Development and Internationalization of Chinese Township-Village Enterprises Chai Wook Chun and Eui-Hyun Choi

During the period between the establishment of People's Republic of China (1949) and the Third Plenum of the Chinese Communist Party's 11th Central Committee of 1978, the Chinese economy showed some signs of growth at least on the surface. The average annual growth rate between 1957 and 1978 was claim to be 4.4% and the growth rate of agricultural output was at 4%. However, these figures ate dubious as they come from central planning system forthermore, the government transferred the surplus from the agricultural sector to the heavy industry sector. This is well supported by the statistics - the annual consumption increases of the agricultural sector was only 1.4%.

It was the reform of 1978 that brought major change to the Chinese economy. As the government sought to modernize its economy, the socialist central planning system was overhauled to distribute power to local authorities and other new agricultural policies were introduced. As a consequence of the successful reform of agricultural sector, the income increases have allowed the farmers to invest in the non-agricultural sector with the labor surplus that came from improved efficiency. These surpluses naturally led to creation of the Township-Village Enterprises(TVEs).

The fast-growing TVEs acted as the engine of prosperity of peasant households of China during this period. A special focus on TVEs is warranted for a variety of reasons. First, the output of rural industries achieved phenomenal growth rates in the 1980s, and by the end of the decade this sector assumed a significant role not only in the rural economy, but also in the economy of the country as a whole. Employing about 12% of the rural labor force, these industries were accounting for over a third of the total rural output. TVEs thus become an important source of signigicant rural-urban migration and in view of the limitations on the growth of agriculture, the growth of income from TVEs and other enterprises become an engine of growth in rural income. Second, these industries played an important role in fostering the growth of agriculture(e.g. by providing funds for social investment in irrigation, facilitating farm mechanization and the use of fertilizers, etc.) and thus made valuable indirect contributions to the income of peasants.

This study focus on the performance of TVEs in the changing environment where it can be characterized by foreign trade, foreign direct investment(FDI) and overseas direct investment(ODI). The TVEs in coastal region and textile industry have played a major role in exports, while FDI has helped the TVEs to improve manufacturing and management technology. However, since the most part of FDI comes only from Hong Kong and Taiwan its role as an engine of development is limited.

The overseas direct investment(ODI) of TVEs is only at the beginning stages as foreign subsidiaries of TVEs are ODI by TVEs functioning as so rather than as manufacturing facilies. Despite the current status, ODI by TVEs has great potential for dynamic growth because of globally distributed overseas Chinese connection.

As the globalization of TVEs are at the beginning stage, interaction with Korean firms is not yet very active. Most of the Korean firms investing in China are seeking low wage and low rent and prefer direct investment rather than through joint ventures. Although the ties between TVEs and Korean firms are not get active, the close relationship with TVEs will be necessary in the near future and following are some suggestions for Korean firms. First, TVEs should be considered as a group of fast growing enterprises rather than small or medium firms of rural area. Second, it is necessary to have a close relationship with TVEs to facilitate business activities in China. Third, while cooperating with TVEs, it is important to consider local and market characteristics of the region where cooperating TVEs are located.

North Korea is experiencing severe shortage of food, fuel and foreign currency which appear to have scant prospect of being relieved soon. More fundamentally, it is in the grip of a long-term structural decline. The strategy of extensive growth is exhausted, and the techniques of central planning have broken down. Given the North's increasingly dire economic situation, muddling through clearly is no longer enough of a policy response. Pyongyang's leaders are taking a series of pragmatic, short-term, temporizing measures to cope with the severe economic problems.

North Korea's leaders know that to stage a recovery, the economy must open. Since conclusion of the Framework Agreement(1994), the DPRK has redoubled its effort to normalize relations with the United States and economic sanction. Pyongyang also has expanded economic cooperation with South Korea. Therefore the leadership in Pyongyang is currently engaged in a variety of enterprises to attract foreign investment and economic development to the DPRK. The most visible of these efforts is the establishment of the Rajin-Sonbong Free Trade Zone(1991. 12) and the legislation of the 'Foreign Investment Law'(1992. 10).

The development of North Korea's policy to induce foreign investment can be divided into three stages. The first is until the enactment of the 'Joint Venture Law' in September 1984, the first legislation to attract foreign capital. The second stage is from the time of its enactment until December 1991 when the Rajin-Sonbong Free Trade Zone were set-up. The third stage refers to the period after the establishment of the Rajin-Sonbong Free Trade Zone and the enlargement of open policy. Now, North Korea has made the development of the Rajin-Sonbong Free Trade Zone the focal point of its current economic opening. It is in the attempt to attract foreign direct investment that North Korea has shown the greatest inclination to reform its system. As a general rule, such reforms are intended to allow North Korea access to hard currency and new technology. While North Korea would prefer investment from the U.S., Europe or even Japan, in the process of opening its investment market to the world, North Korea has inevitably opened it to one of Asias most active investors, South Korea.

For many of the reasons outlined in the section above, South Korea firms are the most likely to be willing to take the risks associated with doing business in North Korea. Significant involvement in North Korea by South Korea large enterprises is unlikely until the political situation between North and South improves. Without a double taxation treaty and some sort of governmental guarantee, South Korean firms are unlikely to invest. Whereas an overly close involvement of the government in the investment process inhibits economic exchange, complete lack of government support also demands the prospects for investment.

In all frankness, the future of the Korean peninsula is unclear. Whether North Korea will reform and adapt to a changed international environment or whether the regime will eventually collapse are uncertain. The one certainty is that Korea, both North and South, must globalize if they are to be competitive in the international community. therefore South Korea should play in the process of integrating North Korea into the world economic system.

A relentless trend of the severe economic plights in North Korea since 1990 - including the shortages of food, raw materials, and foreign exchange - is likely to continue in the short- to medium-term, at the least. Worse still is South Korea's economy under difficult economic conditions, owing to its own financial crisis since late 1997. Therefore, a search for multilateral international cooperation has become all the more attractive and critical for North Korea.

For South Korea, the burden of the unification cost has been felt increasingly heavier since the advent of the financial crisis. There is no doubt that South Korea's fiscal support cannot be left out in the calculus of financing the cost of unification. As a recourse, however, South Korea will necessarily have to opt to 'internationalize' financial burden for the unification by means of a multilateral international cooperation, given the impact of the financial crisis and its lack of economic caliber like that of the former West Germany.

Beyond a need for the liberalization and reform of the North Korean economy, increased efforts to build structures for the international cooperation are especially important for paving the road to the unification. To this very end, the South Korean government has to mix flexibility into the existing unification policy, which places the sole and foremost importance on the North-South relation, and manage to create a working framework with an initiative for the multilateral international cooperation.

Until now, a vast majority of the researches on the Korean unification have focused on the domestic economic policy for the post-unification period. As a result, there is a growing need for the development of studies on the unified Korea's international economic policy and structural design of the international cooperation. In due preparation for the unification of the two Koreas, our research aims to develop a paradigm for cooperation with the international financial institutions - such as the International Monetary Fund (IMF), World Bank, and the Asian Development Bank (ADB).
Since South Korea's fiscal support to North Korea can only make a limited contribution to the astronomical amount of the unification cost, direct investment by the foreign private sectors in alliance with South Korean enterprises will become a magnanimous supplier of funds.

Accordingly, inducement of the foreign direct investment in North Korea not only remains, but will continue to remain as an important issue for the international cooperation. Without the endorsement of the international financial institutions, no substantial private investment in North Korea seems feasible in the current world economic order. And by a thread of this reasoning, inducing North Korea to participate in the international community on official terms by first helping it join the international financial institutions would likely prove to be a most practical way of facilitating and reducing the cost of the unification.

Moreover, to the extent that the various international financial institutions' economic support to North Korea could prevent its economic over-dependence on any particular country, the North Korean leadership would find it advantageous to accommodate the inducement on the ground that it can maintain the stability of its political power. In fact, North Korea has continued to demonstrate its enthusiasm for participation in the international financial community as early as 1997. In February 1997, it had officially applied for membership to the Asian Development Bank, and in September of the same year, it had received a fact-finding visit from the IMF. Furthermore, North Korea had invited a senior official from the World Bank in February 1998. Given this trend, North Korea appears to have made a considerable progress in improving its relations with the international financial institutions. And despite the skeptical views about its missile tests and nuclear sites, North Korea's relationship with the international financial institutions is expected to progress. In light of these developments, again, the need for an in-depth research on North Korea's international cooperation before the unification materializes is becoming more clear and present.

Our study intends to find out under what conditions North Korea can be eligible to receive what available types of financial support when it joins the international financial institutions. Moreover, we intend to investigate and understand what types of support there are available for North Korea to receive in the context of a non-member status. We also intend to make an overall assessment of the information and materials obtained in order to provide a basis for the development of South Korean government's North Korea policy.

The structure of our study is as follows. In Chapter 2, we will discuss the importance of international cooperation in a closely equated context of the cost for the unification. In Chapter 3, we will overview the current economic situation in North Korea and the North-South economic cooperation. Chapter 4 suggests a model for the international cooperation on the provision of technical assistance to North Korea, as a measure to involve the international financial institutions for the short run. Chapter 5 examines a variety of ways to engage the international financial institutions in North Korea support. And finally, Chapter 6 will comprise of a conclusion based on our research and study of the methods for utilizing the benefits, which the international financial institutions have to offer, and a number of the remaining issues for the future international cooperation. In the annex, we have incorporated the main contents of the IMF's November 1997 North Korea Report and a several detailed explanations of the international financial institutions' technical assistance to North Korea, and the functions and roles of the financial support. In this way, we hope to offer our readers an ample amount of the reference materials on the central issues of our concern. Helping North Korea join the international financial institutions would be a first step in laying the foundation for a practical framework of the international cooperation. With South Korea's crisis-hit economy, North Korea as a member of the international financial institutions would effectively shoulder the cost of financing the unification. At the IMF/World Bank 1997 Annual Meeting held in Hong Kong, the South Korean government had announced a position in support of North Korea's joining the international financial institutions. However, in order to clear the way for North Korea, the U.S.-DPRK and Japan-DPRK relations will have to improve, as they will continue to remain critical issues for South Korea.

For South Korea to participate in development of a constructive framework for the international cooperation before North Korea joins the IMF and the World Bank, each of the current United Nations Development Programme (UNDP), the World Bank's educational programs for the North Korean government officials, and the World Bank's North Korea-related research programs deserves a close examination. The benefits of educational programs for North Korea, such as an increased knowledge of the international financial institutions and the market economy, as well as the recent trends and flows of the capital and trade, will altogether serve the last totalitarian, communist entity to become a part of the international community.

South Korea's participation in the educational programs has to proceed in a number of stages. First, South Korea's research institutions would have to participate in the North Korea educational programs on market economy on the unofficial basis. More specifically, they would have to participate in designing the World Bank and the UNDP's educational programs for North Korea. Subsequently, the foreign private sector  such as colleges, research institutions, and non-governmental organizations (NGOs)  would need to participate in the training programs in either Pyongyang or any third world nation. In case the U.S. and Japanese colleges were to respond positively to such an initiative, then not only the U.S.-DPRK and Japan-DPRK relations would improve, but also the U.S. economic sanctions against North Korea would be eased. Furthermore, development of a constructive working plan for cooperation by South Korea's private institutions  such as economic research institutions, colleges, and more  in partnership with those of the United States, Japan, and other major countries, is urgently being called for. As a response, the international financial institutions should offer official technical assistance to North Korea. Taking such a measure poses no severe difficulty in that the trust funds, which the major countries have deposited with the international financial institutions, can be used to deliver the necessary technical assistance to the non-member countries.

South Korea will need to pursue a diplomatic maneuver of securing a special trust fund through the World Bank to aim at organizing an extensive technical assistance for North Korea. As a precedent, the World Bank had established a special trust fund - so-called the 'Trust Fund for Gaza and West Bank' - to give financial support to the Palestinians, who had not been a non-member state. With the political and diplomatic support from the United States, the special trust fund had been the source of benefits to the Palestinians, while they had been experiencing difficulties in joining the World Bank back then. So had been the cases of Bosnia and Herzegovina before they became members of the World Bank. Each of the non-member cases had involved a critically significant amount of the financial support. Therefore, North Korea has as much an equal chance as to benefit the large financial support, with South Korea's diplomatic effort to play an important success variable.

Once North Korea joins the international financial institutions, South Korea will need to help North Korea receive financial assistance on the concessional terms. The possibilities of such assistance would include the ESAF (Enhanced Structural Adjustment Facility) of the International Monetary Fund, the IDA (International Development Association) fund of the World Bank, and the ADF (the Asian Development Fund) of the Asian Development Bank. Should North Korea successfully implement the reform programs of the IMF and the World Bank, then South Korea would also need to help North Korea receive external debt relieves through the HIPC Initiative of the IMF and the World Bank.

Apart from the focus of our research, there could be many other ways to foster the international cooperation on North Korea support. We intend to look into those possibilities in the next phase of our research. For instance, development of a facility for the foreign private investment in North Korea with the aid of the World Bank Group's International Finance Corporation (IFC) is one of the various important considerations. Furthermore, with North Korea still not introduced into the international community, a method of utilizing the non-governmental organizations (NGOs) - which would avoid the North's negative reaction - could be put into a practical use. Moreover, expedient ways of acquiring emergency economic support from the international financial institutions in contingency situations should be sought after. This is based on a concern that, in a given contingency situation, a deluge of refugees would cross into Russia, China, and Japan. Therefore, a preventive course of international cooperation should also be outlined.

This paper is a survey of existing literature on privatization methods, techniques and related issues. The paper especially relates these issues to foreign direct investment in privatization, which has received much attention under the current administration in Korea. The main purpose of the study is to survey and discuss existing literature and point to future directions in research rather than analysing specific privatization cases or recommending solutions for any particular privatization problems.

The paper first considers trends and role of foreign direct investment in privatization worldwide, and then goes on to discuss various privatization methods and techniques, as well as real world examples of their use. In particular, the paper contains a case study of the British privatization experience of the electricity industry, focusing on the international offers.

This study finds that the British case holds many valuable lessons for Korean practitioners and policy makers. Most importantly, the effective use of financial institutions and the various ways in which competitive pressure has been built up between domestic, foreign and institutional investors suggest how Korea might adopt similar techniques to lower privatization costs and overcome its limited stock market size, while at the same time, prevent monopolistic takeover of state-owned enterprises by a few large conglomerates. This is especially important given that these factors (stock market conditions and fear of chaebol domination) have posed major obstacles to privatization on a fuller scale in Korea. For too long, the Korean debate on privatization has been dominated by identifying what the obstacles are, rather than identifying what methods might be adopted to overcome such obstacles.

This paper argues that it is now time to move on. Further, the paper argues that there is a need for greater research to take place in the area of auctions and competitive bids concerning privatization related issues. While these can be efficient ways for privatizing state-owned enterprises, because of their complexity and the lack of markets for firms in Korea, these methods have only been used recently and only in very crude forms.

Attracting Foreign Direct Investment (FDI) is one of the most promosing methods through which Korea can overcome its economic crisis and implement successful restructuring.

However, todays, Korea is far behind neighboring countries in attracting FDI. The main reason is that. In order to attract FDI, generally, we need the promotional techniques and structure called Investor Relations Management System. Promotional techniques consist of providing information to potential investors, creating an attractive image of the country as a place to invest, and providing services to prospective investors. However, Korea lacks sufficient knowhow and experience in this field. So, it is essential to investigate and learn from other countries' experiences. IBB(United Kingdom), EDB(Singapore), MIDA(Malaysia) are known as the most successful cases in attracting FDI, and for that reason are included in the sample countries for this study.

The common features of these cases are summarized as follows. Promotional activities are designed to accomplish three different objectives. 1) Image Building Activities - to improve a country's image within the investment community as a favorable location for investment 2) Investment service activities - to generate investment directly 3) Investment service activities - to provide services to prospective and current investors. More specifically, investment promotion includes the following types of activities: advertising, direct mailing, investment seminars, investment missions, participation in trade shows and exhibitions, distribution of literature, one-to-one direct marketing efforts, preparation of itineraries for visits of prospective investors, matching prospective investors with local partners, acquiring permits and approval from various government departments, preparing project proposals, conducting feasibility studies, and providing services to the investor after projects have become operational. All of these are elements of One Stop Services. Those countries have powerful and effective One Stop Service agencies.

Despite the disintegration of the former Eastern Block and the termination of the Committee for Mutual Economic Assistance (CMEA), much activity of regional economic cooperation and integration has taken place in central and eastern Europe in the past ten years. The Central European Free Trade Area (CEFTA), organized by central and eastern European countries, and the Commonwealth of Independent States (CIS), established by the former Soviet states, are currently the largest and most influential units of regional economic cooperation and integration in the region. Another strong force affecting the pattern of economic integration in this region are the attempts of many local nations to join the European Union (EU). CEFTA, which was the first regional economic cooperation unit in central Europe, was established by Poland, Hungary, the Czech Republic, and Slovakia in late 1992. Recently, it has been enlarged to include Slovenia, Romania, and Bulgaria and in the process has become increasingly important to regional commerce. CEFTA targets not only a deepening of trade relations between member states but also exists to augment joint strategies of members in joining the EU. Member states of CEFTA have been trying to advance the time schedule for free trade in successive meetings following CEFTA establishment. They were successful in abolishing most import tariffs on industrial goods in 1997; while tariffs on so-called "sensitive goods" (automobile, fiber, agricultural products etc.) are planned to be completely abolished in 2000 or 2001. Intra-CEFTA trade has increased steadily since the institution's establishment, and further enlargement of CEFTA to include the Baltic States is currently being discussed. In spite of the success, there remain concerns regarding the future of CEFTA. Much concern centers on the differing opinions concerning the political role of CEFTA. Many also question the importance of CEFTA in light of the fact that its members hope to join the EU within the next ten years. The members overriding interest in joining the EU is easy to understand. EU member status would assure the countries of central and eastern Europe full access to a vast export market where they would enjoy numerous comparative advantages and could direct financial support, all of which would aid their economic efforts greatly. The general position of the EU regarding central and eastern European membership has been basically welcoming as most members desire the EU to embrace all of Europe and also want to expand their dominant position in advancing into central and eastern Europe. So far, ten central and eastern European countries have officially applied for EU membership. In early 1998, a first round of official negotiations were held between the EU commission and the five leading eastern European candidates for admission; further rounds expected to follow soon. If the negotiations proceed smoothly, the five candidate countries may join the EU as early as 2003. However, there are formidable obstacles before such entry may be realized. First of all, the EU must reform its current budgetary operations and decision making system in order to accomodate the new members; yet, there exists a wide gap in opinion among EU member countries on what reforms are needed. The central European candidates must also enact major changes in their systems and policies, such as altering import tariffs and financial and agricultural sector policies, and do so in a short period of time before they can join the EU. The CIS is an attempt to re-establish the relations of economic cooperation among the countries of the former Soviet Union. The CIS started with the goal of establishing not only a collective security system, but also a common market similar to that of the EU among member states. However, the actual results have so far fallen very short of this goal. A major obstacle is the fact that many CIS members fear a resumption of Russian hegemony. Among CIS member nations, the agreement on free trade and customs union between Russia, Beloruss, Kazakhstan, and Kirgisstan is about the only tangible sign of real progress of CIS regional integration. As Russia remains, both economically and politically, the dominant power among CIS members, economic integration within the CIS is unthinkable without Russia's initiative. Thus, the future prospects of the CIS will largely revolve around the state of Russia's recovery from its currently severe economic and political disorder. Of particular importance is that the lack of Russian recovery will likely result in increased interest in the Islamic CIS countries in cooperating more closely with neighboring Islamic countries, such as Turkey and Pakistan. New formations of regional economic cooperation and integration among the countries of central and eastern European and the countries of the former Soviet Union are not only causing changes in their external relations, but also inducing transitions in their internal economic systems and institutions. Therefore, understanding these new trends is essential in trying to understand the process of economic transformation of these countries. It is important to recognize that changes in economic cooperation relations in this region are closely related with the changes in the whole of Europe, with the EU playing the central role. In addition to accepting new members early in the new millenium, the EU is also expected to conclude agreements on free trade or customs union with neighboring countries of the former Soviet Union. Summing up these trends implies pan-European economic integration with the EU at its core. Changes in regional economic cooperation in Europe since the 1990's are full of implications for the globalizing Korean economy. Korea must endeavor to strengthen relations with the most influential EU members in an attempt to assure Korea's interests being taken into account when deciding EU affairs. Korea should also target increased direct investment in those central and eastern European countries expected to become EU members. These eastern European countries, in which production costs remain much lower than in EU member countries, could serve as beachheads from which Korea might access the vast EU market. In operating in the markets of CIS countries, Korean firms should bear in mind that they remain closely connected with each other, despite the failure to realize further CIS market integration. Using these connections and other bi- and multilateral agreements on free trade and customs unions, will allow Korean firms to open new markets more easily. Lastly, new experiences of economic integration among the countries of central and eastern Europe and the former Soviet Union provide lessons for Korea, which is now trying to establish free trade agreements with other countries. One such lesson that can already be gained from the European experience is that successful economic integration requires members to possess common political and diplomatic interests.

The current corporate restructuring which focuses on the securing sound financial structure of firms is well justified on the ground that the direct cause of the economic crisis of Korea is the currency and financial crisis in 1997. However, from the prospects of real economy and long-term development that the fundamental cause of the economic crisis is the weakened competitiveness as a result of structural weakness of the economy, there is a possibility of a biased restructuring. Further, it is of necessity to minimize a potential conflict between the improvement in the financial efficiency and the loss in the valuable knowledge capital which is a backbone of the knowledge-based economy, a recently adopted national agenda.

In order for the early realization of the timely adopted national agenda of knowledge-based economy, a well designed specific strategy and a careful selection of proper policies and a comprehensive approach rather than spontaneous and fragmented approach are needed. Also needed is the understanding that the transformation into a knowledge-based economy takes a substantially long period to achieve.

From the overview of the current corporate restructuring and the strategy of the knowledge-based economy, national competitiveness of Korea in 1999 is expected to increase in categories of IMD and WEF such as 'domestic economy', 'internationalization (openness)' and 'institutions'. However, it is expected to decrease in 'infra structure', 'management', 'science and technology', and 'human resources (labor)'. In other categories such as 'government' and 'finance', no much change is expected. In the long-term, the national competiveness will be strengthened in categories such as 'domesticeconomy', 'management', 'internationalizationopeness', 'infrastructure' and 'human resources (labor)' more than other categories.

APEC promotes tourism for economic development in Asia-Pacific region. However, APEC member countries have cooperated generally at level. Tourism have some characteristics make cooperation accomplish less realistic than the greater potential. Regional economic development is recognized as one of the most important value of tourism cooperation. But it could not be accomplished its potential until local governments and private sector participate actively.

Cooperation among APEC member countries in tourism sector has revealed that it has been lack of full contents and not economical. As a result, APEC member countries don't take an active interest in the cooperation. Also, cooperation agreement have made very slow progress through periodic meetings. Especially, the influence on the tourism economy of member countries have been impotent in spite of its economic, social, and cultural potentials.

The limitations of central level cooperation in tourism sector may overcome by participation of local governments. First of all, the cooperation among local governments enable to lead the multiplicity of contents by reflection of locality. Secondly, it can lead active participation of the private sector by creation of direct influences on the region. Thirdly, it can make significant effects in short term by flexible agreement process. Fourthly, it can assure the practical cooperation by ensuring personal, financial, and systemic resources on demand as necessary.

In principle, tourism cooperation among local governments of APEC member countries should direct the efficiency and practicality. APEC is in a great need of arrangement of channels for cooperation among local government of member countries. It is useful to establish "APEC Tourism Investment Forum" or "APEC Cooperation Committee of Local Autonomies" which can dealt with Asian financial crisis.

At central level, it is recommended for government to establish "International Tourism Cooperation suport center". This center will support local government by providing knowhow and information and developing training program for international tourism experts as well as trade experts. Especially, financial difficulties of local government could be subsided by existing fund(e.g. Tourism Promotion and Development Fund) or setting up a new fund(e.g. International Cooperation Fund). At regional level, it is recommended for government to supplement tourism cooperation resources such as, finance, manpower, experience, organization, and information and construct mutual supportive cooperation system for themselves.

As a result, local governments will be able to improve the tourism development and management, increase foreign capital introduction, and promote foreign visitors, employment generating and internationalization in their region.

Major Trade-related Issues on Electronic Commerce and Implications for Korea

Since July of 1997 the number of Internet users has more than doubled to over 140 million people worldwide. As a result, electronic commerce has become a major issue on economic policy agendas around the world.
Electronic commerce facilitates trade and lower transaction costs can help firms make use of the opportunities of globalization of production and markets. Electronic commerce has broad implications for future trade.These implications include the effect on trade policy making and enforcement. And it is important to ensure that the present and future trading system de jure and de facto allows electronic commerce to realize its potentials as an alternative or a complement to conventional trade.

The OECD is addressing issues related to electronic commerce through several of its Committees and Working Parties. Issues covered include access, infrastructure needs, taxation, consumer and privacy protection, crytography, authentication and certification of transactions. The OECD Trade Committee has included the trade policy aspects of electronic commerce in its agenda from early 1997.

This Committee is analyzing several trade policy aspects of electronic commerce with a view to complementing and supporting the wider OECD work program and the electronic commerce work program of the WTO. Of particular interest is the question of the extent to which products delivered entirely on-line may be said to be new or different, including the question of customization. On-line transactions need to be carefully examined whether the provision of GATT and GATS are adequate. The guiding principle should be to achieve neutrality between electronic and physical trade.

The WTO, at its May 1998 meeting attended by Ministers from all 132 member countries, reached agreement to continue the practice of not imposing customs duties on electronic commerce transactions. Also, the May 1998 Ministerial Conference asked the General Council to institute a comprehensive work program to examine all trade-related issues relating to global electronic commerce. Some of the challenges and opportunities facing the multilateral trading system can be summarized broadly as follows.

First, one of the challenges can be outlined by the components of the transaction. Electronic advertising may allow circumvention of the advertising laws of domestic legal systems. The difficulty of identification on-line reduces trust when carrying out transactions. Copyright protection will be an obstacle to electronic delivery.

Second, the major impact of electronic commerce for internatinoal trade is that it provides easy access to cheap and fast information. A big buyer would do well to organize its bidding system on a web site. A successful service provider is normally able to attract customer by providing services difficult to get or unavailable in physical shops. Electronic commerce will bring new types of middle men, which will facilitate the efficiency of all types of transactions.

Finally, the needed trade policy approach will be greatly altered as distances are irrelevant and physical borders do not exist. Both trade-related information and business on financial and econmic reliability can be disseminated via electronic forms. Also, trade facilitation and government procurement can be made efficient by introducing electronic applications and bidding systems on-line. Cross-border supply by the Internet may allow providers of education and health services to circumvent existing restrictions on the movement of persons and national local certification requirements.
In response to the questions raised in this paper, several suggestions are made.

Major issues reviewed in this paper should be constrasted by the spot research to find real problems which firms currently face. Findings could be shared among users or reflected, if possible, in the codification of global electronic commerce.
In the context of international trade rules, cross-border electronic transmssions, including digitized products, could be charaterized as trade in goods, trade in services or possibly under a newly created category. Further, research should be carried out concerning the effectiveness of WTO rules visa-vis electronic commerce.

More efforts should be devoted to incresing of activity of domestic electronic commerce. Unless electronic commerce is realized domestically, a country can not hope to compete in international trade via electronic commerce. Special support for the demand side should be strengthened because those transactions are fulfilled by the innovators who are leading and promoting the diffusion of electronic commerce.

The Evolution of US Policy towards FTA and its Implications for Korea
Since the 1980s, the US approach towards trade liberalization can be broadly characterized as a two-pronged approach; while pursuing trade liberalization under the multilateral system of the GATT/WTO, the US also searches for opportunities to realize trade liberalization bilaterally, through the establishment of FTAs. This two-pronged approach to trade liberalization has often been complementary rather than contradictory. Such a strategy was seen at work as the US declared that it would go it alone when the Uruguay Round did not show satisfactory progress in the late 1980s. This threat was seen as successful as a number of countries blocking progress appeared to cave in to the US pressure. Due to the strong direct and indirect influence the US exerts on the Korean trade environs, Korean trade policymakers must not only keep abreast of US trade policy and the strategy of its trade negotiators, but must shape policies to best capitalize on the trade position of the US.

The US signed the Israel-US FTA in 1985, the Canada-US FTA in 1988, and NAFTA in 1992. Following establishment of NAFTA, momentum in the US for free trade has seemed to wane, with President Clinton failing to receive renewal of fast track authority from the Congress. However, loss of attention and supporting legislation have not altogether halted free trade initiatives deriving from the US. The US already offered to begin formal negotiations with Chile regarding the country's joining of NAFTA and the US has agreed with the 34 countries in the Western hemisphere to conclude the Free Trade Agreement in Americas (FTAA) by 2005.

The US administration has continued to study the feasibility of the establishment of FTAs with Asian countries. The report by the USITC (1989) analyzed the feasibility of an FTA with Japan, ASEAN, and a number of other Asian nations, including Korea. The report found that, except for Japan, the US would stand to benefit economically from the establishing FTAs in the region.

However, various political roadblocks and costs were found in almost all areas of Asia outside of Japan. For example, while an FTA with Korea was assessed as likely to benefit the US economically, it was believed that such a pact would intolerably increase anti-US sentiment in Korea.

Turning to discussion of APEC, while the US appeared only passively interested following joining the group in 1989, it appeared that President Clinton viewed APEC as offering great promise as a vehicle through which to open the Pacific region's markets. Thus, the US enthusiastically held the first APEC Leaders'meeting in Seattle in 1993. Upon APEC declaring region-wide free trade as its goal in the following year, the US enthusiasm for APEC began to surpass its interest in establishing bilateral FTAs in the region. To achieve the goal of free trade, APEC economies agreed to the Individual Action Plan (IAPs) and the Collective Action Plan (CAP). However, while touted as trade liberalization plans, nothing in the agreements signified binding guidelines and symbolized, at least from the point of view of the US, the end of any opportunity in the short-term to realize a multilateral free trade agreement in the Pacific.

This failure to reach real trade liberalization through APEC has seen the US alter its position to where it now views bilateral FTAs with Asian countries as offering the best hope to promote trade liberalization in the region. Korea would likely be near the top of any list of candidates, due to its already strong trade partnership with the US and the substantial decrease in anti-US sentiment since the early 1990s.

The current US administration, following its loss of fast track authority in 1994, has not been very active in pursuing trade liberalization. However, this may soon change. Signs are promising that the US Congress will restore fast track authority to the President at the end of 1999 or early 2000. Business community support for increased free trade initiatives has been strong. Many business leaders see the relative loss of competitiveness in Chile, caused by Canada and Mexico signing bilateral FTAs with the country after the US blocked expansion of NAFTA to Chile, as a precedent that needs to be immediately reversed. Furthermore, the Congress wants to conclude within three years the new WTO Round, which will resume at the end of 1999. Increasingly active business community pressure and growing Congressional support will likely see the US administration resume its search for ways to promote free trade.

So far, Korea's normal reaction to any expansion of regional trading blocs has been to push for the WTO to enact barriers to such spread. The major ruling regarding regional trade agreements under WTO is GATT XXIV. Altering this article to where it becomes more restrictive of the establishment or further expansion of regional trade agreements is unlikely as most WTO member countries already participate in one or more regional trading blocs. Thus, the most realistic policy for Korea to follow is to actively explore the establishment of FTAs with major trading partners. This will require Korean trade policy makers and politicians to adopt an entirely new approach and even mindset; however, no other option is currently available.