Global supply chain disruptions and the ensuing rise in uncertainty have rendered it imperative for each country to reassess its foreign policies. Amidst these shifts in the international landscape, Mexico has recently garnered considerable attention as an ideal candidate for nearshoring to penetrate the North American region. Mexico emerges as a compelling nexus, offering a strategic gateway for North America, Central America, and South America expansion, alongside its abundance in core minerals crucial for rechargeable battery manufacturing.

South Korea, confronted with national imperatives such as ensuring a stable supply chain for critical minerals, diversifying exports, expanding market reach, and adapting to supply chain restructuring, must recognize the strategic importance of Mexico. The primary objective of this study is to delve into Mexico’s strategic significance and explore avenues for collaboration. Specifically, this study conducts a comprehensive analysis of Mexico’s diverse trade and policy initiatives, categorizing them into sectors such as supply chain restructuring, digital transition, renewable energy, and health and medical. Subsequently, we aim to outline directions for collaboration within each sector.

Mexico, forming a pivotal axis within the North American economy alongside the United States and Canada, is not immune to the recent U.S.-led supply chain reorganization. It is believed that Mexico aims to leverage this supply chain restructuring for its own benefit. Seizing the opportune moment, as it garners attention as an optimal candidate for nearshoring, Mexico seems poised to integrate into a new supply chain or global value chain while fortifying its existing global value chain. Consequently, the analysis and forecast of Mexico’s supply chain policies are crucial for identifying fresh opportunities for collaboration.

As Mexico experienced growth in exports across various industries, its engagement in global value chains also strengthened. This was propelled by a rise in the percentage of foreign value-added, attributed to the expansion of imports of intermediate goods from abroad. The heightened backward linkages in Mexico, coupled with its substantial exports to the United States, underscore the country’s significance as a hub in the Americas and a strategic gateway for entering North America.

Another noteworthy aspect in the context of the global value chain is that Mexico’s share of value-added in its exports to the United States is lower compared to its trade with other countries. This presents a concerning scenario for Mexico, indicating a potential inclination to undertake various political and policy initiatives aimed at augmenting the value-added of its exports to the United States in the future. Indeed, Mexico revised its mining law in April 2022, and in February 2023, a bill was passed, transferring the responsibility for buried lithium to the Ministry of Energy and designating a portion of Mexico’s Sonora region as a lithium mining protection area. This move is intended to further enhance domestic value-added and strengthen Mexico’s forward linkage in the global value chain by minimizing foreign capital participation and reinforcing state control in the mining sector, where the country’s value-added and global demand are substantial.

In contrast, in technology-intensive industries characterized by low value-added, Mexico is adopting a strategy to integrate into the new global value chain by increasing foreign value-added. The tax benefit legislation, announced by the Mexican government in October 2023 to promote nearshoring, can be interpreted as a measure encouraged against this backdrop.

Meanwhile, with the global spread of digital transformation, Latin American countries, including Mexico, are actively embracing digital technology and intensifying efforts to transition towards a digital society. The impact of digital transformation is evident in significant changes across major countries in Latin America, with governments expanding their initiatives to develop digital infrastructure and e-government. As society undergoes rapid transformation due to digital advancements, and new collaborative needs arise, it becomes essential to assess Mexico’s digital transformation policy, trade, and commerce issues, and explore opportunities for cooperation.

Mexico’s digital environment is exhibiting ongoing improvement, as reflected in digital access and usage indicators. Notably, Mexico’s Mode 1 imports (cross-border supply) are experiencing a notable uptrend, particularly in distribution services, transportation services, and insurance and financial services.

As part of its digital transformation phase, Mexico is implementing various policies to establish norms and address unfair practices in the digital sector. Simultaneously, the country is formulating the National Digital Strategy 2021-2024 to outline the government’s overarching digital policy direction. A central focus of this strategy is universal Internet accessibility, affirming the Mexican government’s commitment to prioritizing the resolution of the digital gap problem.

Examining the digital-related provisions of Mexico’s recent trade agreement, it is evident that Mexico intends to refrain from permanently imposing tariffs on electronic transmissions. The country is concurrently introducing a legal framework and measures designed to protect consumers. Furthermore, in agreements such as the Mexico-Panama FTA, CPTPP, and USMCA, Mexico is incorporating highly binding provisions that ensure the free movement of data, including personal information, through electronic means for the purpose of conducting business among the agreement parties.

Notably, Mexico’s digital trade policy aligns with U.S.-led liberal digital norms. This strategic direction is anticipated to play a pivotal role in establishing a foundation for the expansion of trade and investment in digital products and services within Mexico.

Turning our attention to renewable energy, Mexico boasts strengths in renewable energy production, owing to its geographical and climatic characteristics. Consequently, with the growing global demand for renewable energy, investment opportunities in Mexico’s renewable energy generation of electricity are expected to expand, leading to an increased demand for technological cooperation in this field. It is opportune to proactively examine Mexico’s major policies related to renewable energy at this juncture and forecast its future direction. Such insights are valuable as crucial data in exploring ways for cooperation between Korea and Mexico.

Mexico’s electricity production is predominantly fossil fuel-based. In contrast to the previous administration, the AMLO government is pursuing a policy that prioritizes fossil energy development over renewable energy, resulting in the suppression of the latter. This seemingly restrained stance on renewable energy is believed to be geared towards securing energy independence and security by reverting to the pre-2020 energy reform system. This involves diminishing the influence of foreign companies while bolstering the market power of state-run entities. Nevertheless, considering that Mexico’s domestic laws and civil society actively support greenhouse gas reduction and climate change initiatives, it is essential to comprehend changes in Mexico’s energy policy under the assumption that Mexico will engage in climate change responses in the mid to long term.

The health and medical sector in Mexico has become a focal point for cooperation, especially during the COVID-19 pandemic, as the country faced challenges in securing essential medical supplies such as masks and vaccines. Due to its robust manufacturing base and proximity to the United States, notable shifts are evident in the health and medical devices and services sector post-COVID-19. With an increasing number of companies, domestic production of Mexican medical devices is on the rise. Measures are being introduced to facilitate market access and alleviate regulatory burdens. If this trend persists, Mexico’s exports in the health and medical sectors are expected to grow, necessitating exploration of opportunities for cooperation with Mexico to diversify Korea’s exports.

In this context, the AMLO government revised the Federal Procurement Act on Medicines and Medical Supplies to streamline the international procurement of medical devices, medical services, and pharmaceuticals. Additionally, efforts are underway to resume treatment for diseases unrelated to the COVID-19 pandemic. As interest in digitalization has surged in both the public and private health and medical service sectors due to the pandemic, technology adoption has proliferated in the medical industry. A policy to promote this technological integration was actively pursued.

Given the challenges that Mexico is currently confronting and its recent policies in the four areas mentioned above, what cooperation can we explore with Mexico?

In the ongoing initiative to attract foreign investment, as promoted by Mexico in the fields related to semiconductors, batteries, and electric vehicles, Korea must establish itself as a key participant in the value chain centered on North America through robust trade with Mexico. Simultaneously, efforts should be directed towards expanding market share in North America. To achieve this, various avenues, such as the negotiation of a Korea-Mexico FTA or becoming an associate member of the Pacific Alliance, should be explored. Given the increased activity of Chinese manufacturing companies in Mexico amid the recent US-China competition, a different landscape is emerging compared to before. Consequently, there is a potential risk that Korea’s position in the global value chain centered on North America might weaken in the future.

With the anticipation of increased nearshoring in the future, it is crucial to focus on cooperation in infrastructure and transportation-related services in Mexico. The growth in industrial complexes, driven by the influx of multinational companies into the manufacturing sector, will naturally elevate the demand for infrastructure construction. Moreover, given Mexico’s strategic approach to participating in new supply chains in technologyintensive industries such as semiconductors and batteries, ensuring stable and efficient transportation becomes paramount. Continuous attention must be devoted to the transportation service sector.

In the face of global uncertainties, including supply chain disruptions, Mexico may be inclined to decrease its excessive reliance on the North American economy in the long term. Consequently, anticipating potential policy initiatives by Mexico to diversify exports, currently concentrated in the United States and Canada, towards Central and South American countries becomes crucial. It is imperative to be mindful of preparing cooperative measures that recognize Mexico as a strategic gateway for entering Central and South America.

With regard to collaboration in the digital transformation, the Korean government, local authorities, education-related organizations, and private companies might consider actively suggesting partnerships with Mexico’s relevant organizations in digital education. It is anticipated that in the future, a substantial portion of the population in Mexico, who previously lacked access to the digital environment, will swiftly become part of the digitally engaged population. However, the Mexican government has not implemented significant policies focused on enhancing digital literacy for those vulnerable to internet access issues.

Moreover, the hastening pace of digital transformation is amplifying the need for and underscoring the significance of cybersecurity. In this context, a collaborative project can be envisioned, wherein different agencies of our government offer guidance based on their diverse experiences in formulating Mexico’s cybersecurity policy and establishing a cyber attack response system. The escalating demand for cybersecurity is not only rapid but, given the transnational and interconnected nature of cyberspace, elevating the cybersecurity standards of partner countries can also enhance our own cybersecurity.

While the AMLO government exhibits a reserved stance toward renewable energy, the demand for distributed power generation using renewable sources is substantial, given Mexico’s inadequate transmission and distribution infrastructure. In line with the PRODESEN 2023-2037 energy development plan, the Mexican government intends to expand distributed power generation. Consequently, there is an opportunity to explore participation in the construction of distributed electricity generation facilities under 500kW, which are subject to fewer government regulations. Besides meeting the demand for distributed power generation, it is crucial to consider this option from a short-term perspective as it does not necessitate approval from the Energy Supervisory Commission.

In Mexico’s pharmaceutical production and consumption market, the competition between global pharmaceutical companies and local firms is intense, posing challenges for Korean companies entering the market as new entrants. Therefore, establishing strategic partnerships with local pharmaceutical companies and distributors is crucial, and one viable option is to engage in license-based drug exports. Moreover, considering the specificities of Mexico’s drug registration and procurement environment, if a product is equivalent to patented offerings and demonstrates price competitiveness, it has the potential to gain acceptance in the market. Pharmaceutical companies can facilitate product uptake through various cooperation channels such as academic conferences and exhibitions. It is essential to enhance market awareness by consistently disseminating information.

As a result of Mexico’s policy to broaden access to universal health and medical services, the demand for medical supplies in hospitals and clinics, diagnostic equipment including imaging devices, and general home health care devices is on the rise. Notably, the policy targets the provision of services to underprivileged individuals residing in small cities, rural areas, and remote regions, with the potential for increased utilization of remote medical services, particularly due to the COVID-19 pandemic.

Considering the capabilities of Korean companies in the health and medical fields, the case of India’s collaboration with Mexico holds significance. The Indian government and pharmaceutical companies actively initiated a collaborative system with Mexico during the COVID-19 pandemic when Mexico sought alternatives to expensive branded drugs and raw materials traditionally provided by pharmaceutical companies in developed countries. Through strategic partnerships, India successfully entered the market by proactively establishing a cooperation system aligned with the health and medical environment and demands. This included actively promoting technology transfer for local manufacturing of vaccines and medicines. Therefore, by supporting companies’ advancement through the establishment of a cooperative network between policy agencies and regulatory authorities, there is a need to reexamine and revitalize the representative cooperation channels established in the past by both of Korea and Mexico.

Recently, China has signed and applied for membership in several trade agreements, including RCEP, CPTPP, and DEPA, which are expected to promote the reform and opening up of China’s trade sector. Specifically in the area of services trade, China needs to prepare itself for transitioning from the current positive list approach to the negative list method within three years after the implementation of RCEP in 2022, while also adopting an internationally recognized methodology. Several policies are being implemented. This study analyzed the Hainan Free Trade Port policy, which prioritizes the introduction of regulatory reform and trade liberalization measures in China’s services sector. It aimed to explore ways for Korea and China to cooperate in the service industry while also assessing the potential for decentralizing the functions of the Hong Kong Free Trade Port.

The conclusions and implications of this study are as follows. First, China is initially promoting the reform and opening up of Hainan’s service industry through the implementation of market access relaxation measures and negative lists, which constitutes a fundamental aspect of the Hainan’s Free Trade Port policy. China is anticipated to elevate trade standards by conducting openness assessments, amending domestic laws and regulations, and simultaneously applying a negative list and market access relaxation measures for the Hainan Free Trade Port, renowned for its highest level of openness.

Second, although the product trade liberalization and the operation of the tax system at the Hainan Free Trade Port are expected to be partially aligned with those of Hong Kong, there still remains a need for further progress in promoting capital movement liberalization. Consequently, in the medium to long term, Hainan is expected to offer foreign investors entry conditions comparable to Hong Kong’s tax system. However, unless significant progess is made in opening up the services sector and liberalizing capital movements, Hainan’s potential role as a free trade port may be limited.

Third, changes in Hainan’s trade, investment, and duty-free shopping need to be interpreted in light of the impact of the COVID-19 pandemic. Notably, there has been a noticeable increase in imports affected by Hainan’s duty-free allowance adjustments and duty-free import measures. Additionally, the services trade has recently shifted from a deficit to a surplus, primarily due to the escalation of transit trade. In terms of investment, domestic investment by Chinese companies has notably surged, particularly in industries with preferential corporate income tax rates and those with corporate income tax exemptions on offshore earnings. At present, the investment surge is primarily driven by domestic companies, but the foreign investment is poised to rise, depending on the outcomes of Hainan’s policy implementations The impact of these policies on duty-free shopping is expected to be felt after 2023. If Chinese citizens’ overseas duty-free shopping decreases in the future, it is expected to have a significant impact on our country.

From our country’s perspective, the first step is to carefully analyze Hainan’s upcoming irregular announcements regarding reforms and opening up in the service sector, and use them as a reference to prepare a negotiation plan that is advantageous for our country in the future Korea-China FTA service and investment negotiations. By leveraging insights from Hainan’s policies, we can assess China’s reform and opening strategies in terms of priority areas, direction, and pace. Additionally, we can explore methods to streamline market access and implement national treatment at the regional level.

Second, given Hainan’s burgeoning growth prospects, there is an urgent need to expand cooperation, with particular emphasis on the cosmetics and medical sectors. While Hainan has risen to become the second-largest region for cosmetics imports in China, Korea’s response pales in comparison to rival nations. Simultaneously, China is utilizing Hainan as a testing ground for institutional reforms within the medical sector, thereby bolstering Hainan’s role as a gateway for foreign companies seeking to penetrate the Chinese medical market.

Third, it is necessary to prepare for enhancing the long-term competitiveness of Hainan’s service industry. Hainan aims to enhance its competitiveness by adopting international service standards similar to those in Hong Kong. This will be achieved by implementing mutual recognition of professional qualifications and providing preferential treatment. If the overseas consumption of services by Chinese citizens shifts to domestic demand, this could potentially impact Korea’s service exports to China. This shift might directly affect duty-free shopping for tourists and medical tourism. Therefore, it is imperative for us to explore ways to enhance the competitiveness of our country’s service industry while providing products and services in Hainan. 

This study analyzes Australia’s medium-term and long-term trade strategies with a focus on supply chains, digital trade, climate change, and development cooperation. Based on the Australian government’s policy measures in response to these key economic issues, this study derives cooperation plans between Korea and Australia. The authors diagnose the situations Australia faces in these four areas to understand the background of the Australian government’s policy responses. Based on an analysis of Australia’s domestic industrial and international cooperation policies, it discusses ways in which Korea and Australia can expand their cooperation.

In the 2020s, the world has experienced a global outbreak of pandemic, strategic competition among major powers, and a series of armed conflicts between nations, leading to supply chain crises and an expansion of protectionist trade policies. As a result, nations are formulating strategies to expand cooperation, focusing on alliances or groups of nations with shared values. Korea also aims to expand economic solidarity with likeminded countries such as Australia to establish resilience against potential deteriorations in global economic conditions coming from geopolitical risks.

In regard to restructuring of the supply chain, Australia has faced a series of challenges caused by disputes with China. As the trade relations between the two countries deteriorated, retaliatory tariff measures and import restrictions followed. With China being Australia’s largest trading partner, and both countries heavily relying on each other for various products, these trade disputes had a significant impact on the stability of supply chains. While Australia was successful in swiftly diversifying its trade partners, the Australian government recognized the necessity of establishing a national supply chain management system and strategies to adapt to rapid changes in the international economy.

The Australian government consistently endeavors to strengthen the stability of its supply chain through international cooperation. It has fostered extensive supply chain cooperation in manufacturing, healthcare, energy resources, and food resources through initiatives such as the Supply Chain Resilience Initiative with India and Japan, the Australia-UK Joint Supply Chain Resilience Initiative, cooperation within Quad, and active participation in the IPEF. Additionally, the Australian government has established the Office of Supply Chain Resilience under the Department of Industry, Science and Resources to coordinate collaboration among departments. The Australian government also announced the Critical Minerals Strategy in 2019, 2022, and 2023, focusing on critical raw minerals for key strategic industries.

This report proposes enhancing bilateral collaboration between Korea and Australia in supply chain early warning systems. As Korea has launched its own national strategy to secure core minerals, the two nations can engage in stronger communication for the supply and demand of critical raw minerals. The comparative advantages of both countries in international technology certifications, technology standardization, ESG, and eco-friendly mining technology allow joint projects in mineral infrastructures to be promising and productive.

Leveraging one of the world’s most advanced digital transformations proceeding in Australia’s private sectors, the Australian government is promoting its Digital Economy Strategy and Digital Trade Strategy. The nation plans to emerge as a global top ten digital economy and society by 2030, toward which it is engaged in multiple core tasks, including efforts to commercialize quantum technology and 5G technology innovation. In pursuit of advanced digital trade, Australia’s Department of Foreign Affairs and Trade has established 13 digital trade rules to focus its management capacities.

Based on the leadership role it already plays in digital trade at the APEC, OECD, and G20, the Department of Foreign Affairs and Trade remains proactive in leading digital trade-related cooperation agendas. This research proposes upgrading the Korea-Australia bilateral Free Trade Agreement to establish norms for upcoming digital trade expansion and suggests coordinating new agendas for APEC in 2025, hosted by Korea. Additionally, it recommends active cooperation between the two countries in setting international standards for digital trade and collaborating on quantum technology development by aligning Korea’s Quantum Science and Technology Strategy and Australia’s National Quantum Strategy for joint projects.

 To actively respond to societal and economic changes caused by climate change and adapt to structural changes in related industries, the Australian government has formulated national strategies such as Powering Australia, Climate Change Act 2022, and the National Hydrogen Strategy. The Powering Australia strategy is the government’s primary response to climate change, focusing on the utilization of renewable energy sources, reducing greenhouse gas emissions, creating jobs in related industries, and easing electricity cost burdens. The National Hydrogen Strategy encompasses 21 measures to foster hydrogen-related businesses as a core energy industry in the future.

In addition to promoting national strategies, the Australian government is broadening its efforts toward international cooperation for climate change response, aligning with Japan, Germany, Korea, and others. Korea is expanding climate change cooperation with Australia in both governmental and private sectors. In 2022, multiple MOUs related to climate change response were signed, and a Korean firm was selected for financial support from a state government in Australia. Building upon the existing collaborative achievements between Korea and Australia, this study proposes advancing cooperation in the hydrogen sector, enhancing collaboration in eco-friendly transportation, and expanding joint discussions on trade barriers in carbon. Particularly, to strengthen cooperation in the hydrogen sector, there is a need to develop medium- to long-term blueprints for collaboration in hydrogen carrier ships, reinforce support for companies that enter the Australian hydrogen sector, provide financial support for pilot projects, establish local company information databases in Australia, and streamline customs clearance for related products.

Australia’s recent development cooperation initiatives, in line with its Indo-Pacific strategy, have been heavily focused on Pacific Island nations and Southeast Asian nations. Australia’s International Development Policy prioritizes Pacific Island nations, and Australia aims to stimulate private sector investments in Southeast Asian nations based on its Southeast Asia Economic Strategy to 2040. Since Korea is also formulating its own IndoPacific strategy, Australia’s achievements in developmental cooperation targeting Pacific Island nations and Southeast Asian nations provide significant insights for Korea to enhance its development cooperation initiatives.

This report suggests for the Korean government to leverage cooperation with Australia to explore tailored and optimized development cooperation programs for Pacific Island nations. Further emphasis is placed on the need for coordination among donor countries to prevent inefficiencies resulting from aid competition. Exploring promising avenues for trilateral cooperation among Korea, Australia, and the US or supporting Australia-led development cooperation programs should be considered. Regarding ASEAN, exploring options to jointly support relevant projects for implementation of the ASEAN Outlook on the Indo-Pacific (AOIP), already supported by both Korea and Australia, could be considered. Building upon the major cooperative projects identified in the existing multilateral channels between Korea, Australia, and ASEAN, Korea and Australia need to expand cooperation in emerging fields such as Southeast Asian infrastructure development, smart cities, and cyber/digital innovation. 

Digital transformation represents a paradigm shift that covers every facet of corporate management, including production, development, ordering, customer management, and business strategy. Rooted in digital technology, this transformative shift has become essential for corporate survival, fostering industrial competitiveness, elevating the quality of life, and contributing to national development. While the attention on digital transformation has escalated recently with the rapid integration of fourth industrial technologies such as the Internet of Things, 3D printing, cloud computing, big data, and artificial intelligence, its essence is deeply related to long-term processes like process automation and the evolution of information and communication technologies (ICT). This study investigates global and industry-specific trends in digital transformation, examining its correlation with the labor market in the United States, Germany, and Korea, and analyzing pertinent labor market policies.

In Chapter 2, the study examines various definitions of digital transformation from previous research and measures and compares the digital transformation of industries in major countries using indicators such as ICT capital stock, ICT intermediate input, and robot capital stock. The analysis of data from 2000 to 2017 indicates a significant increase in digital transformation in most of the 16 countries studied. While Korea maintained a top position in ICT equipment capital stock and intermediate spending from 2000 to 2017, software concentration and intermediate spending remained in the mid-range. Particularly, Korea’s robot concentration in manufacturing increased significantly, making it the country with the highest robot concentration among the 16 nations.

Despite Korea’s prowess in traditional digital transformation, its adoption of digital technologies (Internet of Things, 3D printing, cloud computing, big data analysis, and artificial intelligence) between 2018 and 2021 lags behind the OECD average, particularly in artificial intelligence. This analysis underscores Korea’s dominance in conventional digital transformation but reveals a deficit in adoption of cutting-edge technologies.

Chapter 3 delves into the intricate relationship between industryspecific digital transformation and employment dynamics in the U.S., Germany, and Korea. The analysis unveils diverse correlations between digital transformation variables and employment across countries. Notably, South Korea experiences a unique scenario where the positive and negative effects of digital transformation are concentrated among high-skilled workers, distinguishing it from the polarization observed in the U.S. and Germany.

Chapter 4 examines global policy responses to the transformative impact of digital transformation on the labor market. Categorizing policies into employment, education, and social security domains, the study emphasizes the need for adaptive measures to address the evolving employment landscape. Noteworthy examples include the introduction of minimum wage systems and collective bargaining rights for platform workers in response to the changing nature of employment.

Drawing upon the cumulative insights from Chapters 2 through 4, Chapter 5 provides key implications of this study. It supports for a shift in Korea’s digital transformation focus towards the service industry and underscores the importance of tailored policies for small and medium enterprises (SMEs) to bridge the technology adoption gap. The analysis of the labor market highlights the imperative of upskilling and reskilling programs to mitigate the impact on low- and medium-skilled workers.

In conclusion, the study underscores the multidimensional nature of digital transformation, ranging from its historical trends to its intricate relationship with the labor market and the evolving policy landscape. As countries navigate the challenges and opportunities presented by digital transformation, adaptive policies and a holistic approach are essential to ensure a balanced and inclusive transition in the workforce. 

Since the 2008 global financial crisis, Korea's external financial sector has undergone significant structural changes. Korea's net international investment position (IIP), the difference between external financial assets and liabilities, achieved a surplus in 2014 for the first time in its history. In 2018, the net IIP, excluding foreign exchange reserves, also turned into a surplus and has steadily expanded since then. This structural shift has broader implications beyond numerical values. It can impact financial stability and the pursuit of financial internationalization policies, which have traditionally been challenging to reconcile in Korea. Therefore, this study analyzes the influence of net IIP on financial market stability, economic volatility, and financial internationalization. It also examines financial internationalization procedures in the cases of Germany and Japan. Based on these analyses, this study aims to provide policy implications that can enhance Korea's economic stability and strengthen its financial internationalization capabilities.

This study consists of six chapters, excluding the introduction. Chapter 2 examines the trends in Korea's International Investment Position (IIP) and compares them internationally to identify the characteristics of Korea's IIP. When we break down Korea's net IIP into sub-categories, foreign direct investment and other investment turned into surpluses in the early 2010s, and equity portfolio investment also turned into surpluses in 2022. This shift was driven by several external factors in the Korean economy, such as the persistent current account surplus, the expansions of foreign direct investment by companies since 2000, the expansions of bank lendings to Korean overseas subsidiaries, the rapid growth of overseas investments by the general government (notably, the national pension fund) since the global financial crisis in 2008, and the elaboration of overseas investments by securities companies, insurance companies, and individuals. In addition to these observations, several characteristics can be drawn from international comparisons. Firstly, there are only a few countries that have a surplus in their net IIP. As of 2022, only 15 out of 46 major countries have net IIP surpluses, with Korea ranking 11th in net IIP (as a percentage of its GDP). Secondly, most of these surpluses have been achieved recently, since 2010. In case of Korea, its net IIP (excluding foreign exchange reserves) turned positive in 2018, somewhat later than other countries. Lastly, it is important to note that countries that have moved from a deficit to a surplus, including the case of Korea, have generally remained in surplus for the most part. This implies that the shift to a net IIP surplus represents a structural change rather than a temporary one.

In Chapter 3, we investigate the relationship between a country's status as a net creditor and the stability of financial markets, specifically focusing on episodes of sudden capital inflows and outflows. We measured surge, stop, flight, and retrenchment in accordance with the definitions provided by Forbes and Warnock (2012) for the four distinct episodes of sudden capital inflow and outflow. Our empirical analysis comprises a dataset of 66 countries, covering the period from the first quarter of 2001 to the fourth quarter of 2020. The analysis revealed that the variable of interest in Chapter 3, whether a country is a net creditor, is closely associated with the retrenchment episode among the identified episodes. If a net creditor country experiences a stop episode, the probability of retrenchment occurring in the following period increases. In other words, net creditor countries act as a buffer, preventing a deterioration in external soundness as foreign assets return to the home country in potential crisis situations. This suggests that Korea, a country still affected by the trauma of the currency crisis, has a market-friendly stabilization mechanism that can help mitigate the risk of potential currency crises.

In Chapter 4, we delve into the relationship between yields on external financial assets and liabilities and consumption growth to assess whether an international risk-sharing mechanism can diversify the risk of consumption fluctuations in domestic and foreign. Based on the consumption-based asset pricing theory, the relationship between external financial assets and liabilities and domestic and international economic fluctuations, measured by consumption, was examined in a three-stage model. The result reveals that the yields of external positions in emerging economies exhibit procyclical to the impact of global risks while counter-cyclical to domestic risks, indicating that emerging countries have international risk-sharing through their external financial assets and liabilities. On the other hand, the yields on external positions of advanced economies demonstrate independence from both global and domestic risks. We also find that the unexplained composition of these yields positively correlates with the size of net IIP and the level of economic and financial market developments. While external positions can mitigate idiosyncratic risk through international risk-sharing mechanisms while magnifying systemic global risk in emerging countries, advanced economies, including Korea, mitigate international risk-sharing through the interaction of their external balances and gain stable yields regardless of domestic and global fluctuations. Notably, the net IIP contributes additional returns on the net return on external financial assets and liabilities.

In Chapter 5, this study examines how net international investment position (IIP) impacts the international competitiveness of financial services, measured by the revealed comparative advantage of financial service exports (referred to as financial service RCA). The results of the fixed effect panel analysis reveal that external financial assets have a positive effect on the financial service RCA, and there is a significant difference in the impact's magnitude based on whether the period had a surplus or deficit in net IIP. Specifically, the positive relationship between external financial assets and financial service RCA is more pronounced during periods of net IIP surplus compared to net IIP deficit periods. Furthermore, we investigate the relationship between financial service RCA and subcomponents of external financial assets, such as direct investment, portfolio investment, and other investment. The empirical results show that portfolio investment has a positive effect on financial service RCA during net IIP surplus periods, while other investments have a positive effect on financial service RCA during net IIP deficit periods. This may be attributed to the shift in global fund flows from other investments to portfolio investments in the aftermath of the 2008 global financial crisis when the frequency of net IIP surpluses significantly increased. As for direct investment, no statistically significant linkage to financial service RCA was found.

Chapter 6 examines Germany and Japan's financial internationalization cases and compares them with Korea to identify commonalities and differences. Germany and Japan, like Korea, have a surplus in net IIP and a significant presence in manufacturing industries. However, they exhibit higher levels of financial internationalization and financial competitiveness than Korea. Regarding the degree of financial internationalization, Japanese financial companies have the highest proportion of overseas assets among the three countries, followed by Germany, with Korea having the lowest. While Germany and Japan have expanded their international presence both before and after the Plaza Accord in 1985, Korea briefly expanded its financial internationalization in the early 2000s due to the Northeast Asian financial hub and overseas investment activation policy, but this growth waned significantly during the 2008 global financial crisis. Since the early 2010s, Korea has gradually expanded into emerging markets such as ASEAN. In terms of their approach to internationalization, all three countries primarily follow a banking-centered model in response to foreign customer demands, with a preference for independent overseas subsidiaries and branches over M&A. However, Japan has increasingly expanded into the non-banking sector since the 2010s, actively targeting local customers and engaging in M&A. Another key difference lies in the direction of outbound financial internationalization policy. Germany's internationalization is primarily market-driven, mainly thanks to the peculiarities of the EU system, whereas, in Japan, government policies have played a more significant role. Korea's approach is more similar to Japan's than Germany's.

Chapter 7 provides the study's conclusions and policy implications. In summary, the surplus in net IIP was found to significantly contribute to both economic stability, including financial market stability, and the enhancement of international competitiveness in financial services. This surplus represents a crucial structural change with implications for both economic stability and financial service internationalization. Several policy implications can be derived from the results of this study. First, Korean policy authorities have an opportunity to promote both financial stability and financial internationalization simultaneously. Second, it's important to review the macroprudential measures for capital flows introduced during periods of net IIP deficits, as the private sector's role in financial stability has evolved due to changes in the net IIP surplus structure. Additionally, there's a need to improve regulations and create an environment that fosters financial internationalization. This involves enhancing regulations on financial companies' overseas expansion and businesses and expanding financial cooperation with emerging countries. Finally, for financial stability, adherence to international norms like Basel III is essential, rather than relying on macroprudential measures for capital flows. Finally, the government's approach to financial stability needs to be changed to faithfully implement international norms such as Basel III rather than focusing on regulating capital inflows and outflows. 

With the geopolitical and geoeconomic importance of the Indo-Pacific region in the spotlight, India’s strategic value has come to the fore, and its eventual positioning in the G3 is more likely than ever. The United States and other like-minded countries are committed to building diplomatic, military, and economic ties with India. In response, India is more actively pursuing strategic autonomy. While increasingly estranged from China and relatively close to the United States, India is clearly seeking to minimize its dependence on any one country and maximize its autonomy to consider its own interests and make alliances on a case-by-case basis. This is true in the economic sphere as well as in foreign and security affairs. Therefore, it is important to understand the nature of the issue and India’s unique position and needs on it. For example, while India has some cooperation with China in the Asian Infrastructure Investment Bank and the Shanghai Cooperation Organization, it opposes the Belt and Road Initiative. Meanwhile, it continues to engage in military and economic exchanges with Russia, despite the cold shoulder from the US and other Western countries.

Major players in the international community, such as the United States and Japan, have significantly strengthened their strategic economic cooperation with India in recent years, especially as they have begun to reshape their global supply chains. While complete decoupling from China is unlikely at least in the short term, it is clear that India is emerging as an alternative partner in the new Asia (Altasia). With a growing network of strategic, economic, and technological partnerships already centred on India, there is every likelihood that India will become a major player in global supply chains in the medium to long term. South Korea seems to have started to ride this wave. By adopting Korea’s Indo-Pacific Strategy to strengthen its role as a ‘global pivot’, the South Korean government has created an opportunity to share its strategic vision with India. It should develop the bilateral relationship into one of close strategic solidarity and cooperation, and adjust its approach to India.

India, which has recently taken the lead in global cooperation by hosting the Global South Summit and the 2023 G20 Summit, should be recognized as an important anchor partner in the Indian Ocean and South Asia. India’s close ties with key countries in the Indian Ocean, the Middle East, Africa and Europe, and its leadership role in several multilateral organisations, can serve as an important bridgehead for expanding Korea’s regional cooperation and economic security networks. To this end, it is important to formulate Korea’s India policy from a medium- to long-term perspective rather than seeking immediate results.

The growing strategic rivalry between the United States and China has led to a visible geopolitical and technological competition that is clearly changing the face of economic cooperation with India. Trade, value chain resilience, clean energy and climate change, and digital are some of the areas where the strategic environment is changing and where major countries’ bilateral cooperation with India is noticeably changing or strengthening. These are areas where India’s internal drivers and needs align with the strategic and economic considerations of major countries, and where the value of cooperation with India is rapidly increasing, making them a priority area to explore.

Traditional forms of trade policy, including free trade agreements (FTAs), have entered a new phase in light of India’s rising strategic importance, its market potential to replace China, and the trend towards de-risking of value chains centered on high technology. While India’s trade policy towards major economies has moved beyond or expanded beyond traditional areas and modalities, new trade deals are being actively negotiated for market and industry linkages with India. India is responding by leveraging its rising status to strengthen its industries and export competitiveness.  

Value chain resilience is an area where India is very active in outreach. There are two main streams of cooperation: the high-tech-oriented cooperation with India by the US and the EU, with a view to decoupling from China, and the broader industrial cooperation promoted by Japan. There is also cooperation through (sub-)multilateral organisations. India has been very receptive to projects that can help foster domestic manufacturing, and has shown a favourable attitude towards foreign investment.

Clean energy and climate change is an area where India is very active in external cooperation. As a net importer of crude oil, India needs to reduce its dependence on external energy sources while maintaining high economic growth. In addition, India, and South Asia as a whole, is facing an urgent energy transition needs due to severe air pollution and vulnerability to climate change, which will require large investments. In this context, India has a high potential for the development of renewable energy such as solar and wind power. From the perspective of partner countries like the U S, bilateral cooperation on clean energy and climate change is a key area where they can derive benefits from India’s immediate needs. It is also important in terms of supporting India build a foundation for stable growth while mitigating foreign and security strategic risks by reducing India’s external energy dependence.

The digital sector is a promising area for collaboration with India, given the U.S.-China conflict and India’s growing market. From telecommunications equipment to artificial intelligence, quantum computing, and legal systems such as digital trade norms, the U.S.-China conflict is at its peak, and the Indian government has recently put the brakes on Chinese investment in India. In addition, India has a growing digital economy and excellent innovation capabilities, including in artificial intelligence. Moreover, India faces problems in terms of the quality and security of its overall digital infrastructure, so there is a high potential for external cooperation, including development cooperation. However, there is still a major constraint in India, which seems to be that the institutional foundation is not yet been fully formed. Currently, the legal system that regulates platform markets such as e-commerce and personal information protection laws is being established in India.

India participates in major (sub)multilateral organisations such as Quad, IPEF (Indo-Pacific Economic Framework), SCRI(Supply Chain Resilience Initiative), MSP(Minerals Security Partnership), ISA(International Solar Alliance), CDRI(Coalition for Disaster Resilient Infrastructure), etc. In addition, India also participates in the SCO (Shanghai Cooperation Organization), the BRICS, and other partnerships involving China and Russia, and plays a leading role in South Asian regional partnerships such as BIMSTEC(Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation). India seems to be a selective and partial contributor, focusing on getting the best out of cooperation in its own interests. However, in its own leading initiatives, such as on clean energy and climate change, it is seeking to strengthen its position as a developing country leader and thus pave the way for a move to the G3.

South Korea should strategically strengthen its cooperation with India to avoid being left behind in the reshaping of the international economic order. Cooperation with India in high tech, supply chain, and digital fields is increasingly necessary; with the reorganisation of global supply chains, India will play a significant role in enhancing Korea’s economic security. Strengthening economic cooperation with India will help reduce Korea’s economic dependence on China and increase its strategic autonomy from China.

It is also important to expand contacts with India based on various economic cooperation platforms. South Korea and India have opportunities for cooperation in the Indo-Pacific Economic Framework (IPEF), among others. Both countries should further strengthen and expand bilateral cooperation in areas such as supply chain and clean energy in the IPEF. Above all, Korea should actively seek opportunities to participate in the various high-tech cooperation and global connectivity infrastructure cooperation centering on India, and should not hesitate to promote an economic and security cooperation network involving India and other partner countries if necessary.

Reciprocal diversification of Korea’s economic partnership with India, with a focus on manufacturing, is an important task. India is rapidly becoming a partner for supply chain de-risking, which is very different from the past trend and should be considered by Korea. The biggest challenge for the Indian economy right now is to develop its manufacturing sector, and Korea is a key partner. The industries in which Korea has a competitive edge, such as shipbuilding, automobiles, electronics, semiconductors, and next-generation telecommunications, are almost identical to the sectors that India is strategically promoting. In addition, exploring various areas of cooperation beyond manufacturing is crucial to advancing bilateral economic cooperation. India has a variety of challenges other than fostering manufacturing, and has many demands for external cooperation. Moreover, from Korea’s perspective, India has strong competitiveness in areas such as ICT, aerospace, and artificial intelligence, and can help Korea advance its economy in the face of US-China competition.

The authors suggest the following key agenda for Korea-India bilateral cooperation. First, concluding negotiations to improve the Korea-India CEPA is important for revitalising the two countries’ flagship economic cooperation platform. The Korea-India CEPA has played a key role in strengthening bilateral economic ties and even diplomatic relations. However, the effectiveness of the Korea-India CEPA in increasing bilateral trade and investment is not satisfactory. Bilateral merchandise trade has grown at an average annual rate of 4.1 percent since 2010, when the Korea-India CEPA took effect, with Korea’s exports to India growing at an average annual rate of 4.3 percent and India’s exports to Korea at 3.8 per cent. Compared to trade, India’s investment in South Korea has been even slower, with India being South Korea’s 20th largest investment destination, with cumulative investment totaling $5.74 billion over the period 2010-22. This is particularly true when compared to Korea’s two largest emerging markets and production bases, China and Vietnam.

The key to reaching a deal to improve the Korea-India CEPA will be to reduce non-tariff barriers such as TBT and SPS, improve customs procedures, and further reduce tariffs. In addition, it will be important to identify cooperative initiatives that can decrease bilateral trade imbalances. For example, the Korea-India Joint Initiative should be launched to support trade and investment activities of companies from both countries, and a Korea-India Cooperation Fund should be introduced to provide financial support for identifying bilateral cooperation projects, research, and business matchmaking projects.

Second, cooperation on value chain resilience is an area where India’s external cooperation is flourishing in the face of US-China competition and will be at the core of Korea-India economic cooperation. Semiconductors, electronics, automotives (including electric vehicles), batteries, aerospace, and defense are all areas with high potential for bilateral cooperation. To this end, the two governments should consider establishing a high-level (ministerial) India-South Korea trade policy dialogue channel, or a high-tech partnership. It would be effective to support the entry of Korean manufacturing companies into India through the creation of industrial parks. The key to success of them is to ensure the possibility of collaboration between leading companies and their partners, while ensuring sufficient government-to-government dialogue with the Indian union and state governments.

Third, Given India’s strong commitment to and needs for climate change mitigation and energy transition, the high growth potential of Indian market, and the need for carbon reduction and energy security in Korea’s energy transition, cooperation with India on climate change mitigation and energy is of great importance. Currently, there is a lack of regular dialogue between the two countries in the energy sector. As a priority, launching the Korea-India Energy Dialogue and the Korea-India Climate Change Cooperation Agreement is required. The Korean government is promoting EDCF(Economic Development Cooperation Fund) Framework Agreement with India, and it is necessary to set climate change and energy as the focus areas.

Fourth, India’s role and potential in the digital sector has come under the spotlight in the context of the US-China competition. Priority for cooperation in the digital sector would be artificial intelligence, cybersecurity, and the digitalization of public services. A separate channel for cooperation in the digital sector (possibly called the Korea-India Digital Partnership) should be established to identify bilateral cooperation needs and discuss institutional trends such as trade norms, or it should be reflected in the above-mentioned channel for high-level trade policy dialogue between Korea and India.

Fifth, South Korea has designated India as a priority ODA partner in 2022 and is in the process of signing the EDCF Framework Agreement. Cooperation in infrastructure development is one of the most underdeveloped areas of Korea-India cooperation. As mentioned before, energy and climate change, along with infrastructure, are areas where India’s immediate needs are concentrated. Moreover, Korea’s experience in developing from the poorest to the advanced countries is highly regarded and constitutes a major part of the Korea’s image in India. In this sense, Korea’s KSP(Knowledge Sharing Program) projects will be effective in delivering Korea’s development experience to India in various fields.

Sixth, improving mutual understanding between Korea and India is a critical task. The average Indian’s knowledge and understanding of Korea is not high, and this affects bilateral relations. Korea’s Indo-Pacific Strategy’s mission to “promote mutual understanding and exchange” should be a key focus in deepening ties with India. The Korean Cultural Centre in Delhi should be expanded to other major cities such as Chennai, and given the popularity of K-pop and K-drama in India, support for local exhibition and marketing projects involving Korean products should be strengthened. In the case of K-beauty, which is gaining popularity in India, synergies can be achieved by linking it with other Hallyu products. In addition, people-to-people exchanges, including students, between the two countries should be expanded. As interest in Korea is growing in India due to the popularity of the Hallyu and the official adoption of Korean as a second language, people-to-people exchanges at this moment will be crucial for strengthening the future relationship between the two countries.

Seventh, South Korea should seek to cooperate with India in (sub)multilateral organisations. India is likely to be more willing to cooperate internationally on issues such as supply chains, climate change and energy, etc. and there are many areas where South Korea can align itself with India’s position. South Korea should also consider participating in the India-led ISA and CDRI. Working with India on agendas to assist developing countries would be an effective way to improve bilateral relations. 

This study began with the idea that the international community’s discourse on China may not be produced, distributed, and utilized separately in each country, but may be formed within a huge global network. So this study tried to examine what the content of the discourse on China is; who produces it; how it is being distributed and utilized in the international community. And it also tries to examine the political dynamics under which the international community’s discourse on China is produced.

This study first selected the issues of the 2019–2020 Hong Kong protests, the Belt and Road Initiative (BRI), and the COVID-19 pandemic and conducted a case analysis of the international community’s discourse on China, focusing on these issues. As a result, many interesting facts were discovered. In particular, it was found that political images of the BRI seemed to have a stronger influence than direct experience toward it in shaping the international community’s discourse on the BRI.

Through the analysis of three cases, it was possible to identify countries, regions, and organizations that play an important role in shaping the international community’s discourse on China. Among countries or regions, the United States and the United Kingdom appeared to be the most prominent actors in shaping the international community’s discourse on China. In addition, Japan and Taiwan, which are China’s neighbors and have a tense relationship with China in establishing order in the Asian region at the same time, also emerged as important actors. Accordingly, this study analyzed in more depth the mechanisms of how the discourse on China is being formed within the relevant countries and regions, targeting the US, EU (UK), Taiwan, and Japan. At the same time, it also analyzes the formation of the discourse on China in Korea, along with ASEAN, which is becoming increasingly important geopolitically, as can be seen from the U.S. “Free and Open Indo-Pacific” (FOIP) Strategy and China’s BRI.

First of all, it is not an exaggeration to say that the current perception of China in Korea is the worst. perceptions of China are poor in both progressive and conservative camps, and anti-China public opinion is overwhelming in all age groups. In particular, anti-China sentiment among young people is so strong that it is a unique phenomenon in the world.

However, there is an important feature in Korea’s perception of China that is consistent with the U.S. perception of China. Looking at the overall structure and flow of the Korean perception of China, there is a strong factor that does not change, a phenomenon that is closely related to the U.S. perception of China. It is no coincidence that the perception of China has structurally deteriorated in Korean society since the U.S.-China strategic competition began in earnest.

Second, the discourse on China in the U.S. is so numerous and vast in type and quantity that it is almost impossible to figure out what content is being produced, distributed, and used by whom. Nevertheless, it was possible to capture the general outline by using Laswell’s SMCRE (Sender, Message, Channel, Receiver, Effect) model, a communication model.

First, it is analyzed that the main actors or producers of discourse (S) are current and former government officials, influential politicians in the National Assembly, and influential think tanks. And a variety of discourses on China are being produced by these people, and the most notable change recently is the rapid spread of ‘anti-China’ (M) discourse. The main reasons for their opposition to China include human rights violationsabuse, authoritarianism, coercive diplomacy, expansionism, and propaganda.

Meanwhile, the channels through which these discourses on China are disseminated are very diverse, including books, articles, reports, news, hearings, speeches, dramas, movies, and documentaries (C). In particular, specialized books related to China are produced and distributed in large quantities, it can be interpreted as U.S. society’s considerable knowledge production capacity being used to shape anti-China discourse. And the context of U.S. society’s discourse on China can be summarized as “China’s growth and the resulting sense of crisis.” As China rapidly grows economically and expands its international influence, the Liberal International Order (LIO) established by the U.S. will be shaken, and there is a sense of crisis that it may lose vested rights of U.S.. Therefore, from the U.S. point of view, it is necessary to reveal the true nature of China, strengthen vigilance against China, and unite the international community with the liberal democracy camp (E). Those who will be made to agree to this include not only domestic Americans but also the entire international community (R). One of the important featurescharacteristics is that the U.S. government is involved in each element of the SMCRE as a major player in shaping the discourse on China in U.S. society.

Meanwhile, the discourse on China in European society can be examined through the relationship between Europe and China. Until 2010, Europe and China maintained a relationship of mutual growth through learning and teaching from each other. At that time, it was emphasized that Europe viewed China as a large, underdeveloped country and an important trading partner. However, around 2010, when the U.S. began to seriously control China, Europe’s perception and strategy toward China also changed, and this also influenced the formation of discourse on China in European society. Against this background, Europe adjusted its strategy to keep China in check while maintaining the principle of cooperation with China. However, compared with the U.S., the discourse on China in Europe does not have many discourse producers who are extremely opposed to China, the messages ont China are diverse, and the perception of China is different for each EU member country.

In the ASEAN region’s discourse on China, China’s construction of artificial islands in the South China Sea and various measures to secure energy resources have created a crucial opportunity for ASEAN countries to form a hostile security discourse against China. However, ASEAN countries cannot simply discuss China as a ‘security threat’ and ‘expansionist’ because of the South China Sea dispute. This is because their economies and infrastructure are heavily dependent on China. For ASEAN countries, where trade with China and infrastructure investment from China are essential for economic growth, China cannot help but be discussed as a major ‘economic cooperation partner and opportunity’, which makes the formation of discourse on China in ASEAN countries multi-layered and complex. Meanwhile, the discourse of ‘debt trap’ an ‘neocolonialism’ have formed and spread in relation to China’s economic diplomacy, including the BRI, as Sri Lanka failed to repay its BRI-related debts in 2017.

Meanwhile, the discourse on China in Thailand is more dynamic and interesting. The family discourse such as ‘Thailand and China are brothers’ has the longest history and is most frequently used in the Thailand’s discourse on China. And in the economic field, China has been mainly discussed as a ‘partner’ and ‘opportunity’ for the Thai economy, and the formation and circulation of this discourse began in earnest with the rise of the BRI in 2014. However, the mainstream pro-China discourse that have portrayed China as a brother and economic partner has faced great resistance due to the formation and rise of a counter-discourse that has begun in earnest since 2019. It can be said that China’s expansion into the South China Sea that began in 2014, the Mekong River dispute with China that began in 2019, the controversy over the Chinese ‘water vaccine’ amid the spread of COVID-19 in 2020, and the anti-government democratization protests from 2020 to 2021 are the backdrop. Through this series of events, China began to be discussed in Thai society as an ‘unreliable selfish hegemonic state’ and an ‘authoritarian dictatorship’ rather than as a ‘brother and family’ or an ‘economic partner and opportunity’. What is especially noteworthy is that anti-government forces in Thailand, pro-democracy forces in Hong Kong, and pro-independence forces in Taiwan, who share anti-China sentiments, are working together to lead anti-China public opinion, forming the so-called ‘Milk Tea Alliance’. 

At present, public opinion toward China in Taiwan is largely divided into a pro-China line that values cooperation with mainland China and an anti-China line that is suspicious of or opposed to mainland China. The Democratic Progressive Party (民主進步黨) leads the anti-China line, emphasizing Taiwan’s independent identity. On the other hand, the Kuomintang (中國國民黨) is seen as the leading pro-China force, inheriting the ‘92 consensus’ and emphasizing cooperation with mainland China. The Taiwanese people’s perception of China, which has an important influence on the formation of discourse, is revealed through their stance on independence and unification and their perception of identity. At present, Taiwanese people believe that it is better to maintain the current ambiguous situation rather than extreme independence or unification. In addition the large-scale anti-China protests in Hong Kong in 2019 have had a significant impact on strengthening the anti-China sentiment among Taiwanese people, according to the analysis.

Meanwhile, it is assessed that the discourse on China in Japan has basically followed a similar trajectory to the change in Sino-Japanese relations. In particular, since the mid-2000s, the two countries have entered a period of strategic confrontation, and as the rapid growth of China’s economy contrasts with Japan’s economic situation which is described as the ‘lost 30 years’, Japanese society’s sense of loss has turned into a sense of caustion toward China. And this has had a negative impact on the formation of Japanese society’s discourse on China. In addition, the dispute between the two countries over the Senkaku Islands (Diaoyu Islands) in 2010 and 2012 had a decisive impact on the qualitative changes in the discourse on China in Japan.

It is interesting to note that the discourse on China in the two regions is closely linked. Japan and Taiwan have established a friendly and highly trusting relationship in all aspects of society, and are engaged in active exchanges and cooperation at various levels, including political, economic, academic, and cultural circles. And in the process of these exchanges, it seems that information and perceptions about China are being shared and a common discourse on China is being formed.

The results of the analysis give us the following implications.

First, the international community’s discourse on China reflects changes in the international order. The discourse on China reflects changes in China itself, but it also reflects changes in the international order surrounding China. Therefore, we need to accept the discourse on China with a more cautious and critical attitude, considering that it may reflect changes in the current international order. There is a need to look more seriously at the context of who shape the international community’s discourse on China why and how.

Second, we need to soberly evaluate and utilize the discourse on China produced and disseminated by the global media in a cool manner. We need to consume media coverage of the international community related to China while being aware that it may reflect the logic of national interests. Otherwise, our perception and attitude toward China may be influenced by the ‘national interests’ of other countries, which may be hidden behind the authority of the ‘influential global media’.

Third, many reports and research activities produced by leading U.S. think tanks have had a significant impact on the international community’s discourse on China. As the strategic competition between the U.S. and China intensifies, research on China is becoming more active in the U.S., while in Korea, the environment for research on China is deteriorating as Korea-China relations become somewhat estranged. Research on China is necessary not only to strengthen cooperation with China, but also to effectively respond to China’s rise. 

The service industry has the largest share in India’s domestic production. While the Modi government has pursued various policies to grow the manufacturing sector, the role of services industry in the Indian economy still continues. IT sector has been one of the important sources for India’s service sector, but now software, internet services, and e-commerce have emerged as important sectors in India. This means that the services industry in India is undergoing structural changes in recent years. Responding to these structural shifts, many countries start to collaborate with Indian service sector. Yet, the cooperation between South Korea and India is mainly limited to the manufacturing sector. This research on India’s services industry aims to delve deeply into India’s ongoing industrial structural changes and related policies, analyze the changing demands within India’s service sector, and suggest a new direction for South Korea-India collaboration focused on manufacturing.

Based on quantitative and qualitative data analysis of India’s services industry, it is evident that a diverse range of service industries are emerging in India beyond the IT and software sectors. The productivity of Indian service firms and the share of skilled labor are increasing, and there’s a notable structural shift with a significant expansion in the opening up of the service sector to foreign direct investment. India’s service sector generates the most added value within the country, and its job creation is growing significantly compared to other industries. Additionally, there’s been an increase in exports, foreign direct investment, and integration with global supply chains. Traditionally, India’s services industry was dominated by retail and public services. More recently, however, corporate facility management and business support services, including R&D, equipment leasing, data management, and marketing, have emerged as key players. Financial and insurance services and educational services, are also on the rise. Indian domestic companies in retail, telecommunication services, transportation, cultural services, and financial services are experiencing an increase in their average total factor productivity, suggesting that various service domains within India are spearheading the growth of the country’s services industry. Additionally, the proportion of highly skilled workers in India’s service sector is steadily increasing.

At the heart of the growth in India’s services industry is the government’s policy of fostering technology-centric human resources and economic reform policies for the expansion of private sector participation and deregulation. Since its independence in 1947, the Indian government has consistently provided various support measures to cultivate technical workforce. Simultaneously, in 1991, the Indian government embarked on economic reforms centered on a market economy and subsequently opened up service trade and investment. Over time, the government has gradually expanded the scope of permissible FDI, and currently, it allows 100% FDI in most industries, barring a few such as insurance, distribution, and aviation industry. As a result of these measures, demand from abroad surged in the early 1990s to leverage India’s abundant and skilled IT workforce. This was followed by steady economic growth in India, and as individual incomes rose, diverse service industries such as law, accounting, and real estate flourished. Ongoing government support policies in the fields of telecommunications, IT, software, finance, and education continue to propel the growth of various service sectors in India. More recently, rapid growth of the manufacturing sector in India has led to an expansion in the demand for services, influencing the growth of India’s services industry.

However, amidst the structural changes in India’s services industry, South Korea’s integration into the Indian service market appears to be less than that of other major countries. The key external cooperation partners for India’s services industry are centered around the U.S., with other active players including European countries such as the U.K. and Germany, as well as China and Japan. The U.S. collaborates with India on visa facilitation to secure India’s outstanding technical workforce within its borders and is also operating programs for training Indian experts within the U.S. Japan is also cooperating to expand the use of Indian human resources and for Japanese companies to enter the Indian market. Japan, through its digital partnership with India, is promoting cooperation for digital transformation in both nations and supports employment of Indian IT professionals in Japan. In addition, they are strengthening financial technology exchanges and infrastructure cooperation through the Japan-India financial dialogues. Japan is also supporting the joint entry of service companies into India through the creation of industrial complexes. In particular, in Japan’s Neemrana Industrial Zone, various service sectors, including logistics, healthcare, telecommunications, postal services, finance, insurance, and retail, are actively operating alongside manufacturing companies.

In the past, cooperation between South Korea and India has focused primarily on manufacturing. Korean global companies in sectors such as electronics and automobiles are intensifying their expansion into the Indian market. However, in order to strengthen the relationship between South Korea and India, cooperation in various industries, including services, is essential. In particular, India’s service market is considered to have huge potential in terms of size and growth. With the opening up of various service sectors and improving conditions for cooperation, the need for Korea-India service cooperation is high. However, while South Korean investment and exports to India are expanding, the level of services industry cooperation lags behind that of other major cooperation partners. Specifically, in contrast to global investment, which tends to focus on service companies, South Korea’s investment in India’s services industry is characterized by a focus on manufacturing firms. These service investments in India tend to be sporadic and spread across different sectors each year. 

The main reason for the lack of cooperation in services between South Korea and India is the lack of information about the Indian market and the perceived risks involved in both the public and private sectors in South Korea. Useful details about India’s current market conditions, potential, challenges, and entry experiences are not effectively communicated to the Korean public sector or domestic private companies seeking to enter India, leading to heightened risk perceptions and stalled progress in cooperation. This problem has led to the current situation where there is little economic, diplomatic, and cultural familiarity between South Korea and India in both the public and private sectors. On the other hand, Korean companies that ventured into India were drawn by the potential and marketability of the Indian services industry. However, they commonly point to challenges such as differing regulations among Indian states, complicated establishment procedures, lack of highly competitive human resources, and recruitment difficulties due to low awareness of Korean companies in India.

To expand cooperation in the Korea-India services industry, this study emphasizes: ① strengthening the economic and diplomatic ties between South Korea and India at the government level, ② intensifying support for domestic private companies in India, ③ supporting policies that enhance linkages with local domestic manufacturing industries, and ④ the need to expand the exchange of human resources between South Korea and India, as well as encouraging domestic companies to utilize more Indian service personnel. To realize these objectives, this study proposes specific policy tasks such as △ establishing regular dialogue between South Korea and India at the government level, △ creating a Korea-India business support center, △ supporting entry by establishing Korean industrial complex in India, △ developing cooperative projects with public and private participation based on local Indian demand, and △ linking the ODA vocational training programs in India to the domestic labor market. 

Since the 2000s, service trade has steadily risen due to the progress in global science and technology, alongside the growth of each country’s service industry. Over the past two decades, countries have persistently worked on liberalizing service trade through negotiations and agreements within the WTO system, as well as through bilateral and multilateral trade agreements. The rapid acceleration of digital transformation, particularly since the onset of COVID-19 pandemic, is anticipated to further elevate the contribution of service trade to the economies of major countries worldwide.

Services and the global value chain are intricately interconnected. Services not only serve as a significant input in the manufacturing sector, which is the most complex component of the global value chain, but they also facilitate both forward and backward linkages in the production process. The recent movement undertaken by Latin American countries to open their service markets might be driven by a policy goal to increase involvement in the global value chain, especially focused on the manufacturing industry, while aiming to enhance the competitiveness of their service sector.

Currently, Korea’s exports remain predominantly centered on manufacturing-based product trade, posing challenges in enhancing competitiveness within the service sector. This pattern is notably reflected in Korea’s trade with Latin America. Exports from Korea to Latin America primarily revolve around manufacturing-oriented product trade, with limited engagement in service-related trade and collaboration between Korea and Latin American nations. As global economic recovery stalls due to increased protectionism and a sluggish export environment for Korea, there’s a shift in approach by both the government and companies. They are moving away from the previous Korea-Latin America cooperation model, which was primarily focused on manufacturing-centered product trade, to instead expand into service trade and innovate new solutions within the service sector.

While the expansion of global services trade and the movement to open service markets in Latin American countries offer opportunities for Korea to engage in trade and collaboration within the service sector, there is a dearth of comprehensive studies detailing the extent of service industry openness in these nations. This scarcity extends to both policy frameworks and academic research that could logically support trade expansion in the service sector and foster cooperative efforts with Latin America.

The anticipated opening of service markets in Latin American countries is poised to increase global value chain participation by enhancing the input of services both regionally and internationally in product trade. As these countries embark on this movement, it’s foreseeable that there will be structural changes in their global value chain participation. Given this impending shift, there’s a necessity to anticipate and plan for the future.

Against this backdrop, the primary aim of this study is to assess the level of service market openness in major Latin American countries and to establish the rationale for economic cooperation between Korea and Latin America within the service sector.

In Chapter 2, service import statistics categorized by mode are presented for eight Latin American countries. Among these nations, Brazil and Mexico, owing to their sizable economies, stand out in terms of Mode 1 and Mode 2 imports, with similar dominance observed in Mode 3 imports within the distribution and other business service sectors. Upon analyzing bilateral service imports across these eight countries, it was evident that the United States notably leads in Mode 1 and Mode 2 imports, particularly in usage fees related to intellectual property rights, finance, transportation, and other business services. Korea ranks among the top countries only in Mexico’s Mode 1 and Mode 2 imports, specifically in the transportation sector and intellectual property royalties. However, Korea contributes to a considerably lower proportion of service imports of Latin American countries.

In contrast to goods trade, China’s presence in Mode 1 and Mode 2 service trade within Latin America appears relatively low. While it is a leading country in construction, maintenance and repair, other business services, transportation, and financial services, this predominance is observed in a few Latin American nations. However, given the consistent rise in China’s investments in Latin America, there’s an expectation that China’s share of Mode 3 service imports is likely to increase substantially.

Chapter 3 identifies the level of service market openness and significant constraints within the Pacific Alliance and MERCOSUR member countries. This evaluation is based on an analysis of the STRI created by OECD, laws and regulations of each country, and the extent of concessions in both multilateral and regional trade agreements. Examination of the domestic laws in major Latin American countries reveals actively seeking inward foreign direct investment, resulting in a reduction of regulations in the service sector. For the most part, there’s no discrimination between local and foreign investors in most service sectors, with few areas prohibiting or imposing restrictions on investment, except for specific cases.

By contrast, in sectors such as coastal transportation, maritime transportation, air transportation, road transportation, and banking services, all eight Latin American countries restrict foreign investment. Consequently, the degree of investment liberalization is notably high in business services, construction services, and distribution services, excluding transportation services.

However, the analysis reveals that the level of service concessions in these countries is notably lower compared to the degree of investment liberalization based on domestic laws. According to the WTO service concession, seven countries (excluding Uruguay) exhibit low concession levels in the computer and related services sector. Notably, in the DDA service concession, only Mexico, Chile, and Peru demonstrate significant improvements in this area. Analyzing the changes in concession content between the Best FTA and the WTO service concession, a distinctive trait in the Pacific Alliance countries is a marked promise of significantly expanded openness, particularly in the business service sector.

Broadly, there are noticeable improvements in concessions, especially in other business services, real estate services, and rental/lease services. Among professional services, enhancements in concessions are evident in legal services, accounting and tax services, as well as architecture and engineering-related services. However, in MERCOSUR member countries, although some partial concession improvements are occurring in business services, the overall level remains very low. Similarly, in transportation and logistics services, while there’s gradual improvement, the level of concessions still lags significantly behind other service fields, indicating limited expectations for substantial improvements in the future.

Chapter 4 aimed to empirically address whether the establishment of additional services trade agreements, alongside the existing goods trade agreements, impacted the forward and backward linkages of Latin American countries. The analysis scope was also extended beyond Latin America to examine which sectors’ regulatory levels in the service industry significantly influenced GVC participation of the respective countries.

The empirical analysis revealed that when a Latin American country, either from the Global North or South, engaged in a bilateral service trade agreement with a Global North country, the backward linkages of Latin American exporting nations were notably reinforced. Moreover, among Latin American countries, when a Global North nation finalized a service trade agreement with another Global North country, the forward linkages of Latin American exporting nations also increased.

This trend suggests that the signing of service trade agreements between Latin America and developed country might have facilitated the entry of competitive service firms into Latin America. It’s possible that this enhanced connectivity between the service industry and manufacturing is likely to result in an increase in offshoring, thereby further fortifying forward linkages.

Based on the estimated results under the hypothesis that the impact of GVC might differ across various service sectors, it was observed that in the country’s textile and clothing industry, an increase in backward linkages occurred as regulations were relaxed in the telecommunication service, logistics service, and transportation service sectors. Similarly, in the crude oil, chemical, and non-metal industries, the easing of regulations within the logistics service sector contributed to reinforcing the country’s backward linkages in these specific industries.

Particularly within the crude oil, chemical, and non-metal industries, the relaxation of regulations in professional services led to a decrease in the forward linkage of the relevant country. Further analysis is necessary to understand why this outcome was notably evident in these specific industries. One plausible explanation could be that professional services, such as engineering services, play a more crucial role in these industries compared to others. Therefore, the effect of substituting services due to market opening might have been more pronounced, particularly as competitive professional services in these technology-intensive sectors are utilized. In addition, this shift might have prompted a tendency for exported goods to move closer to the downstream sector of the value chain, potentially leading to a rise in direct processing of these goods into final products consumed within the importing country.

For a significant duration, a trade structure has been established where Korea exports manufactured goods to Latin American countries, while these countries predominantly export primary products to Korea. This structure has led to heightened competition for Korea against other competitive manufacturing countries in Latin America, notably China, resulting in a continuous decline in Korea’s manufacturing exports to this region. Recognizing this challenge prompts the need for a new economic cooperation model between Korea and Latin America.

One potential avenue for such cooperation involves penetrating the national service markets in Latin America. This could offer a mutually beneficial model that not only enhances Korea’s exports to these regions but also supports Latin American countries in their efforts to strengthen participation in GVCs. Therefore, it’s crucial to identify areas where Korea can collaborate with Latin America in service sectors where Korean companies hold a comparative advantage. These areas include construction services, distribution services, logistics services, business services, and transportation services required across various stages of production.

The empirical analysis in this study indicates that the liberalization of information and communication, logistics, and transportation services bolsters the involvement of exporting countries in GVC within the textile and clothing sectors. This finding carries significant implications for certain Latin American nations with pivotal textile and clothing industries. Middle- and low-income countries in Central America are currently grappling with the challenge of establishing a stable and efficient textile and clothing supply chain. To meet the efficiency standards expected by global buyers, the provision of high-quality services that enhance the entire production process becomes essential. Consequently, the significance of logistics, transportation, and communication services utilized across the production process is growing. The rise in demand for services in the textile and clothing industry within Latin America may present an opportunity for Korean service companies.

Furthermore, continuous monitoring becomes crucial as investment opportunities in Latin America are anticipated to grow in the future. The empirical analysis results of this study suggest that the opening of the service market in Latin America or the signing of a service trade agreement did not significantly impact the forward linkages in the Latin American manufacturing industry. This outcome could be attributed to the situation where although the service market opening theoretically reduced offshoring costs to Latin America, it did not translate into increased offshoring practices in reality.

A significant reason behind this could be the persistently inadequate human and physical infrastructure in Latin America, a concern raised consistently in the past. Despite the increased potential for offshoring, the region’s participation in global value chains continues to remain below anticipated levels due to the longstanding issue of underdeveloped infrastructure.

Should Latin American countries collectively recognize this critical need, it’s highly probable they will prioritize enhancing human and physical infrastructure as an increasingly crucial task. Particularly, amidst the rising interest in Latin America during the ongoing global supply chain reorganization, addressing these challenges becomes even more imperative. Consequently, future investment opportunities in Latin America are likely to emerge, particularly in sectors such as education, construction, and communications. Consistent monitoring of these developments becomes more essential than ever.