The Policy Direction of International Organizations on Immovable Property Tax and Its Impact on the Macro Economy
Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, levels of wealth (asset) inequality are increasing further than income inequality. And Korea is no exception. This deepe..
Young Sik Jeong et al. Date 2021.12.30Financial policy, Tax systemSummarySince the 2008 global financial crisis, inequality has been increasing worldwide. In particular, levels of wealth (asset) inequality are increasing further than income inequality. And Korea is no exception. This deepening of inequality is more worrisome in that it leads to inequality of opportunity while suppressing movement between classes, which in turn deepens inequality, creating a vicious cycle of inequality. This is a bigger problem than the inequality itself. The international communities are calling for stronger property taxes, including recurrent taxes on immovable property, as part of mitigating inequality and promoting inclusive growth. In Korea, there is heated discussion on property taxes, such as recurrent taxes on immovable property including the comprehensive real estate tax. Therefore, this study aims to investigate policy directions in international organizations and major countries on immovable property tax and examine the effect of property tax on the macro economy.This study consists of four parts. In Chapter 2, we examine the direction of international organizations’ tax policy on immovable property and the current real estate tax system of major countries. The international communities, represented by organizations such as the OECD, World Bank, and IMF, have been calling for stronger property taxes, such as recurrent taxes on immovable property, since the global financial crisis in 2008, and this trend has continued even after the COVID-19 pandemic in 2020. In particular, the introduction or reinforcement of a wealth tax, a new type of property tax, has recently become an issue of discussion. When comparing the real estate taxation systems of Korea, the United States, the United Kingdom, Canada, and Singapore, several characteristics become evident for Korea. In terms of the purpose of imposing immovable property tax, these major economies and Korea share the aim of securing local government finances, but the difference is that the international communities are focusing more on inclusive growth and improving inequality, while Korea is more focused on stabilizing the real estate market. As for the tax rate structure, countries except Singapore have a proportional tax rate system, whereas Korea operates an excess progressive tax rate system. It is also characteristic that Korea evaluates the value of real estate based on market price every year. On the other hand, with the exception of some countries, Korea and major countries have in common that the immovable property tax is a local tax, the taxpayer is the owner, the property tax deduction and tax exemption system exist, and the taxable value is based on the total value of the house.In Chapter 3, this study examines international comparisons of immovable property tax burdens using OECD data. First, in terms of time series for OECD countries, the average immovable property tax ratio (to GDP or total tax) has risen since the 2008 financial crisis. The ratio of financial and capital transaction taxes showed a relatively large drop, and inheritance and gift taxes ratio showed a sideways trend. In Korea, the immovable property tax ratio is also showing a modest increase. The ratio of transaction taxes, including real estate acquisition and registration tax, generally flattened during fluctuations, while that of inheritance and gift tax showed a steady rise. Next, in terms of cross-sectional comparison, Korea's immovable property tax ratio was lower than the OECD average level. Based on the effective immovable property tax ratio (immovable property tax revenues to total private real estate assets), which is an indicator of the actual tax burden on immovable property, the average of 15 OECD countries was 0.30%, while Korea recorded 0.17% in 2019. This seems to be due to the relatively high real estate price level, low tax base realization rate, and low immovable property tax rate in Korea. In 2019, Korea's private real estate market capitalization to GDP ratio was 5.54 times, the highest among comparable countries, far exceeding the average of 15 OECD countries (3.75 times). Meanwhile, in the case of financial and capital transaction taxes, inheritance and gift taxes, Korea recorded 1.75% and 0.43% of GDP, respectively, higher than the OECD average of 0.44% and 0.12%. In terms of total property taxes to GDP ratio, Korea recorded 3.12%, which is higher than the OECD average (1.85%).In Chapter 4, we analyze the effect of immovable property tax on housing prices in OECD countries using the dynamic panel model. According to the results of the analysis, an increase in the immovable property tax has a negative impact on the real housing price change rate, Price to Income Ratio (PIR), and Price to Rent Ratio (PRR). This seems to be because the strengthening of the immovable property tax raises the cost of owning a house, which increases pressure to sell houses or weakens the motivation to purchase houses. In particular, the fact that the strengthening of immovable property tax has the effect of lowering not only real housing price but also PIR and PRR has great significance in that it lowers the risk of a bubble in the real estate market. On the other hand, an increase in financial and capital transaction taxes has a positive impact on the real housing price increase rate, PIR, and PRR. This seems to be because the strengthening of transaction tax has a greater effect on deterring housing sales than the effect of weakening housing purchases.In Chapter 5, we investigate how the increase in property tax affects income inequality and economic growth in OECD countries. The analysis is conducted using a country and year fixed effect model, two-stage least squares, generalized method of moments, and three-stage least squares. According to the empirical result, an increase in immovable property tax is closely associated with decrease in income inequality, and at the same time, an increase in property tax can have a negative impact on short-term economic growth. We also find that the increase in income inequality does not lead to an increase in property tax. This decision-making behavior seems to be related to the OECD's policy recommendation to use the property tax as a means to improve income inequality.In Chapter 6, we present policy implications for Korea. First, in terms of the purpose of real estate policy, the Korean policy authorities need to shift toward a more fundamental and broader perspective, such as inclusive growth and sustainable growth, which the international communities are emphasizing, rather than the Korean government’s current focus on stabilizing the real estate market. This change in perception of real estate policy is very important in that it lays the foundation for more fundamental, continuous, and systematic real estate policy. Second, in terms of the real estate tax system, the policy direction and mix of gradually raising the immovable property tax and lowering transaction tax at the same time should be consistently pursued in order to achieve stability in the real estate market, inclusive growth, and sustainable growth. Finally, when improving the property tax system in the future, Korea's unique characteristics – such as a very high real estate price level, the jeonse system, and a low ratio of self-owned houses compared to major countries – should be taken into consideration.
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 2021.12.31Economic cooperation, Trade policySummaryThis 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.
US-China Conflict, the Analysis on Europe’s Perceptions and Relations with the US and China: Historical Study and Prospects
With the advent of the era of G2, where the U.S.-China hegemony competition intensifies, many countries are struggling to build relations with the US and China. The European Union (EU) has maintained a close political..
Seung-Keun Lee et al. Date 2021.12.30Political Economy, International politics EuropeSummaryWith the advent of the era of G2, where the U.S.-China hegemony competition intensifies, many countries are struggling to build relations with the US and China. The European Union (EU) has maintained a close political, security and economic ties with the US. The EU shares identical security vision with the US. In contrast, the EU defined its relations with China as a cooperation partner, competitor and rival. It refers to the EU’s multifaceted relations with China. In climate change, multilateral trades and normative areas, the EU seeks to cooperate with China. However, the EU prompts profit balance through negotiations in the economic sector. Against this backdrop, the EU introduced a concept called ‘strategic autonomy’ by synthesizing the path dependence, Europe’s confronting issues and the EU’s strength and values regarding its relations with the US and China. The EU’s responses to the US-China conflicts are worth further attention.EU-US relations are based on Atlanticism, emphasizing the importance of bilateral cooperation based on identical civilization. Atlanticism emerged mainly in Britain in the 19th century as a concept encompassing democracy and the development of Western civilization. After World War II, it was embodied in the “Atlantic Alliance” formation, and NATO was launched in 1949. The establishment of the post-war European order began by the US’ Marshall Plan. In Europe, France pushed for independent economic reconstruction in 1951 by establishing European Coal and Steel Community (ECSC). In this process, confrontations between European countries were expressed by conflicts between British-centered “Atlanticism,” which values building relations with the United States, and French-centered “Europeanism,” which calls for Europeans to lead the establishment of European order. Since the end of the Cold War, on the one hand, Atlanticism has weakened relatively in the context of trans-Atlantic relations.Europeanism has recently re-emerged due to the expansion of the autonomous cooperation of European States. The clash between Atlanticism and Europeanism intensified, centered on the conflicts between UK/US and France, as Europe-US relations has been established as a ‘competitive and symbiotic relationship’. In January 2017, the emergence of the Trump administration, which promotes US priority and neo-isolationism, served as a decisive opportunity for cracks in the Atlantic Alliance.In terms of economic relations, the United States and the EU are the world’s first and second-largest economies, accounting for 42.7% of the world’s GDP and 29.1% of trade, respectively. They are mutually important trading and investment partners. In this situation, the two sides negotiated the FTA during the 2013-16 period, but it was suspended after the inauguration of the Trump administration, and bilateral trade relations rapidly deteriorated with the emergence of protection trade measures. Simultaneously, China led the establishment of the Asian Infrastructure Investment Bank (AIIB), and as many European countries participated, EU-China relations were also promoted. Amid intensifying trade conflicts between the US and China, the EU and the US agreed in July 2018 to minimize trade friction. Since then, they have cooperated in controlling China in the trade sector. The rise of the Trump administration deteriorated its relations with European states, which led a sharp decrease in supporting President Trump, and European perceptions of the US have changed negatively. The Atlantic alliance was eventually exacerbated. The Biden Administration received the task of recovering the broken Atlantic relations caused by the Trump administration. European perceptions of the US have significantly improved in this respect. During the terms of Trump administration, the negative perceptions about the US were predominant—weakening the US hegemony by viewing China as a leader rather than the US. However, after the Biden’s inauguration, the perception survey results showed that the positive perceptions about the US had increased again, and the US was viewed as a significant partner. The survey respondents recognized the limitation of the US political system and democracy model, so Europe’s perspectives on the US seemed to be changed from the past.The 1975 establishment of EU-China diplomatic relations laid the foundation of trade and economic cooperation, environmental dialogue, bilateral summits and human rights talks. Despite each European state showing different attitudes toward China, the two sides maintained relatively sound relations until the end of the 2000s. However, after experiencing the European sovereign debt crisis around 2010, Europeans started to perceive the importance of revising their approaches or policy instruments toward China. In particular, the COVID-19 crisis and US-China conflicts were the leading causes of changing European perceptions of China. The EU declared China not only as a strategic partner but also as a systemic rival. While requiring economic and investment cooperation with China, the EU are cautious about China’s extreme expansionism, human rights violation and challenges to the liberal democracy. It also emphasizes the importance of strategic responses in a multifaceted relationship.Europe-China relations have undergone the biggest changes in the economic sector. Since the rapid growth of Chinese economy, the EU-China trade volume has significantly increased. As a result, the two parties became their number one trading partners. In this process, the EU’s trade deficit with China increased over 180 billion Euros in 2020. Until the mid-2000s, European businesses mainly invested in China.In contrast, Chinese businesses began to increase their investment toward Europe after the 2008 global financial crisis. In 2017, China’s investment in the EU exceeded the volume of the EU’s investment in China. Recently, China’s investment in the EU is usually implemented as formats of mergers and acquisitions (M&A) in the key industry. It has been a direct cause of the EU’s introduction of a screening system for foreign investment and urging China to sign a bilateral investment agreement.European public perceptions of China have negatively changed. European respondents showed their negative perceptions toward China except for the EU-China trade. However, the younger generation relatively showed more positive attitudes toward China than the older generation, which implies further changes. Currently, EU-China relations have changed into a high-tension status. It is still questionable whether the EU maintain their antipathy toward China in the case of the EU’s future enlargement.Traditionally, the EU’s diplomacy is characterized by multilateralism, promoting active cooperation among multiple actors. It contrasts significantly from the US’ unilateral diplomatic approach. Hence, the EU has shown its leadership in the fields where multilateralism is universally applicable, such as environment, human rights and climate change. However, in recent years, the EU has been strengthening its own capabilities by ‘strengthening strategic autonomy’. Also, the EU has recently been trying to benefit from diplomacy, national defense, industry, and technology.Furthermore, the EU attempts to weigh up its Atlantic partnership with the US against its economic partnership with China. US-China conflict would not be easily resolved under the Biden Administration. On the one hand, the US tried to restore its broken trans-Atlantic alliance. On the other hand, the US established an AUKUS—an alternative alliance with Australia and the UK—which could be regarded as a warning sign. Accordingly, the EU shows its selective cooperation with the US rather than the Union’s complete reliance against the US. Against China, the EU attempted to take a multifaceted approach to each issue. It means the EU’s active support in the areas of trade and investment and the EU’s apparent confrontation against China in the areas of illegal subsidies and unfair practices.International conflicts continue to emerge due to a recent combination between security and the economy. The EU’s ‘open strategic autonomy’ is a byproduct of high coordination and troubles in this process. Europe’s strategy for dealing with the US and China provides implications for Korea’s diplomatic and trade policies. South Korea’s diplomacy is at the crossroads due to the US-China conflict triggered by the Trump administration period. It is because South Korea cannot abandon only its value-based alliance with the US but also its significant geopolitical and economic interests with China. First of all, in diplomacy, South Korea-US relations need to be rooted in their alliance because they have shared common values such as liberal democracy and a market economy system. Simultaneously, it is necessary to find an equilibrium between value and pragmatism through establishing multifaceted relations. South Korea does not share its political values and systems with China, but it is obviously an important partner in terms of its economy, climate change, and geopolitical weight. South Korea needs to advocate norm-based international relations by the active participation of the multilateral international order, taking the leading role by finding out the relevant issues and strengthening its solidarity with like-minded partners.In the field of trade, it is essential to note the competition paradigm has been shifting into a form combining technical advances, trade policy, labor and environmental regulations. In particular, international actors are inclined to combine trade policies with social issues like climate change, labor and human rights for restraining China. Therefore, South Korea needs to implement preemptive improvement of the systems up to the level of advanced countries in these fields. It also needs to implement diverse approaches such as traditional trade policies based on the FTAs, public diplomacy based on democracy and human rights, and CSR activities which are under company units. Additionally, it is necessary to actively respond to the changes in the global supply chain by participating in the chain reorganization supported by the US and the EU or the restoration plan by using bilateral economic cooperation and local corporations of Korean companies.
Digital Trade Policy in the Era of Digital Transformation
This study focused on digital trade policies that affect the trading of goods and services over the internet. After examining digital trade and digital trade barriers, changes of global digital trade norms, and Korea’..
Kyu Yub Lee et al. Date 2021.12.30Trade policy, electronic commerceSummaryThis study focused on digital trade policies that affect the trading of goods and services over the internet. After examining digital trade and digital trade barriers, changes of global digital trade norms, and Korea’s digital trade policy response, the study presented major tasks of Korea’s digital trade policy and mid- to long-term policy direction.The scale of goods imported and exported by Korea through the internet in 2020 was about KRW 6 trillion and 4.1 trillion, respectively. It is difficult to find statistics on Korea’s service exports through the internet. In this study, we estimated the size of Korea’s service exports through the internet in 2018 and 2019 by combining data on electronic intangible goods import/export confirmation document from the Korea International Trade Association and data on value-added declaration from the National Tax Service. First, Korea’s service exports through the internet exceeded at least KRW 3 trillion in both 2018 and 2019. Second, in 2019, the volume of service exports through the internet increased by about 6.89% from the previous year. Third, the scale of export of services through the internet (except for the duty-free shop performance) was larger than that of goods. To estimate the sales effect of domestic e-commerce firms, we matched survey data by KIEP and Korean Enterprise Data and applied the Difference-in-Difference estimation using the propensity score matching technique. In the year of first entry into the e-commerce market, it was estimated that the per capita sales growth rate of e-commerce firms was about 9.5% higher than that of general domestic firms included in the control group. We also conducted a survey titled with Status of Digital Trade Barriers and Difficulties from January to June 2021. As a result of analyzing the randomized data (number of firms: 1,029), we identified that common difficulties of firms were from e-commerce facilitation, digital products, and data regulation, and the difficulties caused digital trade barriers were more burdensome to smaller size of firms.As digital trade has expanded and digital trade barriers have also increased, the WTO e-commerce talk has begun since May 2019. We investigated the heterogeneity of domestic laws related to e-commerce among countries participating in negotiations, differences in terms and areas of interest, data-related provisions guaranteeing free data flows and prohibition of data localization, and customs duties moratorium for electronic transmission. It was predicted that conflicts arising from data-related issues and China’s strong digital protectionism will become major obstacles to the progress of the WTO e-commerce negotiations. To derive the characteristics of digital trade norms that have appeared in bilateral and regional FTAs, we used the TAPED (Trade Agreement Provisions on Electronic Commerce and Data) and reviewed 113 trade agreements that have e-commerce provisions or chapters. First, most of the trade agreements containing digital trade provisions or chapters were signed between continents and between developed and developing countries. Second, trade agreements that include data-related provisions tied to strong obligations have increased. Third, trade agreements that either mandate the application of dispute resolution or allow general exception have been on the rise. We further compared and reviewed the digital trade rules of FTAs signed by the US, EU, and China and also summarized the contents of digital trade agreements signed recently.Next, we examined the Korea’s digital policy in response to changes in the global digital trade environment. The main tasks were to compare directions, strategies, detailed agendas contained in several digital economy policies and digital trade policies over the last four years (2018-21). In particular, we looked into the linkage among digital economy policies including the Digital New Deal and digital trade policy and the implementation structure of digital trade policy. To examine the aspects of data regulation response, we reviewed the recent changes in domestic data regulations. First, we focused on whether commercial research can be included in ‘subjects that are the basis for determining the possibility of personal identification’ and ‘scientific research’ in the Personal Information Protection Act amended in 2020 and summarized related provisions and ongoing issues. Second, we focused on the scope of information that can be used in the MyData project, the security issue of the MyData project, issues related to the adequacy of the EU Commission in relation to the Credit Information Use and Protection Act. We also reviewed recently proposed policies including the Act on the Consumer Protection in Electronic Commerce, Data Basic Act, and Korea Data 119 Project. Using the National Trade Estimate on Foreign Trade Barriers published by the U.S. Trade Representative, we scrutinized the U.S.’s critical views on Korea’s digital trade policy by classifying free data flows, data localization, and other issues and examining them from the perspective of international trade law.Finally, we evaluated Korea’s digital trade environment by using the Digital Trade Restriction Index of the European Centre of International Political Economy, the Digital Services Trade Restrictiveness Index of the OECD, and the Global Cloud Computing Index of the Software Alliance in the U.S. In short, the level of Korea’s digital trade environment was evaluated to be in the mid-range. We recommended that Korea’s mid-to-long-term digital trade policy should aim to be open and rule-based, meaning that it should raise the level of liberalization and embrace global digital trade norms to expand digital trade by introducing minimum number of domestic data regulations. Digital trade policy aiming to be more open and rule-based can be used as a means of achieving the long-term goal of the Korean economy and can yield beneficial effects to consumers, firms, and the long-run growth. Finally, the study provided several policy recommendations of digital trade based on self-evaluation criteria for Korea’s digital trade policy.
Prospects and Policy Implications of the WTO Multilateral System in Strategic Competition between the US and China
As of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues..
Yoocheul Song et al. Date 2021.12.29Multilateral negotiations, Trade policySummaryAs of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues must be addressed for the WTO to remain effective in the future, especially under the new world trade order, including those caused by COVID-19. Therefore, WTO member states will have to strike a balance between negotiating on 21st century issues and tackling long-standing trade-related unresolved issues such as agriculture and development. In addition to these practical problems, the WTO must also address institutional problems.In addition, alleviating tensions in the world trade system following China's incorporation into the world economic system is a task that the WTO must solve. For example, it will have to come up with a way to address US and EU claims that existing WTO rules are inadequate to address China's problems with intellectual property rights, state-owned enterprises and industrial subsidies. As countries like the United States increasingly rely on bilateral and regional trade agreements to better address this issue, an alternative is to address them through open plurilateral agreements.Given its share in world trade and the global economy, China could potentially play a significant role in WTO reform. China has been involved in WTO reform discussions. China's proposals for reform in the WTO indicate that it will resolve the deadlock in the Appellate Body and prioritize negotiations on subsidies for fisheries and e-commerce. However, with respect to state-owned enterprises, it has limitations in repeating vague promises of fair competition and emphasizing the need to respect the diversity of development models among member countries.China is also showing efforts to cooperate with other countries on WTO reform, claiming to be the defender of the world trade system on behalf of the United States. However, in light of China's growth and economic model in the global economy, a key question is whether WTO rules can be updated and implemented in a way that accommodates two fundamentally different economic systems. The solution does not lie in changing the nature of China's economic system. Rather, it should be about creating enforceable rules that allow the two systems to interact and reaffirming the key role of the WTO within the world trade system.Since 1998, WTO member states, agreeing that e-commerce will play an increasingly important role in the global economy, have established a working program to review all trade-related issues related to global e-commerce. The rules governing online transactions will become more important than ever, especially as COVID-19 accelerates the transition to e-commerce. However, unlike trade in goods and services, few international rules apply to e-commerce between countries. Therefore, a realistic approach could be to focus on reviewing the status of e-commerce initiatives and agreeing on a roadmap for the negotiation process and future work, in the short term, while focusing efforts toward developing specific texts for negotiations and reaching partial agreement on the rules of e-commerce in the medium to long term.Although trade and investment are closely linked, the WTO was launched with an incomplete treatment of investment issues. Multilateral attempts to negotiate rules on investment protection and liberalization in the WTO failed, and in 2004 investment was removed from the WTO negotiation agenda. However, many countries deal with investment provisions through bilateral investment agreements or chapters of bilateral and regional free trade agreements. A new attempt to include investment in the WTO began in the form of “structured discussions with the aim of developing a multilateral framework on investment facilitation” among more than 70 WTO member states. These discussions are projected to have a greater chance of success than past efforts by focusing on facilitating investment and excluding issues that have been difficult to reach consensus, such as market access, investment protection, and resolution of investor-state disputes.Discussions are also underway to improve the WTO Agricultural Agreement, which came into force in 1995. Policy makers continue to work to make agricultural trade fairer and more competitive, aiming to reform subsidies and high trade barriers that distort agricultural trade. In 2015, WTO member states committed to abolish agricultural export subsidies and agreed to find solutions to the problem of public stockpiling for food security, an issue that needs renewed attention under COVID-19. It was also agreed to develop special safeguards for developing countries and agreements on cotton trade. WTO member states continue to negotiate on these issues. The next WTO Ministerial Meeting should be a milestone for progress in this area. Improving notification obligations on agriculture is also an important task. Especially in the agricultural sector, special treatment for development issues and developing countries has been one of the most important areas of WTO work since the Doha Development Agenda was launched in 2001. However, in order to advance the discussion, the problem of developing country status will need to be addressed. Korea announced that it would no longer maintain its developing country status in 2019. Of course, negotiations within the WTO are not currently underway, but it is time to analyze and respond in advance to problems that may arise when Korea does not maintain its developing country status in the agricultural sector.Trade and the WTO can play an important role in achieving the UN Sustainable Development Goals and the Paris Agreement goals. WTO members have been discussing various trade sustainability issues, and areas that are likely to reach agreement and that can make a significant contribution to the green recovery of the COVID-19 crisis include: first, the WTO member countries concluded an agreement to limit subsidies for fisheries; second, the WTO played a role in reforming fossil fuel subsidies; and third, the WTO member states made efforts to reach an EGA negotiation.It has long been recognized that there are many links between trade policy and non-trade issues such as environmental and labor standards. However, there are many differences of opinion as to whether non-trade issues should be linked to WTO negotiations and subject to WTO rules and regulations. Past efforts to link non-trade issues to trade have been pursued to encourage compliance and enforcement. Traditionally, dispute resolution mechanisms have been used as a way to link non-trade issues that are difficult to enforce with the global trade system, but as the WTO Appellate Body crisis continues, these resolution methods lose their effectiveness. Also, there are limits to what the WTO can and should do with respect to non-trade issues. In particular, the WTO's role in achieving the SDG goals requires careful adjustment. If links are too weak, the WTO risks becoming irrelevant in its efforts to address key global challenges. However, if the linkage becomes too excessive, the possibility of overburdening the already troubled WTO increases. The best bet may be to focus on increasing policy coherence and interaction between stakeholders rather than focusing on creating new rules.Since the WTO is a member-driven body, reforms must be decided by member governments. Therefore, domestic support for policy makers is necessary in order to proceed with the discussion and process on WTO reform.WTO reform is an important issue. However, WTO modernization will not be provided in a single package, and discussion of various issues and participation of stakeholders is essential. WTO reform will require a significant amount of effort and time. The new secretary-general is also frequently emphasizing the need for WTO reform, and as a new administration is launched in the United States, a change of position can be expected. If the WTO can function properly in the process of coping with COVID-19, the COVID-19 crisis may provide new impetus to the WTO. While we cannot expect too much, if the US makes an explicit proposal for a solution to reform the WTO Appellate Body, or at least explains acceptable changes to the Appellate Body, the chances of success are high.Under these circumstances, what kind of policy response Korea should take is a very important issue, because Korea has enjoyed the benefits of the multilateral trading system. In particular, it can be said that Korea is at a crossroads where it has to make a policy choice between the United States and China. According to the Biden administration's strategy to strengthen alliances, the US will demand a choice from Korea, and it will inevitably be very difficult for Korea, which is highly dependent on the Chinese economy, to make a decision.
Digital Economic Development in Belarus and Implications for Korea-Belarus Cooperation
Belarus is facing economic challenges due to low efficiency, caused by structural problems. One solution could likely be found in ICT and digital development. Based on this observation, this study analyzes Belarus’s ..
Jiyoung Min and Tatyana Alekseevna Tkalich Date 2021.12.30Economic development, Economic cooperation Russia EurasiaSummaryBelarus is facing economic challenges due to low efficiency, caused by structural problems. One solution could likely be found in ICT and digital development. Based on this observation, this study analyzes Belarus’s structural problems and challenges, recent trends and major features of the ICT industry, and the level of digital development.The Belarusian economy has been experiencing a low growth rate since 2009. This is mainly because the share of the public sector and the dependence on the Russian economy are still high. The Belarusian government has made efforts to raise economic efficiency since the 1990s through non-market economy oriented measures. Naturally, there has been little progress.Meanwhile, the government’s drastic policies to develop the ICT industry have been the most outstanding successes. The ICT industry in Belarus is one of the most promising sectors in the economy, accounting for almost 8% of the GDP in 2019. According to the digitalization index and the authors’ own calculation of DESI, Belarus has potential for and is in the initial stage of digital economic development.In order for Belarus to realize the digital economic development, it urgently needs to increase the use of ICT in other industries, retrain persons who are in charge of digital affairs in organizations, establish relevant institutions, and construct a 5G network.Considering what is mentioned above, the study suggests the following measures to strengthen Korea and Belarus cooperation.In the short-term, Korea could 1) provide facilities for ICT education to the public and dispatch ICT trainer volunteers through ODA programs, 2) provide advice on digital policies and institutions, and 3) encourage Korean ICT companies to partake in Belarus’s 5G network construction.In the mid-term, Korea could systemize exchange programs and technological cooperation; 1) organize a Korea-Belarus joint committee on economy, science and technology and a Korea-Belarus forum on science and technology regularly, perhaps biannually, 2) invite businessmen and engineers in the Korea-Belarus forum on science and technology to form a triangular cooperation between the government, scholars and businessmen, 3) readjust the budget provided to joint research programs run by the Ministry of Science and ICT, and the Korea Research Foundation to produce actual joint research output.To expand technological cooperation with developing economies, R&D and entrepreneurship programs should be established under ODA, EDCF, and KSP programs, to eventually build up a firm network between scholars and start-ups in the ICT sector in Korea and Belarus. Opening business incubators both in Korea and Belarus could also promote bilateral cooperation.In the long-term, there should be institutional grounds for stronger and sustainable economic relations between Korea and Russia. The Bilateral Investment Treaty signed in 1997 could be reexamined and revised. Korea can consult and support Belarus’s accession process to the WTO. Both countries can discuss “Korea-Belarus Service and Investment FTA,” which can lead to a Korea-EAEU FTA or Korea-EAEU comprehensive FTA.
Digital Transformation and Its Impact on Labor Market Outcomes: Analyses Based on Country-Level, Korean Workers, and Korean Firm-Level Data
Digitalization in production and distribution has been progressing continuously for the past 30 years. In the past decade, led by advances in artificial intelligence and machine learning technologies, digital transfor..
Do Won Kwak et al. Date 2021.12.30Labor market, electronic commerceSummaryDigitalization in production and distribution has been progressing continuously for the past 30 years. In the past decade, led by advances in artificial intelligence and machine learning technologies, digital transformation has accelerated further. As a result, the effect of digital transformation on labor market outcomes has become more evident recently. There are two opposing hypotheses about the impact of digital transformation on the labor market: a decrease in labor demand due to labor substitution and an increase in labor demand due to a rise in productivity. This study empirically quantifies the changes that digital transformation brings to the labor market based on data at various country, firm, and industry levels.In a country-level analysis in chapter 2, we find the expansion of e-commerce has been shown to lower the employment rate and increase the unemployment rate. Looking at the heterogeneous effects according to educational background, the negative impact of the expansion of e-commerce on employment and unemployment was more significant in the low-educated workers. In the heterogeneous effect analysis by age, the negative effect on labor and unemployment was substantial in the working population aged 25 and over. In sum, the expansion of e-commerce has had a significant negative impact on the working population aged 25 and over and the low-educated population.Chapter 3 analyzes the effect of the development and utilization of digital transformation technologies such as the Internet of Things (IoT), big data, and robotics on firms' employment and labor productivity in manufacturing and service industries using the 2016-2018 Business Activity Survey, collected from the Statistics Korea. We find that the development and use of digital transformation technology reduce firm‘s employment with relatively low average wages in the manufacturing industry. This implies that the impact of digital transformation technology on firm employment depends on labor characteristics (e.g., required skills) in the manufacturing industry, which can be inferred from the wage level. Finally, we find that the development and use of digital transformation technology had a relatively more positive effect on service firms' employment and labor productivity. This is because the service industry relies more on human capital than physical capital in the production process than the manufacturing industry.In chapter 4, using 38 industries data from Korea Productivity Center for the period 1995-2018, we study the effect of labor productivity improvement on employments and wages. We find an increase in labor productivity reduces labor demand through the substitution effect. However, considering the externalities between industries, we positively affect labor demand through between-industry externality. As a result of estimating the heterogeneous effect (i) the negative (-) effect on employment through the substitution effect was found to be driven by large companies, and (ii) service industry. It was also found that the service industry absorbs the positive (+) externalities most significantly. For the effect of an increase in labor productivity on labor income, we find that the share of labor income has gradually decreased since 1995 with an increase in labor productivity.In chapter 5, using PIAAC data, we identify skill items that showed a high positive correlation with employment and wage. We find that the most significant increase in employment occurred in industries with high utilization skills of physical labor and ICT proficiency. On the other hand, the most considerable wage increase occurred in sectors with high utilization skills of continuous education and systematic and planned work performance. Industries with these skills showed a high negative correlation with high employment. At the individual level estimations, we find no significant change in employment and wage found for professional workers. The significant effect in employment was concentrated on non-professional workers.The results of empirical analysis at the country, firm, and industrial level consistently show that the impact of digital transformation on the labor market differs depending on the level of skill and education. To mitigate the negative impact of digital transformation on the labor market, the government should provide professional vocational education to develop high problem-solving and ICT-related skills in addition to the knowledge provided by university education. Furthermore, the government can improve the efficiency of the labor market by promoting the smooth transition between jobs and re-employment of displaced workers through the establishment of a strong educational infrastructure. High-quality skill education, vocational job training education, personalized education, and online education should be accessible to the greater population. The government should guarantee no worker is getting behind to attain proper skills to work at the age of digital transformation.
30th Anniversary of Diplomatic Relations between Korea and Central Asia: The Evaluation of Economic Cooperation and Four Major Cooperation Tasks
Central Asia refers to five countries: Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan, which became independent after the dissolution of the Soviet Union in 1991. The Region, located in the heart of ..
Young Jin Kim et al. Date 2021.12.27Economic development, Financial cooperation Russia EurasiaSummaryCentral Asia refers to five countries: Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan, which became independent after the dissolution of the Soviet Union in 1991. The Region, located in the heart of the Eurasian continent, is attracting attention as a key promising participant for regional integration projects of major powers, and is the site of fierce geopolitical competition between Russia, China and the United States. Central Asian economies which are dependent on the export of energy resources such as oil and natural gas, are diversifying their industrial structure through policies to encourage manufacturing industry in line with the transition to a global carbon-neutral era, and are implementing policies to expand the development of new and renewable energy. In addition, as non-face-to-face activities have become normal due to the COVID-19 crisis, digital transformation including ICT industry is accelerating in Central Asia, where population density is low.2022 marks the 30th anniversary of the establishment of diplomatic ties between Korea and the five Central Asian countries. Korea has grown into an important import partner in Central Asia over the past 30 years. According to the official statistics of each country in 2020, Korea is the third largest importer of Kazakhstan, the fourth largest importer of Uzbekistan, and the seventh and ninth largest importer of remaining three Central Asian countries. On the other hand, Central Asia is not a major trading partner for Korea, as it accounts for less than 1% of Korea’s total exports and imports. Trade items between Korea and Central Asia are also limited to some items due to differences in economic structure and economic development. However, the possibility of cooperation between Korea and Central Asia is increasing as the 4th Industrial Revolution and economic modernization policies of Central Asian countries have led to major changes in economic and social structures of Central Asian countries.Central Asian countries are striving to modernize their economies and diversify their industrial structures for sustainable economic development, and are pushing for modernization of the domestic financial sector to expand domestic investment and successfully attract overseas investment.In addition, with the advent of the carbon-neutral era, the development of new and renewable energy is being promoted, and the digitalization of the economy is being pursued in accordance with the global trend of the 4th industrial revolution. At the same time, governments in each country are implementing improvement policies to strengthen their capabilities in health care sector as they face medical and health crises such as the shortage of medical supplies due to the COVID-19 outbreak. In other words, important tasks emerging in Central Asian countries is to successfully overcome the health crisis and promote stable economic development. For this purpose, important future cooperation tasks between Korea and Central Asian countries is to break away from the existing cooperation limited to some items and to discover areas of cooperation for building mid- to long-term cooperative relationship.In celebration of the 30th anniversary of the establishment of diplomatic ties between Korea and Central Asia, this study used the following research methods to evaluate the achievements of cooperation in the fields of diplomacy and economy, and to analyze the four major cooperation areas in depth.First, the contents of the research topic of this report were analyzed and organized using various primary and secondary literature and statistical data. These literature and statistical data were actively used to analyze the current status and characteristics of politics, diplomacy, and economy in Korea and Central Asia, and to analyze the cooperation status and performance of four major cooperation areas: digital cooperation, renewable energy cooperation, financial cooperation, and health care cooperation.Second, in order to improve the quality of this study by obtaining the opinions and advice of experts, a number of experts related to each subject were invited and expert meetings were held. In particular, the objectivity and validity of directions and policy proposals of this study were enhanced by listening to the opinions of experts focusing on the four major cooperative areas.Third, due to the COVID-19, field research and interviews with local experts were practically difficult, so written interviews were conducted with experts from Central Asia working in government, academia, and private sector living in Korea and Central Asia. This study was intended to provide vivid information and conduct realistic research by reflecting the results of these written interviews In commemoration of the 30th anniversary of diplomatic relations between Korea and Central Asia, this study comprehensively evaluates the economic and diplomatic cooperation between Korea and Central Asia over the past 30 years. Furthermore, this study explored areas with high potential for cooperation between Korea and Central Asia by reflecting the rapidly changing global political, economic, social and cultural environment. The contents of this study can be summarized as follows.First, diplomatic and security cooperation between Korea and Central Asia. Central Asia is a region in which Russia, China, and the United States are in geopolitical competition due to high potential for oil and natural gas energy resource development, bordering with unstable Afghanistan, and high importance as a key point for regional integration projects. Russia is trying to maintain military influence in Central Asia based on historical ties, and China is seeking to expand its economic influence through the Belt and Road Initiative. The United States, which advanced into Central Asia to attack Afghanistan shortly after 9/11, is preparing a new strategy in Central Asia to check Russia and China.Marking the 30th anniversary of diplomatic relations between Korea and Central Asia, the achievements in terms of diplomacy and security between Korea and the five Central Asian countries are as follows. The first is the expansion of the horizon of Korean diplomacy. The past governments of Korea have made efforts to expand their diplomatic ties to Eurasia, and within that, policies of cooperation with Central Asian countries have been steadily strengthened. Second, sharing experiences with Kazakhstan, which voluntarily promoted denuclearization and non-proliferation. Korea is one of the few countries that has a multilateral consultative body with five Central Asian countries, and the two sides are cooperating based on multilateralism.Second, in terms of economic cooperation, Central Asia is not pertaining to Korea’s major trading partners, accounting for less than 1% of Korea’s total exports and imports, but Korea is an important trading partner for Central Asia. Among the five Central Asian countries, Kazakhstan and Uzbekistan have relatively large trade volume with Korea, but the trade volumes between Korea and the other three countries are insignificant. Over the past 30 years, Korea’s total investment in Central Asia has reached $3.596 billion, of which Kazakhstan’s share was $2.661.2 million, accounting for 74% of the total investment in Central Asia, and Uzbekistan accounted for 21.52% with $774 million. The proportion of the remaining three Central Asian countries was insignificant at 2.78% in Kyrgyzstan, 1.66% in Tajikistan, and 0.13% in Turkmenistan. Therefore, in terms of foreign direct investment, investment relations between Korea and Central Asia have been concentrated in Kazakhstan and Uzbekistan. In the 1990s, Korea invested the most in Uzbekistan among Central Asian countries, but since the 2000s, Kazakhstan has maintained the status of Korea’s largest investment destination in Central Asia. Uzbekistan was selected as a major ODA priority partner in 2010 and 2015, making it a major beneficiary among the five Central Asian countries. Uzbekistan was re-selected as an ODA priority partner country in 2021, and Kyrgyzstan and Tajikistan were newly selected as priority partners. Accordingly, Korea’s ODA to Uzbekistan is expected to continue its high performance as it is today, and the ODA to Kyrgyzstan and Tajikistan is now equipped with conditions to expand further.Third, the transition to the digital era presented an important task of ICT cooperation between Korea and Central Asian countries. All five Central Asian countries have established and implemented mid- to long-term strategies for the digital economy. Uzbekistan’s strategy is “Digital Uzbekistan 2030”, Kazakhstan’s is “Digital Kazakhstan 2018 to 2022”, and the Kyrgyz government is pursuing “Digital Kyrgyzstan (2019-2023)”, Tajikistan is seeking “The Concept of the Digital Economy of the Republic of Tajikistan”, Turkmenistan has announced the resolution of “The Digital Economy Development Concept 2019-2025”.The strategies of Central Asian countries commonly set priority areas such as strengthening broadband networks, digital transformation of the economy, formation of a sustainable innovative ecosystem, formation of human capital, expansion of e-commerce, and formation of e-government. Korea-Central Asian digital cooperation is largely divided into ODA projects and private cooperation. Korea has been continuously expanding its ODA projects with Central Asian countries, mainly cooperating in the fields such as e-government, geographic information system, and educational digitalization. The cooperation of the private sector related to the digital economy largely consists of the export of ICT devices such as mobile phones and the advancement of service companies such as KT and LG CNS, and the export of ICT devices has been led by Samsung Electronics and LG Electronics. While Korea’s cooperation with Uzbekistan, which has been Korea’s ODA priority partner, is high, while ODA projects and private entry to other Central Asian countries were still on the low side. However, as Kyrgyzstan and Tajikistan are selected as priority partners for ODA in 2021, cooperation with these countries is expected to expand further in the future.Fourth, the possibility and policy tasks for new and renewable energy cooperation between Korea and Central Asia were analyzed. Among the Central Asian regions, especially Uzbekistan and Turkmenistan have the greatest potential for solar power generation, and Kazakhstan has a high potential for wind power generation as it can generate wind power in about 50% of the total land area. These industries are very useful in terms of economic and energy security in Central Asia. Central Asian countries have established national strategies for the construction of new and renewable energy facilities. However, only Kazakhstan and Uzbekistan have prepared concrete plans for the implementation stage of renewable energy strategy. The governments of Kazakhstan and Uzbekistan have announced plans to generate more than 10% of electricity generation from solar and wind power by 2030, and significant investments are expected to be made to achieve this goal. In Central Asia, Kazakhstan and Uzbekistan are in the stage of developing new and renewable energy industries in earnest according to their national development strategies, and many wind power and solar power projects are being promoted. As a result, opportunities for foreign companies to participate in local businesses are increasing significantly, and competition for bidding orders from each country is fierce. Korea needs a national strategy and support to advance into Central Asia in consideration of new and renewable energy cooperation by breaking away from the existing Korea-Central Asian energy cooperation limited to oil and natural gas cooperation.Fifth, the current status of the financial industry in Central Asian countries and the tasks of financial cooperation between Korea and Central Asia were analyzed. Financial cooperation between Korea and Central Asia is also a promising field for cooperation in that Central Asian countries are promoting industrial diversification and modernization through foreign capital attraction. Central Asian countries have low competitiveness in financial markets, and financial companies in each country are not able to expand their participation in the global financial market. Therefore, the development of a balanced financial industry is pointed out as one of the urgent national tasks of the five Central Asian countries. In banking sector, Kazakhstan is the most connected to the global financial system among the five countries, Turkmenistan is the most isolated market, Uzbekistan and Tajikistan are heavily dependent on the government, and Kyrgyzstan has restrictions depending on the size of the domestic market. Looking back on the details of Korea-Central Asian financial cooperation over the past 30 years, Korean financial companies and financial infrastructure have advanced into Central Asia, centered on Uzbekistan and Kazakhstan, which have the highest demand for development cooperation among the five Central Asian countries. In the development aid cooperation sector, credit extensions such as development loans and overseas investment loans were concentrated in Uzbekistan, while official development aid was concentrated in Uzbekistan and Kazakhstan in the form of sharing development experience, technical support, and training. However, the need to expand the scope of financial cooperation between Korea and Central Asia is growing as the joint financial market of the European Economic Union is formed and Fintech and ICT emerge.Lastly, health and medical cooperation between Korea and Central Asia. Korean medical institutions have been promoting health and medical cooperation mainly in Kazakhstan and Uzbekistan, which have high demand and purchasing power for medical tourism. In fact, for 10years from 2009, when foreign patients were legally allowed, the rate of increase of inbound patients from Kazakhstan and Uzbekistan to Korea was 67.1% and 48.3%, respectively, higher than the average annual growth rate of attracting foreign patient’s inflows in Korea (22.7%). As such, Korea and Central Asia are complementary to each other in terms of medical supply and demand, thus expectations for medical cooperation between the two countries were high. However, various legal regulations in Central Asian countries, the reluctance of locals who are accustomed to public health to use private medical institutions, and the high current costs of hiring Korean doctors have been obstacles for Korean institutions to advance into Central Asia. However, through President Moon Jae-in’s 2019 visit to Central Asia, regulations that have been pointed out as problems in health and medical cooperation between Korea and Central Asia are being discussed again at the government level, raising expectations for revitalizing health and medical cooperation. In addition, as non-face-to-face contact becoming commonplace due to the COVID-19, various pilot projects are being operated to make telemedicine a reality in Kazakhstan and Uzbekistan. Accordingly, the possibility of local advancement through telemedicine, which Korean medical institutions have tried and hoped for from the beginning of their entry into Central Asia, is increasing.As described above, this study has analyzed the cooperation achievements and tasks in the fields of diplomacy and security, economy, digital, renewable energy, finance, and health care between Korea and Central Asia over the past 30 years. Based on this, this study presents policy implications and tasks as follows in order to enhance mid- to long-term cooperation between Korea and Central Asia.First, it is the field of diplomatic and security cooperation between Korea and Central Asia. Korea should form solidarity with middle powers such as Kazakhstan and Uzbekistan so that peace and neutrality, negotiation and dialogue can function in the great power politics. Most of the agendas in which middle powers can intervene or exercise initiative in the global order centered on great powers are directly related to human security, such as human rights, humanitarian aid, sustainable development, response to climate change, natural disasters, infectious diseases, and nuclear proliferation prevention. Thus, solidarity with middle powers is also related to human security. Therefore, Korea should strengthen diplomatic cooperation with Central Asian countries in terms of solidarity with middle powers. In the post-coronavirus era, cooperation between Korea and Central Asia leads to solidarity of middle powers for human security, and mutual understanding should be enhanced by strengthening public diplomacy in line with the era of the 4th industrial revolution.Next, the key cooperation areas were selected based on the evaluation of economic cooperation between Korea and Central Asia. Despite the disproportionate trade relationship between Korea and Central Asia over the past 30 years, in order to develop a mutually beneficial and future-oriented cooperative relationship between the two sides, Korea needs to select areas of cooperation that can support the sustained economic growth of Central Asian countries and lead the cooperation. These cooperative areas should share Korea’s advanced technological level and development experience and meet the policy demands and needs of each country in Central Asia. In addition, for future-oriented and sustainable cooperation with Central Asian countries, it is necessary to prepare a new framework for economic cooperation. In order to prepare such a new framework for economic cooperation, it is desirable to set the direction of cooperation between the two sides and select the areas of cooperation in consideration of the economic development strategies and economic policy directions and policy demands of each country in Central Asia. Accordingly, in this study, four promising areas of cooperation; 1) digital cooperation, 2) new and renewable energy cooperation, 3) financial cooperation, and 4) health and medical cooperation, between Korea and Central Asian countries were selected, and in-depth analysis and policy measures were presented for each field.First, it is a policy plan for ICT cooperation between Korea and Central Asia. As Korean government promotes online/non-face-to-face economic cooperation and the digital economy of partner countries using ICT technologies such as AI due to the COVID-19, digital cooperation with Central Asian countries that are promoting the transition to a digital economy is emerging as a promising business.Promising fields of digital cooperation between Korea and Central Asia include: a) Broadband network sector, including ICT policy exchange for network construction (frequency management policy and network joint construction, etc.), and cooperation in 5G and advanced technologies /future technologies using 5G such as the Internet of Things, big data, and artificial intelligence. b) It is promising to export Korea’s e-Government model in a package type that includes e-Government promotion and online participation or usage ability directly related to practical use, which is needed by the people of Central Asian countries. c) It is possible to export new services, business models, and security technologies of Korea to the e-commerce market in Central Asia, which is in its infancy, and it is possible to enter various application fields such as fintech, payment-related applications, and edtech, where demand is expected to increase with the growth of e-commerce in Central Asia. d) As agriculture is a major key industry in Central Asian countries and can receive budget support from international organizations, smart farming-related services, such as seed testing, human resources and management-related training, data management/precision system, etc., are promising. e) Smart city business sector, which includes multiple layers of solutions (smart transportation, smart building, smart water supply, smart energy, smart waste management, smart safety/disaster prevention solutions, etc.). f) It is necessary to establish a startup ecosystem that can create various innovations using ICT technology.Considering that Central Asian countries lack the financial capacity to pursue digital projects, Korea should actively seek cooperation by winning bids for digital transformation projects from Central Asian countries and participating in several international development bank projects. It will also be necessary to consider how to leverage the EAEU and Russian/overseas channels in digital cooperation with Central Asia to enter the market. At the same time, Korea should focus on cooperation with Kazakhstan and Uzbekistan so that this cooperation can be expanded to the other countries step by step.Second, in accordance with the transition to a carbon-neutral era, cooperation in renewable energy between Korea and Central Asia should be promoted. In Central Asia, local business risks are too high for private companies to carry out alone, and there is insufficient information for domestic companies to enter the renewable energy field. There are many problems in local businesses that are difficult to solve with the efforts of private companies alone. Therefore, in order for Korean companies to enter the new and renewable energy business in Central Asia, which has great potential, institutional support at the government level is necessary.The governments of Kazakhstan and Uzbekistan have clearly stated their intention to develop new and renewable energy with private capital rather than government funds in their national development strategies.Considering that the private sector in both countries has limited funds to invest in this field, the new and renewable energy project will be carried out with the financial support of foreign governments or multilateral development banks in the PPP method. As it is true that Korea lacks in price competitiveness and financial support compared to its competitors, it will be important to actively cooperate with the local government from the initial stage of the project to be selected as the preferred bidder.Energy projects are mostly large-scale projects that require a long-term investment of a large amount of investment. However, various reasons, such as changes in local laws/systems and bureaucracy in Central Asia, are hindering entry into the local market, and private companies are experiencing difficulties in investing. There is a need for institutional measures to protect investors through consultations between the Korean government and the Central Asian government. In addition, in order to receive payment guarantees from local governments for the amount of PPP investment, an agreement between countries is required. Currently, the public-private network with the local country is well formed, so using it to discover and participate in new projects is an effective strategy to increase the penetration power of Korean companies. Considering that Central Asian private and governmental funds are insufficient, it is necessary to efficiently utilize Korean ODA funds to advance into new and renewable energy projects in Central Asia. In addition, it is necessary to actively participate in projects funded by multilateral development banks.Third, it is the field of financial cooperation with Central Asian countries that are actively promoting foreign capital attraction. The following long-proposed existing agendas such as capital market cooperation, SME financing for Koryoin(Korean diaspora) companies in Central Asia, public finance and resource development through international financial institutions, plant project funding support, and transfer and provision of basic knowledge and technology necessary for nurturing manufacturing for industrial diversification and advancement in Central Asian countries, regular advice on credit guarantees necessary for fostering special economic zones and SMEs, etc. are still considered necessary to build long-term and sustainable financial cooperation.However, considering the rapidly changing circumstances surrounding the financial industry, it is necessary to approach the existing agenda in a new way or to readjust the agenda. In relation to the integration efforts of Eurasian countries, including Central Asia, important areas in which Korea can contribute or cooperate in the future financial sector of Central Asia are as follows. Integration of Central Asian financial infrastructure, implementation of a multilateral payment and settlement system using local currency or single currency in the region, stock market development and revitalization of investment in CIS countries, support for overcoming financial crisis, etc. In order to induce active investment in raising funds for regional development, it is necessary to establish a guarantee fund that mitigates investment risk through multilateral cooperation or to actively participate in financing and financial support projects of international financial institutions. In addition, it is important to expand mutual cooperation through active participation of Korean public financial institutions related to the improvement of financial market infrastructure such as payment and settlement infrastructure, fintech, and credit rating systems, which are becoming increasingly important with the spread of digital finance. Regular multilateral or bilateral meetings with financial regulatory supervisors in Central Asian countries are important in order to politicize these diverse financial cooperation-related agendas, share experiences, and discover and continuously promote mutually beneficial cooperation tasks.Lastly, health and medical cooperation between Korea and Central Asia, where the possibility of cooperation has increased more than ever due to the COVID-19 crisis. Due to the global pandemic of COVID-19, our daily life is changing in a non-face-to-face manner based on digital technology. Digital-based non-face-to-face activities increase convenience and reduce costs as there are no time and space restrictions.Digital technologies also have the advantage of being scalable through networks. Korean medical institutions with strengths in IT sector will be able to quickly adapt and apply these changes to advance into Central Asia in the form of non-face-to-face treatment and medical platforms. In particular, the medical platform business model that reflects the local people’s demand for high-quality medical services following the introduction of the health insurance system can be expanded and exported to Russia and other Russian-speaking CIS countries. At the same time, by conducting non-face-to-face education to strengthen the capabilities of local medical staff, Korean medical institutions will be able to secure manpower to assist with remote medical treatment and contribute to the improvement of health care in Central Asian countries.For such non-face-to-face treatment and digital platform business between the two sides, the policy support of Korean government should be made in order to alleviate institutional regulations, as well as the efforts of Korean medical institutions.
Global ESG Trends and the Strategic Role of the Korean Government
Recently, ESG(Environment, Society, and Governance) concerns are rapidly growing both domestically and internationally in various fields such as investments, management, consumers, and government policies. Beyond the ..
Sang Buhm Hahn et al. Date 2021.12.30Financial policy, Environmental policySummaryRecently, ESG(Environment, Society, and Governance) concerns are rapidly growing both domestically and internationally in various fields such as investments, management, consumers, and government policies. Beyond the concept of investment criteria or policy instruments, ESG can be defined as a value system for sustainable prosperity of the human community. ESG issues are rapidly becoming impending socioeconomic risk factors, but it is also being actively researched and implemented as an opportunity and solution in a variety of fields.The current popularity of ESG can be explained in terms of the role-sharing relationship between the government and the market. The characteristics of political demands have altered as existing socioeconomic problems have accumulated. And the technologies that could be used to solve problems advanced quickly. As a result, not only has the nature of the problem in each industry changed dramatically but so has the relative superiority of efficiency between the market and the state. In the role-sharing of the market and the state, there are wide spectra between mutually exclusive extremes of market failure and government failure.Shareholder capitalism has not been able to adequately respond to various side effects that damage the natural environment and social community in the process of pursuing economic growth. In the early 1980s, the international organizations began addressing sustainable development in which current economic development does not jeopardize future generations’ economic prosperity. Concerns about sustainability began with environmental issues and grew to include human rights and social ideals. It has been summed up as the ESG concept in recent years, which encompasses three aspects: environmental, social, and corporate governance.We present examples of companies that are following an ESG approach. Many businesses are spearheading ESG initiatives, and their patterns vary. Some companies, such as Patagonia, have been doing ESG activities consistently since the beginning. In some cases, such as with Unilever, ESG difficulties are represented in existing business practices, but corporations like Schneider Electric, CLP Group, and Oersted have entirely rebuilt their businesses, eliminating certain existing businesses and launching new ones that are compatible with ESG ideals. ESG is also attracting a lot of attention from Korean businesses, particularly in the area of environmental challenges. Given the current situation in Korea, where controlling owners frequently exercise management rights, corporate governance challenges are considered to represent both a threat and an opportunity for the Korean firms.National ESG strategies are also required, in addition to business ESG plans. The notion of “market failure” serves as a justification for national policy intervention in general. Many initiatives, however, have unintended consequences or are ineffective, as the term “government failure” implies. Market and government roles should be linked on the basis of efficiency. Not a binary distinction of “market or government,” but new frameworks of collaboration between the “market and the government” should be sought. Referring to the remarkable ICT developments such as AI and big data, cutting-edge financial instruments, and various organizational/ management techniques, it is necessary to readjust the existing government policy intervention area and redesign the method innovatively.Carbon taxes and minimum corporate tax rate regulations are two contemporary international ESG concerns that have been explored. Korea has evolved in terms of economic size and technological level, but still remains developing status with the environmental and energy challenges. As a result, we should create phased implementation schemes and support systems for the significantly and abruptly burdened industries and SMEs, while actively participating in international ESG talks and reforming associated institutional structures.We also present policy examples from a variety of countries on ESG challenges. The European Union (EU) has taken the lead in instituting ESG regulations such as green taxonomy, sustainable financial disclosure, corporate sustainability reporting, human rights and environmental due diligence responsibilities of business supply chains, and carbon taxes. The U.S. Biden administration drafted state goals closely related to ESG, such as restoring democracy and strengthening human rights, digital innovation, regional development, resolving educational inequality, diversity and equality, and expanding corporate transparency and corporate responsibility. In Japan, diversity guidelines and health management strategies are notable. Individuals and enterprises’ social credit in China are assessed at the national level. This summer, the Chinese government formally unveiled the slogan “Common Prosperity.” Chinese ESG initiatives, such as outlawing monopolies, cracking down on giant platform businesses, and expanding educational equity, are also noteworthy. India is the only country in the world where corporate social responsibility is required by law, and non-compliance with CSR expenditure obligations can result in criminal penalties for firms and their leaders. Meanwhile, the OECD announced on October 8, 2021, that 136 countries and jurisdictions have agreed that certain multinational enterprises (MNEs) will be subject to a minimum 15% tax rate, effective from 2023. Korea also has to develop policies to improve tax transparency and corporate social responsibility.Investment and business management ESG infrastructures are also critical. This necessitates an adequate division of the roles between the public and private sectors. We need consistent standards for ESG financing, which necessitates an ESG disclosure system and a green taxonomy to determine whether it belongs under the ESG category. Many private agencies have started offering ESG rating services in recent years, but their rating methods are vastly different, and the results are under-correlated with each other. There are also worries that foreign agencies’ ESG assessments do not fully represent Korean-specific circumstances. It might not be a good idea for the government to conduct ESG evaluations directly because it could weaken market discipline. The government, on the other hand, should appropriately oversee the ESG rating system’s entire structure.We discuss how to establish and implement ESG policies in Korea in a strategic fashion. K-SDGs and the Korean New Deal are two of the most common ESG policies now in use. In addition, 23 Presidential Committees have been established to advise and deliberate on the national policy agenda, including the National Balanced Development Committee and the Aging Society and Population Policy Committee. In addition to the Prime Minister and ministries, there are around 500 committees. This policy approach appears to be in line with ESG trends that are now gaining traction around the world. However, because overlapping policy implementation by separate committees or ministries can lead to inefficiency and conflicts of interest, it is vital to examine integrated policy design and action plans.We recommend that the National ESG Committee, ESG reports from each ministry, and national ESG strategy reports are established. To begin, we need a policy classification system, such as modularizing individual policies, to effectively control and manage policy duplication. This system should be based on the ESG national plan and be as consistent as feasible with the green categorization system (K-taxonomy). From an ESG viewpoint, it is vital to identify major problems and hazards affecting our society, as well as to map existing policy goals for each risk category. We propose that social “issues” or “risks” be organized into the K-Risk Matrix, with K-SDGs as a primary subset of solutions. The K-Risk Matrix is a diagram that depicts the “likelihood” and “impact” of threats to Korean society, and it may be created using information from the World Economic Forum’s Global Risk Report.As an action plan, we must first define and taxonomize ESG activities and then construct ESG information infrastructures such as accounting and disclosure systems. ESG rating agencies, in particular, should be prepared with suitable regulations and supervisory processes. These ESG policy objectives should attempt to promote fair and efficient market competition and give a solution to both market and government failure.
Study on Economic Cooperation between Korea and Russia in Aspect of Small and Medium Sized Enterprises
This research was inspired by the 30th anniversary of Korea-Russia diplomatic ties and the COVID-19 pandemic. Seeking solutions to enhance economic cooperation between Korea and Russia in the aspect of small and mediu..
Dong-Yul Kim et al. Date 2021.12.24Economic development, Economic cooperation Russia EurasiaSummaryThis research was inspired by the 30th anniversary of Korea-Russia diplomatic ties and the COVID-19 pandemic. Seeking solutions to enhance economic cooperation between Korea and Russia in the aspect of small and medium sized enterprises differentiates this research from previous researches. The current status and characteristics of Russia’s small and medium enterprises were examined first. Currently the Russian government’s policy on small and medium enterprises is changing drastically. Analyzing recent changes and economic cooperation of the Russian government with China and Germany provided implications for economic cooperation between Korea and Russia. Lastly, the study investigates collaboration projects between Korean and Russian small and medium companies. Based on these findings, the study evaluates the achievements and limitations of economic cooperation between Korea and Russia.While Russian small and medium-sized businesses are constantly developing, their performance remains lacking compared to developed countries in terms of contribution to GDP, sales and employment. The productivity of small and medium-sized companies is significantly lower than that of large enterprises. With development of the Russian economy largely relying on government-run firms, economic growth is led by companies related to the energy and mining industry, thus requiring huge investment from the government. This leads to governmental support measures within the financial and tax system concentrating on major government-run companies.Innovation is urgently needed on the energy-focused industrial structure. Along with this innovation, the worldwide trend of the 4th industrial revolution is expected to trigger growth of Russian small and medium businesses on a constant basis. The growth is anticipated to accelerate due to Russian government’s policy to promote growth in innovative industries such as ICT. In addition, policy programs such as the Skolkovo Foundation have helped non-governmental and innovative small and medium businesses to emerge.In July of 2007, the Russian authorities adopted federal laws “on the development of small and medium-sized businesses in the Russian Federation” (О развитии малого и среднего предпринимательства в Российской Федерации) to institutionalize support for small and medium sized companies. Also, the Russian government approved “Initiative support for small and medium sized business and independent companies” in December of 2018. This program stipulates five different support methods (innovation of business environment, financial aid, aid to accelerate companies’ development, establishment of system to support agricultural corporation and farmers and promoting to found venture companies) for small and medium companies.Collaboration with foreign high-tech companies of countries such as Germany and China as well as the Russian government’s supporting policies play a significant role on development of innovative small and medium-sized companies. The Korean government also needs to engage in cooperation with Russian small and medium-sized businesses, for instance through government-hosted forums and funds launched by bilateral cooperation. Cooperation between small and medium sized companies through bilateral governments or government-run firms is also necessary.The economic cooperation of Korea and Russia was originally built around large-scale infrastructure and energy development projects by major companies. Recently this aspect is turning into industrial and technological cooperation between small and medium-sized companies and startups.Despite the attempts to change the structure of bilateral economic cooperation through a Korean and Russian innovation platform, the size and range of bilateral companies’ cooperation are limited in the aspect of trade, investment and technology. Global startups less than 7 years old have difficulties with expansion and consistency in Russia. As a result, milestones from the domestic market to global prospective companies in Russia are insufficient when considering exports of all Korean small and mid-sized companies. Exports are still highly concentrated in goods such as vehicles and parts, and cosmetics, while exports in promising fields such as next-generation semiconductors and displays, robots, bioindustry and heath industry remain in gridlock. The level of participation in the global value chain is also estimated to be low. Small and medium sized companies’ imports are small compared to major corporations, highly relying on specific products such as marine products and lumber. Also the majority of imports are conducted on a small scale.The scale of technical transfer between both countries is trivial considering the level of original technology and commercial technology they represent. Most technical transfers are conducted by major companies, bringing the percentage of small and medium sized companies in technical transfers down to merely 10 percent. Investment of small and medium sized companies on Russia is lower than that of developing countries such as Vietnam and India, not to mention investment in the U.S. and China. In addition, those investments are mostly focused in the service industry, wholesale and retail sales industry and agricultural fishing industry.Overall economic cooperation between the two countries goes far beyond expectation. This fact, however, implies the potential and chance of bilateral cooperation are significantly high. If small and medium sized companies’ lack in information and funding capacities are supplemented through an innovative platform, the level of trade, investment and technological transfer of bilateral participants is expected to rise higher.Sluggish cooperation of bilateral small and medium-sized enterprises can be overcome through improvement in institutional support. Economical cooperation between Korea and Russia has continued since 1997. The economic cooperation platform must be reinforced to catch up with the innovations made since then. The current innovation platform is insufficient from the perspectives of trade, investment and finance.The study goes on to consider several steps to boost expansion of Korean small and medium sized companies. First of all, supporting plans need to be subdivided according to a company’s characteristics. Secondly, more support should be provided in the area of five promising consumer goods, which as of yet show poor performance. Thirdly, the government needs to help investment toward Russia result in higher value creation. Lastly, the GVC between Korea and Russia needs to be expanded into a broader form.Cooperation tasks from the perspective of small and medium sized corporations can be summarized in nine points. First, it will be necessary to take a long-term approach. The most important condition learned from cooperation between Russia-Germany and Russia-China is consistency. The second point to consider is technical cooperation based on public nature and reliability. Third, stable technical cooperation could be made possible through joint expansion of major companies and small and medium sized companies. Fourth, technical cooperation can be pursued by utilizing Russian exclusive industrial zone and techno parks. For instance Korean technical venture companies can establish joint ventures with Russian companies. Fifth, technical cooperation can be settled through the 2035 National Technology Initiative Policy, strongly supported by the Russian government. Sixth, the stability of technical cooperation could be improved by utilizing Russia’s import substitution policy. The seventh direction to consider would be constructing a new type of model such as technical cooperation through exporting Korea’s commercialization technology to Russia. Eighth is technical cooperation between small and medium sized companies in the agrifood field. Lastly, the role of the Innoviz Association and Korean Federation of Small and Medium Businesses should be reinforced, especially in technical cooperation for smart factory.In conclusion, more attention and investment on the part of the Korean government is necessary when considering Russia’s abundant natural resources and its geopolitical importance, which are receiving attention from North Asian countries. The importance of the Eastern Economic Forum, held since 2015 annually in Vladivostok, is growing higher. The Korean government’s strategic support for corporations is urgently needed. Korea and Russia are planning to construct an industrial complex in the Littoral Province. The industrial complex will be distributed in 2022 and its completion is planned in 2024. The Korean government should actively utilize the industrial complex as a representative example of successful cooperation between Korean and Russian small and medium sized companies.