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Policy Reference

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A Case Study and Strategic Insights for the GlobalExpansion of Chinese Electric Vehicle Battery Companies
Chinese EV battery companies, which dominate the Chinese domestic market, are recently entering global market in earnest. The demand for Chinese batteries is also rising as the demand for batteries increases due to the rapid pace ..

Jae Hee Choi Date 2024.03.27
economic security, energy industry

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Summary

Chinese EV battery companies, which dominate the Chinese domestic market, are recently entering global market in earnest. The demand for Chinese batteries is also rising as the demand for batteries increases due to the rapid pace of EV conversion in major automobile markets such as Europe and the United States. As the global market share of Chinese companies rises rapidly, the market share of Korean battery companies, which previously dominated the global battery market, is falling. As competition between Korea and China is expected to intensify in the global market in the future, it can be said that identifying the types and characteristics of Chinese companies’ global expansion and analyzing the strategies and competitiveness of major companies is essential to enhancing and maintaining the global competitiveness of the Korean battery industry.

Accordingly, this study aims to examine the current status of the Chinese market and the global competitiveness of Chinese batteries, and to understand the characteristics of each type of global expansion of Chinese companies. In addition, I selected China’s leading EV battery companies to analyze their strategies and competitiveness, and consider comprehensive countermeasures that the Korean government and companies can utilize.

In Chapter 2, to examine the development of the Chinese EV battery industry, I examines the Chinese market in terms of supply and demand, and identified the recent oversupply phenomenon that has emerged in the Chinese market. I also compared the level of competitiveness of the Chinese battery industry with that of Korea.

First of all, in terms of demand, China is already the world’s largest EV battery market, and battery demand is expected to grow continuously until 2025, reaching more than 1TWh. In the Chinese EV battery market, the demand for LFP batteries compared to ternary batteries is increasing rapidly, and LFP batteries are used in 67% of Chinese EVs in 2023. On the supply side, CATL secures a majority of the market share in the ternary battery sector, and BYD and CATL occupy more than 70% of the market in the LFP battery sector. In addition, as the production capacity of batteries in China increases rapidly, the oversupply phenomenon in the Chinese market is intensifying. As a result, companies’ inventory pressure is increasing, plant utilization rates have dropped sharply, and some companies are experiencing deteriorating management, such as declining profit margins.

I then looked at the competitiveness of the Chinese battery industry in terms of price and technology. Chinese-made batteries have a higher price competitiveness than the batteries produced by Korean companies, and the decisive factor is upstream competitiveness. In line with this, many Chinese EV battery companies have succeeded in achieving strong price competitiveness by vertically integrating them from upstream units, the Chinese government has come forward early on. China’s pursuit of technology competitiveness is also fierce. While Korea has not yet perfected LFP battery and cell-to-pack technology, China has a significant technology level in this field, and Korea no longer has super-gap technology in the ternary battery field. Chinese companies have aggressively invested in next-generation batteries such as all-solid-state and hold a large number of patents.

In Chapter 3, the examples and characteristics of Chinese companies’ global expansion were examined. First, the types of Chinese companies accelerating their global expansion were classified into three categories: △ export expansion f exports in response to the increase in global EV battery demand △ local investment production in response to the battery supply chain internalization policy of major countries/regions △ transnational management using M&A.

I have examined the characteristics of each type in the text, and first of all, found that the export expansion type is the most preferred way for most Chinese companies to respond to the demand in overseas markets so far by 2023. In particular, CATL ranks second in the global market outside of China through exports, and continues to narrow the gap with LGES, the No. 1 player. In the case of BYD, as exports of EVs expand, the usage of self-manufactured batteries installed in the vehicle body is increasing, and from October 2023, only batteries, not EVs, began to be exported alone. However, in the US market, it is expected that global expansion through exports will be limited due to discriminatory regulations such as IRA in the future. Next is the type of local investment production that has been promoted by a number of companies recently. Due to the rapid increase in demand for EVs in major automobile markets such as Europe and the United States, local production by automakers is in earnest, and in the process, automakers want to obtain a stable supply of batteries from a short distance. In addition, incentives for overseas production by Chinese battery companies are increasing as Europe and the United States are pushing for policies to internalize EV supply chains to induce batteries to be produced locally. Europe does not impose particularly discriminatory regulations on investment by offshore companies, including China, and EU member states such as Hungary are actively attracting offshore companies. As a result, many Chinese companies are actively planning to invest in Europe, and their total capacity plans in Europe exceed 300GWh in total. Like Europe, the United States wants to internalize the EV and battery supply chain , but the difference is that the U.S. wants to build its own capacity while excluding China as much as possible. The United States has defined all battery companies in China as FEOC. Despite these risks and costs in the U.S. market, Chinese battery companies have not completely abandoned their U.S. business, due to huge demand in the U.S. market and huge amounts of battery production subsidies supported by the IRA. Some Chinese companies, such as CATL and Guo Xuan Hi-Tech, are actively seeking alternative routes to enter the U.S. market. The third type is a method byin which some Chinese companies attemp transnational management by diluting China’s nationality through M&As. Guo Xuan Hi-Tech and Envision AESC are representative examples, and they seek to dilute a company’s nationality by trading shares with global automakers, and to expand global business by actively using the infrastructure, know-how, and networks that global companies already have. The two companies are the most active in investment production in the U.S. and Europe among Chinese companies, and global automakers are playing an important role in promoting overseas business.

In Chapter 4, representative Chinese companies engaged in global expansion were selected and their specific strategies and competitiveness were analyzed. In order to select a company, I compared the indicators for global expansion, such as the global market share of Chinese companies, overseas sales volume, production plan in the US/Europe/ ASEAN, and whether global automakers participate in the investment. As a result, CATL and Guo Xuan Hi-Tech were selected as representative companies. CATL, China’s largest and best battery company, is expanding its business to global markets such as Europe, the United States, and ASEAN through exports and overseas investment production, regardless of battery types such as ternary and LFP. CATL has secured price competitiveness through vertical integration of the entire supply chain, especially from raw materials to recycling, and is rapidly expanding its global battery business with a powerful weapon called "bang for the buck" by improving technological competitiveness with the full support from the Chinese government and generous investment in R&D.

Although Guo Xuan Hi-Tech does not have a large global market share outside of China, it is worth noting that it is the fastest-growing overseas business among Chinese companies, backed by its major shareholder, Volkswagen. Guo Xuan Hi-Tech has been researching and developing LFP batteries for a long time and is expanding its overseas business focusing on LFP. The company’s LFP battery competitiveness can be seen as the best in the industry in terms of energy density, and it was found that LMFP battery technology, called the next-generation version of LFP, has made significant progress. The ternary battery sector is currently being researched and developed with Volkswagen, so it is necessary to observe its achievements. Guo Xuan Hi-Tech is securing price competitiveness by self-procuring core materials, and is planning to build production capacity of cathode and anode materials as well as battery cell production in foreign countries such as the United States. In particular, the company has received substantial support from a number of local governments in China, and is actively cooperating with the government in the R&D field as well as tax cuts and subsidies.

Based on these analysis results, the following implications were presented to the Korean government and companies.

First, it is the implications for the Korean government. it is necessary to strengthen support for overseas businesses. In the future, the global expansion of Chinese companies is likely to be focused on overseas production rather than the existing mainstream export method. Korea also needs to expand its local production capacity, and since large-scale expansion requires huge funds, more active financial support from the Korean government is needed. In addition, it is necessary to devise measures such as strengthening lobbying activities so that Korean companies can continuously reflect the support benefits related to IRA manufacturing, one of the core interests of the U.S. business.

Second, the Korean government should be more active in strengthening upstream competitiveness because private sector capabilities are not enough. To this end, it is necessary to reorganize the relevant legal system to foster the Used battery industry in the short term, and to accelerate the establishment of an integrated management system for Used batteries that is currently being promoted. Additionally, from a mid- to long-term perspective, it is possible to increase diplomatic efforts with resource-bearing countries and actively utilize multilateral channels such as IPEF to strengthen the ability to respond to supply chain crises.

Third, as a basic way to prepare for competition with China, support for securing design and material technology should be strengthened. In particular, since securing precursor-related technology and manufacturing base is an urgent task to be carried out, the government can establish a specialized precursor education institution, and the government can also establish a precursor company to support development, production. In the mid- to long-term, investment in basic science research should be expanded to secure core patents. It is necessary to actively utilize multilateral channels such as IPEF to strengthen cooperation with international standards and regulations related to batteries so that our technology can be expanded and applied worldwide.

Fourth, if our company is subject to discriminatory regulations abroad, we should also be able to take corresponding measures against companies in that country in accordance with the principle of reciprocity, and furthermore, we need to actively protect and foster our battery companies and industries within the scope of international regulations. In situations where regions/countries such as the United States, Europe, India, and ASEAN are promoting internalization of supply chains, there is a possibility that our company will be disadvantaged at any time. Our government also needs a map for emergencies, and we need to consider policy development based on the principle of reciprocity and ways to protect our companies.

Next, it presented implications for our company. First, it is necessary to actively utilize the IRA’s FEOC guidelines announced in December 2023 as leverage for public cooperation. In a situation where Korean battery companies are highly dependent on China in the upstream sector, gradual diversification of supply chains is more realistic than a sudden ‘De-Sinicization’. In the short term, the ‘less than 25% of China’ clause can be used to establish joint ventures with Chinese companies in Korea, which is expected to greatly contribute to the stabilization and internalization of the supply chain of Korean companies in the midium to long term.

Second, it is necessary to prepare countermeasures related to environmental regulations in Europe. As we have seen in the text, Europe is strengthening environmental regulations through the Battery Act. In order to cope with the regulations on carbon footprints, it is necessary to establish a system that can manage carbon emission-related calculation information, measurement standards, verification and monitoring in the upstream sector that depends on China. In particular, since most of the carbon emissions in the entire battery manufacturing process (LCA) occur in the upstream sectors such as raw material mining and refining, and the proportion reaches 50-70%, it is urgent to prepare countermeasures.

Third, it is urgent to secure technology and manpower in vulnerable fields such as LFP. Since Korean companies have not yet mass-produce LFPs and it is unclear whether they can be more competitive than Chinese-made products, it is necessary to shorten the time by importing manpower, equipment, and materials from China and stabilizing and internalizing technology rather than developing everything related to LFPs on their own. additionally, since China is considered to be ahead of Korea in the fields of precursor manufacturing and battery recycling, it is also possible to consider ways to import key talents and know-how.

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Proliferation of Industrial Subsidies: Current State and Its Implications
The recent trade environment has not been favorable for Korea. Since 2018, the U.S.-China trade conflict has intensified, leading to more protectionist tendencies globally, and since 2020, the COVID-19 pandemic has led major count..

Hyeyoon Keum Date 2023.12.29
trade policy, subsidy

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Summary

The recent trade environment has not been favorable for Korea. Since 2018, the U.S.-China trade conflict has intensified, leading to more protectionist tendencies globally, and since 2020, the COVID-19 pandemic has led major countries to build more resilient supply chains. As a result, subsidies have become increasingly important as a useful trade policy to address emergencies or market failures. But subsidies have the potential to distort trade and competition depending on who they target and how they are administered. And Korea, with its high trade dependence (96.8% as of 2022), can be particularly affected by the subsidy policies of its trading partners. However, the global proliferation of subsidies is likely to continue for the foreseeable future, and it is time to take a closer look at the current state of subsidy policies.

In this study, I use statistics from the Global Trade Alert (GTA) database, which contains information on government intervention by country from November 2008 to April 2023, and the Corporate Subsidy Inventory, which contains information on subsidies only, to examine the status of industrial subsidies in detail. We also identify Korean industries that are associated with subsidies in major countries and analyze the trade changes of Korean industries before and after the implementation of industrial subsidy policies in major trading partners.

During the analysis period, the number of industrial subsidy policies increased significantly globally. The number of subsidy measures increased from 92 in 2008 to 1,511 in 2021, with 147 policies announced in a four-month period in 2023. The country with the most industrial subsidy policies over the same period was China, with a total of 3,770, followed by the EU, the US, Canada, Japan, and India. Each of these countries' subsidy measures covered a wide range of products and industries and affected almost every country in the world, including Korea. Financial grants were the most common type of subsidy throughout the period, accounting for 35.9% of all measures, followed by trade finance and state loans. In addition, tax or social insurance reliefs and production subsidies have been increasingly announced in recent years.

Subsidies were reported in various manufacturing sectors, with the most relevant industry being HS84 (machinery), followed by HS85 (electrical equipment), HS52 (cotton), and HS87 (automobiles). In addition, there were many cases of subsidies in industries such as optical and precision equipment, plastics, and steel. Since 2018, HS84, HS85, and HS87 have been the most frequently subsidized industries. Since these are mostly industries where Korea is competitive in the global market or has a high proportion of exports, the more widespead the subsidy policies become, the more likely it is that Korea’s export industries will be negatively affected.

China, the EU, and the U.S. were the major countries that used industrial subsidies during the period analyzed, but the number of subsidy announcements, the types of subsidies used, and the sectors with many subsidies differed somewhat by country. Of these major countries’ policies, the share of policies affecting Korea was 96.7% in China, 56% in the EU, and 50.9% in the U.S. In China, automobiles, machinery, pharmaceuticals, and semiconductors were the most frequently subsidized products; in the EU, environmental machinery, chemicals, and plastics; and in the US, rechargeable batteries and semiconductors.

Based on the industrial subsidy announcements made by major countries (China, EU, and US) since 2018, we identified 280 export items and 281 import items at the 6-digit HS code level that particularly affect Korea. Both exports and imports were dominated by the machinery, electrical equipment, and automobile industries, as is the case globally. The results show that exports to the rest of the world are increasing, while the share of exports to major countries is decreasing. These results suggest that industrial subsidies in major countries may have a negative impact on Korean exports to these countries. Meanwhile, imports from major countries grew faster than imports from the rest of the world in terms of the average annual growth rate over the 2012-2022 period. However, since 2018, imports from major countries and the world as a whole have grown at similar rates. However, Korea is a significant importer of items that major countries subsidize for their own companies, and if this situation continues, there is a possibility that domestic products may be replaced by imports from major countries.

Based on the above analysis, this study suggests that the Korean government’s role in responding to the proliferation of industrial subsidies is to 1) lead international efforts to create a fair competitive environment, 2) expand channels of communication with major trading partners, and 3) establish effective policies to improve the competitiveness of Korean companies.

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Analysis on Digital Policy and Regulations: Based on the Digital Policy Alert Database
Digital policies and regulations are changing rapidly in advanced and major emerging economies. Based on the newly built Digital Policy Alert data, we found 3,876 changes in digital policies and regulations in major countries such..

Ji Hyeon Kim Date 2023.12.11
E-trade, electronic commerce

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Summary

Digital policies and regulations are changing rapidly in advanced and major emerging economies. Based on the newly built Digital Policy Alert data, we found 3,876 changes in digital policies and regulations in major countries such as US, EU, China, and India. This is the result of governments’ efforts to embrace the digital age and create a fair and stable digital economy. However, we do not have an accurate understanding of digital policies and regulations’ content around the world. This report aims to provide policy implications for our government’s policy making by objectively analyzing the international trends and status of digital policies and regulations and reducing uncertainty about foreign countries.

Digital trade, which is the trade of goods and services through digital means, has increased worldwide due to the development of digital technology. It can be divided into Business-to-Customer(B2C) and Business-to-Business(B2B) trade. By 2023 B2C trade is expected to reach $6 trillion and B2B trade $24.4 trillion. Asia, in particular, accounts for a large share of digital trade, accounting for more than 50% of the world’s B2C trade and on average 78% of B2B trade in 2022. Korea’s digital trade in goods is also expanding, and the proportion of its exports to China and Japan is decreasing while that to Europe is increasing.

According to existing data, such as that from the OECD and EUI, the level of restrictions on digital services trade around the world is generally increasing. If we look at the regulatory environment of digital trade more broadly, there are many restrictive measures, but the level of restriction is not very high. Specifically, the level of openness in e-commerce and intellectual property rights have increased. On the other hand, the level of restriction in infrastructure and connectivity, or data is the highest. The level of restriction in other areas, which includes online advertising ban, local presence requirements, is also increasing. By region, Europe and North America have the most open regulatory environment, while Central Asia and South Asia have the most restrictive regulatory environment. East Asia-Pacific’s regulatory environment is more restrictive than the global average.

By country, open economies such as Canada, US, Australia, or small countries such as Dominican Republic and Costa Rica, have lower levels of restriction on digital services trade. In contrast, relatively closed emerging economies such as Kazakhstan, Russia, Saudi Arabia, and India have higher levels of restriction on digital services trade. China, Russia, India have more restrictive measures on data transfer, and local data storage and processing than other major countries, and they also take discriminatory measures on communications business licenses and e-commerce. US is the most open to data transfer, while Europe and Japan transfer data conditionally.

According to the Digital Policy Alert, data governance and competition account for the largest share of digital policy and regulatory changes worldwide. The main policy instruments for data governance are data protection, cybersecurity, cross-border data flows, and for competition, unilateral conduct regulation, merger review. Recently, the proportion of other business conditions, and registration and licensing have increased. Their instruments, algorithm design and technical standards for other business conditions, product or service licensing for registration and licensing have became increasingly important. In the policy area of content, changes have increased in user speech rights. In international trade, we see changes in measures such as bilateral and regional agreements and export/import bans. Foreign direct investment and tax are also changing actively.

The top 10 countries with the most digital policy changes are US, EU, UK, China, India, Australia, Korea, Japan, Russia, and Canada. Their digital policy changes focus on personal information and information protection, and they also have policies for emerging industries such as AI and crypto assets. Notably, US has more regulations under discussion than adopted or implemented. China and India have relatively more data localization requirements than other countries. Russia has many content-related policy changes, while China and US are active in the registration and licensing area.

Other business conditions, registration and licensing are policy areas which have recently gained attention in digital policy and regulation. Among them, algorithm design and technical standards (other business conditions), product or service authorization (licensing and registration) are mainly used as policy tools. The aforementioned top 10 countries are seeking cooperation for standardization work concerning new industries such as AI. When it comes to crypto assets, countries adopt rather opposite policies depending on their perspective.

Korea’s level of regulatory restriction on digital services trade is lower than that of East Asia-Pacific, but it is higher than the global average. Korea’s digital services trade regulations are becoming more similar to Germany and less similar to China. In terms of digital policies and regulations, Korea is discussing various digital policies such as data protection, unilateral conduct regulation etc.

In conclusion, first, Korea follows the international trend in terms of policy changes in areas such as data governance, other business conditions, competition, but more active discussion on content is needed. Second, international standardization discussions are actively taking place. Korea should be more strategic and base its discussion on the cooperation status of other countries. Third, considering Digital Policy Alert with other existing data will provide a comprehensive picture of digital policies and regulations. Finally, collecting digital policies and regulations by ourselves would be a first step to respond more accurately to changes in digital policy regulation.

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Reforming Incentive Policies to Increase FDI in Korea’s Strategic Industries
Foreign direct investment(FDI) in Korea remains at a lower level compared to that of major countries, although the amount of FDI in Korea in 2022 on notification basis exceeded 30 billion USD for the first time in history. And maj..

June Dong Kim et al. Date 2023.12.08
subsidy, foreign direct investment

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Foreign direct investment(FDI) in Korea remains at a lower level compared to that of major countries, although the amount of FDI in Korea in 2022 on notification basis exceeded 30 billion USD for the first time in history. And major advanced countries have recently expanded investment incentives to strategic industries such as semiconductors and secondary batteries. Therefore, we need to make a landmark transformation of our FDI incentive policies. In this regard, this study first took a look at the recent trends of FDI in Korea and reviewed the incentive systems for attracting strategic investment in major countries such as the U.S., the EU, Japan, and China. And then it attempted to present policy directions for reforming incentive systems to attract strategic investment to Korea. In particular, it aimed to present the improvement of the cash incentive system as well as the use of specialized complexes for advanced industries and specialized zones for equal opportunity development.

First, by looking at the recent trends of FDI into Korea (2010~2022), there are more FDI from advanced countries and tax haven countries such as U.S.A., Japan, Singapore, Malta, Netherland than from others. Also, we found more FDI in services industry than in manufacturing industry. Finally, there were more greenfield FDI than M&As.

Next, we investigated recent incentive systems to attract investment in strategic industries in some key countries. These include the CHIPS and Science Act along with the Inflation Reduction Act of the U.S., and the European New Investment Strategy, InvestEU Program, and European Chips Act in the EU. We also analyzed Japan’s Direct Investment Promotion Strategy toward Japan, Promotion Act of 5G, Semiconductor Fund, and Green Innovation Fund, as well as China’s FDI expansion policy in the manufacturing sector. From this investigation, we confirmed that major countries (ⅰ) operate investment incentive systems without any discrimination between foreign and domestic firms, (ⅱ) provide large amounts of investment subsidies, and (ⅲ) have formed a social consensus that large-scale assistance is necessary to attract investment in strategic industries.

Based on these characteristics in major countries, we presented the improvement of cash assistance system as well as the use of specialized complexes for cutting-edge industries and equal opportunity development special zones as policy directions for reforming incentives to attract investment in domestic strategic industries. More specifically, in the case of improving the cash subsidy system, we found that the following measures are necessary; (ⅰ) increasing the budget available for cash subsidies, (ⅱ) increasing the R&D subsidy expenditures in the aspect of software, (ⅲ) and calculating the amount for cash assistance taking into account the quality of employment, not to mention the effect of job creation. Finally, we presented a plan for linking specialized complexes for cutting-edge industries and special zones for equal opportunity development in order to provide unprecedented support for the large-scale investments in strategic industries.

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Impact of Temporary Trade Barriers within APEC: Evidence from Korea
This study uses a detailed product-level data to examine the trade deflection of Korean exports as a result of antidumping (AD) duty impositions. Given that APEC economies account for a large share of Korean exports and AD duty im..

Seungrae Lee Date 2023.11.30
APEC, anti-dumping system

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Executive Summary

I. Introduction

II. U.S. and Chinese AD cases on Korea

Ⅲ. Estimation strategy and Data

Ⅳ. Estimation Results

V. Conclusion

References

Appendix

Summary
This study uses a detailed product-level data to examine the trade deflection of Korean exports as a result of antidumping (AD) duty impositions. Given that APEC economies account for a large share of Korean exports and AD duty impositions on Korean exports, especially by the U.S. and China, this study focuses on the deflection of Korean export to APEC economies following the imposition of AD duties by the U.S. and China. This study finds robust evidence of Korean export deflection within APEC as a result of the imposition of AD duties by the U.S. and China. Moreover, intra-APEC trade deflection is associated with the type of products involved in the AD duty orders. U.S. AD duties have an impact on the export deflection of intermediate products, while Chinese AD duties have an impact on final products, towards APEC economies.
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Analysis of WTO Discipline on Services Domestic Regulations and Its Policy Implications
On December 2, 2021, seventy WTO members announced the successful conclusion of the negotiations within the Joint Initiative on Services Domestic Regulation. The participants acknowledged the conclusion of negotiations on the Refe..

June Dong Kim et al. Date 2023.11.24
regulatory reform, trade policy

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Summary

On December 2, 2021, seventy WTO members announced the successful conclusion of the negotiations within the Joint Initiative on Services Domestic Regulation. The participants acknowledged the conclusion of negotiations on the Reference Paper on Services Domestic Regulation. As of September 2023, the participants are currently in the process of WTO certification by integrating the disciplines outlined in the Reference Paper as additional commitments in their GATS schedules. After this process is completed, these plurilateral agreements will come into effect.

This study aimed to analyze the contents of each article of WTO Services Domestic Regulation, and to present standards for compatibility of domestic regulations with this discipline. Additionally, this study identified domestic best practices related to each article to present how to implement this discipline domestically. In other words, the study presented the general guidelines and detailed checking guides that each official in charge of those domestic regulations should be aware of.

First, in analyzing each article of WTO Disciplines on Services Domestic Regulations, we reviewed their meanings and then identified major matters to be checked and addressed. Subsequently, we analyzed our cases for implementation of the relevant legislations.

Next, we outlined the likely economic impacts based on prior research that estimated tariff equivalents of domestic regulations on services. By implementing the WTO Disciplines on Services Domestic Regulations, we can anticipate (i) an increase in consumer welfare (ii) a boost in foreign direct investment due to the improvement of domestic business environment from enhancement of transparency and predictability of domestic regulations (iii) enhanced competitiveness of domestic firms (iv) improved economy-wide productivity by employing efficient services as inputs, and (v) facilitated outbound activities of domestic firms through improved overseas business environment as a result of the implementation of these Disciplines by other WTO members.

This study has policy implications as it offers comprehensive guidelines and checklists that every government ministry responsible for domestic regulations. This will prepare them for the implementation of the WTO Disciplines on Services Domestic Regulations after its certification process is complete.

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Environmental Non-tariff Measures and Trade in APEC member economies
This study examines how environmental nontariff measures (NTMs) affect trade in Asia-Pacific Economic Cooperation (APEC) member economies. Using product-level panel data spanning 2009–2020, we find that stringent environmental NTM..

Hea-Jung Hyun Date 2023.11.20
APEC, international trade

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Executive Summary

I. Introduction

II. Environmental NTMs and Trade Patterns in APEC Region

III. Theoretical Background and Empirical Model

Ⅳ. Data and Measurement of Environmental NTMs

V. Empirical Result

Ⅵ. Conclusion and Policy Implication

References

Appendix

Summary

This study examines how environmental nontariff measures (NTMs) affect trade in Asia-Pacific Economic Cooperation (APEC) member economies. Using product-level panel data spanning 2009–2020, we find that stringent environmental NTMs reduce trade in APEC member economies, whereas no significant effect exists when exporting is destined to non-APEC economies. The trade-impeding effect of NTMs is prominent in exports of dirty goods from economies with high-intensity greenhouse gas emissions through additional adaptation costs to meet environmental standards set by high-income importing countries with the high-intensity imposition of the measure. Results imply that APEC economies need to enhance effective environmental regulations by taking the heterogeneous effects of NTMs on trade across industries and types of measures into account.

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Voters’ Attitudes toward Protectionism in Southeast Asia and Oceania: Evidence from the Philippines, Thailand, Australia, and New Zealand
This research analyzes the determinants of voters’ attitudes towards protectionism in four Southeast Asian and Oceania countries (the Philippines, Thailand, Australia, and New Zealand) and discusses whether voters’ attitudes tow..

Nam Seok Kim Date 2023.11.10
international trade, political economy Southeast Asia Ocean

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Summary

This research analyzes the determinants of voters’ attitudes towards protectionism in four Southeast Asian and Oceania countries (the Philippines, Thailand, Australia, and New Zealand) and discusses whether voters’ attitudes toward protectionism are related to their voting behavior. This study utilizes the endogenous trade policy formation theory in international economics to understand how voters’ attitudes toward protectionism are formed. Furthermore, by examining whether voters’ political party support can be explained by their attitudes toward protectionism, this study confirms that changes in each country’s trade policy orientation can be understood in the context of their domestic political-economic background.

The main findings of this study are as follows: Voters in relatively labor-abundant countries such as the Philippines and Thailand prefer protectionist trade policies as their human capital attainment increases. In contrast, voters in relatively capital-abundant countries such as Australia and New Zealand prefer free trade policies as their human capital attainment increases. These findings align with the theoretical predictions of the Heckscher-Ohlin model-based factor endowment approach. However, since the factor endowment approach is based on the long-run assumption of free labor mobility across industries, it may deviate significantly from reality. To address this limitation, the analysis introduces a specific-factor approach that considers rigidities in the labor movement between industries to test whether there are differences in attitudes towards protectionism between voters in comparative advantage industries and voters in comparative disadvantage industries. The results of the analysis show that the theoretical predictions of the specific-factor approach did not have empirical validity for the voters in the four countries.

Determining whether individual attitudes toward protectionist trade policies are associated with voting behavior requires a separate analysis. Analyzing the survey data on the party choices of each voter in general elections, the results show that their attitudes toward protectionism do not explain voters’ voting behavior in the Philippines and Thailand. In contrast, voters’ voting behavior in Australia and New Zealand is significantly explained by their attitudes toward protectionism. Australian voters who prefer higher trade barriers are more likely to support the right-wing populist party, the One Nation Party, while New Zealand voters who prefer higher trade barriers are more likely to support the Labour Party.

From the above analysis, it can be concluded that trade policy orientations in Australia and New Zealand tend to reflect domestic political-economic backgrounds to a significant extent, while this is not the case in the Philippines and Thailand. As the estimation results of this study suggest, voting patterns in the Philippines and Thailand are strongly influenced by regionalist tendencies. This study concludes by emphasizing the need to refine trade negotiation strategies by taking into account the domestic political-economic situations of these four major trading partners of South Korea.

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Natural Gas Development in the Eastern Mediterranean Region and Its Implications for Korea
This study explores the current status of natural gas development in the Eastern Mediterranean region and derives its implications for Korea. Our approach encompassed a thorough review of pertinent literature and statistical data,..

Kwang Ho Ryou et al. Date 2023.10.20
economic cooperation, energy industry

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Summary

This study explores the current status of natural gas development in the Eastern Mediterranean region and derives its implications for Korea. Our approach encompassed a thorough review of pertinent literature and statistical data, and insightful interviews with local government officials and industry experts, conducted through field surveys and seminars.

The key findings of this study are summarized as follows: First, natural gas development in the Eastern Mediterranean region has significantly increased its prominence within the global natural gas market. Egypt, holding largest natural gas reserve in the region, now surpasses major natural gas importers of Korea, including Malaysia, Oman, and Indonesia. The total natural gas reserves in the Eastern Mediterranean region are estimated at 119.1Tcf, 41.1% more than that of Australia, Korea’s largest natural gas importer. It is estimated that there are 286.2Tcf of undiscovered natural gas resources buried along the Eastern Mediterranean coast. This means that only 29.4% of the region’s total natural gas reserves have been found to date.

Second, countries in the Eastern Mediterranean have made significant efforts to develop their domestic natural gas resources and to strengthen both domestic and international cooperation. In particular, Egypt, Israel, and Cyprus, major natural gas holders in the region, have been actively pursuing exploration and development and related infrastructure projects to expand their natural gas production and export capacity. Efforts are being made to promote natural gas-related industries such as petrochemicals and hydrogen. In 2019, a regional consultative body for natural gas development, the East Mediterranean Gas Forum, was launched. Since then, through a number of meetings, countries in the region have gathered to discuss specific plans and implement methods for natural gas development. There is also cooperation between Egypt and Israel in the natural gas supply chain, using Egypt’s natural gas liquefaction facilities.

The weaponization of resources in major energy producers and the expansion of global energy security threats have served as an opportunity to draw more attention to natural gas development in the Eastern Mediterranean. In the aftermath of the Russia-Ukraine war in 2021, the instability of natural gas supply and demand increased significantly, especially around the EU, and natural gas prices also showed a sharp increase in volatility. As the risks of energy supply and demand disruptions have been greatly highlighted, the Eastern Mediterranean has emerged as a new alternative destination for major energy consumers. In particular, major energy companies in Europe such as Eni and BP are showing great interest and continuing their aggressive entry into the Eastern Mediterranean region.

We can use the current situation in which the threat to energy security has escalated as an opportunity to promote natural gas cooperation with the Eastern Mediterranean region. First of all, we can contribute to strengthening Korea’s energy security by increasing natural gas imports from the region. Recently, the need to diversify import sources has emerged as concerns about the instability of natural gas supply and demand have increased significantly due to the recent production disruptions in major oil-producing countries caused by geopolitical risks. As infrastructure development in the region is progressing at a rapid pace, it can be said that various entry opportunities are also open for Korean construction companies with global competitiveness in the region. In addition, the Eastern Mediterranean region can be considered a project site for the development of overseas natural gas fields, and participation in local countries’ efforts to develop gas-related industries such as petrochemicals and hydrogen could also provide good opportunities for Korean companies to enter the market.

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Cloud Services FDI and Regulatory Trends
This report examines cloud services FDI and regulatory trends. We obtain 2,442 cloud services FDI projects (firm-level) from FDI Markets for the period 2016-22, and do statistical analysis using information on investment purpose, ..

Kyu Yub Lee and Jun Hyun Eom Date 2023.10.20
privacy, electronic commerce

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This report examines cloud services FDI and regulatory trends. We obtain 2,442 cloud services FDI projects (firm-level) from FDI Markets for the period 2016-22, and do statistical analysis using information on investment purpose, year, destination country, investment size, and industry. First, the total amount of FDI in cloud services from 2016 to 2022 is about $214 billion. The main purpose is to invest in overseas facilities to build ICT and infrastructure, and the telecommunications industry, software and IT services industry account for 98.7% of the total investment. Outward FDI between high-income countries accounts for about 62% ($132.9 billion), which rises to 85.5% ($183.9 billion) if transactions between high-income countries and upper middle-income countries are included. Lower middle-income countries invest more in high-income countries ($1.5 billion) than in lower middle-income countries ($900 million). There is no outward investment among low-income countries. Countries in the Americas, Europe, Asia, and Africa regions (excluding Oceania) are the most active, with the largest share (29.3%) of outward investment between the Americas and Europe. The Americas are the leading region for outbound direct investment in cloud services (61.9% of investment), and when looking at transaction patterns between regions, investment is concentrated in Europe (35.5%), Asia (25.6%), and the Americas (24.4%).

Second, the total amount invested in the European region (43 investor countries and 37 recipient countries) is about $76 billion. Countries in the Americas have invested about $52.9 billion in the region, accounting for 69.6% of the total. The leading investor in Europe is the United States ($51.9 billion), and the top investee country in Europe is the Netherlands. The total amount invested in Asia (35 investor countries and 39 recipient countries) is about $54.9 billion. Countries in the Americas account for 58.1% of the total, with about $31.9 billion invested in the region. The leading investor in the Asia region is the United States ($31.6 billion), and the leading recipient country in the region is India. The Americas (37 investor countries and 21 recipient countries) received about $52.3 billion in investment. Countries in the Americas account for 56.9% of the total, with about $29.8 billion invested in the region. The leading investor in the Americas is the United States (almost $25 billion), while the top recipient country in the region is Canada. The Africa region (19 investor countries and 26 recipient countries) accounted for about $17.2 billion. The countries in the Americas accounted for nearly $6.8 billion in investments in the region, or 39.4% of the total. The United States is the only country in the Americas to invest in the region, while South Africa is the top investor in Africa. The Oceania region (12 investor countries and two recipient countries: Australia and New Zealand) totaled about $14 billion. Countries in the Americas have invested about $11.5 billion in the region, accounting for 81.8% of the total, with the United States accounting for about $10.8 billion. Countries in Asia invested about $1.5 billion (10.7%) and Europe invested about $900 million (6.5%) in the Americas. Korea invested a total of $5.8 billion in the United States, China, India, Africa, and a few other countries during 2016-22, accounting for about 0.3% of global cloud services investment. The United States, China, the ten ASEAN member countries, India, Singapore, and Hong Kong are the only countries that have invested in Korea. Korea's FDI in cloud services totaled $2.16 billion (1.0%), of which about $1.27 billion coming from the United States, $5.3 billion from ASEAN 10 and India, $240 million from China, and $120 million from the rest of the world.

Third, we further examine the domestic regulations of the cloud industry in key countries. Based mainly on the U.S. Trade Barriers Report (2017-23), we find that there are discernible disparities between countries in terms of data localization, restrictions on cross-border data transfers, security certifications, mandatory sourcing of domestic goods, and content control. Data localization requirements are compulsory in China, Saudi Arabia, South Africa, Panama, Nigeria, France and South Korea. Restrictions on cross-border data transfers are enforced in China, Saudi Arabia, and South Africa. Mandatory sourcing of domestic products is obligatory in China and the Philippines. Security certifications are required in the EU (EUCS), France (SecNumCloud), the United States (FedRAMP), and South Korea (CSAP). Countries with content controls include Vietnam and Saudi Arabia. China and Saudi Arabia are identified as the countries with the highest number of most regulatory issues.

We hope the findings of that report will serve as a useful reference as the government reviews FDI policies and regulatory policies for cloud services, which are as important as overseas expansion of domestic cloud service providers, in the process of formulating the Fourth Basic Plan for Cloud Computing (2025-27).

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