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30 Years of Korea-Vietnam Economic and Social Cooperation 1992-2021: Achievements, Limitations and Suggestions for Further Expansion
Korea and Vietnam have achieved remarkable outcomes of cooperation over the past 30 years since establishing diplomatic relations in December 1992. The rapid expansion of cooperation between the two countries is due to their geogr..
KWAK Sungil et al. Date 2021.12.30
Economic relations, Economic cooperation Southeast Asia OceanDownloadContentSummaryKorea and Vietnam have achieved remarkable outcomes of cooperation over the past 30 years since establishing diplomatic relations in December 1992. The rapid expansion of cooperation between the two countries is due to their geographical, historical, and cultural similarities and commonalities. Vietnam and Korea are both traditionally agricultural countries that have grown rice since ancient times, and have been influenced by Confucianism. In addition, Korea and Vietnam, which have inherited abundant cultural heritages thanks to their long history, have strong national pride. In particular, many Vietnamese scholars often take Korea as an example when discussing improving national industrial strategies and infrastructure, given that Korea has overcome the ruins of the Korean War and Vietnam is growing over the scars of the Vietnam War.However, since Vietnam joined the WTO in 2007, cooperation between the two countries has been mainly led by the economic sector. As economic cooperation strengthened, the two countries fell into the illusion that they knew each other well. Delusions often lead to unnecessary misunderstandings. A representative example is the dissatisfaction of Koreans with Vietnam’s quarantine response in the early stages of the 2020 COVID-19 outbreak. Vietnam regarded quarantine as a war situation and controlled it with strong discipline, but foreigners, including Koreans, did not understand this social trend. It was a misunderstanding that could have been avoided if Koreans were a bit more aware about Vietnam’s quarantine situation and culture, and conversely, Vietnamese knew better about Korean society and culture. This study analyzes the performance of cooperation in the economic, social, and cultural sectors over the past 30 years and seeks ways to enhance cooperation in the social and cultural sectors, which are relatively less successful than the economic sector. This is because the sustainable development of their bilateral relations requires not only economic cooperation but also “soft power” cooperation in social and cultural sectors.Chapter 2 evaluates the achievements of economic cooperation between Korea and Vietnam over the past 30 years. As of 2020, Vietnam is Korea’s third-largest export destination and Korea is Vietnam’s fourth-largest export destination. However, the amount of trade between the two countries, which had soared until 2017, has stagnated since 2018. Efforts between the two countries are needed to expand trade. The revealed comparative advantage index (VRCA) based on value-added exports of both countries was calculated year by year using the ADB-MRIO (ADB Multi-Regional Input-Output Table). Although there has been a change in the structure of the comparative advantage between them, the two countries still show a complementary relationship. The complementary relationship between the two countries is a starting point for expanding trade again.In addition, it is necessary to expand trade between the two countries in order to resolve the trade imbalance issue raised as the biggest problem in trade between Korea and Vietnam. The fact that Vietnam’s export intensity index to Korea is lower than that of Korea to Vietnam suggests that Vietnam has room to expand exports to Korea. We need to think about how Vietnam can expand exports to Korea. The expansion of exports of rice, coffee, tea, cashew nuts, and natural rubber to Korea simply based on comparative advantage will be effective in improving the trade imbalance between the two countries in the short term. However, if this trade structure is prolonged, Vietnam will remain a low-value-added primary product exporter.Vietnam shows lower domestic value-added utilization than neighboring ASEAN member states (AMS) such as Thailand, the Philippines, Malaysia, and Indonesia. This is a chronic problem in the Vietnamese manufacturing industry rather than a problem between Korea and Vietnam. While the Vietnamese government is making various efforts to foster a supporting industry, there are also notable activities by some Korean firms to transfer technologies and build management capacity so that Vietnamese local firms can participate in the production network of Korean firms.Since 2014, Korea has been Vietnam’s largest foreign direct investment country. Amid a recent surge in Japanese investment on infrastructure construction, Korean firms’ investment on manufacturing sectors is meaningful. According to the Vietnamese government’s long-term development plan until 2045, it plans to attract more than $30 billion in FDI every year. This suggests that Vietnam should become a more open market, which can provide new opportunities for Korean firms. However, Vietnam’s somewhat insufficient measures in the recent COVID-19 pandemic may have created anxiety for Korean firms hoping to secure a stable supply chain. Vietnam itself needs to express a clear principle that guarantees the activities of Korean firms in Vietnam.Meanwhile, demands for technology transfer from Vietnam are expected to gradually increase. Based on ADB-MRIO data, backward GVC participation rates from 2007 to 2020 are always higher than forward GVC participation rates. In addition, the contribution of domestic value-added contents of exports is decreasing year by year. Therefore, Vietnam will strongly demand technology transfer to increase the domestic contents of exports. In fact, Vietnam has received relatively less technology transfer than other AMS. In particular, given the rate of foreign value-added content of exports to Vietnam’s total gross exports across industries, those of electronic equipment, primary metal, chemical product, and textile products manufacturing sectors, which Korea has mainly invested, are higher than the overall average of all industries. When technology transfer to Vietnamese local firms expands, the Korean and Vietnamese governments need to pay attention to Korean SMEs working in Vietnam so that they can preemptively seek new paths through cooperation with Vietnamese local SMEs. Special attention should be paid to the firms that need business restructuring, in particular, due to the COVID-19 pandemic and the U.S.-China competition.In addition, Vietnam is less dependent on regional value chains (RVCs) in the ASEAN region than neighboring AMS. The utilization rates of RVC in the ASEAN region is falling every year.As uncertainties in supply chains expand due to the U.S.-China competition and the COVID-19 pandemic, the importance of regional supply chains within the ASEAN Economic Community (AEC) has increased further. In particular, not only Vietnam but also all AMS competitively attract multinational firms moving from China to Southeast Asia due to the U.S.-China competition. It is time to coordinate this competition and make efforts to more effectively establish a supply chain in the ASEAN region.Chapters 3 and 4 evaluate social and cultural cooperation between Korea and Vietnam after diplomatic relations in 1992. As mentioned earlier, the performance of cooperation in the social and cultural sectors is very insignificant compared to the performance of economic cooperation between the two countries. In addition, in terms of the direction of cooperation, activities from Korea to Vietnam are wider and deeper than those from Vietnam to Korea. It is no exaggeration to say that efforts to resolve this double imbalance began in earnest only after the New Southern Policy was declared in 2017.Chapter 3 evaluated the performance of social cooperation between Korea and Vietnam. First, the trends in human exchanges (tourism and visits, short-term and long-term stays, etc.) between the two countries and exchanges between institutions (central administrative agencies, local governments, research institutes, etc.) were reviewed.First, indicators related to human exchange show the justification for improving quality in bilateral cooperation. The Vietnamese society in Korea and Korean society in Vietnam have grown. As of 2019, Vietnam is the country where Koreans visit the most and Koreans stay the most among ASEAN countries. In addition, Vietnamese visited Korea the most and the number of residents in Korea is the largest among Southeast Asians. The number of Vietnamese migrants residing in Korea for labor, marriage, and study abroad has also increased. The increase in visitors and migrants between both the countries suggests that practical and specific cooperation is needed to improve the quality of life, such as health care, along with enhancing mutual understanding.Since the implementation of the New Southern Policy in 2017, Korea has been implementing regular exchanges between institutions with Vietnam through various methods such as seminars, forums, performances, and exhibitions to promote public diplomacy. Korea promoted “Hallyu (Korean Wave)” and Korean food through Korean food festivals and K-Pop festivals, and also focused on cultural exchanges such as Taekwondo clubs, volunteer activities, and Korean language education at the central government level. Local governments in Korea are signing sisterhood and exchange agreements with Vietnamese local cities. Local government exchanges are mainly concentrated in the administrative, cultural arts, and economic sectors, while youth-private group exchanges need to be expanded. Exchanges and support between research institutes to foster technical manpower have been steadily conducted. KOICA’s Vietnam-Korea Vocational College of Technology in Bac Giang project (2010-2014), Vietnam-Korea Industrial Technology Vocational College support project (2014-2019), and VKIST establishment project (2014-2020) are representative.Despite the achievements of social sector cooperation as described above, there is a critical view that unbalanced cooperation has been carried out. Due to the importance of the economic sector, the demand for cooperation in the social and cultural sectors was overlooked. In addition, there is a lack of careful attention and understanding of each other. From this point of view, this study has selected cooperation and conflict cases between Vietnam and Korea, reviewed the context, and analyzed the causes. In particular, in order to find actions for a future-oriented cooperation between them, more attention was paid to conflict cases than cooperation ones.First of all, annual trend analysis was conducted with key words for cooperation and conflict between Korea and Vietnam. Over time, it was found that key words about cooperation accounted for more weight than conflict. In the case of social conflict between the two countries, keywords related to marriage migrant women, such as “international marriage,” “domestic violence,” “migrant women,” “mother-in-law,” “multicultural families,” “marriage,” “random assault,” “women,” and “communication,” accounted for high weights and frequency. In the case of social sector cooperation, major institutions and persons who signed cooperation agreements between the two countries accounted for high weights and frequencies. Most of the keywords were classified into health, education, social security, environment, and biodiversity.There are two representative conflict cases as examples between Korea and Vietnam based on the key-words analysis. One is about awareness of multi-cultural families and violence against Vietnamese married migrant women, and the other is a conflict arising from the recent COVID-19 outbreak.Both cases show how dangerous the perception of identifying Korea and Vietnam is. It should be recognized that there are differences in social similarities between Korea and Vietnam. Since Koreans’ emotional intimacy with Vietnam is very high, they, facing Vietnam’s reactions that do not meet their expectation, they tend to criticize Vietnam. In addition, there is a lack of effort to understand each other deeply with a vague idea of “it must be similar.” In order for Korea and Vietnam to advance into a sustainable relation, they must acknowledge and sympathize with the subtle differences found in each other.On the other hand, examples of true reciprocal cooperation between South Korea and Vietnam include Park Hang-seo’s appointment and achievement as the head coach of the Vietnamese national soccer team. Coach Park Hang-seo’s attitude toward the players and the people, the way of communication and leadership, and the attitude of understanding and respecting Vietnam’s history have been talked about by the Vietnamese people. Coach Park Hang-seo’s case is a major example of how to resolve the previous conflict.Chapter 4 evaluated cultural exchanges between Korea and Vietnam. First of all, the most groundbreaking event in the cultural sector among exchanges between Korea and Vietnam for 30 years after diplomatic relations in December 1992 was the spread of the Korean Wave in Vietnam. The Korean Wave began in Vietnam in the late 1990s with TV dramas and spread to movies and music. Accordingly, cultural exchanges between the two countries expanded, deepening mutual understanding. On the one hand, entrepreneurs proclaimed an “economic Korean Wave” and pursued economic benefits from the spread of the Korean Wave. In addition, consumption of Korean products such as cosmetics, clothing, and food increased, and the number of Korean restaurants increased. After the mid-2000s, the center of the Korean Wave seems to have shifted to Korean popular music (K-Pop). Recently, it is judged that the enthusiasm for K-Pop has exceeded the popularity of TV dramas. Around 2010, K-Pop became a major sector of the Korean Wave in Vietnam.Chapter 5 presents frameworks and measures to resolve the imbalance in economic, social, and cultural sectors and to enhance bilateral cooperation. This does not mean that economic cooperation should be reduced just because the pace of economic cooperation is fast, but that it is necessary to approach social and cultural cooperation with a more interest and inclusive attitude than now. Deep understanding of each other will eventually help upgrade the level and quality of economic cooperation.This study made the purpose of bilateral cooperation as the establishment of a “strategic global future cooperation partnership.” This is because cooperation between the two countries is required as a global partner that can expand bilateral cooperation between Korea and Vietnam to the Mekong subregion, India, and Africa. In order for the two countries to function as global future cooperation partners, a balanced understanding and continuous empathy of each other are required in mutual trust. To this end, four principles of bilateral cooperation are presented. First, rather than pursuing mercantilist interests, it is necessary to lay the foundation for mutually reciprocal development. Second, institutional supplementation is needed to form transparent cooperative relationships. Third, it is necessary to avoid cultural supremacy and strengthen inclusion in mutual culture. Fourth, it is necessary to expand exchanges as responsible partners. Under these four principles, this study proposes ways to cooperate in the economic, social, and cultural sectors.First, for economic cooperation pursuing win-win prosperity, it is necessary to expand bilateral relations between Korea and Vietnam to trilateral or quadrilateral relations by including other partners. If Korea and Vietnam provide successful economic cooperation experiences together to third-party countries that wish to cooperate, it will be possible to discover new markets. The economic cooperation process between Korea and Vietnam can be modularized and applied together to the development of the Mekong subregion. In particular, if South Korea’s ODA in Vietnam, which is bound to decrease as Vietnam grows, is used to develop the Mekong subregion, Vietnam’s sense of alienation can be reduced.Second, it is necessary to support the formation of a regional value chain (RVC) in the ASEAN region. In the recent international trade environment, where economic and security issues must be considered together, the establishment of RVC has important implications for Vietnam and Korea in that it can secure a stable supply chain. In particular, building a new supply chain based on its own comparative advantages of each AMS can strengthen the redundancy of their value chains. Meanwhile, institutional supplementation is also needed to establish a stable supply chain. For example, it is necessary to strengthen intellectual property rights and establish a Strategic Trade Controls (STC) system. Third, it is necessary to prepare a cooperative support system between Korean SMEs and Vietnamese SMEs. If technology transfer begins in earnest, Korean SMEs that have entered Vietnam following large companies may feel threatened. Both governments and large firms need to come up with a support system together so that Korean SMEs and Vietnamese SMEs can cooperate. Instead of large companies and Korean SMEs supporting technology and management capabilities for local companies in Vietnam, the Vietnamese government and the Korean government should come up with measures to expand support for Korean SMEs to switch industries or relocate production sites. Fourth, the two countries should support the formation of the Indo-Pacific Food Global Value Chain (IPFGVC). Vietnam has abundant agricultural products that can be processed, and Korea has high processing technology. If Korea and Vietnam can build food GVCs across the Indo-Pacific region together, exports can be expanded to other AMS as well as the United States, Japan, and China. In addition, Korea can free itself at least partially from food security issues in the long run.Four measures are also proposed for social sector cooperation. First, it is necessary to encourage collaboration between Koreans and Vietnamese and to establish a related support system. As discussed in Chapter 3, although Vietnamese are the second most numerous foreigners to stay in Korea after Chinese, there is still a lack of communication channels between Vietnamese and Koreans in Korea. The ASEAN-Korea Centre, the ASEAN Culture House, and Asia Culture Center can be well-positioned to discover and support programs to promote cooperation among civilians. Second, fact-based information monitoring and information provision channels should be established. As seen in Chapter 3, as online media became more common, there were cases in which some groups’ opinions were misrepresented as if they were true between the two countries. It is necessary to establish a system that responds immediately when exaggerated or incorrect information is distributed through online media. Third, it is necessary to conduct in-depth research related to Vietnam and spread the research results to the public. Koreans often misunderstand that they know Vietnam well. However, in fact, very few Koreans have a deep understanding of Vietnamese society. This is because there is a lack of channels for research results conducted in academia to spread to the general public. Fourth, it is necessary to establish an innovation sharing model between universities in both countries. Vietnam-related departments in Korea are shrinking, but Korea-related departments in Vietnam are rapidly increasing. Cooperation measures should be prepared so that universities in both countries can coexist. Systems such as co-grants of degrees between Vietnamese universities and Korean universities can also be considered.Finally, to strengthen cooperation in the cultural sector, this study proposes four measures. First, it is proposed to hold a regular Vietnamese film festival. Vietnamese films are being introduced to Korea through the Busan Film Festival or Jeonju Film Festival, but there is little memory of Vietnamese commercial films being released in Korea. As seen in Chapter 4, considering the imbalance in cultural consumption between the two countries, it is required to provide an opportunity to introduce Vietnamese films to Korea. Second, it is necessary to support the translation and publication of Vietnamese literature in Korea. Since diplomatic relations in 1992, there have been only 29 volumes of Vietnamese literature published in Korea. On the other hand, more than 120 books of Korean literature have been published in Vietnam. It is necessary to come up with support measures to resolve the imbalance in the literary sector between the two countries through related civil societies. Third, it is necessary to consider the establishment of a Vietnamese Cultural Center in Korea. As confirmed in Chapter 4, cooperation in the cultural sector between the two countries was very disproportionate. If the two governments together set up a dedicated window for introducing Vietnamese culture to Korea, they can expect to resolve the imbalance in cultural exchanges. Fourth, it is possible to consider supporting the production of online-based bilateral cultural programs. With the recent emergence of new and diverse media that can enjoy culture, the need to utilize them is increasing. Another way is to hold a YouTube content contest every month to introduce the social culture of the other country for Koreans and Vietnamese. As the number of interactive communication media increases, misunderstandings with each other can be reduced, and cooperative relations between Korea and Vietnam can be stably advanced. -
Income and Consumption Inequality in Latin America and Policy Implications for South Korea
This study analyzed income and consumption inequality in Chile, Mexico, and Brazil. The motivation for this study is the recent massive protests in Chile and Colombia. The protest in Chile, which began in October 2019..
Sungwoo Hong et al. Date 2021.12.30
Economic cooperation, Labor market Latin AmericaDownloadContentSummary정책연구브리핑This study analyzed income and consumption inequality in Chile, Mexico, and Brazil. The motivation for this study is the recent massive protests in Chile and Colombia. The protest in Chile, which began in October 2019, were sparked by 30 Chilean peso increase in subway fare and led to enacting a new constitution in progress. In Colombia, the uprising occurred as people protested against the tax reform bill announced by President Ivan Duque in April 2021.Why is it necessary to examine income and consumption inequality in Latin American in which a variety of social inequalities, including income inequality, have always been perceived as severe? Have the inequalities in Latin America changed significantly over time? The main goal of this study is to answer to these research questions.Chapter 1 describes why a research on income inequality in Latin America is necessary. First, there are not many existing studies that have investigated the inequality of individual countries in Latin America because a number of experts have already recognized the inequality in Latin America as a serious social problem and tend to consider it constant. Second, previous studies have not examined diverse indicators related to the inequality and thus have failed to provide accurate information on the inequality of each country. Third, it is meaningful to analyze income inequality in Latin America since the inequality and economic conditions could be critical variables in forecasting future regime change in the region.Chapter 2 examines inequalities in various sectors in Latin America. In general, indigenous people are recognized as the most economically and socially vulnerable class. They are likely to live in areas with poor transportation, and thus access to public education is difficult. The tax systems of Latin American countries are too dependent on indirect taxes rather than direct taxes, and thus is regressive. There is a large gap in welfare spending among Latin American countries.In Chapter 3, the determinants of income inequality were analyzed using micro data provided by Chile, Mexico, and Brazil, and then the outcomes were compared. As a result, the income of women in these three countries was lower than that of man, despite controlling for other explanatory variables. The income gap between men and women was the lowest in Chile and the highest in Brazil; the income gap gradually narrowed in Brazil, whereas there was no significant improvement in Chile and Mexico. In addition, rural residents had lower income than urban residents in Mexico and Brazil; in Chile, residents in Santiago had lower income than residents in the other regions.Chapter 4 investigates the consumption poverty rate and consumption inequality in order to accurately grasp income inequality in Chile, Mexico and Brazil. In Chile, it was shown that a pattern of income inequality was different from that of consumption inequality, as the consumption inequality was mitigated while the income inequality worsened. These findings suggest that the low-income group may have been facing considerable financial hardship because they could not have decreased their expenditure while their income decreased. In Mexico, trade liberalization in the late 1980s and the entry into force of NAFTA in 1994 markedly reduced consumption poverty rates and consumption inequality. In Brazil, all the indicators of income and consumption inequalities improved over time.Chapter 5 looks into poverty and inequality in Latin America during the COVID-19 pandemic and policy efforts of each country to alleviate these. Due to the contraction of economic activity caused by the pandemic, the middle income class experienced a decrease in income, resulting in falling into poverty. This middle income group suffered from economic hardship because many of them working in the informal sector were not able to benefit from social welfare programs. However, emergency cash aid programs for the workers in the informal sector and the self-employed have mitigated the economic damage to them.This study contributes to existing researches in terms of that this study provides policy implications for the Korean government and firms. First, establishing e-government in Latin American countries could be considered as a KSP (Knowledge Sharing Program) project. Since workers in Latin America are likely to avoid tax, the establishment of e-government can contribute to securing additional tax revenues. Thus, it is expected that Latin American countries could demand the project.Second, Korean firms need to seek to enter the market of Latin America through DIP (Development Innovation Program) operated by KOICA. Improving educational attainment or human capital of the low-income group is a fundamental alternative to alleviating income inequality; therefore, the firms could particularly seek to enter the education sector through the DIP. -
Determinants of Success and Failure of Green Parties in Europe
The Green Transformation that has begun before the COVID-19 pandemic is expected to continue to be a major economic policy of governments around the globe. Major European countries, especially the United Kingdom and Germany, along..
Dong-Hee Joe et al. Date 2021.12.30
Energy industry, Environmental policy EuropeDownloadContentSummaryThe Green Transformation that has begun before the COVID-19 pandemic is expected to continue to be a major economic policy of governments around the globe. Major European countries, especially the United Kingdom and Germany, along with the European Union, are at the forefront of this transformation. However, electoral outcomes of political parties focused on climate change (i.e., Green Parties) differ significantly among these cases. Analyzing the reasons of their electoral success or failure can help understanding their role in climate-change policy. This, in turn, can teach how to make climate policy sustainable in Korea where political support for Green Parties is extremely low. We review the history of Green Parties in the UK, Germany and the EU and analyze the reasons for their success or failure. The related literature considers three major reasons for the extremely low electoral outcomes of Green Parties in Korea, namely the public’s attitude, electoral system and major traditional parties’ reactions. Following this, we focus on those three factors.To the concerned readers in Korea, the UK’s case shows, above all, that a substantial presence of Green Parties in the legislature is not a necessary condition for an active climate policy by the government. Instead, it emphasizes the importance of concrete commitments through legislation and institutionalization and wide consensus, including that of businesses, that the additional costs in the short run will result in net economic gains in the long run. The EU’s case shows that creating a platform on which interested parties of various types can actively participate in the discussion and formation of climate policy and putting more focus on “just transition” can be good starting points for achieving this consensus. For Korean Green Parties' electoral prospect per se, the German case hints at the needs to extend the scope and improve the competence of themselves. -
Policy Measures for Foreign Firms to Participate in Inter-Korean Economic Cooperation
This research stemmed from an inquiry into what issues would surface if foreign firms engaged in inter-Korean economic cooperation, recognizing this as a topic that could potentially emerge if inter-Korea relations improve and eco..
Jangho Choi et al. Date 2021.12.30
North Korean economy, Foreign direct investment North KoreaDownloadContentSummary정책연구브리핑This research stemmed from an inquiry into what issues would surface if foreign firms engaged in inter-Korean economic cooperation, recognizing this as a topic that could potentially emerge if inter-Korea relations improve and economic cooperation resumes. So far, the issue of foreign firms participating in inter-Korean economic cooperation has been focused on internationalizing the Kaesong Industrial Complex. Although the issue of foreign firms entering into Kaesong was intermittently reviewed from 2005 to 2016, it did not lead to tangible results.The objective of this research was to examine the various conditions for foreign firms to participate in inter-Korean economic cooperation and propose stimulation measures. For this, we (1) analyzed the theoretical background and the political/industrial incentives for foreign firm participation in inter-Korean cooperation, (2) investigated central and local government policies towards North Korea and case studies of foreign firms which had participated in inter-Korean economic cooperation, (3) examined how other countries utilized foreign firms during economic integration, and (4) reviewed institutional and non-institutional measures to promote the participation of foreign firms in inter-Korean economic cooperation. In addition, we also reviewed foreign firm participation in multiple inter-Korean economic cooperation projects. Our research defined foreign firm activity in inter-Korean economic cooperation as firms partaking in projects implemented in North Korea via South Korea.To begin with, in Chapter 2, we review the need for foreign firms’ participation in inter-Korean economic cooperation from a theoretical background and political/industrial demand. On the theoretical side, we examined the theories of a peace economy and capitalist peace, and reviewed the debate of foreign investment on economic growth. In addition, we also reviewed the political/industrial demand, such as economic incentives for inter-Korean cooperation projects, as well as exploring new methods, financing funds for North Korea’s development while sharing the benefits with the international community, and sectors that foreign firms can advance into when participating in inter-Korean economic cooperation.In Chapter 3, we review the national and local government agenda related to inter-Korean economic cooperation and investigate foreign firms’ experiences with inter-Korean economic cooperation. First and foremost, we introduced the national government’s agenda to internationalize inter-Korean cooperation, such as the New Economic Map for the Korean Peninsula and Northeast Asia Cooperation, the DMZ Peace Zone, the Vision of an East Asian Railroad Community, West Joint Economic Zones/East Sea Tourism Zone, the Comprehensive Plan for Border Area Development and the Kaesong Industrial Complex. For local governments’ agenda on internationalizing inter-Korean cooperation, we examined projects implemented by Incheon City, Gangwon Province, and Gyeonggi Province, and the potential for attracting foreign investment. We also investigated case studies of foreign firms that had previously attempted to enter into North Korea and the issues involved.In Chapter 4, we examine international case studies, focusing on the policy measures aimed at foreign firms and the economic impact of combining capitalist and socialist market systems. We analyzed the regulations and treatment that foreign firms received under the CEPA agreement during China and Hong Kong’s economic integration, and under the ECFA agreement during Taiwan and China’s economic exchange. Then we analyzed the role and investments made by foreign firms in former East Germany during the process of German unification, and what impact these had. These cases provided insight that could be used as reference on evaluating the roles, institutional measures for guarantees, and the economic impact of foreign firms when entering into inter-Korean economic cooperation.In Chapter 5, we explore measures that would improve the laws and institutions to foster foreign firms’ participation in inter-Korean economic cooperation. First and foremost, we looked at the varying legislation that would apply depending on the channels of internationalizing inter-Korean economic cooperation. Then, we analyzed the characteristics of the laws to be applied when foreign firms enter the scene. We also analyzed the incentives and obstacles for foreign firms and identified the legal issues involved and suggested areas of improvement.Overall, we believe that our research will make a positive contribution to a stable inter-Korean economic cooperation. From an economic standpoint, there are relatively sufficient incentives and interest in inter-Korean economic cooperation on the part of foreign firms. However, we found that the political and legal environment was somewhat lacking to provide the necessary support.First, foreign firms’ participation in inter-Korean economic cooperation will contribute to a more stable relationship between the two Koreas. In addition, we can expect foreign firms to function as a safety net and further the quality and scale of inter-Korean economic cooperation. This is because foreign firm participation rests on the assumption of peace on the Korean Peninsula. From the standpoint of peace economy theory, peace on the Korean Peninsula would bring economic benefits not only to the two Koreas but also the international community. In terms of capitalist peace, foreign firm participation would increase the benefits from inter-Korean economic cooperation due to a larger scale of projects and would lead to continued cooperation, thus providing a positive contribution to promoting perpetual peace.The economic incentives that foreign firms can expect represent the potential for economic growth of North Korea and the indirect benefits from inter-Korean economic cooperation projects. First, investment in North Korea carries incentives such as allowing first-mover advantage, low wages, access to abundant mineral resources, and geographic proximity to large markets such as South Korea, China and Japan. In addition, foreign firms can utilize the established legal institutions, such as investment guarantees from the Inter-Korean Cooperation Fund or tax reductions and tariff-free trade between the two Koreas, as well as indirect benefits from Korea’s numerous FTAs. With these incentives, we discovered that multiple foreign firms wanted to advance into the Kaesong Industrial Complex before it was completely shut down in 2016.However, the political and legal environment for foreign firms to actually participate turned out to be weak. Although the South Korean government’s policy on the Peninsula aims to expand cooperation with neighboring countries, and even though there is a potential demand for foreign firms to participate, we maintain that there are currently no specific projects that envision such direction. Although substantial time is required for actual investment to occur, we see that there is a need for policies for foreign investors to be created and disseminated strategically.Given the right conditions, the Korean government needs to take the initiative and draft a successful pilot project. So far, one of the biggest obstacles of inter-Korean cooperation is that it is impossible to predict the outcomes due to the numerous uncertainties involved. No matter how effective the legislation is, few foreign firms will be willing to participate and take the first-mover advantage if this proves unrealistic. Pushing for successful pilot projects would elevate the feasibility of inter-Korean economic cooperations. Ultimately, it is necessary to devise a model for inter-Korean economic cooperation in which the opening of North Korea can be made compatible with the special relationship between the two Koreas.This research differs from previous studies in that it reviews the theoretical and political issues of foreign firms participating in inter-Korean economic cooperation, while providing a comprehensive analysis of their positions, international case studies, and legal/ institutional issues. In addition, this research categorizes different channels of foreign investment into inter-Korean economic cooperation and the issues that would occur with each channel. We expect that our findings will contribute to the South Korean government’s policy initiative for inter-Korean economic cooperation. -
Petroleum Industry Diversification in the Middle East and Its Policy Implications for Korea in the Era of Energy Transition
The aim of this research is to examine various mid-to-long term plans, policies, and business cooperation cases to promote diversification in the Middle Eastern petroleum industry, suggesting policy proposals for cooperation betwe..
Kwon Hyung Lee et al. Date 2021.12.30
Economic cooperation, Energy industry Africa Middle EastDownloadContentSummary정책연구브리핑The aim of this research is to examine various mid-to-long term plans, policies, and business cooperation cases to promote diversification in the Middle Eastern petroleum industry, suggesting policy proposals for cooperation between Korea and the Middle East to deepen industrial diversification in the region.Chapter 2 analyzes global factors that have influenced the oil industry, and examines the trends of diversification in the oil industry and characteristics of diversification in major countries. Increasing oil price volatility and the expanding efforts of the international community to make a transition to a carbon-neutral economy have acted as a factor in diversifying the oil industry. As the trend of low oil prices has continued since the second half of 2014, the raw materials for manufacturing petrochemical products have become available at cheaper prices, and this has led to increased investment in downstream sectors such as oil refining and petrochemicals. In addition, as efforts to reduce carbon emissions in the oil industry have expanded, the share of natural gas production increased, investment in hydrogen and carbon reduction technology expanded, and digital technology was actively introduced to increase the efficiency of oil industry operations. In the downstream sector, the United States is focusing on ethylene production using ethane derived from shale gas, and China is continuing its efforts to expand facilities and diversify feed stocks to improve its own production capacity. In the area of hydrogen and carbon reduction, European countries such as Norway and Germany, along with the United States, China, and Russia, are increasing investments in hydrogen utilization and green hydrogen technology development. Efforts in the area of digital technology can be characterized by the introduction of oil field technology in segments such as oil field exploration and development, transportation and storage by multinational oil companies in the United States and Norway.Chapter 3 examines government policies, competitive advantage, and risk factors for the diversification of the oil industry in the Middle East. Saudi Arabia and the UAE are engaged in various mid to long-term plans and strategies aimed at reorganizing the structure of the oil industry, recognizing it as a key industry that is overly biased toward the upstream sector. First of all, the two countries are investing in the petrochemical sector, which is expected to increase in demand even in the era of carbon neutrality. Saudi Arabia is expanding its production capacity of basic and intermediate chemicals through various investments, including the establishment of joint ventures with foreign companies. The UAE has a relatively low production capacity for feedstock and basic chemicals, but has the advantage of diverse products such as plastics and fertilizers. Saudi Arabia and the UAE are also expanding their blue and green hydrogen production capabilities in line with the global demand for green energy. In particular, the Saudi government intends to move early into the hydrogen market by pushing for blue hydrogen exports through Aramco while also advancing the possible production time of green hydrogen. The UAE is still focusing on expanding the production of blue hydrogen, but it has the advantage of having high price competitiveness in green hydrogen and the capacity to produce pink hydrogen using nuclear power. In addition, Saudi Arabia and the UAE are actively promoting the introduction and utilization of digital services or solutions for the digital transformation of the oil industry. However, due to the lack of overall technology to diversify the oil industry in both countries, cooperation with foreign companies is necessary to secure competitiveness and develop technologies.Chapter 4 reviews the direction of external cooperation for diversification of the oil industry and examines specific examples by sector such as petrochemical, hydrogen, CCUS, and digital technology. Saudi Arabia and the UAE are increasing petrochemical or oil refining projects jointly promoted by establishing joint ventures in major overseas export base countries to stably export oil and create added value. Saudi Arabia has acquired stakes in major overseas oil refiners and petrochemical companies or expanded joint investments to secure a stable market for its own crude oil, and has also pushed for equity investments and joint ventures in Korean companies. The UAE is promoting entry into promising overseas markets in the petrochemical sector, while focusing on attracting foreign companies into its domestic market. In addition, both Saudi Arabia and the UAE are actively developing hydrogen based on abundant natural gas and renewable energy. The two countries are promoting cooperation with a focus on exporting hydrogen, based on the price competitiveness of hydrogen produced in their own countries. As major crude oil importers of the two countries, Korea and Japan have been important partners of this cooperation. In the introduction of digital technology, cooperation with US and European companies has been remarkable. Saudi Arabia and the UAE are found to be mainly utilizing solutions for production optimization, integrated supply chain management, asset monitoring and predictive analysis, and safety and efficiency improvement through US and European companies. The two countries plan to foster their own industries and increase job creation by establishing local joint venture companies with global companies and expanding joint R&D.Chapter 5 suggests cooperation policy proposals to further promote industrial diversification in the Middle Eastern petroleum industry. Although Korea and Middle Eastern oil exporters have different industrial environments in the sector, they pursue the same policy goal to attain carbon neutrality. This is the common foundation on which both regions could establish a new energy security cooperation regime. First, stable supply and demand of low carbon energy resources such as hydrogen should be established between Korea and Middle Eastern oil exporters for carbon neutrality and hydrogen economy. For this, both regions need to establish long-term supply contracts on the condition that Korean companies construct the hydrogen production facilities involved. Establishing a Korea-Middle East carbon neutrality fund would ease the financial burden for construction projects. Second, new energy businesses responding to the electrification of energy should be promoted to enhance energy efficiency in national power systems. Consulting projects to establish master plans for efficient power infrastructure and demonstration projects to evaluate consulting results should be conducted, as infrastructure remodelling consumes large amounts of financial resources. Moreover, these projects will require government-to- government cooperation based on mid-to-long term mutual interests. Third, technology collaboration between the two regions should be advanced to attain carbon neutrality. More technological breakthroughs in the sectors of hydrogen production and carbon reduction need to be obtained for future cooperation. Joint study agreements for technology development and a joint research platform should be established for active interaction and mutually beneficial assistance between the two regions. This could be developed into a joint venture for production and sales. -
Japan’s New Trade Strategy Amid U.S-China Confrontation
This research was conducted with the purpose of providing implications for the Korean government and companies amidst the growing US-China conflict by analyzing the trade strategies of a country that shares similar in..
Gyupan Kim et al. Date 2021.12.30
Trade policy, Overseas direct investment JapanDownloadContentSummary정책연구브리핑This research was conducted with the purpose of providing implications for the Korean government and companies amidst the growing US-China conflict by analyzing the trade strategies of a country that shares similar international settings with Korea: Japan.Chapter 2, “US-China Decoupling and China’s Response,” examines US-China decoupling policy, focusing on tariff imposition, export control, technology transfers, foreign investment controls, and government procurement. This study reveals that, although US-China economic relations have deteriorated to the point of partial decoupling or disengagement in high-tech sectors and other select areas of supply chains, it certainly is not up to the level of the US’s containment of the Soviet bloc in the traditional Cold War sense.Chapter 3, “Japan’s Reshaping of the Global Supply Network: Focusing on China,” attempts to verify whether the “China risk”—a notion that has been actively promoted by some in Japan since US-China frictions intensified in 2018, and escalated with the spread of COVID-19 in 2020—actually took place, and evaluates Japan’s “China+1” policy, which is the country’s hedging strategy toward China. The results reveal that although Japan’s import dependence on Chins is significantly high for some import products, this does not seem to bear any serious risk for Japan in that the said products can easily be substituted with imports from other countries.Chapter 4, “Japan’s Economic Security Strategy,” looks into Japan’s new economic security policy, focusing on Japan’s economic statecraft, reinforcing resilient supply chains and strategically important industries, and strengthening global supply chain with its “allies.”Chapter 5, “Japan’s China Policy and Trade Strategy,” reveals that Japan’s position on China’s Belt and Road Initiative and the Asia Infrastructure Investment Bank (AIIB) is somewhat far from the level of containment that the US is demanding of its allies, due possibly to Japan’s strong economic ties to China, or its peace constitution. Regarding Japan’s trade strategy, this study speculates that Japan, while promoting free and fair trade and cooperation with like-minded partners, will try to take the lead in shaping international norms on the emerging trade areas of environment, human rights and labor, and digital trade.The research concludes with Chapter 6, which provides conclusions and political implications for the Korean government and companies. -
The ASEAN Community in the Post COVID-19 era: Challenges and Policy Implications
This report evaluates the performance of the three pillars of the ASEAN community―the Political-Security, Economic, and SocioCultural pillars―at the halfway point of the blueprint to build the ASEAN Community by 202..
Meeryung La et al. Date 2021.12.30
Economic cooperation, International politics Southeast Asia OceanDownloadContentSummary정책연구브리핑This report evaluates the performance of the three pillars of the ASEAN community―the Political-Security, Economic, and SocioCultural pillars―at the halfway point of the blueprint to build the ASEAN Community by 2025. The paper also analyzes the impact of the COVID-19 pandemic on the ASEAN Community and comprehensively addresses the existing and newly encountered challenges of ASEAN in the COVID-19 era. Based on these analyses, we derive policy recommendations for cooperation between ASEAN and Korea to support recovery from COVID-19 and successful progress of the ASEAN Community.ASEAN established the ASEAN Community in 2015 and adopted the three blueprints set out in the strategic measures to build Socio-Cultural, Political-Security, and Economic communities by 2025. Chapter 2 introduces the ASEAN Community’s goals and work plans guided by APSC, AEC, and ASCC blueprints, and examined the implementation mechanism to pursue the various measures. We also review the contents and significance of the ASEAN Comprehensive Recovery Framework (ACRF), which is a COVID-19 exit strategy at the ASEAN level, and present our forecasts on the future of the ASEAN Community after COVID-19.In Chapter 3, this paper evaluates the progress of ASEAN economic integration and examined environmental changes caused by COVID-19, and the challenges faced by ASEAN subsequently. According to the results of this study, AEC’s goal of establishing a “highly integrated and cohesive economy” has been successfully implemented in accordance with its work plan, but the actual economic performance appear to fall short of expectations. Therefore, we identify the factors that hinder ASEAN's economic integration and further present ASEAN's challenges to solve them.Chapter 4 analyzes the performance of the ASEAN Political-Security Community (APSC) and examines the prospects of the APSC after COVID-19. First, we reviewed the main contents of the APSC Mid-term Review Report released by the ASEAN Secretariat, and analyzed the fundamental limitations of the APSC blueprint 2025. Then we analyzed the impact of COVID-19 on the building of APSC. Unlike the AEC and ASCC, it is difficult to say that COVID-19 directly affected the APSC’s progress and accomplishments. Nevertheless, the COVID-19 crisis has resulted in accelerating the existing challenges faced by the APSC, including the U.S.-China competition and the regression of democracy in ASEAN member states. In this respect, this chapter analyzed the impact of COVID-19 on the political and security environment in Southeast Asia and the challenges accordingly.In Chapter 5, this study analyzes the performance of the ASEAN Socio-Cultural Community (ASCC) and examined the pending issues after COVID-19. ASCC includes a wide range of cooperation areas, but there is no implementation mechanism that encompasses them;furthermore it is difficult to secure its own driving force. The field of the ASCC tends to be recognized as a national-level issue intrinsically, which acts to limit the implementation of cooperative projects at the regional level. This study examined the limitations of ASCC described above and analyzed the challenges faced by the ASCC amidst COVID-19.Finally, Chapter 6 provided policy directions for cooperation between ASEAN and Korea, and suggested measures that contribute to the progress of the AEC, APSC, and ASCC in the post-COVID-19 era. -
Economic Sanctions against North Korea: Theory and Evidence
The United Nations Security Council adopted eight resolutions from 2012 to 2019, in response to the threats posed by North Korea’s tests of ballistic missiles and nuclear weapons. In this study, we first theoreticall..
Youngseok Park et al. Date 2021.12.30
International security, North Korean economy North KoreaDownloadContentSummary정책연구브리핑The United Nations Security Council adopted eight resolutions from 2012 to 2019, in response to the threats posed by North Korea’s tests of ballistic missiles and nuclear weapons. In this study, we first theoretically define North Korea’s political system, and then develop a dynamic game of sanctions against North Korea. Second, using satellite nighttime lights data, we empirically investigate how the ruler (regime) allocates the country’s resources to stay in power as sanctions intensify.The political system of North Korea is defined as a suryong dictatorship, in which the dictator (supreme leader, or suryong) has the absolute power to dictate the country’s resources, including its people. The theoretical definition of the North Korean political system is based on De Mesquita et al. (2005)’s selectorate theory. In light of the selectorate theory, the North Korean regime successfully divides the country’s residents into two segregated groups, the selectorate (elites) and the non-selectorate. The North Korean regime strictly restricts migration within the country, and takes special care of the capital city, Pyongyang. The regime selectively grants the right to reside in Pyongyang. Moreover, it is well known that the regime prioritizes Pyongyang citizens’ welfare and allocates resources to them first and foremost. Acemoglu et al. (2004) define kleptocracy as a political system where the state is controlled and run for the benefit of an individual, or a small group, who use their power to transfer a large fraction of the society’s resources to themselves. They suggest the divide-and-rule strategy as a method that kleptocratic rulers use to stay in power. The divide-and-rule strategy makes it difficult for residents to obtain enough social coordination for revolution against the kleptocratic ruler. On the basis of the evidence and data, we define North Korea’s suryong dictatorship as a kleptocracy.We present a game-theoretical model (a dynamic game) of sanctions on kleptocracy. The kleptocratic ruler stays in power by taxing divided groups of citizens and redistributing the revenues. We assume that only the selectorate can initiate a revolution against the ruler, as the citizens of the selectorate are more educated and productive than the citizens of the non-selectorate. The kleptocratic ruler possesses weapons of massive destruction (WMD). A superpower country can impose economic sanctions on the kleptocratic country to deter the ruler from developing WMDs. The model is expected to have results as follows. If the superpower country imposes economic sanctions on the kleptocratic regime, the citizens are incentivized to initiate a revolution against the kleptocratic ruler. Then the ruler will respond with taxing-and-spending (setting tax rates and amount of transfers to each group), so that he can offset the incentives of revolution against himself caused by the sanctions. Therefore, the ruler is expected to transfer a greater fraction of the country’s resources to the selectorate as sanctions intensify.Next, we empirically test the theoretical hypothesis using satellite nighttime lights data. We use the VIIRS satellite nighttime lights data to proxy for local economic activity in North Korea in the empirical analysis. We find that an additional sanction is associated with an increase in the difference in nighttime lights between the capital city, Pyongyang, and the rest of the country by about 0.4 percent. This implies that the GDP gap between Pyongyang and the rest of the country increases by about 0.12 percent with an additional sanctions event. Manufacturing cities, mining areas, the Chinese border region, and Sinuiju become relatively brighter with an additional sanctions event. The magnitude of the estimate is particularly strong for Sinuiju. Another notable finding is the estimate on the interaction term with the nuclear development facilities areas, which suggests that the ruler diverts resources and electricity from nuclear development activities to other sectors when sanctions increase. In conclusion, the base regression results confirm the theoretical hypothesis. -
Analysis of Chinese Response Patterns to Diplomatic Friction and Its Influencing Factors
Jaichul Heo et al. Date 2021.12.30
International politics, Chinese politics China -
The Policy Direction of International Organizations on Immovable Property Tax and Its Impact on the Macro Economy
Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, levels of wealth (asset) inequality are increasing further than income inequality. And Korea is no exception. This deepe..
Young Sik Jeong et al. Date 2021.12.30
Financial policy, Tax systemDownloadContentSummary정책연구브리핑Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, levels of wealth (asset) inequality are increasing further than income inequality. And Korea is no exception. This deepening of inequality is more worrisome in that it leads to inequality of opportunity while suppressing movement between classes, which in turn deepens inequality, creating a vicious cycle of inequality. This is a bigger problem than the inequality itself. The international communities are calling for stronger property taxes, including recurrent taxes on immovable property, as part of mitigating inequality and promoting inclusive growth. In Korea, there is heated discussion on property taxes, such as recurrent taxes on immovable property including the comprehensive real estate tax. Therefore, this study aims to investigate policy directions in international organizations and major countries on immovable property tax and examine the effect of property tax on the macro economy.This study consists of four parts. In Chapter 2, we examine the direction of international organizations’ tax policy on immovable property and the current real estate tax system of major countries. The international communities, represented by organizations such as the OECD, World Bank, and IMF, have been calling for stronger property taxes, such as recurrent taxes on immovable property, since the global financial crisis in 2008, and this trend has continued even after the COVID-19 pandemic in 2020. In particular, the introduction or reinforcement of a wealth tax, a new type of property tax, has recently become an issue of discussion. When comparing the real estate taxation systems of Korea, the United States, the United Kingdom, Canada, and Singapore, several characteristics become evident for Korea. In terms of the purpose of imposing immovable property tax, these major economies and Korea share the aim of securing local government finances, but the difference is that the international communities are focusing more on inclusive growth and improving inequality, while Korea is more focused on stabilizing the real estate market. As for the tax rate structure, countries except Singapore have a proportional tax rate system, whereas Korea operates an excess progressive tax rate system. It is also characteristic that Korea evaluates the value of real estate based on market price every year. On the other hand, with the exception of some countries, Korea and major countries have in common that the immovable property tax is a local tax, the taxpayer is the owner, the property tax deduction and tax exemption system exist, and the taxable value is based on the total value of the house.In Chapter 3, this study examines international comparisons of immovable property tax burdens using OECD data. First, in terms of time series for OECD countries, the average immovable property tax ratio (to GDP or total tax) has risen since the 2008 financial crisis. The ratio of financial and capital transaction taxes showed a relatively large drop, and inheritance and gift taxes ratio showed a sideways trend. In Korea, the immovable property tax ratio is also showing a modest increase. The ratio of transaction taxes, including real estate acquisition and registration tax, generally flattened during fluctuations, while that of inheritance and gift tax showed a steady rise. Next, in terms of cross-sectional comparison, Korea's immovable property tax ratio was lower than the OECD average level. Based on the effective immovable property tax ratio (immovable property tax revenues to total private real estate assets), which is an indicator of the actual tax burden on immovable property, the average of 15 OECD countries was 0.30%, while Korea recorded 0.17% in 2019. This seems to be due to the relatively high real estate price level, low tax base realization rate, and low immovable property tax rate in Korea. In 2019, Korea's private real estate market capitalization to GDP ratio was 5.54 times, the highest among comparable countries, far exceeding the average of 15 OECD countries (3.75 times). Meanwhile, in the case of financial and capital transaction taxes, inheritance and gift taxes, Korea recorded 1.75% and 0.43% of GDP, respectively, higher than the OECD average of 0.44% and 0.12%. In terms of total property taxes to GDP ratio, Korea recorded 3.12%, which is higher than the OECD average (1.85%).In Chapter 4, we analyze the effect of immovable property tax on housing prices in OECD countries using the dynamic panel model. According to the results of the analysis, an increase in the immovable property tax has a negative impact on the real housing price change rate, Price to Income Ratio (PIR), and Price to Rent Ratio (PRR). This seems to be because the strengthening of the immovable property tax raises the cost of owning a house, which increases pressure to sell houses or weakens the motivation to purchase houses. In particular, the fact that the strengthening of immovable property tax has the effect of lowering not only real housing price but also PIR and PRR has great significance in that it lowers the risk of a bubble in the real estate market. On the other hand, an increase in financial and capital transaction taxes has a positive impact on the real housing price increase rate, PIR, and PRR. This seems to be because the strengthening of transaction tax has a greater effect on deterring housing sales than the effect of weakening housing purchases.In Chapter 5, we investigate how the increase in property tax affects income inequality and economic growth in OECD countries. The analysis is conducted using a country and year fixed effect model, two-stage least squares, generalized method of moments, and three-stage least squares. According to the empirical result, an increase in immovable property tax is closely associated with decrease in income inequality, and at the same time, an increase in property tax can have a negative impact on short-term economic growth. We also find that the increase in income inequality does not lead to an increase in property tax. This decision-making behavior seems to be related to the OECD's policy recommendation to use the property tax as a means to improve income inequality.In Chapter 6, we present policy implications for Korea. First, in terms of the purpose of real estate policy, the Korean policy authorities need to shift toward a more fundamental and broader perspective, such as inclusive growth and sustainable growth, which the international communities are emphasizing, rather than the Korean government’s current focus on stabilizing the real estate market. This change in perception of real estate policy is very important in that it lays the foundation for more fundamental, continuous, and systematic real estate policy. Second, in terms of the real estate tax system, the policy direction and mix of gradually raising the immovable property tax and lowering transaction tax at the same time should be consistently pursued in order to achieve stability in the real estate market, inclusive growth, and sustainable growth. Finally, when improving the property tax system in the future, Korea's unique characteristics – such as a very high real estate price level, the jeonse system, and a low ratio of self-owned houses compared to major countries – should be taken into consideration.