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Policy Analyses
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Analysis of Major Agendas at the 13th WTO Ministerial Conference: Korea’s Perspectives
The WTO’s 13th WTO Ministerial Conference (MC13) will take place from 26 to 29 February 2024 in Abu Dhabi, United Arab Emirate. The Ministerial is expected to discuss follow-up agenda items from the 12th WTO Ministerial Con..
Euisik Hwang et al. Date 2024.02.20
economic integration, international tradeDownloadContentSummary<The WTO’s 13th WTO Ministerial Conference (MC13) will take place from 26 to 29 February 2024 in Abu Dhabi, United Arab Emirate. The Ministerial is expected to discuss follow-up agenda items from the 12th WTO Ministerial Conference (MC12), such as fishery subsidies, the e-commerce moratorium, whether to extend intellectual property rights exemptions to diagnosis and treatment for COVID-19, and WTO reform. In addition, there may also be an attempt to incorporate into the Investment Facilitation for Development (IFD) into WTO law. Additionally, the e-commerce Joint Statement Initiative (JSI) may also attempt to conclude the negotiations at MC13.Agriculture and development, traditional issues in WTO multilateral negotiations, are also expected to be discussed at MC13 regardless of whether there is an agreement or not. Finally, issues such as women and trade, climate change, and industrial policy (subsidies), which has recently attracted much international attention, are expected to be discussed at MC13.The direction of Korea’s negotiation response in preparation for MC13 can be summarized as follows. First of all, the possibility of reaching a consensus at MC13 must be analyzed first. In other words, since the negotiation period for a ministerial meeting is only 3 to 4 days, it is virtually impossible to reach an agreement through short negotiations unless the agenda is one in which the differences among member countries have been significantly narrowed in advance. Therefore, it is necessary to identify the possibility of reaching agreement on each agenda and to focus negotiating strength on those agendas on which agreement can be reached.From this perspective, the fisheries subsidies negotiations and the e-commerce JSI are agendas that have narrowed much of the differences between member countries through previous intensive negotiations. It is expected that most fisheries subsidies that contribute to overcapacity and overfishing (OC/OF) will be prohibited. In addition, Korea is likely to be amongst the 20 largest providers of fisheries subsidies, so it will be subject to additional regulations. However, there is still a big difference in the positions of major countries on special and differential treatments (S&D) for developing countries, including the notification issue of forced labor, so they may not be able to reach an agreement at the MC13. In the case of Korea, it is necessary to deal with negotiations in such a way as to postpone reaching an agreement until MC14 by uniting with other countries and highlighting the problems with the current draft text. In addition, in preparation for the future WTO fisheries subsidy notification, there is a need to closely review domestic fisheries subsidy policies and reclassify fisheries subsidies in line with fishery resource management policies.In the case of the e-commerce JSI, many of the key issues have been resolved due to the United Sates’ withdrawal of its original position. However, there are still issues, such as horizontal issues. In particular, whether or not to extend the moratorium on electronic transmission is a contentious issue that was difficult to reach agreement on at the previous MC12, and as some countries are still strongly opposed to extending the moratorium, it is expected that MC13 will also face considerable difficulties. Korea needs to engage to MC13 in a way that contributes to reaching an agreement on the e-commerce JSI. However, it is necessary to pay attention to the give-and-take compromise among major countries on whether to extend the moratorium in the final stage of MC13.As with other agendas, the positions of Member countries are sharply conflicting, so it is difficult to expect any particular outcomes from the MC13. The question of whether or not to extend the scope of intellectual property exemptions to COVID-19 diagnostics and treatments is important to substantially improve access to COVID-19 diagnostics and treatments in developing countries (including least developed countries). Therefore, it is necessary to temporarily support the expansion of the scope of the exemption, but make it subject to monitoring and evaluation by relevant international organizations to analyze its effectiveness.We have important interests at stake in WTO reform, so it is important to actively participate, but to accurately recognize our limitations by taking into account the characteristics of multilateral negotiations. In particular, the will of the United States has an absolute influence on the reform of the dispute settlement system (DSS). Therefore, it is necessary to handle negotiations in such a way that properly reflects the US interest based on the principle of a two-tired dispute settlement system with an appellate function. In particular, it is possible to propose a plan to use periodic review by the DSB(Dispute Settlement Body) or review by panel judges to keep appellate judges in check. Meanwhile, Alternative Dispute Resolution (ADR) such as good offices, arbitration, and mediation should be allowed for efficiency. However, considering the possibility of a favorable outcome for a powerful country, the possibility of going to lawsuit (panel, etc.) should be left open.Agriculture is a sharp conflict of interests among Member countries, so MC13 should focus on the specific content of the future work plan rather than the derivation of outcomes. In particular, the direction of future discussions on domestic subsidy reduction needs to focus on developing a work plan that meets our interests. As the conflict between developed and developing countries continues, it is unlikely that any results in development agenda will be achieved in MC13. In the case of Korea, it is necessar to be proactive in granting flexibility to the least developed countries (LDCs). To achieve this, it will be necessary to propose a plan to change the extension of benefits upon graduation from LDCs to a mandatory provision rather than a best-efforts clause.Regrading policy space, it is important to determine our position on the industrial subsidy of major countries. Korea ay provide subsidies to develop its own high-tech industries. Therefore, some flexibility is needed in the application of WTO subsidy provisions. However, rather than Korea's utilization, unfair competition due to the astronomical scale of subsidies provided by major countries (including developed countries as well as China and India) may be a bigger problem for Korea. Therefore, it is necessary to deal with industrial subsidies based on the principle of effective regulation rather than permission, but in the direction of providing an appropriate level of flexibility for each situation. To this end, an institutional mechanism needs to be established within the WTO that can focus on discussing and recommending relevant subsidy policies of Member countries. -
North Korea’s Tariff and Non-Tariff System: Implications for Its Integration into the International Economy
This study comprehensively analyzes North Korea’s tariff and non-tariff regimes and suggests the direction of North Korea’s tariff and non-tariff regimes in the process of reform and opening up. The purpose of the study is to an..
Jangho Choi et al. Date 2023.12.29
customs, North Korean economyDownloadContentSummary<This study comprehensively analyzes North Korea’s tariff and non-tariff regimes and suggests the direction of North Korea’s tariff and non-tariff regimes in the process of reform and opening up. The purpose of the study is to analyze North Korea’s tariff and non-tariff systems to reveal the direction of the North Korean authorities’ trade policy, the structure and characteristics of the legal and institutional framework, and to identify priority reforms for the country’s future integration into the international economy. This study differs from previous studies in that it is the first to quantitatively analyze North Korea’s tariff rates system.Chapter 2 examines the role of the legal system in North Korea and the history and purpose of the trade regime. North Korean authorities regulate tariff and non-tariff regimes through trade laws, customs laws, and tariff rate schedules. In North Korea, the guidance and policies of the Workers’Party take precedence over the law, but for the most part, the law governs the economy as a whole. North Korea’s customs law is similar to ours in that it aims to protect domestic industries, but it does not mention raising revenue through tariffs. In practice, however, North Korea’s tariff system appears to be used to raise revenue by absorbing foreign exchange held by private owners. One of the unique aspects of North Korea’s trade laws is that they are designed to ensure national security. This stems from the closed nature of the North Korean economy, which is designed to preventpolitical and economic influence from neighboring countries through trade, as well as the transmission of foreign cultures through imports and exports that could agitate the North Korean population and threaten the socialist system.Chapter 3 analyzes North Korea’s tariff rate structure and assesses its industrial protection and fiscal revenue effects. A key feature of North Korea’s tariffs is the low overall level of tariffs. The average nominal tariff rate was 5.5% and the average real tariff rate was only 4.6% based on the foreign exchange rate. Structurally, the tariffs have a sloping tariff structure with higher tariff rates depending on the level of processing, but the overall tariff level is still low enough to achieve the purpose of industrial protection. By product, the relatively high sloping rates on processed food and beverages and leather textile and haberdashery products in particular suggest an intent to protect light industrial consumer goods, but the tariff rate on these final products are not very high. While North Korea states that the purpose of its tariffs is to protect industry, there are many aspects of the tariffs that are inconsistent with North Korea’s 2005 industrial policy , known as the Military-first(Songun) Economic Policies. In terms of fiscal contribution, North Korea’s tariff revenue accounted for less than 2% of total fiscal revenue, suggesting that tariffs do not contribute much to the economy.Chapter 4 identifies policy and institutional factors that can be considered non-tariff barriers to the integration of North Korean trade into the international trade regime. The non-tariff barriers in the North Korean trading system can be broadly categorized into policy and institutional factors. Policy factors include the centralized governance system, the goal of building a self-reliant national economy, the qualitative strengthening of the national defense force, and the strengthening of the party-state system. To achieve, non-tariff measures arbitrarily restricted trade rights, items, and volumes. In terms of institutional elements, North Korea’s centralized trade system has identified a number of measures that can be perceived as non-tariff barriers in the entire process of trade, from planning, contracting, pricing, transportation, customs clearance, and payment. The role of North Korea’s non-tariff regime was to maintain the regime and implement state plans.Chapter 5 examines the historical changes in the tariff regimes of Vietnam and South Korea during their economic opening and development. Although South Korea and Vietnam had different economic systems before the reform and opening up policy, they experienced a similar increase in tariff rates in the early years of reform. The first increase in tariff rates occurred as a result of ‘tariffication’, where non-tariff barriers were converted into tariff policies, and the second increase in tariff rates for protected industries occurred as a result of the policy of differentiating tariff rates by industry sector for the purpose of industrial protection. In the early stages of North Korea’s trade system reform, tariff rates are naturally expected to increase as the country moves from a non-tariff to a tariff system, and tariff hikes to protect its industries are inevitable as it integrates into the international economy.Currently, North Korea’s tariff and non-tariff regimes are typical of Southeast Asian transition economies in the 1980s. Tariffs are low and fail to protect industries and raise government revenue, but the non-tariff barriers are high and serve to protect the economy. North Korea’s reform of its tariff and non-tariff regimes should consist of phasing out non-tariff barriers while raising tariff barriers to fill the gaps in trade regulations left by the removal of non-tariff barriers. To eliminate non-tariff barriers, the centralized trade administration system of trade should be abolished, the trade qualification approval system should be relaxed to limit trade to its own citizens, legal entities, and organizations, and the principle of building a self-reliant national economy should be revised to allow for integration into international value chains. In addition, North Korea’s unique logistics (transportation and ship-to-ship inspection) standards and inspection regimes, as well as trade payment methods should be harmonized with international standards. North Korea’s tariff rates should be systematically increased , with lower tariffs on raw materials and equipment in the early stages of reform, and higher tariffs on consumer and final goods. -
Analyzing the Prospects of U.S.-China Hegemonic Shift: Insights from Anglo-American Perspectives on Trade, Finance, Security, and Multilateralism
There has been extensive research on the possibility of the change of the hegemonic leadership between the U.S. and China. When we take a look back the history of the modern international relations, we can recognize that there hav..
Ihn-Hwi Park et al. Date 2023.12.29
international politics, political economyDownloadContentSummary<There has been extensive research on the possibility of the change of the hegemonic leadership between the U.S. and China. When we take a look back the history of the modern international relations, we can recognize that there have been specific leader countries who played leadership roles within each international structural stage. This means the previous experience of the leadership change between the U.K. and the U.S. should tell us some meaningful lessons to prospect the possibility of the leadership change between the U.S. and China. The research starts from this research question.Simply speaking, it is impossible for China to play the role of the U.S. in the areas of ① trade, ② global finance, ③ military security, and ④ multilateralism. Firstly in trade, most of the nations in the current international society pursue to maximize there national interests with the current liberal international trade order. Most of the nations never understand China should play a role to initiate the future international trade order in terms of value, institutions, leadership, and followership even with the many structural problems of the current trade order. Secondly, China, in particular, has not prepared a global financial leadership in the perspective of ‘gold-standard system’ which is one of the most critical preconditions for the global financial leadership. It is also interesting to know that the total volume of the US dollar in the global financial market has been smaller than before, and the same time the portion of the Euro and the Yen got larger, not the Chinese currency.Thirdly, militarily speaking, the military power of each country is the accumulated outcome of all the factors including economic power, operational capability, human resources, overseas military bases, hi-tech technology, etc. China is far behind the U.S. in the means of all of these factors. Especially, China is not able to use all the military resources only to face the U.S. due to the long border lines with two nuclear powers, Russia and India, and the vulnerability of the geographic conditions of the 14 neighboring countries. Lastly, the two countries may engage relatively a close competition to initiate each own-centric multilateralism. But the Chinese self-oriented principles and world view could be a critical barrier to expand the idea of China’s world order, multilateralism, mutual interests, etc. -
Merger and Innovation: Focusing on the U.S. Digital Platforms and Competition Policy
This study analyzes the impact of the large U.S. digital platforms such as GAFAM (Google, Apple, Facebook, Amazon, Microsoft) on their performance in terms of innovation and sales, focusing on their mergers and acquisitions (M&..
Gusang Kang et al. Date 2023.12.29
competition policy, 지식재산권DownloadContentSummary<This study analyzes the impact of the large U.S. digital platforms such as GAFAM (Google, Apple, Facebook, Amazon, Microsoft) on their performance in terms of innovation and sales, focusing on their mergers and acquisitions (M&A) activities targeting numerous small and medium-sized enterprises over the past 20 years. It also identifies ‘killer acquisitions’, where these platforms acquire innovative companies that could become potential competitors, thereby potentially reducing future market competition. The study provides insights and policy implications for the Korean Fair Trade Commission’s merger review process for digital platforms.Chapter 2 reviews the literature on the relationship between M&A and innovation and discusses the motives for M&A in the digital platform market, including ‘killer acquisitions’. Traditional M&A motives such as economies of scale and scope, acquisition of unique technologies or new distribution channels, and increased market dominance are contrasted with those in the digital platform industry, which include securing core assets like technology, processes, and intellectual property. Recent literature has raised concerns about ‘killer acquisitions’ that may reduce or eliminate future competition, although the definition of ‘particularly competitive future competitors’ and the limited pre-emptive merger policy pose challenges.Chapter 3 examines the types, characteristics, and status of M&As conducted by GAFAM, categorizing them into vertical, horizontal, and conglomerate mergers. Despite the unique characteristics of the digital platform industry, most M&As have been approved by the U.S. competition authorities. However, this has led to criticism of high market concentration. Recent arguments suggest the need to actively incorporate data characteristics in assessing the competitive restraints of M&A.Chapter 4 conducts an empirical analysis of the impact of digital platform M&A on firm performance. It examines how ‘killer acquisitions’ affect innovation performance, using patent applications and citations as indicators. The results show that killer acquisitions have a statistically significant negative impact on patent applications, suggesting potential negative effects on overall innovation performance. We also estimate the impact of digital platform M&A on the sales of both acquiring and acquired companies, and find revealing increased sales for the acquiring firms but decreased sales for the acquired firms.Based on these findings, Chapter 5 suggests the following policy implications: 1) using patent data and other metrics to evaluate digital platform mergers, 2) examining methodologies such as technology similarity indicators to identify killer acquisitions, 3) considering post-regulation rather than pre-regulation, and 4) shifting the burden of proof of market competition restriction from competition authorities to the digital platforms themselves. -
Assessing ASEAN Economic Integration Progress and South Korea’s Approach: Focus on TBT and SPS
TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures) have two attributes. They act as barriers to trade expansion by protecting producers, but their importance has grown in terms of consumer protection m..
Sungil Kwak et al. Date 2023.12.29
economic integration, barrier to tradeDownloadContentSummary<TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures) have two attributes. They act as barriers to trade expansion by protecting producers, but their importance has grown in terms of consumer protection measures after the COVID-19 pandemic. Rather than eliminating related regulations, achieving harmonization within the ASEAN region can simultaneously serve two objectives: expanding trade between South Korea and ASEAN and improving consumer protection. We assess the level of regional economic integration by measuring regulatory distances among ASEAN member states. We also measure regulatory distances between South Korea and ASEAN, and between Japan and ASEAN. We estimate the impact of ASEAN’s TBT and SPS on the export performance of countries exporting goods to the ASEAN region. In addition, a survey of South Korean firms exporting goods to the ASEAN region is conducted to assess their difficulties and to evaluate South Korea’s support policies.Chapter 2 evaluates the economic integration efforts within the ASEAN region, focusing on TBT and SPS. In 2020, ASEAN conducted a mid-term assessment of economic integration and produced the “Mid-Term Review: ASEAN Economic Blueprint 2025” in 2021. According to the results, ASEAN has achieved 54.1% of the sectoral work plans, with the remaining 34.2% currently underway and expected to be achieved without major problems. The ASEAN recognizes the need for regional integration to overcome the poly-crises facing the global economy. ASEAN Comprehensive Recovery Framework (ACRF) views economic integration as a means of recovery from the COVID-19 pandemic and the associated poly-crises. As a result, intra-ASEAN trade and investment have increased steadily since 2021.A notable harmonization effort for non-tariff measures such as TBT and SPS in the ACRF is the development and application of the “Non-Tariff Measures Cost-Effectiveness Toolkit.” This toolkit encourages individual ASEAN member states to assess both the introduction process and the cost-effectiveness of their non-tariff measures, thereby promoting harmonization. Additionally, the “Framework for Circular Economy for the ASEAN Economic Community,” adopted by ASEAN in 2021, can be seen as an effort to harmonized regulations related to circular goods and services. While existing regulations in manufacturing sectors may require more time to harmonize because they are already in place, emerging sectors like circular goods and services can flexibly seek regulatory harmonization within the ASEAN region due to their ongoing establishment. By achieving standard harmonization and mutual recognition agreements for these sectors, South Korea and ASEAN can anticipate efficiency gains and regional integration, resulting in trade facilitation effects between the two regions.Furthermore, an analysis of TBT and SPS cases in Vietnam and Indonesia, key partners in the “Korea-ASEAN Solidarity Initiative (KASI),” aimed at assisting South Korean firms to enter the ASEAN region. Indonesia still faces issues related to certification and testing, including ‘halal’ certification. Vietnam, despite its high level of integration into the global economy as evidenced by its high trade dependence, has not implemented high-level TBT and SPS measures due to the low technological competitiveness of its domestic and indigenous firms. However, there are concerns about the transparency and adequacy of the implementation process. Capacity building is urgently needed in Vietnam and Indonesia to ensure the transparent use of SPS and TBT for public purposes.Chapter 3 first measured regulatory distances among ASEAN member states (AMS) from 2015 to 2018. During this period, it was observed that TBT and SPS regulatory distances among AMS increased, indicating a lack of regulatory harmonization within the ASEAN region. This can be attributed to the rapid economic growth, leading AMS to focus more on protecting their own citizens. It should be noted, however, that the data used in the study is only available up to 2018, making it impossible to compare with the more recent results. As discussed in Chapter 2, ASEAN has made harmonization efforts in response to the COVID-19 pandemic and poly-crises. Therefore, it is expected that regulatory gaps will decrease as the 2025 integration target approaches.Second, using Multidimensional Scaling (MDS), TBT and SPS regulatory distances between South Korea and ASEAN are found to be greater than those between Japan and ASEAN. When the average SPS regulatory distance index between South Korea, Japan, and ASEAN Member States (AMS) is plotted using MDS, South Korea is located further away from Japan and the AMS. This indicates that South Korea’s SPS regulations appear to be heterogeneous compared to those of Japan and AMS. Regarding TBT, except for Vietnam and Cambodia, Japan and the AMS are close to each other, while South Korea is far from the AMS. This result can be attributed to Japan’s historical contributions to ASEAN’s institutional establishment through the activities of ERIA and ADB. South Korea needs to actively participate in projects aimed at strengthening institutional linkages between South Korea and ASEAN, in particular, in emerging sectors like environmental and digital industries, in order to harmonize the SPS and TBT regulations in these new sectors.Third, industries in South Korea that are vulnerable to ASEAN SPS and TBT regulations, as selected by trade experts using the Analytic Hierarchy Process (AHP), include food, general vehicles, steel, boiler machinery, toys, and others. Regarding SPS, food products are found to be more significantly affected than animal and vegetable products, while concerning TBT, transportation, iron and steel, boilers and machinery, and toys are expected to be more affected.Fourth, in industries closely linked to global value chains, the regulatory distances of TBT are shorter, but the distances of SPS between South Korea and ASEAN are relatively longer. In the MDS analysis of TBT, the industries in which South Korea has a comparative advantage in the ASEAN region are located closer to AMS and Japan. This suggests that increasing regulatory similarity between South Korea and AMS will potentially accelerate regional integration through expanded trade. On the other hand, industries highly affected by SPS, such as meat and fish products, and fruit and vegetable products, are found to be far from South Korea and other AMS. This divergence can be attributed to significant differences in institutional arrangements in these sectors and income disparities between South Korea and the AMS.Fifth, the average regulatory index of TBT between South Korea and each AMS shows significant differences, particularly in high-technology industries such as chemicals and machinery. On the other hand, low-technology industries such as plastics/rubber and textiles/apparel have shorter regulatory distances of TBT on average. Therefore, it can be assumed that the likelihood of TBT-related problems affecting South Korea’s exports to the ASEAN region is low for low-tech industries like textiles/apparel and plastics/rubber. However, in high-technology-intensive industries like chemicals and machinery, South Korea’s exporters are more likely to encounter TBT-related issues. This finding is consistent with the previous AHP analysis.Sixth, countries classified as high-income nations, such as Singapore and Brunei, have shorter regulatory distances than South Korea. However, significant regulatory disparities are observed between South Korea and Cambodia, a low-income country. This aligns with previous research findings suggesting a higher degree of regulatory similarity among countries with similar income levels. Therefore, Singapore can be seen as a valuable focal point for South Korea to harmonize regulations with ASEAN member states.In Chapter 4, we first examine the current status and characteristics of non-tariff measures in the ASEAN member states using TBT/SPS notifications and Specific Trade Concern (STC) cases. We find three stylized facts. First, within the ASEAN region, continental countries have more TBT measures, while maritime countries have more SPS measures. This finding is particularly evident when considering only STC cases. The relatively higher-income maritime countries in the ASEAN region may have adopted more advanced measures due to their technological development. On the other hand, lower-income continental countries seem to adopt TBT and SPS measures later than higher-income countries, possibly because their economies have grown rapidly in recent years, allowing them to catch up with the measures introduced by advanced countries.It is expected that the economic impact of TBT and SPS will vary depending on the geographical, economic, cultural, and social differences between continental and maritime countries. Therefore, South Korea should formulate flexible strategies to address TBT and SPS in the ASEAN region, taking into account regional and country-specific characteristics.Second, the number of TBT/SPS notifications and Specific Trade Concern (STC) cases for primary processed products, as well as chemicals, and electronic equipment, has been on the rise recently. These industries are identified as vulnerable sectors for South Korea in Chapter 3 on ASEAN’s TBT and SPS measures. Therefore, South Korea needs to develop policies specifically for high value-added manufacturing. Considering that most ASEAN member states seek to promote the materials and parts industries of chemical and electronic equipment, there is a high likelihood that TBT/SPS measures for these industries will be strengthened within the ASEAN region.Third, in formulating policies for ASEAN non-tariff measures, we must consider our current economic situation. The extent of trade-restrictive and trade-promotion effects of TBT/SPS will vary depending on the economic conditions of the exporting countries. For example, if we look at the countries raising Specific Trade Concerns (STC) regarding TBT/SPS, we can see that for TBT, it is mainly advanced countries that raise concerns, while for SPS, both advanced nations and developing countries participate in raising the concerns.In chapter 4, we estimate the impact of TBT and SPS of ASEAN member states on the exports of 213 exporting countries to the ASEAN region from 1996 to 2021, using gravity models with fixed effects. The results of the estimation can be summarized into three main points.First, non-tariff measures in the ASEAN region do not significantly affect the exports of countries to Southeast Asia as a whole. However, exports from OECD countries are significantly negatively affected by ASEAN TBT measures, while exports from non-OECD countries are significantly negatively affected by ASEAN SPS measures. This is consistent with the fact that ASEAN TBT measures are primarily targeted at advanced countries, which is consistent with the stylized facts presented earlier. Moreover, it is evident that ASEAN TBT measures became a significant barrier to exports from advanced countries to the ASEAN region in the 2010s. This aligns with the stylized facts earlier that shows an increase in Specific Trade Concern (STC) cases raised by advanced countries regarding ASEAN TBT measures in the 2010s. Therefore, South Korea, as an OECD country, needs to focus more on developing policies to address TBT rather than SPS. That’s why, in chapter 5, we conduct a survey on TBT measures among Korean firms exporting goods to the ASEAN region.Second, SPS is found to be a significant barrier in the continental ASEAN countries. This is due to the fact that countries located in the continental part of the ASEAN region, such as Cambodia, Laos, Myanmar, and Vietnam, have relatively less advanced industrial structures compared to the maritime part. In the 2010s, TBT served as a significant trade barrier in the ASEAN maritime region. Given the relative development in the maritime region compared to the continental region, there is a significant potential for more active use of TBT measures based on technological advantages. Therefore, there is a need to pro-actively develop appropriate strategies for this situation. This finding aligns with local expert interviews, which indicated that it may be challenging for domestic firms to raise TBT to a high level in countries that are still in the process of development, such as Vietnam.Third, overall, it is revealed that ASEAN’s TBT and SPS measures do not significantly affect intra-ASEAN trade. However, they did have a statistically significant impact on intra-ASEAN trade negatively in the 2010s. This aligns with the findings from the stylized facts presented earlier, which showed the emergence of TBT and SPS-related STCs among ASEAN Member States (AMS) in the mid to late 2010s. Furthermore, it aligns with the results from Chapter 3, which indicated that the regulatory distances between AMS widened from 2015 to 2018. This suggests that regulatory harmonization and standardization will be crucial for the expansion of intra-ASEAN trade in the future ASEAN economic integration process. In fact, ASEAN’s efforts for regulatory harmonization and standardization have been ongoing, especially since the COVID-19 pandemic, as confirmed in Chapter 2.Moreover, given the high similarity between AMS’s regulations and institutions and those of Japan, South Korea, which aspires to be a global pivot state, should actively engage in improving AMS’s regulations and institutions, particularly in emerging sectors such as the digital economy and environmental goods within the ASEAN region. Such efforts can enhance not only trade but also South Korea’s standing in the international community.Chapter 5 collected opinions through surveys of South Korean manufacturing firms exporting goods to the ASEAN region. The surveys aimed to gather insights on TBT-related challenges, areas requiring improvement, the similarity of TBT by ASEAN member states/region, evaluations of support policies, and additional support policies. The survey results can be summarized into the following five points.First, the impact of TBT varies depending on the characteristics of the firms. As noted above, TBT generates both trade-restrictive and trade-promotion effects. Among the firms that participated in the survey, 57.2% identified the excessive increase in compliance costs due to TBT as the most significant obstacle. Lack of Information and technological deficiencies were also mentioned as challenges. On the other hand, other responding firms, not considering TBT as an obstacle, reported TBT’s positive impacts, such as enhancing their sales and export capabilities, increasing consumer trust in their products, and improving the dissemination of market information. Therefore, when policy-makers formulate support policies for the firms, it is important for them to recognize that the impact of TBT varies across the characteristics of the firms. Additionally, it is crucial for policy-makers to provide related information and best practices where TBT is helpful in promoting exports to the ASEAN region, particularly to small and medium-sized enterprises.Second, South Korean export firms face the most significant challenges in obtaining certifications related to TBT. In the survey, firms identify “lengthy certification acquisition time” as the biggest challenge of TBT to overcome when exporting to the ASEAN region. In addition, they express difficulties related to unclear regulations, uncertain certification procedures, lack of alignment with international standards, and significant burden of certification acquisition costs.Third, despite ASEAN’s efforts to harmonize regulations, differences in TBT between the continental and maritime regions persist. ASEAN has launched the ASEAN Economic Community, aiming to create a “single market and single production base” by the end of 2015. As mentioned in Chapter 2, with the completion of the ASEAN Free Trade Area (AFTA), six advanced ASEAN member states (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) have already achieved a 99.29% of tariff line coverage, while the four less advanced ASEAN member states (Cambodia, Laos, Myanmar, and Vietnam) have achieved 98.64% of tariff line coverage for intra-regional trade.Efforts were made to harmonize TBT/SPS through the ASEAN Comprehensive Recovery Framework (ACRF), which was launched in November 2020 with the aim of eliminating non-tariff measures in the region and achieving ASEAN integration. However, disparities in TBTs still existed between the continental and maritime regions and varied across countries. More than half of the firms surveyed indicated that TBTs among ASEAN member states still differ significantly. In particular, the survey results showed that responses indicating significant differences between TBT in the continental and maritime regions accounted for more than half of all responses. This finding is also confirmed by the results of the quantitative analysis in Chapter 4.Fourth, there is a need to expand access to government support for TBT. The survey on firms’ awareness and use (including future plans) of government support policies related to ASEAN TBT compliance shows that although firms are willing to use the support policies, they often do not use them due to a lack of awareness. This is why, despite South Korea having a systematic TBT response system centered around the Korean Agency for Technology and Standards (KATS), firms expressed that government support policies related to TBT are still insufficient. However, the good news is that the majority of firms responded that government support is helpful in solving problems. In other words, if firms receive government support when needed, they can minimize their losses. By enhancing promotional activities for TBT support policies, including seminars, consulting support, and educational materials, firms are expected to make better use of government support policies.Finally, concerning TBT, South Korean firms emphasize the importance of monitoring changes in foreign government regulations, promoting the internationalization of technical standardization projects, and supporting the expansion of Korean testing and certification institutions abroad. Since obtaining certification is the biggest challenge for these firms, they advocate for simplifying the certification acquisition process, streamlining certification requirements, standardizing country-specific certification procedures, and expanding testing institutions. Collaboration with ASEAN member states (AMS) is seen as a key way to achieve these goals. Simplifying and standardizing ASEAN’s TBT procedures would not only facilitate trade between South Korea and AMS but also contribute to the overall economic integration of ASEAN.Based on the research results above, this study presents four policy directions:1. Strengthening Collaboration for Regulatory Harmonization in ASEAN: It is essential to strengthen cooperation for regulatory harmonization with the ASEAN member states (AMD). The local scholar meetings held in Vietnam and Indonesia also stressed the need for capacity building among officials responsible for TBT and SPS in the ASEAN region. As future trade between the two regions is expected to revolve primarily around high-tech industries, proactive efforts are needed to harmonize technical regulations. This will help reduce regulatory disparities between the two regions. As seen earlier, ASEAN’s regulations for traditional manufacturing industries were already similar to Japan’s. South Korea should focus on regulatory harmonization in emerging sectors such as the digital economy and environmental industries.2. Consideration of a South Korea-ASEAN Joint Certification Center: The second policy direction is to consider the establishment of a joint South Korea-ASEAN certification center to facilitate flexible responses. This is crucial because the impact of TBT/SPS on exports may vary by product, time, and country. The study’s results highlight the regulatory differences between the maritime and continental parts of the ASEAN region, which affect South Korea’s exports to the region differently. By setting up an ASEAN-based certification center, with Singapore as a potential hub due to its closest regulatory distance to South Korea, and by strengthening the network with other ASEAN member states, more flexible responses to changes in AMS’s TBT/SPS measures can be achieved. The survey results in Chapter 5 also support the establishment of a Joint Certification Center.3. Proposal for the Establishment of an ASEAN Integrated Standard Accreditation System: The third policy direction proposes the establishment of an ASEAN Integrated Standard Accreditation System. This is a challenging proposal, given the diverse geographical, economic, social, and cultural characteristics of ten ASEAN member states. However, it could be piloted initially for universal safety standard requirements for electrical and electronic products or for new products without established regulations. If successful, it could be gradually expanded. The creation of a working group for this purpose, with South Korea’s participation, could promote regulatory harmonization between South Korea and the ASEAN member states.4. Strengthening the Interconnection among the National Trade Repositories of 10 ASEAN Member States: The fourth policy direction highlights the need to support the strengthening of linkages between the National Trade Repository (NTR) of 10 ASEAN Member States (AMS) and the ASEAN Trade Repository (ATR). A Trade Repository serves as an information repository that collects information on each country’s tariff and non-tariff measures. Due to the significant development gap among the 10 AMS, there are differences in the capacity to operate national trade repositories. To ensure the effective consolidation of information from national repositories into the ASEAN Trade Repository, it is necessary to develop and improve the capacity to manage and operate these national repositories. With proper data aggregation, the utility of the current ASEAN Trade Repository can be enhanced and it can lead to more active research in this area. -
Developing an International Macroeconomic Forecasting Model Based on Big Data
The economic uncertainties arising from recent global inflation and the Covid-19 pandemic have significantly amplified the importance of accuracy and timeliness in macroeconomic forecasts. To enhance the predictive abilities of mo..
Yaein Baek et al. Date 2023.12.29
economic growth, economic outlookDownloadContentSummary<The economic uncertainties arising from recent global inflation and the Covid-19 pandemic have significantly amplified the importance of accuracy and timeliness in macroeconomic forecasts. To enhance the predictive abilities of models, harnessing all potentially relevant information is crucial. The advent of big data has spurred active exploration in economic forecasting research, leveraging additional data dimensions. Notably, text data such as online searches and news articles are widely employed to extract sentiments of economic agents, thereby monitoring economic and financial conditions. Additionally, machine learning has emerged as a pivotal tool in macroeconomic forecasting because it efficiently processes and analyzes big data. Given the potential benefits of big data for forecasting and the ongoing development of new methodologies, a collective analysis of forecasts based on big data and traditional macroeconomic models is essential. In this study, we analyze the predictive ability of short-term GDP growth rate forecasts based on big data against those generated by traditional statistical and structural macroeconomic models. Given the contrasting characteristics between big data-based forecasting models and structural models, we comprehensively analyze the results of each model and discuss implications for future economic forecasting research.This study largely consists of four parts. In Chapter 2, we utilize a small open economy dynamic stochastic general equilibrium model (SOE-DSGE) to forecast Korea’s GDP growth. This theoretical model serves as a benchmark for comparing against big data-based forecasts. Using a Bayesian framework, the model examines the impacts of various shocks, such as those related to total factor productivity, government spending, monetary policy, foreign demand, and foreign monetary policy. The findings reveal that the response of model variables to external shocks align with real-world outcomes. One of the strengths of the SOE-DSGE model is that it explicitly includes structural shocks, allowing us to analyze not only forecasts but also the effects of economic policies. However, a limitation is its inability to fully leverage available data due to inherent model constraints.In Chapter 3, we estimate machine learning and traditional econometric models based on a large set of macroeconomic and financial indicators to obtain forecasts of GDP growth in the United States and South Korea. We consider machine learning methods that have shown good predictive performance in previous studies, such as random forests, XGBoost, LSTM, and hybrid methods. For conventional econometric models, we employ the autoregressive model (AR) as a benchmark, along with the Dynamic Factor Model (DFM) and the Diffusion Index Model, both capable of utilizing a large number of predictors. The findings underscore the positive impact of utilizing big data on enhancing the predictive ability of GDP growth forecasts, particularly through machine learning. In the case of the U.S., machine learning outperforms econometric models, reducing forecast errors by up to 34% (measured by RMSE) compared to the AR model at a one-quarter forecast horizon. Although many of these improvements lack statistical significance, machine learning exhibits significant forecasting performance one quarter ahead when excluding periods of financial crises. For South Korea, the performance of machine learning in GDP forecasting is not as pronounced as in the U.S., but improvements have been evident since the 2000s. Unlike in the U.S., both machine learning and the DFM exhibit similar predictive abilities, notably performing well during financial crises periods. Consequently, it’s crucial to note that the forecast performance of machine learning models using big data may vary based on factors such as the country, forecast horizon, time period, and sample size.In Chapter 4, we classify Naver search data as unstructured and employ dynamic model averaging and selection (DMA and DMS) to predict South Korea’s GDP growth rate. Utilizing eight widely accepted macro-financial indicators as predictors of GDP growth, we create a search index by standardizing the search volume of Naver terms linked to each variable. Based on the idea that online search data is useful for selecting the most influential predictors of economic growth at specific junctures, we integrate the Naver search index as the selection probability of the dynamic model. Our findings reveal that DMA and DMS incorporating the search index, exhibit significantly superior forecasting abilities compared to AR, and also outperforms the OLS employing the same predictors. Moreover, while forecasting models typically exhibit regression towards the mean, DMA and DMS excel in predicting turning points in GDP growth, making them useful for predicting economic fluctuations.Chapter 5 synthesizes findings from preceding chapters and compares forecasts for Korea, offering insights into future economic forecasting research. Firstly, our results affirm that employing big data enhances the accuracy of economic growth forecasts, which is consistent with the expectation that a richer dataset can unveil important additional information. Secondly, it is necessary to construct a comprehensive macroeconomic database by sourcing information from diverse channels. Our findings show that forecasts integrating the Naver Search Index demonstrate proficiency in predicting sharp fluctuations in economic growth compared to forecasts reliant solely on structured data, indicating the timeliness of online search data in reflecting real-time consumer economic sentiment. This highlights its utility in forecasting evolving economic landscapes, capturing insights beyond existing structured datasets. Lastly, in addition to building databases, we need to innovate and explore new analytical methodologies for economic forecasting. While statistical methods utilizing numerous predictors exists and are widely used, our study reveals the relatively superior predictive performance of machine learning when applied to the same dataset. Although it is difficult to entirely replace existing forecasting models or the qualitative judgment of economists, machine learning-based economic forecasts can serve as supplementary indicators that can be used as a reference for the final forecast or the assessment of the economic landscape. -
A Study on the Korean Model Law of Digital Trade Agreement
The purpose of this research is to provide necessary information to prepare a basic model law for the digital trade agreement that Korea will conclude. And more, this study analyzes the “forms and contents” of several digital tr..
Hyunho Kwon et al. Date 2023.05.26
E-trade, electronic commerceDownloadContentSummary<The purpose of this research is to provide necessary information to prepare a basic model law for the digital trade agreement that Korea will conclude. And more, this study analyzes the “forms and contents” of several digital trade agreements concluded so far, and presents practical considerations that need to be reviewed from a legal and policy perspective when Korea has a chance to conclude digital trade agreements in the future.To this end, Chapter 2 presents specific grounds to establish the Korean digital trade agreement model at the formal or structural level. This is a formal and structural approach to consider for setting the model of digital trade agreements. To solve this problem, this study conducts a detailed review in two main aspects. First of all, the implications of the multilateral discussions on the digital trade agreement will be analyzed. Through this study, it is possible to examine the various forms or structures of digital trade agreements that appear in multilateral discussions themselves. On the other hand, what needs to be addressed in the process of forming a more realistic model is the formal aspect of digital trade agreements through bilateral, regional and plurilateral agreements or multilateral agreements. This approach will be the most realistic solution for Korea or most countries. In particular, there are various types for regulating digital trade through bilateral, regional and plurilateral agreements or multilateral agreements, such as those attached as part of FTAs or RTAs, and those concluded as independent trade agreements regardless of FTAs such as DEPA or KSDPA. Therefore, Chapter 2 presents various trade legal and policy implications, such as the meaning and characteristics of digital trade agreements concluded in different forms, and problems according to the legal perspectives of the agreement itself, which helps Korea set a model agreement.In addition, the core of Chapter 3 is the analysis of the content aspects of digital trade agreements. Here, the content aspect refers to the degree of liberalization consequently raised in the composition and content of the agreement provisions that Korea should consider when signing a digital trade agreement. In other words, this aspect is connected to the degree of liberalization of the object in the conclusion of digital trade agreement. Therefore, Chapter 3 analyzes the contents of existing digital trade agreements, examines the specific and acceptable contents and scope that should be included in digital trade agreements from Korea’s point of view, and presents the basis for determining whether it can be discussed at the level of liberalization. The research topics in Chapter 3 are basically analyzing the current situation in the digital trade and examining the results and limitations of digital trade agreements that have already been implemented in the international relations. In particular, Chapter 3 provides the meaning and limitations of the digital trade agreement model to be concluded in the future based on the analysis of the contents of digital trade agreements made at the previous bilateral and regional levels.As results of these studies, Chapter 4 of this research first evaluates existing digital trade agreements and proposes the direction of the model of digital trade agreements that Korea should maintain. In addition, as a result of this analysis, the characteristics of Korea’s digital trade agreement model are reviewed at the formal and content level, and the direction of the Korean digital trade agreement model is presented. Through this analysis, Chapter 4 classified the direction of the Korean model of digital trade agreements into the form of updating existing trade agreements, participating in open plurilateral agreements, and signing strategic digital partnership agreements, and analyzed their formal characteristics and implications for Korea. And as a result of this analysis, the model of the Korean digital trade agreement was presented by dividing it into a model based on traditional standards and a model based on the so-called ‘new standard.’Finally, Chapter 5 completes the entire research by reviewing the problems that may arise in the future for digital trade. To this end, Chapter 5 proposes factors to be considered in terms of the maintenance of the domestic legal system according to the previously proposed Korean digital trade agreement model. In addition, in connection with the definition or scope of digital trade, Chapter 5 examines the problems or characteristics raised in the process of discussing the expansion of digital trade agreements into digital partnership agreements and further into digital economic agreements. And finally, Chapter 5 briefly examines legal policy problems that may be raised from the perspective of digital transformation, that is, the future transition to an industry that can be digitized in the future. -
The US Financial Sanctions on China and Its Implications on Korea
Economic sanctions are typically imposed as coercive measures to restrict a target’s economic activities, with the aim of achieving foreign policy and national security objectives. The United States has employed many methods of e..
Wonho Yeon et al. Date 2022.12.30
economic security, financial liberalizationDownloadContentSummary<Economic sanctions are typically imposed as coercive measures to restrict a target’s economic activities, with the aim of achieving foreign policy and national security objectives. The United States has employed many methods of economic sanctions, such as imposing import and export limitations, withholding foreign aid and investment, seizing foreign assets, and forbidding its nationals from doing economic transactions with sanctioned individuals and companies. Financial sanctions encompass a range of measures that particularly limit the movement of funds and other forms of asset value to countries, companies, and individuals subject to sanctions. These measures have a wide-reaching impact as they can freeze assets, prohibi t or restrict financial transactions, and even disrupt the settlement of import and export activities.The utilization of economic sanctions as a geopolitical instrument has a lengthy historical background, but, the current impact and efficacy of U.S. sanctions are unparalleled. Although countries other than the United States have the authority to enforce tariffs, import and export controls, and other non-tariff barriers, they lack the ability to independently limit access to the global financial system, unlike the United States. Therefore, the secondary sanctions imposed by the United States, which limit dollar transactions, enables the United States to exert its influence on a worldwide scale through working in conjunction with other economic restrictions, such as export controls.Amidst the escalating strategic rivalry between the United States and China, the United States is broadening both the extent and substance of its financial sanctions. In the ongoing competition for technological supremacy between the United States and China, the United States can leverage its influence in the financial sector to impede China’s access to the necessary resources for the advancement of its own high-tech sectors. Furthermore, the United States has the ability to intervene in transactions occurring within the supply chain of high-tech enterprises that utilize U.S. currency, in addition to imposing restrictions on domestic U.S. companies selling components to China.Chapter 2 explores the legal foundation, governance, and enforcement procedures of U.S. financial sanctions imposed on China. It also provides an account of the present situation and future possibilities of U.S. financial sanctions against China. It concludes that U.S. financial sanctions are based on a legal foundation and are implemented through a coordinated process among Congress, the President, and key executive branch agencies. While the United States has a long history of using financial transaction sanctions to address violations of international norms, it has recently adopted financial sanctions to block the flow of funds, including equity investments in certain Chinese companies, in response to China’s technological rise and national security threats.Chapter 3 examines China’s response. In China, finance is an important industry that supports economic growth and is still one of the fastest-growing industries in the country. Chinese companies also rely on the U.S.’s advanced financial system to finance their businesses and invest abroad. However, with the U.S. utilizing sanctions as one of its tools, China has been forced to respond and prepare for external shocks to its financial industry. Chapter 3 analyzes China’s response to the recent U.S. financial sanctions, categorized into short-, medium-, and long-term strategies. It analyzes China’s short-term responses to U.S. financial sanctions in terms of its position statements and the adoption and application of laws and regulations in response to foreign sanctions; its medium-term responses in terms of standardizing overseas listings and diversifying financing sources; and its countermeasures against U.S. financial sanctions in terms of developing the renminbi international payment system and expanding capital market capacity.Chapter 4 examines the economic consequences of a protracted period of significant financial de-globalization caused by financial sanctions between the United States and China. In this context, “substantial” refers to a decline in local investments abroad and foreign investments within the country. We aimed to analyze the economic consequences of a country’s gradual shift from an open to a closed economy, where foreign capital inflows are replaced by domestic investments. Our research indicates that a reduction in trade openness has a detrimental effect on economic growth, whereas the influence of financial openness is not statistically significant. Nevertheless, if there is a rise in fragmentation within the global economy, leading to limitations on capital investment in China to specific nations, namely an increase in financial concentration, it would adversely affect economic growth. In addition, we analyzed the current level of financial interconection between the United States and China in order to assess the immediate expenses associated with an escalation of hostilities and the severance of their financial systems.Even if the introduction of financial sanctions between the U.S. and China reduces financial globalization in a de jure sense, it is difficult to say with certainty that it will reduce outward investment globally or between the two countries in a de facto sense. However, it is possible that competition in the financial sector between the U.S. and China could reach new extremes. In response to Russia’s invasion of Ukraine in 2022, Western countries such as the U.S. and EU took measures such as freezing the Russian Central Bank’s foreign exchange reserves and excluding major financial institutions and corporations from SWIFT. Under extreme conditions, such as a Chinese invasion of Taiwan, it is conceivable that the U.S. could impose such measures on China, and that China would be forced to dramatically reduce its reliance on the dollar payment system, even at the cost of significant short-term losses, and stick to the RMB international payment system.However, it is unlikely that the U.S. would want to see China accelerate the internationalization of the RMB and the internationalization of the RMB necessitates consensus among nations, rather than solely China’s endeavors. Consequently, a scenario of intense confrontation or competition in the financial sector between the United States and China is unlikely to occur. The United States is likely to choose a course of action that involves strengthening regulations on financial transactions involving specific high-tech or strategic goods. In this scenario, our government will need to devise strategies to minimize the negative impact on our industries, while our companies will need to take measures to avoid being subjected to sanctions by improving their own compliance. -
A Study on Updating Korea’s Services Trade Statistics System
This report aims to provide directions for improving Korea’s service trade statistics. Ultimately, the purpose is to enhance the understanding of Korea’s service trade and contribute to the establishment of service trade policie..
Jong Duk Kim et al. Date 2022.12.30
international trade, industrial policyDownloadContentSummary<This report aims to provide directions for improving Korea’s service trade statistics. Ultimately, the purpose is to enhance the understanding of Korea’s service trade and contribute to the establishment of service trade policies through improved data. To this end, the report categorizes Korea’s service trade statistics into short-, medium-, and long-term agendas based on the progress of discussions on international service trade statistics, domestic policy demand, and data availability for statistical improvement, and studies each agenda.Chapter 2 first look at the historical discussions regarding the definition of services in economics, and the definition of service supply modes stipulated in trade agreements such as the GATS. Modern service trade statistics collected on the balance of payments are compared with suggested statistics by mode of service supply under the GATS. Based on these discussions, the report presents two considerations for improvements from the perspective of services statistics construction. First, it is necessary to put an effort to converge the classification of the balance of payments to the CPC. Second, statistics by mode of supply defined in services trade agreements need to be reflected in the collection of balance of payments statistics, currently aggregated without distinction by mode of supply.Chapter 3 discusses how to convert trade statistics by service sector on the balance of payments, which is a transaction standard, into industrial standard service trade statistics such as the Korea Standard Industry Classification. The convergence to activity-based classification is helpful in setting out policy directions at the industry level, and matching with other activity-nased statistics, e.g. foreign direct investments, which are readily prepared based on the Korean standard industry classification. In Chapter 3, service trade statistics from the balance of payments are reclassified according to the Korea Standard Industry Classification. In this process of bridging and fill the gap between the two statistics, a fair amount of addition information and complementary data in each industry are required. Ultimately, in order to increase the rigor of the statistical correspondence between the international balance of payments and the standard industrial classification, it is necessary to test the consistency between them.In Chapter 4, service trade statistics by mode of supply were estimated as a medium-term improvement issue. There is a great interest in statistical estimation by mode of supply in that different mode implies distinctive impacts on services market. Recently, statistics by mode of supply for individual countries, TISMOS (Trade in Services by Mode of Supply), have been released by the WTO and OECD. However, since Korea’s statistics shown in TISMOS were estimated indirectly using estimates from some countries such as the United States and the EU. In order to initiate discussions to accurately estimate service statistics by mode of supply in Korea we conducted surveys regarding how Korean companies in services sector have traded in terms by mode of supply, focusing on Mode 1 in particular. Then, for more accurate estimation of Mode 2, most of which is accounted for by travel services, we suggest to use additional information and data from Korea’s Foreign Tourist Survey or National Travel Survey. In the case of Mode 3 services trade estimation, we discussed ways to utilize information and data such as “Overseas Direct Investment Management Analysis” provided by the Export- Import Bank of Korea for Mode 3 exports and “Foreign-invested Company Management Survey Analysis” by KOTRA.Chapter 5 discussed the concerns pertaining to classification of digital products as service products, which have recently grown in interest. Currently, discussions on the classification of intangible products in the traditional dichotomous product classification of goods and services are underway internationally. In this report, we discussed how to add another mode of supply (i.e. Mode 5) in addition to the existing four modes of services supply as an idea. However, since it is difficult to fully reflect the relationship between service providers and consumers by the introduction of Mode 5, it is possible to consider ways to adopt the digital modes proposed by Ciuriak and Ptashkina (2018) within Mode 5.In Chapter 6, two suggestions for institutional improvements were proposed. The first is related to the convergence of statistical classification on the balance of payments and service statistical classification in trade agreements, and the second is related to the collection of corporate- or individual-level data on service trade. The first issue is where international consensus is needed. Therefore, it is considered important to actively monitor the classification discussion of newly formed digital services and participate in international discussions so that our positions and opinions can be reflected in these processes of discussion. The second is regarding the policy directions for supplementing current statistics with various information and data from the broader perspective of services trade. As in most countries, Korea’s service statistics are in fact mostly from the balance of payments statistics, which are collected sporadically as needed, resulting in a lack of statistical consistency. Therefore, this report discusses the approaches for improvement of Korea’s service statistics in three directions, focusing on the Korea’s legal system adjustment, improvement of service trade statistics governance, and establishment of a comprehensive service trade statistics platform. -
The Role of Cross-Border e-Commerce in Shaping Global Value Chains
The continuous development of the digital economy has led to a rising volume of e-commerce. From 2014 to 2020, global B2C e-commerce sales witnessed a yearly increase of 21%, while B2B e-commerce transactions grew by 16% annually ..
Sangjun Yea et al. Date 2022.12.30
trade structure, electronic commerceDownloadContentSummary<The continuous development of the digital economy has led to a rising volume of e-commerce. From 2014 to 2020, global B2C e-commerce sales witnessed a yearly increase of 21%, while B2B e-commerce transactions grew by 16% annually from 2014 to 2019. As e-commerce gains ground rapidly, its impact extends to international trade as well. China, being the world’s largest trade partner, experienced an annual increase of 18% in cross-border B2B e-commerce since 2016. With the long-term global trend of digital transformation, e-commerce is expected to continue growing, and cross-border e-commerce will play a significant role in global trade. This study analyzes the economic impacts of expanding cross-border e-commerce on global trade, with a particular emphasis on intermediate goods trade and global value chains.Chapter 2 explores recent trends in e-commerce and global value chains (GVCs). According to the 2021 data from UNCTAD, total global e-commerce sales reached approximately $26.7 trillion in 2019, with 81.7% attributed to B2B transactions and the remainder to B2C transactions. The United States, Japan, China, and South Korea emerged as the leading countries, contributing the largest share of total e-commerce sales. Among these countries, B2B e-commerce sales accounted for over 85% of total e-commerce sales in the United States, Japan, and South Korea, whereas in China, it constituted only 41%. Notably, various metrics related to B2C e-commerce, such as retail e-commerce sales, the number of global digital shoppers, e-commerce’s share of total retail sales, and user penetration, experienced significant growth during the COVID-19 pandemic. In contrast, the size of the B2B e-commerce market, as measured by total merchandise value, has experienced double-digit growth since 2016, but in 2020, the pandemic slowed the year-over-year growth rate. The different growth rates of B2C and B2B e-commerce during the pandemic suggest that the pandemic has had a significant impact on supply chains. Despite the supply chain shocks during the pandemic, B2B e-commerce’s share of global trade is expected to grow further in the future. With many companies recognizing e-commerce as an efficient sales channel and making it an important strategy to maintain multiple sales channels alongside offline channels, B2B e-commerce is expected to continue to grow as a share of total trade in the future.Next, we look at recent changes in GVCs through various measures, including GVC participation rates and value chain length. Focusing specifically on the manufacturing sector and comparing the years 2018 and 2021, we observe a decline in the average GVC participation rate from 53.8% in 2018 to 52.9% in 2021. In the case of South Korea, there was a decrease from 54.3% in 2018 to 53.1% in 2021, primarily driven by a reduction in forward participation and a slight increase in backward participation during this period. The decline in forward participation indicates a decrease in the proportion of Korean intermediates being exported to third countries, while the increase in backward participation suggests a rise in the usage of foreign intermediates in Korean exports. Looking at the changes in forward and backward production lengths in GVCs for the major manufacturing countries of South Korea, Germany, Japan, and Taiwan, we find that forward production length decreased in all countries from 2018 to 2021, while backward production length decreased in all countries except South Korea. This implies a reduction in the number of production stages involved in the manufacturing of final goods during this time frame.In Chapter 3, we conduct two empirical analyses of the relationship between cross-border e-commerce and GVCs. The first empirical analysis utilizes firm-level data from the Business Activity Survey of Statistics Korea. GVC participation of firms is identified from their engagement in two-way import and export activities, while e- commerce participation is identified among firms that implemented an integrated e-commerce management system during the observation period. To examine the changes in GVC participation before and after the adoption of the integrated e-commerce management system, a difference-in-differences model was employed, along with propensity score matching to mitigate selection bias.The estimation results indicate that e-commerce participants exhibit increased overall GVC participation compared to non- participating firms. There is also a significant positive effect on GVC participation with affiliates. Comparing overall GVC participation and GVC participation with affiliates, the adoption of an integrated e-commerce management system demonstrates a long-term impact on increasing overall GVC participation to a greater extent than GVC participation with affiliates. Among specific industries, the analysis reveals a significant impact of e-commerce integrated management systems on both overall GVCs and GVCs with related parties in manufacturing and wholesale industries. In particular, the adoption of e-commerce systems in wholesale sectors significantly increases firms’ participation in GVCs with related parties compared to the case of manufacturing. We also find that the adoption of e-commerce integrated management systems has a significant impact on the increase in imports in the manufacturing industry, while it has a significant impact on the increase in exports and imports in the wholesale and retail industry. Finally, when counting into the differences in productivity levels of firms, we find that the introduction of the e-commerce system increases the participation in GVCs by firms who have difficulties in entering into overseas markets due to their low productivity.The second empirical analysis in Chapter 3 uses country-level data to analyze the impact of the level of e-commerce on the rate of backward and forward GVC participation in each country. To this end, a dynamic panel model is constructed, incorporating control variables such as market size, manufacturing share, tariff rate, and FDI liberalization. The export-based rates of backward and forward GVC participation, calculated using ADB MRIO data, are utilized as the dependent variables in the analysis.The findings of the analysis reveal a statistically significant positive correlation between e-commerce expansion and the rate of backward GVC participation. This can be attributed to the intensified competition fostered by e-commerce, which enhances the incentives for firms to utilize foreign intermediates possessing advantageous price and quality attributes. This effect is stronger in manufacturing industries than in services industries.In Chapter 4, we develop a theoretical model to examine the quantitative relationship between cross-border e-commerce and global value chains based on data from the World Input-Output Table. Our model incorporates key features of cross-border e-commerce such as the expansion of trading networks due to the reduction of information frictions and the efficient provision of goods and services through digitization technologies. Specifically, the expansion of trading networks allows final goods producers being engaged in e-commerce to connect with intermediate goods producers offering lower production costs, which is not feasible for producers not involved in e-commerce. Additionally, the efficient provision of goods and services through digitization technologies refers to how participating intermediate goods producers reduce their production costs through digitization innovations or bypassing tariff and non-tariff barriers.Using this theoretical model, we conduct two simulation analyses. In our first simulation, we examine the changes in final goods exports, intermediate goods exports, and GVC participation of major countries when the trade costs associated with cross-border e-commerce in Korea are reduced by 5%. We find that a 5% reduction in trade costs associated with cross-border e-commerce in Korea results in an overall increase in intermediate goods exports to the Asian region. Consistent with the results of the empirical analysis in Chapter 3, we find that Korea’s backward participation in GVCs increases with the expansion of e-commerce. In our second simulation, we examine the relationship between e-commerce and the stability of global supply chains. We assume a trade shock that raises the trade costs between China and other countries by 5% and find that the impact of the shock heavily affects the GVC measures with underlying cross-border e-commerce than without underlying cross-border e-commerce. This outcome arises from the fact that e-commerce opens up new trade channels and increases the reliance on cross-border supply chains, thereby magnifying the impact of a trade shock. Consequently, as digital cooperation between countries continues to advance, the reduction of trade barriers remains crucial.Lastly, in Chapter 5, we draw conclusions and present four policy implications for cross-border e-commerce and GVCs policies Firstly, recognizing e-commerce as an effective channel for firms to maintain market access amid rising protectionism and the COVID-19 pandemic, governments should explore strategies to promote e-commerce, such as simplifying customs procedures related to e-commerce as observed in China or adopting market-driven digital trade policies as seen in the United States. Secondly, since the introduction of e-commerce systems has significant positive effects on exports and GVC participation for low-productivity firms, governments may consider supporting the capacity building of such firms by assisting in the establishment of e-commerce systems, utilizing web hosting services, and providing advice on maintaining an omni-channel approach. Secondly, as the introduction of e-commerce systems has significantly positive effects on exports and GVC participation for low-productivity firms, government may consider to support capacity building of these firms through the assistance of building e-commerce systems, utilizing web hosting services, and advising to maintain omni-channel. Thirdly, as cross-border e-commerce becomes more active, the potential for external shocks propagating within the supply chain increases. Therefore, multilateral cooperation in building stable supply chains should prioritize efforts to lower trade costs. Fourthly, it is imperative for the government to establish pertinent statistical indicators that comprehensively capture the present condition of e-commerce in Korea, thereby facilitating future research endeavors and informing policy formulation. In this regard, it is advisable to consider the inclusion of separate metrics specifically dedicated to Business- o-Business (B2B) e-commerce, distinct from those pertaining to Business-to-Consumer (B2C) e-commerce.
공공저작물 자유이용허락 표시기준 (공공누리, KOGL) 제4유형
대외경제정책연구원의 본 공공저작물은 "공공누리 제4유형 : 출처표시 + 상업적 금지 + 변경금지” 조건에 따라 이용할 수 있습니다. 저작권정책 참조