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Economic Integration in Northeast Asia: Searching for a Feasible Approach
The need for economic cooperation in Northeast Asian region 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 invest..
Inkyo Cheong Date 1999.12.20
Economic integrationDownloadContentSummaryThe need for economic cooperation in Northeast Asian region 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 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.
Economic cooperation should be pursued through a preferential trading bloc that is compatible with WTO rules and that can gain momentum in the process of implementation. One possibility is to conclude a close economic cooperation organization in the region. An alternative can be an FTA among the three. However, this option has so far not been under serious consideration, due to the socialist regime of China, the attitude of Northeast Asian countries suspicious toward Japan because of the history of the past, and the fear of the aggravation of existing economic gaps. But the need for economic cooperation among East Asian countries has been reemphasized after recent changes in the international economic environment, especially after the East Asian financial crisis.
To examine the economic feasibility of Northeast Asian regional economic integration through the expansion of market approach, let us analyze the economic effects of trade liberalization between Korea and Japan, prior to exploring a simulation of economic integration of the three countries. If Korea and Japan eliminate tariff barriers on a preferential basis, Korea is projected to lose by USD 2.0 billion annually, and its trade balance with Japan will worsen by USD 7.1 billion. On the contrary, it appears that Japan will realize substantial gains. This result can be explained by the special conditions of both countries' economies. Korea's major industries overlap with Japan and thus are trade competitors, while Korea has weaker international competitiveness. Moreover, Korea's general tariff rates are higher than Japan's. Therefore, trade liberalization between the two countries will enhance Japanese price competitiveness over Korea's. Korea's dependence on high-tech industrial products from Japan will be higher, while Korea's industry structure will tend towards the development of low value-added industries such as textiles, clothing, shoes, etc, which will deteriorate the overall efficiency of resource allocation in Korea.
Next, a simulation was performed by adding China to the Japan-Korea FTA. Results similar to those in Korea-Japan FTA were obtained. The trade liberalization of the whole Northeast Asian region, however, would increase intraregional trade in a considerable way but at the same time, there is also a possibility that it would deteriorate the regional trade imbalance. This shows the importance of having a well-thought out strategy in achieving regional economic integration.
According to simulation results, the formation of an FTA would substantially improve Korea's and Japan's trade balances, while China would experience a sizeable increase in its trade deficit. This indicates that simple enhancement of market access by removing tariffs and non-tariff barriers (NTBs) within a short period of time is not a feasible approach for economic integration in Northeast Asia. Therefore, in creating an FTA, measures to mitigate anticipated problems should be devised. 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. -
The Relationship between the WTO and APEC : Trade Policy Options for APEC in the 21st Century
APEC is celebrating its tenth anniversary in 1999. Established in 1989 as "the first broad regional institution for intergovernmental dialogue on economic policy issues" in the Asia-Pacific region, APEC has emerged as one of the m..
Date 1999.11.30
Economic cooperation, Trade policyDownloadContentSummaryAPEC is celebrating its tenth anniversary in 1999. Established in 1989 as "the first broad regional institution for intergovernmental dialogue on economic policy issues" in the Asia-Pacific region, APEC has emerged as one of the most powerful regional groups in the world economy, assuming more than 50% of world GDP and trade volume, respectively. In the period since its inception APEC has gone through three development stages: (1) official inauguration and institutionalization (1989-1992); (2) preparation of visions and action plans (1993-1996); (3) implementation (1997-now). Throughout these three stages of its evolution, economic cooperation agenda within APEC has been focused primarily on its two pillars of cooperation -economic and technical cooperation (Ecotech) and trade and investment liberalization and facilitation (TILF) -with financial and currency cooperation gaining importance only after the outbreak of the Asian crisis. In relations to non-members, APEC officially adopted open regionalism as an instrument to contribute to the strengthening of the multilateral trading system governed by the GATT/WTO. Therefore trade policy measures of APEC are serving as the interface between APEC and the WTO. With its big economic (market) size and intense trade relations both within the region and with non-member countries, APEC has acquired some degree of influence in global economic issues. However, APEC has had in reality enormous difficulties in reaching internal consensus on whether and how to implement open regionalism both within the Asia-Pacific and in relations to non-member countries. In the light of the WTO's Millenium Round, this paper elaborates trade policy options available for APEC in relations with the multilateral trading system under the WTO. Main conclusions are as follows: First, In the short- and mid-term, APEC has to contribute to the successful launch and completion of the Millenium Round, whereas in the long-term APEC should concretize and, in possible, revise the operational definition of open regionalism. Second, in the short-term strategy the author regards the successful integration of the ATL initiative of APEC into the official agenda of negotiations of the WTO's Millenium Round as the most important contribution of APEC to the WTO system. Third, developing a single position of APEC on the coverage, modality of the Millenium Round will be an additional contribution of APEC. Especially, balancing the developing and developed memebr economies' interest within APEC will ease the potential tensions between developing and developed member countries of the WTO in the upcoming new round. Fourth, APEC has to reconsider and/or concretize the concept of open regionalism. A well-designed and well-implemented open regionalism concept has the potential to contribute to the strengthening of the multilateral trading system. However, APEC has had so far enormous difficulties in reaching agreement how to practically implement the concept. For this, APEC has three options to choose: implement open regionalism in the form of unconditional MFN treatment; making APEC's liberalization to happen at same speed and coverage as that of the WTO; abandon open regionalism and adopt its own regionalism. With three options showing their own advantages and disadvantages, the central message of the paper is that APEC has to clarify its long-term vision that is viable for the new century. -
The Relations between Government R&D and Private R&D Expenditure in the APEC Economies : A Time Series Analysis
An effective innovation policy for the less developed countries would be different from that of the advanced ones. In most of the less developed countries, we argue that innovation policies designed to link demand and supply for ..
Sun G. Kim et al. Date 1999.11.30
DownloadContentSummaryAn effective innovation policy for the less developed countries would be different from that of the advanced ones. In most of the less developed countries, we argue that innovation policies designed to link demand and supply for technology will not be as effective as has been strongly indicated in previous literature. In addition to building a competitive market condition, government R&D expenditure has to be made for a certain period of time, as one of the necessary conditions for indigenous private R&D.
In this paper, we examined the importance of government R&D expenditure for stimulating private R&D. Our main hypothesis is that government R&D expenditure has significant impacts on private R&D expenditure for the NICs even though the effectiveness may vary by the stage of industrialization. That is, government R&D expenditure does not generate any R&D investment from the private sector at the initial stage of industrial development. However, once the economy's technological capability reaches a certain level the government sector starts to induce investment from the private sector until the share of private firm's R&D grows to a certain level. Using a time series analysis we test the hypothesis for three advanced and two developing member economies in the APEC: U.S., Japan, Canada, Taiwan, and Korea.
We found mutual Granger causality relations between GERD and PERD in the U.S, a unilateral causality from GERD to PERD in the case of Japan, and no causality relation in Canada and Taiwan. For the case of Korea, we found bilateral causality relations for the full period of sample from 1971 through 1997.
Dividing the sample period by two we have no causality relation for the first half from 1971 through 1981. For 1982-1997, however, there exists only uni-directional causality from GERD to PERD as in the case of Japan. -
Ecotech and FEEEP in APEC
This paper that FEEEP/Ecotech Projects which APEC is now promoting is slower than TILF's proceeding speed in its importance and emphasizes that APEC members ought to promote FEEEP more positively and fast.That is, this paper sugge..
Ki-Kwan Yoon Date 1999.11.30
Economic development, Economic cooperationDownloadContentSummaryThis paper that FEEEP/Ecotech Projects which APEC is now promoting is slower than TILF's proceeding speed in its importance and emphasizes that APEC members ought to promote FEEEP more positively and fast.
That is, this paper suggests some difficulties emerged from the process of promoting FEEEP/Ecotech and some countermeasures to overcome those difficulties.
Such difficulties include : ① it has not yet been fully realized to manifest the essence of FEEEP and consensus-making among the member economies, ② there is a great difference in the levels of interest in FEEEP between developed economies and developing ones, ③ the member economies respresent the rich diversity of the region as well as differing levels of economic growth, ④ APEC is faced with many difficulties in fund raising for promoting FEEEP projects in spite of having a nature of which FEEEP-related projects should be imlemented urgently judging from their perceived importance, their start has been delayed and their accomplishment would require a super-long time frame in which to realize result, ⑤ as FEEEP cooperation has essentially a worldwide influence, a close cooperation with non-memebers would also inevitably be deemed necessary, ⑥ as APEC is a cooperation system, it is doubtful whether Asia-Pacific economies perform sincerely their engagement related with FEEEP cooperation, ⑦ as FEEEP cooperation has certain contents partially overlapping with TILF, there is the possibility that APEC's effiency could be diminished.
On the other hand, some countermeasures in order to overcome such difficulties include : ① Drawing of New Concept for Promoting Positively FEEEP Cooperation, ② Initiating a Multilateral Study to suggest Evidently Mutual Effects among Five Aspects of FEEEP, ③ Drawing Consensus-making for using ODA funds in order to raise funds required to promote FEEEP projects, ④ Strenthening publicity activities towards "FEEEP cooperation" in order to have a full response from all member's people. -
Competition Principles and Policy in the APEC : How to Proceed and Link with WTO
There is a growing consensus that competition-oriented policy framework would be instrumental in achieving the Bogor goal of trade and investment liberalization by 2010/2020. As of now, only eight economies have the experience of..
Byung-il Choi Date 1999.11.30
DownloadContentSummaryThere is a growing consensus that competition-oriented policy framework would be instrumental in achieving the Bogor goal of trade and investment liberalization by 2010/2020. As of now, only eight economies have the experience of operating competition policy more than a decade. Many emerging economies of the APEC have only begun to introduce competition policy. Even with the adoption of competition policy, it is true that many economies, developed as well as developing ones, are still haunted by the conventional policy of protecting unproductive sectors and promoting targeted sectors at the cost of overall economic efficiency. The Auckland APEC Leaders Meeting of 1999 adopted the APEC competition principles. The adopted APEC competition principles are based on the four key principles of comprehensiveness, transparency, accountability and non-discrimination. It is a significant step forward, but a more hard work lies ahead: the issue of developing specific and concrete work program to implement the competition principles within the APEC and how to put the work of competition policy in the much broad context of a multilateral trading system. The paper maps out a specific strategy to move the competition policy agenda forward at the APEC and how to link the WTO. Whether or not the WTO decides to include the competition policy in the agenda for the new round, there is a constructive role to be played by the APEC. The paper identifies the sources of such value-added and makes a proposal in order to best utilize them. -
An Assessment of the APEC's Progress toward the Bogor Goals: A Political Economy Approach to Tariff Reductions
The average tariff rate of APEC member economies has been lowered by almost half from 15.4 percent to 7.6 percent during the period between 1988 and 1998. Many countries such as Australia, China, Indonesia, Korea, New Zealand, the..
Honggue Lee Date 1999.11.30
Economic opening, Trade policyDownloadContentSummaryThe average tariff rate of APEC member economies has been lowered by almost half from 15.4 percent to 7.6 percent during the period between 1988 and 1998. Many countries such as Australia, China, Indonesia, Korea, New Zealand, the Philippines, and Thailand experienced a dramatic decline in their average tariff levels. Currently, four countries (Hong Kong, Singapore, Brunei and New Zealand) have average rates below 5 percent, while eight countries (USA, Canada, Australia, Japan, Korea, Taipei, Malaysia and the Philippines) have mean rates between 5 and 10 percent. Three countries (Chile, Indonesia and Mexico) are in the range of 10 to 15 percent levels. The remaining three countries (China, Papua New Guinea and Thailand) have their average rates above 15 percent.
Some points can be made with regard to tariff reductions. First, the IAPs of 1998 regarding tariffs have made a limited improvement, which in turn has not been uniform across APEC economies. Second, for some member economies, implementing UR commitments has eclipsed the APEC process of unilateral tariff liberalization and reduction of non-trade barriers. Third, regional integration arrangements such as NAFTA, ANZCERTA, MERCOSUR, CER and AFTA have contributed to tariff reductions in some member economies. Fourth, the Early Voluntary Sectoral Liberalization (EVSL) initiative, announced in Vancouver in 1997, still constitutes a going concern in the region. Fifth, the member economies have been giving support to the Information Technology Agreement (ITA) and the subsequent ITA II. This support will generate significant benefits in terms of production, exports, and lower prices. At the same time, ITA in the Asia Pacifi region will enforce its conclusion in the WTO. Sixth, the provision of data needs to be improved.
Tariff reductions are endogenously determined. Thus it is worthwhile to ascertain whether the extent of tariff reductions provided in IAPs is 'sufficiently bearable or reasonably sincere' in light of member economies' past experience and present 'capability.' For that purpose, we identified the elements that determine the endogenous tariff rates (current rates) as reference rates. Then we compared the IAP commitments and/or the Bogor goals with the reference rates.
The point of our empirical exercise is to devise an indicator that can be used to assess the APEC's progress toward the Bogor goals on an individual country basis. Our approach is unique in that it puts emphasis on individual country's 'ability' to implement the IAPs, and that it focuses on the political process, both internal and external, of each member economy, which eventually leads to the proposed action plan.
However, limited data availability keeps us from fully evaluating the achievements made by APEC members in the area of tariff reductions. Yet we were able to evaluate the relative performance of 18 members. When we compared the fitted values (which are supposed to reflect the ability and sincerity to implement the commitments made in their IAPs) with what these member economies actually implemented, we found that, among these members, Papua New Guinea, Singapore, and Thailand have been carrying out the most drastic cut in tariff rates. They are followed by the Philippines, China, Korea, Australia, New Zealand, Malaysia, Indonesia, Chile, Japan, Canada, the United States, and Mexico in the order of the size of their relative tariff reductions. This result contrasts with the comparable order in the Yamazawa scheme, in which Hong Kong (gets 95 points out of 100) and Singapore (95 points) lead the pack.
They are followed by New Zealand (90), Australia (85), Brunei (85), the United States (85), Canada (80), Japan (80), Korea (75), Malaysia (70), Taipei (70), Indonesia (55), the Philippines (55), Chile (50), Thailand (45), Mexico (35), China (30), and Papua New Guinea (10).
What we can infer from the present analysis is the following. First, some advanced economies in the region such as the United States, Canada, and Japan are slow or reluctant to implementing their liberalization commitments. Second, other advanced economies such as New Zealand and Australia are doing relatively well in carrying out their IAPs. Third, it is those developing economies again such as Papua New Guinea, Thailand, the Philippines that have reduced their tariff rates more drastically than what they would normally do, should they live up to the endogenous tariff determination hypothesis. -
Political and Security Cooperation, Membership Enlargement and the Global Information Society: Agenda Solutions for ASEM III
This paper discusses political and security cooperation, membership enlargement and the Global Information Society in the context of ASEM III agenda building. While the economic and business cooperation issues have so far 'monopol..
Sinonetta Verdi Date 1999.11.10
DownloadContentSummaryThis paper discusses political and security cooperation, membership enlargement and the Global Information Society in the context of ASEM III agenda building. While the economic and business cooperation issues have so far 'monopolized' ASEM's attention, it is now clear that the evolving and complex reality of the ASEM process needs to increasingly address other issues such as political and security cooperation, membership enlargement and the Global Information Society in a more concrete and focused manner. As ASEM evolves from the ideation stage to the practical implementation stage, leaders and operators need more detailed answers about all aspects of this comprehensive Asia-Europe partnership. Since all the areas of cooperation are clearly interlinked, any one area which is 'ignored' will reflect negatively on another, and in the end the whole process could potentially suffer.
Several features deserve attention. First it is necessary to reinforce the security elements in the ASEM relationship as an investment for a stronger economic and business relationship. In an interdependent world, adequate security cooperation can best guarantee stability and, therefore, economic gains on a permanent basis. The 'fruits' of the economic agenda could be jeopardized if security matters (and their political consequences) become unmanageable. In ASEM's movement towards a security community, perhaps addressing directly the single issues affecting the two regions could be a more dynamic approach instead of focusing exclusively on the creation of a security architecture, that maybe at some point in the future would also address the real issues at stake.
Second, as the ASEM III meeting in Seoul is approaching quickly, the controversial issue of membership enlargement is going to re-present itself. A country's membership in ASEM brings with it that country's distinct positions on economic, political, security, and civil society issues. When it comes to taking action, who is a member and who is not could determine the outcome for a specific issue. ASEM leaders will have to choose between the principle of widening versus the principle of deepening. However, at this still very early stage for ASEM, deepening as opposed to widening is the most efficient course to take as it is an investment in the consolidation of its procedures and the establishment of a solid identity. Indeed this strategy is going to benefit both the ASEM process and the potential candidates themselves because a well-functioning ASEM is going to integrate new members into the dialogue more fairly and efficiently. In this way synergies will emerge as opposed to lines of conflict.
Third, the Global Information Society (GIS) is a fundamental element in sustaining the ASEM economic partnership, highlighting a new era of communication and interaction between the two regions. Although at this stage, ASEM specific initiatives in the GIS can be appreciated only within a very limited context, some current GIS related issues are being addressed through relations between Europe and some Asian countries. These cover a number of areas with the final goal of creating a knowledge-based society for the 21st century. What will prove useful at ASEM III is information exchange from all sectors, both public and private, coordinated in the form of an ASEM Information Technology Council (as recommended by the AEVG). ASEM should not become a structure imprisoning or distorting the fast paced, natural flow of the GIS, therefore this Council should function reflecting the reality of the complex and fast moving Global Information Society.
Dr. Simonetta VERDI, is the EC's European Union Science and Technology Fellow in Korea and visiting research fellow at KIEP. She specializes in relations between the European Union and Korea and steel industry research. Send all correspondence to: 300-4 Yomgok-Dong, Seocho-Gu, Seoul 137-747, Korea; (Tel) 822-3460-1046; (Fax) 822-3460-1066; (E-mail) sverdi4@yahoo.com -
A Study on the Global Competitiveness Report of the WEF
A Study on the Global Competitiveness Report of the WEF Yunjong Wang·Dongwha Shin·Hyongkun LeeNational competitiveness may be defined as a country's ability to create an environment, through the use of policy and support systems..
Yunjong-Wang et al. Date 1999.11.10
Exchange rateDownloadContentSummaryA Study on the Global Competitiveness Report of the WEF
Yunjong Wang·Dongwha Shin·Hyongkun Lee
National competitiveness may be defined as a country's ability to create an environment, through the use of policy and support systems and by possessing a stable and effective social structure, which allows a company, from that country, to hold competitiveness.
According to The Global Competitiveness Report, published by the World Economic Forum (WEF) in July of this year, Korea ranked 22nd in 1999, down three places when compared to last year's ranking. In addition to this, in April, the International Institute for Management Development (IMD) announced that Korea's competitiveness has continually decreased over the past five years.
It is generally assumed that this sluggishness and decline in Korean competitiveness was brought about by the adverse economic conditions created by the 1997 financial crisis. However, while Korea suffered through this crisis, some of its competitors, such as Singapore and Taiwan, did not. Therefore, it could be suggested that Korea's diminished competitiveness may have, in fact, at least indirectly contributed to the advent of the crisis.
If this is the case, what should Korea do in order to not only recover but to also improve national competitiveness? First of all, the Korean government should create more favorable optimal business environment. Secondly, every economic body should voluntarily put more effort into improving competitiveness because improving competitiveness only through government policy and institutional reform has limitations.
In addition to improving national competitiveness we should undertake the following strategic measures:-Prepare for influences, such as integration trends in the global market and the innovative development of information technology, which easily affect national competitiveness -Put more effort and focus into intensively analyzing and understanding each item identified as a weakness in the national competitiveness evaluation-Increase the role of government as a system designer for national competitiveness.-Improve external credibility through continued reform-Publicize the ongoing Korea's structural reform process -
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Official Development Assistance : Trend and Issues of DAC Members
Official Development Assistance: Trends and Issues in OECD/DAC The Development Assistance Committee(DAC) of OECD has contributed to the formulation of development co-operation programmes and policies by donor countries and by m..
Yul Kwon Date 1999.09.15
Economic development, Economic cooperationDownloadContentSummaryOfficial Development Assistance: Trends and Issues in OECD/DAC
The Development Assistance Committee(DAC) of OECD has contributed to the formulation of development co-operation programmes and policies by donor countries and by multilateral institutions active in development cooperation since the 1960's. DAC has also been the source of information on the flow of financial resources to developing countries, and has regularly published the data collected from its member countries.
According to DAC's definition, Official Development Assistance (ODA) is defined as those flows to developing countries and multilateral institutions provided by official agencies, each transaction of which meets the following tests: ⅰ) it is administered with the promotion of economic development and welfare of developing countries as its main objective; and ⅱ) it is concessional in character and contains a grant element of at least 25 per cent.
DAC has stressed that substantial additional aid efforts will be required, both quantitatively and qualitatively, for development cooperation and has set three major ODA targets: a) a net flow of ODA equal to 0.7 per cent of the donor's GNP; b) a net flow of ODA to least developed countries of 0.15 per cent of GNP; c) the provision of ODA by each donor on terms such that the commitments made convey an average grant element of 86 per cent. According to this last target, DAC has been endeavouring to seek appropriate ways and means of untying national aid programmes and providing a framework for the orderly use of associated financing related to tied aid.
The aid volume performance of individual DAC members in recent years has varied considerably. While private flows have expanded, overall DAC aid has faltered since the beginning of the 1990's. On a net disbursements basis, total ODA from DAC countries amounted to US$48.3 billon in 1997, that is, a net flow of ODA equal to 0.22 per cent of the donor's GNP. DAC countries channelled approximately one third of their net ODA through multilateral agencies in 1997, Seven DAC countries (Denmark, Ireland, Luxembourg, the Netherlands, Norway, Portugal and Sweden), provided at least 0.15 per cent of their GNP to least developed countries.
Korean ODA is relatively small and the largest share consists of multilateral aid. Korea's ODA in 1997 was equivalent to 0.042 per cent of GNP, which was far behind the lowest level (0.09 per cent for the United States) as well as the DAC average (0.22 per cent). With regard to the current level of Korea's ODA, Korea needs to significantly expand its external Assistances quantitatively. and improve the terms and conditions of aid qualitatively. While there exists no consensus or official position on the proper level of Korea's ODA, its ODA policy has reached a turning point in its evolution, because Korea has had to prepare for its accession to the DAC sooner than originally anticipated, after obtaining OECD membership in 1996. Supposing that ODA/GNP increases by 0.01% annually, Korea's ODA wil amount to about US$559 million (equivalent to 0.1 per cent of GNP) in 2004 and US$1 billion (equivalent to 0.16 per cent of GNP) in 2010. This confronts budgeting officials with a dilemma as to how to accommodate ODA expansion with other competing domestic policy interests.
There are several future tasks facing Korea's ODA in relation to the present ODA system and policies. First, the Korean government must elaborate its aid philosophy, or ODA charter, in which aid should be justified and expanded as it begins to embark on a new stage of its ODA evolution. Second, a new approach needs to be adopted, in order to improve the capacity to plan and manage projects, through the reinforcement of policy implementation, for example country-specific programming.
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