When it comes to the unification and integration of North and South Korea, discussions have been mainly focused on either radical integration or gradual integration. Coming into recent years, another direction of research is being  explored as well, suggesting that even if political integration is achieved, economic integration should proceed over time. This approach to the unification issue, which is referred to as special administrative region (SAR) type integration or temporary separate operation, is based on awareness of the problems that will result from radical economic integration should political unification be carried out irrespective of our will, such as production and employment unstability in North Korea, the burden on South Korea, pressure on the foreign exchange and capital market, and difficulties in operating the fiscal system.
  Even should political integration take place, it will be possible to reduce pressure to the social security and tensions in the labor market if the North Korean region can temporarily remain in a state of separate operation. Such an approach would enable the North to implement its own monetary policy, exchange rate scheme, fiscal policy, foreign exchange system and financial system to support rapid growth within the North Korean region. In this case, South Korea's support could be utilized more efficiently by concentrating on the goals of economic development rather than social security.
  This report examines the implications of integration and temporary separation, the necessity of temporary separation in the monetary, financial, and fiscal sectors and suggests temporary separate operation by each sector. We also illustrate the interconnected relationship between each sector and propose a process that leads to integration from a state of temporary separation. However, the economic advantage and legal validity of temporary separation are not included in the scope of this study, as they are discussed in a separate study within this series. While the separation period cannot be explicitly set in advance, it could be set as a period sufficient for economic policies of its own in the North Korean region to fully take effect but not so long that the state of segregation comes to be perceived as a permanent one. Overall, the period from separation to integration for each sector may vary.
  The integration of the monetary sector means that a single currency is used and unitary monetary policy is implemented by a single central bank. Integration of the financial sector signifies the overall integration of the financial system, which includes financial institutions, the financial market (e.g. credit, capital markets), financial infrastructure (e.g. payment infrastructure), financial supervision and deposit insurance). The integration of the fiscal sector means applying the same taxation system and principles of government expenditure to both the North and South Korean regions and sharing responsibility to maintain the sustainability of the government finance through the sound fiscal policies. Therefore, the separation of monetary, financial, and fiscal sectors refers to the stages until such integration is achieved. Based on this premise, we examine the temporary separate operation of the monetary, financial, and fiscal sectors.
  From the perspective of the monetary sector, we examine new currency, monetary policies and the foreign exchange system. It seems reasonable to introduce a new currency in the North Korean region (SAR) in order to restore confidence in the North Korean currency and implement monetary policies through its own currency. In terms of monetary policy, academic theories and the experiences of the South Korea and initial financial system of the North suggest it would be reasonable to begin by regulating the supply ceiling for money followed by monetary targeting and leading on to inflation targeting for South Korea in advance of the integration. As for the exchange rate, the official exchange rate and the market exchange rate should be unified and reflect the real values first. If the fixed exchange rate system is adopted for the stabilization of the initial price and the securing of confidence in the currency, measures should be prepared to maintain the exchange rate level. The setting of the initial exchange rate level should take into account competitiveness in exports and income levels. Should the transition be made to a floating exchange rate system, sequential development into a single floating exchange rate system, multi-currency basket system and market average exchange rate system can be considered, while the range of fluctuation can be expanded gradually. At the final stage, a monetary system similar to the ERM of the EU or a currency board system could be implemented up to the point of integration. For a market exchange rate that reflects real values well, proper formation of the foreign exchange market will be necessary. The foreign exchange system should be gradually liberalized beginning from the current account, but regulated at a pace where the liberalization of capital transactions does not lead to instability in the North Korean economy.
  In the financial sector, we propose a temporary separate operation system for the areas of financial institutions, financial markets, and financial infrastructures, while considering the current financial system of North Korea, expansion of the private finance and dollarization. The Central Bank of the North Korean region should initially establish itself as a central bank with its own monetary policy authority and gradually integrate with the Bank of Korea. The refinancing measures to the commercial financial institutions should gradually transit from rediscount system to open market operations. The commercial financial institutions should be established by separating commercial banking from the Central Bank of DPRK and utilizing the Foreign Trade Bank of the DPRK and other settlement banks, savings banks, cooperative farm credit departments, etc. At the same time, South Korean and foreign-owned banks should be actively attracted. It will be important to pay close attention to nurturing self-reliant, local-based financial institutions and consider how to absorb private money-lenders (the “donju”), and other money merchants who currently serve as the main axis of private financial system, into the system.
  In the money and credit markets, it is important that the supply of funds from South Korean and foreign-owned banks be maintained at an appropriate level. The capital market is likely to be formed from the issuance of government bonds, but we consider using the South Korean market rather than opening a separate market. The foreign exchange market is important for the transition to the floating exchange rate system and the proper formation of the North Korean currency value, so foreign exchange banks should be activated.
  The payment system of the financial infrastructure should be integrated into the South Korean system as soon as possible. In the beginning, the financial supervisory system can apply a somewhat relaxed form of regulation in consideration of various conditions in the North Korean region, such as the lack of an accounting system and its inexperience dealing with such regulations. The deposit insurance system must be designed while keeping in mind the eventual integration into the South Korean system, but can apply different policies in terms of the insurance mechanism and protection limit during the transition period.
  For temporary separate operation in the fiscal sector, we consider strengthening autonomy in the North Korean region and discuss the principles of fiscal policy and the structure of the tax system to be applied after integration. The principles of fiscal policy are as follows: fiscal soundness must be maintained; it would be economically efficient for the central government to monitor budget performances and intervene if necessary to prevent a default; the central government or the South Korean government should be cautious about joint guarantees for government’s liabilities; and the fiscal transfer to the government in the North Korean region must be planned in advance. The application of ‘Local Finance Equalization System“ to the SAR shall be postponed.
  Under these principles, the SAR government will be granted autonomy for taxation and government expenditure. In addition to fiscal support from the central government, the government in the North Korean region can set its own tax rate and establish government expenditure plans. Currently in South Korea the share of national tax is much greater than local taxes, and the central government provides fiscal transfer to the local authorities. As for the SAR, the proportion of national tax could be lowered and that of local tax increased, thereby improving the autonomy of the region. By reducing the tax burden, an environment for growth-friendly tax and fiscal policies could be provided. The government uses grants from the central government for the welfare of its residents, and taxes collected from within the SAR are used for investment promotion.
  The tax system of the SAR should be based on the South Korean tax system while keeping in mind the future integration, but it could reduce tax burdens on its own discretion if this is deemed necessary for growth. If the government adopts an economic growth strategy that fosters competitive enterprises through government-led industrial policies and wage restraints, a tax system should be established to support this. The tax burden imposed on individuals should also be kept low too. Therefore, the major tax sources will inevitably become the business sectors growing within the support of government policies. In order to prevent the tax burden of these enterprises from becoming too heavy, the government of the SAR should maintain a small government at the beginning and make efficient use of funds received from the central government. Meanwhile, indirect taxation will be important not only as a stable tax source but also to create conditions for lowering the tax burden on enterprises. To ensure smooth integration in the future, we should also consider applying the same value-added tax rate as South Korea to the SAR from the outset.
  In the last section, we describe the interconnected relationship between the monetary, financial, and fiscal sectors, and summarize the process of integrating these sectors in the later stages following initial separate operations. In the early stages, a new currency should be introduced into the SAR, while monetary targeting is adopted under an independent monetary policy system, and the interest rate level is set differently from that of South Korea. If a fixed exchange rate regime is adopted, capital transactions are restricted in the foreign exchange system. Together with a switch to a two-tier banking system, the central bank of the SAR should be granted its own authority for monetary policies. The issuance of government bonds will raise the need for capital markets and the initial shape of the foreign exchange market will be established. The payment system of the South Korean system should be transplanted quickly, while the financial supervision system can be introduced in a somewhat relaxed form. The deposit insurance scheme takes into account the lack of fund accumulation and considers measures to provide deposit incentives by the government. As for fiscal policy, the government should actively support funds for economic development, and consider special tax exemptions in the SAR to attract investment.
  In the intermediate stages of integration, together with a transition toward a floating exchange rate system, the government will gradually liberalize the foreign exchange control along with the gradual liberalization of interest rates. The number of financial institutions may increase and listed stocks may emerge. The Stock Exchange of South Korea can be used as a capital market platform. The financial infrastructure, such as the financial supervision system and the deposit insurance fund, should gradually converge into the South Korean system. As for fiscal policies, it will be important to maintain the fiscal soundness of the government in the North Korean region, and assist it to gradually expand its own tax sources.
  The final stage will be to prepare for integration. Preparations should be made for the conversion of the SAR’s currency to the Korean Won, while monetary policies converge to the inflation targeting regime of the Bank of Korea, and the liberalization of interest rates is expanded. The SAR exchange rate should be based on the exchange rate formed in the market, and follow a strict fixed exchange rate regime pegged to the South Korean won before eventually being integrated. In addition to the task of integrating the central bank of the SAR into the Bank of Korea, refinancing through the open market operation should be generalized. The capital markets should increase the existing degree of integration and the deposit insurance scheme should be launched as a single system while integrating funds of both South and North Korea. In the fiscal sector, the tax system should converge into the existing South Korean system by incorporating national taxes, local taxes, and local grants.  

  Tariff rates have become lower under the GATT/WTO regime while the use of non-tariff measures has increased acquiring growing importance. Despite the significance, less work has been done to assess the effect of non-tariff measures on various economic variables compared to the effects of tariffs. This was mainly due to limited data on non-tariff measures.
  The purpose of this report is to introduce and illustrate the newly collected data on Korea’s NTM which will be included in the UNCTAD NTM database. Based on the classification of the Multiple Agency Support Team (MAST), UNCTAD has collaborated with countries around the world to collect non-tariff measures data. Currently the data cover 57 countries and more than 80% of world trade. However, the data has yet to include information on Korea's NTMs.
  First, this report illustrates the legal structure and sources of Korea and show how the Korea NTM data is collected from the sources. We collect NTMs from regulations of all types at national level, which come into effect in 2016. The primary source of the Korean NTM data is the National Law Information Center website, which is a centralized source for regulations of all types at all levels across government bodies. Based on the information from this website, we compile and organize the data following the MAST classification.
  Out of 44 fields, we identify 25 fields that are potentially related to international trade. In this report, we selectively choose 15 priority fields and illustrate NTMs and regulations of Korea. We identified around 1,400 NTMs for the 15 fields. Of the 1,400 NTMs, 40% of the NTMs are classified as technical measures, either TBT (Technical Barriers to Trade) or SPS(Sanitary and Phytosanitary) measures. Many of the NTMs were concentrated in the agriculture and fisheries industry, which is consistent with the stylized fact. On the other hand, no NTMs were found in fields such as military, labor or marine transportation. We also found that many government ministries or agencies other than the Ministry of trade, industry and energy are involved in NTMs. This implies that many of the NTMs of Korea have non-economic objectives such as food safety or environmental protection.  
  Although it is not covered in this report, the information on products that are potentially affected by each NTMs classified by HS codes at 10-digit level will be added to the data. The new NTM database once finished collecting, will allow us to implement further empirical study including evaluation on various NTMs on trade and welfare.  

  Korea is aging at a rapid pace, causing concern about the resulting socio-economic impacts. This study analyzes the expected changes in the financial markets resulting from aging and seeks possible policy measures to mitigate the negative impacts of aging stemming from these changes.
  Chapter 2 reviews the current status of Korea’s aging process. Even though the country remains yet at the stage of an aging society, it is expected to become an aged society in 2017 and then a super-aged society in 2026, a mere nine years later. The aging of the Korean population is proceeding at an unprecedented pace. The fundamental reason for this fast pace of aging is the rapid drop in birth rate and growing life expectancy. However, Korea’s socio-economic systems are not well prepared to absorb the shocks for aged people. More and more aged people are facing poverty and the rate of suicide is highest among the elderly. Rent beneficiaries occupy just a part of the old population. The social security system does not guarantee a stable livelihood for old people. This problem will become more serious in the near future because the baby boom generation has started to retire recently. The aging problem will lead to low growth, low inflation and low investment throughout the whole Korean economy, making structural changes inevitable in the financial market.
  Chapter 3 undertakes empirical analysis to examine whether monetary policies can maintain their effectiveness even after aging has proceeded further. We performed a panel-VAR analysis using the OECD data for 25 member countries for 20 years, from 1995 to 2014. The empirical analysis showed that monetary policies lose their effectiveness considerably in an aged society. This result implies a possible change in the effectiveness of Korea’s monetary policies, especially if the aging of Korea’s population proceeds further. As of yet aging has not progressed significantly in Korea. However, the Bank of Korea should restructure its monetary policies in the long term, considering the change of policy effectiveness according to the progress of aging. The government may utilize fiscal policies to a more intensive extent to respond to cyclical depression while it sets monetary policies to manage the financial market and inflation pressure. For instance, if the government employs monetary policies to control cyclical changes, they would have to apply greater and faster interest rate changes than before to achieve the same effect. Research on the relation between aging and monetary policy has only begun to be discussed recently. However, it may become one of the main research topics in the near future due to its importance. Further and more detailed studies will be needed to allow adjustment of monetary policies in an aged society.
  Chapter 4 reviews the theories regarding the relation between aging and the financial market and undertakes case studies with Japan, Germany and the U.S. In addition to a theoretical review, the countries’ money flow charts and international investment position tables were analyzed to discover the impacts of aging on the financial market. Japan has shown macroeconomic and financial changes very close to theoretical predictions. However, Germany is not showing considerable changes in its financial market due to active labor market reforms. The U.S. as well does not reveal the characteristics of an aged society because aging in the U.S. is still at an initial stage and the financial market functions as a global market rather than a domestic market. Even though the countries show different levels of change, they all have introduced some policy measures focused on aging. Examples of successful policies include the Japanese current account policies and NISA, German labor market reform and competition policies, and the U.S.’ introduction of annuities such as its 401(k) plan.
  Chapter 5 draws policy implications based on the analyses above. The recommended policy directions are as follows: explore new roles for monetary policies, use labor market approaches and financial market approaches to respond to aging, and employ strategies using the income account to maintain current account balance, etc.
  Finally, this study emphasizes the need for fast and comprehensive countermeasures against the negative macroeconomic and financial impacts of ageing. 

  Slovakia is a dynamic EU member state and a successful case of economic transition and development, currently attracting numerous global companies into her market. This study aims to analyse a selection of promising industries in Slovakia with the objective to strengthen industrial cooperation between Korea and Slovakia and to recommend measures for Korean companies that are planning to gain access to the EU market, which has contracted after the Eurozone crisis, by entering into the Slovak market. This study covers the overall conditions, Slovak government’s policy, detailed industry trends, growth potentials and prospects of the automobile and infrastructure industry in Slovakia. These industries were selected based on the criteria of: importance in the Slovak economy, recent growth rate, future growth potentials, and possibility of market entrance for the Korean companies. The results are supplemented by the findings of a survey on Korean companies already present in Slovakia. The automobile industry is divided into the complete vehicle sector and parts/components sector, while the infrastructure industry is divided into the energy/environmental sector, ICT sector, and transport sector, etc. Within the infrastructure industry, this study focuses on the energy/environmental sector and the ICT sector, an area in which a few Korean companies have already entered in Poland and other Visegrad countries. In this study we carried out a survey on 37 onsite Korean companies about the business environment in Slovakia. The results indicate that, unfortunately, while the companies have sufficient internal capabilities, many are frustrated in seizing the opportunities and minimizing the risks to thrive in the Slovak market. Therefore, this study suggests strategies for such Korean companies to cope with the circumstances by considering both external and internal factors. 

  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.