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  • 중미 국가의 기후변화 적응 주요과제와 협력방안
    Challenges of Climate Change Adaptation in Central America and Policy Implications for Korea-Central America Cooperation

       Guatemala, El Salvador, Honduras, and Nicaragua – all located in Central America – have been under the direct influence of climate change due to their geographical characteristics. In these countries, climatic factors..

    Seungho Lee et al. Date 2021.12.30

    Economic relations, Economic cooperation Latin America

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       Guatemala, El Salvador, Honduras, and Nicaragua – all located in Central America – have been under the direct influence of climate change due to their geographical characteristics. In these countries, climatic factors including temperature and precipitation patterns have been changing, and extreme weather events such as storms have been frequent. Such climate extremes not only cause massive casualties, but also adversely affect a wide range of sectors, including agriculture, water resources, infrastructure, housing, health and migration, dramatically hindering the sustainable development of these countries.
       As the effects of climate change intensify, there is a growing consensus on the importance of climate change adaptation. In response, the four Central American countries have formulated various policies in order to reduce their climate change vulnerabilities, both at the regional level, mainly through the Sistema de la Integración Centroamericana (SICA), and at the national level. Unfortunately, they have had difficulties in implementing adaptation-oriented policies, given their limited human, financial and institutional capabilities, stemming from complex socioeconomic factors such as the level of economic development, poverty, agricultural dependence, population density, the level of education, and governance.
       The “caravans,” which have received much attention from the international community in recent years, are a symbol of the failure by the four Central American countries to reduce the adverse effects of climate change. Many of these “caravans” leave their homes in Guatemala, El Salvador, Honduras, and Nicaragua and head to the United States, as socioeconomic conditions deteriorate rapidly in their countries of origin due to climate change. The overall socioeconomic landscape in these countries has further worsened since the COVID-19 outbreak, tarnishing prospects for climate change adaptation. In addition, in 2020, Hurricane Etta and Yota occurred one after another, causing millions of victims and damaging various sectors such as agriculture and infrastructure.
       One should note that, while Central American countries record relatively low greenhouse gas emissions, they have been under direct, continuous influence of climate change. This suggests that more emphasis should be put on adaptation efforts than on mitigation efforts in promoting sustainable development in these countries. All in all, adaptation activities should be considered as a key to the sustainable development of these countries and there is certainly an international consensus on the urgency of adaptation-oriented activities. Despite such urgency, it is hard to deny that Korea has had difficulties in formulating effective cooperation measures targeting climate change adaptation in Central America, given the lack of understanding of adaptation issues and demands for cooperation in the region. Against this backdrop, this study identifies promising cooperation areas in the field of climate change adaptation between Korea and Central American countries and proposes cooperation schemes in each area. The contents of the study are as follows.
       Chapter 2 first examines how climatic factors have evolved in the four Central American countries. We also explore how frequent climate-induced weather extremes have been and how much damage they have caused in these countries. We find that, from 1931 to 2020, the average annual temperature and average annual maximum temperature rose, while the average annual precipitation decreased. During rainy seasons, the number of rainy days decreased and the intensity of heavy rain increased. Due to the changes in climatic factors, the frequency of floods, storms, droughts, landslides, and abnormal temperatures in these countries over the 1991–2020 period increased substantially compared to the 1961–1990 period. It is also found that more than 37,000 casualties occurred and the number of victims reached 27 million due to climate disasters in the four Central American countries between 1991 and 2020. Economic losses from climate disasters recorded 2.1% of GDP in Nicaragua from 1996 to 2000 and 4.8% of GDP in Honduras from 2016 to 2020. Moreover, around 2.19 million people were internally displaced due to climate disasters over the 2008–2020 period. Meanwhile, it is predicted that the trend of increasing average annual temperature, decreasing annual precipitation, and increasing intensity of heavy rain during rainy seasons will be prolonged.
       In Chapter 3, we assess the climate change vulnerabilities of the four Central American countries in geographical and socioeconomic dimensions and examine their policy efforts to adapt to climate change at the regional and country level. We find that they demonstrate a high degree of area-specific and country-specific vulnerabilities to climate change in dry corridor areas, rural areas, mountainous areas, coastal areas, and urban areas, due to their own complex reasons. In this context, the four Central American countries for the first time jointly responded to climate change at the regional level through the creation of the Convenio Regional sobre Cambios Climáticos (CRCC) in 1993. In 2011, the Estrategia Regional de Cambios Climáticos (ERCC) was approved at the 37th SICA Summit. It was followed by an action plan to support the strategy and regional policy efforts. This study provides a review of the adaptation-related contents of the ERCC and each country’s policy documents that provide guidance at the highest level on how adaptation activities should be implemented. By doing so, we identify the regional-level and country-level policy directions in the field of climate change adaptation and the priority areas that each country has set for adaptation purposes. While the priority areas for adaptation differ across countries, among the top priority areas commonly identified by four Central American countries are found to be agriculture, water resource management and disaster response and management.
       Chapter 4 provides a breakdown of climate development finance allocated to the four Central American countries for projects oriented towards adaptation, mitigation and both, by donor countries and multilateral institutions and by targeted sectors. In terms of the absolute amount, we find that the four Central American countries received a significantly smaller amount of financial support from the international community to address climate change challenges than other Latin American countries. Even after taking into account the population size, it is found that they still did not secure enough financial resources to cope with climate change. Between 2010 and 2019, the amount of per capita climate change finance recorded $174 in Nicaragua, $167 in El Salvador, $145 in Honduras, and $72 in Guatemala. Over the same period, the amount of per capita climate change finance oriented towards adaptation-targeted projects was found to be $110 in El Salvador, $62 in Nicaragua, $41 in Honduras, and $37 in Guatemala. We then present a breakdown of financial resources provided by OECD DAC countries and multilateral institutions to each country’s climate change adaptation projects. Among the priority areas of cooperation – namely, agriculture, water resource management and disaster response and management – we find that there is a clear lack of financial support from the international community towards water resource management in Guatemala, water management and disaster response and management in El Salvador, and disaster response and management in Honduras and Nicaragua. Nevertheless, considering the total amount of adaptation-related development finance allocated to the four Central American countries, one can say that financial support from the international community is insufficient to meet their demands for cooperation in all the areas mentioned above.
       Chapter 5 presents a brief overview of the structure of Korea’s international cooperation schemes regarding climate change response and the main initiatives formulated upon this background. The National Strategy for Green Growth, Five-Year Plan for Green Growth, Mid-Term Strategic Plan for Development Cooperation and Green New Deal ODA Strategy encompass policy guidelines for Korea’s international cooperation in response to climate change. In particular, with the Green New Deal ODA Strategy in place, it is expected that climate change adaptation will constitute one of the core pillars of Korea’s development cooperation in the near future. Against this backdrop, we identify a number of areas where Korea has accumulated know-how in adaptation-related cooperation activities. We find that Korea has accumulated sufficient experience in agriculture and water resource management, having disbursed large amounts of adaptation-oriented development funds to those areas. While Korea has not allocated much of its adaptation-oriented development funds to disaster response and management so far, we suggest that the experience gained from the related projects conducted in Asia and Latin America can be applied to potential cooperation projects in Central America.
       In the last chapter, we draw upon the analyses in chapters 3, 4, and 5 to reiterate main areas of challenge that the four Central American countries need to address for climate change adaptation. These are agriculture, water resource management and disaster response and management. We then propose cooperation initiatives for each area of challenge by presenting examples of promising activities and reviewing some cases of the projects conducted by Korea or other donors. We also propose some initiatives that capitalize on partnership with Costa Rica, the United States and Central American Bank for Economic Integration (CABEI) and social ventures, when carrying out cooperation projects in the four Central American countries.
       The 16th General Assembly of the United Nations Convention on Climate Change (COP16) held in 2010 saw the establishment of the Cancun Adaptation Framework. This signified that adaptation activities aimed at reducing climate change vulnerabilities and increasing resilience to climate change had emerged as a new pillar of climate change response goals. In the Paris Agreement, which has acted as a basis of the new climate framework involving all countries since 2020, climate change adaptation is set as one of the principal goals of the agreement along with curbing temperature rises. The agreement emphasizes the importance of international support for efforts aimed at adapting to climate change and reducing the risk of loss and damage in the developing countries that are vulnerable to climate change. Meanwhile, at the 26th General Assembly of Parties (COP26) to the UN Climate Change Convention held in 2021, developing countries urged cooperation from developed countries to help them to secure financial resources for adaptation, strengthen their adaptive capabilities, and facilitate technology transfers related to climate change.
       In this context, the four Central American countries have been participating in various climate change negotiations through the channels of the SICA and Asociación Independiente de Latinoamérica y el Caribe (AILAC), demanding enhanced international support for climate change adaptation. Our analysis results emphasize the urgency of cooperation in climate change adaptation in Central American countries and show that Korea has sufficient development cooperation capabilities in their priority areas for cooperation. Accordingly, we propose that Korea expands financial resources oriented towards climate change adaptation in Central American countries and carries out adaptation-related projects in a more active manner through various cooperation mechanisms. Such efforts are expected to contribute to addressing Central American countries’ development challenges and thereby elevate the level of Korea-Central America cooperation. At the same time, they can help to fortify Korea’s leadership in climate change on the international stage.
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  • 디지털 전환 시대의 디지털 통상정책 연구
    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 2021.12.30

    Trade policy, electronic commerce

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       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’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.

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  • 미국과 EU의 농업보조 변화와 정책 시사점
    Trade–Distorting Subsidies of the U.S. and the EU: What Can We Learn?

       The Uruguay Round’s Agreement on Agriculture (AoA) categorized “domestic support” according to its presumed effect on trade. Subsidies that were deemed to be “trade distorting” were subject to limits specified in..

    Jin Kyo Suh Date 2021.12.30

    Multilateral negotiations, Trade policy United States of America Europe

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       The Uruguay Round’s Agreement on Agriculture (AoA) categorized “domestic support” according to its presumed effect on trade. Subsidies that were deemed to be “trade distorting” were subject to limits specified in member schedules. Domestic agricultural policies have been radically reformed in a number of countries, including the U.S. and the EU (European Union). This reform has been in the direction of reducing reliance on price supports in favor of direct payments. 
       Both the U.S. and the EU have found ways to adjust policy instruments to appear to show trade-distorting support reduction even when incentives to producers are maintained. In fact, both countries had significantly reduced their trade-distorting supports (TDS) from the initial stage of agricultural subsidies reduction. For example, the TDS of EU decreased to 10.4 billion Euro in 2012 from 73.4 billion Euro in 1995, which is almost 86 percent reduction. Similarly, the TDS of the U.S. shows the continuous declining trend during the period of 1999~2008, $ 24.3 billion in 1999 to $8.5 billion in 2007.
       However, there was a sharp reversal in this decreasing trends of the trade-distorting agricultural subsidies during the period of 2010~2019. Both economies started to increase, at least maintain their TDS level from around 2008~2010. As a result, EU’s TDS increased in recent years from 11.0 billion Euro in 2010 to 11.8 billion Euro in 2018. Particularly, the TDS of the U.S. significantly was increased by 2.2 times, from $ 15.6 billion 2008 to $ 34.6 billion in 2019. What happened in both economies during the last decade?
       A close look to 25 years-historical data of agricultural subsidies in both countries shows very interesting aspects in terms of the reduction behavior of agricultural subsidies for the United States and the EU. Both countries would not reduce their TDS on certain agricultural products, which are regarded as ‘very sensitive’ goods in the viewpoint of their domestic politics: wheat, cotton, bananas, and grapes for wine in the EU and soybean, corns, cotton in the United States. 
       It is also interesting that those sensitive products generally have a wide and huge harvested area in both economies. Wheat accounts for 45 percent of total grain production in the EU. Similarly, corn also account for 40 percent of total harvested area of grains in the United States. Thus, we can think about the possibility of connections between those sensitive products and rural society or rural communities that wheat or corn is mainly produced. In other words, the TDS for such sensitive products could be related to the non-trade concerns or non-economic role of agricultural production, which the AoA has already admitted the importance of it. For example, agricultural production can be a necessary condition in the rural development policy. Even if farm household income is guaranteed, if a certain amount of agricultural production is not achieved, living conditions in rural society will deteriorate unless the area is fully urbanized. It can be, therefore, said that it is necessary to maintain a certain agricultural production in the relevant area due to the introduction of sustainable rural and environmental policies along with agricultural subsidy policy.
       If this is true, then this finding has very meaningful implications on the reform of world agriculture as well as WTO agricultural negotiations, including future directions for agricultural subsidy policies of Korea. First, until now, prevailing view has been that the TDS such as price supports or deficiency payments should be reduced because they distort agricultural trade. However, from the subsidy policy experience of both the U.S. and the EU during the last two decades, we can infer that the certain TDS for sensitive products such as wheat in the EU or corn in the U.S., may be deeply related to the maintenance and development of rural communities from. This conjecture raises the question of whether certain flexibility should be allowed in some cases, rather than viewed as a bad subsidy that must be reduced unconditionally. That is, it is necessary to take a flexible view that some degree of flexibility can be granted in some subsides, even though they are related to agricultural production. At the same time, we need to have a question that the various non-economic roles of agricultural production have not been adequately addressed. In this respects, it is necessary to change the existing perspective on the TDS related to agricultural production, especially the TDS related to maintenance and sustainable development of rural area.
       Second, if there is a change in the existing uniform view of production-related subsidies, this may affect the current WTO agricultural subsidy discussion. It can be a step-stone to discuss how such TDS can be subject to the green box that is exempt to reduction commitments.   
       Third, we can utilize our finding as a good leverage in the bilateral negotiations with the EU or the U.S. For example, we easily expect that the U.S. is primarily interested in exports of soybeans and corn, and also will have a deep interest on protecting cotton and sugar. Therefore, we can think of a strategy to protect our sensitive products by appropriately satisfying the U.S.‘ request for the item of interest or by requesting ambitious market opening for cotton or sugar.
       Finally, Korea's agricultural subsidy policy is expected to change from the TDS to a permissible green box subsidy policy. It is true that such a policy centered on green box subsidies is desirable in that it is market-friendly and has high transparency. However, as we saw at the subsidy reduction of the US and EU, it is necessary to properly utilize subsidy policies directly linked to agricultural production or prices, if necessary in the transition to green box subsidies from the TDS. The view that production-related subsidies are a problem is from the point of view of economic efficiency, and some TDS may be positive enough from the perspective of a non-trade concerns of agriculture. 
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  • 포스트코로나 시대의 중남미 디지털 전환과 한국에 대한 시사점
    Digital Transformation in Latin America in Post COVID-19 Era and its Implications for Korea

       The digital revolution is heralding the advent of an Intelligent Information Society. The emergence and adoption of new digital technologies such as Artificial Intelligence, the Internet of Things, Big Data, Cloud Com..

    Yeongseok Kim et al. Date 2021.12.30

    Economic development, Industrial structure Latin America

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       The digital revolution is heralding the advent of an Intelligent Information Society. The emergence and adoption of new digital technologies such as Artificial Intelligence, the Internet of Things, Big Data, Cloud Computing, and 5G is triggering significant changes in both the economy and society. The newly coined term to describe these changes is digital transformation. Meanwhile, during the prolonged COVID-19 pandemic, we have witnessed a considerable part of economic and social activities conducted in a non-face-to-face manner using the internet. As a result, people’s acceptance of digital technology has also increased significantly. In other words, the most noticeable change caused by the COVID-19 pandemic is the acceleration of digital transformation. In the post-COVID-19 era, digital transformation in Latin America is also expected to accelerate. Therefore, this study attempted to analyze the current status, trends, and policies for digital transformation in Latin America and derive policy implications for strengthening cooperation in the digital transformation between Korea and Latin America.
       Chapter 2 outlines the digital transformation of the post-COVID-19 era. First of all, we review various definitions of digital transformation. We also briefly examine the seven vectors and policy frameworks of digital transformation proposed by the OECD. Then, we defined the concept of digital transformation in this study as "the economic and societal effects of digitization and digitalization." Subsequently, we looked at the changes in business and society after the COVID-19 pandemic and the impact of the COVID-19 outbreak on digital transformation. The most noticeable change caused by the COVID-19 pandemic is the acceleration of digital transformation. 
       Chapter 3 analyzes the current status and digital transformation policies in Latin America. First, we examined the digital infrastructure in Latin America. It is insufficient, but there is a trend of improvement. The cross-border and national networks in Latin America are relatively in good condition, but the middle-mile and last-mile networks are insufficient to deliver higher capacity. The digital accessibility in Latin America is showing good progress, but the digital divide in the region remains just as stark. The Internet usage rate in Latin America is 66.7%, which is less than the level of advanced countries (86.7%) but is far above the world average (51.4%) or the average of developing countries (44.4%). Meanwhile, the wired and wireless broadband penetration rate in Latin America is 12 and 72 per 100 people, respectively, slightly below the world average (15.2 and 75). The wired and mobile internet speed is lower than the world average, and internet fees are expensive compared to their income levels.
       Second, digital transformation in Latin America has been accelerating since the COVID-19 outbreak. The digitalization of economies is faster in the consumption and distribution sectors than in the production sector. By industry, the digitalization of the financial and ICT sectors in Latin America is comparable to that of advanced countries, but the digitalization of agriculture and manufacturing industries is lagging. The digitalization of the consumption and distribution sectors has been progressing rapidly since the COVID-19 crisis, and e-commerce is one of the fastest-growing sectors. The startup activity in Latin America is booming. The number of technology-based startups in Latin America (also called Tecnolatinas) that raised more than $1 million of capital reached 1,005. The number of unicorn companies with a corporate value exceeding $1 billion increased to 28. The digitalization of society is also progressing rapidly. Since the COVID-19 outbreak, 26 Latin American countries have established ways to provide education services through various distance learning modalities. For example, 26 countries implemented internet-based forms of learning. While education processes have continued remotely, using digital or traditional means (such as TV or radio), the effects of the digital gap have been amplified in the case of rural and lower-income students, which have lower internet access. The COVID-19 pandemic has accelerated the use and importance of telehealth and telemedicine. Meanwhile, Latin Americans internet users spend more time on social media than any other region in the world, and this trend has been strengthened even more since the COVID-19 outbreak. The digital transformation of Latin American governments has made notable progress. Most Latin American governments are classified as higher-performers in the UN E-Government Development Index or the OECD Digital Government Index. However, on average, it takes 5.4 hours to complete a public transaction in Latin America. Moreover, Mexico and Chile are the only Latin American countries where more than half of government transactions can be started and completed online. More efforts to offer web and mobile access to public services should be made to make government services more efficient. However, Latin American countries are classified as good performers of open government data and e-participation policies. 
       Third, most Latin American countries have their digital agendas. Digital agendas prioritize or include ICT infrastructures such as 5G networks and 5G auctions already began in Latin America. The total investment required to build 5G networks in Latin America is estimated to be $120.1 billion over the next seven years. Most Latin American countries also have their own digital transformation strategy aligned with national development plans. The digital transformation is expected to bring new opportunities for the region to cope with the development traps. 
       Chapter 4 analyzes the current status and policies of digital transformation in Brazil. First, Brazil’s digital connectivity is evaluated as the best among Latin American countries. The cross-border and national networks are in good condition. Fiber optic coverage in Brazil has increased to 82 percent. Digital accessibility falls short of the level of advanced countries, but it is classified as the highest among Latin American countries. Brazil’s internet usage rate is 74%, far above the world average (51.4%). The penetration rate of wired and mobile broadband is 15.7 and 97.4 per 100 people, respectively, exceeding the world average (15.2 and 75).
       Second, the current status of digital transformation is also evaluated as the most advanced among Latin American countries. The digital transformation of the economy is also making considerable progress. Brazil’s digitalization of the production sector is considered outdistancing among Latin American countries. According to McKinsey’s assessment, Brazilian leader companies’ average digital maturity score is 66 points, similar to the average score of global leader companies (67 points). The digitalization of the consumption and distribution sectors is also rapidly developing. In particular, e-commerce is multiplying due to COVID-19, which has achieved ten years of progress in only ten weeks. The startup boom continues. Brazil is reviewed as a representative mecca of startups among developing countries and Latin America. Between 2012 and 2020, the number of startups in Brazil increased by more than five times, from 2,500 to 13,300. The digital transformation of society is also progressing quickly. The digitalization of the education sector is rapidly advancing. when schools were closed after the COVID-19 crisis, 87% of educational institutions provided remote education services. However, there are digital gap problems, as 89% of middle and upper class (AB) students participated in remote education, while only 71% of low-income (DE) students could participate. The digitalization of the health sector is also accelerating. After the COVID-19 incident, the Brazilian congress eased the telemedicine regulations. As a result, 1.3 million telemedicine services had been provided in 2020, and 2 million cases are estimated to be delivered in 2021. Meanwhile, Brazil has some of the heaviest social media consumption per capita on the planet. In Brazil, people use SNS for private communication, but the usage for business purposes is also increasing rapidly. The level of digital transformation of the government is also evaluated to be world-leading. Brazil is the first country to introduce an electronic voting system (1996), being the top country in the digitalization of the government. Brazil ranked 16th overall in the OECD digital government index of 33 countries (29 member countries and four non-member countries) in 2020, and 7 out of 10 Brazilian citizens are using e-government services.
       Third, Brazil is one of the most active countries to implement digital transformation policies. Brazil is expected to start building 5G in earnest from 2022, as it successfully closed bidding in the 5G spectrum auction in November 2021. Furthermore, the Brazilian government has approved rules for a spectrum auction for 5G networks without restricting Huawei’s involvement as an equipment supplier. However, Chinese equipment is not permitted for constructing a federal government communication network. Meanwhile, Brazil issued its Digital Transformation Strategy (E-Digital) in 2018. The E-Digital strategy comprises two features: constructing a digital transformation environment (enabler) and promoting digital transformation.
       Chapter 5 analyzes Mexico’s digital transformation status and policies. First, Mexico’s digital connectivity is generally in good condition. Unlike other Latin American countries, Mexico’s cross-border network is mainly built by terrestrial cables. Meanwhile, Mexico operates the world’s first and only wholesale mobile network to increase mobile telecommunications coverage. Also, the Mexican government launched the ‘CFE Telecommunications and Internet for All’ project to expand the national backbone network utilizing CFE’s fiber-optic network. As for internet access, Mexico’s internet usage rate far exceeds the global average, but among OECD member countries, it is the lowest, along with Colombia. Mexico’s internet usage rate is 70.1%, and the penetration rate of wired and mobile broadband is 17.3 and 79.9 per 100 people, respectively, slightly exceeding the global average (15.2 and 75).
       Second, Mexico’s digital transformation has also accelerated since the COVID-19 outbreak. The digital transformation of the economy is progressing faster in the consumption and distribution sectors than in the production sector, and in particular, e-commerce is showing the fastest growth. Meanwhile, Mexico strengthened startup support through the INADEM during President Pena Nieto’s presidential term. Even though the INADEM disappeared in 2019, the number of startups has been steadily increasing thanks to active investment by private venture capitals. Meanwhile, the digital transformation of society is also accelerating. However, the Mexican government decided to offer education by television to its more than 30 million public school students after the COVID-19 outbreak. Mexico’s decision to rely on television highlights the country’s low internet penetration and vast social inequality. However, the COVID-19 triggered the sharp growth of telemedicine, and the digitalization of the health sector progressed rapidly. The digital transformation of the government is also showing an improvement. Mexico has demonstrated improvements in digital government services, such as operating a single government portal (gob. mx) and issuing birth certificates online.
       Third, Mexico’s national digital strategy has changed significantly since the inauguration of the AMLO government. The top priority of the digital transformation policy proposed by the AMLO government’s national development plan is to provide internet services to the entire nation by expanding wireless internet networks. The national digital strategy, the implementation scheme of the national development plan, also emphasizes developing the state-led digital infrastructure and solving the digital gap problem. The AMLO government’s national digital strategy contains information on the digital government and digital society but does not present any information on the digital economy.
       Chapter 6 analyzes Colombia’s digital transformation status and policies. First, Colombia’s cross-border and national backbone networks are relatively in good condition, but the middle-mile and last-mile networks are still underdeveloped. The internet usage rate is 67%, the same as the Latin American average (66.7%), but it is the lowest among OECD member countries. Meanwhile, the wired broadband penetration rate is 15.7, similar to the world average (15.2 people), but the mobile broadband penetration rate is 63.6, lower than the world average (75 people), Latin American average (72 people), and developing countries average (651 people).
       Second, Colombia’s digital transformation has progressed rapidly since the COVID-19 outbreak. Regarding the digital transformation of the economy, the digitalization of the production sector is relatively underdeveloped. However, 80% of SMEs have accelerated the adoption of digital technologies and remote work due to the impact of the COVID-19. Colombia does not have a high level of digitalization in the production sector. However, digitalization in the consumption and distribution sectors is relatively ahead. In particular, e-commerce is showing the fastest growth since the COVID-19 outbreak. Meanwhile, startups in the e-commerce and fintech sectors are showing rapid growth as the Colombian government actively stimulates startup activity. The digital transformation of society is also accelerating. In particular, digital transformation in the health sector accelerated, with telemedicine soaring after the COVID-19 crisis. However, in the education sector, only 13% of all students could participate in a class remotely using the internet due to digital gaps. Meanwhile, the digital transformation of the government has surpassed the advanced countries. The OECD ranks Colombia in third place behind only South Korea and the UK in evaluating the digital government index among 33 countries (29 member countries and four non-member countries) in 2020. Colombia is also making significant progress in providing digital government services, opening public data, and establishing an online citizen participation portal.
       Third, the Colombian government is consistent in carrying out digital transformation policies. The government is aware of the importance of 5G networks. However, 5G is not currently available in Colombia. The commercial service of the 5G network will be possible in 2024 as telecommunication companies are focusing on expanding the coverage of 4G networks. Meanwhile, the National Development Plan 2018-2022 of Colombia prioritizes digital transformation as a prerequisite for the economic and social development of the country. In addition, the government is operating various digital transformation-related consultation and training programs for individuals and businesses. 
       In the last Chapter 7, we propose policy implications for the cooperation between South Korea and Latin America. To be specific, we suggest strategies to strengthen cooperation in the following two policy measures: a differentiated approach to individual countries in Latin America and the establishment of a cooperation framework. Then we propose the cooperation tasks and policy implications for three countries: Brazil, Mexico, and Colombia.
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  • 아랍-이스라엘 데탕트 시대 역내 안보환경 변화와 한-중동 경제협력 확대 방안
    Regional Security in the Era of Arab-Israeli Détente and Economic Cooperation between Korea and the Middle East

       The purpose of this study is to predict changes in the regional order and economic cooperation in the Middle East after the normalization of relations between Arab countries and Israel in 2020 and to explore potential..

    Dahn Park et al. Date 2021.12.30

    Economic cooperation, International politics Africa Middle East

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       The purpose of this study is to predict changes in the regional order and economic cooperation in the Middle East after the normalization of relations between Arab countries and Israel in 2020 and to explore potential areas in economic cooperation between Korea, Israel, and the Arab World. In order words, it aims to infer changes in the political and security order in the Middle East and their implications from various viewpoints and to seek our response strategies.
       Chapter 2 explores the idea that the Iranian threat and the United States withdrawal from the Middle East have led to the recent Arab-Israeli détente and their subsequent cooperation. After the Islamic Revolution in Iran in 1979, the conflict in the Middle East intensified along the fault line between the Arab Sunni monarchies and the Islamic Revolutionary forces of Iran. This confrontation is currently in progress. The Chapter also points out that since the Obama administration, the United States has pivoted to Asia, leaving the Middle East and leading from behind in the region, which has resulted in the current Arab-Israel détente.
       Chapter 3 examines the transformations in the political and security order in the region after the Arab-Israeli détente and analyzes the confrontational process between the new détente alliance of Sunni Arab countries led by the UAE, Saudi Arabia, and Bahrain and Israel on the one hand, and the Shiite coalition of Iran, Houthi, and Hezbollah on the other. We examine the changes in the foreign policies of Qatar and Turkey, which are pro-Islamic, after the signing of the Abraham Accords. Qatar maintains friendly relations with Iran and Turkey and has recently been working to improve relations with the neighboring Gulf countries. The UAE, Bahrain and Qatar have expressed their support for Saudi Crown Prince Mohammed bin Salman after the United States released reports on the murder of Saudi journalist Jamal Khashoggi and the Crown Prince’s approval of the killing. Meanwhile, Turkey has recently begun to express a conciliatory attitude toward the United States and Europe. Turkey, with the second-largest military forces among NATO countries, occupies a key geopolitical position in safeguarding European security, even though it is far from a democratic country. Given that the strategic competition between the United States and China continues to grow, and that the Biden administration balances values and interests in reestablishing relations with Turkey, Turkey-US relations could not only be regenerated, but also have profound effects in the region.
       Chapter 4 discusses increasing economic cooperation between Arab countries and Israel after the Arab-Israeli détente, specifically cooperation between the UAE and Israel and between Bahrain and Israel. By March 2021, UAE and Israel had signed more than 86 bilateral agreements. Since the signing of the Abraham Accords in September 2020, trade between the two countries has increased rapidly in about a year. According to the Central Bureau of Statistics of Israel (CBS), bilateral trade between the UAE and Israel recorded approximately $500 million from September 2020 to July 2021. Israel's exports to the UAE in the first half of 2021 amounted to $120 million, expanded by 14.4 times compared to the previous year period. In both 2019 and 2020, no Israeli import from the UAE was reported, but in the first half of 2021 alone, it recorded about $240 million. The total trade in the first half of 2021 was about $360 million, which is a 42.9 times increase from the same period of the previous year.
       Bahrain and Israel signed eight bilateral agreements in October 2020, five of which were related to economic cooperation. The cooperation agenda covered fields of economy and trade, aviation, information and communication, agriculture, and finance. In December 2020, three additional memorandums of cooperation were signed on innovation and technology and small and medium-sized enterprises (SMEs) development. While there was no trade between Israel and Bahrain before the signing of the Abraham Accords, the trade volume between the two countries during the first half of 2021 has reached $300,000. 
       Finally, Chapter 5 presents policy suggestions for expanding economic cooperation between Korea and major Middle Eastern countries, such as the UAE, based on the analysis of previous chapters. In so doing, it proposes several ways to discover new opportunities and chances in Korea-Middle East economic cooperation after Arab-Israeli relational changes, namely close monitoring on regional economic and political changes, utilizing the Korea-Israel FTA to find potential markets in the middle east, and triangular economic cooperation between Korea, Israel, and UAE. It will take a long time to stabilize the Arab-Israeli relationship because many complicated geopolitical factors need to be settled down and resolved. As significant ups and downs are expected in the future, even with new changes, including expanded UAE-Israel economic cooperation, Korea should prepare for any volatile situations and be ready for a strategic response to them. However, it is too complicated for individual companies to anticipate and prepare for such cases. Therefore, at the government level, it is necessary to inform and coordinate the strategic directions and forecast political and economic environments in the Middle East. At least for now, Korean companies entering the Middle East and targeting the Arab markets should take a proactive strategy of seeking to create new business opportunities rather than a passive, wait-and-see strategy, considering the competition with Israel in the same market.
       If Israel's political disadvantage in the Middle East market is resolved as economic cooperation between Arab countries and Israel deepens, Korean firms can consider a new route of exporting to the Middle East market, promoting Israel as a reliable base. As the cooperation areas of the Korea-Israel FTA encompass investment, high technology, and venture start-up in addition to trade, the Korea-Israel FTA secures access to not only the Israeli domestic market but also to the wider Middle East market through joint ventures with and local investment in Israel as an effective and productive means. In the future, if Israel forms a free trade agreement with Arab countries, such as the UAE in particular, it seems feasible for Korea to explore ways to link such an agreement with the Korea-Israel FTA.
       Given the fierce political and diplomatic confrontations that the UAE and Israel have experienced in the past, it requires a substantial effort to plan viable Korea-UAE-Israel trilateral cooperation projects from the beginning under mutual consultation among all three parties. Rather, it would be more effective and productive for Korea to start with the already consolidated, trust-based bilateral relations of either Korea-UAE or Korea-Israel in order to find a field in which the three parties can generate synergy and share mutual interests. It is again more feasible because Korea as a third party can keep a distance from Arab-Israeli confrontational issues and solely stress economic incentives. In this regard, Korea should incentivize the UAE and Israel to focus on private sectors with sufficient capacity-driven economic cooperation since the principle of separation of politics and economy will ultimately lead to the success of cooperation as long as the government and public sectors only have initiatives for cooperation.  
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  • 미·중 전략경쟁하 WTO 다자체제의 전망과 정책 시사점
    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 2021.12.29

    Multilateral negotiations, Trade policy

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       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 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.
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  • 벨라루스 디지털 경제 발전과 한·벨라루스 협력 방안
    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 2021.12.30

    Economic development, Economic cooperation Russia Eurasia

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       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 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.

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  • 한-인도 CEPA 10년,  우리 중소기업의 성과와 정책 과제
    Study on Economic Impact of Korea-India CEPA and Implication for SMEs

        Since the sign of Korea-India CEPA, Korean SMEs’ trade with India indicated an upward trend in the beginning. However, after the early stage the trend is stagnant, showing many structural limitations. In case of exp..

    Young Chul Song et al. Date 2021.12.30

    Economic cooperation, Trade policy India and South Asia

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        Since the sign of Korea-India CEPA, Korean SMEs’ trade with India indicated an upward trend in the beginning. However, after the early stage the trend is stagnant, showing many structural limitations. In case of export, 80 percent of SMEs which expanded to India have more than 10 years of career, while naturally global companies’ expansion in India market remains in doldrums. In the same manner, SMEs’ importance in import market is constantly decreasing. This result is poor compared to the importance of SMEs’ trade with FTA-signed countries such as the U.S., China, Vietnam and so on. Based on the number of companies, CEPA export utilization rate of Korea to India is only 49 percent, less than half of the whole trade between India. Difference in the number of companies and trade amount of CEPA export utilization rate indicates CEPA utilized export is biased to certain SMEs. According to actual and extensive research, Korean SME’s CEPA utilization and performance is lower than expectation. CEPA utilization effect showed meaningful difference considering the presence of tariff lowering level, quickness of tariff abolishment, export volume and R&D investment. Nevertheless, the influence showed a significant difference in the short term, implying the shortage of consistency and limitation in its scale. Weak performance of SMEs’ CEPA utilization is the result reflecting low level of concession and utilization rate of CEPA agreements and characteristic of utilizing company. Therefore, Korean government need to establish clear political guidance and strategy in order to achieve additional improvement negotiations of CEPA. In addition, to lead Korean SMEs’ CEPA utilization to better result, establishment of various linkage support plans is needed. On the other hand, SMEs need to raise awareness on the utilization of CEPA and strengthen their own competitiveness, thereby expand trade scale and diversify items and vendors. SMEs also need to actively devise a solution to associate CEPA with various SME globalization policy supported by the government.

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  • 디지털 전환에 따른 노동시장의 변화와 정책 시사점
    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 2021.12.30

    Labor market, electronic commerce

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       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 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.

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  • 한-중앙아 수교 30주년: 경제협력 평가와 4대 협력 과제
    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 2021.12.27

    Economic development, Financial cooperation Russia Eurasia

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       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 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 10
    years 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. 
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