Policy Reference
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Policy Reference
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Analysis of WTO Discipline on Services Domestic Regulations and Its Policy Implications
On December 2, 2021, seventy WTO members announced the successful conclusion of the negotiations within the Joint Initiative on Services Domestic Regulation. The participants acknowledged the conclusion of negotiations on the Refe..
June Dong Kim et al. Date 2023.11.24
Regulatory reform, Trade policyDownloadContentSummary<On December 2, 2021, seventy WTO members announced the successful conclusion of the negotiations within the Joint Initiative on Services Domestic Regulation. The participants acknowledged the conclusion of negotiations on the Reference Paper on Services Domestic Regulation. As of September 2023, the participants are currently in the process of WTO certification by integrating the disciplines outlined in the Reference Paper as additional commitments in their GATS schedules. After this process is completed, these plurilateral agreements will come into effect.This study aimed to analyze the contents of each article of WTO Services Domestic Regulation, and to present standards for compatibility of domestic regulations with this discipline. Additionally, this study identified domestic best practices related to each article to present how to implement this discipline domestically. In other words, the study presented the general guidelines and detailed checking guides that each official in charge of those domestic regulations should be aware of.First, in analyzing each article of WTO Disciplines on Services Domestic Regulations, we reviewed their meanings and then identified major matters to be checked and addressed. Subsequently, we analyzed our cases for implementation of the relevant legislations.Next, we outlined the likely economic impacts based on prior research that estimated tariff equivalents of domestic regulations on services. By implementing the WTO Disciplines on Services Domestic Regulations, we can anticipate (i) an increase in consumer welfare (ii) a boost in foreign direct investment due to the improvement of domestic business environment from enhancement of transparency and predictability of domestic regulations (iii) enhanced competitiveness of domestic firms (iv) improved economy-wide productivity by employing efficient services as inputs, and (v) facilitated outbound activities of domestic firms through improved overseas business environment as a result of the implementation of these Disciplines by other WTO members.This study has policy implications as it offers comprehensive guidelines and checklists that every government ministry responsible for domestic regulations. This will prepare them for the implementation of the WTO Disciplines on Services Domestic Regulations after its certification process is complete. -
Environmental Non-tariff Measures and Trade in APEC member economies
This study examines how environmental nontariff measures (NTMs) affect trade in Asia-Pacific Economic Cooperation (APEC) member economies. Using product-level panel data spanning 2009–2020, we find that stringent environmental NTM..
Hea-Jung Hyun Date 2023.11.20
APEC, 국제무역DownloadContentExecutive SummaryI. IntroductionII. Environmental NTMs and Trade Patterns in APEC RegionIII. Theoretical Background and Empirical ModelⅣ. Data and Measurement of Environmental NTMsV. Empirical ResultⅥ. Conclusion and Policy ImplicationReferencesAppendixSummary<This study examines how environmental nontariff measures (NTMs) affect trade in Asia-Pacific Economic Cooperation (APEC) member economies. Using product-level panel data spanning 2009–2020, we find that stringent environmental NTMs reduce trade in APEC member economies, whereas no significant effect exists when exporting is destined to non-APEC economies. The trade-impeding effect of NTMs is prominent in exports of dirty goods from economies with high-intensity greenhouse gas emissions through additional adaptation costs to meet environmental standards set by high-income importing countries with the high-intensity imposition of the measure. Results imply that APEC economies need to enhance effective environmental regulations by taking the heterogeneous effects of NTMs on trade across industries and types of measures into account. -
Voters’ Attitudes toward Protectionism in Southeast Asia and Oceania: Evidence from the Philippines, Thailand, Australia, and New Zealand
This research analyzes the determinants of voters’ attitudes towards protectionism in four Southeast Asian and Oceania countries (the Philippines, Thailand, Australia, and New Zealand) and discusses whether voters’ attitudes tow..
Nam Seok Kim Date 2023.11.10
국제무역, Political Economy Southeast Asia OceanDownloadContentSummary<This research analyzes the determinants of voters’ attitudes towards protectionism in four Southeast Asian and Oceania countries (the Philippines, Thailand, Australia, and New Zealand) and discusses whether voters’ attitudes toward protectionism are related to their voting behavior. This study utilizes the endogenous trade policy formation theory in international economics to understand how voters’ attitudes toward protectionism are formed. Furthermore, by examining whether voters’ political party support can be explained by their attitudes toward protectionism, this study confirms that changes in each country’s trade policy orientation can be understood in the context of their domestic political-economic background.The main findings of this study are as follows: Voters in relatively labor-abundant countries such as the Philippines and Thailand prefer protectionist trade policies as their human capital attainment increases. In contrast, voters in relatively capital-abundant countries such as Australia and New Zealand prefer free trade policies as their human capital attainment increases. These findings align with the theoretical predictions of the Heckscher-Ohlin model-based factor endowment approach. However, since the factor endowment approach is based on the long-run assumption of free labor mobility across industries, it may deviate significantly from reality. To address this limitation, the analysis introduces a specific-factor approach that considers rigidities in the labor movement between industries to test whether there are differences in attitudes towards protectionism between voters in comparative advantage industries and voters in comparative disadvantage industries. The results of the analysis show that the theoretical predictions of the specific-factor approach did not have empirical validity for the voters in the four countries.Determining whether individual attitudes toward protectionist trade policies are associated with voting behavior requires a separate analysis. Analyzing the survey data on the party choices of each voter in general elections, the results show that their attitudes toward protectionism do not explain voters’ voting behavior in the Philippines and Thailand. In contrast, voters’ voting behavior in Australia and New Zealand is significantly explained by their attitudes toward protectionism. Australian voters who prefer higher trade barriers are more likely to support the right-wing populist party, the One Nation Party, while New Zealand voters who prefer higher trade barriers are more likely to support the Labour Party.From the above analysis, it can be concluded that trade policy orientations in Australia and New Zealand tend to reflect domestic political-economic backgrounds to a significant extent, while this is not the case in the Philippines and Thailand. As the estimation results of this study suggest, voting patterns in the Philippines and Thailand are strongly influenced by regionalist tendencies. This study concludes by emphasizing the need to refine trade negotiation strategies by taking into account the domestic political-economic situations of these four major trading partners of South Korea. -
Natural Gas Development in the Eastern Mediterranean Region and Its Implications for Korea
This study explores the current status of natural gas development in the Eastern Mediterranean region and derives its implications for Korea. Our approach encompassed a thorough review of pertinent literature and statistical data,..
Kwang Ho Ryou et al. Date 2023.10.20
Economic cooperation, Energy industryDownloadContent
Summary<This study explores the current status of natural gas development in the Eastern Mediterranean region and derives its implications for Korea. Our approach encompassed a thorough review of pertinent literature and statistical data, and insightful interviews with local government officials and industry experts, conducted through field surveys and seminars.The key findings of this study are summarized as follows: First, natural gas development in the Eastern Mediterranean region has significantly increased its prominence within the global natural gas market. Egypt, holding largest natural gas reserve in the region, now surpasses major natural gas importers of Korea, including Malaysia, Oman, and Indonesia. The total natural gas reserves in the Eastern Mediterranean region are estimated at 119.1Tcf, 41.1% more than that of Australia, Korea’s largest natural gas importer. It is estimated that there are 286.2Tcf of undiscovered natural gas resources buried along the Eastern Mediterranean coast. This means that only 29.4% of the region’s total natural gas reserves have been found to date.Second, countries in the Eastern Mediterranean have made significant efforts to develop their domestic natural gas resources and to strengthen both domestic and international cooperation. In particular, Egypt, Israel, and Cyprus, major natural gas holders in the region, have been actively pursuing exploration and development and related infrastructure projects to expand their natural gas production and export capacity. Efforts are being made to promote natural gas-related industries such as petrochemicals and hydrogen. In 2019, a regional consultative body for natural gas development, the East Mediterranean Gas Forum, was launched. Since then, through a number of meetings, countries in the region have gathered to discuss specific plans and implement methods for natural gas development. There is also cooperation between Egypt and Israel in the natural gas supply chain, using Egypt’s natural gas liquefaction facilities.The weaponization of resources in major energy producers and the expansion of global energy security threats have served as an opportunity to draw more attention to natural gas development in the Eastern Mediterranean. In the aftermath of the Russia-Ukraine war in 2021, the instability of natural gas supply and demand increased significantly, especially around the EU, and natural gas prices also showed a sharp increase in volatility. As the risks of energy supply and demand disruptions have been greatly highlighted, the Eastern Mediterranean has emerged as a new alternative destination for major energy consumers. In particular, major energy companies in Europe such as Eni and BP are showing great interest and continuing their aggressive entry into the Eastern Mediterranean region.We can use the current situation in which the threat to energy security has escalated as an opportunity to promote natural gas cooperation with the Eastern Mediterranean region. First of all, we can contribute to strengthening Korea’s energy security by increasing natural gas imports from the region. Recently, the need to diversify import sources has emerged as concerns about the instability of natural gas supply and demand have increased significantly due to the recent production disruptions in major oil-producing countries caused by geopolitical risks. As infrastructure development in the region is progressing at a rapid pace, it can be said that various entry opportunities are also open for Korean construction companies with global competitiveness in the region. In addition, the Eastern Mediterranean region can be considered a project site for the development of overseas natural gas fields, and participation in local countries’ efforts to develop gas-related industries such as petrochemicals and hydrogen could also provide good opportunities for Korean companies to enter the market. -
Cloud Services FDI and Regulatory Trends
This report examines cloud services FDI and regulatory trends. We obtain 2,442 cloud services FDI projects (firm-level) from FDI Markets for the period 2016-22, and do statistical analysis using information on investment purpose, ..
Kyu Yub Lee and Jun Hyun Eom Date 2023.10.20
Privacy, electronic commerceDownloadContentSummary<This report examines cloud services FDI and regulatory trends. We obtain 2,442 cloud services FDI projects (firm-level) from FDI Markets for the period 2016-22, and do statistical analysis using information on investment purpose, year, destination country, investment size, and industry. First, the total amount of FDI in cloud services from 2016 to 2022 is about $214 billion. The main purpose is to invest in overseas facilities to build ICT and infrastructure, and the telecommunications industry, software and IT services industry account for 98.7% of the total investment. Outward FDI between high-income countries accounts for about 62% ($132.9 billion), which rises to 85.5% ($183.9 billion) if transactions between high-income countries and upper middle-income countries are included. Lower middle-income countries invest more in high-income countries ($1.5 billion) than in lower middle-income countries ($900 million). There is no outward investment among low-income countries. Countries in the Americas, Europe, Asia, and Africa regions (excluding Oceania) are the most active, with the largest share (29.3%) of outward investment between the Americas and Europe. The Americas are the leading region for outbound direct investment in cloud services (61.9% of investment), and when looking at transaction patterns between regions, investment is concentrated in Europe (35.5%), Asia (25.6%), and the Americas (24.4%).Second, the total amount invested in the European region (43 investor countries and 37 recipient countries) is about $76 billion. Countries in the Americas have invested about $52.9 billion in the region, accounting for 69.6% of the total. The leading investor in Europe is the United States ($51.9 billion), and the top investee country in Europe is the Netherlands. The total amount invested in Asia (35 investor countries and 39 recipient countries) is about $54.9 billion. Countries in the Americas account for 58.1% of the total, with about $31.9 billion invested in the region. The leading investor in the Asia region is the United States ($31.6 billion), and the leading recipient country in the region is India. The Americas (37 investor countries and 21 recipient countries) received about $52.3 billion in investment. Countries in the Americas account for 56.9% of the total, with about $29.8 billion invested in the region. The leading investor in the Americas is the United States (almost $25 billion), while the top recipient country in the region is Canada. The Africa region (19 investor countries and 26 recipient countries) accounted for about $17.2 billion. The countries in the Americas accounted for nearly $6.8 billion in investments in the region, or 39.4% of the total. The United States is the only country in the Americas to invest in the region, while South Africa is the top investor in Africa. The Oceania region (12 investor countries and two recipient countries: Australia and New Zealand) totaled about $14 billion. Countries in the Americas have invested about $11.5 billion in the region, accounting for 81.8% of the total, with the United States accounting for about $10.8 billion. Countries in Asia invested about $1.5 billion (10.7%) and Europe invested about $900 million (6.5%) in the Americas. Korea invested a total of $5.8 billion in the United States, China, India, Africa, and a few other countries during 2016-22, accounting for about 0.3% of global cloud services investment. The United States, China, the ten ASEAN member countries, India, Singapore, and Hong Kong are the only countries that have invested in Korea. Korea's FDI in cloud services totaled $2.16 billion (1.0%), of which about $1.27 billion coming from the United States, $5.3 billion from ASEAN 10 and India, $240 million from China, and $120 million from the rest of the world.Third, we further examine the domestic regulations of the cloud industry in key countries. Based mainly on the U.S. Trade Barriers Report (2017-23), we find that there are discernible disparities between countries in terms of data localization, restrictions on cross-border data transfers, security certifications, mandatory sourcing of domestic goods, and content control. Data localization requirements are compulsory in China, Saudi Arabia, South Africa, Panama, Nigeria, France and South Korea. Restrictions on cross-border data transfers are enforced in China, Saudi Arabia, and South Africa. Mandatory sourcing of domestic products is obligatory in China and the Philippines. Security certifications are required in the EU (EUCS), France (SecNumCloud), the United States (FedRAMP), and South Korea (CSAP). Countries with content controls include Vietnam and Saudi Arabia. China and Saudi Arabia are identified as the countries with the highest number of most regulatory issues.We hope the findings of that report will serve as a useful reference as the government reviews FDI policies and regulatory policies for cloud services, which are as important as overseas expansion of domestic cloud service providers, in the process of formulating the Fourth Basic Plan for Cloud Computing (2025-27). -
Foreign Direct Investment and Gender Wage Gap: Vietnamese Evidenc
On July 4, 2023, Foxconn, the Taiwanese electronics manufacturer best known for producing Apple’s products such as iPhone and MacBook, announced plans to invest more than $200 million in northern Vietnam to reduce its dependence ..
Jegook Kim Date 2023.09.08
Labor market, Foreign direct investmentDownloadContentSummary<On July 4, 2023, Foxconn, the Taiwanese electronics manufacturer best known for producing Apple’s products such as iPhone and MacBook, announced plans to invest more than $200 million in northern Vietnam to reduce its dependence on Apple and participate in the electric vehicles market. Including this investment, Foxconn has invested more than 2 billion dollars in Vietnam. Other multinationals such as Intel, LG, Nike, and Samsung are also rushing to invest in Vietnam. As a result Vietnam is sometimes called the FDI darling.These Foreign direct investment (FDI) contributes to Vietnam’s economic growth, not only through the role of capital as a factor of production, but also through the introduction of management skills from advanced economies. The impact of FDI on the host country is not limited to the target enterprises, but includes the transfer of capital or technology to industries and regions. The impact also affects factor markets in the region, in particular labor conditions, including employment, labor productivity, and wages. These effects may vary by industry, occupation, skill, educational level, and gender. This can be a matter of discrimination, especially when other conditions are equal, but the difference is simply due to innate gender differences.Against this backdrop, this paper aims to examine the statistical and institutional status of FDI inflows and the gender wage gap in Vietnam, and to derive implications for governments and firms in Korea and Vietnam.Chapter 2 compares the status of gender equality in Vietnam with key ASEAN countries, Indonesia, Malaysia, the Philippines, and Thailand, focusing on the labor market, and assesses Vietnam’s gender equality institutions. Given Vietnam’s stage of economic development, gender equality in economic activities is good, but there is a need to expand political empowerment, provide paid parental leave, and reduce the gender gap in retirement ages. Vietnam has a large gender wage gap among the larger ASEAN countries but this varies by occupation. The gap is the largest in Technicians and Associate Professionals while Clerical Support Workers, women’s wages are higher than men’s.Similar to other major ASEAN countries, the unemployment rate for women was higher than for men. The higher level of education, the higher the unemployment rate and the wider gender unemployment gap. Vietnam has a high share of employment in the industry, including manufacturing, and a low share of employment in the services compared to the main ASEAN countries. This gap with major ASEAN countries is more pronounced for women than for men.In line with international standards, Vietnam has established gender-related institutions such as the Law on Gender Equality, the Social Insurance Law, and the Labor code. In 2021, the National Gender Equality Strategy 2021-2030 was promulgated. However, despite these legislative and policy efforts, there seems to be a lack of implementation efforts by businesses, especially Vietnamese private businesses.Chapter 3 investigates FDI inflows, gender wage gap, and labor market status in Vietnam by region or by classifications such as type of company ownership, age group, and occupational group. FDI inflows have been concentrated in the areas around the capital city of Hanoi in the north and Ho Chi Minh City in the south The variation in FDI inflows by region has been decreasing. The regional gender wage gap improved until the mid-2010s and has recently worsened, although the regional gap has narrowed. Women’s participation in vocational training falls sharply in their 30s. In most age groups, men spend about half as much time as women on domestic work. These two facts are often cited as widening the gender wage gap.In the empirical analysis of FDI and the gender wage gap, Vietnam’s six socio-economic regions and four minimum wage regions were used to account for homogeneity and heterogeneity within the metropolitan area. Taking the fixed-effects panel analysis as the basic model, the regional dummy, the FDI inflows, and the interaction term of both were used as independent variables. Although there were differences among the models, negative relationships between FDI inflows and gender wage gap were generally estimated. In particular, the estimation that includes both regional and industry characteristics suggests that FDI inflows reduce the gender wage gap in sectors with a high share of female employment. In the most developed and industrialized regions of Vietnam, the highest minimum wage region in the Red River Delta and the Southeast, an increase in the share of FDI inflows in both traditional and knowledge services is estimated to reduce the gender wage gap. Among the control variables, the share of trained labor is negatively correlated in most models, suggesting the importance of education and training in reducing the gender wage gap.Chapter 4 suggests implications for governments and enterprises in Korea and Vietnam, including planning FDI incentives to improve the quantity and quality of female employment, the importance of vocational education and training, efforts to implement gender equality systems, and strengthening women’s right to self-determination in career choice. However, due to the limitations of the data in this study, caution must be exercised in interpretation. One should be borne in mind that assessing gender equality issues in Vietnam, including the gender wage gap, requires an understanding of the historical, social and cultural context. -
Europe’s Energy Crisis, National Policies and Industrial Production: Insights for South Korea
This study analyzes Europe’s policy responses after the energy crisis after the Russian-Ukrainian war and examines the impact of policy measures on industrial production. Although the mild winter of 2022 resulted in lower-than-ex..
Yoonjung Kim and You Jin Lim Date 2023.08.28
Industrial policy, Energy industryDownloadContentSummary<This study analyzes Europe’s policy responses after the energy crisis after the Russian-Ukrainian war and examines the impact of policy measures on industrial production. Although the mild winter of 2022 resulted in lower-than-expected energy demand, and energy prices have stabilized since the end of 2022, there is uncertainty about the severity of the winter in 2023 and the war is showing signs of prolongation. While Europe is using the energy crisis as an opportunity for the green transition, Europe is also accepting that it will continue to use fossil fuels, including liquefied natural gas (LNG), for at least the next decade and possibly even longer.The fact that Europe can no longer rely on fossil fuel supplies from Russia has significant implications for Korea, which is a net energy importer, as it may be affected by the increasing demand from Europe in the international energy market. Analyzing Europe’s policy measures on energy crisis provides important policy recommendations for potential energy price surge in South Korea due to the additional international energy demand.Chapter 2 explores the background of the energy crisis in Europe after the Russian-Ukrainian war, and explores the link between rising energy prices and inflation.We analyze the various policies implemented by the national governments of three European countries to mitigate the impact of the energy crisis, namely Germany, France, and the United Kingdom. The study demonstrates a significant increase in energy prices, providing justification for the implementation of national policy measures. We show heterogeneity across countries, including dependence on Russian energy, available fuel types, and the different institutional contexts, and further investigated the policy packages in each country. In France, the impact of rising energy costs has been relatively small, and the main policies were tax reductions on energy Imposing price caps. In Germany, tax cuts and universal household assistance were the main policy measures, with additional subsidies for energy-intensive industries. The U.K. government utilized targeted support unlike other countries, leveraging its administrative capacity. This targeted support encompasses providing cash assistance for vulnerable households and granting automatic discounts on household energy bills.In Chapter 3, we use information on the timing of the introduction of energy crisis policies in major European countries to analyze whether these policies were meaningfully related to industrial production. Using fixed effect models and policy timing to reduce electricity prices in Germany and France, we examine the correlation between the industrial production index and energy crisis policies through their impact on energy prices. Our findings indicate that the policy intervention was positively correlated with industry production. By employing two-stage least squares regression, we find that the policy implementation was negatively correlated by approximately 40-euro reduction of wholesale electricity price, and 100 euro increase in wholesale electricity price was correlated with reduction in industry production index by approximately four percent relative to the average industry production within the sample period. Additionally, we also conduct heterogeneity analyses to investigate the potentially different correlation between the energy crisis responses and energy-intensive industries, but our analysis does not yield conclusive evidence of significant heterogeneity across different industries.From our analysis, we recommend that the energy crisis policy should prioritize assisting the most vulnerable consumers. Imposing a cap on price growth or reducing energy prices or taxes can result in price distortion and regressive taxation. In the event of an energy crisis, we suggest implementing targeted policies that benefit low-income households to optimize the government's budget efficiency and protect vulnerable households. In order for this policy option to be administratively feasible, the government must possess the capacity to identify eligible households and have streamlined procedures to efficiently deliver assistance without imposing excessive institutional barriers for applicants. In South Korea, Energy Voucher Program is limited to certain types of low-income families such as single mothers, the elderly, and other public assistance recipients, and the categorical eligibility should be expanded to include other low-income households that do not fall within these categories. If there is any consideration for implementing price reductions on energy, we suggest implementing price brakes to incentivize the reduction of energy demand and encourage more efficient energy utilization.This study provides valuable insights to the existing body of research by examining the relationship between energy crisis response policies and industrial production in the context of recent events such as the Russian-Ukrainian war and the energy crisis. To optimize the utilization of government resources, it is recommended to investigate this issue by analyzing firm-level data and actual energy prices paid by companies. Such approach can provide more informed policy recommendations for industries facing significant challenges due to high energy costs. -
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Global Efforts to Achieve Carbon Neutrality in the Industrial Sector and Implications: Focusing on SMEs
The international community has stepped up efforts to achieve carbon neutrality or net zero emissions and has begun to expand the scope of greenhouse gas management to all companies in the supply chain. In particular, the decarbon..
Eunmi Kim and Sunghee Lee Date 2023.05.28
Industrial policy, Environmental policyDownloadContentSummary<The international community has stepped up efforts to achieve carbon neutrality or net zero emissions and has begun to expand the scope of greenhouse gas management to all companies in the supply chain. In particular, the decarbonization of industries that emit large amounts of greenhouse gases is an important task for countries not only to effectively respond to climate change, but also to improve their energy security and international competitiveness. Although decarbonization can be achieved by all companies regardless of their sizes, small and medium-sized enterprises (SMEs) are struggling with a lack of resources and capabilities. Therefore, the purpose of this study is to analyze the characteristics of national and multilateral carbon-neutral strategies, identify policy demands of SMEs based on survey results, and derive implications for the decarbonization of the industrial sector and, in particular, SMEs in Korea.Chapter 2 mainly analyzes policies to reduce greenhouse gases in the industrial sector and cases of multilateral cooperation between both major governments and global companies. Sweden, Germany, the United States, the UK and Japan are increasing their financial support for decarbonization efforts in their industrial sectors, also rearranging relevant policies and institutions. Sweden is working closely with the EU and its local governments to support carbon reduction projects, and also subsidizes investments with greenhouse gas reduction benefits but not expected to generate a return on investment without subsidies. Germany is inducing technological innovation and international cooperation among SMEs. The United States is expanding its investment in clean energy and providing research and development funding to SMEs and startups through federal agency-level programs such as SBIR/STTR programs. The UK is promoting decarbonization particularly in high-emitting industrial clusters, and is stimulating private investment through public funding for technology innovation. Japan is expanding its financial support in this area, for instance through tax benefits for companies pursuing green transformation (GX), and helping SMEs and startups enter or expand their business in developing countries through funds including Official Development Assistance (ODA).While introducing internal regulations to reduce greenhouse gas emissions, global leading companies demand that their partners participate in these efforts. The steel, chemical, consumer goods, electronics manufacturing and automobile manufacturing industries focus on supply chain management to achieve their carbon neutrality goals. Suppliers of these industries are required to establish and achieve reduction targets, and are encouraged to comply with the low-carbon purchasing guidelines or environmental codes of conduct. The companies provide education programs, consultation services and financial support for subcontractors to achieve carbon neutrality. Multilateral initiatives in which companies voluntarily participate include the RE100, 24/7 CFE, the Alliance of CEO Climate Leaders, and the SME Climate Hub.Chapter 3 reviews the policies and systems in place to support decarbonization for SMEs in Korea and analyzes the results of the survey conducted for this study. The emission data shows that SMEs in Korea produce less emissions than large corporations, but their emissions are high compared to energy consumption and the major emitting industries are diverse. SMEs remain at a relatively low level of competitiveness in climate technology, and the environmental performance of domestic SMEs measured by ESG scores also ranked at the bottom among major countries (7 countries). Domestic systems that support the decarbonization of SMEs can largely be divided into programs to introduce existing reduction facilities and fuel conversion and promotion measures for research and development of future reduction technologies. The introduction of reduction technologies and facilities is mainly carried out in a package format including site diagnosis, consulting, planning, purchase and construction, which is the biggest difference from the cases of major countries reviewed in Chapter 2. In addition, the emissions reduction technology development through cooperation between SMEs and research institutes, support for start-ups and growth, and financial support for corporate decarbonization efforts are also being carried out.According to the results of our survey conducted on Korean SMEs, only 5.2% of 250 respondents were tracking their greenhouse gas emissions. The most common way to reduce greenhouse gases was “energy saving,” with few SMEs responding they had the ICT-based infrastructure needed for energy management. Based on the first and second cumulative responses, “lack of response funds” (21.3%) and “difficulty in determining reduction efforts best for the company” (17.5%) were representative difficulties in pursuing reduction efforts. In particular, the support policies most desired by the respondents were “expanding the use of renewable energy,” “improving energy efficiency” and “expanding new energy (green hydrogen),” in that order. It is noteworthy that each policy chosen as a priority has a different desired support method or support period, and long-term support of more than five years is required in terms of related technology development or preparation for supply chain due diligence.Based on the above analysis results, this study identified the following directions to promote decarbonization in the industrial sector and SMEs: enhancing policy effectiveness, promoting technological innovation, spreading the management system for decarbonization, and strengthening international cooperation. Specific implications for each direction are as follows.First, in order to enhance policy effectiveness, the government should introduce new programs to support the entire process including searching, applying for and managing suitable programs for SMEs, and strengthen the roles of various stakeholders such as local governments, large corporations, and private investors. In particular, a large number of SMEs (77.8%) responded that they did not know much about decarbonization-related support programs. This suggests that support for SMEs is necessary from the first step of searching and applying for projects. It is also necessary to monitor and improve the overall support projects carried out by various ministries and agencies, and to closely evaluate and monitor ongoing or completed government programs.Second, with the goal of technological innovation for decarbonization, related ministries and public agencies should expand long-term support for more than five years, encourage private investors to participate, and strengthen the evaluation of expected effects of technological innovations toward reducing greenhouse gas emissions. It is necessary to nurture start-ups and small sized-enterprises with the capacity of developing innovative technologies with excellent reduction effects, and invest in their projects from a long-term perspective. In particular, investment support in the public sector should benchmark existing greenhouse gas reduction effects, such as realized in Sweden, when selecting recipients. It is also necessary to review policies to expand the scale of investment by attracting various partners from the private finance sector, as shown by the UK case.Third, companies need to incorporate decarbonization into their business management system and strengthen their capabilities to collect and manage environmental data including carbon emissions. It is important to establish ICT-based infrastructure and energy management systems considering the companies’energy consumption targets. Moreover, it is also necessary to actively publicize success stories and share information so that companies do not perceive carbon neutrality or decarbonization as little more than an obligation or unnecessary burden, and rather utilize these initiatives as a new growth engine.Lastly, active exchanges of information and cooperation between companies within and across the sectors are recommended. Korean SMEs need to pay more attention to multilateral voluntary initiatives (RE100, 24/7 CFE, SME Climate Hub, etc.) for decarbonization. Benchmarking the cases of Sweden and Japan, the government should increase the SMEs’access to participating in clean energy and energy efficiency projects in developing countries. -
The Impact of Trade Liberalization on Consumer Welfare: A Focus on Quality Diversity
This study investigates the impact of domestic price changes due to external shocks such as trade liberalization or global inflation on quality diversity and consumer welfare. Free trade agreements (FTAs) can reduce the prices of ..
Chul Chung et al. Date 2023.05.25
Trade policy, Free tradeDownloadContentSummary<This study investigates the impact of domestic price changes due to external shocks such as trade liberalization or global inflation on quality diversity and consumer welfare. Free trade agreements (FTAs) can reduce the prices of imported goods through tariff elimination or reduction, making it crucial to evaluate academically and in terms of policy how this price reduction affects consumer welfare. In contrast to prior literature on trade liberalization, this study emphasizes the role of quality diversity in explaining its impact on consumer welfare. We focus on how consumers’ qualitative responses to price changes, such as selecting high-quality products when prices decrease due to tariff reductions or responding to price increases due to tobacco taxes by adjusting the quality of their purchases, can influence consumer welfare. This study also provides policy implications regarding the impact of trade liberalization on consumer welfare.Using time-series data on wine and cigarettes in South Korea, this research estimated price elasticities and separated them into consumers’ quantitative and qualitative responses to price changes. The results indicate that the qualitative margin accounts for as much as 40% of the total, demonstrating that consumers’ qualitative responses to price changes are quite significant. We also found a statistically significant consumer behavior mechanism of quality shading in response to price increases for both wine and cigarette consumption, suggesting that consumers’ qualitative responses are as important as their quantitative responses. Moreover, we found that price reductions not only increase the consumption quantity of the same product but also lead to a shift to higher quality products, further enhancing consumers’ welfare. For the first time in the literature, we analyzed qualitative margins by income level and found that the price elasticity is higher for lower-income consumers, and most of it can be attributed to qualitative responses. These empirical findings suggest that consumers can adjust their spending on a particular good through qualitative adjustments while maintaining their overall consumption, particularly in response to rapid inflation. This response mechanism is particularly more effective for low-income households.Similarly, this study confirmed the existence of consumer quality adjustment responses to income changes through income elasticity analysis, with the size being larger among low-income households. Qualitative responses to income changes demonstrate that consumers can adjust their expenditure by maintaining the consumption level of staple goods such as rice or pork while reducing the expenditure amount, particularly in situations of declining real income during economic crisis. As with the analysis of price changes, our results suggest that this consumer behavioral mechanism in response to income changes can be also more effective for low-income households.The findings of this study indicate that trade liberalization’s expansion of quality diversity has a positive impact on consumer welfare by strengthening consumer mechanisms, particularly in response to inflation, drastic price changes, and real income declines during economic crises. These results provide a novel perspective on trade liberalization’s contribution to consumer welfare, with the analyzed quality diversity effect distinct from the product diversity described in traditional trade literature, thus representing a new source of gains from trade. Consequently, when assessing trade liberalization’s economic impacts, the quality diversity factor should also be considered. In addition, this study demonstrated that quality diversity expansion for consumers can be achieved for agricultural products through not only agricultural production policies but also trade liberalization. The resulting policy implications are significant for both average consumers and low-income groups in terms of welfare.However, the qualitative response of consumers to price changes may not always improve policy efficacy, particularly for certain types of goods, such as harmful goods taxes, where product quality diversity may not necessarily have a positive impact and can even have a negative one. For instance, if consumers switch to low-quality cigarettes in response to an increase in cigarette taxes, the quality-downgrading response may ultimately have adverse effects on health indicators related to cigarette taxes. Furthermore, when discussing harmful goods taxes, such as soda taxes and fast-food taxes, to combat obesity problems, the expansion of quality diversity can have the opposite effect, increasing the supply of unhealthy low-quality carbonated drinks or fast food. These discussions hold significant policy implications, indicating that to achieve health policy objectives through harmful goods taxes, it is necessary to prevent low-quality goods from entering the market, which could pose greater health risks. Finally, empirical research follow-up is needed for staple goods such as rice or pork, with future studies needing to consider consumers’ qualitative responses when using price elasticity.
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