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Analysis of Economic Effects of the COVID-19 Pandemic on Global Trade
Although many studies have documented that financial and political crises are associated with severe recessions, little attention has been paid to pandemic crises. Furthermore, they focus on estimating the effect of t..
Soon Chan Park Date 2021.12.30
Trade structure, Trade policyDownloadContentSummaryAlthough many studies have documented that financial and political crises are associated with severe recessions, little attention has been paid to pandemic crises. Furthermore, they focus on estimating the effect of the crises on economic growth and unemployment, but not on trade. With deepening global value chains, the growth of trade exceeds that of GDP, and countries are increasingly exposed to foreign risks or shocks. International trade therefore is no more derived transactions but a crucial factor driving economic growth. This paper makes progress understanding the economic effects of the Covid-19 by investigating the impact of the previous 21-century pandemics and the Covid-19 on trade.To study how long the negative effects of the pandemics persist, we also estimate the effect of these health crises on trade, both in the onset year of the crisis as well as the dynamic effects over time. An another important question on the economic effects of the pandemics is whether pandemics are demand shocks or supply shocks. This is a fundamental question for both economists and policymakers, because it helps design effective policy responses to future health crises. Yet there were few evidence-based arguments based on similar events in the past.Our findings are as follows:First, we find a larger negative impact of the severity of the Covid-19 on bilateral exports, implying that effective prevention and control measures for pandemics do matter not only for human life, but also for economic performance. The severity of the Covid-19 is measured by the mortality rate, death cases per 1000 population and confirm cases per 1000 population. It reveals that each of them serves as a good proxy variable for the severity of the Covid-19.Second, we find that ICT development contributes to mitigate negative effects of the Covid-19 on exports. The Covid-19 and resulting public health measures necessitated many workplaces to permit workers to work from home. We test the hypothesis that the productivity of remote working depends on the ICT development, and this leads to better export performance.Third, we find that the previous 21-century pandemics including SARS, H1N1, MERS and Ebola are a supply shock resulting in the reduction in exports of final goods, but leaving exports of intermediates inputs largely unchanged. These results imply that consumers in importing countries substitutes the final goods from non-affected countries for those from affected countries, but the inputs souring decisions of firms are not affected by the pandemics.Fourth, we find that it takes at least 4 years for the negative effects of the pandemics on trade to disappear, identifying the dynamic effects of the pandemics.Based on our empirical findings, finally, we discuss some policy implications for mitigation of economic damage, protection of business from destruction and facilitating recovery. -
A Study on Korean SMEs Policies for the Carbon Border Adjustment Mechanism (CBAM)
In July 2021, the EU announced the Carbon Border Adjustment Mechanism (CBAM), which obligates importers to purchase certificates corresponding to the emissions embedded in imported products. Implementation of the CBAM..
Hyeri Park and Ji Hyun Park Date 2021.12.30
Economic development, Trade policyDownloadContentSummaryIn July 2021, the EU announced the Carbon Border Adjustment Mechanism (CBAM), which obligates importers to purchase certificates corresponding to the emissions embedded in imported products. Implementation of the CBAM will have a negative effect on the Korean economy, which is highly dependent on trade and carbon-intensive industries. Another point of particular concern lies in that domestic SMEs will also be affected by the CBAM directly or indirectly. Therefore, this study examines the impact of the CBAM on SMEs in Korea, and evaluates different industries for their vulnerability to the CBAM. Implications for government policies and strategies for SMEs to effectively respond to CBAM are drawn.This study differs from previous studies in that it analyzes the impact of the CBAM from the perspective of SMEs. Few domestic studies have analyzed the impact of the CBAM on SMEs. This study examines various aspects of the CBAM, including statistical analysis of vulnerabilities to the CBAM in the area of SMEs, and case studies of carbon neutrality support policies for SMEs in major countries. Various analysis methods are attempted, such as measuring the export status of SMEs’ CBAM target items and domestic SMEs' distribution of CBAM target industries, evaluating the SMEs’ vulnerability to the CBAM by sectors, and measuring carbon emissions embedded in SMEs’ exports. Moreover, overseas carbon neutrality support policies for SMEs are investigated to identify recent policy trends in major countries and learn from benchmarking cases.Chapter 2 discusses the major issues of the CBAM. As the CBAM is expected to expand in the future, response strategies for the CBAM are needed not only in the steel industry but also in other industries. Moreover, if composite materials and indirect emissions are included in the scope of the CBAM, SMEs are also directly subject to CBAM regulation. Therefore, SMEs should prepare an adaptation strategy for the CBAM through active communication with the government while paying attention to the implementation progress. The government should carefully establish its position on the CBAM, while monitoring responses in other countries to the CBAM and cooperating with major countries. The Korean government should also make preparations on issues for bilateral CBAM consultations with the EU.According to the analysis results in Chapter 3, while direct exports to the EU by Korean SMEs do not account for a large proportion of items falling under the scope of the CBAM, it is confirmed that the impact on domestic SMEs increases when indirect exports are taken into account. When considering indirect exports, the sectoral vulnerability to the CBAM appears in different patterns from when indirect exports are not considered, and it is also found that vulnerability to the CBAM differs by sector.Chapter 4 investigates carbon-neutral policy cases for SMEs in Korea and major countries. In Korea, it appears that SME support policies related to carbon neutrality are mainly composed of short-term projects, and there is no long-term support policy. In addition, it is found that domestic SMEs lack the ability to respond to the CBAM and carbon neutrality, and SMEs have more demand for policy financing than strengthening their capabilities for carbon neutrality.The results of this study yield the following important implications.First of all, a phased response strategy is needed according to the timing of CBAM implementation. The role of the government is important during the CBAM transition period (2023-25). In order for SMEs to adapt to the CBAM, the government should provide information about the CBAM, prepare education programs, and design support systems for SMEs. If the CBAM is implemented after 2026, substantial response actions by the government and companies should be prepared. An integrated carbon-neutral data management system and advisory agency for SMEs should be established, while forming cooperational networks between large companies and SMEs. In the long run, SMEs should prepare export strategies to cope with the era of carbon neutrality. At the same time, they should de-carbonize their production processes and develop low-carbon, high-value-added products, and the government should participate in international discussions and negotiate the conditions of CBAM implementation.The detailed response strategies by the government and SMEs to the CBAM are recommended as follows. First, the government should come up with a long-term carbon-neutral support policy that focuses on SMEs. Second, when it comes to response strategies to the CBAM, indirect export as well as direct export must be considered. If the CBAM is expanded in the future and all supply chains are included in the scope of CBAM regulations, SMEs will also be subject to CBAM regulations. Therefore, the CBAM affects domestic SMEs through direct or indirect channels, as exporters are expected to force suppliers to comply with environmental standards and demand the supply of eco-friendly intermediate goods. Third, it is necessary to develop various types of carbon reduction programs that can promote SMEs' participation in carbon neutrality. Export support systems for environmental products and technologies, carbon reduction support through ICT, local government carbon neutral support policies, and cooperation between SMEs and large companies can be benchmarked from overseas cases. Fourth, the policy direction for carbon neutrality support for SMEs should prioritize implementation of support for eco-friendly process transition, followed by the provision of incentives based on carbon neutrality performance. Fifth, support policies for SMEs should be designed considering conformity with WTO agreements. Finally, a control tower that supervises SME carbon neutrality policies should be established. We propose the launching of an "SMEs Carbon Neutral Response Team" or “CBAM TF” dedicated to SME policies.SMEs must accurately inform themselves on the scope of the CBAM and international discussion on the CBAM, because the impact of the CBAM on domestic SMEs depends on how far its scope extends. Second, SMEs should actively participate in the carbon neutral policy design from the initial stage so that the specificity and difficulties of SMEs can be reflected. Third, the ability to respond to the CBAM should be strengthened. SMEs should secure professional manpower with CBAM-related administrative capabilities, reporting capabilities, and verification systems by making the most of government support during the CBAM transitional period. Fourth, it would be more effective to formulate response strategies by industry. Carbon emissions, reduction efficiency, and reduction technologies all vary by industry. Therefore, an effective approach would be for each company to participate in the development of benchmarks for their respective industries, develop standards for reporting emissions by industry, and share best practices. In addition, since the vulnerability factors by the CBAM are very different from industry to industry, government support should be established along the path of vulnerability. Finally, carbon neutrality is a challenge for SMEs in the short term, but it can be an opportunity if successfully overcome. SMEs should establish response measures to the CBAM from a long-term perspective. -
Analysis of FTA Utilization Infrastructure and Economic Cooperation Mechanism between Korea and Latin American Countries
In 2007, when the Korea-US FTA negotiations were concluded, the government of Korea started a program to support the utilization of FTAs by SMEs. Since then, through the enactment of laws and the related regulations,..
Inkyo Cheong et al. Date 2021.12.30
Economic cooperation, Free trade Latin AmericaDownloadContentSummaryIn 2007, when the Korea-US FTA negotiations were concluded, the government of Korea started a program to support the utilization of FTAs by SMEs. Since then, through the enactment of laws and the related regulations, it has established a systematic FTA utilization support system that cannot be found in other countries. Korea’s FTA utilization support system has been modified and supplemented for more than 10 years. FTA utilization support includes providing information on FTA utilization (opening a website or holding education and briefing sessions, etc.), consulting on FTA utilization (preferential tariff, country of origin, FTA business model, etc.), and establishment of FTA utilization infrastructure (origin management system, customs clearance and preferential tariff margins with FTAs), and fostering professional manpower (undergraduate, graduate course, etc.).No country in Latin America has a comprehensive system to support the use of FTAs. The text of FTAs, the tariff concession schedule, and the rules of origin for goods are presented on the website of the national government (public) institution or the Organization of American States (OAS) FTA Information Center (SICE). Many low-income countries, such as Nicaragua, El Salvador, and Honduras, have a lot of difficulties in promoting the use of FTAs due to poor physical infrastructure including the Internet.Recently several countries have shown interests in adopting Korea’s FTA utilization support system. Korea, along with Chile and Mexico, has built the world’s widest FTA network, but there are several factors adverse to its export performance such as WTO’s lethargy, COVID-19 quarantine measures, global protectionism, and decoupling of the US and China economy. In order to respond to changes in the global trade environment, it is necessary to enhance the utilization of the existing FTA and to strengthen the FTA policy by negotiating to upgrade the existing FTAs and promoting new FTAs.This study intends to explore economic cooperation measures to support the use of FTAs among Latin American countries that have concluded FTAs with Korea or have raised the need for a new FTA. A total of 10 countries were selected for analysis, including 4 member states of the Pacific Alliance (Chile, Peru, Colombia, Mexico) and 6 Central American countries (Guatemala, Nicaragua, El Salvador, Honduras, Costa Rica, and Panama).The conclusion of the FTA negotiations with the MERCOSUR, which is currently underway, is the top priority for Korea’s trade policy with Latin American countries. In the case of the MERCOSUR, since internal policies within the block become a critical factor in the process of negotiations, it is difficult to expect the desired results from economic cooperation without a change in the attitude of the MERCOSUR countries (Brazil, Argentina, Uruguay, and Paraguay) at the regional level toward the FTA with Korea. While many research reports on the necessity and strategy of economic cooperation with the MERCOSUR have already been published, research reports on economic cooperation with small and medium-sized countries in Latin America are rare.In addition, securing the status of an associate member of the Pacific Alliance (PA), which can have an effect comparable to that of an FTA with Mexico, is an important issue in Korea’s trade policy. This study focuses on research to find ways to strengthen economic cooperation with Mexico, which is not making progress. However, this does not mean to underestimate the importance of economic cooperation with the MERCOSUR countries.Through transferring Korea’s FTA utilization support system to the Latin American countries in the form of economic cooperation, it is possible to expand economic gains earned from the FTAs with Latin American countries and to raise local interests toward the FTA utilization. The purpose of this report is to select a set of countries of priority for economic cooperation in the transfer of Korea’s FTA utilization support system.Chapter 2 summarizes the development process and the main contents of Korea’s FTA utilization support system. The enactment of laws and regulations have been described in detail. Based on Korea’s experience, it is necessary to transfer a support system suitable for local conditions in Latin American countries and induce them to develop step by step.Chapters 3 and 4 try to find the target countries for economic cooperation supporting the use of FTAs and to estimate the effects of economic cooperation. Even if a large number of FTAs have been concluded, it will be difficult for this economic cooperation project to proceed smoothly in the case of countries that do not provide FTA utilization support services to their own companies. With this point in mind, the criteria for selection of priority countries were established. One of the criteria is the impact on the GVC of Latin American countries, based on the reports by the international economic organizations (World Bank 2017, 2018; UNCTAD 2020, etc.) arguing that FTAs not only deepen participation in GVC, but also help economic growth by activating trade in intermediate goods.In Chapter 5, based on the analyses in Chapters 3 and 4, the target countries for economic cooperation to support the use of FTAs have been selected, and accordingly, the policy issues that should be focused on supporting those countries have been derived. In this study, Mexico, Colombia, and Guatemala have been selected as the priority countries for Korea’s FTA utilization support economic cooperation through an analysis of various aspects such as the FTA utilization support infrastructure, industrial base and structure, and the impact of the project on GVC. Finally, the conclusion and policy implications are given at the Chapter 6. -
Global ESG Trends and the Strategic Role of the Korean Government
Recently, ESG(Environment, Society, and Governance) concerns are rapidly growing both domestically and internationally in various fields such as investments, management, consumers, and government policies. Beyond the ..
Sang Buhm Hahn et al. Date 2021.12.30
Financial policy, Environmental policyDownloadContentSummaryRecently, ESG(Environment, Society, and Governance) concerns are rapidly growing both domestically and internationally in various fields such as investments, management, consumers, and government policies. Beyond the concept of investment criteria or policy instruments, ESG can be defined as a value system for sustainable prosperity of the human community. ESG issues are rapidly becoming impending socioeconomic risk factors, but it is also being actively researched and implemented as an opportunity and solution in a variety of fields.The current popularity of ESG can be explained in terms of the role-sharing relationship between the government and the market. The characteristics of political demands have altered as existing socioeconomic problems have accumulated. And the technologies that could be used to solve problems advanced quickly. As a result, not only has the nature of the problem in each industry changed dramatically but so has the relative superiority of efficiency between the market and the state. In the role-sharing of the market and the state, there are wide spectra between mutually exclusive extremes of market failure and government failure.Shareholder capitalism has not been able to adequately respond to various side effects that damage the natural environment and social community in the process of pursuing economic growth. In the early 1980s, the international organizations began addressing sustainable development in which current economic development does not jeopardize future generations’ economic prosperity. Concerns about sustainability began with environmental issues and grew to include human rights and social ideals. It has been summed up as the ESG concept in recent years, which encompasses three aspects: environmental, social, and corporate governance.We present examples of companies that are following an ESG approach. Many businesses are spearheading ESG initiatives, and their patterns vary. Some companies, such as Patagonia, have been doing ESG activities consistently since the beginning. In some cases, such as with Unilever, ESG difficulties are represented in existing business practices, but corporations like Schneider Electric, CLP Group, and Oersted have entirely rebuilt their businesses, eliminating certain existing businesses and launching new ones that are compatible with ESG ideals. ESG is also attracting a lot of attention from Korean businesses, particularly in the area of environmental challenges. Given the current situation in Korea, where controlling owners frequently exercise management rights, corporate governance challenges are considered to represent both a threat and an opportunity for the Korean firms.National ESG strategies are also required, in addition to business ESG plans. The notion of “market failure” serves as a justification for national policy intervention in general. Many initiatives, however, have unintended consequences or are ineffective, as the term “government failure” implies. Market and government roles should be linked on the basis of efficiency. Not a binary distinction of “market or government,” but new frameworks of collaboration between the “market and the government” should be sought. Referring to the remarkable ICT developments such as AI and big data, cutting-edge financial instruments, and various organizational/ management techniques, it is necessary to readjust the existing government policy intervention area and redesign the method innovatively.Carbon taxes and minimum corporate tax rate regulations are two contemporary international ESG concerns that have been explored. Korea has evolved in terms of economic size and technological level, but still remains developing status with the environmental and energy challenges. As a result, we should create phased implementation schemes and support systems for the significantly and abruptly burdened industries and SMEs, while actively participating in international ESG talks and reforming associated institutional structures.We also present policy examples from a variety of countries on ESG challenges. The European Union (EU) has taken the lead in instituting ESG regulations such as green taxonomy, sustainable financial disclosure, corporate sustainability reporting, human rights and environmental due diligence responsibilities of business supply chains, and carbon taxes. The U.S. Biden administration drafted state goals closely related to ESG, such as restoring democracy and strengthening human rights, digital innovation, regional development, resolving educational inequality, diversity and equality, and expanding corporate transparency and corporate responsibility. In Japan, diversity guidelines and health management strategies are notable. Individuals and enterprises’ social credit in China are assessed at the national level. This summer, the Chinese government formally unveiled the slogan “Common Prosperity.” Chinese ESG initiatives, such as outlawing monopolies, cracking down on giant platform businesses, and expanding educational equity, are also noteworthy. India is the only country in the world where corporate social responsibility is required by law, and non-compliance with CSR expenditure obligations can result in criminal penalties for firms and their leaders. Meanwhile, the OECD announced on October 8, 2021, that 136 countries and jurisdictions have agreed that certain multinational enterprises (MNEs) will be subject to a minimum 15% tax rate, effective from 2023. Korea also has to develop policies to improve tax transparency and corporate social responsibility.Investment and business management ESG infrastructures are also critical. This necessitates an adequate division of the roles between the public and private sectors. We need consistent standards for ESG financing, which necessitates an ESG disclosure system and a green taxonomy to determine whether it belongs under the ESG category. Many private agencies have started offering ESG rating services in recent years, but their rating methods are vastly different, and the results are under-correlated with each other. There are also worries that foreign agencies’ ESG assessments do not fully represent Korean-specific circumstances. It might not be a good idea for the government to conduct ESG evaluations directly because it could weaken market discipline. The government, on the other hand, should appropriately oversee the ESG rating system’s entire structure.We discuss how to establish and implement ESG policies in Korea in a strategic fashion. K-SDGs and the Korean New Deal are two of the most common ESG policies now in use. In addition, 23 Presidential Committees have been established to advise and deliberate on the national policy agenda, including the National Balanced Development Committee and the Aging Society and Population Policy Committee. In addition to the Prime Minister and ministries, there are around 500 committees. This policy approach appears to be in line with ESG trends that are now gaining traction around the world. However, because overlapping policy implementation by separate committees or ministries can lead to inefficiency and conflicts of interest, it is vital to examine integrated policy design and action plans.We recommend that the National ESG Committee, ESG reports from each ministry, and national ESG strategy reports are established. To begin, we need a policy classification system, such as modularizing individual policies, to effectively control and manage policy duplication. This system should be based on the ESG national plan and be as consistent as feasible with the green categorization system (K-taxonomy). From an ESG viewpoint, it is vital to identify major problems and hazards affecting our society, as well as to map existing policy goals for each risk category. We propose that social “issues” or “risks” be organized into the K-Risk Matrix, with K-SDGs as a primary subset of solutions. The K-Risk Matrix is a diagram that depicts the “likelihood” and “impact” of threats to Korean society, and it may be created using information from the World Economic Forum’s Global Risk Report.As an action plan, we must first define and taxonomize ESG activities and then construct ESG information infrastructures such as accounting and disclosure systems. ESG rating agencies, in particular, should be prepared with suitable regulations and supervisory processes. These ESG policy objectives should attempt to promote fair and efficient market competition and give a solution to both market and government failure. -
The New Southern Policy Plus Progress and Way Forward
Over the past three decades, the Republic of Korea (hereinafter, Korea) has shown a great commitment to cooperating with ASEAN member states and India. Starting with the establishment of a sectoral dialogue partnershi..
Kwon Hyung Lee and Yoon Jae Ro Date 2021.12.30
DownloadContentForewordContributorsI. Overview1. The New Southern Policy Plus and ASEAN-Korea Relations2. The New Southern Policy Plus and India-Korea Relations3. Advancing the ASEAN-Korea Partnership: From Sectoral Dialogue Relations to the New Southern Policy Plus4. The New Southern Policy Plus and India: Progress and Way ForwardII. ASEAN5. Strengthening Trade and Investment between ASEAN and Korea6. FinTech and Financial Inclusion: A Vital Space for ASEAN-Republic of Korea Cooperation7. The ASEAN-Korea Cooperation and Connectivity: Beyond the New Southern Policy Plus8. Missing Pillars of Strategic Autonomy? Security Cooperation Between Korea and ASEAN9. Advancing ASEAN-Korean Cooperation on Non-Traditional Security Challenges in East Asia10. Education and Human Resource Development of Korea’s New Southern Policy: Taking a Step Forward11. Building a Sustainable Mekong-Korea Partnership for the People, Prosperity, and PeaceIII. India12. Role of Korea–India Bilateral Economic Ties in India’s Trade and Investment Strategy13. Strengthening Economic Relations with ASEAN: Role that India and Korea Can Play14. The Role of a Korea-India Strategic Partnership in the Indo-Pacific15. Promoting Korea-India Mutual Understanding: Social and Cultural AspectsIV. Concluding Remarks16. The New Southern Policy and Afterwards: Forging New Dimensions of ASEAN-Korea Partnership17. The Prosperity of the New Southern Policy: Achievements and Remaining ChallengesSummaryOver the past three decades, the Republic of Korea (hereinafter, Korea) has shown a great commitment to cooperating with ASEAN member states and India. Starting with the establishment of a sectoral dialogue partnership in 1989, Korea has developed a comprehensive partnership with ASEAN over the years. The ASEAN-KOREA FTA was completed in 2009 and the elevation of bilateral relations to a ‘strategic partnership’ in 2010 served as a momentum to strengthen our economic and security partnership. By sharing cultural proximity rooted in Asian values, ASEAN and Korea have also enjoyed robust socio-cultural exchanges. Meanwhile, regarding to India and Korea relations, both countries established a long-term cooperative partnership for peace and prosperity in October 2004 as a channel to enhance mutual interests between the two countries. Korea has further deepened its relations with India by concluding the CEPA in 2009 and upgrading its relations into a ‘special strategic partnership’ in 2015.The New Southern Policy (hereinafter NSP), announced in November 2017 in Indonesia, has further deepened Korea’s strategic partnership with ASEAN and India under the vision of achieving a ‘People-centered Community of Peace and Prosperity.’ ASEAN-Korea relations were developed to a level of Korea’s diplomatic ties with the United States, China, Japan, and Russia. The India-Korea Summit of 2018 adopted the Shared Vision for People, Prosperity, Peace, and the Future to strengthen mid-to-long term bilateral relations. President Moon Jae-in visited all ASEAN member states and had two summit meetings with India. Moreover, the Korean government hosted the ASEAN-ROK Commemorative Summit, launching the first Mekong-ROK Summit in 2019.The NSP pursues the three pillars of People, Peace, and Prosperity as a common foundation to realize its vision. ‘People’ aims to make safer, better lives and greater interaction in the NSP region, that is, ASEAN member states and India. ‘Peace’ seeks a community where all are free from fear or threat. The goal of ‘Prosperity’ aims to create mutually beneficial and future-oriented economic cooperation. The number of visitors, trade volume, and investment between Korea and the NSP region has unprecedently increased with the help of NSP partners’ policies.The NSP has since evolved into the NSP Plus amid the Covid-19 pandemic and the US-China rivalry. Korea and NSP partners together have to overcome the global health crisis and reconstruct global value chains to ensure the safety of the people and free trade in the region. To achieve these goals, the Korean government presented an upgraded version of the NSP in November 2020, reflecting changes in the current environment for cooperation. The NSP Plus promotes seven Initiatives as follows: 1) comprehensive healthcare cooperation, 2) sharing Korea’s education model for human resource development, 3) promotion of mutual cultural exchanges, 4) formation of mutually beneficial and sustainable trade and investment, 5) support for rural villages and urban infrastructure development, 6) cooperation in future industries for common prosperity, and 7) cooperation for safe and peaceful communities.In this context, this publication aims at examining the progress of the NSP Plus and discussing a way forward for sustainable cooperation between Korea and NSP partners. It comprises four sections and eighteen chapters. Section 1 provides overviews of the NSP Plus from the perspectives of Korea, ASEAN, and India to evaluate the NSP in a more comprehensive manner. Sections 2 and 3 deal with a sectoral analysis of the NSP Plus including trade, investment, infrastructure, human resource development, and security in the divisions of ASEAN and India. Section 4 summarizes the progress of NSP Plus in the region, suggesting prospects and future tasks to further expand cooperative relations between Korea and NSP partners.I would like to express my deepest gratitude to the distinguished scholars from Korea and NSP partners who have gladly contributed to this publication. Special appreciation goes to honorable ambassadors for their insightful overviews of the NSP Plus: Ambassador Kim Young-sun, Ambassador Shin Bongkil, Ambassador Ong Keng Yong, and Ambassador Mohan Kumar. I am also grateful to our research fellows and senior researchers in the New Southern Policy Department at the Korea Institute for International Economic Policy (KIEP), who managed the whole publication process and contributed two chapters in Section 4.I hope that this publication can promote active discussions on new visions and policy proposals for the New Southern Policy Plus, as we work to advance together in the fast-changing global environments. -
China’s Economic Engagement in Latin America and Africa: Characteristics and Outcomes from a Comparative Perspective
Over the past 20 years, China has become increasingly active in engaging Latin America and Africa. Starting from the early 2000s, China has increased its regional influence in various areas such as trade, investment, ..
Seungho Lee and Munsu Kang Date 2021.12.30
Economic relations, Economic cooperation Latin America China Africa Middle EastDownloadContentSummaryOver the past 20 years, China has become increasingly active in engaging Latin America and Africa. Starting from the early 2000s, China has increased its regional influence in various areas such as trade, investment, policy loans, official development assistance and people-to-people exchange. It has done so under the banner of strengthening solidarity between developing countries through South-South cooperation, and has now become a major economic partner in the majority of countries across Latin America and Africa.We assume that there are underlying objectives behind China’s economic engagement in Latin America and Africa, given that the two regions are characterized by relatively low degrees of economic interdependence with China and present less direct geopolitical interests to China. Against this backdrop, we aim to offer a comparative analysis of what has driven China to engage Latin American and African countries with economic instruments and how its economic engagement has materialized in these regions.We first examine in Chapter 2 how Chinese foreign policy has changed its course in general since the foundation of PRC in 1949. We then delve into how its approach to Latin America and Africa has evolved over time, depending on its foreign policy objectives and external conditions.Chapter 3 shows some main trends in China-Latin America and China-Africa trade and some characteristics of Chinese investment, lending and official development assistance in Latin America and Africa and people-to-people exchanges between the two regions. In addition, we also explore how China has been strengthening its efforts for cooperation with Latin America and Africa amid COVID-19.We find that China’s share in Latin American and African exports and imports has rapidly increased since the early 2000s. In 2020, China’s share in total exports and imports of Latin American countries was around 20% and 13%, respectively. In Africa, exports to China captured about 18% share in the region’s total exports and 10% in its total imports in 2019. China’s imports from the two regions are comprised mostly of natural resources. We find that China has relied significantly on a number of Latin American countries for petroleum, copper, iron ore, lead ore and zinc, and a few African countries for petroleum, aluminum, cobalt and diamonds.China’s average yearly investments to Latin America and Africa recorded around $9 billion and $7 billion between 2005 and 2020. Although Chinese investments are still dwarfed by those from major investors in these regions, it is noteworthy that their increasing trend has continued until the mid-2010s. Chinese investments have stemmed mainly from state-owned enterprises in both regions. Investments in Latin America have been primarily through brownfield investments, whereas a large proportion of Chinese investments in Africa have been greenfield investments.Chinese policy banks such as the China Development Bank and Export-Import Bank of China have acted as major providers of loans to several Latin American and African countries since lending to the region took off in the early 2010s. Between 2008 and 2019, China provided $11.7 billion on a yearly average to Latin American countries, with a tendency to allocate most of its resources to the extractive sector of a small number of countries. Over the same time period, China provided a yearly average of $10.7 billion to African countries. In Africa, policy loans have been directed to a larger set of countries in the region, while focusing on infrastructure.In terms of executing official development assistance, Chinese activities have been far more pronounced in Africa than in Latin America. Indeed, Chinese aid flows to Latin America were almost negligible between 2000 and 2014 with the exception of the case of Cuba. In contrast, aid flows from China to Africa recorded a yearly average of $1.6 billion over the same time period, largely due to a dramatic increase beginning from the mid-2000s, mostly in the area of infrastructure projects.In the realm of human-to-human exchanges, we observe that immigrant flows from China to Latin America and Africa have continuously increased. However, they have been more dramatic in Africa. Across Latin America, it is primarily a small number of South American countries that have witnessed notable immigrant inflows from China. Across Africa, the inflow of Chinese immigrants has particularly been significant in the countries with ongoing large-scale construction projects by Chinese firms.With the outbreak of COVID-19, China’s cooperation with Latin America and Africa has entered a new phase. China has engaged Latin America through donations of medical supplies, excluding countries with diplomatic ties with Taiwan. Also, many Latin American countries have purchased large amounts of vaccines from China. Its activism has also been witnessed in Africa, where China has donated significant amounts of medical supplies and vaccines. However, among the relatively small amounts of vaccines secured by African countries through purchases, the proportion of Chinese vaccines was found to be very low.Chapter 4 provides a quantitative analysis of what determines the scale of China's economic engagement in Latin America and Africa, and the outcomes of this economic cooperation in the two regions. First, our Tobit estimation results find evidence that China prefers to allocate more economic resources in the form of investments, policy loans or official development aid to those with higher levels of GDP and natural resource abundance in both regions. We also find that China tends to reward those with a partnership status with China in Latin America, whereas the presence of the partnership status does not necessarily serve as an advantage in Africa. Access to sea is also found to be an important factor in attracting Chinese economic resources in Africa.Second, the results from dynamic panel estimation suggest that, in both regions, China’s economic engagement tends to increase imports from China and the level of indebtedness to China, either in terms of the absolute level or the ratio of debt from China to GDP. However, there is no statistically significant relationship between the scale of China’s economic engagement and exports to China from Latin American or African countries.In Chapter 5, we examine the implications of China’s economic engagement in Latin America and Africa for Korea’s cooperation strategy in each region. China’s growing influence in these regions, backed by economic instruments and various bilateral and multilateral cooperation frameworks, clearly presents challenges to Korea’s foreign policy, which remains relatively limited in resources that can be employed for geopolitical purposes in these regions. In this context, this study suggests that Korea engages Latin America and Africa by fully exploiting its comparative advantage in each region.Our findings suggest that China has been systematically approaching Latin America and Africa with disparate strategic objectives through different means to achieve them, under the grand strategy of expanding its sphere of influence across the globe. Given China’s growing influence in the two regions, it is hard to deny that China has become an important variable to consider when Korean policymakers design cooperation strategy in Latin America and Africa. The findings of this paper should help to analyze Chinese economic activities in the region and identify Korea’s comparative advantage for each region, these being a high priority task in foreign policy decision-making. -
Prospects and Policy Implications of the WTO Multilateral System in Strategic Competition between the US and China
As of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues..
Yoocheul Song et al. Date 2021.12.29
Multilateral negotiations, Trade policyDownloadContentSummaryAs of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues must be addressed for the WTO to remain effective in the future, especially under the new world trade order, including those caused by COVID-19. Therefore, WTO member states will have to strike a balance between negotiating on 21st century issues and tackling long-standing trade-related unresolved issues such as agriculture and development. In addition to these practical problems, the WTO must also address institutional problems.In addition, alleviating tensions in the world trade system following China's incorporation into the world economic system is a task that the WTO must solve. For example, it will have to come up with a way to address US and EU claims that existing WTO rules are inadequate to address China's problems with intellectual property rights, state-owned enterprises and industrial subsidies. As countries like the United States increasingly rely on bilateral and regional trade agreements to better address this issue, an alternative is to address them through open plurilateral agreements.Given its share in world trade and the global economy, China could potentially play a significant role in WTO reform. China has been involved in WTO reform discussions. China's proposals for reform in the WTO indicate that it will resolve the deadlock in the Appellate Body and prioritize negotiations on subsidies for fisheries and e-commerce. However, with respect to state-owned enterprises, it has limitations in repeating vague promises of fair competition and emphasizing the need to respect the diversity of development models among member countries.China is also showing efforts to cooperate with other countries on WTO reform, claiming to be the defender of the world trade system on behalf of the United States. However, in light of China's growth and economic model in the global economy, a key question is whether WTO rules can be updated and implemented in a way that accommodates two fundamentally different economic systems. The solution does not lie in changing the nature of China's economic system. Rather, it should be about creating enforceable rules that allow the two systems to interact and reaffirming the key role of the WTO within the world trade system.Since 1998, WTO member states, agreeing that e-commerce will play an increasingly important role in the global economy, have established a working program to review all trade-related issues related to global e-commerce. The rules governing online transactions will become more important than ever, especially as COVID-19 accelerates the transition to e-commerce. However, unlike trade in goods and services, few international rules apply to e-commerce between countries. Therefore, a realistic approach could be to focus on reviewing the status of e-commerce initiatives and agreeing on a roadmap for the negotiation process and future work, in the short term, while focusing efforts toward developing specific texts for negotiations and reaching partial agreement on the rules of e-commerce in the medium to long term.Although trade and investment are closely linked, the WTO was launched with an incomplete treatment of investment issues. Multilateral attempts to negotiate rules on investment protection and liberalization in the WTO failed, and in 2004 investment was removed from the WTO negotiation agenda. However, many countries deal with investment provisions through bilateral investment agreements or chapters of bilateral and regional free trade agreements. A new attempt to include investment in the WTO began in the form of “structured discussions with the aim of developing a multilateral framework on investment facilitation” among more than 70 WTO member states. These discussions are projected to have a greater chance of success than past efforts by focusing on facilitating investment and excluding issues that have been difficult to reach consensus, such as market access, investment protection, and resolution of investor-state disputes.Discussions are also underway to improve the WTO Agricultural Agreement, which came into force in 1995. Policy makers continue to work to make agricultural trade fairer and more competitive, aiming to reform subsidies and high trade barriers that distort agricultural trade. In 2015, WTO member states committed to abolish agricultural export subsidies and agreed to find solutions to the problem of public stockpiling for food security, an issue that needs renewed attention under COVID-19. It was also agreed to develop special safeguards for developing countries and agreements on cotton trade. WTO member states continue to negotiate on these issues. The next WTO Ministerial Meeting should be a milestone for progress in this area. Improving notification obligations on agriculture is also an important task. Especially in the agricultural sector, special treatment for development issues and developing countries has been one of the most important areas of WTO work since the Doha Development Agenda was launched in 2001. However, in order to advance the discussion, the problem of developing country status will need to be addressed. Korea announced that it would no longer maintain its developing country status in 2019. Of course, negotiations within the WTO are not currently underway, but it is time to analyze and respond in advance to problems that may arise when Korea does not maintain its developing country status in the agricultural sector.Trade and the WTO can play an important role in achieving the UN Sustainable Development Goals and the Paris Agreement goals. WTO members have been discussing various trade sustainability issues, and areas that are likely to reach agreement and that can make a significant contribution to the green recovery of the COVID-19 crisis include: first, the WTO member countries concluded an agreement to limit subsidies for fisheries; second, the WTO played a role in reforming fossil fuel subsidies; and third, the WTO member states made efforts to reach an EGA negotiation.It has long been recognized that there are many links between trade policy and non-trade issues such as environmental and labor standards. However, there are many differences of opinion as to whether non-trade issues should be linked to WTO negotiations and subject to WTO rules and regulations. Past efforts to link non-trade issues to trade have been pursued to encourage compliance and enforcement. Traditionally, dispute resolution mechanisms have been used as a way to link non-trade issues that are difficult to enforce with the global trade system, but as the WTO Appellate Body crisis continues, these resolution methods lose their effectiveness. Also, there are limits to what the WTO can and should do with respect to non-trade issues. In particular, the WTO's role in achieving the SDG goals requires careful adjustment. If links are too weak, the WTO risks becoming irrelevant in its efforts to address key global challenges. However, if the linkage becomes too excessive, the possibility of overburdening the already troubled WTO increases. The best bet may be to focus on increasing policy coherence and interaction between stakeholders rather than focusing on creating new rules.Since the WTO is a member-driven body, reforms must be decided by member governments. Therefore, domestic support for policy makers is necessary in order to proceed with the discussion and process on WTO reform.WTO reform is an important issue. However, WTO modernization will not be provided in a single package, and discussion of various issues and participation of stakeholders is essential. WTO reform will require a significant amount of effort and time. The new secretary-general is also frequently emphasizing the need for WTO reform, and as a new administration is launched in the United States, a change of position can be expected. If the WTO can function properly in the process of coping with COVID-19, the COVID-19 crisis may provide new impetus to the WTO. While we cannot expect too much, if the US makes an explicit proposal for a solution to reform the WTO Appellate Body, or at least explains acceptable changes to the Appellate Body, the chances of success are high.Under these circumstances, what kind of policy response Korea should take is a very important issue, because Korea has enjoyed the benefits of the multilateral trading system. In particular, it can be said that Korea is at a crossroads where it has to make a policy choice between the United States and China. According to the Biden administration's strategy to strengthen alliances, the US will demand a choice from Korea, and it will inevitably be very difficult for Korea, which is highly dependent on the Chinese economy, to make a decision. -
Case Studies and Empirical Analysis in Social Services Employment
This study (i) compares the size of social services employment across countries, (ii) case-studies benchmark countries and (iii) estimates the determinants of social services employment. By doing so, this study aims to offer a com..
Dong-Hee Joe et al. Date 2021.12.27
Competition policy, Labor marketDownloadContentSummary정책연구브리핑This study (i) compares the size of social services employment across countries, (ii) case-studies benchmark countries and (iii) estimates the determinants of social services employment. By doing so, this study aims to offer a comprehensive reference for policy making in related fields in Korea. In particular, this study compares the size of social services employment per population using the OECD data. Motivated by the Moon Jae-in administration’s expansion of social services employment, this study compares the value of this variable in 2016, right before the Moon administration, and in 2019, the most recent data available as of this study, across countries. This study takes the representative countries for each category of the commonly used categorization of welfare state regimes, namely Germany (Conservative), the United Kingdom (Liberal), Sweden (Socio-democratic) and Japan (East-Asia). For each case, this study looks at the definition of social services, characteristics of their delivery and the sizes of government spending and employment in that sector. Finally, this study estimates a fixed-effects panel model for the determinants of the size of social services employment per population, using the OECD data. -
30th Anniversary of Diplomatic Relations between Korea and Central Asia: The Evaluation of Economic Cooperation and Four Major Cooperation Tasks
Central Asia refers to five countries: Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan, which became independent after the dissolution of the Soviet Union in 1991. The Region, located in the heart of ..
Young Jin Kim et al. Date 2021.12.27
Economic development, Financial cooperation Russia EurasiaDownloadContentSummaryCentral Asia refers to five countries: Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan, which became independent after the dissolution of the Soviet Union in 1991. The Region, located in the heart of the Eurasian continent, is attracting attention as a key promising participant for regional integration projects of major powers, and is the site of fierce geopolitical competition between Russia, China and the United States. Central Asian economies which are dependent on the export of energy resources such as oil and natural gas, are diversifying their industrial structure through policies to encourage manufacturing industry in line with the transition to a global carbon-neutral era, and are implementing policies to expand the development of new and renewable energy. In addition, as non-face-to-face activities have become normal due to the COVID-19 crisis, digital transformation including ICT industry is accelerating in Central Asia, where population density is low.2022 marks the 30th anniversary of the establishment of diplomatic ties between Korea and the five Central Asian countries. Korea has grown into an important import partner in Central Asia over the past 30 years. According to the official statistics of each country in 2020, Korea is the third largest importer of Kazakhstan, the fourth largest importer of Uzbekistan, and the seventh and ninth largest importer of remaining three Central Asian countries. On the other hand, Central Asia is not a major trading partner for Korea, as it accounts for less than 1% of Korea’s total exports and imports. Trade items between Korea and Central Asia are also limited to some items due to differences in economic structure and economic development. However, the possibility of cooperation between Korea and Central Asia is increasing as the 4th Industrial Revolution and economic modernization policies of Central Asian countries have led to major changes in economic and social structures of Central Asian countries.Central Asian countries are striving to modernize their economies and diversify their industrial structures for sustainable economic development, and are pushing for modernization of the domestic financial sector to expand domestic investment and successfully attract overseas investment.In addition, with the advent of the carbon-neutral era, the development of new and renewable energy is being promoted, and the digitalization of the economy is being pursued in accordance with the global trend of the 4th industrial revolution. At the same time, governments in each country are implementing improvement policies to strengthen their capabilities in health care sector as they face medical and health crises such as the shortage of medical supplies due to the COVID-19 outbreak. In other words, important tasks emerging in Central Asian countries is to successfully overcome the health crisis and promote stable economic development. For this purpose, important future cooperation tasks between Korea and Central Asian countries is to break away from the existing cooperation limited to some items and to discover areas of cooperation for building mid- to long-term cooperative relationship.In celebration of the 30th anniversary of the establishment of diplomatic ties between Korea and Central Asia, this study used the following research methods to evaluate the achievements of cooperation in the fields of diplomacy and economy, and to analyze the four major cooperation areas in depth.First, the contents of the research topic of this report were analyzed and organized using various primary and secondary literature and statistical data. These literature and statistical data were actively used to analyze the current status and characteristics of politics, diplomacy, and economy in Korea and Central Asia, and to analyze the cooperation status and performance of four major cooperation areas: digital cooperation, renewable energy cooperation, financial cooperation, and health care cooperation.Second, in order to improve the quality of this study by obtaining the opinions and advice of experts, a number of experts related to each subject were invited and expert meetings were held. In particular, the objectivity and validity of directions and policy proposals of this study were enhanced by listening to the opinions of experts focusing on the four major cooperative areas.Third, due to the COVID-19, field research and interviews with local experts were practically difficult, so written interviews were conducted with experts from Central Asia working in government, academia, and private sector living in Korea and Central Asia. This study was intended to provide vivid information and conduct realistic research by reflecting the results of these written interviews In commemoration of the 30th anniversary of diplomatic relations between Korea and Central Asia, this study comprehensively evaluates the economic and diplomatic cooperation between Korea and Central Asia over the past 30 years. Furthermore, this study explored areas with high potential for cooperation between Korea and Central Asia by reflecting the rapidly changing global political, economic, social and cultural environment. The contents of this study can be summarized as follows.First, diplomatic and security cooperation between Korea and Central Asia. Central Asia is a region in which Russia, China, and the United States are in geopolitical competition due to high potential for oil and natural gas energy resource development, bordering with unstable Afghanistan, and high importance as a key point for regional integration projects. Russia is trying to maintain military influence in Central Asia based on historical ties, and China is seeking to expand its economic influence through the Belt and Road Initiative. The United States, which advanced into Central Asia to attack Afghanistan shortly after 9/11, is preparing a new strategy in Central Asia to check Russia and China.Marking the 30th anniversary of diplomatic relations between Korea and Central Asia, the achievements in terms of diplomacy and security between Korea and the five Central Asian countries are as follows. The first is the expansion of the horizon of Korean diplomacy. The past governments of Korea have made efforts to expand their diplomatic ties to Eurasia, and within that, policies of cooperation with Central Asian countries have been steadily strengthened. Second, sharing experiences with Kazakhstan, which voluntarily promoted denuclearization and non-proliferation. Korea is one of the few countries that has a multilateral consultative body with five Central Asian countries, and the two sides are cooperating based on multilateralism.Second, in terms of economic cooperation, Central Asia is not pertaining to Korea’s major trading partners, accounting for less than 1% of Korea’s total exports and imports, but Korea is an important trading partner for Central Asia. Among the five Central Asian countries, Kazakhstan and Uzbekistan have relatively large trade volume with Korea, but the trade volumes between Korea and the other three countries are insignificant. Over the past 30 years, Korea’s total investment in Central Asia has reached $3.596 billion, of which Kazakhstan’s share was $2.661.2 million, accounting for 74% of the total investment in Central Asia, and Uzbekistan accounted for 21.52% with $774 million. The proportion of the remaining three Central Asian countries was insignificant at 2.78% in Kyrgyzstan, 1.66% in Tajikistan, and 0.13% in Turkmenistan. Therefore, in terms of foreign direct investment, investment relations between Korea and Central Asia have been concentrated in Kazakhstan and Uzbekistan. In the 1990s, Korea invested the most in Uzbekistan among Central Asian countries, but since the 2000s, Kazakhstan has maintained the status of Korea’s largest investment destination in Central Asia. Uzbekistan was selected as a major ODA priority partner in 2010 and 2015, making it a major beneficiary among the five Central Asian countries. Uzbekistan was re-selected as an ODA priority partner country in 2021, and Kyrgyzstan and Tajikistan were newly selected as priority partners. Accordingly, Korea’s ODA to Uzbekistan is expected to continue its high performance as it is today, and the ODA to Kyrgyzstan and Tajikistan is now equipped with conditions to expand further.Third, the transition to the digital era presented an important task of ICT cooperation between Korea and Central Asian countries. All five Central Asian countries have established and implemented mid- to long-term strategies for the digital economy. Uzbekistan’s strategy is “Digital Uzbekistan 2030”, Kazakhstan’s is “Digital Kazakhstan 2018 to 2022”, and the Kyrgyz government is pursuing “Digital Kyrgyzstan (2019-2023)”, Tajikistan is seeking “The Concept of the Digital Economy of the Republic of Tajikistan”, Turkmenistan has announced the resolution of “The Digital Economy Development Concept 2019-2025”.The strategies of Central Asian countries commonly set priority areas such as strengthening broadband networks, digital transformation of the economy, formation of a sustainable innovative ecosystem, formation of human capital, expansion of e-commerce, and formation of e-government. Korea-Central Asian digital cooperation is largely divided into ODA projects and private cooperation. Korea has been continuously expanding its ODA projects with Central Asian countries, mainly cooperating in the fields such as e-government, geographic information system, and educational digitalization. The cooperation of the private sector related to the digital economy largely consists of the export of ICT devices such as mobile phones and the advancement of service companies such as KT and LG CNS, and the export of ICT devices has been led by Samsung Electronics and LG Electronics. While Korea’s cooperation with Uzbekistan, which has been Korea’s ODA priority partner, is high, while ODA projects and private entry to other Central Asian countries were still on the low side. However, as Kyrgyzstan and Tajikistan are selected as priority partners for ODA in 2021, cooperation with these countries is expected to expand further in the future.Fourth, the possibility and policy tasks for new and renewable energy cooperation between Korea and Central Asia were analyzed. Among the Central Asian regions, especially Uzbekistan and Turkmenistan have the greatest potential for solar power generation, and Kazakhstan has a high potential for wind power generation as it can generate wind power in about 50% of the total land area. These industries are very useful in terms of economic and energy security in Central Asia. Central Asian countries have established national strategies for the construction of new and renewable energy facilities. However, only Kazakhstan and Uzbekistan have prepared concrete plans for the implementation stage of renewable energy strategy. The governments of Kazakhstan and Uzbekistan have announced plans to generate more than 10% of electricity generation from solar and wind power by 2030, and significant investments are expected to be made to achieve this goal. In Central Asia, Kazakhstan and Uzbekistan are in the stage of developing new and renewable energy industries in earnest according to their national development strategies, and many wind power and solar power projects are being promoted. As a result, opportunities for foreign companies to participate in local businesses are increasing significantly, and competition for bidding orders from each country is fierce. Korea needs a national strategy and support to advance into Central Asia in consideration of new and renewable energy cooperation by breaking away from the existing Korea-Central Asian energy cooperation limited to oil and natural gas cooperation.Fifth, the current status of the financial industry in Central Asian countries and the tasks of financial cooperation between Korea and Central Asia were analyzed. Financial cooperation between Korea and Central Asia is also a promising field for cooperation in that Central Asian countries are promoting industrial diversification and modernization through foreign capital attraction. Central Asian countries have low competitiveness in financial markets, and financial companies in each country are not able to expand their participation in the global financial market. Therefore, the development of a balanced financial industry is pointed out as one of the urgent national tasks of the five Central Asian countries. In banking sector, Kazakhstan is the most connected to the global financial system among the five countries, Turkmenistan is the most isolated market, Uzbekistan and Tajikistan are heavily dependent on the government, and Kyrgyzstan has restrictions depending on the size of the domestic market. Looking back on the details of Korea-Central Asian financial cooperation over the past 30 years, Korean financial companies and financial infrastructure have advanced into Central Asia, centered on Uzbekistan and Kazakhstan, which have the highest demand for development cooperation among the five Central Asian countries. In the development aid cooperation sector, credit extensions such as development loans and overseas investment loans were concentrated in Uzbekistan, while official development aid was concentrated in Uzbekistan and Kazakhstan in the form of sharing development experience, technical support, and training. However, the need to expand the scope of financial cooperation between Korea and Central Asia is growing as the joint financial market of the European Economic Union is formed and Fintech and ICT emerge.Lastly, health and medical cooperation between Korea and Central Asia. Korean medical institutions have been promoting health and medical cooperation mainly in Kazakhstan and Uzbekistan, which have high demand and purchasing power for medical tourism. In fact, for 10years from 2009, when foreign patients were legally allowed, the rate of increase of inbound patients from Kazakhstan and Uzbekistan to Korea was 67.1% and 48.3%, respectively, higher than the average annual growth rate of attracting foreign patient’s inflows in Korea (22.7%). As such, Korea and Central Asia are complementary to each other in terms of medical supply and demand, thus expectations for medical cooperation between the two countries were high. However, various legal regulations in Central Asian countries, the reluctance of locals who are accustomed to public health to use private medical institutions, and the high current costs of hiring Korean doctors have been obstacles for Korean institutions to advance into Central Asia. However, through President Moon Jae-in’s 2019 visit to Central Asia, regulations that have been pointed out as problems in health and medical cooperation between Korea and Central Asia are being discussed again at the government level, raising expectations for revitalizing health and medical cooperation. In addition, as non-face-to-face contact becoming commonplace due to the COVID-19, various pilot projects are being operated to make telemedicine a reality in Kazakhstan and Uzbekistan. Accordingly, the possibility of local advancement through telemedicine, which Korean medical institutions have tried and hoped for from the beginning of their entry into Central Asia, is increasing.As described above, this study has analyzed the cooperation achievements and tasks in the fields of diplomacy and security, economy, digital, renewable energy, finance, and health care between Korea and Central Asia over the past 30 years. Based on this, this study presents policy implications and tasks as follows in order to enhance mid- to long-term cooperation between Korea and Central Asia.First, it is the field of diplomatic and security cooperation between Korea and Central Asia. Korea should form solidarity with middle powers such as Kazakhstan and Uzbekistan so that peace and neutrality, negotiation and dialogue can function in the great power politics. Most of the agendas in which middle powers can intervene or exercise initiative in the global order centered on great powers are directly related to human security, such as human rights, humanitarian aid, sustainable development, response to climate change, natural disasters, infectious diseases, and nuclear proliferation prevention. Thus, solidarity with middle powers is also related to human security. Therefore, Korea should strengthen diplomatic cooperation with Central Asian countries in terms of solidarity with middle powers. In the post-coronavirus era, cooperation between Korea and Central Asia leads to solidarity of middle powers for human security, and mutual understanding should be enhanced by strengthening public diplomacy in line with the era of the 4th industrial revolution.Next, the key cooperation areas were selected based on the evaluation of economic cooperation between Korea and Central Asia. Despite the disproportionate trade relationship between Korea and Central Asia over the past 30 years, in order to develop a mutually beneficial and future-oriented cooperative relationship between the two sides, Korea needs to select areas of cooperation that can support the sustained economic growth of Central Asian countries and lead the cooperation. These cooperative areas should share Korea’s advanced technological level and development experience and meet the policy demands and needs of each country in Central Asia. In addition, for future-oriented and sustainable cooperation with Central Asian countries, it is necessary to prepare a new framework for economic cooperation. In order to prepare such a new framework for economic cooperation, it is desirable to set the direction of cooperation between the two sides and select the areas of cooperation in consideration of the economic development strategies and economic policy directions and policy demands of each country in Central Asia. Accordingly, in this study, four promising areas of cooperation; 1) digital cooperation, 2) new and renewable energy cooperation, 3) financial cooperation, and 4) health and medical cooperation, between Korea and Central Asian countries were selected, and in-depth analysis and policy measures were presented for each field.First, it is a policy plan for ICT cooperation between Korea and Central Asia. As Korean government promotes online/non-face-to-face economic cooperation and the digital economy of partner countries using ICT technologies such as AI due to the COVID-19, digital cooperation with Central Asian countries that are promoting the transition to a digital economy is emerging as a promising business.Promising fields of digital cooperation between Korea and Central Asia include: a) Broadband network sector, including ICT policy exchange for network construction (frequency management policy and network joint construction, etc.), and cooperation in 5G and advanced technologies /future technologies using 5G such as the Internet of Things, big data, and artificial intelligence. b) It is promising to export Korea’s e-Government model in a package type that includes e-Government promotion and online participation or usage ability directly related to practical use, which is needed by the people of Central Asian countries. c) It is possible to export new services, business models, and security technologies of Korea to the e-commerce market in Central Asia, which is in its infancy, and it is possible to enter various application fields such as fintech, payment-related applications, and edtech, where demand is expected to increase with the growth of e-commerce in Central Asia. d) As agriculture is a major key industry in Central Asian countries and can receive budget support from international organizations, smart farming-related services, such as seed testing, human resources and management-related training, data management/precision system, etc., are promising. e) Smart city business sector, which includes multiple layers of solutions (smart transportation, smart building, smart water supply, smart energy, smart waste management, smart safety/disaster prevention solutions, etc.). f) It is necessary to establish a startup ecosystem that can create various innovations using ICT technology.Considering that Central Asian countries lack the financial capacity to pursue digital projects, Korea should actively seek cooperation by winning bids for digital transformation projects from Central Asian countries and participating in several international development bank projects. It will also be necessary to consider how to leverage the EAEU and Russian/overseas channels in digital cooperation with Central Asia to enter the market. At the same time, Korea should focus on cooperation with Kazakhstan and Uzbekistan so that this cooperation can be expanded to the other countries step by step.Second, in accordance with the transition to a carbon-neutral era, cooperation in renewable energy between Korea and Central Asia should be promoted. In Central Asia, local business risks are too high for private companies to carry out alone, and there is insufficient information for domestic companies to enter the renewable energy field. There are many problems in local businesses that are difficult to solve with the efforts of private companies alone. Therefore, in order for Korean companies to enter the new and renewable energy business in Central Asia, which has great potential, institutional support at the government level is necessary.The governments of Kazakhstan and Uzbekistan have clearly stated their intention to develop new and renewable energy with private capital rather than government funds in their national development strategies.Considering that the private sector in both countries has limited funds to invest in this field, the new and renewable energy project will be carried out with the financial support of foreign governments or multilateral development banks in the PPP method. As it is true that Korea lacks in price competitiveness and financial support compared to its competitors, it will be important to actively cooperate with the local government from the initial stage of the project to be selected as the preferred bidder.Energy projects are mostly large-scale projects that require a long-term investment of a large amount of investment. However, various reasons, such as changes in local laws/systems and bureaucracy in Central Asia, are hindering entry into the local market, and private companies are experiencing difficulties in investing. There is a need for institutional measures to protect investors through consultations between the Korean government and the Central Asian government. In addition, in order to receive payment guarantees from local governments for the amount of PPP investment, an agreement between countries is required. Currently, the public-private network with the local country is well formed, so using it to discover and participate in new projects is an effective strategy to increase the penetration power of Korean companies. Considering that Central Asian private and governmental funds are insufficient, it is necessary to efficiently utilize Korean ODA funds to advance into new and renewable energy projects in Central Asia. In addition, it is necessary to actively participate in projects funded by multilateral development banks.Third, it is the field of financial cooperation with Central Asian countries that are actively promoting foreign capital attraction. The following long-proposed existing agendas such as capital market cooperation, SME financing for Koryoin(Korean diaspora) companies in Central Asia, public finance and resource development through international financial institutions, plant project funding support, and transfer and provision of basic knowledge and technology necessary for nurturing manufacturing for industrial diversification and advancement in Central Asian countries, regular advice on credit guarantees necessary for fostering special economic zones and SMEs, etc. are still considered necessary to build long-term and sustainable financial cooperation.However, considering the rapidly changing circumstances surrounding the financial industry, it is necessary to approach the existing agenda in a new way or to readjust the agenda. In relation to the integration efforts of Eurasian countries, including Central Asia, important areas in which Korea can contribute or cooperate in the future financial sector of Central Asia are as follows. Integration of Central Asian financial infrastructure, implementation of a multilateral payment and settlement system using local currency or single currency in the region, stock market development and revitalization of investment in CIS countries, support for overcoming financial crisis, etc. In order to induce active investment in raising funds for regional development, it is necessary to establish a guarantee fund that mitigates investment risk through multilateral cooperation or to actively participate in financing and financial support projects of international financial institutions. In addition, it is important to expand mutual cooperation through active participation of Korean public financial institutions related to the improvement of financial market infrastructure such as payment and settlement infrastructure, fintech, and credit rating systems, which are becoming increasingly important with the spread of digital finance. Regular multilateral or bilateral meetings with financial regulatory supervisors in Central Asian countries are important in order to politicize these diverse financial cooperation-related agendas, share experiences, and discover and continuously promote mutually beneficial cooperation tasks.Lastly, health and medical cooperation between Korea and Central Asia, where the possibility of cooperation has increased more than ever due to the COVID-19 crisis. Due to the global pandemic of COVID-19, our daily life is changing in a non-face-to-face manner based on digital technology. Digital-based non-face-to-face activities increase convenience and reduce costs as there are no time and space restrictions.Digital technologies also have the advantage of being scalable through networks. Korean medical institutions with strengths in IT sector will be able to quickly adapt and apply these changes to advance into Central Asia in the form of non-face-to-face treatment and medical platforms. In particular, the medical platform business model that reflects the local people’s demand for high-quality medical services following the introduction of the health insurance system can be expanded and exported to Russia and other Russian-speaking CIS countries. At the same time, by conducting non-face-to-face education to strengthen the capabilities of local medical staff, Korean medical institutions will be able to secure manpower to assist with remote medical treatment and contribute to the improvement of health care in Central Asian countries.For such non-face-to-face treatment and digital platform business between the two sides, the policy support of Korean government should be made in order to alleviate institutional regulations, as well as the efforts of Korean medical institutions. -
Study on Economic Cooperation between Korea and Russia in Aspect of Small and Medium Sized Enterprises
This research was inspired by the 30th anniversary of Korea-Russia diplomatic ties and the COVID-19 pandemic. Seeking solutions to enhance economic cooperation between Korea and Russia in the aspect of small and mediu..
Dong-Yul Kim et al. Date 2021.12.24
Economic development, Economic cooperation Russia EurasiaDownloadContentSummaryThis research was inspired by the 30th anniversary of Korea-Russia diplomatic ties and the COVID-19 pandemic. Seeking solutions to enhance economic cooperation between Korea and Russia in the aspect of small and medium sized enterprises differentiates this research from previous researches. The current status and characteristics of Russia’s small and medium enterprises were examined first. Currently the Russian government’s policy on small and medium enterprises is changing drastically. Analyzing recent changes and economic cooperation of the Russian government with China and Germany provided implications for economic cooperation between Korea and Russia. Lastly, the study investigates collaboration projects between Korean and Russian small and medium companies. Based on these findings, the study evaluates the achievements and limitations of economic cooperation between Korea and Russia.While Russian small and medium-sized businesses are constantly developing, their performance remains lacking compared to developed countries in terms of contribution to GDP, sales and employment. The productivity of small and medium-sized companies is significantly lower than that of large enterprises. With development of the Russian economy largely relying on government-run firms, economic growth is led by companies related to the energy and mining industry, thus requiring huge investment from the government. This leads to governmental support measures within the financial and tax system concentrating on major government-run companies.Innovation is urgently needed on the energy-focused industrial structure. Along with this innovation, the worldwide trend of the 4th industrial revolution is expected to trigger growth of Russian small and medium businesses on a constant basis. The growth is anticipated to accelerate due to Russian government’s policy to promote growth in innovative industries such as ICT. In addition, policy programs such as the Skolkovo Foundation have helped non-governmental and innovative small and medium businesses to emerge.In July of 2007, the Russian authorities adopted federal laws “on the development of small and medium-sized businesses in the Russian Federation” (О развитии малого и среднего предпринимательства в Российской Федерации) to institutionalize support for small and medium sized companies. Also, the Russian government approved “Initiative support for small and medium sized business and independent companies” in December of 2018. This program stipulates five different support methods (innovation of business environment, financial aid, aid to accelerate companies’ development, establishment of system to support agricultural corporation and farmers and promoting to found venture companies) for small and medium companies.Collaboration with foreign high-tech companies of countries such as Germany and China as well as the Russian government’s supporting policies play a significant role on development of innovative small and medium-sized companies. The Korean government also needs to engage in cooperation with Russian small and medium-sized businesses, for instance through government-hosted forums and funds launched by bilateral cooperation. Cooperation between small and medium sized companies through bilateral governments or government-run firms is also necessary.The economic cooperation of Korea and Russia was originally built around large-scale infrastructure and energy development projects by major companies. Recently this aspect is turning into industrial and technological cooperation between small and medium-sized companies and startups.Despite the attempts to change the structure of bilateral economic cooperation through a Korean and Russian innovation platform, the size and range of bilateral companies’ cooperation are limited in the aspect of trade, investment and technology. Global startups less than 7 years old have difficulties with expansion and consistency in Russia. As a result, milestones from the domestic market to global prospective companies in Russia are insufficient when considering exports of all Korean small and mid-sized companies. Exports are still highly concentrated in goods such as vehicles and parts, and cosmetics, while exports in promising fields such as next-generation semiconductors and displays, robots, bioindustry and heath industry remain in gridlock. The level of participation in the global value chain is also estimated to be low. Small and medium sized companies’ imports are small compared to major corporations, highly relying on specific products such as marine products and lumber. Also the majority of imports are conducted on a small scale.The scale of technical transfer between both countries is trivial considering the level of original technology and commercial technology they represent. Most technical transfers are conducted by major companies, bringing the percentage of small and medium sized companies in technical transfers down to merely 10 percent. Investment of small and medium sized companies on Russia is lower than that of developing countries such as Vietnam and India, not to mention investment in the U.S. and China. In addition, those investments are mostly focused in the service industry, wholesale and retail sales industry and agricultural fishing industry.Overall economic cooperation between the two countries goes far beyond expectation. This fact, however, implies the potential and chance of bilateral cooperation are significantly high. If small and medium sized companies’ lack in information and funding capacities are supplemented through an innovative platform, the level of trade, investment and technological transfer of bilateral participants is expected to rise higher.Sluggish cooperation of bilateral small and medium-sized enterprises can be overcome through improvement in institutional support. Economical cooperation between Korea and Russia has continued since 1997. The economic cooperation platform must be reinforced to catch up with the innovations made since then. The current innovation platform is insufficient from the perspectives of trade, investment and finance.The study goes on to consider several steps to boost expansion of Korean small and medium sized companies. First of all, supporting plans need to be subdivided according to a company’s characteristics. Secondly, more support should be provided in the area of five promising consumer goods, which as of yet show poor performance. Thirdly, the government needs to help investment toward Russia result in higher value creation. Lastly, the GVC between Korea and Russia needs to be expanded into a broader form.Cooperation tasks from the perspective of small and medium sized corporations can be summarized in nine points. First, it will be necessary to take a long-term approach. The most important condition learned from cooperation between Russia-Germany and Russia-China is consistency. The second point to consider is technical cooperation based on public nature and reliability. Third, stable technical cooperation could be made possible through joint expansion of major companies and small and medium sized companies. Fourth, technical cooperation can be pursued by utilizing Russian exclusive industrial zone and techno parks. For instance Korean technical venture companies can establish joint ventures with Russian companies. Fifth, technical cooperation can be settled through the 2035 National Technology Initiative Policy, strongly supported by the Russian government. Sixth, the stability of technical cooperation could be improved by utilizing Russia’s import substitution policy. The seventh direction to consider would be constructing a new type of model such as technical cooperation through exporting Korea’s commercialization technology to Russia. Eighth is technical cooperation between small and medium sized companies in the agrifood field. Lastly, the role of the Innoviz Association and Korean Federation of Small and Medium Businesses should be reinforced, especially in technical cooperation for smart factory.In conclusion, more attention and investment on the part of the Korean government is necessary when considering Russia’s abundant natural resources and its geopolitical importance, which are receiving attention from North Asian countries. The importance of the Eastern Economic Forum, held since 2015 annually in Vladivostok, is growing higher. The Korean government’s strategic support for corporations is urgently needed. Korea and Russia are planning to construct an industrial complex in the Littoral Province. The industrial complex will be distributed in 2022 and its completion is planned in 2024. The Korean government should actively utilize the industrial complex as a representative example of successful cooperation between Korean and Russian small and medium sized companies.