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  • 한-MENA 녹색전환 협력 방안
    Korea-MENA Cooperation Strategy in Green Transformation

    In coping with the energy crisis caused by climate change and the Ukraine crisis, decarbonization policies have now become a global issue. Korea, which imports a large part of its energy, as well as major countries in the Middle E..

    SEO Jeongmin·SEO Sanghyun·KIM Kyung-ha·NOH Dasol·CHOI Eseul Date 2022.12.30

    economic cooperation, energy industry
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    Summary
    In coping with the energy crisis caused by climate change and the Ukraine crisis, decarbonization policies have now become a global issue. Korea, which imports a large part of its energy, as well as major countries in the Middle East and North Africa, which are resource exporters, are establishing long-term renewable energy green transformation strategies to prepare for future crises. The Ministry of Environment in Korea has established a green industry classification system and is preparing standards for various new and renewable energy industries. The government and companies are also striving to increase our competitiveness in various fields such as power infrastructure, electric vehicles, finance, and hydrogen industries.

     Major countries in the Middle East and North Africa are also pursuing long-term plans to intensively foster industries suitable for their conditions, such as wind power, solar power, and hydrogen, in order to transform into a decarbonized economy. The region has also adopted a green transformation strategy as a mid- to long-term growth strategy while responding to climate change. In this situation, this study attempted to examine why major Middle Eastern and North African countries, which have relied on traditional energy such as oil and natural gas, have recently conducted intensive investment in green industries such as hydrogen and solar power, and to find out how the region is seeking cooperation. Moreover, this study selected four countries in the Middle East and North Africa through a survey, and examined the current status and policies of the green transformation industry of the selected countries. Finally, the green conversion industry capabilities of the above four countries were analyzed, and based on this, cooperation strategies with Korean companies were derived through a survey.

    Chapter 2 examines the background and current status of Korea's green conversion policy. As a new national strategy in the post-corona era, the Korean New Deal was promoted, and the green transformation became an important factor. The ultimate goal is to achieve zero carbon emissions and accelerate the transition to a low-carbon, green economy. Chapter 2 also analyzed the status and policies of green transformation in major countries, focusing on the EU, the United States, and Japan. All of these developed countries are also aiming to cope with the climate change crisis and transform themselves into a sustainable society. Moreover, it can be seen that a large-scale investment program is being implemented to promote the green economic transition.

    Section 3 of Chapter 2 explains the current status of cooperation between the three major countries above, Korea, and four countries in the Middle East and North Africa. European countries, which are adjacent to the Middle East geographically, are the most active in cooperation with Middle East and North African countries. Major Middle Eastern and North African countries are emerging as key mutual partners, especially as important suppliers for European hydrogen demand.

    The Biden administration of the United States is also strengthening cooperation with countries in the Middle East and North Africa to cope with climate change. The United States invited the leaders of Saudi Arabia, the United Arab Emirates, Turkey and Israel to discuss ways to cooperate at the 2021 U.S. climate summit. In the United States, private companies are particularly active in entering the green transformation industry in the Middle East and North Africa. Air Products, a U.S. industrial gas and chemical company, is actively cooperating with Saudi Arabia and Oman for hydrogen and ammonia production.

    Japan is also accelerating efforts to produce and transport hydrogen-free ammonia in Middle Eastern countries such as the UAE. Historically reliant on Middle East crude oil, Japan is working on a strategy to expand this relationship to green areas. Korea is also preparing various measures for cooperation with Saudi Arabia, UAE, and Egypt at the government and corporate level, and the country that is most actively promoting cooperation is UAE.

    Chapter 3 analyzed the green conversion industries in four major countries in the Middle East and North Africa. First of all, we looked at the background and current status of new and renewable energy development in Egypt, Morocco, Saudi Arabia, and UAE. The above four countries are also pursuing strategies to secure eco-friendly and sustainable industrial capabilities by breaking away from production and consumption patterns that relied on existing fossil fuels. Two North African countries, low or non-acid oil countries, are fostering inexpensive renewable energy sources such as solar and wind power as energy sources for future generations. Saudi Arabia and the UAE in the Middle East, which are rich in fossil fuel resources, are emerging as green hydrogen production sites using solar energy. The MENA area is rich in solar radiation and wind speed, presenting favorable conditions to secure competitiveness as one of the cheapest areas in the world for green hydrogen production.

    Chapter 3 also quantitatively analyzed the competitiveness of the green transformation industry in four countries in the Middle East and North Africa. The economic index utilized in this quantitative analysis was divided into the categories of growth, specialization, and potential, and the policy index was also analyzed by dividing it into legal systems and financial support. According to the analysis results, considering all aspects comprehensively, potential in the new and renewable energy industry is high in the order of Saudi Arabia, UAE, Morocco, and UAE. However, looking at the detailed index, it was found that there are strengths by region. First of all, Saudi Arabia and UAE, which are rich in domestic investment due to huge oil exports and imports, were evaluated to have a comparative advantage in economic index over Egypt and Morocco. On the other hand, Morocco and Egypt, which relatively lack domestic investment resources, seem to be actively attracting domestic and foreign investment by creating an institutional environment favorable to investment in the renewable energy industry.

    Chapter 4 analyzes surveys to select base countries in the Middle East and North Africa and to derive promising cooperation fields with statistics. To this end, a survey was conducted on experts in related fields at home. 100 survey answers were analyzed on a first-come, first-served basis. The survey adopted a analytical hierarchical process (AHP) method based on the relationship with Korea and the influence of trading partners. Considering diplomatic power, trade volume, private exchange, logistics infrastructure, location and stability, the market was subdivided. An analysis of the selection of candidates for bases using the AHP was conducted on domestic MENA and industry experts. According to the analysis results, the relationship with Korea has a weight about five times higher than that of the target country in the relationship between Korea and the influence of the target country. In other words, it can be seen that Korean MENA experts focus more on relations with Korea than on the influence of the target country. It also showed that diplomatic power weighed five times more than trade volume and private exchange, and that the logistics infrastructure was evaluated seven times more important than competitiveness, geopolitical, and political stability factors.

    In addition, based on 100 questionnaires, fields and products with high potential for cooperation with Korea were evaluated. The solar heat and light fields were evaluated as promising cooperation projects based on the geopolitical advantages of abundant sunlight and thermal energy in areas with high potential for cooperation with two North African countries. The area's most undervalued area is the bio sector. Promising eco-friendly energy products have emerged in the solar cell sector. Except for solar cells, secondary batteries, hydrogen cells, and ESSs showed normal scores in the 5-point range. In Saudi Arabia and the UAE, two Middle Eastern countries, solar and solar projects were also selected as the most promising areas of cooperation. It was investigated that products related to green transformation, which are promising to cooperate in the above two countries, are smart grids, solar cells, and ESS.

    Based on the examination of green transformation policies and environments in major Middle East and North Africa, the analysis of industry competitiveness of the major countries, and the extraction of possible fields and products of cooperation via survey questionnaires, this research has presented some suggestions which may contribute to mutual benefits towards MENA's industrial diversification efforts and our decarbonization strategy. The main suggestions are 1) forming a mid- to long-term dedicated TF in the Middle East and North Africa, 2) establishing a comprehensive win-win cooperation model with the countries, 3) seeking to advance together with advanced countries or companies, 4) expanding top-down approaches of summit diplomacy,  5) holding regular green transformation (reverse) roadshows, and 6) building networks and training professionals in the related fields.
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  • 아프리카 문화콘텐츠 산업의 발전과 한국에 주는 함의
    Creative Industry in Africa from the Perspective of Korea

    Cultural and creative products are not just containers of historical and cultural identities but commercial goods tradable across borders. Simultaneously, culture is one of the primary sources of so-called “soft power,” along wi..

    Yongkyu Chang et al. Date 2022.12.30

    economic cooperation, industrial policy
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    Summary
    Cultural and creative products are not just containers of historical and cultural identities but commercial goods tradable across borders. Simultaneously, culture is one of the primary sources of so-called “soft power,” along with political values and legitimate national foreign policy. Hence, the Korean government has been taking a leading role in building up the cultural and creative industry since the 1990s. The “Hallyu,” or craze for Korean creative products outside Korea, has been expanding across the world, from the epicenter of Asia and North America to the Middle East, Latin America and Africa. While such expansion led to interest in the mediascape of varied regions around the world, Africa has remained in the margin of academic and policy research of the creative industry. This report aims to provide information and analysis of the less studied mediascape in Africa.

    Given the growing cultural engagement between Korea and the countries in Africa, this report examines the creative industry in Africa from three distinctive perspectives of development cooperation in creative industry, cultural public diplomacy and trade in cultural and creative goods. Drawing on field research and secondary research on production, retailing and consumer environment in the creative industry, this report provides lessons for further inter-continental cultural engagement.

    Africa is a continent with 55 nations. Acknowledging the diversity in mediascape in each country, this report narrows its focus down to three representative countries. First, Rwanda, located in East Africa, provides an exemplary case of the media being used as a powerful political tool. The destructive role of radio during the genocide in the 1990s has been cited in explaining the danger of the media. The tragic experience resulted in strong government intervention in the creative industry. Second, Nigeria in West Africa is leading the production of films, particularly in the informal economy, which is better known as Nollywood. In the relative absence of government intervention, producers and retailers in Nollywood have built Nollywood into the world’s second largest movie producer in terms of the number of films produced. Third, South Africa reveals rather different roles of the creative industry in relation to most sub-Saharan African countries. Its creative industry is well integrated in the global value chain, and the South African government offers incentives to make its local creative industry more attractive to international producers and retailers. This policy direction is in tandem with reconciliation and development of the historically less-privileged by the post-apartheid government.

    Drawing on analysis of the three countries, the report suggests as follows. First, Rwanda provides the potential of development cooperation in creative industry. The size of the formal economy in the creative industry is, like that of most African countries, too insignificant to attract stakeholders in Korea’s creative industry. However, an increasing number of African countries, including Rwanda, Tanzania, and Ghana, are recognizing the role of the creative industry in economic growth. These countries lack institutional experiences to build up the industry. Therefore, such countries will become effective destinations of Korea’s development cooperation in the creative industry, focusing on capacity-building through the sharing of Korea’s knowledge and experience. Cities are better equipped in providing hands-on experience in the creative industry. Here, the government agency in charge of development cooperation (KOICA) can take the role of a pilot agency. Upon the request of partner countries, KOICA can initiate partnering the countries in Africa and cities in Korea which have relevant experiences in varied sectors in the creative industry.

    On the other hand, our research in Nigeria and South Africa offers lessons in light of public-private cooperation and private sector engagement. Nigeria reveals opportunities for public-backed private sector engagement. The government’s trade agency (KOTRA) can take a leading role in understanding Africa’s active-yet-unregulated market and provide private stakeholders with pertinent consultations. For instance, Nigeria is the largest economy in Africa with a massive pool of potential consumers for varied creative goods. Additionally, its film industry is distinctively commercial-oriented. Lastly, South Africa offers significant opportunities for stakeholders in the creative industry as a gateway country to Africa. Its creative industry is well integrated with the global value chain and its broadcasting companies and telecommunications companies are operating across Africa. Its infrastructure is relatively well-established and government regulations are in place to support international producers and retailers.

    In conclusion, existing studies on Africa’s creative industry remain mere translation of studies carried out by Western researchers. This report contributes to widening the territory of our understanding of the African mediascape from Korea’s own reference point. While this report limits its scope to three representative countries, further research is necessary to understand the mediascape of Africa better.
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  • 아세안 지역의 저탄소 에너지기반 구축을 위한 한-아세안 협력 방향
    A study on the direction of cooperation between Korea and ASEAN to establish a low-carbon energy system in the ASEAN region

    As energy transition to respond to the global climate crisis has emerged as an important issue not only in developed countries but also in developing countries, the Association of Southeast Asian Nations (ASEAN) region is also exp..

    Hyun Jae Kim et al. Date 2022.12.30

    energy industry, environmental policy
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    Summary
    As energy transition to respond to the global climate crisis has emerged as an important issue not only in developed countries but also in developing countries, the Association of Southeast Asian Nations (ASEAN) region is also expanding their efforts to build an energy system centered on low-carbon energy. The ASEAN is facing various challenges in pursuing such energy transition while responding to increasing energy demand arising from rapid economic growth and rising population. In addition, most ASEAN countries currently rely on fossil fuels such as coal and gas for 80-90% of their energy supply, urgently demanding ground-breaking but realistic alternatives for low-carbon energy transition. Therefore, the objective of this study is to identify the potential for establishing a low-carbon energy infrastructure in the ASEAN region by analyzing the current status of the region’s energy sector, greenhouse gas emission trends, and the member countries’ low-carbon policy goals, and to explore the direction of cooperation in the low-carbon energy sector between the ASEAN and Republic of Korea with focus on areas where cooperation with Korea can be further expanded.

    In the ASEAN region, as of 2020, fossil fuels account for about 83% of primary energy consumption and play a pivotal role in the energy consumption structure. In the power generation sector, despite the dramatic increase in installed solar power generation capacity from 1MW to 22.9GW during the period of 2005-2020, as of 2020, fossil fuels (coal 33%, natural gas 30%, and oil 5%) still account for more than 60% of the region’s power generation capacity. Moreover, slow investments due to high costs of clean energy projects, low reduction targets, limited readiness to accept low-carbon technologies, weak policies and regulatory frameworks, and lack of flexibility in power systems are obstacles to establishing a low-carbon energy infrastructure in the ASEAN region. However, all nine ASEAN members except the Philippines have declared to reach carbon neutrality, and most ASEAN countries are strengthening their policies to achieve each of their greenhouse gas emission reduction targets through expansion of renewable energy, energy efficiency improvement, decarbonization of transportation sector, increase of electric vehicles, and decarbonization of industrial sector. In addition, through the ASEAN Plan of Action for Energy Cooperation (APAEC), the region is conducting seven multilateral cooperation projects to build a low-carbon energy infrastructure including ASEAN power grid project, and continuously carrying out bilateral cooperative activities in joint projects, technology development, human and policy capability building, and financing in low-carbon energy area with major countries including Korea, Japan, China, the US, Germany and Denmark.

    Considering Korea’s experience in entering the ASEAN in related areas, and the low-carbon energy implementation plans and measures of ASEAN countries, this study suggests the following six areas as promising ones for low-carbon energy cooperation between the ASEAN and Korea: ① solar power, ② energy storage system, ③ clean cook stove, ④ wind power, ⑤ biomass and ⑥ hydrogen. For solar power, where the most active investments are made in both Korea and the ASEAN, various business models can be considered for all ASEAN countries from utility-level large-scale solar power generation complex to floating solar model, agricultural solar model and hybrid model with energy storage system. Energy storage system connected to renewable energy can be built in inland areas or on islands where power price is high and power supply is not reliable. For clean cook stove, a business model suitable for local circumstances needs to be developed for those ASEAN nations which have been heavily using traditional biomass fuels by utilizing Official Development Assistance (ODA), support funds for developing countries, and funds from international organizations and banks. In case of wind power, since the ASEAN region is not rich in wind resources because wind speed is slow in many areas and Korea’s domestic wind turbine manufacturing technology and cost competitiveness are somewhat lagging behind overseas countries, pursuing joint small-scale projects with companies or countries in and outside of the region which have sufficient technology capabilities and experiences in wind sector is recommended. Biomass energy needs to be considered from the perspective of forming a stable supply chain of wood pallets rather than entering markets. Lastly, hydrogen seems to have high cooperation potential in production in the region and in domestic trade sector for green hydrogen based on renewable energy as well as blue hydrogen combined with natural gas and carbon capture and storage (CCS) technology.

    In addition, this study analyzes the long-term ripple effect of connecting ASEAN-Korea carbon markets through a computable general equilibrium (CGE) model. The analysis shows stronger positive effects are created in many economic indicators when Korea and major ASEAN countries cooperate jointly by connecting carbon markets rather than independently implementing their NDC. At the COP26 held in November 2021, major negotiations between the Parties to utilize international carbon market mechanism were completed, so it is expected that individual countries’ efforts to achieve their reduction goals using the international carbon market will become active in the coming years. Therefore, preemptive efforts to expand cooperative relations in carbon markets with major trading partners such as the ASEAN should be strengthened.

    Finally, in order to strengthen implementation to expand cooperation in ASEAN-Korea low-carbon energy sector, it is required to ① craft more sophisticated and specific policies and strategies for ASEAN energy cooperation; ② expand and strengthen financing support for the ASEAN and bilateral cooperation channels; ③ rebuild cooperation system to promote cooperation in the low-carbon energy sector with the ASEAN countries; and ④ consolidate efforts to expand and discover ASEAN-Korea cooperation projects by leveraging multilateral energy cooperation initiatives in which ASEAN countries participate including ASEAN+3, East Asia Summit (EAS) and Indo-Pacific Economic Framework (IPEF).
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  • 북한 기후변화 적응을 위한 국제협력방안: 농업과 자연재해를 중심으로
    International Cooperation for North Korea's Climate Change Adaptation: A Focus on Agriculture and Natural Disasters

    North Korea was early to recognize the importance of responding to climate change, actively participating in international cooperation on climate change. In 1994, it joined the United Nations Framework Convention on Climate Change..

    Dawool Kim et al. Date 2022.12.20

    international politics, North Korean economy North Korea
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    North Korea was early to recognize the importance of responding to climate change, actively participating in international cooperation on climate change. In 1994, it joined the United Nations Framework Convention on Climate Change and the Kyoto Protocol and is now participating in the Paris Agreement, the current legally binding treaty on climate change. In 2000 and 2012, North Korea also submitted its National Communication on Climate Change to the United Nations Framework Convention on Climate Change, reporting on the impacts of climate change, adaptation measures, greenhouse gas emissions, and reduction plans. Internally, North Korea took steps to adjust to climate change, establishing the National Disaster Risk Reduction Strategy in 2019 and revising relevant laws and regulations. However, it still remains highly vulnerable to climate change. Moreover, sanctions against North Korea have prevented international efforts to support climate change adaptation in developing countries from reaching it.

    This study has two primary purposes. First, it analyzes the impact of climate change and North Korea’s response measures, focusing on natural disasters and agriculture, identifying the need for cooperation on climate change adaptation with North Korea. We present empirical evidence on the impact of climate change and policy performance in North Korea by using satellite data that observe North Korea in real-time, as well as domestic and foreign statistics, literature, and media reports. Second, we review the current status of North Korean international cooperation, focusing on natural disasters and agriculture, and provide suggestions for major cooperation tasks when South Korea supports North Korea’s adaptation to climate change. We emphasize the importance of cooperating with the international community in this context.

    The findings of each chapter are as follows. In Chapter 2, we reviewed the status quo of climate change and natural disasters in North Korea and evaluated the risk factors of natural disasters in North Korea. Dramatic climate change was observed in North Korea, with an increase in temperature in spring and precipitation in summer. Natural disasters occurred almost every year. Floods, which occurred most frequently, often caused large casualties. Droughts, although infrequent, affected more than 10 million people on average. Natural disasters have also been found to have far-reaching effects in delaying the achievement of the SDGs in North Korea, which might result from the high risk of comprehensive natural disasters in North Korea. Based on the INFORM risk index, frequent natural disasters and food shortages in North Korea are increasing North Korea’s vulnerability to disasters, and insufficient institutions and infrastructure are also factors that increase North Korea’s disaster risk. Farmland regions and South Hwanghae Province were found to be highly exposed to floods, raising the possibility of a vicious cycle between natural disasters and food shortages.

    In Chapter 3, we used remote sensing data to empirically analyze the impact of extreme weather on North Korea’s agricultural sector, and derive implications for food security in North Korea with the need for international cooperation regarding climate change. Our empirical analysis showed that both rice productivity and maize productivity were negatively affected by heavy rain and drought. North Korea, being a country with a very high food self-sufficiency rate but an absolute shortage of food, is in a highly vulnerable situation to external shocks such as abnormal climate change in terms of food supply and demand. Considering that the occurrence of extreme weather is gradually increasing in North Korea, additional support through international cooperation from a humanitarian standpoint is required for North Korea to respond to extreme weather.

    In Chapter 4, we analyzed North Korean laws, regulations, and policies relevant to natural disasters and agriculture. We found that North Korea has a dual disaster control system at the national level and the local level. In order to prevent disasters, North Korea has primarily pursued massive mobilization projects for its national land management. Although the overall degree of deterioration of water resource facilities in North Korea is considerable, analysis based on satellite data confirms that new water resource facilities have been constructed and the massive mobilization project has achieved limited success. In the agricultural sector, North Korean authorities are aware of the impact of climate change on agriculture, and various laws and regulations include provisions to prevent and prepare for natural disasters. However, the provisions of these laws all focus on prevention. These approaches have limitations in that they do not provide the legal basis necessary for disaster risk reduction or when recovering from damages. In response, North Korea has continuously emphasized that the agricultural sector is a core pillar for North Korea within the 5-year national economic development strategy, the 5-year national economic development plan, and the rural development strategy. The authorities have presented tasks to increase production throughout the entire agricultural sector. It is worth nothing that these agricultural policies mention climate change-related factors that hinder agricultural production, such as catastrophic extreme weather, but the specifics of the strategies and plans to practically reduce the impact of climate change are nearly absent.

    In Chapter 5 we reviewed discussions regarding climate change in the international community and analyzed trends in cooperation between the international community and North Korea regarding climate change adaptation, agriculture, and natural disasters. The concept of “adapting to climate change” was established at the 16th COP, and was reflected in the most recently adopted Paris Agreement, the New Climate Framework, and the Glasgow Climate Agreement. The NAP-Ag program harmonizing agriculture to the National Adaptation Plan (NAP) is supported by the UNDP and FAO in the agricultural sector. Regarding natural disasters, countries were urged to reduce disaster risk and strengthen disaster resilience centering on the Sendai Framework. North Korea has actively participated in discussions related to climate change and the environment in the international community by joining major international agreements and strengthening its efforts to adapt to climate change. Aid to North Korea continued at a steady pace even after the sanctions leveled against it, with the Humanitarian Country Team (HCT) taking the lead and working closely with North Korean counterparts. International organizations and NGOs affiliated with the HCT have put forth major efforts in areas such as food security, natural disaster response, nutrition, and agriculture. However, they are also facing multiple issues due to North Korea closing its borders, as well as external conditions such as COVID-19 and economic sanctions.

    In Chapter 6, we emphasized the need for cooperation with the international community in climate change adaptation cooperation with North Korea and derived primary cooperation tasks for natural disasters and agriculture. Although adaptation to climate change is an urgent issue, the current internal and external environment, such as sanctions against North Korea and rising military tensions on the Korean Peninsula, is not favorable to promoting inter-Korean cooperation. Although this is an inevitable effort for denuclearization of the Korean Peninsula, it is not desirable for the so-called “Green Détente,” i.e. peacemaking through environmental cooperation on the Korean Peninsula. Under these circumstances, cooperation with North Korea through the international community can be an effective way to support North Korean adaptation to climate change and strive for a Green Détente. International organizations and many European countries urged the implementation of sanctions against North Korea, condemned North Korea for armed provocations, but at the same time, continued cooperation with North Korea. It is necessary to seek ways to cooperate with the international community to help North Korea adapt to climate change through various channels, such as international environmental agreements and joint cooperation projects with international organizations, NGOs, etc. This study seeks to enhance the understanding of disaster risk, contribute to disaster risk governance, promote investment in disaster risk reduction, improve disaster preparedness and recovery, and reduce agricultural damage caused by extreme climates.

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  • Regulatory Similarity Between APEC Members and its Impact on Trade
    Regulatory Similarity Between APEC Members and its Impact on Trade

    This paper examines the regulatory similarity between APEC economies by NTM types and sectors. We calculate the regulatory distance proposed by Cadot et al. (2015) and identify which industries or NTM type needs further cooperatio..

    Bo-Young Choi and Inae Heo Date 2022.12.16

    barrier to trade, free trade
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    Executive Summary

    I. Introduction

    II. The SPS and TBT Chapter of CPTPP and RCEP
    III. Trade Barriers in APEC

    IV. Data and Methodology
    4.1. Data
    4.2. Regulatory Distance of APEC members
    V. Main Results
    5.1. Country-level analysis
    5.2. By-sector analysis
    5.3. Further analysis: by technology level
    5.4. Further analysis: by product differentiation
    VI. Policy Implications and Conclusion

    References

    Appendix
    Summary
    This paper examines the regulatory similarity between APEC economies by NTM types and sectors. We calculate the regulatory distance proposed by Cadot et al. (2015) and identify which industries or NTM type needs further cooperation through the Free Trade Area of Asia-Pacific (FTAAP). We refer to the two pathways of FTAAP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) and analyze how FTAAP may incorporate the existing mega FTAs to reduce regulatory disparities among APEC economies. We find that regulatory distance differs across industries and thus focusing on specific industries like CPTPP may be an effective way to mitigate unnecessary trade costs attributed to the heterogeneity of regulations. We also argue that including provisions related to technical assistance and capacity building is essential as regulatory distance is especially big between developed economies and developing economies.
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  • Are Taxes Drivers of House Prices? : Cross-Country Evidence from (Advanced) Eco..
    Are Taxes Drivers of House Prices? : Cross-Country Evidence from (Advanced) Economies in APEC

    This paper investigates the determinants of house prices in APEC countries. We focus our analysis on the role of property related taxes as well as other important macroeconomic variables. Tax is one of direct tools of government f..

    Yeo Joon Yoon and Woong Lee Date 2022.12.16

    APEC, tax
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    Summary
    This paper investigates the determinants of house prices in APEC countries. We focus our analysis on the role of property related taxes as well as other important macroeconomic variables. Tax is one of direct tools of government for influencing housing market. Therefore, analyzing how these taxes affect house prices provides direct policy implications. Our result suggests that the property tax is negatively associated, while the acquisition tax is positively related with the house prices. In shaping this outcome, the force from demand side as well as that from supply side are working at the same time. A higher tax usually increases costs of acquiring and maintaining houses which exerts upward pressures on house prices. On the other hand, a higher tax suppresses demand for houses because less people purchase houses as the costs increase. These two opposing forces interact with each other to yield qualitatively different results regarding the acquisition and property tax.

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  • 공공기관 ESG 현황과 경영전략: 해외사례를 중심으로
    A Study on the ESG Management of State-Owned Enterprises: Focused on Foreign Cases

    ESG management, which started from the perspective of investment by financial institutions such as pension funds, has become a management trend for global companies by pressing target companies for sustainable management. Recently..

    Tae Ho Lee et al. Date 2022.11.21

    regulatory reform, business management
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    Summary
    ESG management, which started from the perspective of investment by financial institutions such as pension funds, has become a management trend for global companies by pressing target companies for sustainable management. Recently, ESG management has been spread not only to private companies but also to public institutions, which is reflected in Korea’s performance evaluation of public institutions.

    Public institutions are in a suitable position to lead a change in the private sector by setting an example in ESG management because their establishing purpose is for public interests and the community building. However, Korean state-owned enterprises and quasi-governmental organizations have not established proper ESG management strategies yet.

    The public sector has different characteristics from private companies in three areas of ESG: E (environment), S (social), and G (governance). First of all, public companies have similar characteristics in G as private companies, so they pursue the interests of shareholders, but on the other hand, they must simultaneously pursue the policy goals, too. Public institutions other than public companies are different from public companies in G. 

    In the case of the social (S) sector, the public sector should pursue social values more than private companies. This is because public institutions themselves were established to increase social value or social utility.

    In the case of the environmental (E) sector, The public sector should lead the private sector in achieving national carbon reduction targets, using renewable energy, reducing sediments and wastes, and realizing a circular environment because they are public.

    In the end, the core of the ESG management strategy of public institutions can be said to be a leading role in establishing a governance structure suitable for the public sector, promoting social values, and coping with climate change.

    However, there are not many preceding studies on how the public sector should practice ESG management. Therefore, to establish the ESG strategy of the Korean public sector, it may be beneficial to identify cases of public institutions in major advanced countries around the world that are already building performance and establishing systems ahead of Korea.

    There are different kinds of interesting cases of ESG management by public institutions. First of all, France has traditionally accumulated know-how in public sector management of public institutions. The UK public institutions are an important subject of research due to the abundance of cases of privatization. Sweden has a strong public sector due to the social democratic tradition of Northern Europe. German cases are also interesting because of their stakeholder governance, involving stakeholders such as workers in the corporate supervisory board.

    The U.S. is a leading country of shareholder capitalism centered on the capital market, and the role of the public sector is not large. However, its public sectors such as Fannie Mae (housing finance) and Amtrak (railroad) are also exemplars. In addition, Japanese public institutions are of interest because they have a similar corporate culture to Korea. 

    Regarding ESG management of public institutions, international organizations present some guidelines. Representatively, the OECD announced guidelines for multinational enterprises, governance guidelines for state-owned enterprises, and anti-corruption guidelines for state-owned enterprises, It is no exaggeration to say that these three are OECD ESG guidelines.

    The UN’s Global Compact, Principles of Responsible Investment (PRI), SDGs, and principles for human rights and business (UNGPs) are important guidelines that Korean public institutions should follow.

    In addition, initiatives related to ESG information disclosure also affect the management of public institutions. Public institutions need to understand and apply various initiatives, such as the Sustainable Accounting Standards Board (SASB), the International Sustainability Standards Board (ISSB), the Carbon Information Disclosure Project (CDP), and the Climate-Related Financial Information Disclosure Task Force (TCFD), and the GRI.

    In this study, the following implications were derived as a result of studying the policies and ESG status of public institutions in the EU, France, Sweden, Germany, Japan, the United States, and the United Kingdom.

    First, in terms of the management type of public institutions, it was found that major countries around the world are converging into a centralized management system. This is the recommended method by the OECD’s governance guidelines for public enterprises, and countries with decentralized or dual management systems are also shifting to centralized management systems.

    Second, the governance structure of public institutions is bound to be more stakeholder-centered than that of private companies, and public institutions in major countries were implementing stakeholder-centered ESG management.

    Third, The pursuit of social values of public institutions is more powerful and is being promoted through ESG. This is because the purpose of the establishment itself is for the benefit of the community.

    Fourth, public institutions were leading the private sector in environmental management. Setting and implementing environmental goals such as NetZero RE100, and SBTi requires considerable cost and sacrifice, where public institutions show examples for the private sector. 

    Fifth, public institutions in major countries’ESG management target are 17 SDGs, Global Compact, Principles of Responsible Investment (PRI), and Human Rights and Business Principles (UNGPs).

    Sixth, as guidelines for achieving these goals, public institutions adopted and followed OECD guidelines for multinational enterprises, governance guidelines for state-owned enterprises, and guidelines for anti-corruption and integrity. In particular, Germany has made 20 principles of the Sustainability Code and 20 checklists by creatively synthesizing these guidelines.

    Seventh, in the environmental field, most state-owned companies around the world aim to achieve carbon neutrality before 2050. In addition, as a means of achieving it, it has joined RE100 and has joined SBTi, which scientifically verifies its methodology. In addition, most of them had ISO 14001, an environmental management certification, and 50001, an energy management certification.

    Eight, in terms of governance structure, most public institutions had a board-centered management system. The board of directors could appoint and dismiss the head of the agency with independence. The chairman of the board of directors and the head of the institution were separated, the proportion of directors of women or minorities was set, and the proportion of independent non-executive outside directors should exceed half.

    Ninth, in the case of Germany, France, and Sweden, which have relatively strong socialist tendencies in the pursuit of social values, the strong momentum of social value was confirmed, but in the case of the United Kingdom, the United States, and Japan, the momentum of social value was relatively low.

    Tenth, in connection with the appointment of heads or directors of public institutions, most countries established a tradition of excluding politicians. In the case of the United Kingdom, the Commissioner for Public Appointments monitors, regulates, and discloses the appointment of executives of various public institutions, and the main role is to block personal influence and personnel intervention. The French Public Enterprise Management Agency (APE) integrates and manages the appointment of executives, management contracts of the head of the agency, management performance evaluation, and disclosure of management information including financial information.

    Eleventh. a significant portion of public institutions in major countries prepare and disclose sustainability reports through the GRI reporting methods. Public companies in each country include sustainability in their annual reports or publish sustainability reports separately.

    Finally, as the above analysis was applied to Korean public institutions, we know that ESG management of Korean public institutions is still in the introduction stage and is at a standstill. In particular, only a few public institutions have declared Net Zero in the environmental field or participated in RE100 and SBTi. Of the 63 domestic RE100 declaration companies, 13 are public institutions. The Korea Agricultural and Marine Products Distribution Corporation is the only public company that has joined SBTi, a scientific methodology for Net Zero.

    However, since 2018, the social aspect of ESG management in Korean public institutions has been improved but ESG management across employees, consumers, supply chains, and social contributions is still not organized. 

    The Achilles heel of ESG management, a Korean public institution, is the governance structure. Above all, the management of public institutions is still centered on the head of the institution, not the board of directors. However, it has become fixed that the head of a public institution is not appointed mainly based on competence or expertise, but is appointed as compensation for its contribution to the election campaign.

    To overcome this situation, the management goals and missions of public institutions should be redefined. The U.N. Sustainable Development Goals (SDGs) can be used as an important criterion. The 17 SDGs objectives can be mapped accurately to ESG. Among the 17 goals, selecting goals suitable for their establishment purpose and applying them to management is the way public institutions in advanced countries implement ESG management.

    After selecting goals, detailed action plans should be created according to global guidelines for each field of governance, environment, and society. The first thing to be improved in terms of governance, which is a weak point in the Korean public sector, is the ownership management system in the external governance structure. The Public Institution Steering Committee, which can be said to be an external governance organization of public institutions in Korea, is established as an institution under the Ministry of Strategy and Finance, so its independence is not guaranteed. It seems a desirable plan to reorganize it into an independent ownership management organization like the French Public Enterprise Management Agency (APE).

    Regarding the external governance structure, the issue of securing transparency and expertise in the appointment of heads of public institutions is also an urgent task to be solved. One of the chronic problems related to the selection of heads of institutions in Korea is the issue of appointment and replacement of heads of institutions linked to regime change. The OECD Anti-Corruption Guidelines recommend banning the appointment of political figures without the expertise to the public institutions.

    Next is the improvement of internal governance. it is important to secure management transparency to prevent a head of the institution from pursuing private interests and lax management. To this end, it is essential to secure an internal control system by enhancing the role of the board of directors.

    Regarding the improvement of internal governance, the OECD guidelines stress that the board of directors should be able to determine practical management strategies in the management of public corporations and to monitor and check management strategies. 

    However, in the case of Korea, there is a clear tendency to focus all authority and responsibility on the head of the public institutions. 

    Korea should now improve the internal governance structure of public institutions, which means centering on the board of directors. The OECD guidelines for determining the independence and autonomy of the board of directors has three criteria: whether the chairman of the board of directors is separated, the proportion of non-executive directors within the board of directors, and the right to appoint and dismiss the head of the institutions. The president of Korea directly appoints the heads of large institutions and public enterprises, and the heads of quasi-governmental institutions are appointed by the minister. The authority of the board of directors is very weak in that the government holds the right to appoint the head of the institutions.

    Currently, the appointment and dismissal of directors for the formation of the board of directors of public institutions are made separately by the minister regardless of the characteristics or size of the institution. It is necessary to clearly define the qualifications and requirements for the appointment of directors. Auditor has the same situation. 

    Another thing the OECD emphasizes concerning the role of the board of directors of public institutions is the risk management ability. The OECD stresses that the role of non-executive directors who do not directly participate in management activities but have accumulated various experiences in each field is very important for crisis management. In Korea, the board of directors of public institutions lacks not only expertise but also diversity, so improvement is urgent.

    In addition, the minutes of the board of directors meeting should be transparently disclosed. In addition, the term of office must be guaranteed with sufficient authority to the board of directors, and the activities of the board of directors must be strictly evaluated. In addition, it should be possible to give sufficient authority to non-executive directors.

    The OECD also emphasizes transparency in board activities, and Korea is required to disclose matters related to the management of public institutions through www.alio.go.kr. Basic information related to the operation of the board of directors is being disclosed on the site, but it is pointed out that there are still many things to be improved.

    Most of the public institutions in major countries are leading the NetZero under the Paris Agreement. Most are aiming to achieve NetZero by 2050, with some disclosing their goal of achieving NetZero earlier than 2050. In addition to responding to climate change, public institutions are taking the lead in implementing a circular environment system that respects biodiversity and uses resources in circulation.

    Korea’s public institutions shouldl not only declare 2050 carbon neutrality but also have to present their goals to SBTi and certify their methodologies. In addition, it is necessary to reduce water use and discharge of attractive substances, increase the use of renewable energy, recyclables, and eco-friendly products, and transparently disclose related information.

    The way public institutions in each country implement social values is very diverse. In the case of the UK, social value laws are simply intended to consider social value in public service procurement, but Swedish public companies are pursuing social value broadly based on the concept of community building.

    It is the OECD guidelines for multinational enterprises that well define ESG activities in the social sector. This covers the United Nations’ human rights and business guidelines. These values of the social part have already been well introduced in the social value part of the performance evaluation of public institutions in Korea, and have been strengthened since 2018. However, it is still pointed out that the indicators of diversity and inclusion are insufficient.

    For public institutions to effectively manage ESG in the future, it is necessary to reorganize the current public institution performance evaluation system centered on ESG. A policy was recently announced to reduce the social value sector, which has been increased significantly in the Moon Jae Inn government, and to increase the score of the financial sector. As the regime changed, the direction of ESG management in public institutions changed.

    This change due to the political perspective of the government makes public institution difficult to manage ESG. The organization of the institution was changed according to the performance evaluation result and manpower was reassigned, but it was in a situation where it had to be repaired at once. In addition, the consistency of the evaluation was undermined, and it was difficult to use the results of the performance evaluation for future management.

    One idealistic alternative is to use an internationally reliable sustainable report format as a standard format for the performance evaluation report of public institutions. The GRI method, the world’s most widely used sustainability report format, can be used to prepare a performance evaluation report for public institutions.

    If the reporting format is adopted following international standards and experts in the field evaluate the report by international standards, the management of public institutions in Korea will be internationally certified. For example, disclosure using the GRI criteria in the pursuit of achieving the UN SDGs will increase consistency between objectives and reporting and result in a self-contained quality ESG evaluation.

    However, in reality, since this work takes a lot of time, it is necessary to thoroughly analyze the current performance evaluation indicators of public institutions from an ESG perspective and add new indicators. It is also a natural step to change the allocation percentage of the changed indicators.

    Analyzing the 2022 management evaluation indicators released at the end of 2021 from the perspective of ESG, too much focus on the social sector was found. In the case of the environment, only 0.5 out of 50, and the governance structure is only about 7.5. On the other hand, 32.5 points are assigned to the social sector. making it difficult to evaluate ESG in a balanced manner with the existing performance evaluation indicators. Of course, there is a separate auditor evaluation to supplement the governance structure, but it cannot be denied that the performance evaluation as a whole is too biased toward social value evaluation. Therefore, such a system cannot properly evaluate or encourage ESG management of public institutions.

    Therefore, the management evaluation index of public institutions should be revised significantly. It is desirable to classify the whole into five categories: management strategy, governance structure, society, environment, and finance, and balance the proportion of each index at 20%. In addition, it seems necessary to assign five points to ESG among 50 points in the major business sector by establishing an index to evaluate whether the project has been carried out from an ESG perspective.

    In addition, it is necessary to adopt a differentiated evaluation method considering that public companies, quasi-governmental institutions, and other public institutions have different purposes of establishment, management goals, and ESG management environment. 

    In conclusion, ESG management of public institutions should establish a transparent decision-making structure centered on the board of directors in the governance structure, serve as priming water in the environmental sector and pursue social values more actively than the private sector. The government should make efforts to improve the public sector performance evaluation system in consideration of global ESG trends and overseas cases as a powerful means to drive this.

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  • 카타르의 지속가능한 성장 기반 구축 전략과 협력 시사점
    Sustainable Growth Strategy of Qatar and Implications for Cooperation

    As a small state surrounded by great powers such as Saudi Arabia, UAE, and Iran, Qatar has historically had little influence within its region. Until 1971, Qatar was considered an emirate along with the other emirates, which forme..

    Munsu Kang et al. Date 2022.10.31

    economic growth, economic cooperation
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    Summary
    As a small state surrounded by great powers such as Saudi Arabia, UAE, and Iran, Qatar has historically had little influence within its region. Until 1971, Qatar was considered an emirate along with the other emirates, which formed the United Arab Emirates (UAE). Following its independence from the United Kingdom in 1971, Qatar did not demonstrate much diplomatic power, but Saudi Arabia exerted a strong influence on Qatar. Since the enthronement of King Hamad in 1995, Qatar has changed its diplomatic route. Aside from rapid economic growth, King Hamad pursued a policy of expanding its external influence through internal reform, neutral intermediaries, and pragmatic diplomacy. Specifically, Qatar has formed defense agreements with Western countries such as the U.S., UK, and France, as well as providing land to the U.S. for military purposes. Qatar not only maintains a friendly relationship with pro-Western nations, it also maintains close ties with anti-Western groups, such as the Muslim Brotherhood and Hamas. The broadcasting of Al Jazeera and the hosting of large events (e.g., the 2022 Qatar World Cup) are other ways in which Qatar strengthens its position within the Arab world. As a result, Arab countries such as Saudi Arabia, the UAE, Egypt, and Bahrain broke their diplomatic ties with Qatar in 2017 and implemented a blockade on the country. Following this, the GCC countries, including Saudi Arabia, the UAE, Bahrain, and Egypt, restored diplomatic relations with Qatar in 2021. As a result, Qatar has emerged as a mediating country expanding its influence, seen for instance in the mediation process of the U.S.-Afghanistan conflict.

    Natural gas exports have contributed to Qatar’s economic growth. With natural gas accounting for 80% of Qatar’s export value, the country is vulnerable to changes in international conditions such as low energy prices. In terms of total gas reserves, Qatar ranks third in the world, and in terms of production volume, it ranks fifth. After Australia, Qatar holds the second largest share of the global natural gas market. In light of Qatar’s high dependence on energy, its GDP has declined since 2013 due to low energy prices. While global energy prices have spiked following the Russia-Ukraine war, the EU, which is highly dependent on Russian gas, has begun to diversify its sources of import. As a result, Qatar is receiving attention from the European Union and Asian countries.

    Korea is Qatar’s top trading partner after Japan, India, and China. In addition, Qatar exports 16.6% of its natural gas volume to Korea. Korea and Qatar have worked to diversify their bilateral economic relationship since 2007, with the two countries holding high-level talks and agreeing to cooperate in the construction, energy, trade, investment, science and technology, health, defense, and education sectors. However, these efforts have not produced any notable developments to date, except in the energy sector. This study aims to propose bilateral cooperation strategies between the two countries beyond the area of natural resource trade.

    The second chapter examines the internal and external environment as well as the national development strategy of Qatar. Several initiatives have been launched by the Qatari government to advance a sustainable society by reducing carbon emissions and responding to the effects of climate change. Among these initiatives are the Education City, the Al Jazeera broadcast, and the Science and Technology Park. Qatar also benefits from a favorable environment due to the high demand for natural resources from abroad. Due to this situation, Qatar has announced plans to diversify its economy and become a more sustainable society. To overcome its economic vulnerabilities and drive green transition, Qatar announced its Vision 2030 and National Development Plan 2018-22, focusing on economic diversity, environmental sustainability, human development, and social inclusion. Qatar has also launched a Smart City, e-Government, and the Smart Qatar program (e.g., Hukoomi) incorporating digital technology. As part of its efforts to diversify its economic structure, the Free Zone Authority was established and investment regulations were relaxed in order to attract foreign investors.

    The bilateral relationship between Korea and Qatar has been described in Chapter 3, along with the demand for sector-specific cooperation. As part of our study, we selected five sectors, which include energy, digital technologies, food and water security, education, and health. In order to achieve an energy mix and industrial diversification, Qatar is developing the petrochemical sector and solar energy. Qatar strives to digitalize the public sector by integrating digital technology into all government sectors. Despite Qatar’s stable position in terms of food security, climate change may raise food and water security issues. Qatar does not perform well in the natural resource and resilience index despite its high food security index, compared to other developed countries, because of the extreme weather conditions. The Qatari government has therefore invested in adopting smart farms and reusing wastewater in agriculture as a result. There is a high demand in the education and health sectors for high-level education, science and technology, human resource development, medical devices, and pharmaceuticals.

    In Chapter 4, we identify potential areas of cooperation between Korea and Qatar. Our analysis in previous chapters indicates that solar power, desalination, smart farming, education with digital technology, and health services could be areas of potential cooperation between the two countries. It may also be possible to encourage the private sector to participate and cooperate between two countries by holding regular high-level meetings.

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  • 미중 전략경쟁 시대 지정학적 리스크와 경제안보
    Geopolitical Risk in the Era of U.S.-China Strategic Competition and Economic Security

    The concept of economic security largely includes the elements of economic statecraft, economic resilience, and building mutual trust. Economic statecraft refers to the act of using economic means in fields such as trade, investme..

    Jaichul Heo et al. Date 2022.10.30

    economic cooperation, international security
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    Summary
    The concept of economic security largely includes the elements of economic statecraft, economic resilience, and building mutual trust. Economic statecraft refers to the act of using economic means in fields such as trade, investment, and finance as a source of power in order to achieve one’s national interest or to change the behavior of another country. Economic resilience, then, refers to measures used to preserve the national interest in the economic field from external threats, and signifies the ability to recover immediately even when physically threatened. This can be explained as the ability to respond to areas of sensitivity and vulnerability, which can be secured by reducing sensitivity by lowering dependence on the other party and reducing vulnerability by preparing alternatives for emergencies. Lastly, building mutual trust explains the psychological aspect of economic security, and in the end, it means that a stable economic security environment cannot be created without trust- building between countries.

    Recently, the intensification of U.S.-China strategic competition, spread of COVID-19 infections, and the Russia-Ukraine war are disrupting the global supply chain and increasing instability in the global economy. The resulting instability in the supply of semiconductors, medicines, food, and energy is leading to an economic downturn, and the U.S., China, Japan, and EU are actively pursuing strategies to strengthen economic security.

    However, ever since World War II, there has never been a time when economic security was not important. During the Cold War, the United States offered trade and aid to capitalist countries and imposed sanctions on socialist countries to contain the Soviet Union. There was a brief period after the 1980s when the economic-security link was somewhat relaxed, when neoliberalism emphasizing market mechanisms became popular, and as the socialist economy shifted to a capitalist economy after the dissolution of the Soviet Union in the 1990s. However, after the Trump administration, which took office in 2017, started a trade war with China, economic security began to receive attention again. In this sense, the key to recent economic security is the U.S.-China strategic competition. To counter China’s economic rise, the United States is retightening economic- security links that were loosened in the post-Cold War era.

    On the other hand, it can be said that the difference between the Cold War period and the post-Cold War period is China’s share and influence in the global supply chain. China, which accelerated its industrialization through reform and opening up in the late 1970s, has grown as the world’s factory after joining the World Trade Organization (WTO), resulting in a significant increase in its share and influence in the global economy and global supply chain. Although there is still a large gap with the U.S. in high-tech industries, China is increasing its dominance in the global market in non-high-tech industries. It is also worth paying attention to the trend that the realm of strategic competition between the U.S. and China is expanding to cyber and digital space. This is because China is rapidly developing its own ecosystem separately from the United States.

    In this situation, the strength and scope of the means that the U.S. can employ in response are gradually decreasing. The U.S. is in a situation where it cannot respond to China just with the traditional means of economic statecraft. For this reason, the U.S. is contemplating new economic statecraft techniques. It is actively exploiting the vulnerability of interdependence in order to maximize its strengths while minimizing the damage it receives. However, unlike in the past, when economic statecraft was mainly used by economically advanced countries such as the U.S., the EU, and Japan, China and Russia have recently responded to the West through counter-sanctions, and the means are becoming more diverse, including both negative and positive sanctions and combining network-based means.

    The semiconductor industry supply chain is drawing keen attention as a shortage of semiconductors for automobiles occurred immediately after the outbreak of the COVID-19 pandemic. Although the United States maintains the world’s highest level of design and equipment required for semiconductor production, it still lags behind Korea and Taiwan in its advanced semiconductor production capacity. To solve this problem, the U.S. wants to increase domestic production, and to that end, it has pushed for a semiconductor bill and demanded direct investment from Samsung Electronics and TSMC. China is also continuing its industrial policy to dramatically improve semiconductor self-sufficiency. However, China’s semiconductor industry is facing serious difficulty because the U.S. strongly controls the export of key equipment necessary for the production of advanced semiconductors. Meanwhile, Japan also resumed industrial policy aimed at revitalizing the semiconductor industry. Because it is impossible for Japanese companies to manufacture advanced semiconductors alone, the Japanese government is promoting various support policies for cooperation with the U.S. and Taiwanese companies. And the EU, which has ASML, the leading producer of EUV exposure equipment essential for high-tech semiconductor production, is discussing a semiconductor law similar to that of the United States. Since it is impossible to build an independent ecosystem in the short term, the EU is also seeking to attract foreign in-vestment.
    Meanwhile, the battery industry is important not only for the 4th industrial revolution but also for the prevention of climate change. This is why the demand for electric vehicles is increasing to achieve carbon neutrality and the competition to dominate the battery supply chain is intensifying.

    The country leading the battery supply chain is China. Chinese companies control about 60% of global production for rare metals essential for battery manufacturing. China’s CATL has already become the world’s largest company in terms of production scale. In view of the rapid increase in the supply of electric vehicles in China, the world’s largest producer and consumer, it is expected that China’s share and role in global battery production will increase. On the other hand, the United States, the home of Tesla, the world’s top electric vehicle company, is a late follower in battery production. American automakers prefer joint ventures with overseas battery companies rather than independent development.

    The U.S. and China, from the perspective of hegemonic competition, say that the country that dominates the electric vehicle and battery market will dominate the world, and characterize the expansion of battery factories and technology development as a 21st century-style “arms race.” However, the key to reorganizing the battery-related supply chain is securing raw materials for batteries. Even with the crisis of securing raw materials for batteries due to various geopolitical risks, it is predicted that the second semiconductor crisis will be repeated in the electric vehicle battery sector. Therefore, countries showing weakness in the supply and demand of raw materials for batteries will find it necessary to strengthen the triple safety net of “Secure-Stock-Circulation” of key raw materials for batteries.

     The positions of major countries to strengthen economic security are diverse. Due to different political and economic conditions and external environments, each country is pursuing strategies and policies to overcome the challenges it faces. Therefore, it can be said that there is no panacea for economic security.

    First, the goal of economic security pursued by the U.S. is to contain China’s economic rise and promote the growth of the U.S. economy. And the U.S. economic security strategy is currently leading the various global economic security issues. 

    On the other hand, the goals of Japan’s economic security strategy can be broadly divided into two categories: risk management from external threats and economic growth. In other words, Japan is responding defensively to risks arising from interdependence with foreign countries, while actively responding to policies to foster strategic industries, especially semiconductor industries, that are both important in terms of security and growth.

    The EU’s economic security strategy is structured around strategic autonomy. The reason the EU seeks autonomy is because it has different interests and values from the U.S. and China. Unlike the U.S., the EU does not regard China as an enemy. In terms of security, the EU’s biggest external threat comes from Russia, not China. Therefore, the EU is choosing a hedging strategy between the U.S. and China based on the balance of interests rather than band-wagoning with any one side.

    Under the Xi Jinping regime, China has established and implemented policies and strategies related to economic security more systematically. First, based on its rapidly growing economic power, China is more actively using economic statecraft. In addition to the traditional negative economic sanctions that use economic power as a means of pressure on the opponent, it is actively using positive economic sanctions to entice counterparts through various economic benefits. Meanwhile, for economic resilience, China is actively strengthening its supply chain and industrial competitiveness. China is trying to diversify trade and secure a stable supply chain for energy and resources in order to respond to various U.S. sanctions. To this end, it is actively pursuing a dual cycle policy (双循环), such as seeking internalization of the supply chain by actively utilizing its huge domestic market, and is actively utilizing China’s BRI (一带一路) and GDI (全球发展倡议), a national-level external cooperation initiative.
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  • Global Supply Chains in a Post-Covid Multipolar World: Korea’s Options
    Global Supply Chains in the Post-Covid Multipolar World: Korea’s Options

    Executive SummaryThe history of South Korea’s spectacular growth trajectory is based on its export prowess, and that industrialization narrative is based on a supply chain strategy that connected the economy to the global economy..

    Shahid Yusuf et al. Date 2022.10.28

    economic development, economic security
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    Contents

    Executive Summary

    Contributors

    Introduction

    Section 1: Dawning of the Supply Chain Era
    Section 2: Korea’s Industrialization and Participation in Supply Chains
    Section 3: Reengineering Supply Chains 
    Section 4: Learning from Past Shocks, Preparing for Shocks to Come

    Section 5: Supply Chain Development beyond Manufactures to Services

    Section 6: Resilient Supply Chains for  Key Industries: What it will take

    Section 7: Options for Korea’s Supply Chain Management Going Forward

    References

    Summary
    Executive Summary

    The history of South Korea’s spectacular growth trajectory is based on its export prowess, and that industrialization narrative is based on a supply chain strategy that connected the economy to the global economy. Korea was able to manage this process with tremendous efficiency and success. Contrary to the experience of past decades, however, the current global constellation of factors and other supply- chain realities are forcing a re-examination of this approach. What specifically has changed? 

    First, the reliability of supply chains was severely impaired by the Covid-19 pandemic and its consequences. Near-shoring or on-shoring became much more attractive as compared with efficient global supply chain management and the costs of interruptions as compared with higher inventory levels has changed the production calculus. Second, the continuation of a bitter economic rivalry between the United States and China has seen both nations trying to become more resilient in the procurement of inputs, with consequences for others, such as Korea. Third, the nature of production has shifted with new technologies and the necessity of securing essential minerals and metals needed for new products, such as electric car batteries and micro-chips. These factors mean that industries that that don’t quickly adapt to new circumstances will suffer competitive disadvantages in the global marketplace.

    South Korea has long prided itself on being an industrial powerhouse that can insulate itself from many global disturbances. However, as the scenario analysis undertaken by KIEP in 2017 has shown, innocent by-standers can be affected by trade wars, global turndowns, and now pandemics. Korea’s “middle power status “does not provide sufficient insurance in a world of shifting supply chains and geo-political strife. For this reason, KIEP has undertaken a new analysis of supply chain management with the aim of understanding new developments and better protecting today’s, and more importantly, tomorrow’s industries from future shocks. 

    The purpose of this study is to identify Korea’ vulnerabilities and to take a first step at suggesting changes in both government and corporate actions to help protect the economy. 

    As Gereffi (2021) notes the disruptions resulting from the Covid pandemic uncovered supply chain fragilities that companies had previously ignored. As a result, all economies, especially, highly open economies like Korea, must now reassess the risks to existing supply chains. The critical first step is to analyze these linkages and assess vulnerabilities. Previous emphasis solely on immediate cost factors must now be expanded to deal with events that can actually halt production, causing costly ripple effects throughout the economy. The response lies in taking concrete remedial action, such as diversifying into new, less vulnerable supply chains; seeking out alternative strategic partners for key inputs; and undertaking more analysis that subjects production to stress-testing of supply chains and imagining worst-case scenarios. 

    One place to begin involves four industries have proven especially vulnerable to supply chain interruptions: semiconductors, large storage batteries, users of rare earths, and producers of medical supplies. It is noteworthy that Korea sources most of its storage batteries from China, which is also the supplier of lithium and rare earths of the requisite purity. The Covid pandemic and the war in Europe have exposed the Achilles heel of the high-tech industry: its dependence on scarce minerals, which need to undergo environmentally polluting processing before they can be utilized. A robust supply chain for cobalt or lithium or neodymium or manganese requires securing supplies of the raw material and then also establishing a degree of control over its processing either domestically or through the ability to source the refined product from multiple sources. This dependence makes Korea increasingly vulnerable and limits its ability to make other decisions in the national interest.

    Central to this discussion is the view that Korea has under-invested in access to strategic raw materials and that there is a disconnect between its industrial ambitions and its management of critical inputs. Investment has focused on the technologies, assuming that raw materials would be easily available. Other countries, such a China, a major competitor, have sought access to raw materials through extensive and expensive programs in Africa and elsewhere, some under the umbrella of the Belt-and-Road Initiative. By contrast, Korea’s outreach policies in both foreign assistance and foreign direct investment, have not kept pace.

    Analysis by Baldwin and Freeman (2020) provides some empirical data on China’s centrality in supply chain, draws attention to the importance of Germany and the U.S., and shows how extensive the linkages are between Korean and Chinese industries. “China really is the workshop of the world – it is central to the entire global network of trade and production.” Manufacturing inputs from China make up over 3.6% of every major nation’s manufacturing output. For Korea, the number rises to over 16% with close to 30 percent of Korea’s imports of certain intermediate inputs for electronics industry imported from China some manufactured by subsidiaries of Korean firms. China is also Korea’s number one export destination. Hence China is central to the analysis of Korea’s supply chains and their vulnerability.

    China’s drive for self-sufficiency is already reflected in the declining percentage of imports in GDP over the last decade or more, and in its massive investment in semiconductors, which China feels is a vulnerability that other countries can exploit. Central to China’s semiconductor industrial policy is the National Integrated Circuits Industry Development Investment Fund (known as the “Big Fund”), established in 2014 with $21 billion in state-backed financing. The Big Fund was renewed in 2019 for a second round of state financing that exceeded $35 billion. To date, China’s National IC Fund has invested $39 billion, of which 70% has been for front-end manufacturing with the goal to increase China’s share of global semiconductor production. This combined with the Made in China 2025 Report provides a very clear picture of China’s intention with respect to self-sufficiency, and these goals pre-date current supply chain concerns.

    Moreover, given the dependence of Korean electronics and storage battery producing firms on China’s markets and suppliers, the problem looms especially large. China has demonstrated an increasing proclivity to use its control over supplies of raw material and products to threaten and discipline trading partners and its wolf warrior diplomacy has signaled a readiness to go on the offensive against all countries at the slightest provocation.

    In response, Korea will need to forge more strategic alliances, something that doesn’t come easily to some chaebol giants. Government will have to align its R&D and other strategic investments with those of the corporate sector in a better coordinated manner; to fail to do so risks Korea falling behind China, Europe, and the US, all of whom are undertaking or assessing how to undertake more dramatic efforts to secure their supply chains and become more self-sufficient in key aspects of production. Having moved away from industrial policies pursued in the past, Korea may need to heed the lessons of greater corporate-government cooperation as practiced in Singapore, and certainly China, in order to maintain its competitive edge in newly emerging industries.

    While this study and others will have little difficulty in identifying areas where actions are needed, the challenges will rest in the sphere of political economy. Korea finds itself in a difficult situation of economic dependence on China and defense dependence on the U.S. This is a conundrum that will neither disappear nor diminish. In managing this difficulty, Korea needs to reduce both dependencies and manage its situation with clear- thinking, wise investments, coordinated national efforts and smart diplomacy. Although this study doesn’t deal with the geo-political issue, it does need to point out that the China dependency, largely on China’s terms, is worrying. Korea’s response to the China 2025 Report was inadequate, and China’s action in response to the THAAD deployment were at some level shocking, but perhaps not completely unexpected. So what’s to be done?

    Korea will need to do the following: It will need to invest it the resilience of its supply chains by which we mean it will have to move from “just- in-time” inventory management to “just-in-case” approaches to deal with increased uncertainty. It will have to add to the robustness of its supply sources by diversifying them; insofar as this involves a reduction of Korea’s dependence on China, this is a strategic investment worth undertaking. Next it needs to consider increasing redundancy of suppliers, namely, securing multiple sources of critical inputs. While this may add to the cost of doing business, the alternative of ignoring the chances of supply chain interruptions is costlier.

    A strategy for supply chains must be intertwined with a development strategy for the medium and the longer term as well. It must factor in the drivers of Korea’s growth both manufacturing and tradable services; geopolitical trends; technological change; the risks from shocks that could increase in frequency and severity; and the changing nature of supply chains as the Korean economy enters a postindustrial stage and the population ages. The biggest challenge is to design measures that can mitigate and manage the impact of disruptions to come.

    In summary, the actions noted below are advisable if Korea is to reposition itself and make its supply chain less vulnerable.
    ● Continued diversification into high value products and services; 
    ● Diversification of sources of inputs to improve supply chain robustness and redundancy, even if this entails some loss of efficiency;
    ● Adoption of a JiC strategy including the stockpiling of essential inputs possibly on a regional basis; 
    ● Innovation that reduces dependency on scarce materials; 
    ● Some reshoring of items of the greatest strategic importance;
    ● Enhancing trade facilitation practices, transparency, and regulatory cooperation;
    ● Creating mechanisms for consultation and cooperation in crisis situations. 
    ● Securing the growth of trade in services through agreements that dismantle the barriers to the flow of digital traffic and to FDI in services.

    In addition, Korea will need to seek out new long-term strategic partners for essential raw materials, especially key minerals, metals, and rare earths. This admonition leads to a central failure of policy in recent decades and that is to allow corporations to act in what they consider their best interests without considering national goals. Put differently, a number of OECD countries have moved their foreign assistance programs from pure development aid to assistance to strategic trade and investment partners (e. g., see cases of Canada, Australia, and the United Kingdom ). Here is a case where economic interests and political interests intersect and where government needs to take a strong role in forging new alliances with countries in control of strategic inputs.

    Options to reduce Korea’s dependence on China will not be easy and will not be cheap. Reshoring to Korea would be aided by government incentives and regulatory easing that encourages the inward flow of foreign investment. In addition, Korean outward FDI can proactively build production capabilities elsewhere - as TSMC, Samsung and Intel are now doing in the United States – for example in India as part of Korea’s New Southern Policy. Korea is already recalibrating its ties with the United States and with ASEAN – as is Japan. There are some natural alliances that seem feasible to explore and working more cooperatively with Japan would be in both countries’ economic interests.

    As it noted in the final section of this report, there are many steps that Korea can undertake to improve its supply chain management position and reduce its vulnerability. To be effective, however, both government and business will have to work in tandem. Moreover, securing safer supply chains will need to be a national priority. Hoping that the global system will return to its pervious state is foolhardy. Expecting that China will be a benign competitor is also ignoring current realities. There are new opportunities for Korea to reposition itself for the production of new industries, and, as the report argues, the production of new digitally-based services; however, any viable innovation and investment strategy will need to make supply chain management a critical component. Korea’s future growth performance may well depend on it.
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