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  • 글로벌 기후금융의 현황과 발전방향: 녹색채권을 중심으로
    Current Development and the Future of Global Climate Finance: Focusing on Green Bonds

    The mitigation and adaptation of climate change require large-scale investment in green projects. Green bonds, which are liquid financial instruments used to finance climate mitigation, adaptation, and green projects, have shown r..

    Jiyoun An et al. Date 2022.06.30

    Capital market, Environmental policy

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    Summary

    The mitigation and adaptation of climate change require large-scale investment in green projects. Green bonds, which are liquid financial instruments used to finance climate mitigation, adaptation, and green projects, have shown rapid growth in issuance in recent years. Besides financing for climate change, green bonds help ESG management by enhancing the issuer’s reputation for eco-friendly activities. Further, they may create, namely, greenium to reduce the cost of financing.

    In 2007, green bonds were first issued by multilateral development banks such as the European Investment Bank and the World Bank. The global issuance volume of green bonds soared from about $800 million in 2007 to $320 billion in 2020, and the total cumulative volume reached $1.5 trillion by October 2021. In 70 countries, sovereign institutions and private companies issued green bonds. The issuance by private companies accounted for 77.9% of the total number of issuance and 63.9% of the total amount. Financial companies accounted for 46.0% of private issuances, higher than non-financial companies, 31.9%. In 40 countries, the public sector, such as the central and local governments, public corporations, and public institutions, issued green bonds, accounting for 25.6% of the total issuance volume. Although developed regions such as Europe and the United States and international organizations have been leading their issuance, it is notable that emerging countries such as China are fast increasing the issuance recently. Since a Korean institution first issued green bonds overseas in 2013, by October 2021, the total stock of green bonds issued at home and abroad by Korea’s public institutions or private companies reached 43.5 billion dollars. In particular, the issuance of green bonds in 2021 increased explosively, approximately ten times more than in the previous year.

    Green bonds need a regulatory system defined as the institutional framework regarding the requirements for being a green bond and the means of verifying the requirements and of penalizing for their violation. The International Capital Markets Association (ICMA) and the Climate Bonds Initiative (CBI) presented the Green Bond Principles as the basis for the green bond regulatory framework. These principles aim to strengthen the credibility of green bonds, expand financial support for carbon reduction and responses to climate change, reduce the risk of greenwashing, and set up standards for certification of climate bonds. The Green Bond Principles outline the four core components of green bonds: use of proceeds, the process for evaluation and selection for projects, management of proceeds, and ex-post reporting. Countries specify their green bond guidelines based on these principles, and issuers of green bonds introduce a green bond management regime consistent with these principles.

    As a result of statistical analysis on the determinants of the issuance size of green bonds in a country, it is found that the higher the readiness for climate change and the higher the vulnerability to climate change, the greater the issuance of green bonds. However, there appears to be no statistically significant relationship between the size of greenhouse gas emissions and the issuance of green bonds. Among macroeconomic variables, the income level, the sovereign credit rating, and the level of financial market development are positively associated with the size of green bonds issuance at a significant level.

    Based on the considerations of the recent green bond issuance trend, the development of the regulatory system, and the determinants of the growth of the green bond market, this study suggests policies to nurture the green bond market in Korea: 

    First, upgrading the domestic regulatory system for green bonds is necessary. The regulatory system in first-mover countries is changing its emphasis from self-regulation and ex-ante procedure-centered regulation to binding legal regulation and ex-post performance and impact regulation. While updating the green bond regulatory system, Korea needs to closely analyze the EU regulatory system and make its system closer to the EU one. Second, it is necessary to induce the growth of credible and competent external review institutions, which are crucial to the credibility of green bonds and the market’s growth. To this end, the government can consider introducing a certification system of external review institutions until the market’s self-regulation works effectively. Third, the government needs to issue sovereign green bonds, which may help build best practices for issuing and managing green bonds in Korea. Finally, it is necessary to expand the base of green bond issuers by inducing more companies, such as mid-sized companies, to issue green bonds. To this end, the government needs to consider temporarily subsidizing the incidental costs associated with the issuance of green bonds, such as external review costs.
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  • INTERNATIONALIZATION OF  THE KOREAN WON IN THE LIGHT OF  THE RMB INTERNATIONALIZ..
    Internationalization Of The Korean Won In The Light Of The Rmb Internationalization

    Despite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in ..

    Hyo Sang Kim et al. Date 2022.02.25

    Financial liberalization, Exchange Rate China

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    Content
    Preface

    Forward

    Contents

    Executive Summary

    Contributors

    Chapter 1. Introduction
    1. Background and Motivation
    2. The Current Status of the Korean Won Internationalization
    3. Contributions

    Chapter 2. RMB Internationalization: Development Status, Evolution Logic and Prospect
    1. Development Status of RMB Internationalization
    2. Evolution Logic of RMB Internationalization
    3. Prospect of RMB Internationalization
    Chapter 3. Performance of the Shanghai and Seoul Direct RMB-Korean Won Exchange Market
    1. Introduction
    2. Direct KRW-RMB Exchange Markets in Seoul and Shanghai
    3. Empirical Model and Results
    4. Conclusion and Policy Implications

    Chapter 4. Synchronization of East Asian Currencies: RMB or USD?
    1. Introduction
    2. Exchange Rate Regime in China
    3. Empirical Estimation
    4. Conclusion

    Chapter 5. Analysis of Factor Determining the Synchronization of RMB and Korean Won
    1. Introduction
    2. The Currency Co-movements with the RMB
    3. Factor Determinants on the RMB Weights
    4. Empirical Results
    5. Conclusion
    Appendix

    Chapter 6. Effects of RMB Internationalization on Korean Won 
    Internationalization
    1. Introduction
    2. Constructing the Korean Won Internationalization Index
    3. Empirical Analysis
    4. Conclusion
    Appendix

    Chapter 7. 
    Policy Proposals and Conclusion
    1. A Policy Framework for Currency Internationalization
    2. Review of the Experiences of the Currency Internationalization
    3. A Proposal for the KRW Internationalization
    4. Agenda for RMB and KRW Cooperation
    5. Conclusion

    References
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    Summary
    Despite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in encouraging RMB internationalization. It has the ability to disrupt the global financial system, dominated by the US dollar. In order to seize chances under such circumstance, Korea must find a new direction for the internationalization of Korean Won.

    This collective volume has seven independent papers that investigate the current and future status of the RMB internationalization and its impacts and implications on Korean economy. The summarizations of each paper are as follows: Chapter One explains the background and motivation of this collective volume. Also, it describes the current status of the Korean Won Internationalization. Chapter Two provides detailed descriptions of the current status of RMB internationalization and its future prospects. Chapter Three examines the performance of Shanghai and Seoul RMB-KRW direct foreign exchange markets and figures that such direct FX markets have not been fully developed yet. However, such markets are expected to become more efficient gradually. Chapter Four finds that in the gradual evolution of the RMB internationalization, the KRW is becoming more synchronized with the Chinese yuan. Chapter Five explores the factors for coupling between the RMB and the KRW. Not only trade and finance channels but also policy implementations are important. Chapter Six develops the index for the KRW internationalization in light of the RMB internationalization. This chapter finds that the RMB internationalization may hinder the KRW internationalization. If the Korean government continues to delay the KRW internationalization, the benefit from the currency internationalization will become smaller. In that regard, Chapter Seven emphasizes that at this moment, it is very meaningful to re-examine the long-term strategy for Korea’s won internationalization. 

    The internationalization of the Korean won provides a new opportunity for the country’s financial development, rather than a disruption to the current global financial system. In the process of the internationalization of RMB and KRW, China and Korea should further strengthen bilateral financial and economic cooperation to push forward the process of RMB and KRW internationalization. Because the RMB or the KRW each have such a small proportion of the global monetary system, it is premature to be concerned about competition. Cooperation should take priority. The key policy suggestions for cooperation between these two currency internationalizations could at the very least include: (1) increasing the bilateral currency swap lines (BSLs) and making them more effective; (2) encouraging more usage of RMB and KRW in bilateral trade and direct investment; (3) encouraging more Chinese investors to hold KRW denominated assets and so does the other party; (4) accelerating the development of offshore RMB market in Seoul while having increasingly important offshore KRW market in China; (5) strengthening the coordination and cooperation in exchange rate policies.
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  • 지역별 중장기 통상전략 및 대외경제 협력 방안
    Korea’s Medium- and Long-Term Trade Strategies by Region and International Economic Cooperation Plans

       This study seeks to identify Korea’s cooperation directions with major regions and present action plans to implement them in five medium-to long-term trade issues: global supply chains, digital trade, climate change,..

    June Dong Kim et al. Date 2021.12.31

    Economic cooperation, Trade policy

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    Summary
       This study seeks to identify Korea’s cooperation directions with major regions and present action plans to implement them in five medium-to long-term trade issues: global supply chains, digital trade, climate change, health, and development cooperation.
       In the area of global supply chains, Korea and the U.S. could promote predictability and sustainability through periodic exchanges of information between the respective control towers of supply chains in the two countries, and the utilization of various consultative bodies composed of diverse agents related to supply chains. In the long-term perspective, we need to implement exchange programs of personnel and joint R&D programs in the areas of advanced technologies of the two countries in order to cultivate talented persons in the key industries.
       The EU and Korea could reinforce the connectivity of their supply chains through cooperation in the areas of technology and production in such strategic industries as telecommunication infrastructure. In addition, when considering the global expansion of low-carbon economy initiatives, Korea needs to closely cooperate with the EU, which is preemptively adjusting its supply chains under a green economy concept.
       With regard to China, it is anticipated that Korea will have no choice but to cooperate in areas where China and the U.S. share values, or in areas where the U.S. does not show interest in, for a considerable period of time. More specifically, cooperation can be possible in the areas of green industries, the health sector, and those with matured technology. Regionally, Korea needs to pursue cooperation with China in supply chains in third countries, rather than within China.
       In the New Southern Region, above all, Korea should pursue diversification of supply chains within the ASEAN region by utilizing changes in the trade and investment environment due to the RCEP, the CPTPP, and the ASEAN Economic Community. Korea also needs to upgrade its CEPA with India to secure smooth movement of intermediate goods between Korea and India. Additionally, Korea needs to expand cooperation with India utilizing the EDCF, particularly in light of the demand within India to establish various infrastructure such as renewable energy and roads.
       In the area of digital trade, two directions of cooperation with key countries and regions can be outlined as follows. First, Korea should strengthen medium-to long-term cooperation with leading economies such as the U.S. and the EU in digital infrastructure, digital technology, digital technological standards, and data regulation. Second, in places where need for digital infrastructure is increasing, such as China, the New Southern Region, and Africa, unique and specialized digital trade policies should be established.
       To be more specific, in order to strengthen cooperation with the U.S. in digital technology, Korea needs to encourage its domestic firms to join in the O-RAN Alliance. Furthermore, in order to foster technological cooperation in the field of AI, Korea should facilitate discussions about the development of international AI standards through the already existing Joint Committee on Science and Technology Cooperation between Korea and the U.S. Korea also needs to begin discussions to maintain technical standards cooperation by forming a Korea-EU Committee on digital technology like Trade and Technology Council between the U.S. and the EU. In terms of data regulation, Korea must take a proactive role together with the U.S. in WTO e-commerce talks. This study also suggests that the e-commerce chapter that was not addressed during the negotiation of the KORUS FTA amendment should be upgraded in the near future. Efforts will also be vital to keep complying with the EU’s GDPR requirements.
       Regarding digital infrastructure cooperation with major countries and regions such as China, the New Southern Region, and Africa, Korea should undertake action plans in conjunction with domestic policies such as K-semiconductor strategies and materials, components, and equipment strategies. Meanwhile, it is critical to develop a venue to discuss digital technology and data regulatory cooperation with China and the New Southern Region. Korea could benchmark the cooperation in the area of standards between Japan and China in 2019. This platform can help to improve the compatibility of digital technology and goods in key areas specified by the Northeast Asia Standards Cooperation Forum.
       Aside from digital infrastructure, digital technology, digital technological standards, and data regulation, Korea must seek specific cooperation plans for major countries and regions. For example, Korea can develop policies to increase intellectual property protection in relation to China. Furthermore, it can assist domestic digital trade firms in entering the Comprehensive Testing Region for Cross-Border E-commerce designated by the Chinese government. Korea also needs to conduct discussions with China to facilitate customs issues in e-commerce. In the New Northern Region, Korea should maintain cooperation with Russia in the field of digital services and software, with both countries developing research initiatives and expanding training programs for young researchers. In the New Southern Region, Korea can concentrate its capabilities for cooperation on SMEs and workers to strengthen the digital infrastructure. Establishing preemptive collaboration channels for digital trade between Korea and India would benefit both countries. In Africa, Korea should pursue digital trade policies targeted to the growing need for digital infrastructure, digital technology, public services, and labor force development.
       In regard to climate change, Korea should promote cooperation in such industries as energy transformation and transportation, areas where the EU is also focusing on within its carbon neutrality policy, as well as facilitate the dialogue channel of cooperation with the EU to back up this promotion. Korea also needs to maintain its position in the follow-up discussions to implement the Paris Climate Agreement while communicating closely with the EU.
       In the area of low carbon technology cooperation with the U.S., technological cooperation related to clean energy initiatives, energy efficiency, and carbon removal – which both countries share common interests and are competitive in – could be promoted first. In addition, Korea can also suggest cooperation in areas where the U.S. has global competitiveness, such as adaptation to climate change.
       In order to identify cooperation areas and facilitate multilateral cooperation with the New Southern Region, Korea needs to identify the policy interests and current status of dialogue channels in this area. With ASEAN, Korea needs to continue utilizing dialogue channels such as the Korea-ASEAN Dialogue on Environment and Climate Change. With respect to India, Korea needs to establish a regular high-level dialogue channel and identify specific cooperation demands.
       In the area of health cooperation, Korea needs to overcome the limits of existing international cooperation systems by establishing new international organizations such as an international pandemic treaty. This new organization will have the function of assisting production of vaccines, therapeutics, and equipment for diagnosis and personal protection as well as establishing more effective distribution systems for medicine and medical supplies.
       In order to respond more effectively to the crisis of infectious diseases in the future, it will be necessary to amend the related provisions within WTO agreements, since the production and distribution of medical supplies lies also in the area of international trade. More specifically, particular situations or conditions will have to be defined when the relevant TRIPS clauses can be exempted.
       The fundamental solution to the pandemic is technological innovations in the area of medicine manufacturing and increase of production amounts. In this context, Korea should place more of an emphasis on its current project to establish a global vaccine hub. A cooperation system must be established to co-utilize personnel and facilities through a consortium with companies in the U.S. and Europe.  
       With regard to development cooperation in Asia, the need to differentiate cooperation types, methods and areas has already been pointed out. As a specific action plan, for example, Korea can cooperate with assisting ICT-based hybrid infrastructure projects such as smart city and smart water control to medium-income countries such as Vietnam, Indonesia, and Philippines. Meanwhile, to low-income countries such as Laos and Myanmar, assistance should be provided to establish basic social infrastructure mainly in the form of ODA.
       For development cooperation with the African region, systematic cooperation among the ODA-implementing entities is crucial. A good example is the Muhimbili University Hospital project in Tanzania. Korea could also consider promoting utilization of development finance, for the purpose of supporting private sector development in the region.
       In the Latin American region, Korea should explore plans to participate in large-sized energy projects by co-financing with the MDBs, since such countries as Columbia, Peru, and Bolivia are currently pursuing energy transformation initiatives.
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  • 아시아-유럽 정상회의(ASEM) 25주년 평가와 한국의 활용전략
    The Asia-Europe Meeting (ASEM) at 25: Background, Main Achievements and Policy Implications

    This study was conducted to analyze the background factors and achievements of the ASEM process over the past 25 years since its establishment and to draw policy implications for Korea.After the Introduction, Chapter 2 reviewed, i..

    Date 2021.12.30

    Economic cooperation, Multilateral negotiations

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    This study was conducted to analyze the background factors and achievements of the ASEM process over the past 25 years since its establishment and to draw policy implications for Korea.

    After the Introduction, Chapter 2 reviewed, in a detailed manner, the background factors of and the roles assigned to the ASEM process. Especially, ASEM was identified as an inter-regional cooperation mechanism between the two continents – Asia and Europe – that was established in order to fill the ‘missing link’. The intention of European countries to intensify cooperative relationship with Asian countries that had been increasingly recognized as ‘the potential center of global economic growth’ was a mian background factor that led to the establishment of ASEM. Also crucial was the desire of Asian countries to diversify their diplomatic relationship and to cultivate the biggest internal market provided by the European integration process. In addition to its traditional role to foster and enhance the cooperative relationship between Asia and Europe, the ASEM process also contributed to strengthening the intra-regional cooperation within Asia by providing them with motivations to establish the ASEAN+3 and the East Asia Summit (EAS), which can be regarded as a very positive by-product.

    Chapter 3 was fully devoted to the evaluation of ASEM cooperation. First of all, the study looked into the agenda items of twelve summit meetings held until October 2021 in order to identify the main direction of cooperation in the ASEM process. Also, the study thoroughly investigated the cooperation agenda discussed and the frequncy of ministerial meetings, and found out that the ASEM process has been well-balnaced between political and economic policy areas. As a result of qualitative evaluation of the ASEM process, the study brought into discussion the following five main weaknesses of the ASEM process, especially compared to other internaitonal cooperation bodies, such as the APEC process. (i) unclear long-term vision; (ii) very low degree of institutionalization with no physical secretariat; (iii) too much comprehensive cooperation agenda leading to a low degree of concentration and focus; (iv) non-binding characteristics leading to no meaningful commitment of members; and (v) low visibility of the whole process.

    Chapter 4 examined the trends and characteristics of the ASEM enlargement through indicator analysis. The European Commission’s Joint Research Center created a sustainable connectivity indicator and analyzed the degree of connectivity between Europe and Asia by collecting basic data from ASEM member countries. As a result, it was confirmed that significant achievements were made between the two regions in terms of trade, investment, movement of people, institutional and political connectivity, and joint research between the Asian and European regions. However, the European Commission’s Joint Research Center’s Sustainability Connectivity Indicator is not only Europe-centered, but the data is collected at a specific point in time. In order to supplement weakness of the Sustainability Connectivity Indicator, we created a new governance indicator that shows the degree of connectivity between the three pillars of ASEM. New indicator clearly illustrates trends and characteristics within and between the two regions in the process of ASEM enlargement. Furthermore we examined changes in Korea’s status in the process of ASEM enlargement using the governance indicator. According to analysis results Korea showed a high growth rate far exceeding the average of ASEM member countries in all areas including the public sector, market, and civil society. And compared to the early days of ASEM, Korea’s relative standing of nowadays has risen significantly. In particular, the degree of improvement in areas such as pulic administration, market environment and welfare was remarkable.

    Chapter 5 presents Korea’s strategies for the upcoming 25 years of ASEM based on Korea’s achievements within ASEM. The future strategies will be was proposed focusing on areas where Korea can demonstrate intellectual leadership within ASEM. Indicator studies have shown that within ASEM, Korea has set a best practice in the areas of market opening, social security and deregulation. In addition, the Asia-Europe education cooperation program is also a major area in which Korea can demonstrate its intellectual leadership in the future. Future strategies proposed by Korea, such as market opening, social security, deregulation and education, are expected to make a significant contribution to the process of overcoming the challenges ASEM member countries are facing in the post covid-19 era.

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  • 환율과 기초여건 간 괴리에 대한 연구: 시장심리를 중심으로
    Exchange Rate Predictability Based on Market Sentiments

    Central bankers, policymakers, and market participants need to predict the future exchange rate movement. However, a well-known puzzle is that exchange rates are difficult to forecast using observable macro fundamental variables. ..

    Hyosang Kim et al. Date 2021.12.30

    Financial policy, Exchange Rate

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    Central bankers, policymakers, and market participants need to predict the future exchange rate movement. However, a well-known puzzle is that exchange rates are difficult to forecast using observable macro fundamental variables. Meese and Rogoff (1983) report that the random walk model is better at predicting exchange rates in out-of-sample forecasts than models reflecting changes in economic fundamentals. A large body of literature has found that, in attempting to solve the Meese‐Rogoff puzzle, the random walk beats fundamentals-based models for periods up to a one‐year forecasting horizon.

    This study intends to examine whether the market sentiment index of the foreign exchange market, along with the standardized fundamental-based models, helps predict the exchange rate. Based on the market sentiment index data, we try to predict the exchange rate based on the contrary opinion investment strategy used by foreign exchange market dealers. We also examine whether machine learning models incorporating a wide range of economic data and market sentiment indices can improve exchange rate forecasting.

    This study mainly consists of four parts. Chapter 2 re-examines whether fundamental-based models can have prediction power on exchange rates. We examine developing market currencies, including the Korean won, in addition to major currencies. The Taylor-rule model has short-term predictability on the Canadian dollar, Swiss franc, and British pound among major currencies. For most models we analyze, emerging market currencies tend to show higher long-term and short-term predictability than major currencies. However, there is a significant variation in the predictive power of fundamental models over currency and period.

    In Chapter 3, the market sentiment index and Bloomberg’s exchange rate forecast are tested in terms of their ability to predict exchange rates. To compare the exchange rate predictability fundamental-based models in Chapter 2, we make them in identical conditions: the data is transformed to monthly, and a single linear equation model is used. Both the market sentiment index and the Bloomberg exchange rate forecast demonstrate high short-term exchange rate predicting power against the Euro. However, they have lower exchange rate forecasting power to other major currencies than the random walk model.

    Chapter 4 examines the exchange rate forecast based on the contrast opinion investment strategy used by foreign exchange market dealers. The exchange rate is predicted based on four indicators (daily sentiment index of futures market participants, the distance between the spot exchange rate and the maximum exchange rate, the yield of the past exchange rate, and the volatility of the past exchange rate). Those indicators are made based on the imperfect market theory. Among the indicators, the distance between the exchange rate and the maximum exchange rate has the best predictive power. For forecasting horizons ranging from one week to five years, we find that it outperforms the random-walk model in both in-sample and out-of-sample projections.

    As various machine learning algorithms have been developed and the quantity and quality of data accessible for analysis have improved, there have been an increasing number of studies that seek to market analysis based on machine learning algorithms in recent years. Chapter 5 uses fundamental variables and a market sentiment index to predict exchange rate fluctuations using machine learning algorithms. As a result of the analysis, we find that the exchange rate predictions based on the machine learning models are generally superior to the linear model. Among the machine learning models, the convolutional neural network has the best exchange rate forecastability.

    Chapter 6 summarizes the research results and suggests implications. Although this study examines the predictive power of exchange rates of various models, it is difficult to explain and identify the cause. Thus, more studies are necessary for discussing the causality. In sum, we test various models for predicting exchange rates and find some empirical results that could beat the random-walk model. 
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  • 포스트 코로나 시대 사회 안정성과 포용성 제고를 위한 국내외 정책 분석: 출산ㆍ보육..
    Analysis of domestic and foreign policies to enhance social stability and inclusion in the post-corona era: Focusing on public health, childbirth and childcare, real estate, and taxation of financial

    This study aims to examine the negative impact of the COVID-19 crisis on social and economic stability and inclusiveness, and to suggest the necessary policy direction to deal with it. To this end, the historical experiences of pa..

    Myungheon Lee et al. Date 2021.12.30

    Economic reform, Economic development

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    This study aims to examine the negative impact of the COVID-19 crisis on social and economic stability and inclusiveness, and to suggest the necessary policy direction to deal with it. To this end, the historical experiences of pandemic diseases were reviewed, and the relationship between the effects of the COVID-19 crisis on the labor market by gender and the effect of family-friendly policies were analyzed. In addition, the causes of the instability in the housing market and the direction of policy improvement were discussed. Finaly, the current situation of taxation policies on financial assets were reviewed and the theoretical analysis and internatinal comparison were carried out. 

    First, according to studies on the epidemic of infectious diseases in the past, pandemic diseases caused greater socio-economic costs by impeding the formation of human capital beyond direct costs such as casualties. Therefore, it was confirmed that an active response is required to minimize the damage caused by such diseases, and the implementation of an intensive quarantine policy was effective in alleviating the long-term economic stagnation. However, as the recent COVID-19 pandemic has been continuing for a long time, it is becoming difficult to sustain a high-intensity quarantine policy. The current policy is difficult to maintain because the individual’s marginal cost is likely to increase rapidly due to the economic damage accumulated over a long period of time. Therefore, compensation for losses to the self-employed and small business owners, where the cost of quarantine is concentrated, is an urgent issue. In particular, the main tasks are to prepare a rational basis for assessing the amount of damage and to ensure prompt payment.
    Second, by examining the gap in gender labor market performance by country due to the COVID-19 health crisis and analyzing the relationship with family-friendly policies, it was attempted to suggest what constitutes an appropriate family-friendly policy in the post-COVID-19 era. As a result of empirical analysis, it was found that the effect was different depending on the type of family-friendly policy. It was estimated that the existing cash grants to families had a positive effect on the employment of men and women during the health crisis. However, it was found that service support for the family and the period of maternity and paternity leave had little effect on the employment of men and women during the health crisis. The result that the cash support system acts as a buffer against economic shocks during a catastrophic crisis implies that it is important to support households so that they can respond flexibly. On the other hand, if social distancing is enforced, the use of childcare services or the use of the parental leave system may be limited. When a catastrophic crisis occurs in the future, it is necessary to establish a policy response strategy in consideration of the function of such family-friendly policies.

    Third, it was attempted to suggest a desirable policy direction by analyzing the instabilities in the housing market in Korea after the outbreak of the COVID-19 crisis and comparing the real estate policy system in Korea with major foreign countries. First of all, in the short term, the housing market of major countries is changing significantly due to the anxiety caused by Corona 19. However, from the perspective of the housing system, it is not considered as a shock enough to fundamentally change the housing system. From a longer-term perspective, Korea’s housing system has a transitional character in which productionism, liberalism, and even conservatism and social democracy are mixed. In the mid- to long-term, the government-led mass production method has considerabel drawbacks, so it is inevitable to change to a supply method that utilizes the creativity of the private sector to meet various private housing demands. Considering the direction of housing policy in relation to housing finance, housing welfare, rental market, and taxation in the housing system in relation to these housing systems, the following tasks are derived. ① A system that supports loans, taxes, and rentals centered on home buyers for the first time in their lives is needed. ② It is necessary to prepare a plan to build a new public housing support system, including housing benefits, by raising the public rental inventory ③ It is necessary to transform the individual-oriented rental market into social lessors (social enterprises, non-profit organizations such as cooperatives, or publicly supported rental housing), rental companies, and lessors who can contribute to society as professional and capable as REITs. ④ Regarding taxation, it is desirable to minimize the tax burden on one house per household and institutionalize the property tax as a financial resource that can be used for procurement of local financial resources and regional development rather than from the viewpoint of housing price stabilization.

    Fourth, in relation to the issue of income and property inequality, which became more prominent during the Corona crisis, from the perspective that the overhaul of the financial asset-related taxation system can act in the direction of reducing the disparity in asset allocation by income class. Theoretical considerations and comparisons with major foreign countries lead to the following conclusions. First, it can be concluded that it is necessary to lower the deduction limit set at 50 million won per year. Second, it is necessary to expand the scope of taxable income to increase the effect of total profit and loss. Third, it does not seem necessary to maintain the existing securities transaction tax with the imminent imposition of taxation on the gains on transfer of listed stocks by small investors. Fourth, it is necessary to give preference to long-term holding by imposing a lower tax rate on transfer gains obtained by trading stocks held in excess of this for one year.
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  • 글로벌 보조금 규제의 새로운 현상: 역외보조금·기후변화 보조금·환율보..
    Latest Development in Subsidy Regulation: Foreign Subsidies, Climate Change-related Subsidies, and Currency Undervaluation Subsidies

    In response to today’s rapidly changing global trade environment, countries have continued to make changes to their policy objectives and instruments to address new and emerging issues such as supply chain restructuring and resho..

    Cheon-Kee Lee et al. Date 2021.12.30

    Trade policy, Industrial policy

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    Summary
    In response to today’s rapidly changing global trade environment, countries have continued to make changes to their policy objectives and instruments to address new and emerging issues such as supply chain restructuring and reshoring, climate change, and currency undervaluation. To this end subsidies have been playing a particularly important role, and are expected to be used more broadly across different sectors in the coming years. While controversies over government subsidization are likely to continue at the international level, the United States and the European Union have proposed at the domestic level to expand the scope of subsidy regulation and to tighten regulation on newly emerging subsidy types beyond the traditional boundaries set by international trade rules. Among a number of the latest developments on subsidy regulation, this study primarily focuses on (ⅰ) transnational subsidies granted by a government to enterprises active in other foreign countries (hereinafter “foreign subsidies”); (ⅱ) green subsidies for climate change mitigation; and (ⅲ) subsidies related to currency undervaluation.

    As for foreign subsidies, the European Commission’s proposal of May 5, 2021 aims to regulate not only distortions caused by subsidies granted to products, but by subsidies related to supply of services, foreign investments, concentrations, and public procurements. Behind the proposal, there were the Commission’s concerns that foreign governments could distort fair competition in the EU’s internal market by providing subsidies across the border to enterprises established and active in the EU. According to the Commission, the current international and regional disciplines such as the WTO SCM Agreement, the EU Anti-subsidy Regulation, EU state aid law, the EU Public Procurement Directive, and the EUMR have not effectively addressed market distortion caused by foreign subsidies, especially where the beneficiaries of a financial contribution are located beyond the granting authorities’ jurisdiction, i.e., within the EU internal market. In this vein the Commission’s proposal defines a foreign subsidy as where a third country provides a financial contribution which confers a benefit “to an undertaking engaging in an economic activity in the [EU] internal market” and which is limited, in law or in fact, to an individual undertaking or industry or to several undertakings or industries.

    The proposed regulation provides for (ⅰ) notification-based, ex ante investigations for concentrations  and public procurement participation  and (ⅱ) an ex officio and ex post investigation for all other market situations. EU undertakings that have received a financial contribution from foreign governments and are involved in a concentration and a public procurement procedure in the EU are obligated to notify all foreign financial contributions received in the three years preceding the notification. 

    Although it appears that the most immediate target of the foreign subsidy regulation would be China, it cannot be ruled out at this point that the EU’s other trading partners, including Korea could also be significantly influenced depending on possible amendment of the text in the final Regulation. 

    There also remain a number of issues that need to be addressed in the following legislative process, particularly in the trilogues between the Commission, the European Parliament and the European Council. Firstly, the Commission’s proposal can be criticized for not being detailed enough to help affected businesses to prepare the regulation in advance. Secondly, the requirements for triggering the notification obligation are based on whether a financial contribution exists, regardless of the existence of benefits or specificity, possibly leading to additional administrative and economic burden. Thirdly, the proposed regulation covers all cases of financial contributions including those related to inter-company transactions between affiliates, and those received by subcontractors and suppliers. Required to notify all information related to financial contribution received from foreign governments, businesses could be exposed to disclosure of proprietary or confidential information. Lastly, concerning the Commission’s excessively broad authority under Chapter 2 of the proposal to investigate foreign subsidies granted in the previous ten years, this study submits that an additional mechanism is needed to limit the Commission's investigative power by reducing the limitation period and adding higher trigger threshold for ex officio initiation of investigations.

    With respect to green subsidies for climate change mitigation, it is noteworthy that as the Paris Agreement came into force accelerating global collective action to address climate change and many countries have implemented environmental measures affecting their domestic and exporting industries, the interaction or so-called “linkage” between trade and the environment has become increasingly prominent. For instance, while the largest trading countries such as the U.S. and the EU stress the need to tighten regulations on industrial subsidies, they have granted a substantial amount of subsidies for R&D and domestic production of EV batteries on the grounds that emission reduction in the transportation sector is key in achieving the goal of carbon neutrality by 2050 they have pledged under the Paris Agreement. This shows the dilemma and contradictory position of these countries on green (yet industrial) subsidies for climate change, which may distort competition in the market.

    For another example, when countries with an emission trading system or “ETS” provide free allowances, the subsidy problems arise from the trade law perspective. Most countries currently operating an ETS allocate a certain amount of carbon emission for free in order to prevent risks of carbon leakage and to maintain market competitiveness of their carbon-intensive industries. The problem is that the current WTO subsidy rules do not contain provisions for environmental exceptions to these subsidies. Likewise, many countries do not allow these exceptions under their domestic laws. In the case of the United States, in December 2020, the Department of Commerce (DOC) made an affirmative determination in a CVD investigation for certain steel products from the EU that free allowances given selectively to some of the covered installations under the EU ETS are a countervailable subsidy. It is notable that in December 2021, the DOC made a similar determination with respect to Korea’s ETS (K-ETS) in a countervailing duty administrative review for certain steel products from Korea  that 100% free allowances allocated only to a part of the covered entities as opposed to 97% free allowances to the rest of the covered entities are a countervailable subsidy.

    With respect to subsidies related to currency undervaluation, the U.S. implemented in April 2020 a revised regulation applicable to countervailable subsidies related to currency undervaluation. It has maintained that some of its trading partners intentionally devalue their currencies to provide a competitive advantage to its export industries. Over the years several bills were introduced to impose CVDs on currency manipulation, but failed to pass Congress. Then in 2020, the DOC revised the Code of Federal Regulation (CFR) at the administrative level and laid the basis for CVD imposition against countries where their currency is undervalued due to government intervention. 

    Following the revision, in May 2021 the DOC made an affirmative determination for Passenger Vehicle and Light Truck Tires from Vietnam (C-552-829) that Vietnam’s currency undervaluation is a countervailable subsidy  while in an investigation on twist ties from China (C-570-132) the DOC decided to postpone the final determination due to procedural reasons and a final determination has yet to be made.  

    As the revision was made only recently and there has been only one case where currency undervaluation is determined as a countervailable subsidy, the current DOC’s methodologies appear to be still incomplete in many aspects. Notably, some of the changes made to the regulation and the DOC’s reasoning in C-552-829 appear particularly problematic and may be open to a legal challenge in terms of compatibility with the WTO SCM Agreement. For instance, grouping all “enterprises that buy or sell goods internationally” as a group of enterprises or industries or a “traded goods sector”  is too broad an approach to determine specificity, possibly constituting a violation of Art. 2.1 of the WTO SCM agreement. It has also been pointed out that the methodology the DOC resorted to in calculating benefit in C-552-829 could lead to overestimation of the amount of benefits, in violation of Art. 14 of the same Agreement.

    In conclusion, firstly, as regards the foreign subsidy regulation proposed by the EU, there is concern that it could incur significant compliance costs for affected businesses, as they are burdened to trace and monitor virtually all financial contribution directly or indirectly from foreign governments for the past three years prior to notification of concentration or participation in public procurements procedures in the EU. In order to minimize risks, affected businesses are advised to prepare a comprehensive database on their supply chains and financing methods related to overseas production and production facilities within the EU or third-country facilities leading to the EU market.

    They are also advised to understand that the foreign subsidy regulation is being prepared and will be implemented in conjunction with EU's latest movement to secure regional supply chains. The EU is providing large-scale incentives to encourage internal production of items critical to EU’s regional supply chain restructuring. As has been generally witnessed in a number of cases, these incentives are provided on condition that a certain percentage of value or particular items or components be produced within the EU. As a result, client companies that produce finished goods in the EU may prefer companies with local manufacturing facilities in the EU to companies exporting across the border their intermediate goods or components to the EU, so they can receive incentives offered for local production. In addition, in the case of certain industries, if client companies and upstream producers are not logistically close to each other, stable cross-border supply to the EU can become difficult due to border measures such as ADs or CVDs imposed at the EU level. Then the problem occurs when it gets difficult for companies to independently mobilize sufficient financial resources to establish or acquire overseas production facilities in the EU and they receive financial support from the government. For instance, companies could receive preferential finance from state-run banks, or SOEs or state-run banks could directly participate in overseas investment through equity infusion. From the EU's point of view, this can be seen as a foreign subsidy.

    Secondly, regarding green subsidies for climate change, the study submits that the future direction of international trade rules should be to promote climate change mitigation rather than hinder it. In order to resolve tensions arising from the overlapping climate and trade objectives, it is necessary to seek ways to recognize exceptions for green industrial subsidies in the international trade system. A climate waiver can be one way. It would be also fruitful to consider reintroducing a non-actionable subsidy provision similar to now-defunct Article 8 of the WTO SCM Agreement with or without a sunset clause, or at least establishing a rebuttable presumption in favour of such subsidies.

    As regards CVD investigations related to free allowances under the K-ETS it should be noted that the DOC is not saying that a free allowance itself is a subsidy; but an additional 3% free allocation to a select few entities is, compared to 97% free allowances granted to all of the entire covered entities under K-ETS. Therefore, as a short-term strategy, it is advised that the Korean government first explore various ways to tweak the system based on the logics the DOC presented in reaching the affirmative subsidy determination, rather than reviewing the overall system in a hurried manner.

    For parts of the DOC's reasons that appear less than convincing or without sufficient explanation, the Korean government or companies subject to the CVD investigation may raise a rebuttal or request additional explanation in subsequent administrative reviews, or file a complaint before the U.S. Court of International Trade (CIT). While it would not be easy to refute the DOC's determination when it is directly based on statutes or case law, this study suggests there still is room for dispute in areas where the DOC exercises its discretion powers without explicit and detailed guidance in the statutes.

    Thirdly, as regards the U.S. efforts to regulate currency undervaluation as a countervailable subsidy, companies that operate in countries where currency is determined to be undervalued in the DOC’s investigations will have to be mindful of a possible CVD imposition by the U.S. if they engage in local reinvestment or currency exchange activities in those countries. Unlike most cases where subsidies are limited to specific enterprises or industries, currency undervaluation is related to almost all exporting industries. Therefore, once the DOC makes an affirmative subsidy determination against a certain product by reason of currency undervaluation of a certain exporting country, there is a potential risk that a similar decision would be made in all of the following CVD investigations on different products exported from that country to the U.S.

    Last but not least, efforts are needed to induce the above new types of subsidy regulation to be publicly discussed for a multilateral solution. Since unilateral measures are not based on mutual consent between countries, even if the objective should be justified, it is difficult to expect meaningful effects in the mid-to-long term. International cooperation is very much needed, in order to effectively respond to cross-border spillover effects these types of subsides could lead to. Therefore, the first priority at this point is to derive a higher minimum standard that all countries can multilaterally agree to with respect to international subsidy regulation.
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  • 포스트 코로나 시대의  남북 교류협력 추진 방안
    Inter-Korean Cooperation in Post COVID-19 Era

    In the post-COVID-19 era, changes in the international political and economic order are likely to be conspicuous. First of all, in the strategic competition between the two great powers, the US and China, the existing conflict has..

    Moon Soo Yang et al. Date 2021.12.30

    Economic cooperation, North Korean economy North Korea

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    In the post-COVID-19 era, changes in the international political and economic order are likely to be conspicuous. First of all, in the strategic competition between the two great powers, the US and China, the existing conflict has intensified with the outbreak of COVID-19, and some are concerned about the possibility of the emergence of a new Cold War. In addition, border opening, which is the key to globalization, has almost ceased since COVID-19, and as the belief in mutual benefit through border opening and exchanges has collapsed, the flow of globalization will recede, and the nation-first trend is expected to expand. Although the global economy has recovered from the shock of negative growth in 2020 and is recovering to a certain extent in 2021, it is still in a situation of economic uncertainty with the possibility of sluggishness in the manufacturing and service industries along with the contraction of global trade.


    In addition, the global value chain (GVC), which was built at the global level beyond borders to pursue cost reduction and efficiency amid the wave of globalization and free trade, is facing a crisis due to COVID-19. In particular, the importance of securing a stable supply chain is growing after experiencing rapid instability in production and supply due to the suspension of production in certain countries and the contraction of global logistics due to COVID-19. Therefore, there is a movement to reorganize GVC in this direction, and furthermore, re-shoring is newly in the spotlight, and this trend is expected to accelerate in the future.


    In the case of Korea, due to the prolonged social distancing caused by COVID-19, most economic actors experienced a non-face-to-face relationship between economic activities and socio-cultural relations. Accordingly, digitalization is rapidly spreading in various socio-economic fields. In addition, investment for the digitalization of overall corporate management, such as the expansion of telecommuting, customer management and sales through digital platforms, and the digitalization of R&D, is also expanding. This acceleration of digitization can be a new opportunity factor for the Korean economy, which has strong international competitiveness in the ICT industry.


    In the case of North Korea, various non-face-to-face activities have been greatly expanded since COVID-19. In response to the global pandemic crisis, North Korea has implemented an extreme border blockade policy and strongly controls the movement of residents between regions in the country, but on the other hand, it greatly expands non-face-to-face activities by utilizing the information and communication networks it has built in the past. have. These activities are linked to the knowledge-based society emphasized by Chairman Kim Jong-un, so it is expected to continue even after the pandemic subsides. Notable movements include △expansion of supply of various personal terminals, △expansion of factory automation and unmanned facilities, △expansion of e-commerce, △rapid expansion of distance education, and △expansion of telemedicine. The biggest change among these is the increase in video conferencing. In the past, it was partially used in education, but it has been greatly expanded during the pandemic crisis, and even important meetings of party and government organizations are being conducted via video.


    As such, both South and North Korea are actively promoting the digitization of socio-economic relations amid the pandemic crisis. Therefore, if it is used for inter-Korean exchanges and cooperation, there is enough room to advance inter-Korean exchanges and cooperation. In addition, the digitalization of inter-Korean exchanges and cooperation has the advantage of increasing the receptivity of the North and South Korean authorities, especially the North Korean authorities, of exchange and cooperation projects by reducing the political and social risks as well as the economic cost of inter-Korean exchanges and cooperation in the early and mid-term.


    What kind of inter-Korean exchanges and cooperation will be promoted in the post-COVID-19 era? First of all, you can think about resuming your existing business. In the case of the Kaesong Industrial Complex, in the post-COVID-19era, the industrial complex’s function and development direction are expected to be re-evaluated. Currently, ideas are being proposed, such as the South-North health and medical cooperation industrial complex that produces materials to respond to infectious disease crisis or COVID-19 vaccines, the eco-friendly technology complex, and the outpost for digital cooperation. In addition, a new cooperative project called the establishment of a digital platform for inter-Korean exchange and cooperation projects will be possible.


    Concerns about the digitalization of exchange and cooperation projects are not small in North Korea and South Korea in South Korea, and this may act as a stumbling block for project implementation. It is a great political burden for the North Korean authorities to reveal the gap between the two Koreas in digital capabilities. Therefore, the project itself should be promoted gradually/phased, and the resolution of the information gap between the two Koreas is raised as an important task. In South Korea, concerns that inter-Korean economic cooperation through digital could lead to the expansion of North Korea’s hacking capabilities and hacking means act as a barrier. Therefore, efforts should be made to dispel national and international concerns about inter-Korean cooperation in the digital field, such as the ‘Inter-Korean Agreement on the Peaceful Use of Software Technology’. In addition, in order to utilize inter-Korean economic cooperation in the GVC reorganization process, production and supply through inter-Korean economic cooperation projects should be more stable than in other regions when a global infectious disease occurs. At the same time, the issue of amending the inter-Korean exchange and cooperation laws to regulate and promote economic activities with North Korea through the framework of the legal system regarding the process and results of the activities is strongly raised. Lastly, since the necessity and importance of multilateral cooperation is expected to increase in the post-COVID-19 era, it is necessary to actively seek multilateral cooperation with governments of major countries, international NGOs, and international organizations.

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  • 반덤핑조치의 국제적 확산과 조사기법 다양화의 영향 및 정책시사점
    International Spread of Anti-dumping Measures and Diversification of Investigation Methodologies: Effects and Policy Implications

    As global economic growth has lost momentum due to the COVID-19, concerns about the spread of protectionism are growing. In particular, anti-dumping (AD) measures are more likely to expand in the future in that they are relatively..

    Moonhee Cho et al. Date 2021.12.30

    Trade policy, Anti-dumping system

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    As global economic growth has lost momentum due to the COVID-19, concerns about the spread of protectionism are growing. In particular, anti-dumping (AD) measures are more likely to expand in the future in that they are relatively easy to take and have a direct effect on trade compared to other protectionist trade policies. Accordingly, this study examines the spread of AD measures and the effects of AD measures on trade. We also pay attention to the fact that AD investigation methodologies are being diversified.

     Global AD measures decreased in the 2000s, but have been on the rise since the global financial crisis in 2009. AD measures are mainly taken in the metal, chemical, plastic and rubber industries. In many cases, developed countries are taking AD measures against developing countries, while AD measures within developed or developing countries are increasing in recent years. AD measures against Korea are also mainly taken in the metal, chemical, plastic and rubber industries. In an empirical analysis using data from 2010 to 2019 for 120 countries around the world, we find that AD measures have a negative effect on trade. Furthermore, AD measures have a negative effect on trade in empirical analyses conducted by splitting all product datasets by industry or production stage. Next, it is found that AD measures taken against Korea have a negative effect on Korean exports for the chemical, rubber, plastics industry as well as metal industry. Finally, we also analyze whether the trade diversion and trade refraction effects of AD measures occurred in the above two industries, focusing on cases where the United States conducted investigations against Korea. The results of our empirical analysis indicate that the trade diversion effect does not occur in the chemical, rubber, and plastic industries, but is found to occur in the metal industry. The trade refraction effect occurs in the chemical, rubber, and plastic industries, but not in the metal industry. 

    This study finds that major AD users such as the United States, the European Union, Australia, India, and China have recently granted their investigating authorities expansive authority and discretionary powers in conducting AD investigations and calculating dumping margins, thereby adding further diversification and technical complexities to the previous AD methodologies. Such tendencies can be seen in application of “particular market situations” or “PMS,” and “adverse facts available” or “AFA” provisions under the United States’ AD investigations. Since the enactment of the Trade Preferences Extension Act of 2015, and more noticeably under the Trump administration, the United States Department of Commerce (DOC) has repeatedly applied PMS and AFA against imports from Korea. Following the United States’ practice, other major AD users including the European Union, China, and India are preparing or have adopted similar measures in their AD laws. A PMS is deemed to exist where the domestic price of an exporting country is distorted such that it cannot be accepted to be the normal value in dumping determination. Where a PMS is found, the investigating authorities can use a third country price or construct normal value. An AFA is applied where a respondent subject to an AD investigation is non-cooperative to the investigating authorities’ request for information, or where it submits information in an incomplete or inaccurate manner. In this case the investigating authority can take into consideration any information available to itself, usually leading to adverse inference against the respondent. As witnessed in AD investigations against Korea’s oil country tubular goods or “OCTG” where PMS and AFA were repeatedly applied during the original investigation and subsequent administrative reviews, such AD methodologies can significantly affect dumping margins to change market competitive conditions in the U.S. market. Despite criticism on the part of its trade partners, the possibility seems rather low that the U.S. Congress will amend the laws to reduce the administration’s powers in AD investigations. There have been several instances, however, where the Court of International Trade (CIT) reversed the DOC’s AD determination based on PMS and/or AFA and remanded them for reasons of lack of evidence, the DOC’s failure to meet the burden of proof, or a violation of due process. Exporting companies mainly or frequently subject to PMS and AFA can strategically use the reasoning made by the CIT in future AD investigations against the DOC. Further, given the recent WTO panel rulings in DS539, where most of the U.S. applications of its AFA provisions were held inconsistent with the WTO AD Agreement, it can still be deemed important and relevant to argue WTO inconsistencies of such AD methodologies against the United States before the WTO dispute settlement system.
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  • 포용적 혁신성장을 위한 주요국의 경쟁정책 분석과 정책적 시사점
    Study of Competition Policies for Inclusive and Innovative Growth

    The share of income possessed by the top 1% in major countries is increasing, together with a rise in the inequality index. Previous studies have pointed out globalization, skill-biased technological progress, and digital transfor..

    Minsoo Han et al. Date 2021.12.30

    Competition policy, Industrial policy

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    The share of income possessed by the top 1% in major countries is increasing, together with a rise in the inequality index. Previous studies have pointed out globalization, skill-biased technological progress, and digital transformation as factors for deepening inequality. More recently, however, weakening market competition and deepening industrial concentration along with these factors have been noted as major factors in deepening inequality. In the same context, the role of competitive policies in promoting market competition should also be considered as a countermeasure against deepening inequality beyond the traditional view. Against this backdrop, this study conducts case studies and empirical analysis of major countries and proposes a competitive policy direction to achieve inclusive and innovative growth pursued by the Korean government.

    First, in Chapter 2, we looked at changes in the industry concentration of the US and the EU—the former which enacted the Sherman Act, the first antitrust law in the world, and the latter another pillar in the history of global competition policy—then examined recent trends of policies in both regions. In both the US and the EU, industrial concentration has generally increased along with the recent proliferation of the digital economy. In addition, as the enforcement of competition laws in these regions is strengthened, the direction of competition policy is changing toward regulating not only anti-competitive actions that directly affect consumer welfare but also actions that can indirectly affect consumer welfare. For example, the US has issued an Executive Order on Promotion Competition in the American Economy, calling for a whole-of-government effort to prevent damage to workers, entrepreneurs, and consumers across the industry, promote profits, and promote competition. The EU has also proposed legislation to strengthen regulations, including regulating corporate unions, restricting participation in public procurement, and initiating ex officio investigations in order to block various circumventive attempts to distort market competition. We can also see a more proactive response to the expansion of the digital economy in the US, which proposed the “Stronger Online Economy: Opportunity, Innovation, Choice” bill, while the EU also introduced a regulatory bill that strengthens fair competition for digital platforms in the EU. 

    In Chapter 3, the impact of deepening industrial concentration on inclusive innovation growth was empirically analyzed through national and industry-specific panel data. Here, we used the labor income share as an estimate representing inclusiveness and the total factor productivity as an estimate representing innovation. Also using the methodology of Battiati et al.(2021), we estimated the national and industrial markup, using the estimated markup as an estimate of the concentration of industry. On the other hand, estimates of trade dependence, R&D costs, foreign direct investment, financial openness, etc. were also utilized as other control variables. According to the results of empirical analysis using data from EU Klems from 1995 to 2017, the deepening of industrial concentrations increases total factor productivity, but it has been shown to statistically significantly reduce the labor income share. Based on the results of this empirical analysis, it can be interpreted that the deepening of industrial concentration has a negative effect on inclusive innovative growth.

    In the first part of Chapter 4, we divided Korea’s competition policy into four areas: traditional competition promotion policies, economic power concentration suppression policies, consumer policies, and fair trade policies for small and medium-sized enterprises, and found the following three major changes.

    First, the number of high-level sanctions tended to decrease in the field of measures to curb economic concentration, while law enforcement performance itself decreased in traditional competition promotion policies. This change can be interpreted as the concentration of human resources and capabilities of policy authorities in other areas, such as the fair trade policy of small and medium-sized enterprises. In addition, the reduction in enforcement in the field of traditional competition promotion policy appears to be due to the complexity of the incident itself and the difficulty of demonstrating economic effectiveness, rather than due to the reduction in unfair practices. Second, there is also a tendency to focus more on handling large-scale cases with large market ripple effects. This can be interpreted as the policy authorities trying to efficiently utilize limited human and physical resources. Finally, in the field of fair trade policy for small and medium-sized enterprises, we can see a tendency to strengthen both institutional discipline and law enforcement. More specifically, the number of measures in this area tended to increase mainly on subcontracting and affiliated business laws, and the highest level of sanctions, fines, and accusations, were taken against law-breakers.

    In the second part of Chapter 4, the impact of changes in the current status of Korea’s competition policy enforcement in the above four areas was examined from the perspective of inclusive innovation growth. The “inclusive innovative growth index” demonstrates the impact of the enforcement of competition laws by index by selecting three indices: the Industrial Concentration Index, the Factor Income Distribution Index, and the Future Growth Engine Index. The results of our empirical analysis are as follows.

    First, regarding the effect of easing industrial concentration, only fair trade policy on small and medium-sized enterprises was consistently effective. In addition, it was found that only this policy statistically significantly reduced all profitability-related estimates (net return on capital, net profit, and operating profit) of large companies. These results show that law enforcement in the field of fair trade policy for small and medium-sized enterprises has further achieved the same benefits as easing concentration.

    Second, as with the results of the first empirical analysis, strengthening law enforcement in the field of fair trade policy for small and medium-sized enterprises statistically significantly reduces total factor income, labor income, and capital income of large enterprises compared to SMEs. These results suggest that competition policies can contribute to strengthening inclusion by narrowing the gap by company size in income earned in return for supplying production factors. On the other hand, the traditional competition promotion policy was also weak, but it was found to contribute to strengthening inclusion at the 10% significance level. 

    Lastly, with respect to the future growth engine index, the effect of competition policies on investment by company size was not evident. However, it was found that the majority of average companies’ R&D expenditure was increasing. However, our analysis does not support the claim that only law enforcement in the field of SME fair trade policy is effective. For example, in the case of traditional competition promotion policies, there is a possibility that the defined market itself is narrower than the industry classification in our study, so the effect may not have been shown. Also, in the case of the policy to suppress the concentration of economic power, it was not directly subject to verification in our analysis in that it is a system that regulates the concentration of ownership. Furthermore, the policy goals pursued by individual policies and the pathways of their influence may differ for each policy field. Therefore, although our study found that only in the field of SMEs fair trade policies had a statistically significant effect on inclusiveness, it is worth noting that these results do not mean that other policies have no effect on inclusiveness.

    Based on the above research results, our research suggests the following policy suggestions for contributing to the sustainable, inclusive, and innovative growth of Korea’s fair trade policy. 

    First, the direction of competition policy must be re-established at the government-wide level. For example, it is necessary to expand the scope of Korea’s competition policy and expand it in a direction that values industrial policy and macroeconomic effects by more actively considering values such as fairness, inclusion, and social welfare along with existing micro-competition restrictions. To this end, we judge it necessary to reexamine the importance of competition policy at the pan-government level, using the competition authority as the control tower, and to re-establish a new direction for competition policy in domestic economic policy.

    Second, policy capabilities should be focused more on improving competition-restricting regulations to alleviate the monopoly and oligopoly market structure. Of course, there is currently a legal basis for the Fair Trade Act in Korea, and about 20 regulatory improvement tasks are discovered every year to prepare improvement measures. However, there is a limit to discovering and improving regulations that have a great impact on the market due to the non-cooperation of related ministries with regulatory authority. Therefore, at the national economic level, it is necessary to focus on inclusive innovative growth and make efforts to improve the monopoly and oligopoly market structure while empowering competition authorities.

    Finally, in response to the transition to the digital economy, the paradigm of competition policy must be reestablished. First, excessive substantive pre-regulations that impede the innovation, scalability and development potential of the platform business should be avoided, but structural measures beyond behavioral measures should be taken against acts that distort market competition. In addition, in situations where the effects of regulations are unclear, it is reasonable to consider introducing additional regulations after first introducing indirect regulations based on a market-based approach and analyzing their effects. Second, it is also possible to consider introducing and operating the “shift of the burden of proof” in the digital field, which allows business operators to prove the competition-friendly effect first in determining whether or not competition laws have been violated in the review of a business combination. Third, it is important to continuously discover competition law issues in the digital economy field through the expansion of human and material resources of the competition authorities. For example, institutionalizing the collection of filing fees could be considered, as in other nations such as the United States, allowing the competition authority in Korea to secure financial resources, and through this, recruit human resources and reinforce its research capabilities to enhance professionalism. Lastly, research on the gig economy issue in the platform labor market, which is newly emerging in the digital economy field, and active competition policy enforcement should also be conducted.
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