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Conference Proceedings
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Global Efforts to Achieve Carbon Neutrality in the Industrial Sector and Implications: Focusing on SMEs
The international community has stepped up efforts to achieve carbon neutrality or net zero emissions and has begun to expand the scope of greenhouse gas management to all companies in the supply chain. In particular, the decarbon..
Eunmi Kim and Sunghee Lee Date 2023.05.28
industrial policy, environmental policyDownloadContentSummary<The international community has stepped up efforts to achieve carbon neutrality or net zero emissions and has begun to expand the scope of greenhouse gas management to all companies in the supply chain. In particular, the decarbonization of industries that emit large amounts of greenhouse gases is an important task for countries not only to effectively respond to climate change, but also to improve their energy security and international competitiveness. Although decarbonization can be achieved by all companies regardless of their sizes, small and medium-sized enterprises (SMEs) are struggling with a lack of resources and capabilities. Therefore, the purpose of this study is to analyze the characteristics of national and multilateral carbon-neutral strategies, identify policy demands of SMEs based on survey results, and derive implications for the decarbonization of the industrial sector and, in particular, SMEs in Korea.Chapter 2 mainly analyzes policies to reduce greenhouse gases in the industrial sector and cases of multilateral cooperation between both major governments and global companies. Sweden, Germany, the United States, the UK and Japan are increasing their financial support for decarbonization efforts in their industrial sectors, also rearranging relevant policies and institutions. Sweden is working closely with the EU and its local governments to support carbon reduction projects, and also subsidizes investments with greenhouse gas reduction benefits but not expected to generate a return on investment without subsidies. Germany is inducing technological innovation and international cooperation among SMEs. The United States is expanding its investment in clean energy and providing research and development funding to SMEs and startups through federal agency-level programs such as SBIR/STTR programs. The UK is promoting decarbonization particularly in high-emitting industrial clusters, and is stimulating private investment through public funding for technology innovation. Japan is expanding its financial support in this area, for instance through tax benefits for companies pursuing green transformation (GX), and helping SMEs and startups enter or expand their business in developing countries through funds including Official Development Assistance (ODA).While introducing internal regulations to reduce greenhouse gas emissions, global leading companies demand that their partners participate in these efforts. The steel, chemical, consumer goods, electronics manufacturing and automobile manufacturing industries focus on supply chain management to achieve their carbon neutrality goals. Suppliers of these industries are required to establish and achieve reduction targets, and are encouraged to comply with the low-carbon purchasing guidelines or environmental codes of conduct. The companies provide education programs, consultation services and financial support for subcontractors to achieve carbon neutrality. Multilateral initiatives in which companies voluntarily participate include the RE100, 24/7 CFE, the Alliance of CEO Climate Leaders, and the SME Climate Hub.Chapter 3 reviews the policies and systems in place to support decarbonization for SMEs in Korea and analyzes the results of the survey conducted for this study. The emission data shows that SMEs in Korea produce less emissions than large corporations, but their emissions are high compared to energy consumption and the major emitting industries are diverse. SMEs remain at a relatively low level of competitiveness in climate technology, and the environmental performance of domestic SMEs measured by ESG scores also ranked at the bottom among major countries (7 countries). Domestic systems that support the decarbonization of SMEs can largely be divided into programs to introduce existing reduction facilities and fuel conversion and promotion measures for research and development of future reduction technologies. The introduction of reduction technologies and facilities is mainly carried out in a package format including site diagnosis, consulting, planning, purchase and construction, which is the biggest difference from the cases of major countries reviewed in Chapter 2. In addition, the emissions reduction technology development through cooperation between SMEs and research institutes, support for start-ups and growth, and financial support for corporate decarbonization efforts are also being carried out.According to the results of our survey conducted on Korean SMEs, only 5.2% of 250 respondents were tracking their greenhouse gas emissions. The most common way to reduce greenhouse gases was “energy saving,” with few SMEs responding they had the ICT-based infrastructure needed for energy management. Based on the first and second cumulative responses, “lack of response funds” (21.3%) and “difficulty in determining reduction efforts best for the company” (17.5%) were representative difficulties in pursuing reduction efforts. In particular, the support policies most desired by the respondents were “expanding the use of renewable energy,” “improving energy efficiency” and “expanding new energy (green hydrogen),” in that order. It is noteworthy that each policy chosen as a priority has a different desired support method or support period, and long-term support of more than five years is required in terms of related technology development or preparation for supply chain due diligence.Based on the above analysis results, this study identified the following directions to promote decarbonization in the industrial sector and SMEs: enhancing policy effectiveness, promoting technological innovation, spreading the management system for decarbonization, and strengthening international cooperation. Specific implications for each direction are as follows.First, in order to enhance policy effectiveness, the government should introduce new programs to support the entire process including searching, applying for and managing suitable programs for SMEs, and strengthen the roles of various stakeholders such as local governments, large corporations, and private investors. In particular, a large number of SMEs (77.8%) responded that they did not know much about decarbonization-related support programs. This suggests that support for SMEs is necessary from the first step of searching and applying for projects. It is also necessary to monitor and improve the overall support projects carried out by various ministries and agencies, and to closely evaluate and monitor ongoing or completed government programs.Second, with the goal of technological innovation for decarbonization, related ministries and public agencies should expand long-term support for more than five years, encourage private investors to participate, and strengthen the evaluation of expected effects of technological innovations toward reducing greenhouse gas emissions. It is necessary to nurture start-ups and small sized-enterprises with the capacity of developing innovative technologies with excellent reduction effects, and invest in their projects from a long-term perspective. In particular, investment support in the public sector should benchmark existing greenhouse gas reduction effects, such as realized in Sweden, when selecting recipients. It is also necessary to review policies to expand the scale of investment by attracting various partners from the private finance sector, as shown by the UK case.Third, companies need to incorporate decarbonization into their business management system and strengthen their capabilities to collect and manage environmental data including carbon emissions. It is important to establish ICT-based infrastructure and energy management systems considering the companies’energy consumption targets. Moreover, it is also necessary to actively publicize success stories and share information so that companies do not perceive carbon neutrality or decarbonization as little more than an obligation or unnecessary burden, and rather utilize these initiatives as a new growth engine.Lastly, active exchanges of information and cooperation between companies within and across the sectors are recommended. Korean SMEs need to pay more attention to multilateral voluntary initiatives (RE100, 24/7 CFE, SME Climate Hub, etc.) for decarbonization. Benchmarking the cases of Sweden and Japan, the government should increase the SMEs’access to participating in clean energy and energy efficiency projects in developing countries. -
A Study on the Korean Model Law of Digital Trade Agreement
The purpose of this research is to provide necessary information to prepare a basic model law for the digital trade agreement that Korea will conclude. And more, this study analyzes the “forms and contents” of several digital tr..
Hyunho Kwon et al. Date 2023.05.26
E-trade, electronic commerceDownloadContentSummary<The purpose of this research is to provide necessary information to prepare a basic model law for the digital trade agreement that Korea will conclude. And more, this study analyzes the “forms and contents” of several digital trade agreements concluded so far, and presents practical considerations that need to be reviewed from a legal and policy perspective when Korea has a chance to conclude digital trade agreements in the future.To this end, Chapter 2 presents specific grounds to establish the Korean digital trade agreement model at the formal or structural level. This is a formal and structural approach to consider for setting the model of digital trade agreements. To solve this problem, this study conducts a detailed review in two main aspects. First of all, the implications of the multilateral discussions on the digital trade agreement will be analyzed. Through this study, it is possible to examine the various forms or structures of digital trade agreements that appear in multilateral discussions themselves. On the other hand, what needs to be addressed in the process of forming a more realistic model is the formal aspect of digital trade agreements through bilateral, regional and plurilateral agreements or multilateral agreements. This approach will be the most realistic solution for Korea or most countries. In particular, there are various types for regulating digital trade through bilateral, regional and plurilateral agreements or multilateral agreements, such as those attached as part of FTAs or RTAs, and those concluded as independent trade agreements regardless of FTAs such as DEPA or KSDPA. Therefore, Chapter 2 presents various trade legal and policy implications, such as the meaning and characteristics of digital trade agreements concluded in different forms, and problems according to the legal perspectives of the agreement itself, which helps Korea set a model agreement.In addition, the core of Chapter 3 is the analysis of the content aspects of digital trade agreements. Here, the content aspect refers to the degree of liberalization consequently raised in the composition and content of the agreement provisions that Korea should consider when signing a digital trade agreement. In other words, this aspect is connected to the degree of liberalization of the object in the conclusion of digital trade agreement. Therefore, Chapter 3 analyzes the contents of existing digital trade agreements, examines the specific and acceptable contents and scope that should be included in digital trade agreements from Korea’s point of view, and presents the basis for determining whether it can be discussed at the level of liberalization. The research topics in Chapter 3 are basically analyzing the current situation in the digital trade and examining the results and limitations of digital trade agreements that have already been implemented in the international relations. In particular, Chapter 3 provides the meaning and limitations of the digital trade agreement model to be concluded in the future based on the analysis of the contents of digital trade agreements made at the previous bilateral and regional levels.As results of these studies, Chapter 4 of this research first evaluates existing digital trade agreements and proposes the direction of the model of digital trade agreements that Korea should maintain. In addition, as a result of this analysis, the characteristics of Korea’s digital trade agreement model are reviewed at the formal and content level, and the direction of the Korean digital trade agreement model is presented. Through this analysis, Chapter 4 classified the direction of the Korean model of digital trade agreements into the form of updating existing trade agreements, participating in open plurilateral agreements, and signing strategic digital partnership agreements, and analyzed their formal characteristics and implications for Korea. And as a result of this analysis, the model of the Korean digital trade agreement was presented by dividing it into a model based on traditional standards and a model based on the so-called ‘new standard.’Finally, Chapter 5 completes the entire research by reviewing the problems that may arise in the future for digital trade. To this end, Chapter 5 proposes factors to be considered in terms of the maintenance of the domestic legal system according to the previously proposed Korean digital trade agreement model. In addition, in connection with the definition or scope of digital trade, Chapter 5 examines the problems or characteristics raised in the process of discussing the expansion of digital trade agreements into digital partnership agreements and further into digital economic agreements. And finally, Chapter 5 briefly examines legal policy problems that may be raised from the perspective of digital transformation, that is, the future transition to an industry that can be digitized in the future. -
The Impact of Trade Liberalization on Consumer Welfare: A Focus on Quality Diversity
This study investigates the impact of domestic price changes due to external shocks such as trade liberalization or global inflation on quality diversity and consumer welfare. Free trade agreements (FTAs) can reduce the prices of ..
Chul Chung et al. Date 2023.05.25
trade policy, free tradeDownloadContentSummary<This study investigates the impact of domestic price changes due to external shocks such as trade liberalization or global inflation on quality diversity and consumer welfare. Free trade agreements (FTAs) can reduce the prices of imported goods through tariff elimination or reduction, making it crucial to evaluate academically and in terms of policy how this price reduction affects consumer welfare. In contrast to prior literature on trade liberalization, this study emphasizes the role of quality diversity in explaining its impact on consumer welfare. We focus on how consumers’ qualitative responses to price changes, such as selecting high-quality products when prices decrease due to tariff reductions or responding to price increases due to tobacco taxes by adjusting the quality of their purchases, can influence consumer welfare. This study also provides policy implications regarding the impact of trade liberalization on consumer welfare.Using time-series data on wine and cigarettes in South Korea, this research estimated price elasticities and separated them into consumers’ quantitative and qualitative responses to price changes. The results indicate that the qualitative margin accounts for as much as 40% of the total, demonstrating that consumers’ qualitative responses to price changes are quite significant. We also found a statistically significant consumer behavior mechanism of quality shading in response to price increases for both wine and cigarette consumption, suggesting that consumers’ qualitative responses are as important as their quantitative responses. Moreover, we found that price reductions not only increase the consumption quantity of the same product but also lead to a shift to higher quality products, further enhancing consumers’ welfare. For the first time in the literature, we analyzed qualitative margins by income level and found that the price elasticity is higher for lower-income consumers, and most of it can be attributed to qualitative responses. These empirical findings suggest that consumers can adjust their spending on a particular good through qualitative adjustments while maintaining their overall consumption, particularly in response to rapid inflation. This response mechanism is particularly more effective for low-income households.Similarly, this study confirmed the existence of consumer quality adjustment responses to income changes through income elasticity analysis, with the size being larger among low-income households. Qualitative responses to income changes demonstrate that consumers can adjust their expenditure by maintaining the consumption level of staple goods such as rice or pork while reducing the expenditure amount, particularly in situations of declining real income during economic crisis. As with the analysis of price changes, our results suggest that this consumer behavioral mechanism in response to income changes can be also more effective for low-income households.The findings of this study indicate that trade liberalization’s expansion of quality diversity has a positive impact on consumer welfare by strengthening consumer mechanisms, particularly in response to inflation, drastic price changes, and real income declines during economic crises. These results provide a novel perspective on trade liberalization’s contribution to consumer welfare, with the analyzed quality diversity effect distinct from the product diversity described in traditional trade literature, thus representing a new source of gains from trade. Consequently, when assessing trade liberalization’s economic impacts, the quality diversity factor should also be considered. In addition, this study demonstrated that quality diversity expansion for consumers can be achieved for agricultural products through not only agricultural production policies but also trade liberalization. The resulting policy implications are significant for both average consumers and low-income groups in terms of welfare.However, the qualitative response of consumers to price changes may not always improve policy efficacy, particularly for certain types of goods, such as harmful goods taxes, where product quality diversity may not necessarily have a positive impact and can even have a negative one. For instance, if consumers switch to low-quality cigarettes in response to an increase in cigarette taxes, the quality-downgrading response may ultimately have adverse effects on health indicators related to cigarette taxes. Furthermore, when discussing harmful goods taxes, such as soda taxes and fast-food taxes, to combat obesity problems, the expansion of quality diversity can have the opposite effect, increasing the supply of unhealthy low-quality carbonated drinks or fast food. These discussions hold significant policy implications, indicating that to achieve health policy objectives through harmful goods taxes, it is necessary to prevent low-quality goods from entering the market, which could pose greater health risks. Finally, empirical research follow-up is needed for staple goods such as rice or pork, with future studies needing to consider consumers’ qualitative responses when using price elasticity. -
Recent Regulatory Trends in Mega FTA SPS Chapters
Previous studies on mega Free Trade Agreement (FTA) Sanitary and Phytosanitary (SPS) provisions have primarily focused on the translation and preparation required for implementing the SPS regulations outlined in the Comprehensive ..
Minji Kang Date 2023.05.19
trade policy, free tradeDownloadContentSummary<Previous studies on mega Free Trade Agreement (FTA) Sanitary and Phytosanitary (SPS) provisions have primarily focused on the translation and preparation required for implementing the SPS regulations outlined in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, in order to gain a comprehensive understanding of the current state of SPS regulations in recent FTAs, this study goes beyond the CPTPP and also includes the Regional Comprehensive Economic Partnership (RCEP), which is currently the largest FTA in existence and came into effect in Korea in February 2022. Additionally, the study compares these regulations with those of the United States-Mexico-Canada Agreement (USMCA).In addition to examining the SPS provisions of these mega FTAs, this study also investigates the status of domestic legislation related to SPS regulations in four specific areas: livestock quarantine, plant quarantine, fishery quarantine, and food quarantine. By conducting this analysis, the study aims to provide a comprehensive overview of the SPS chapter regulations in these mega FTAs as well as the domestic measures implemented in relation to SPS in the aforementioned sectors.Prior to the introduction of the Mega FTA, all of Korea’s bilateral FTAs included SPS provisions or chapters, but few included WTO Plus provisions. Furthermore, most bilateral FTAs specified that the dispute settlement procedures of the FTA would not be applicable to SPS provisions or chapters. The primary WTO SPS Plus provision found in these FTAs was the inclusion of an FTA SPS Committee, which served as a platform for bilateral discussions on SPS issues and facilitated information exchange. Additionally, depending on the FTA partner, FTA SPS chapters included WTO Plus provisions such as regionalization procedures, risk analysis in their own country, and cooperation on animal welfare.However, there has been a notable shift in this trend with the introduction of Mega FTAs. The SPS chapters of the CPTPP, the RCEP, and the USMCA have witnessed a significant increase in the number of provisions. On average, these mega FTAs contain 18.3 provisions in their SPS chapters, which is considerably higher than the average of 5.7 provisions found in Korea’s previously concluded FTAs.The SPS chapters of these mega FTAs encompass a range of WTO SPS plus provisions. These provisions cover various aspects such as regionalization, equivalence, risk analysis, emergency measures, audit, certification, import inspection, transparency, and more. The inclusion of these provisions demonstrates a greater emphasis on enhancing and expanding the regulatory framework related to sanitary and phytosanitary measures within the mega FTAs.The CPTPP and USMCA acknowledge the importance of adapting to regional conditions, including the concept of compartmentalization, as a means to facilitate trade. While the CPTPP and USMCA do mention this approach, they do not explicitly outline specific obligations regarding compartmentalization, unlike the EU-Japan Economic Partnership Agreement (EPA) which recognizes the concepts of zones and compartments as defined in the OIE Terrestrial Animal Health Code and OIE Aquatic Animal Health Code.However, the Mega FTAs do aim to enhance the transparency of the regionalization process by incorporating non-binding procedural provisions outlined in the Guidelines to Further the Practical Implementation of Article 6 of the Agreement on the Application of Sanitary and Phytosanitary Measures (G/SPS/48). By mandating these provisions, there is an expectation that the transparency surrounding the regionalization process will improve. It is worth noting that the Mega FTAs commonly impose the obligation to consider international standards, guidelines, and recommendations, necessitating the identification of trends in the establishment of such standards by international standard- setting bodies (ISSBs).The SPS chapters of the CPTPP and USMCA require the application of equivalence for a measure, a group of measures, or on a systems-wide basis, “to the extent practicable and appropriate.” It is worth noting that the Mega FTAs also share the characteristic of incorporating increased transparency regarding various procedural requirements in the application of equivalence.The Mega FTAs introduce the notion of “risk analysis,” which encompasses not only the “risk assessment” outlined in the WTO SPS Agreement but also includes the concepts of “risk management” and “risk communication.” This expanded perspective strengthens the procedural obligations related to SPS measures within these FTAs. In addition, except for emergency measures, if an importing Party has permitted the importation of a product from another Party at the time it initiates a review of SPS measures, it shall not suspend the importation of that product solely because the importing Party is conducting a review.The Mega FTA SPS Chapters enable Parties to take the emergency measures they deem necessary to protect food safety, and human, animal and plant health. In addition, the Mega FTAs introduce an audit provision that were not included in the WTO SPS Agreement. These provisions establish specific rules and procedures to prevent different audit-related regulations in different countries from becoming trade barriers, especially when it comes to conducting on-site due diligence.The Mega FTAs have implemented provisions to ensure that certification requirements only require information related to SPS issues to the extent necessary. Import checks for SPS requirements are based on the actual potential risks posed by the import. The Mega FTAs also include provisions to enhance transparency, such as allowing at least 60 days for other Parties to provide written comments after, notification of a proposed or changed SPS measure.Korea has undertaken significant legislative revisions to align with the quarantine requirements of the Mega FTAs. With the exception of fishery quarantine, the country appears to be well-prepared and continues its efforts to enhance preparedness. However, despite having established these legal frameworks, there may be challenges in effectively conducting risk analysis for quarantine purposes.In addition to legislative improvements, it is crucial to address the demands of the Mega FTA quarantine environment through additional measures. This includes providing training for professionals in the field and expanding financial resources and infrastructure. These efforts are essential to ensure that border quarantine measures are not compromised in practice. Notably, the CPTPP and USMCA explicitly specify the application of FTA dispute settlement procedures to SPS chapters, enabling disputes to be resolved swiftly. However, in the case of RCEP, the decision on whether the SPS chapter will be subject to the FTA dispute settlement procedure is set to be discussed two years after its entry into force. Given the potential for SPS-related disputes within the Mega FTA quarantine environment, it is imperative to be prepared for such scenarios.In particular, considering the trade concerns that have emerged in recent discussions at the WTO SPS Committee, issues such as regionalization and equivalence recognition are of utmost importance. It is crucial to develop legislation based on a comprehensive understanding of relevant international laws and to provide training for trade experts to effectively address these matters.The Korean government is currently participating in IPEF negotiations. Some US agricultural companies have proposed that the IPEF Pillar 1 agriculture sector negotiations be based on the CPTPP and USMCA SPS chapters, indicating that the influence of Mega FTA SPS chapters will continue to strengthen in the near future.Furthermore, there is a possibility that the Mega FTA SPS chapter will serve as a reference point in the ongoing negotiations for the improvement of existing FTAs. Considering the difficulties in using FTAs to claim exceptions for violations of the non-discrimination obligations under the WTO SPS Agreement, the establishment of procedural regulations within a single FTA SPS chapter can contribute to enhancing transparency in SPS procedures on a global scale. Therefore, any revision of the FTA SPS chapter should be approached cautiously, taking into account domestic considerations and the potential increase in administrative costs.It is hoped that through the collaborative efforts of the government, industry, and academia, we can successfully navigate the challenging waters of the Mega FTA quarantine environment. This requires careful preparation and consideration of various factors to overcome the obstacles and uncertainties that lie ahead. -
Introduction of the ‘Trade and Gender’ Rules and its Policy Implications
This study examines the latest standard linking trade and gender and suggests policy implications as Korea prepares to introduce the first gender chapter in an FTA.Inclusive growth or sustainable growth approach, an alternative to..
Soo Hyun (Catherine) Oh and Bomin Ko Date 2023.05.06
economic growth, trade policyDownloadContentSummary<This study examines the latest standard linking trade and gender and suggests policy implications as Korea prepares to introduce the first gender chapter in an FTA.Inclusive growth or sustainable growth approach, an alternative to the growing inequalities that have emerged during globalization and trade expansion, is also applicable to trade and women. The discussion on trade and gender is based on the idea that the impact of trade may differ by gender. Factors that prevent women from reaping the benefits of trade include the existence of unique barriers to trade for women; the low level of direct participation in trade by the service sector, where women predominantly work; and the generally small size of firms worked in or owned by women. Therefore, there is a need to elaborate trade policies to provide opportunities for women to participate in trade and to ensure that women share in the benefits of trade, which will lead to quantitative and qualitative economic growth.In response, the WTO adopted ‘the Buenos Aires Declaration on Trade and Women’s Economic Empowerment’ at its 11th Ministerial Conference in 2017, established voluntary reporting in the WTO’s Trade Policy Review Process. WTO, through an informal working group and a dedicated unit on trade and gender, is actively engaged in discussions on women’s empowerment through trade.In FTAs, provisions on ‘trade and gender’ have evolved as follows. The gender standard was first included as a few articles in other chapters, such as labor and development, and then in the late 2010s, as Chile, Canada and others became active international advocates on the issues, a chapter on trade and gender was included in FTAs. In 2020, Chile, Canada, and New Zealand agreed to the Global Trade and Gender Arrangement(GTAGA), which provides a stand-alone text for a trade and gender rules.The ‘Trade and Gender’ chapter in an FTA consists of four main types of provisions. These are: general provisions, provisions citing international agreements, provisions relating to cooperation activities, and provisions on institutional arrangements. The general provisions state that adopting a gender perspective in the economic and trade matters can contribute to inclusive economic growth and emphasize the need to reduce barriers and create opportunities for trade and investment from a gender perspective.The next clause reaffirms the commitment to implement UN conventions such as CEDAW. The Cooperative activities section commits to undertake cooperative activities for the empowerment of women entrepreneurs, detailing specific areas of activity. The committees and points of contact provision provides for the implementation of agreed cooperation activities, review of the operation of the agreement and reporting on its implementation, and monitoring of the impact of other chapters of the FTA on gender equality. Through these provisions, the Committee, comprised of representatives from each Party, is tasked with holding annual meetings, formulating and implementing programmes related to the Agreement, and exchanging information on each Party’s experience. The institutional arrangements clause deals with dispute settlement.Chile has proposed a gender chapter in the Korea-Chile FTA revision negotiations. If a gender chapter is included in the Korea-Chile FTA revision negotiations, it will be the first of its kind in Korea. Korea will need to make political efforts to discuss the scope of acceptable cooperation activities during the negotiation process and use it for domestic reforms.The inclusion of a gender chapter in a trade agreement should be preceded by efforts to build social consensus. In particular, the inclusion of measures to support women traders and enterprises in provisions on cooperation requires building social consensus on the need for such measures. To this end, it will be necessary to present data on the significant under-representation of women in trade, to review the situation in Korea through international comparisons of gender equality indicators, and to analyse and discuss the causes of this phenomenon. In addition, it is necessary to raise awareness that the expansion of gender equality leads to quantitative and qualitative economic growth, and that the international community has normed the link between trade and gender equality on this basis. In Korea, gender equality indicators are among the lowest among OECD countries in terms of economic participation and opportunity, and action is needed to improve them. Since Korea’s industrialization, the labor market has been male-dominated as a result of exports led by large companies in the manufacturing sector, and the gender distribution of workers in different industries has been different, so the expansion of manufacturing exports through trade policy may have contributed to the widening of the gender wage gap.As Korea may be proposed to include a chapter on ‘trade and gender’ in future FTA renegotiations with Canada, the EU, New Zealand and the UK, as in the case of Chile, it is necessary to prepare for this and for the possibility of universal standardization of this issue by preparing in advance a ‘standard draft of a Korean-style FTA chapter on gender’. -
International Conflicts and Economic Interdependence: Implication for Economic Security
In this paper, I suggest a microeconomic foundation on the recent conflict between the United States and China. In addition, I review some formal models of international conflicts that examine the relationship between intern..
Youngseok Park Date 2023.04.28
economic security, international tradeDownloadContentSummaryIn this paper, I suggest a microeconomic foundation on the recent conflict between the United States and China. In addition, I review some formal models of international conflicts that examine the relationship between international conflicts and economic interdependence. Furthermore, I present a simple bargaining model of economic sanctions against a dictatorship country, which are increasingly employed around the world in recent years.< -
The Taiwan Issue and Korea's Economic Security in the Era of U.S.-China Strategic Competition
During the Cold War, the United States and China began visible efforts to normalize relations in 1972, with the strategic intent of jointly responding to the common threat posed by the Soviet Union, and finally established diploma..
Jaichul Heo Date 2023.03.09
economic security, Chinese politicsDownloadContentSummary<During the Cold War, the United States and China began visible efforts to normalize relations in 1972, with the strategic intent of jointly responding to the common threat posed by the Soviet Union, and finally established diplomatic relations in 1979. In this process, the Taiwan issue was one of the biggest obstacles to normalizing bilateral relations. Nevertheless, the two countries succeeded in establishing diplomatic relations by agreeing on the “One China” principle (policy) and recognition of non-governmental exchanges between the U.S. and Taiwan, and have managed the Taiwan issue based on three joint statements made by the two countries. However, the Taiwan issue has been brought to the forefront again, mainly due to great transformation in the international order and strategic competition between the U.S. and China, created by the rise of China and the response of the U.S. to contain it. Of course, even after the establishment of diplomatic relations between the U.S. and China, friction between the U.S. and China over the Taiwan issue and confrontation between both sides of the Taiwan Straits (i.e. Chinese mainland and Taiwan) have continued. However, the recent U.S.-China strategic competition has further increased the risk and uncertainty of the Taiwan issue. In addition, with the outbreak of the Russia-Ukraine War, the international community's concern about the Taiwan Strait has grown, and the strategic value of Taiwan is rising even more in the era of the Fourth Industrial Revolution, as an important actor in the global semiconductor supply chain. Against this background, this study analyzes the impact of U.S.-China strategic competition on the Taiwan issue and considers the implications for Korea in terms of supply chain stability, industrial competitiveness, and economic statecraft, which are important elements of economic security.First, the supply chain instability that can result from an emergency in the Taiwan Strait will mainly occur along the maritime transportation route, which accounts for an overwhelming portion of Korea's import and export volume. The maritime transportation routes passing through or near the Taiwan Strait account for 33.27% of Korea's maritime transportation, and if an issue arises along this route, it is calculated that an economic loss of KRW 445.2 billion per day would result even when only accounting for major resources and products. According to a wargame scenario of an emergency situation in the Taiwan Strait, fierce battles are expected to take place between seven days and 70 days, which could cause up to 31 trillion won in economic losses during the period of active engagement alone. In addition, the expected amount of economic damage is expected to increase further when including other resources, products, and air transportation routes in the analysis.Meanwhile, military skirmishes between South Korea and China or between the two Koreas, that may occur as a result of a military clash between the U.S. and China in the Taiwan Strait, can be expected to destabilize the Korean Peninsula and have a major negative impact on the Korean economy. In other words, the instability of the Taiwan Strait can be added as an element of the so-called “Korea discount.” In addition, if South Korea intervenes in the Taiwan issue in any way, China is expected to use its own economic power to deploy economic statecraft toward sanction measures against South Korea. Judging from various circumstances, China may impose more high-strength economic sanctions in relation to the Taiwan issue than those seen during the THAAD issue. Accordingly, as in the case of the THAAD issue, we can expect suspension of various economic cooperation projects, the promotion of boycotts, restrictions on tourism, strengthening of sanctions against Korean companies in China, and restrictions on imports of Korean products, as well as more systematic and sophisticated forms of economic statecraft implemented in accordance with the Export Control Law of the People’s Republic of China (中华人民共和国出口管制法) and the Law of the People’s Republic of China on Countering Foreign Sanctions (中华人民共和国反外国制裁法), which came into effect in 2021.In order to prepare for risks and uncertainties caused by U.S.-China strategic competition and cooling cross-strait relations, Taiwan, which has a high economic dependence on China like Korea, is pushing for diversification of its supply chain and imports/exports, stronger competitiveness in key industries such as semiconductors, and closer economic cooperation with allies. Such strategic measures by Taiwan, conducted to ensure its survival, present not only opportunities but also challenges for the Korean economy. In fact, Taiwan's New Southbound Policy (新南向政策), the Moon Jae In government's New Southern Policy (NSP), and the Yoon Suk Yeol government's Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region all aim at competing over the ASEAN market and fierce competition to gain the upper hand in the semiconductor industry.As such, in a situation where tensions over the Taiwan issue escalate as U.S.-China strategic competition intensifies, Korea must make thorough preparations to cope with the direct and indirect impacts this will have on Korea's economic security.From the perspective of Korea’s economic security, the worst case scenario regarding the Taiwan issue is a situation where military conflict breaks out in the Taiwan Strait and Korea is drawn into this conflict. It will be necessary to consider such a situation as Korea carefully assesses the benefits and risks associated with the U.S. Army deploying a Multi-Domain Task Force (MDTF) to the Korean Peninsula, or transition of the mission assigned to the USFK, focusing on national interests.In addition, more attention and measures are needed at the national level to ensure the safety of major maritime traffic routes, including the Taiwan Strait. This is because strengthening maritime power is essential not only in terms of traditional security, but also in terms of economic security, as examined in this study.And, from the perspective of tensions on the Taiwan Strait and economic security, another important factor will be to improve inter-Korean relations. This is because even should a military conflict occur in the Taiwan Strait, efforts to improve inter-Korean relations could minimize the destabilizing effect this has on the security of the Korean Peninsula. If inter-Korean relations are not managed stably and left in a confrontational state, military clashes in the Taiwan Strait could directly escalate into security instability on the Korean Peninsula, for instance in the form of military provocation by North Korea.Meanwhile, as seen with Taiwan's New Southbound Policy, the Korean government needs to establish a more detailed foreign policy focused on ASEAN and South Asia to promote stability in the supply chain and diversify its import sources and export markets. The Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region announced by the current government of Korea presents the direction of these efforts, and further steps should be taken to establish detailed policies.In addition, just as Taiwan is striving to strengthen its competitiveness in the semiconductor industry as a survival strategy amid U.S.-China strategic competition, Korea should implement more active policies to strengthen its competitiveness and improve the conditions for corporate investment in the area of system semiconductors. More active support will be necessary at the national level to maintain or widen the existing technology gap Korea currently enjoys in the memory semiconductor field, and to gain competitiveness in the areas of system semiconductors, materials, and equipment.Lastly, the Korean government must carry out active measures and increase its policy focus on trust-building efforts with other stakeholders in the region, another key element of economic security. While it is very important to de-escalate potential threats by building trust with other parties for economic security, as well as to secure a material and institutional basis, interest and efforts in this area appear to be relatively lacking. We should reduce the uncertainty of economic sanctions by building trust with China and actively seek a constructive role as a middle power country to restore trust between the U.S. and China. -
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The US Financial Sanctions on China and Its Implications on Korea
Economic sanctions are typically imposed as coercive measures to restrict a target’s economic activities, with the aim of achieving foreign policy and national security objectives. The United States has employed many methods of e..
Wonho Yeon et al. Date 2022.12.30
economic security, financial liberalizationDownloadContentSummary<Economic sanctions are typically imposed as coercive measures to restrict a target’s economic activities, with the aim of achieving foreign policy and national security objectives. The United States has employed many methods of economic sanctions, such as imposing import and export limitations, withholding foreign aid and investment, seizing foreign assets, and forbidding its nationals from doing economic transactions with sanctioned individuals and companies. Financial sanctions encompass a range of measures that particularly limit the movement of funds and other forms of asset value to countries, companies, and individuals subject to sanctions. These measures have a wide-reaching impact as they can freeze assets, prohibi t or restrict financial transactions, and even disrupt the settlement of import and export activities.The utilization of economic sanctions as a geopolitical instrument has a lengthy historical background, but, the current impact and efficacy of U.S. sanctions are unparalleled. Although countries other than the United States have the authority to enforce tariffs, import and export controls, and other non-tariff barriers, they lack the ability to independently limit access to the global financial system, unlike the United States. Therefore, the secondary sanctions imposed by the United States, which limit dollar transactions, enables the United States to exert its influence on a worldwide scale through working in conjunction with other economic restrictions, such as export controls.Amidst the escalating strategic rivalry between the United States and China, the United States is broadening both the extent and substance of its financial sanctions. In the ongoing competition for technological supremacy between the United States and China, the United States can leverage its influence in the financial sector to impede China’s access to the necessary resources for the advancement of its own high-tech sectors. Furthermore, the United States has the ability to intervene in transactions occurring within the supply chain of high-tech enterprises that utilize U.S. currency, in addition to imposing restrictions on domestic U.S. companies selling components to China.Chapter 2 explores the legal foundation, governance, and enforcement procedures of U.S. financial sanctions imposed on China. It also provides an account of the present situation and future possibilities of U.S. financial sanctions against China. It concludes that U.S. financial sanctions are based on a legal foundation and are implemented through a coordinated process among Congress, the President, and key executive branch agencies. While the United States has a long history of using financial transaction sanctions to address violations of international norms, it has recently adopted financial sanctions to block the flow of funds, including equity investments in certain Chinese companies, in response to China’s technological rise and national security threats.Chapter 3 examines China’s response. In China, finance is an important industry that supports economic growth and is still one of the fastest-growing industries in the country. Chinese companies also rely on the U.S.’s advanced financial system to finance their businesses and invest abroad. However, with the U.S. utilizing sanctions as one of its tools, China has been forced to respond and prepare for external shocks to its financial industry. Chapter 3 analyzes China’s response to the recent U.S. financial sanctions, categorized into short-, medium-, and long-term strategies. It analyzes China’s short-term responses to U.S. financial sanctions in terms of its position statements and the adoption and application of laws and regulations in response to foreign sanctions; its medium-term responses in terms of standardizing overseas listings and diversifying financing sources; and its countermeasures against U.S. financial sanctions in terms of developing the renminbi international payment system and expanding capital market capacity.Chapter 4 examines the economic consequences of a protracted period of significant financial de-globalization caused by financial sanctions between the United States and China. In this context, “substantial” refers to a decline in local investments abroad and foreign investments within the country. We aimed to analyze the economic consequences of a country’s gradual shift from an open to a closed economy, where foreign capital inflows are replaced by domestic investments. Our research indicates that a reduction in trade openness has a detrimental effect on economic growth, whereas the influence of financial openness is not statistically significant. Nevertheless, if there is a rise in fragmentation within the global economy, leading to limitations on capital investment in China to specific nations, namely an increase in financial concentration, it would adversely affect economic growth. In addition, we analyzed the current level of financial interconection between the United States and China in order to assess the immediate expenses associated with an escalation of hostilities and the severance of their financial systems.Even if the introduction of financial sanctions between the U.S. and China reduces financial globalization in a de jure sense, it is difficult to say with certainty that it will reduce outward investment globally or between the two countries in a de facto sense. However, it is possible that competition in the financial sector between the U.S. and China could reach new extremes. In response to Russia’s invasion of Ukraine in 2022, Western countries such as the U.S. and EU took measures such as freezing the Russian Central Bank’s foreign exchange reserves and excluding major financial institutions and corporations from SWIFT. Under extreme conditions, such as a Chinese invasion of Taiwan, it is conceivable that the U.S. could impose such measures on China, and that China would be forced to dramatically reduce its reliance on the dollar payment system, even at the cost of significant short-term losses, and stick to the RMB international payment system.However, it is unlikely that the U.S. would want to see China accelerate the internationalization of the RMB and the internationalization of the RMB necessitates consensus among nations, rather than solely China’s endeavors. Consequently, a scenario of intense confrontation or competition in the financial sector between the United States and China is unlikely to occur. The United States is likely to choose a course of action that involves strengthening regulations on financial transactions involving specific high-tech or strategic goods. In this scenario, our government will need to devise strategies to minimize the negative impact on our industries, while our companies will need to take measures to avoid being subjected to sanctions by improving their own compliance. -
A Study on Updating Korea’s Services Trade Statistics System
This report aims to provide directions for improving Korea’s service trade statistics. Ultimately, the purpose is to enhance the understanding of Korea’s service trade and contribute to the establishment of service trade policie..
Jong Duk Kim et al. Date 2022.12.30
international trade, industrial policyDownloadContentSummary<This report aims to provide directions for improving Korea’s service trade statistics. Ultimately, the purpose is to enhance the understanding of Korea’s service trade and contribute to the establishment of service trade policies through improved data. To this end, the report categorizes Korea’s service trade statistics into short-, medium-, and long-term agendas based on the progress of discussions on international service trade statistics, domestic policy demand, and data availability for statistical improvement, and studies each agenda.Chapter 2 first look at the historical discussions regarding the definition of services in economics, and the definition of service supply modes stipulated in trade agreements such as the GATS. Modern service trade statistics collected on the balance of payments are compared with suggested statistics by mode of service supply under the GATS. Based on these discussions, the report presents two considerations for improvements from the perspective of services statistics construction. First, it is necessary to put an effort to converge the classification of the balance of payments to the CPC. Second, statistics by mode of supply defined in services trade agreements need to be reflected in the collection of balance of payments statistics, currently aggregated without distinction by mode of supply.Chapter 3 discusses how to convert trade statistics by service sector on the balance of payments, which is a transaction standard, into industrial standard service trade statistics such as the Korea Standard Industry Classification. The convergence to activity-based classification is helpful in setting out policy directions at the industry level, and matching with other activity-nased statistics, e.g. foreign direct investments, which are readily prepared based on the Korean standard industry classification. In Chapter 3, service trade statistics from the balance of payments are reclassified according to the Korea Standard Industry Classification. In this process of bridging and fill the gap between the two statistics, a fair amount of addition information and complementary data in each industry are required. Ultimately, in order to increase the rigor of the statistical correspondence between the international balance of payments and the standard industrial classification, it is necessary to test the consistency between them.In Chapter 4, service trade statistics by mode of supply were estimated as a medium-term improvement issue. There is a great interest in statistical estimation by mode of supply in that different mode implies distinctive impacts on services market. Recently, statistics by mode of supply for individual countries, TISMOS (Trade in Services by Mode of Supply), have been released by the WTO and OECD. However, since Korea’s statistics shown in TISMOS were estimated indirectly using estimates from some countries such as the United States and the EU. In order to initiate discussions to accurately estimate service statistics by mode of supply in Korea we conducted surveys regarding how Korean companies in services sector have traded in terms by mode of supply, focusing on Mode 1 in particular. Then, for more accurate estimation of Mode 2, most of which is accounted for by travel services, we suggest to use additional information and data from Korea’s Foreign Tourist Survey or National Travel Survey. In the case of Mode 3 services trade estimation, we discussed ways to utilize information and data such as “Overseas Direct Investment Management Analysis” provided by the Export- Import Bank of Korea for Mode 3 exports and “Foreign-invested Company Management Survey Analysis” by KOTRA.Chapter 5 discussed the concerns pertaining to classification of digital products as service products, which have recently grown in interest. Currently, discussions on the classification of intangible products in the traditional dichotomous product classification of goods and services are underway internationally. In this report, we discussed how to add another mode of supply (i.e. Mode 5) in addition to the existing four modes of services supply as an idea. However, since it is difficult to fully reflect the relationship between service providers and consumers by the introduction of Mode 5, it is possible to consider ways to adopt the digital modes proposed by Ciuriak and Ptashkina (2018) within Mode 5.In Chapter 6, two suggestions for institutional improvements were proposed. The first is related to the convergence of statistical classification on the balance of payments and service statistical classification in trade agreements, and the second is related to the collection of corporate- or individual-level data on service trade. The first issue is where international consensus is needed. Therefore, it is considered important to actively monitor the classification discussion of newly formed digital services and participate in international discussions so that our positions and opinions can be reflected in these processes of discussion. The second is regarding the policy directions for supplementing current statistics with various information and data from the broader perspective of services trade. As in most countries, Korea’s service statistics are in fact mostly from the balance of payments statistics, which are collected sporadically as needed, resulting in a lack of statistical consistency. Therefore, this report discusses the approaches for improvement of Korea’s service statistics in three directions, focusing on the Korea’s legal system adjustment, improvement of service trade statistics governance, and establishment of a comprehensive service trade statistics platform.
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