will arrive faster as we spend less than the appropriate cost of unification, and that the level of decrease in short-term benefits for Korea also shrinks in this case, but that the net benefit for after this point decreases as well. On the other hand, as the actual amount of expenditures approaches closer to the appropriate reunification cost, this point arrives later and short-term benefits fall by a larger level, but the net benefit after this point of time increases. In order to wisely overcome the valley of transition where the net benefit temporarily falls into the negative after the economic integration of the two Koreas, measures such as the establishment of effective financing plans must be taken to bring about a national consensus. 

  The digital transformation, which is often called as the Fourth Industrial Revolution, is attracting attention as a new driving force for economic growth. Digitalization is emerging as a measure to mid- and long-term trends, such as demographic change and transition to a low-carbon economy, while leading economic and industrial innovation. It is confirmed empirically that for high-income countries including the United States, digitization contributes to productivity improvement in other industries. However, these effects differ from country to country depending on the capabilities of digital innovation such as ICT infrastructure, R&D investment, ICT industry competitiveness, legal system, human resources, business use of ICT, and entrepreneurial activities. In Korea, ICT infrastructure is world-class, and ICT adoption and utilization are highly competitive. However, the competitiveness of ICT services, the effectiveness of R&D investment, contribution to innovation, legal system, human resources and entrepreneurial activities are far behind. By contrast, the United States has the highest level of competitiveness in ICT export, R&D investment and innovation, human resources and entrepreneurial activity. These factors are key concerns of the countries’ digital innovation policy, and each country is making a policy effort centering on it.
  The digital innovation policies of the United States, EU, Germany, Japan and China are similar due to the general characteristics of digital transformation, but they vary according to the capabilities and circumstances of each country. As in our analysis, the United States most clearly demonstrates the general purpose technology hypothesis that ICT capital contributes to increased productivity in the industry. In the United States, ICT has been a key driver of economic growth since the 1980s, and digital innovations led by Internet platform companies have become a source of mid- and long-term economic growth in the Obama administration. Recently, in the United States, innovation in the digital innovation is dominated by ICT or Internet service companies, and traditional manufacturing companies are also reviving through digitization. The US government is constantly investing in strategic research areas and advanced technologies required for digital innovation based on Strategy for American Innovation or NITRD, a government-level IT research and development program. In addition, the federal government operates a Chief Information Officer (CIO) and a Chief Technology Officer (CTO) to improve digital-based government management and to accelerate industrial innovation. The private sector is leading digital innovation while the government focuses on R&D investment in digital industry platforms and basic technologies such as big data and Internet of Things, solving public problems using ICT, and building consumer information protection systems.
  In contrast to the US, the EU has continually experienced a low ICT investment and a low ICT contribution to economic growth. The EU has identified the segmented digital market in the region as the cause of the problems and thus launched the Digital Single Market Strategy for Europe in 2015. Its main objective is to realize economies of scale by integrating the digital market with the elimination of digital barriers in the region and creating a common base of innovation. Following the digital single market strategy, the Digitizing European Industry, announced in 2016, is highlighting manufacturing as the center of European digital industry innovation. Unlike the United States, the EU's digital industry innovation tends to be government-led. In addition, EU focuses on joint private investment in strategic areas, digitization of SMEs, and promotion of technology commercialization.
  Germany is at the center of EU digital innovation. Germany has world-class competitiveness in advanced manufacturing and ICT services and has a solid medium-sized business base. Based on this, Germany is leading the digitalization of manufacturing. Building on long-term preparation with discussion among academia and industry, German government has led digital innovation policy. Germany is the first country to present its vision of the digitization of the manufacturing sector at the policy level. Based on a specific tradition in the process of policy implementation, the German government is engaged in mid- to long-term plans and tasks, and focuses on stakeholder policy platform construction, thereby inducing voluntary participation of companies. It also emphasizes the collaboration between large companies and SMEs so that SMEs can naturally participate in digitization.
  Japan has turned its attention to digital industry innovation as it has suffered from a long-term recession and a rapidly aging population. Japan has a solid competitiveness in ICT manufacturing and service industries, especially with global manufacturing base and robotic technology. In spite of the economic downturn, the Japanese industry has invested in basic R&D with a long-term perspective, securing global competitiveness in original technology. On the basis of this, Japan promotes digital innovation while focusing on process innovation in traditional manufacturing sector. In Japan, the government is playing a leading role in recognizing the digitalization of companies and societies. In particular, the government plays an important role in utilizing ICT technology to solve social problems such as natural disaster prevention, administrative efficiency and education. In addition, the government has established an integrated support system for research and development and various support policies based on the idea that major fields such as cloud service, Internet of Things, artificial intelligence, and big data are connected with each other in terms of industrial innovation.
  China has gained a worldwide market share in the internet platform sector based on the huge market and is recently emerging as a strong competitor of the United States. Since China has a variety of industries with different levels of technology, there is a complex task of promoting the transformation of traditional industries and fostering high-tech industries simultaneously. Therefore, at present, social innovation using ICT has policy implications and it is a key part to establish an innovative ecosystem and encourage start-ups centered on Internet platform companies. The Chinese government is actively promoting entrepreneurship as a substitute for a declining job in the manufacturing industry. In particular, it is characterized by the fact that big corporations take active partnership with the government in the management of platforms for start-up and innovation. In addition, the Chinese government is taking an open initiative in the fields of shared economy, internet banking, medical care, etc., and does not enact regulations that could hinder new types of businesses. do. In spite of various formal and informal regulations, global companies are actively seeking chances to enter the Chinese market. Chinese companies are actively introducing overseas advanced technologies in order to complement their lack of technology, and it is expected that the market will expand in areas where the demand for cooperation with foreign countries such as Internet of Things is increasing.
  Taking into account the general characteristics of digital innovation and the policies of the leading countries, the following lessons can be learned. First, there must be a strategic focus to promote industrial innovation through digital transformation. Digitization is practiced across industries and sectors, but it needs a starting point that matches the existing capabilities, conditions, and needs of the country. Second, the key to digital innovation is data. The Internet of Things, cloud computing, artificial intelligence and big data analysis are directly linked to the collection and analysis of vast amounts of data, which creates industrial competitiveness. Third, digital industry innovation requires openness. This means government agencies, government and business, researcher and business, researcher, openness, and even openness. Fourth, national mid - to long - term digital innovation strategy is needed. Since digitization is carried out across all industries and sectors, a policy implementation system that includes government departments and each stakeholder is needed. Also, in the short-term perspective, the pursuit-oriented industrial innovation policy does not seem to be suitable for the absolute digital transition period. Fifth, the government's role in promoting digital industry innovation needs to be focused on building institutional conditions, mediators between sectors and mediators of consensus, and investment in the public sector.
  The Creative Economy Strategy (2013) is Korea's new economic growth strategy in the era of the digital transformation. This strategy pursues economic and social innovation of the entire society including existing industrial innovation and promising industrial development. In addition, major strategies such as enhancement of science and technology and ICT innovation capacity, creation of entrepreneurial ecosystem, venture and SME development, and industrial innovation through digitization in order to ultimately pursue creation of innovation ecosystem across new economic society, As a growth strategy. However, it failed to fully realize the basic principle of departing from the chasing economic growth model. Moreover, although a considerable number of strategic policies and detailed policies were appropriate in light of the situation in the Korean economy, the strategy was not fully implemented yet.
  Taking into account the industrial competitiveness and the policies of the leading countries, Korea needs to recognized manufacturing as a strategic starting point to promote digital industry innovation. Manufacturing is Korea’s major industry and has a large economic impact such as employment. US and Chinese companies are leading the way in making virtual data as platforms while that of the real data such as operation data of factory facilities is in its early stage, there is a relatively high possibility for Korea to secure the sector. The scope and content of digital innovation policy is very comprehensive, as it can be seen from the EU's digital single market strategy. It is not realistic to achieve the results evenly in every sector and it is necessary to have a lead sector with remarkable performances. As the case of Germany, the government takes significant role in the digitization of the manufacturing sector, thus government should concentrate its capabilities on this agenda.
  Digital transformation is difficult to be defined and it is almost impossible to predict the rapidly changing trends. However, it should be emphasized that the key to digitalization is information and data. Many countries have introduced polices and strategies to emphasize big data, artificial intelligence and robotics, Internet of Things and cloud computing. The data is placed in the core of such policies. Also, collecting and utilizing data in strategic areas such as advanced manufacturing, high-end automobile, smart city, medical, energy and education are very important. Therefore, Korea needs to redesign its industrial strategy with particular emphasis on information and data. In other words, it is necessary to expand and sustain investments in general data technologies such as big data analysis, Internet of Things and cloud computing technology, application of enterprise and industry, and check the regulations to promote utilization of data in strategic industries. In order to spread common technologies such as the Internet, it is necessary to continuously improve institutional conditions such as personal information protection, cyber security, and intellectual property rights, and liberalization of cross-border data movement is the principle of foreign economic policy. And to find out how to do it.
  Digital innovation requires openness among all participants (Open Innovation). In order to effectively promote digital innovation, openness and cooperation among government ministries are required, which is a factor for the success or failure of digital industry innovation. Government should also focus on its role of mediators that form the network between technology developers, owners, and end users who apply them to the business, with a focus on end-users. Technological development is also required for digital-based industry innovation, but more importantly, technology end users are looking for and adapting to their business. This is because digital conversion is the result of an innovative business model that radically transforms the rules of existing games. In order to accelerate the digital transformation of the industry, it is necessary to strengthen the participation of the private and technical users from the R&D stage, to promote the international R&D network by increasing the openness of innovation. In addition, the Korean market should facilitate data-based innovation by leveraging free flow of cross-border data.
  Korea’s digital innovation policy implementation system needs improvements in managing and coordinating various policies promoted by different ministries and public agencies. Digital transformation leads to dramatic changes and innovations that are comparable to the revolution, which affects the entire economy and society. Therefore, strong and comprehensive leadership is needed to oversee data collection and utilization, apply ICT to entire economy and society and invest for advanced R&D.