The first-ever ROK-Pacific Islands Summit on May 29, 2023, marked a significant entry for South Korea (hereafter Korea) into the dynamic sphere of Pacific regional cooperation. Since 2011, Korea has consistently engaged in foreign minister-level dialogues with Pacific Island Countries (PICs), while gradually increasing its official development assistance (ODA) to these countries. The 2023 summit, however, was a pivotal step that underscored Korea’s commitment to deeper engagement with the PICs. The summit culminated in the development of two crucial documents - the “2023 Korea-Pacific Islands Leaders’ Declaration” and the “Action Plan for Freedom, Peace, and Prosperity in the Pacific” - both serving as comprehensive blueprints for the ROK-PICs partnership. This proactive engagement is a strategic element of President Yoon’s Indo- Pacific Strategy, aimed at elevating Korea’s role as a middle power and expanding its positive influence throughout the Indo-Pacific region. Korea’s active outreach to PICs has been warmly welcomed by both the PICs and the key regional powers. The main challenge ahead is to sustain the achievements of the summit and enhance Korea’s position as a late-entry donor in the Pacific, in the face of intensifying aid competition in the region. Against this backdrop, drawing on an analysis of the evolving dynamics of Pacific regional cooperation, this study aims to provide policy recommendations for Korea’s future engagement with the Pacific Islands.

Chapter 2 delves into the regional characteristics and cooperation needs of the Pacific Island Countries (PICs). Due to their small size, sparse populations, and geographic isolation from major global markets, many PICs have underdeveloped economies and rely heavily on foreign aid. While the PICs are island nations with vast exclusive economic zones (EEZs) rich in marine and fisheries resources, they face challenges such as rampant illegal, unreported, and unregulated (IUU) fishing, and the devastating impacts of climate change. With minimal carbon emissions, the PICs are nonetheless profoundly vulnerable to climate change effects, including rising sea levels, extreme weather events, and coastal erosion, posing an existential threat to their homelands. This precarious situation calls for urgent international support for climate change adaptation in the PICs. In addition, most PICs struggle with low gender equality and inadequate social infrastructure, including education and healthcare, highlighting a pressing need for development cooperation.

On the diplomatic front, the PICs have exerted significant influence globally, effectively punching above their weight. Through collective diplomacy, particularly throughthe Pacific Small Island Developing States (PSIDS) grouping, they have actively championed the implementation of new climate change regimes. They have also been at the forefront of establishing norms for the sustainable marine resource management, notably contributing to the adoption of the UN BBNJ (Biodiversity Beyond National Jurisdiction Agreement) for example. Furthermore, in response to the escalating strategic competition among major powers, the PICs have strived to take initiative in Pacific regionalism by launching the 2050 Strategy for the Blue Pacific Continent (hereafter 2050 Strategy). Despite concerns that they might become pawns in this geopolitical competition, the PICs are wisely using this competition to garner external support for their economic and social development.

Chapter 3 explores the collaborative strategies of major countries (Australia, New Zealand, the United States, Japan, and China) towards the PICs and their implications for Korea. As a Pacific Islands Forum (PIF) member, Australia has been a vital security and economic partner for the PICs since their independence. However, Australia’s approach, characterized by a strong guiding roleand its reliance on fossil fuel-based economic policies have often led to conflicts with the PICs within the PIF. The escalation of China’s aid to the PICs has enabled them to leverage their relationship with Australia, leading to Australia’s new Pacific policy such as ‘Step Change’. Australia has notably stepped up its commitment to climate change, fully in line with the PIF’s ‘2050 Strategy’. In response to China’s Belt and Road Initiative (BRI), Australia launched the Australian Infrastructure Finance Facility for the Pacific (AIFFP), which combines grants and loans for infrastructure projects. Australia is also an active participant in mini-lateral initiatives such as the Australia-US- Japan Trilateral Partnership and the Blue Pacific Partnership (PBP). With its long history of cooperation in the Pacific, Australia seeks to enhance its role in both mini- and multilateral engagements in the region, often acting as a facilitator among various donors. Consequently, Korea should effectively utilize Australia’s network and cooperation expertise to expand its own regional cooperation.

New Zealand, much like Australia, is a member of the Pacific Islands Forum (PIF) and shares a history of deep engagement with the PICs. Unlike Australia’s predominantly white society, New Zealand has embraced a “Pacific Islander” identity, influenced by its significant indigenous population. This cultural orientation has informed its Pacific policy, emphasizing the representation of PICs’ voices and perspectives. With a relatively modest economy, especially when compared to other Development Assistance Committee (DAC) countries, New Zealand prioritizes the effectiveness of its limited Official Development Assistance (ODA) budget. This is achieved by favoring multilateral cooperation mechanisms over bilateral aid to individual countries. New Zealand’s approach, highlighting cooperation with international organizations and major nations, offers a potentially valuable model for Korea, as it embarks on its Pacific regional cooperation journey.

Beyond its Compact of Free Association with Palau, the Federated States of Micronesia, and the Marshall Islands, the United States has traditionally delegated its foreign and security affairs in the Pacific to Australia and New Zealand. However, in response to China’s growing influence in the region, the U.S. is ramping up its diplomatic engagement across the entire Pacific. During the first U.S.-Pacific Islands Summit in September 2022, the U.S. unveiled the U.S.-Pacific Partnership Strategy, which enhances its cooperation on maritime security, climate change, marine and fisheries resources, and proposes economic initiatives that could serve as alternatives to China’s BRI. In addition to strengthening bilateral ties with the PICs, the U.S. is collaborating with like-minded countries through the Blue Pacific Partnership (PBP), the Quadrilateral Security Dialogue (Quad), and other mini-lateral partnerships. With its substantial financial resources, the U.S. is launching various initiatives tailored to address the immediate needs of its partners. a challenge, however, is that U.S. engagement in the region is increasingly perceived by the PICs through the lens of strategic competition, with concerns about avoiding entanglement in power struggles among major nations. This view may also pose a challenge for Korea, which is aiming to deepen bilateral and trilateral cooperation with the U.S. in the Pacific region.

Japan, a founding member of the Pacific Islands Forum (PIF) along with the United States, was the first non-colonial power to host a summit with the PICs through the Pacific Islands Leaders Meeting (PALM). Since 1997, Japan has regularly convened PALMs every three years. Instead of formulating a specific grand strategy for the PICs, Japan has used the PALM meetings to set cooperation agendas aligned with the immediate needs of its partners. This approach of reviewing three years of cooperation and updating the cooperation plan at regular summits is regarded as a potential model for Korea to emulate. Traditionally, Japan’s collaboration with the PICs has been centered on economic and community-based development projects. More recently, however, Japan has expanded its focus to include enhancing maritime security capabilities as part of its Free and Open Indo-Pacific (FOIP) strategy framework. Additionally, Japan is actively engaged in strategic cooperation through trilateral partnerships with the U.S. and Australia, the Quad, and the PBP to secure strategic advantages in the Pacific region.

China has long expanded its cooperation with the PICs to secure a diplomatic advantage over Taiwan. Under Xi Jinping’s leadership, this engagement has intensified, marked by increased high-level exchanges and enhanced development assistance to the PICs. Notably, China’s escalated support for infrastructure projects in the PICs, despite their limited marketability, has attracted global attention. As underscored by the 2022 China-Solomon Islands security agreement, China’s engagement with the PICs appears to be extending into the security dimension. To strengthen practical cooperation with the PICs, China has set up sectoral cooperation centers focusing on emergency stockpiling, climate change response, and poverty alleviation. At the same time, China has deepened government-to-government (G2G) cooperation, extending these efforts to the provincial level. China’s strategy highlights South-South cooperation, aiming to differentiate itself from Western approaches frequently viewed through the prism of strategic competition. However, amid concerns about increased debt risks for nations hosting the BRI, China’s BRI projects in the PICs have also been the subject to speculation that they could exacerbate the already fragile economies of these host countries.

Chapter 4 assesses the current status of Korea’s cooperation with the PICs and identifies future challenges and opportunities for deepening this relationship. Compared to other major countries, Korea’s history of cooperation with the PICs is relatively recent, and its scope remains limited. In 2022, Korea’s trade with the PICs amounted to $5.54 billion, representing 0.4 percent of its total exports and imports. Additionally, Korea’s investment in the PICs was estimated at $4.12 billion in 2022, making up only 0.5% of its total overseas investment. Nevertheless, the Pacific region holds significant importance for Korea, accounting for more than 70 percent of its fisheries catch, highlighting a robust link in the fisheries sector.

Meanwhile, as a dialogue partner of the PIF since 1995, Korea has supported various development cooperation projects in the PICs through bilateral ODA and the Korea-PIF Cooperation Fund. Between 2002 and 2021, Korea provided a total of $140 million in aid to the PICs. This represents 0.42% of the total aid given to the PICs by OECD DAC members, ranking Korea ninth among DAC member nations in terms of aid contributions to this region. However, this figure is notably smaller compared to the contributions of the top five donors (Australia, New Zealand, the United States, Japan, and France) to the PICs, given that each of these countries has contributed over $2 billion, cumulatively accounting for more than 97% of the total aid provided. In terms of sectors, Korea’s development cooperation has largely centered on maritime and fisheries, climate change, and health, while dedicating less attention to areas such as infrastructure, human rights, gender, and governance, which are priorities for other major countries. While many of Korea’s initiatives address local needs, especially in the areas of climate change and health, the scope of cooperation among other significant nations is broader, including trade and investment promotion, labor mobility, infrastructure, people-to-people exchanges, and security. Acknowledging this, Korea should consider expanding its cooperative efforts with the PICs to include these wider-ranging areas.

To enhance its position in the Pacific region, Korea’s urgent priority is to implement the 2023 Korea-Pacific Islands Summit Declaration and Action Plan, along with the enhancement of its diplomatic ties with the PICs. Korea should aim to optimize the impact of its initiatives, efficiently leveraging its limited budget and human resources. Given that most of the PICs are small island developing states (SIDs) with a limited capacity to manage the recent influx of development aid, Korea needs to shift from irregular project implementation to a more systematic approach by organizing ministry-specific ODA projects into distinct key sectors. In line with the PIF’s efforts to bolster the coordination of aid projects under the ‘2050 Strategy’, Korea should identify and propose collaborative projects that align with this strategy’s implementation plan. Acknowledging the preference of the PIF for long-lasting initiatives over ephemeral and short-term projects, Korea should adopt a programmatic approach aimed at achieving sustained and multifaceted results across various sectors. Given concerns about aid inefficiency, exacerbated by competitive aid distribution and overlapping projects, effective coordination and collaboration with other leading donors are also imperative. Significantly, as a late entrant to regional cooperation in the Pacific, Korea needs to establish a clear and distinct role for itself, ensuring that its engagement with the PICs is rooted in its unique identity and strategic approach as a middle power in the region, and not entangled in strategic competition.

Based on the previous analyses, Chapter 5 offers policy recommendations for augmenting Korea’s cooperation with the Pacific Island Countries (PICs). Firstly, a key focus should be on incorporating the ‘2050’ strategy into the pursuit of Korea’s Indo-Pacific strategy in the PICs. The principal initiatives, derived from aligning the visions of Freedom, Peace, and Prosperity in Korea’s Indo-Pacific strategy with the ‘2050 Strategy’s seven thematic areas, are as follows: Under the ‘Freedom’ vision, Korea should aim to ‘establish an inclusive Pacific regional order and promoting universal values’. This includes reinforcing the PIF’s leadership in Pacific regional cooperation, promoting good governance and gender equality, and supporting the enhancement of democracy and human rights in the PICs. In the realm of ‘Peace’, Korea’s goalshould be ‘advancing peace in the Pacific through comprehensive security cooperation’. This includes enhancing the abilities of the PICs to combat IUU fishing, bolstering their responses to climate emergencies, and fortifying their systems for preventing and controlling infectious diseases. For ‘Prosperity’, Korea should aim to ‘foster resilience and capacity building in the Pacific region’. Regarding ‘Prosperity’, Korea’s goal should be to ‘cultivate resilience and capacity building in the Pacific region’. This entails backing the sustainable management of marine resources, fostering climate resilience and green growth, and contributing to the development and enhancement of social infrastructure for economic progress.

Secondly, since Korea's aid to the PICs is comparatively smaller than that of other donor countries, it is crucial to maximize its impact by strategically identifying priority areas of cooperation and key partners and thereby effectively allocating resources. In light of Korea’s track record in the PICs and the region’s specific needs, priority should be given to maritime and fisheries, climate change, health, and gender equality. Regarding potential countries for strengthened collaboration, Fiji, Papua New Guinea, the Solomon Islands, the Marshall Islands, and Micronesia are considered as pivotal partners. Importantly, to improve the effectiveness of development cooperation projects, it is important to move away from one-off projects and focus on sustainable and long-term initiatives. In addition, efficient use of resources and risk mitigation can be furthered by expanding cooperation with international organizations and other donor countries.

Thirdly, in line with its Indo-Pacific strategy that prioritizes engagement with like-minded nations, Korea should aim to diversify and deepen its global cooperation network. This involves a multifaceted expansion of the Indo-Pacific regional cooperation framework, achieved through strategic collaboration with major donor countries. Initially, Korea should enhance its role in multilateral cooperation in the Pacific region, using the U.S.-led PBP as a foundation. However, considering the PBP’s status as a U.S.-led initiative, there is a possibility that the PICs may perceive the PBP as a means of strategic rivalry. Consequently, Korea needs to adopt a cautious strategy. Instead of simply aligning with U.S.-led initiatives within the PBP, Korea should proactively seek out and proposeprojects where it has a relative advantage.

Additionally, pursuing active bilateral and mini-lateral cooperation must be pursued with major countries that have close ties with the PICs. Among nations with similar perspectives, cooperation with Australia and the United States appears promising. By engaging in established forums such the ‘Australia-ROK Indo-Pacific Dialogue’, both countries have the opportunity to exchange and discuss their policies towards the PICs, share successful case studies and experiences, and gradually explore avenues for bilateral cooperation in the region. For example, Korea could help finance infrastructure projects that are part of Australia’s AIFFP using Korea’s EDCF resources. Additionally, Korea can help improve maritime security capabilities in the PICs by participating in Australia’s Defense Cooperation Program (DCP). The United States, with its history of joint projects with Korea in third countries and considerable resources, offers significant potential for collaboration. Given the U.S.’s active pursuit of governance-related cooperation projects - an area where Korea’s involvement has been relatively limited - there is an opportunity for Korea to actively participatein joint initiatives aimed at promoting good governance in the PICs. Additionally, considering the growing need for trilateral cooperation among Korea, the U.S., and Japan, enhancing policy dialogues among these countries is vital to strengthening their collective efforts in the Pacific region.

Fourthly, in order to build a sustainable cooperation foundation with the PICs, it is essential to enhance Korea’s diplomatic outreach to these countries. These efforts should involve bolstering staff at Korean embassies in the PICs and gradually strengthen the staffof embassies in the region. Most importantly, holding regular summits, ideally every three years, will help maintain the cooperation momentum with the PICs, and provide opportunities to regularly reassess and update priority areas of cooperation. In addition, promoting people-to-people exchanges is fundamental for establishing sustainable relations with the PICs. Having regular 1.5 or 2.0 track dialogues through international conferences on maritime, fisheries, and climate change issues will provide a key platform for experts from both sides to interact and pinpoint potential cooperation projects. Enhancing collaboration with the Korean branch of the South Pacific Tourism Organization (SPTO) is also important to boost Korean tourism to the PICs, thereby enriching people-to-people exchanges. Given the significance of youth exchanges in cultivating enduring relationships, it is imperative to reinforce scholarship and training programs for PIC nationals, as well as initiatives for youth exchanges between Korea and the PICs. Furthermore, considering the current scarcity of research on the PICs within Korea, it is required to expand scholarship programs and research funding to cultivate Korean nationals with in-depth knowledge of the Pacific region.

China’s policy of nurturing hidden champions is being promoted on the basis of a systematic development system, which has been established by consolidating the economic development policies scattered in each province by linking them to the national strategy. It nurtures hidden champions in the manufacturing industry to strengthen the foundation of the manufacturing industry and improve the localization rate of key basic parts and materials by 2025, which is the goal set by the “manufacturing powerhouse” strategy at the national level. After classifying small and medium-sized enterprises by growth stage, China is nurturing companies that can supplement the technological gap in the supply chain by focusing technology and capital.

It is also expanding the establishment of a national-level manufacturing innovation center necessary for promoting national strategies. The main areas of establishment are high-tech areas such as optoelectronics, display, robotics, lightweight materials, semiconductors, and batteries. The national-level manufacturing innovation center will receive financial support from the government when it is established. In addition, it is operated in a structure in which everyone enjoys the intellectual property rights developed here with the participation of research institutes, universities, and private companies for strategic technology research. In particular, in the semiconductor industry, which has recently increased its strategic importance, three innovation centers are in operation, and core process technologies are being developed by concentrating resources under the leadership of leading companies. In addition, SMEs that participated in this are also building an open system so that they can use the infrastructure and databases of innovation centers.

As of 2023, there are 12,950 hidden champions in China, exceeding the 2025 target of 10,000. In particular, the share of companies in the new materials, next-generation information technology, and advanced mechinery industries increased significantly from about 17% in 2019 to 25.7% in 2023. This seems to be due to the Chinese government’s expansion of support to sectors that are more exposed to U.S. sanctions.

Financial support strategies for hidden champions are divided into initial government subsidies and tax incentives, and sustainable financial support using private capital. Various methods of financial support are of great importance in that they provide financial resources to SMEs that have a long management period and are difficult to obtain additional support to enhance the competitiveness of the company and prepare new growth engines.

The Chinese government plays a very important role in the financial support process for Hidden Champions. This is because government certification of Hidden Champions is linked to direct and indirect financial support using government and private capital. Since the government certification is to ensure a company’s industrial competitiveness, it is related to both attracting seed investment to companies after direct government incentives and tax incentives, and liquidity support policies through listing on the capital market. Therefore, financial support for SMEs can be interpreted as a strategy to improve corporate competitiveness through investment in government finances and private capital based on government guarantees. And in this process, the Chinese government is expanding its scope from government-led projects to marketization strategies by linking private capital with companies subject to government policy support in addition to government funding.

In order to understand the competitiveness of Hidden Champions that the Chinese government is promoting, this report attempted to analyze the management situation and export competitiveness of listed Hidden Champions. The targets of analysis were 692 listed companies that could obtain corporate information among the 12,950 national-level Hidden Champions announced by the Chinese government.

Looking at the distribution by industry in which listed companies are engaged, a total of 563 companies are engaged in 10 industries, including dedicated facility manufacturing, computer, communication, and other electrical equipment manufacturing. Among the above 10 industries, the U.S.-designated core science and technology industries are mainly concentrated in five industries: △ software and ICT service industries, △ computer, communication, and other electronic equipment manufacturing, △ general equipment manufacturing, △ special equipment manufacturing, and △ chemical raw materials and products manufacturing. Accordingly, in this study, the strategy of promoting Hidden Champions promoted by China in response to U.S. technology checks was derived by analyzing the cases of representative excellent enterprises in five industries.

China’s strategy for Hidden Champions, which was derived from the analysis of the case companies, was identified as ① promoting corporate growth through successful localization in response to the U.S. strategy toward China in key technologies, ② fostering enterprises by expanding demand for niche markets following digital and green transformation, ③ promoting mass production of essential materials through cooperation with large companies related to the supply chain, ④ expanding its influence through participation in national industrial standards in China in special fields, ⑤ taking advantage of the domestic capital market through the Beijing Stock Exchange, ⑥ creating a technology ecosystem in China by acquiring foreign enterprises with technology competitiveness, and ⑦ strengthening competitiveness by supporting key enterprises in the global supply chain.

Considering the difficulty of obtaining trade statistics for each detailed item of hidden champions, this study classified the entire trade statistics into materials, parts, and equipment industries where hidden champions are mainly distributed to examine the trade situation and analyze competitiveness.

As a result of analyzing the trade statistics of materials, parts, and equipment from 2012 to 2022, when China’s policy of cultivating foster hidden champions was fully implemented, the global trade balance of the China’s materials, parts, and equipment industry increased significantly from a deficit of $55.6 billion in 2012 to a surplus of $264.1 billion in 2022.

The improvement in China’s competitiveness in the fields of materials, parts, and equipment can also be seen as a change in the trade specialization index (TSI) of the materials, parts, and equipment industries. Looking at China’s global trade specialization index for materials, parts, and equipment, it was import specialized at -0.033 in 2012, but rose to 0.100 in 2022, improving export competitiveness. On the other hand, the trade specialization index for Korea’s materials, parts, and equipment industry with China was found to slow down more significantly from 0.357 in 2012 to 0.139 in 2022.

Among the materials, parts, and equipment industries, in particular, Korea’s imports to China increased and exports to China decreased or export growth slowed as China’s exports increased and import growth slowed, especially in △ semiconductor and display equipment, △ precision processing equipment, △ general machinery parts, △ industrial process equipment, and △ precision equipment parts. The five materials, parts, and equipment industry items mentioned above are related to △computer, communication, and other electronic equipment manufacturing, △ general equipment manufacturing, △ dedicated equipment manufacturing, and △ chemical raw materials and products manufacturing, which are industries related to core science and technology that the United States has designated among the industries that are mainly engaged in China’s hidden champions. This can be interpreted as China replacing foreign import demand with domestic products as the effect of nurturing China’s hidden champions gradually emerges.

The above industries are the areas where China is expanding R&D investment in response to U.S. sanctions, and as the industries where there are already competitive hidden champions, competition with Korea is likely to intensify in the future. Although a more detailed industry-wide comparative analysis of Korea-China competitiveness has not been carried out, considering the competitiveness of the two countries in the materials, parts, and equipment industries, as measured by trade statistics, suggests that Korea is likely to face a situation where risks outweigh opportunities. This is because Korea’s imports to China are likely to expand rather than exports of Korean products to China increasing due to the rapid growth and demand in key new industries following China’s “hidden champions” strategy, which has been given a boost by strengthening technology controls and sanctions against China by Western developed countries led by the United States.

China is Korea’s largest export and import partner for materials, parts, and equipment, while the materials, parts, and equipment industry is a major contributor to Korea’s trade surplus. As a result, Korea needs to make efforts to address sluggish exports to China by diversifying its trading partners for materials, parts, and equipment and, actively responding to China’s strengthening competitiveness in the materials, parts, and equipment industry.

Korea should recognize the changes in the trade and industrial structure between Korea and China and form a new paradigm of economic cooperation to overcome the limitations of economic exchanges between the two countries. China, which used to be seen as a manufacturing base, must now be seen as an advanced country in new industries and the economic cooperation structure must be drawn. China has become a world leader in new industries based on the strong support of hidden champions with competitiveness. Some hidden champions in China also have global competitiveness in the materials sector of high-tech industries.

Now, it is judged that there is no need to be cautious about the growth of China’s hidden champions. In preparation for China’s improvement in the competitiveness of materials, parts, and equipment in high-tech fields, it is necessary to double the competitiveness of our materials, parts, and equipment industries, and to find a way for cooperation between the two countries by making use of China’s comparative advantage in the materials, parts, and equipment industries.

In addition, against the backdrop of the development of new industries, we need to establish and expand the foundation for cooperation between Korea and China in new areas suitable for the era of digital and green transformation. To this end, efforts to build an institutional cooperation base for new industrial fields must first be strengthened.

This study aims to explore cooperation strategies between ASEAN and Korea from a mid-to-long-term perspective, ensuring that engagement in the U.S.-China strategic competition does not lead to reduction in domestic production capacity and exclusion from the supply chain. To this end, this paper analyzes the relationship between the U.S. and ASEAN, as well as between China and ASEAN, in a wide range of areas from trade and economic cooperation to the ongoing U.S.-China strategic competition in the region. Additionally, the study examines the economic impact of supply chain restructuring due to U.S.-China rivalry on ASEAN and Korea, and investigates ASEAN’s responses. Finally, based on the research findings and Korea’s current policies toward ASEAN, the study suggests the direction of Korea’s supply chain cooperation with ASEAN.

Chapter 2 examines the dynamics of U.S.-China strategic competition in the economic and trade sectors, focusing on ASEAN, and explores the cooperative relationship between the U.S. and ASEAN, as well as between China and ASEAN. While the United States is actively pursuing high-level security cooperation with ASEAN, economic and trade cooperation, including free trade agreements, is perceived as relatively favorable to China. China appears to be responding to the US strategy of containing China while ensuring a stable supply chain by establishinga regional production network with ASEAN.

Chapter 3 examines ASEAN’s economic dependence on the U.S. and China by analyzing trade and investment relations. It explores the recent trade and investment status of products listed in the “Draft List of Critical Supply Chains”released by the United States. Looking at ASEAN’s exports and imports, there is a similarity in the share between the U.S. and China in recent exports, while the share of imports is overwhelmingly dominated by China. In terms of investment, the EU was the largest investor among offshore countries in 2010, but the U.S. recorded the largest investor in 2022. On the other hand, looking at the exports and imports of products listed in the“Draft List of Critical Supply Chains” in 2021, it is observed that ASEAN’s exports to the U.S. and imports from China have increased, coinciding with a decline in China’s exports to the U.S. in sectors such as critical minerals, solar energy, audio-visual equipment, computer equipment, and telecom/network equipment. While further in-depth analysis is required, but according to the above results, the trade conversion from China to ASEAN is likely to have occurred, possibly indicating that China is utilizing ASEAN as a bypass for exports to the U.S..

Chapter 4 examined the recent supply chain restructuring strategies of the U.S. and China, with a particular focus on the high-tech industry. And the impact of such supply chain restructuring attempts on ASEAN and Korea was analyzed using an international input-output model. it also examined how ASEAN is currently responding to those attempts by the U.S. and China. The U.S. supply chain restructuring policiescan be interpreted as attempts at selective decoupling to exclude China and establish high-tech industrial supply chains centered on allies. In this context, this study hypothesizesa situation where the U.S. successfully excludes China from the high-tech industrial supply chain and quantifies the spillover effects using the Global Extraction Method (GEM). According to the analysis, in the case of chemicals and chemical products and electrical and optical equipment, if China were to be replaced in the global supply chain with the existing supply chain, the United States, Korea, Japan, Germany, and others would reap the greatest benefits, while ASEAN would comparatively gain less. This result seems to be due to ASEAN’s relatively low level of participation in the supply chain for high-tech industries, implying that, at the current level of production linkage, ASEAN might not significantly benefit from diversification away from China. For some ASEAN countries with high production links with China, it appears that they may suffer from decoupling in the high-tech industries. This suggests that achieving a unified ASEAN stance in response to U.S.-China strategic competition may be challenging, and ASEAN may face difficulties in strengthening its own cohesion and centrality. On the other hand, the study shows that selective decoupling may inadvertently increase China’s participation in other industries.

As the ongoing competition between the United States and China continues, there is a potential for multinational corporations to relocate their production bases from China to ASEAN to bypass U.S. regulations on China. In fact, as the Biden administration’s imposition of semiconductor export restrictions on China has led to continued, multinational corporate investments in Singapore and Malaysia, where the semiconductor industry has developed. In re-sponse, major ASEAN countries are leveraging these investments as a foundation to promote the development and industrial sophistication of manufacturing. They are implementing various supportive policies related to semiconductors, batteries, and other industries. Particularly, ASEAN is actively fostering the electric vehicle (EV) industry as a response to decarbonization and as a new driver of growth. Major ASEAN countries, including Indonesia, plan to build a battery industry ecosystem centered around nickel and bauxite.

So far, ASEAN has maintained a neutral stance in the midst of U.S.-China rivalry. At the ASEAN community level, ASEAN adopted the ASEAN Outlook on the Indo-Pacific (AOIP) in 2019, out of concern about being caught in a situation of choosing between the U.S. and China. In 2022, a statement was issued on mainstreaming the AOIP within ASEAN-led mechanism, emphasizing the ASEAN centrality. This indicates that ASEAN aims to emphasize cooperation under its own leadership, seeking to maintain a certain degree of independence from pressure from both countries amid the strategic competition between the U.S. and China. This is interpreted as a strategy to avoid conflict by maintaining a neutral position and to continue and expand trade with both the U.S. and China.

In Chapter 5, based on the previous research findings and current policies toward ASEAN, the strategic direction for Korea toward ASEAN is proposed as follows: (1) expanding trilateral cooperation under ASEAN leadership, (2) supporting the activation of supply chains within the ASEAN region, (3) jointly responding to supply chain disruptions, (4) cooperating on critical minerals for supply chain stability, and (5) broadening trade cooperation. 

The global trading environment is changing rapidly due to disruptions in global supply chains caused by the COVID-19 pandemic and the Russia-Ukraine war. This combined crisis, accompanied by inflation, tight monetary policies, and a consequent decline in investment, is changing the trade paradigm. The emphasis on participating in the Global Value Chain(GVC) and maximizing efficiency through a global division of labor is shifting to reducing the length of the value chain and developing the Regional Value Chain(RVC). In Addition, the pace of digital and green transformation is accelerating to build economic resilience for inclusive and sustainable growth.

As the global market becomes more fragmented, Africa, with its 54 countries, is attracting attention for its potential for market growth, abundant resources, and geopolitical influence in the international community. Major powers such as the U.S., EU, China, and Russia are moving to strengthen their cooperation with Africa. Korea is facing demands to diversify economic partnerships in order to achieve economic security. Therefore, it is high time to consider expanding its relations with Africa as an emerging economic partner.

Korea and Africa can establish a mutually beneficial cooperative relationship and become complementary partners in economic cooperation by combining Africa’s natural resources, labor force, and market potential with Korea’s experience in economic development and technological innovation. In the face of the increasing uncertainties in both the domestic and international economic and trade environment, Korea is seeking to diversify its export partners, secure its supply chains, and identify new growth drivers. On the other hand, Africa, in the midst of a green transition, needs to achieve industrialization and export diversification. This would enable it to expand its participation in GVC while developing RVC.

In this regard, this study aims to develop medium to long-term strategies for economic cooperation between Korea and South Africa. As a member of both BRICS and G20, South Africa occupies a significant position in the African economy, ranking first in trade volume and second in foreign direct investment within the region. It serves as a strategic gateway to entering the sub-Saharan African market and is a leader in the economic integration process of the Southern African Development Community (SADC), the Southern African Customs Union(SACU), and the the African Continental Free Trade Area(AfCFTA) agreement. In particular, as a beneficiary of the United States’ African Growth and Opportunity Act(AGOA) and the European Union’s Economic Partnership Agreements(EPA), the country can serve as a manufacturing hub for the U.S. and EU markets.

In Chapter 2, the study examines the supply chains in South Africa and Africa, and offers suggestions on how Korea can cooperate with South Africa in the automotive and critical minerals sectors, where South Africa is internationally competitive. In the African region, economic integration has been pursued, with AfCFTA, launched in 2021, serving as the flagship. AfCFTA aims to create a single market encompassing 54 countries and a population of 1.3 billion, with the goal of increasing both intra- and extra-African trade, promoting industrialization, and enhancing the capabilities of the manufacturing and services sectors. However, the successful implementation of AfCFTA depends on the development of infrastructure such as transportation, ICT, and energy.

The Southern Africa participates significantly in the global mining value chain and is engaged in downstream manufacturing activities . To enhance the regional value chain, it is necessary to expand the high value-added manufacturing sector and improve the value chain in the mining sector. Despite its advanced economic structure, South Africa relies on minerals like platinum, gold, manganese, nickel, and copper for more than half of its exports. As a result, the government is pursuing strategies to diversify exports by enhancing the competitiveness of the manufacturing sector, including automotive, clothing, agro-processing, pharmaceuticals, and electronics.

South Africa, the largest automotive producer and consumer in Africa, has a long history in the automotive industry dating back to the 1920s. The government has strategically implemented protectionist policies to boost the global competitiveness of the automotive industry, resulting in its growth to become the largest manufacturing sector. Major automotive companies have made their way into South Africa to produce cars through outsourcing. With the stable establishment of the South African automotive industry ecosystem, Japanese, European, American, and Korean automotive companies have expanded their investments in South Africa. European companies mainly export cars produced in South Africa to Europe, while Japanese companies use South Africa as a base to penetrate the sub-Saharan African market. With the implementation of AfCFTA, South Africa could potentially become a regional hub for automotive manufacturing.

Korea can view South Africa as a gateway to sub-Saharan Africa and a detour to markets in Europe and the United States. As demand grows, the prospect of cooperation in electric vehicle production becomes increasingly viable. In the long term, Korea can support the development of the regional value chain with a hub-and-spoke model, where South Africa becomes a center of finished vehicle production, while neighboring countries manufacture and supply automotive components.

As the green transition gains momentum, the demand for green minerals is predicted to soar. A stable mineral supply chain has never been more critical, prompting the US and the EU to develop strategies to reduce their dependence on specific countries and to internalize their mineral supply chains. The US established the Mineral Security Partnership(MSP) to underline supply chain diversification and stabilization, investments in the supply chain, ESG compliance, and recycling of core minerals. For Korea, active participation in multilateral organizations such as the Indian-Pacific Economic Framework(IPEF) and MSP is necessary. In addition, the establishment of industry-specific channels for technology cooperation, information sharing, and research and development is crucial to ensure a stable supply of critical minerals. Korea can support the improvement of value chains in African mineral-producing countries. South Africa, as a major producer of critical minerals, is a crucial partner for Korea. Korean companies should proactively engage in overseas resource development, and the government should formulate policies to promote investment in the mineral sector. Companies venturing into the local market should take responsibility for the entire spectrum of the critical mineral supply chain to avoid problems such as environmental pollution, human casualties, labor exploitation, and human rights violations.

In Chapter 3, the analysis focuses on the cooperation between Korea and South Africa in the area of digital trade. Globally, the demand for contactless services has surged in the wake of the COVID-19 pandemic, spurring a parallel increase in the demand for digital transformation across Africa. As a result, digital trade, encompassing the trade in goods and services using digital technology and trade in ICT services , has grown in importance. The volume of the ICT services trade in South Africa has been on a steady upward trajectory, with Europe and Asia emerging as key partners. AfCFTA is poised to expand digital trade within the African region in the future. However, hurdles such as digital taxation, consumer protection, cybersecurity, regulation, and infrastructure need to be addressed to facilitate the expansion of digital trade in the region. Korea can support the the establishment of digital trade standards and systems during the implementation of AfCFTA and help expand digital trade within Africa.

The South African government’s Integrated ICT Policy White Paper underscores the importance of digital accessibility, digital security, digital infrastructure development, digitization of government services, and digital inclusion. South Africa, home to the highest number of e-commerce companies in Africa, is witnessing rapid market growth. Among South Africa’s digital technology start-ups, the proportion of e-commerce/retail companies(10.2%) is second only to fintech(30%). South Africa has recently enacted legislation such as the Consumer Protection Act, the Electronic Communications and Transactions Act, and the Protection of Personal Information Act, in line with these strengthened regulatory policies.

The United States announced the Digital Transformation with Africa Initiative(DTA) in 2022 with the aim of broadening cooperation in the digital economy, infrastructure, human resource development, and the digital environment. The U.S. exports ICT services from global technology giants to South Africa, while primarily investing in the establishment of data centers. India boasts significant ICT service exports to South Africa in the telecommunications, finance, retail, manufacturing, and healthcare sectors, mainly to small and medium-sized enterprises. Although the volume of China’s trade in ICT services with South Africa is not substantial, Chinese telecommunications companies have recently made considerable investments in ICT infrastructure, including the construction of 5G networks and data centers in South Africa. trade in ICT services between the EU and South Africa is active, with Ireland being South Africa’s largest trading partner in ICT services and the Netherlands being the largest investor in South Africa. The EU has announced the Global Gateway Strategy, which includes projects for enhancing infrastructure in developing countries, and for digital inclusion and sustainable network development in the African region. Korea should enhance its cooperation with South Africa in areas such as technology transfer, infrastructure development, digital convergence such as e-government and smart cities, digital trade regulations, and digital skills development.

Chapter 4 analyzes cooperation in tackling climate change, a pressing issue that significantly influences economic growth in Africa. Although Africa contributes a mere 4% of global greenhouse gas emissions, it bears the brunt of climate change impacts, including increased precipitation, temperature fluctuations, and natural disasters. Given the region’s heavy reliance on fossil fuels for economic growth, the transition to a low-carbon economy is pivotal. South Africa, in particular, ranks among the world’s top 20 carbon emitters, with annual emissions exceeding 430 million tons. The 2022 floods in the KwaZulu-Natal region underscore the escalating risks of climate-related natural disasters.

The Southern African Development Community(SADC) has adopted a Green Economy Strategy that addresses sustainable resource management, energy efficiency, climate change technologies, green infrastructure, and waste management. South Africa is aligning with the Paris Agreement through its Nationally Determined Contributions(NDC) and a Low-Emission Development Strategy 2050, aiming to halve coal-fired power generation from 88% in 2020 to 44% by 2030.

In light of the burgeoning global cooperation on climate change, Korea needs to identify its comparative advantages to carve out a unique position in the South African market. China, dominating 70-80% of the global solar value chain, is actively partnering with South Africa in green energy development. China has established solar panel factories and energy storage systems in South Africa. The UK is bolstering ties with South Africa in solar energy and green hydrogen, participating in the construction of Africa’s largest green hydrogen and green ammonia plant, and supporting technology transfer and workforce training.

South Africa’s growing demand for small-scale self-generation and improved power transmission efficiency presents opportunities for collaboration in energy storage systems. In the wind and solar energy sectors, Korea should capitalize on its technological prowess and competitive pricing. With over 80% of Korea’s hydrogen demand projected to come from overseas by 2050, South Africa’s abundant renewable energy sources offer potential for green hydrogen production. Initial collaboration could focus on hydrogenpowered vehicles and hydrogen transportation, and eventually expand to renewable energy and electrolysis technology for long-term cooperation. Furthermore, Korea could consider collaboration in the nuclear power sector, considering South Africa’s emphasis on nuclear power for a balanced energy mix.

Chapter 5 delves into the potential for cooperation in South Africa’s health sector. Despite improvements in health-related Sustainable Development Goals(SDG) indicators, South Africa grapples with challenges such as a growing elderly population, a gap in health services coverage relative to the escalating incidence of non-communicable diseases, and pronounced disparities between public and private healthcare services. South Africa is striving to enhance access to medical services, boost transparency and effectiveness of these services, and broaden universal health coverage. South Africa has the largest medical device market in sub-Saharan Africa, and the market size is projected to grow by over 20% over the next five years. However, the country relies heavily on imports for medical devices, with a 90% import dependence rate, mainly from Germany, the United States, and China. The pharmaceutical industry is also substantial, but it imports over 80% of pharmaceuticals.

In Africa’s health sector, the U.S. is working to develop the health workforce, fortify pharmaceutical capacity, and construct medical infrastructure, while Japan concentrates on enhancing public health and sanitation, and establishing sustainable medical resource and disease management systems. The EU has established a Global Health Strategy to aid developing countries with integrated health services and universal health coverage(UHC). Its major projects in Africa underscore local pharmaceutical development, strengthening public health facilities, and building digital health systems.

In South Africa, the healthcare sector offers growing opportunities for Korea to collaborate in areas such as universal health coverage, medical devices, pharmaceuticals, digital health, and healthcare service management. To begin with, Korea can share its experience and best practices in economic development and policies in the health sector. Policy advice projects can be funded through ODA, while private sector participation is essential for the other sub-sectors. Anticipating the growth of South Africa’s healthcare industry and the demand for high-quality medical equipment, Korea can strategically expand exports of medical equipment. In pharmaceuticals, establishing joint ventures with local companies may be a viable option given the highly competitive market and stringent regulations. Furthermore, collaboration in digital healthcare and hospital management systems can be intensified.

In the medium to long term, it is crucial to enhance collaboration between Korea and South Africa in areas such as supply chain restructuring, digital trade, climate change response, and healthcare. Formulating a unified strategy for South Africa and sub-Saharan Africa is vital, and this should be complemented by establishing regular channels for discussion on economic cooperation. Trade agreements can serve as a catalyst for a long-term and stable economic relations. There is a growing need for the private sector to expand its presence into core sectors such as mining, manufacturing, and the digital economy. To create a stable investment environment for Korean companies, it is necessary to establish an integrated market information system, provide assistance in the initial stages of market research and feasibility studies, and expand financial support to mitigate the risks associated with entering new markets. Korea should strive to establish itself as a reliable partner that provides high-quality products and services, thereby expanding economic cooperation with South Africa. 

To achieve carbon neutrality and increase energy security, the international community is accelerating the energy transition to reduce fossil fuels and increase renewable energy. Solar power, in particular, has emerged as a fast-growing renewable energy source, as its generation costs have fallen to the level of fossil fuels and it is relatively easy to install. Demand is growing rapidly and is expected to exceed the cumulative installed capacity of coal by 2027. In addition, demand for energy storage systems (ESS) is growing in line with the expansion of renewable energy generation. Since the production of electricity from solar and wind power fluctuates depending on the amount of sunlight available and wind speeds, it is necessary to build an ESS to store the generated electricity and release it when it is needed. Among ESS, the demand for battery energy storage systems (BESS) based on lithium-ion batteries (LiB) is growing rapidly, as it is less constrained by location and can be easily dismantled and moved compared to pumped storage hydroelectricity, in which power is generated by utilizing altitude differences in locations such as reservoirs.

The problem is that China accounts for 74.7-96.8% of capacity at each stage of the global solar supply chain, and about 70% of capacity in the upstream and midstream of the LiB-based BESS supply chain.  

South Korea has technological competitiveness in LiB used for solar power generation and BESS. However, the domestic solar industry remains overly dependent on imports of solar products from the People’s Republic of China and struggles to compete with price-competitive Chinese products. In addition, Korea lost its leading position in the global market share of LiB for BESS to China in 2021.

This article analyzes how the US and Europe, the main markets for solar and LiB-based BESS, are responding to China’s dominance in the supply chain. We examine the Chinese government’s policies and company strategies behind the monopolization of each industry, and consider a comprehensive response that governments and companies can adopt.

Chapter 2 analyzes the US and European responses to China’s dominance in the solar industry, including import restrictions and policies to strengthen domestic supply chains, and identifies Chinese government policies to promote the solar industry and Chinese company strategies.

First, the United States began imposing high anti-dumping and countervailing duties on Chinese solar products in 2012, significantly reducing its dependence on imports from the People’s Republic of China. However, Chinese companies set up production facilities in Southeast Asia to redirect their exports, increasing US reliance on imports of solar products from Southeast Asia to 70-90% in 2022. In response, the US government launched an investigation into circumvention exports via Southeast Asia and identified five Chinese companies in violation, but these only amounted to a portion of the major cell and module companies in China. While the US has ostensibly reduced its reliance on imports of solar products from the People’s Republic of China, it continues to make decisions that leave room for Chinese products. The US is also pursuing a policy of building its domestic solar supply chain by offering an IRA-based investment tax credit (ITC, AEPC) and per-unit production credits (AMPC) for each stage of supply. The US solar supply chain currently lacks wafer or cell production capacity, and module production capacity is insufficient to meet Biden’s carbon neutrality target. The US is therefore trying to attract competitive companies to internalize the supply chain and expand production capacity. The US’ strategy can be summarized as: the establishment of a complete supply chain for crystalline silicon solar wafers domestically, led by South Korea’s Hanwha Solution, which is currently building the largest solar farm in North America; and the ramping up of thin-film solar cell production, led by First Solar. Through this, the US will likely succeed in internalizing the solar supply chain as it intends, however it will be difficult to wholly exclude China from the supply chain.

Europe has also imposed anti-dumping and countervailing duties on Chinese solar products since 2013, but unlike the US, it discontinued the tariffs in 2018. Since then, Europe’s dependence on imports of solar modules from the People’s Republic of China has risen to more than 80 per cent in 2021. Instead of reducing its dependence on the PRC for solar products, Europe seems to be focusing more on securing renewable energy, mainly solar, by importing large quantities of cheap Chinese products. The EU Commission’s declaration in 2019 to reach carbon neutrality by 2050, coupled with Russia’s reduction of fossil energy supplies to Europe in the wake of the Russia-Ukraine war in 2022, has put Europe in a position where it needs to secure more renewable energy faster. In response, the EU Commission published the Carbon Neutral Industry Act, identifying solar power generation as one of eight carbon-neutral strategic technologies and setting a target of producing 40 per cent of the EU’s needs locally by 2030, based on the promotion of strategic projects. The EU also announced that it would extend subsidies through the Temporary Crisis and Transition Framework (TCTF) to attract private capital investment in the sector, which requires significant funding. However, the European solar industry is already struggling in the face of low-cost Chinese products and cannot afford to increase investment.

Since the early 2000s, China has provided active support to promote exports in the solar industry, support for domestic and overseas stock market listings, and investment subsidies to localize the production of equipment and technology. However, as major markets such as the US and Europe began to impose import restrictions, China began to develop its domestic market based on the Gold Sun pilot program (50 per cent of total investment in solar PV projects subsidized) and feed-in tariff (FIT) policies. Since 2017, when the industry entered into a mature stage, subsidies have been gradually reduced and the approach to strengthening R&D capacity has shifted from unconditional subsidies to selective incentives for companies with technological prowess. As a result, China’s solar industry has been reorganized around leading players, with companies lacking core competitiveness being eliminated. In August 2021, the Chinese government abolished the FIT scheme for the solar industry, entering the phase of marketization from subsidy-led growth. In addition, the policy direction for the solar industry through 2025 is expected to focus on expanding solar power application areas such as BIPV, developing next-generation solar technologies around perovskite, and protecting indigenous technologies (e.g. adding wafer technologies to the list of prohibited and restricted technologies).

The Chinese solar industry is currently oversupplied and internal competition is fierce. Chinese companies have already gained in-house production capacity and technology, and are now strengthening their competitiveness by securing unique flagship technologies and setting industry standards that other companies cannot match. In addition, Chinese solar companies are responding to US import restrictions by expanding production bases in Southeast Asia to redirect exports, and to the US IRA by building solar production facilities in the US.

Chapter 3 analyzes the Chinese-led LiB-based BESS industry, the US and European responses described in Chapter 2, and Chinese government policies and corporate strategies.

Although the US has imposed a 7.5 per cent tariff on Chinese LiBs under Section 301 from 2019, in addition to the existing 3.5 per cent tariff, the share of US imports of LiBs from the PRC has continued to grow, reaching a 10-year high of 70 per cent in 2022. This is because, with the exception of the key mineral mining and refining stages of the US LiB-based BESS supply chain, the four core materials and cell stages already have formed domestic supply chains, but production capacity is far from sufficient to meet demand. In addition, refined products (such as lithium compounds) and cathode materials (graphite) for core materials are dominated by China. Therefore, the US seems to have adopted a realistic strategy of strengthening domestic production capacity at each stage of the supply chain, based on the IRA, and not imposing discriminatory rules on LiB for BESS. The IRA provides an investment tax credit (ITC) for BESS investment costs and a manufacturing tax credit (AMPC) for LiB cells and modules, core materials and minerals. This is a win-win situation as LiBs for BESS are almost entirely produced by Chinese and Korean companies, but the AMPC incentives will favor Chinese companies as they already have a competitive price and technology advantage over Chinese-made lithium-ion batteries (LFPs).

Europe’s LiB-based BESS supply chain is also facing a supply shortage in the region relative to demand at the upstream and midstream levels. Unlike the US, Europe has not adopted regulatory measures such as anti-subsidies for LiB in China. As a result, the share of LiB imports from China has increased proportionally, reaching 45 per cent in 2022, in line with the growing demand in the European market. The low price and volume of Chinese LiB in Europe is under increasing pressure. Along with solar, the EU Commission has included battery and storage technology as one of the eight strategic technologies in its Carbon Neutral Industry Act and aims to produce at least 40% of the annual demand for battery and storage devices in the region by 2030. It also announced the Critical Raw Materials Act (CRMA), under which China aims to achieve 10% local mining, 40% local refining (processing and treatment) and 25% local production of recycled raw materials in terms of annual consumption by 2030, and to diversify its raw material imports to avoid relying on any single source for more than 65%. In addition, a battery law will come into force in 2024, imposing high environmental standards on the battery supply chain and preventing non-compliant batteries from entering the market. Taken together, Europe’s strategy reflects concerns about over-reliance on China, as seen in the solar power section. The focus is on diversifying sources, particularly upstream in the LiB supply chain, to spread risk. However, there appears to be no movement to exclude China from the supply chain. Of course, the implementation of the EU battery legislation will make it more difficult for foreign battery companies to enter the European market by giving LiB a higher exchange rate, but this is not a discriminatory measure as European companies will also have to comply.

On the other hand, by 2020, China’s new ESS (BESS, compressed air energy storage, flywheel energy storage, etc.) will have moved from the R&D demonstration stage to the early commercialization stage. In addition, internally, BESS and compressed air ESS technologies, led by LiB, have reached world-leading levels. The Chinese government sees 2021 as the pioneering year of the new ESS industry and aims to develop it to the scale-up stage, as stated within the 14th Five-Year Plan for 2021-25. For LiB in particular, the focus is on improving productivity through technology upgrades and reducing operating costs, as well as strengthening cohesion in the domestic supply chain. The government will focus on encouraging upstream and downstream companies in the LiB supply chain to develop closer cooperation, including signing long-term contracts and clarifying quantities and prices at each stage of the supply chain to ensure stable supply.

Internally, Chinese LiB companies have formed their own alliances between upstream and downstream companies to stabilize their supply chains. In response to the US IRA, they are also building local production bases in the US, cooperating with US FTAs, expanding into Europe, and increasing investment in LiB recycling in anticipation of the European Battery Directive.

In Chapter 4, based on the above analysis, we suggest responses for the Korean government and companies. First, it is time to develop a comprehensive solar industry policy for Korea. Specifically, it is necessary to: (1) expand solar applications and subsidize production to revitalize the domestic market; (2) provide government support for exports and financing; (3) provide funding for solar companies that are expected to expand into the North American market through the US IRA; and (4) provide government R&D support to maintain the super-gap technology of perovskite solar cells and pre-emptively promote commercialization. Second, it is necessary to consider developing LiB recycling technology and increasing investment to respond to the European battery legislation and to secure key minerals. Third, Chinese upstream companies and Korean midstream and downstream companies in both the solar and LiB-based BESS industries should urgently sign long-term supply contracts in the short term, and focus on securing proprietary technologies in the long term. 

Since 2011, Timor-Leste has prioritized ASEAN membership as its highest diplomatic agenda. Although Timor-Leste had obtained the ‘in-principle’ membership and observer status, the time for the full membership has not yet been confirmed. This report analyzes the conditions and capabilities for the Timor-Leste’s accession to ASEAN and examines the support strategies and cases of major donor countries. Based on these analyses, this report aims to suggest the Korea’s plans for the development cooperation and support plans for Timor-Leste’s accession to ASEAN.

In chapter 2, the conditions for development cooperation of Timor-Leste on various perspectives including politics, diplomacy and society, are examined. We also analyzed the Timor-Leste’s general capacity such as economic conditions, Sustainable Development Goals (SDGs) implement status, etc. Timor-Leste has the unique political systems, such as dual executive system and four separations power (president, executive, legislative and judiciary). In the field of diplomacy, Timor-Leste has a identity of the Community of Portuguese-Speaking Countries (CPLP), and has been adapting an active diplomacy in the form of “Comprehensive and Collective Engagement” with ASEAN and Pacific island countries. Based on these, Timor-Leste has been strategically utilized the geopolitical importance and adopted the accession to ASEAN as its top diplomatic priority. Timor-Leste has a pyramidal population structure typical of developing countries, with Tetum and Portuguese as official languages, and Indonesian and English as working languages. Timor-Leste is a least developed country with a nominal GDP of $2.2 billion a per capita of $2,491 as of 2022. Due to the weak agriculture and manufacturing industries, it has been highly dependent on the Petroleum Wealth generated by the Bayu-Undan oil field. Recently, the economic growth rate has been gradually recovering from the impact of Covid-pandemic, but there is a concern about the loss of growth momentum due to the end of Bayu-Undan oil field development. Oil and gas takes more than the 90% share of the total export. Excluding the oil and gas, coffee can be considered as the only export commodity which accounts about 7% share of the total export. There is an urgent need to attract FDI for industrial development. However, little FDI is taking placed other than investment on oil-field development due to the weak manufacturing base and domestic demand. The working-age population of Timor-Leste is approximately 800,000 with a low labor force participation rate of 30.5%, and the education level is only about the 48.8% with primary education or less. Bayu-Undan oil field is considered as a representative natural resource. As the reserves are nearing depletion, the development of Greater Sunrise oil field as an alternative is urgently needed. The Sustainable Development Goals (SDGs) implementation status has remained at “challenges”, “significant challenges” and “major challenges” in various sectors.

The chapter 3 analyzes the Timor-Leste’s readiness and capacity to join ASEAN, especially the membership requirement stated in the ASEAN Charter and the level comparison with ASEAN member countries using key indicators. Regarding the fulfillment of the requirement of the ASEAN Charter Article 6, Timor-Leste has been considered positively. However, there are concerns about “ability” such as the weak economic development and financial situation, lack of physical infrastructure and low diplomatic capacity. Regarding the obligation of ASEAN Charter Article 5 paragraph 2 (Domestic legislation), we have monitored the legislation status to meet the obligations of ASEAN communities and other sectoral agreements based on Timor-Leste ASEAN Mobilization Plan (TLAMP) and Critical Elements for Accession (CEA). However, it is not easy to confirm whether Timor-Leste meets the requirements for ASEAN membership due to the difficulty of quantitative evaluation by the difference and wide range of membership requirements for each ASEAN communities and ‘Non-disclosure approach’ of ASEAN and Timor-Leste. Regarding the ASEAN Economic Community (AEC) 2025 Blueprint, Timor-Leste could not meet a series of requirements such as legal regulations and global trade order excluding a few trade and people movement related requirement. In comparative analysis on the capacity with ASEAN countries by key indicators, such as income level, human development index, finance, communication, urbanization, literacy rate, Timor-Leste has scored the similar level to ASEAN latecomer countries. However, in democracy index which measures democracy development, Timor-Leste has ranked on 44th among 167 countries, higher than most of the ASEAN countries. This high ranking is believed to be due to the stable establishment and operation of democratic regime without any military coup or dictatorship after the independence in 2002.

The chapter 4 analyzes the ODA and support for Timor-Leste’s accession to ASEAN from major donor countries and institutions. For the ODA analysis of Timor-Leste, we used the OECD Creditor Reporting System (CRS). We also adapted the case studies of the major donor countries and institutions regarding supports for Timor-Leste’s accession to ASEAN. The bilateral ODA had taken the major share of ODA for Timor-Leste from international community. By donors, Australia (31.3%), and Portugal (13.2%) have taken the largest share, and socialinfrastructure (60.9%) and economic-infrastructure (13.1%) have accounted for a large portion by sectors. For the case studies of the support for Timor-Leste’s accession to ASEAN, we adapted the cases of Japan and Australia for country cases, also ADB’s support for the institutional case. Japan has been supporting Timor-Leste’s accession to ASEAN by the Country Assistance Policy for Timor-Leste (2017) and by the supports through institutions such as JICA and ADB. Australia, the largest donor country of Timor-Leste, has been operating a series of mid to long-term development cooperation programs on various fields such as human development, village development, public administration, bio, agriculture & rural development, police-capacity building, etc. Australia had established a funding package (6.6 Mil AUD) in a period of 2022-2026, which supports Timor-Leste’s accession to ASEAN by capacity and infrastructure building projects such as government & private capacity building project, workshop for the partnership with ASEAN secretariat and member countries, etc. ADB has been supporting Timor-Leste by the 5-year mid-term strategy, Country Partnership Strategies (CPS) since 1999. During the period of Timor-Leste’s independence, ADB had it's focus on recovery & maintenance of infrastructure, but the support area has gradually expanded to pandemic, climate change, SDGs, etc. ADB’s supporting strategy for Timor-Leste’s accession to ASEAN has its main focus on the capacity building projects by Capacity Development Technical Assistance (CDTA). The results of analysis of supporting case studies of major donor countries and institutions implies that Korea also needs to actively prepare the support plans in the area of capacity building for Timor-Leste’s accession to ASEAN, national system building, infrastructure, etc.

The chapter 5 provides the forecast of Timor-Leste’s full membership to ASEAN, and policy recommendations for Korea’s supporting plans. Although Timor-Leste has been granted the ‘in-principle’ accession and observer status at the ASEAN summit in November 2022, the formal accession to ASEAN has been delayed due to reasons including the concerns about Timor-Leste’s lack of preparations and capacity, disagreement among ASEAN member countries, etc. The majority of the ASEAN countries have a positive stance on Timor-Leste’s accession to ASEAN, but there is uncertainty that the situation may change depending on a certain moment or political situation. For Timor-Leste, accession to ASEAN has great significance, including economic benefit, participation to regional economic integration, establishment of security and collective identity, national growth and advancement, geopolitical interest as well as ‘the second founding of the nation’. From ASEAN’s perspective, Timor-Leste’s accession to ASEAN has implications such as ASEAN’s expansion, peace and stability in Southeast Asia, and containment of China’s influence. To support Timor-Leste’s accession to ASEAN, Korea needs to establish strategies focused on capacity building to implement the roadmap, the Korea-ASEAN Solidarity Initiative (KASI), and its strengths and competitiveness, as follows. First, Korea needs to support Timor-Leste in enhancing the foreign trade capacity and trade law experts. Second, human resource development and training, and third, support for the construction of digital infrastructure is required. To expand development cooperation with Timor-Leste, Korea should expand its ODA focused on the industrial restructuring & diversification, rural development, economic infrastructure development, etc.

Korea should prioritize the foreign trade capacity and trade law expert of Timor-Leste, and promote the its support for Timor-Leste’s accession to ASEAN and development cooperation plans as outlined in Chapter 5. At the same time, Korean government needs to stipulate the supports for Timor-Leste’s accession to ASEAN in the Country Support Plan (CP) for Timur-Leste. In addition, there is a need to consider tripartite cooperation with Indonesia, Vietnam and ASEAN Secretariat, ways to link with the approaches to WTO accession, and select & focus strategy based on the Korea’s competitiveness. 

Global supply chain disruptions and the ensuing rise in uncertainty have rendered it imperative for each country to reassess its foreign policies. Amidst these shifts in the international landscape, Mexico has recently garnered considerable attention as an ideal candidate for nearshoring to penetrate the North American region. Mexico emerges as a compelling nexus, offering a strategic gateway for North America, Central America, and South America expansion, alongside its abundance in core minerals crucial for rechargeable battery manufacturing.

South Korea, confronted with national imperatives such as ensuring a stable supply chain for critical minerals, diversifying exports, expanding market reach, and adapting to supply chain restructuring, must recognize the strategic importance of Mexico. The primary objective of this study is to delve into Mexico’s strategic significance and explore avenues for collaboration. Specifically, this study conducts a comprehensive analysis of Mexico’s diverse trade and policy initiatives, categorizing them into sectors such as supply chain restructuring, digital transition, renewable energy, and health and medical. Subsequently, we aim to outline directions for collaboration within each sector.

Mexico, forming a pivotal axis within the North American economy alongside the United States and Canada, is not immune to the recent U.S.-led supply chain reorganization. It is believed that Mexico aims to leverage this supply chain restructuring for its own benefit. Seizing the opportune moment, as it garners attention as an optimal candidate for nearshoring, Mexico seems poised to integrate into a new supply chain or global value chain while fortifying its existing global value chain. Consequently, the analysis and forecast of Mexico’s supply chain policies are crucial for identifying fresh opportunities for collaboration.

As Mexico experienced growth in exports across various industries, its engagement in global value chains also strengthened. This was propelled by a rise in the percentage of foreign value-added, attributed to the expansion of imports of intermediate goods from abroad. The heightened backward linkages in Mexico, coupled with its substantial exports to the United States, underscore the country’s significance as a hub in the Americas and a strategic gateway for entering North America.

Another noteworthy aspect in the context of the global value chain is that Mexico’s share of value-added in its exports to the United States is lower compared to its trade with other countries. This presents a concerning scenario for Mexico, indicating a potential inclination to undertake various political and policy initiatives aimed at augmenting the value-added of its exports to the United States in the future. Indeed, Mexico revised its mining law in April 2022, and in February 2023, a bill was passed, transferring the responsibility for buried lithium to the Ministry of Energy and designating a portion of Mexico’s Sonora region as a lithium mining protection area. This move is intended to further enhance domestic value-added and strengthen Mexico’s forward linkage in the global value chain by minimizing foreign capital participation and reinforcing state control in the mining sector, where the country’s value-added and global demand are substantial.

In contrast, in technology-intensive industries characterized by low value-added, Mexico is adopting a strategy to integrate into the new global value chain by increasing foreign value-added. The tax benefit legislation, announced by the Mexican government in October 2023 to promote nearshoring, can be interpreted as a measure encouraged against this backdrop.

Meanwhile, with the global spread of digital transformation, Latin American countries, including Mexico, are actively embracing digital technology and intensifying efforts to transition towards a digital society. The impact of digital transformation is evident in significant changes across major countries in Latin America, with governments expanding their initiatives to develop digital infrastructure and e-government. As society undergoes rapid transformation due to digital advancements, and new collaborative needs arise, it becomes essential to assess Mexico’s digital transformation policy, trade, and commerce issues, and explore opportunities for cooperation.

Mexico’s digital environment is exhibiting ongoing improvement, as reflected in digital access and usage indicators. Notably, Mexico’s Mode 1 imports (cross-border supply) are experiencing a notable uptrend, particularly in distribution services, transportation services, and insurance and financial services.

As part of its digital transformation phase, Mexico is implementing various policies to establish norms and address unfair practices in the digital sector. Simultaneously, the country is formulating the National Digital Strategy 2021-2024 to outline the government’s overarching digital policy direction. A central focus of this strategy is universal Internet accessibility, affirming the Mexican government’s commitment to prioritizing the resolution of the digital gap problem.

Examining the digital-related provisions of Mexico’s recent trade agreement, it is evident that Mexico intends to refrain from permanently imposing tariffs on electronic transmissions. The country is concurrently introducing a legal framework and measures designed to protect consumers. Furthermore, in agreements such as the Mexico-Panama FTA, CPTPP, and USMCA, Mexico is incorporating highly binding provisions that ensure the free movement of data, including personal information, through electronic means for the purpose of conducting business among the agreement parties.

Notably, Mexico’s digital trade policy aligns with U.S.-led liberal digital norms. This strategic direction is anticipated to play a pivotal role in establishing a foundation for the expansion of trade and investment in digital products and services within Mexico.

Turning our attention to renewable energy, Mexico boasts strengths in renewable energy production, owing to its geographical and climatic characteristics. Consequently, with the growing global demand for renewable energy, investment opportunities in Mexico’s renewable energy generation of electricity are expected to expand, leading to an increased demand for technological cooperation in this field. It is opportune to proactively examine Mexico’s major policies related to renewable energy at this juncture and forecast its future direction. Such insights are valuable as crucial data in exploring ways for cooperation between Korea and Mexico.

Mexico’s electricity production is predominantly fossil fuel-based. In contrast to the previous administration, the AMLO government is pursuing a policy that prioritizes fossil energy development over renewable energy, resulting in the suppression of the latter. This seemingly restrained stance on renewable energy is believed to be geared towards securing energy independence and security by reverting to the pre-2020 energy reform system. This involves diminishing the influence of foreign companies while bolstering the market power of state-run entities. Nevertheless, considering that Mexico’s domestic laws and civil society actively support greenhouse gas reduction and climate change initiatives, it is essential to comprehend changes in Mexico’s energy policy under the assumption that Mexico will engage in climate change responses in the mid to long term.

The health and medical sector in Mexico has become a focal point for cooperation, especially during the COVID-19 pandemic, as the country faced challenges in securing essential medical supplies such as masks and vaccines. Due to its robust manufacturing base and proximity to the United States, notable shifts are evident in the health and medical devices and services sector post-COVID-19. With an increasing number of companies, domestic production of Mexican medical devices is on the rise. Measures are being introduced to facilitate market access and alleviate regulatory burdens. If this trend persists, Mexico’s exports in the health and medical sectors are expected to grow, necessitating exploration of opportunities for cooperation with Mexico to diversify Korea’s exports.

In this context, the AMLO government revised the Federal Procurement Act on Medicines and Medical Supplies to streamline the international procurement of medical devices, medical services, and pharmaceuticals. Additionally, efforts are underway to resume treatment for diseases unrelated to the COVID-19 pandemic. As interest in digitalization has surged in both the public and private health and medical service sectors due to the pandemic, technology adoption has proliferated in the medical industry. A policy to promote this technological integration was actively pursued.

Given the challenges that Mexico is currently confronting and its recent policies in the four areas mentioned above, what cooperation can we explore with Mexico?

In the ongoing initiative to attract foreign investment, as promoted by Mexico in the fields related to semiconductors, batteries, and electric vehicles, Korea must establish itself as a key participant in the value chain centered on North America through robust trade with Mexico. Simultaneously, efforts should be directed towards expanding market share in North America. To achieve this, various avenues, such as the negotiation of a Korea-Mexico FTA or becoming an associate member of the Pacific Alliance, should be explored. Given the increased activity of Chinese manufacturing companies in Mexico amid the recent US-China competition, a different landscape is emerging compared to before. Consequently, there is a potential risk that Korea’s position in the global value chain centered on North America might weaken in the future.

With the anticipation of increased nearshoring in the future, it is crucial to focus on cooperation in infrastructure and transportation-related services in Mexico. The growth in industrial complexes, driven by the influx of multinational companies into the manufacturing sector, will naturally elevate the demand for infrastructure construction. Moreover, given Mexico’s strategic approach to participating in new supply chains in technologyintensive industries such as semiconductors and batteries, ensuring stable and efficient transportation becomes paramount. Continuous attention must be devoted to the transportation service sector.

In the face of global uncertainties, including supply chain disruptions, Mexico may be inclined to decrease its excessive reliance on the North American economy in the long term. Consequently, anticipating potential policy initiatives by Mexico to diversify exports, currently concentrated in the United States and Canada, towards Central and South American countries becomes crucial. It is imperative to be mindful of preparing cooperative measures that recognize Mexico as a strategic gateway for entering Central and South America.

With regard to collaboration in the digital transformation, the Korean government, local authorities, education-related organizations, and private companies might consider actively suggesting partnerships with Mexico’s relevant organizations in digital education. It is anticipated that in the future, a substantial portion of the population in Mexico, who previously lacked access to the digital environment, will swiftly become part of the digitally engaged population. However, the Mexican government has not implemented significant policies focused on enhancing digital literacy for those vulnerable to internet access issues.

Moreover, the hastening pace of digital transformation is amplifying the need for and underscoring the significance of cybersecurity. In this context, a collaborative project can be envisioned, wherein different agencies of our government offer guidance based on their diverse experiences in formulating Mexico’s cybersecurity policy and establishing a cyber attack response system. The escalating demand for cybersecurity is not only rapid but, given the transnational and interconnected nature of cyberspace, elevating the cybersecurity standards of partner countries can also enhance our own cybersecurity.

While the AMLO government exhibits a reserved stance toward renewable energy, the demand for distributed power generation using renewable sources is substantial, given Mexico’s inadequate transmission and distribution infrastructure. In line with the PRODESEN 2023-2037 energy development plan, the Mexican government intends to expand distributed power generation. Consequently, there is an opportunity to explore participation in the construction of distributed electricity generation facilities under 500kW, which are subject to fewer government regulations. Besides meeting the demand for distributed power generation, it is crucial to consider this option from a short-term perspective as it does not necessitate approval from the Energy Supervisory Commission.

In Mexico’s pharmaceutical production and consumption market, the competition between global pharmaceutical companies and local firms is intense, posing challenges for Korean companies entering the market as new entrants. Therefore, establishing strategic partnerships with local pharmaceutical companies and distributors is crucial, and one viable option is to engage in license-based drug exports. Moreover, considering the specificities of Mexico’s drug registration and procurement environment, if a product is equivalent to patented offerings and demonstrates price competitiveness, it has the potential to gain acceptance in the market. Pharmaceutical companies can facilitate product uptake through various cooperation channels such as academic conferences and exhibitions. It is essential to enhance market awareness by consistently disseminating information.

As a result of Mexico’s policy to broaden access to universal health and medical services, the demand for medical supplies in hospitals and clinics, diagnostic equipment including imaging devices, and general home health care devices is on the rise. Notably, the policy targets the provision of services to underprivileged individuals residing in small cities, rural areas, and remote regions, with the potential for increased utilization of remote medical services, particularly due to the COVID-19 pandemic.

Considering the capabilities of Korean companies in the health and medical fields, the case of India’s collaboration with Mexico holds significance. The Indian government and pharmaceutical companies actively initiated a collaborative system with Mexico during the COVID-19 pandemic when Mexico sought alternatives to expensive branded drugs and raw materials traditionally provided by pharmaceutical companies in developed countries. Through strategic partnerships, India successfully entered the market by proactively establishing a cooperation system aligned with the health and medical environment and demands. This included actively promoting technology transfer for local manufacturing of vaccines and medicines. Therefore, by supporting companies’ advancement through the establishment of a cooperative network between policy agencies and regulatory authorities, there is a need to reexamine and revitalize the representative cooperation channels established in the past by both of Korea and Mexico.

Recently, China has signed and applied for membership in several trade agreements, including RCEP, CPTPP, and DEPA, which are expected to promote the reform and opening up of China’s trade sector. Specifically in the area of services trade, China needs to prepare itself for transitioning from the current positive list approach to the negative list method within three years after the implementation of RCEP in 2022, while also adopting an internationally recognized methodology. Several policies are being implemented. This study analyzed the Hainan Free Trade Port policy, which prioritizes the introduction of regulatory reform and trade liberalization measures in China’s services sector. It aimed to explore ways for Korea and China to cooperate in the service industry while also assessing the potential for decentralizing the functions of the Hong Kong Free Trade Port.

The conclusions and implications of this study are as follows. First, China is initially promoting the reform and opening up of Hainan’s service industry through the implementation of market access relaxation measures and negative lists, which constitutes a fundamental aspect of the Hainan’s Free Trade Port policy. China is anticipated to elevate trade standards by conducting openness assessments, amending domestic laws and regulations, and simultaneously applying a negative list and market access relaxation measures for the Hainan Free Trade Port, renowned for its highest level of openness.

Second, although the product trade liberalization and the operation of the tax system at the Hainan Free Trade Port are expected to be partially aligned with those of Hong Kong, there still remains a need for further progress in promoting capital movement liberalization. Consequently, in the medium to long term, Hainan is expected to offer foreign investors entry conditions comparable to Hong Kong’s tax system. However, unless significant progess is made in opening up the services sector and liberalizing capital movements, Hainan’s potential role as a free trade port may be limited.

Third, changes in Hainan’s trade, investment, and duty-free shopping need to be interpreted in light of the impact of the COVID-19 pandemic. Notably, there has been a noticeable increase in imports affected by Hainan’s duty-free allowance adjustments and duty-free import measures. Additionally, the services trade has recently shifted from a deficit to a surplus, primarily due to the escalation of transit trade. In terms of investment, domestic investment by Chinese companies has notably surged, particularly in industries with preferential corporate income tax rates and those with corporate income tax exemptions on offshore earnings. At present, the investment surge is primarily driven by domestic companies, but the foreign investment is poised to rise, depending on the outcomes of Hainan’s policy implementations The impact of these policies on duty-free shopping is expected to be felt after 2023. If Chinese citizens’ overseas duty-free shopping decreases in the future, it is expected to have a significant impact on our country.

From our country’s perspective, the first step is to carefully analyze Hainan’s upcoming irregular announcements regarding reforms and opening up in the service sector, and use them as a reference to prepare a negotiation plan that is advantageous for our country in the future Korea-China FTA service and investment negotiations. By leveraging insights from Hainan’s policies, we can assess China’s reform and opening strategies in terms of priority areas, direction, and pace. Additionally, we can explore methods to streamline market access and implement national treatment at the regional level.

Second, given Hainan’s burgeoning growth prospects, there is an urgent need to expand cooperation, with particular emphasis on the cosmetics and medical sectors. While Hainan has risen to become the second-largest region for cosmetics imports in China, Korea’s response pales in comparison to rival nations. Simultaneously, China is utilizing Hainan as a testing ground for institutional reforms within the medical sector, thereby bolstering Hainan’s role as a gateway for foreign companies seeking to penetrate the Chinese medical market.

Third, it is necessary to prepare for enhancing the long-term competitiveness of Hainan’s service industry. Hainan aims to enhance its competitiveness by adopting international service standards similar to those in Hong Kong. This will be achieved by implementing mutual recognition of professional qualifications and providing preferential treatment. If the overseas consumption of services by Chinese citizens shifts to domestic demand, this could potentially impact Korea’s service exports to China. This shift might directly affect duty-free shopping for tourists and medical tourism. Therefore, it is imperative for us to explore ways to enhance the competitiveness of our country’s service industry while providing products and services in Hainan. 

This study analyzes Australia’s medium-term and long-term trade strategies with a focus on supply chains, digital trade, climate change, and development cooperation. Based on the Australian government’s policy measures in response to these key economic issues, this study derives cooperation plans between Korea and Australia. The authors diagnose the situations Australia faces in these four areas to understand the background of the Australian government’s policy responses. Based on an analysis of Australia’s domestic industrial and international cooperation policies, it discusses ways in which Korea and Australia can expand their cooperation.

In the 2020s, the world has experienced a global outbreak of pandemic, strategic competition among major powers, and a series of armed conflicts between nations, leading to supply chain crises and an expansion of protectionist trade policies. As a result, nations are formulating strategies to expand cooperation, focusing on alliances or groups of nations with shared values. Korea also aims to expand economic solidarity with likeminded countries such as Australia to establish resilience against potential deteriorations in global economic conditions coming from geopolitical risks.

In regard to restructuring of the supply chain, Australia has faced a series of challenges caused by disputes with China. As the trade relations between the two countries deteriorated, retaliatory tariff measures and import restrictions followed. With China being Australia’s largest trading partner, and both countries heavily relying on each other for various products, these trade disputes had a significant impact on the stability of supply chains. While Australia was successful in swiftly diversifying its trade partners, the Australian government recognized the necessity of establishing a national supply chain management system and strategies to adapt to rapid changes in the international economy.

The Australian government consistently endeavors to strengthen the stability of its supply chain through international cooperation. It has fostered extensive supply chain cooperation in manufacturing, healthcare, energy resources, and food resources through initiatives such as the Supply Chain Resilience Initiative with India and Japan, the Australia-UK Joint Supply Chain Resilience Initiative, cooperation within Quad, and active participation in the IPEF. Additionally, the Australian government has established the Office of Supply Chain Resilience under the Department of Industry, Science and Resources to coordinate collaboration among departments. The Australian government also announced the Critical Minerals Strategy in 2019, 2022, and 2023, focusing on critical raw minerals for key strategic industries.

This report proposes enhancing bilateral collaboration between Korea and Australia in supply chain early warning systems. As Korea has launched its own national strategy to secure core minerals, the two nations can engage in stronger communication for the supply and demand of critical raw minerals. The comparative advantages of both countries in international technology certifications, technology standardization, ESG, and eco-friendly mining technology allow joint projects in mineral infrastructures to be promising and productive.

Leveraging one of the world’s most advanced digital transformations proceeding in Australia’s private sectors, the Australian government is promoting its Digital Economy Strategy and Digital Trade Strategy. The nation plans to emerge as a global top ten digital economy and society by 2030, toward which it is engaged in multiple core tasks, including efforts to commercialize quantum technology and 5G technology innovation. In pursuit of advanced digital trade, Australia’s Department of Foreign Affairs and Trade has established 13 digital trade rules to focus its management capacities.

Based on the leadership role it already plays in digital trade at the APEC, OECD, and G20, the Department of Foreign Affairs and Trade remains proactive in leading digital trade-related cooperation agendas. This research proposes upgrading the Korea-Australia bilateral Free Trade Agreement to establish norms for upcoming digital trade expansion and suggests coordinating new agendas for APEC in 2025, hosted by Korea. Additionally, it recommends active cooperation between the two countries in setting international standards for digital trade and collaborating on quantum technology development by aligning Korea’s Quantum Science and Technology Strategy and Australia’s National Quantum Strategy for joint projects.

 To actively respond to societal and economic changes caused by climate change and adapt to structural changes in related industries, the Australian government has formulated national strategies such as Powering Australia, Climate Change Act 2022, and the National Hydrogen Strategy. The Powering Australia strategy is the government’s primary response to climate change, focusing on the utilization of renewable energy sources, reducing greenhouse gas emissions, creating jobs in related industries, and easing electricity cost burdens. The National Hydrogen Strategy encompasses 21 measures to foster hydrogen-related businesses as a core energy industry in the future.

In addition to promoting national strategies, the Australian government is broadening its efforts toward international cooperation for climate change response, aligning with Japan, Germany, Korea, and others. Korea is expanding climate change cooperation with Australia in both governmental and private sectors. In 2022, multiple MOUs related to climate change response were signed, and a Korean firm was selected for financial support from a state government in Australia. Building upon the existing collaborative achievements between Korea and Australia, this study proposes advancing cooperation in the hydrogen sector, enhancing collaboration in eco-friendly transportation, and expanding joint discussions on trade barriers in carbon. Particularly, to strengthen cooperation in the hydrogen sector, there is a need to develop medium- to long-term blueprints for collaboration in hydrogen carrier ships, reinforce support for companies that enter the Australian hydrogen sector, provide financial support for pilot projects, establish local company information databases in Australia, and streamline customs clearance for related products.

Australia’s recent development cooperation initiatives, in line with its Indo-Pacific strategy, have been heavily focused on Pacific Island nations and Southeast Asian nations. Australia’s International Development Policy prioritizes Pacific Island nations, and Australia aims to stimulate private sector investments in Southeast Asian nations based on its Southeast Asia Economic Strategy to 2040. Since Korea is also formulating its own IndoPacific strategy, Australia’s achievements in developmental cooperation targeting Pacific Island nations and Southeast Asian nations provide significant insights for Korea to enhance its development cooperation initiatives.

This report suggests for the Korean government to leverage cooperation with Australia to explore tailored and optimized development cooperation programs for Pacific Island nations. Further emphasis is placed on the need for coordination among donor countries to prevent inefficiencies resulting from aid competition. Exploring promising avenues for trilateral cooperation among Korea, Australia, and the US or supporting Australia-led development cooperation programs should be considered. Regarding ASEAN, exploring options to jointly support relevant projects for implementation of the ASEAN Outlook on the Indo-Pacific (AOIP), already supported by both Korea and Australia, could be considered. Building upon the major cooperative projects identified in the existing multilateral channels between Korea, Australia, and ASEAN, Korea and Australia need to expand cooperation in emerging fields such as Southeast Asian infrastructure development, smart cities, and cyber/digital innovation. 

Digital transformation represents a paradigm shift that covers every facet of corporate management, including production, development, ordering, customer management, and business strategy. Rooted in digital technology, this transformative shift has become essential for corporate survival, fostering industrial competitiveness, elevating the quality of life, and contributing to national development. While the attention on digital transformation has escalated recently with the rapid integration of fourth industrial technologies such as the Internet of Things, 3D printing, cloud computing, big data, and artificial intelligence, its essence is deeply related to long-term processes like process automation and the evolution of information and communication technologies (ICT). This study investigates global and industry-specific trends in digital transformation, examining its correlation with the labor market in the United States, Germany, and Korea, and analyzing pertinent labor market policies.

In Chapter 2, the study examines various definitions of digital transformation from previous research and measures and compares the digital transformation of industries in major countries using indicators such as ICT capital stock, ICT intermediate input, and robot capital stock. The analysis of data from 2000 to 2017 indicates a significant increase in digital transformation in most of the 16 countries studied. While Korea maintained a top position in ICT equipment capital stock and intermediate spending from 2000 to 2017, software concentration and intermediate spending remained in the mid-range. Particularly, Korea’s robot concentration in manufacturing increased significantly, making it the country with the highest robot concentration among the 16 nations.

Despite Korea’s prowess in traditional digital transformation, its adoption of digital technologies (Internet of Things, 3D printing, cloud computing, big data analysis, and artificial intelligence) between 2018 and 2021 lags behind the OECD average, particularly in artificial intelligence. This analysis underscores Korea’s dominance in conventional digital transformation but reveals a deficit in adoption of cutting-edge technologies.

Chapter 3 delves into the intricate relationship between industryspecific digital transformation and employment dynamics in the U.S., Germany, and Korea. The analysis unveils diverse correlations between digital transformation variables and employment across countries. Notably, South Korea experiences a unique scenario where the positive and negative effects of digital transformation are concentrated among high-skilled workers, distinguishing it from the polarization observed in the U.S. and Germany.

Chapter 4 examines global policy responses to the transformative impact of digital transformation on the labor market. Categorizing policies into employment, education, and social security domains, the study emphasizes the need for adaptive measures to address the evolving employment landscape. Noteworthy examples include the introduction of minimum wage systems and collective bargaining rights for platform workers in response to the changing nature of employment.

Drawing upon the cumulative insights from Chapters 2 through 4, Chapter 5 provides key implications of this study. It supports for a shift in Korea’s digital transformation focus towards the service industry and underscores the importance of tailored policies for small and medium enterprises (SMEs) to bridge the technology adoption gap. The analysis of the labor market highlights the imperative of upskilling and reskilling programs to mitigate the impact on low- and medium-skilled workers.

In conclusion, the study underscores the multidimensional nature of digital transformation, ranging from its historical trends to its intricate relationship with the labor market and the evolving policy landscape. As countries navigate the challenges and opportunities presented by digital transformation, adaptive policies and a holistic approach are essential to ensure a balanced and inclusive transition in the workforce.