- It is certain that China will join WTO by June next year, although its accession is still conditioned by the successful conclusion of bilateral negotiations with EU and other major members of WTO, ratification by the China's Peoples Congress, and the consensus(or approval) among the General Directors' Meeting of the WTO.

- Under such circumstances, this report aims to study the multi-faceted direct as well as indirect effects of China's accession upon China's economic reform, world trading environment, East Asian politico-economic front, and finally the prospects of the Korean economy.

- First of all, it is clear from the WTO accession protocol that China's entry into WTO would enhance the accessibility of foreign firms into the Chinese market fraught with various tariff and non-tariff barriers(NTBs). The increase in the number of foreign transnational and multinational firms entering the China market would intensify the competition among firms in China and promote the gradual transformation of the nature of China's market from suppliers' market into buyers' market. In the process, however, such sectors as agriculture, state-owned enterprises, stated-owned specialized banks as well as local international trust and investment corporations that have weak global competitiveness will be faced with mergers, spinoffs, and bankruptcies.

- China would enjoy negligible impact effect associated with tariff concession to be made by the existing WTO members, since it has already been granted MFN status by them under the respective bilateral arrangements. More gradual yet more long-standing effect would stretch over a long period until 2005 as China accelerates its reform efforts to keep up with its promises and commitments it has made. Legal policies and trade systems shall be improved, whereas the tax incentive to foreign firms will be gradually phased out. The net effect would be the sharpening of China's price and non-price competitiveness, which would force the Korea's share to fall in major overseas export markets including the U. S., EU, and Japan.

- In addition, there are some major uncertainties concerning China's honoring of its promises and commitments at the stage of implementation. Major foreseeable obstacles are backward legal systems, guanxi-based culture, localism, and rampant practices of corruption. Overall, however, by the end of 2005 when major NTBs are to be abolished, China would enter into the preliminary stage of market economy in which competition and efficiency prevails.

- When it comes to the impact on the Korean economy, China's accession into WTO would bring about increases in export to China in sectors such as textile, petro-chemical, iron & steel industries. Industries such as electronic parts and components, semiconductors, telecommunications, and computer software industries would also see certain positive effects. However, automobile, high-tech home appliances should witness only a natural trend growth in exports to China since those sectors continue to be protected by comparatively high tariffs up until 2005.

- The Northeastern part of China, supplying the majority of the agricultural products subject to the lower tariffs and increased import quota, may redouble its efforts to market its excess agricultural products into the neighboring export markets of Japan and Korea. This necessitates Korean government to improve the sanitary and phyto-sanitary standards, customs procedures and the country of origin procedures related to agricultural and marine products. The imposition of special safeguards and special anti-dumping duties, however, should be the last resort subject to careful consideration because such action may provoke China's complaints and/or retaliation, and possibly Sino-Korean trade disputes. Rather, it is advisable that Korea goes to the Dispute Settlement Body of the WTO for the multilateral settlement of the case in question. - China's accession into the WTO is a boon to Korea since Korean firms may be able to exploit the niche markets of China's service industries, including finance, insurance, securities, distribution, audio& visual, travel, telecommunications, and internet are regarded promising. To this aim, Korean firms may need to diversify their entry modes into management contract, franchising, SOHO, and technical licensing from the existing modes of export and FDI.

- Over the long haul, however, it is essential that Korean firms sharpen their competitive edge over Chinese products in the quality of products and services by increasing R&D investments and utilizing international licensing. By so doing, they may be able to defend overseas and domestic markets and make more effective inroads than ever into the China's domestic market.

Korea made a significant progress towards the OAA(Osaka Action Agenda) objectives and Bogor goals through the implementation of IAPs(Individual Action Plan) 1996 to 1998. Korea removed its barriers to trade and investment in various areas, enhanced transparency, took policy reforms, and amended the laws and regulations to achieve the OAA Objectives and Bogor Goals. Korea's performances in non-tariff measures and investment are outstanding.
Performances in Services, Standard and Conformance, Government Procurement, and Mobility of Business People are also noteworthy. However, Korea needs to do better in the areas of Intellectual Property Rights, Deregulation, and Rules of Origin.

The Mekong River, flowing through Yunnan Province, Myanmar, Laos, Thailand, Cambodia and Vietnam, is the largest river in Southeast Asia and those countries' lifeline as well. The area, since the end of 1980s, has undergone rapid economic growth due to the conversion to a market-oriented economy system and a policy of continuous economic development. The tremendous economic growth potential of this area stems from its abundant labor force and natural resources.

Activities to develop the Mekong River Basin resumed in the first half of the 1990s. Much of the support for the Mekong River Basin Development Plan has been undertaken under the auspices of the ADB, MRC, and ESCAP. The Mekong Development Project focuses on several key sectors: traffic, energy, communications, trade and investment. These SOC construction projects, including the TAR (Trans-Asia Railway) Project, make for an extremely attractive market. However, the Mekong River Basin Development suffered a setback following the financial crisis in East Asia that began in July 1997.

The development of various infrastructural elements, such as roads and energy, are urgently required for continued economic growth and the inducement of foreign capital for the Basin development. Furthermore, as the economies in the region have begun to recover from the financial crisis, it is expected that the Basin development activities will resume. With all the nations in the region having joined ASEAN, except for China, the region has become even more important and is expected to experience accelerated economic development backed by repercussions of economic growth. In particular, if the GMS Fund, which was discussed at a regional meeting in Manila in September 1998, is established, the development of the Mekong River Basin Development may be expedited.

There will certainly be renewed interest in investing in the region by Japan, Australia and Europe as the Basin is increasingly seen as being an untapped but potentially lucrative new market. The existing ASEAN members will also continue their active participation in the Basin Development through the 'One Southeast Asia (ASEAN 10)' banner.
Korea had a great deal of interest in the Basin Development even prior to the ASEM summit in March 1996, and Korean corporations had been active in road construction and hydraulic power projects, and government aid, which had been inadequate up to that point, has been expanded and facilitated since the summit. While Korea remains keenly interested in participating in the development of the area, the lingering effects of its economic crisis prevent it from immediate participation in the Basin Development. Taking into account, however, the fact that the Basin and Southeast Asia are Korea's largest markets and possess great potential for future growth, it is essential that Korea's active participation in the region is viewed in a mid and long-term context.

There have been numerous merger and acquisition (M&A) activities in the world, primarily in the United States and Europe. Cross-border M&A transactions have also been on the rise.
In the United States, most M&A activities have, thus far, taken place among large firms, but lately even more large firms have joined the trend. Consequently, the volume of mergers has been steadily increasing.

With the launching of the European Monetary Union (EMU), there has been a wave of mergers among large European firms in response to the enlarged market.

In addition to Europe, where universal firms have traditionally been permitted, firms in the United States and Japan have increasingly conducted intersector transactions, following the relaxation of regulations governing such transactions in those markets.

M&A activities have become prevalent worldwide as more countries have opened themselves up economically with the launching of the World Trade Organization.

The 1990s have seen an almost unlimited, transnational competition among firms everywhere with the advent of globalization and the development of information technologies.

In response to those conditions, many firms adopted strategies designed to meet them. They have increased their market power by raising market share. They have also reduced unit costs and increased operating efficiency by eliminating redundant facilities and personnel.

Overall economic conditions are favorable in the United States and Europe. When the economic conditions are likely to remain favorable for the foreseeable future, firms tend to increase their size and expand into other businesses since the cash flow is vibrant and the expected rates of return are predictable.

M&A intermediaries, such as investment banks, contribute to the rise in the number of M&A transactions by assisting in the process of selecting and evaluating firm suitable for merger or acquisition, negotiating the terms and signing the agreements.

Korea can gain valuable insights and knowledge by understanding, and learning from, the increased M&A activities. Korean firms need to focus on increasing profit margins by restructuring themselves and adopting advanced skills and techniques.

The need for economic cooperation between Northeast Asian countries is increasing due to several factors. These are the deepening of the economic interdependence among the three countries; the need for the prevention of overlapping investment in major regional industries; as a response to the formation of economic blocs in the world economy and the growing number of fields requiring the coordination of common interests such as fishing activity rights and the problem of trans-boundary pollution.

None of the Northeast Asian countries has joined any regional trade agreement so far but and Japan and Korea have recently renewed their interest in concluding some kind of regional trade agreement. Also, China has intensified its trade liberalization process and tried to modernize its institutions in order to become a member of the WTO. Thus, the possibility of establishing Northeast Asian economic cooperation is higher than ever before.

However, we still face some obstacles in achieving any kind of economic integration in the form of a Free Trade Area because of widening intraregional trade imbalance, the economic differences between members, China's adherence to its socialist regime and also a lingering and bitter history in the region. Therefore, in creating the Northeast Asian Free Trade Area, we need to implement a strategy that will gradually lead to regional economic integration while overcoming the aforementioned obstacles. That is, it is essential for the three countries to actively pursue coordination for the successful launch of regional economic integration. In the short-term, we need to standardize and modernize the differing trade norms of each country, such as customs procedures, anti-dumping rules, the unification of product classification, rules of origin, etc, in order to lay the groundwork for economic integration and we should implement a common incentive policy to accelerate the restructuring and cooperation of regional industries. In the mid-term, we should facilitate intra-regional trade by reducing tariff rates of items of concern for the three countries as well as for Japanese tariff rates with high customs duties. In the long-term, we should create the Northeast Asian Free Trade Area by achieving mutually preferential trade liberalization based on a liberalization scenario designed to solve the regional trade imbalance. The liberalization scenario consists of the differential liberalization based on the early trade liberalization of Japan and the subsequent liberalization Korea and China at the midpoint of Japan's liberalization process. In addition to tariff reduction, deliberate measures for promoting intraregional trade, such as preferential ROO, will be needed.

In order to carry out this long-term economic integration program successfully, we need to create the Northeast Asian Economic Integration Promoting Commission composed of high level officials and professionals from each country, which will occur when there exits a favorable environment within each of the three countries for integration. The commission will be responsible for preparing long-term plan for integrating the three economies and for overseeing the integration process into a single free market.

Since the recent turbulence in emerging markets, which gave rise to fears of global recession, has settled down, most of the economies recently in crisis have begun to recover, and the economic conditions of the major industrial countries are robust. The international financial environment has stabilized with the spread, to the emerging market economies, declining after the Brazilian crisis in January. The Japanese economy recorded a positive growth rate in the first half of 1999 after a negative growth in 1998, expectations for a European economic recovery have materialized, and the U.S. economy has maintained its long-term growth with low inflation and a low unemployment rate.

The world economy in 2000 will show stable growth with the economic conditions of the crisis affected economies being improved and the Japanese and European economies recovered. The U.S. economy will show a slowing of growth to sustainable rates, a soft landing, due to the correction of the stock market and an increase in interest rates. The low interest rates and an recovery of the Asian economies will help the Japanese economy to grow faster than it had in 1999. The EU economy will grow by 2.6-3.1 percent based on the improvement of consumer and business confidence, and the increase in exports to emerging market economies. The continuation of the economic restructuring and the improvement of the international economic environment will lead the East Asian economies to strong growth.

However, there remain risks which may hinder the stable growth of the world economy. First, the slowdown in the U.S. economy may be more abrupt than expected if inflation pressure grows, or if the stock market correction surpasses expectations. Secondly, if the economic recovery of the Japanese and the European economies will not be sufficient, the Asian developing economies and the Latin American countries will suffer. Thirdly, large increases in current account imbalances among the major economies may create protectionist pressures or destabilizing movements in international exchange rates.

21 member economies submitted Individual Action Plans in 1998. This includes first submissions by three new member economies; Peru, Russia, and Viet Nam. Even though the volume of IAPs is heavy, the content is not faithful enough. Some economies have submitted an identical version three times. Others did not follow the IAP guidelines adopted at the Senior Officials' Meeting(SOM), therefore, it is very difficult to find out what has been achieved and what has been newly added to the IAPs.

Overall, the current IAP system requires major reform in order to enhance the utility needed for the achievement of the Bogor Goals. First, member economies should submit their IAPs in conformance with the SOM guidelines. Second, the Peer Review Process of IAPs should be strengthened including the standardization of the Process. Third, the submissions should be made more widely available to the public and the press so that the member economies gain more input and stimulus as a result of their publication of their IAPs.

A Study on the National Competitiveness Assessment of the IMD Baksoo Kim·Yunjong Wang·Dongwha Shin·Hyongkun Lee
Korea's national competitiveness, based on The World Competitiveness Yearbook 1999 of the International Institute for Management Development (IMD), has continually declined over the past five years. In particular, it is a genuine surprise that our national competitiveness is remarkably inferior to that of countries which experienced the recent financial crisis such as Malaysia and Thailand as well as competitors like Taiwan and even China.

National competitiveness may be defined as a country's overall capability to create the most effective social structure, institutions and policies that allow its company within the national boundary to be more competitive in the world market. Therefore, our diminished ranking brings us to admit that our country has gradually lost its competitiveness in the global market.

The ranking of national competitiveness, as given by the IMD, is utilized as a useful source of information when multinational companies seek investment opportunities. Since Korea is currently, and urgently, focusing on the policy issue of attracting foreign direct investment, our diminished competitiveness is a serious problem. Also, in the event that our national competitiveness continues to decline, or remains at a low level, domestic companies would be inclined to move their production sites abroad. This is simply because there is no attraction in maintaining business operations in a country with a bad business climate. In addition, if a hollowing out phenomenon occurs, both a sharp increase in unemployment and in the long term a collapse of the very foundations of manufacturing would result. Therefore, we have to improve our competitiveness both to successfully compete with other countries in the world market, through maximizing the competitiveness of Korean companies, and to attract global multinational companies.

However, there exist some views suggesting that the continual decrease in our level of competitiveness is basically caused not only by our internal problems but may, in fact, also be falsely reported due to the methodology used by the IMD. Namely, there exist a number of questions pertaining to the credibility of the methodology of the IMD. According to our study, it has become apparent that the competitiveness methodology of the IMD is problematic. Albeit some problems with the methodology used by the IMD, it is very important for us to recognize, and focus on, the issues which we can address in order to better promote our state of national competitiveness. That is, the IMD assessment gives us a lot to think about and to improve upon.

With this critical, yet analytical, approach in mind, our study deliberates on the definitions and determinants of national competitiveness, the methodology of the IMD, and improvements thereof, in addition to our current state of competitiveness as assessed by the IMD.

This study discovered that Japanese, Singaporean, and Taiwanese firms, which compete with their Korean counterparts in the global market, have developed their unique systems of foreign exchange (FX) risk management. The uniqueness and differences are attributed to their own business environment characteristics and the different developmental stages of their FX markets. As their domestic economies are deeply integrated into the global financial markets, however, companies in all three countries are becoming more exposed to FX risks. Recognizing the costs incurred by ever increasing FX exposures and risks, they all endeavored to develop FX risk management systems.

FX risk management techniques can be classified into internal and external ones. Internal management refers to techniques that involves only in-house resources to avoid FX risks while the latter resort to external resources and market instruments such as financial derivatives to hedge the risks that cannot be avoided through internal management.
It is commonly observed in both Korean companies and foreign counterparts that larger firms with bigger exposures to FX risks tend to more keenly recognize the importance of FX risks. Also, those firms having overseas networks are more inclined to use internal techniques, such as netting through foreign subsidiaries.

The countries with longer histories of flexible exchange rate regimes, such as Japan and Singapore, have shown more systematic management of FX risks. Japanese firms focused more actively on coping with changing business environments caused by the New Foreign Exchange Transaction Act of 1998, rather than passively reacting to a strong Yen as in the past. Multinational companies in Singapore have practiced the most advanced system of FX risk management by using overseas networks. Taiwan, on the other hand, has displayed a rather passive stance towards FX risk management. Even though Taiwan adopted a floating exchange rate regime in 1978, and the size of its daily FX trading volume is almost same as that of Korea, most small and medium-sized companies in Taiwan have not practiced FX risk management.

While Japan, Singapore, and Taiwan have shown different degrees of development in the FX market, Japan - the third largest foreign exchange market in the world  possesses various FX risk-hedging products. The most extensively used market instrument is the outright forward contract. Outright forward contracts have been more widely used since the abolition of the Real Demand Principle in 1984. Larger Japanese firms have developed the Asset and Liability Management (ALM) system to cover overall FX exposures more flexibly on a continuous basis.

The foreign currency-denominated bonds have been also used as hedging devices. Impact loans have been widely used before the New Foreign Exchange Transaction Act. Impact laons are now utilized primarily for ALM purposes.
Singapore, as a small open economy, originally maintained a very passive stance towards the internationalization of the Singapore dollar. However, Singapore has devoted itself to making Singapore an international financial center by initiating capital account and foreign exchange liberalization along with the augmentation of its financial infrastructure. Multinational enterprises located in Singapore are also using outright forward contracts extensively. Since these firms hold high international credibility, they do not have any difficulty in securing credit lines from financial intermediaries in Singapore. In addition, the active transaction of Asian currencies in the Asian Dollar Market (AMD) has been supporting Singapore as an efficient international financial center for FX risk management.

With regards to Taiwanese firms, which are mostly small and medium-sized enterprises, FX risk management cannot, by nature, be a top priority. Especially when the government has frequently intervened in the foreign exchange market for the purpose of its currency stability. Thus, most companies have not recognized the need for FX risks management.
External asset and liability management is becoming increasingly important for large Korean companies with foreign subsidiaries. The efficient and comprehensive ALM system will be an important building bloc for FX risk management and requires a specialized system and competent human resources. The experiences of Japan and Singapore can be viewed as benchmarks for Korean companies. Regarding small and medium-sized firms in Korea, the Taiwanese case of using main banks or general trading companies can be considered as alternative options. In addition, it would be a desirable scheme to create a consortium for FX risk management among small and medium-sized companies.

Obviously, as the depth and breadth of the foreign exchange market in Korea is increasing, various financial products for FX risk hedging will be introduced. However, overall financial markets should be normalized and strengthened along with the development of institutional infrastructures. Although recovery of the economy from the financial crisis is underway, there still are many firms that cannot receive enough credit line for forward contracts. The reasons are twofold. First, the financial intermediaries are hesitating to make contracts because of the default risk of the firms. Second, financial intermediaries cannot square their position by contracting with foreign banks or entering Non-deliverable forward (NDF) markets because of low credit ratings. Only when the credit ratings of those domestic financial institutions have been enhanced through rigorous restructuring, will credit lines become more accessible.

OECD Issues on Trade and Competition Policy and Implications for Korea
Mikung Yun·Jongkeun Kim·Yongsook Na

The OECD has pronounced competition policy to be an important trade issue of the 1990s and by establishing a specialized working group, has been a forerunner in providing a forum to discuss the relationship between trade and competition policy. This report examines salient aspects of the discussion - multilateral agreement and other forms of international cooperation with respect to competition policy, effects of anti-dumping measures, vertical restraints, mergers, and international cartels on market access - that took place in the OECD and elicits implications for Korean policy makers.

The report pays particular attention to real world examples to help explain the conceptual issues. The study concludes that the focus of the OECD discussion has shifted from particular anti-competitive issues such as vertical restraint or anti-dumping to rights of firms under local competition laws, the merits of bilateral agreements, and application of WTO principles such as transparency and non-discrimination to bilateral agreements. This leads the authors to predict that whether a multilateral agreement is concluded or not in the new round of the WTO, pressure from developed countries to conclude bilateral agreements will take on a greater force.