Over the past two decades, China has systematically promoted the semiconductor industry as a central pillar of its national development strategy. In recent years, this effort has intensified as technological self-reliance and supply-chain security have been elevated to core national priorities. Against the backdrop of escalating U.S. export controls and heightened geopolitical tensions, China has accelerated investments in advanced semiconductor technologies while seeking to reduce structural dependence on foreign suppliers.

China’s semiconductor development strategy can be characterized by three interrelated features. First, it is underpinned by strong state-led industrial policies. Through major strategic frameworks such as Made in China 2025 and the Guidelines for the Development of the National Integrated Circuit Industry, semiconductors have been designated as a strategic core industry. These initiatives have been supported by extensive policy instruments, including large-scale fiscal support, tax incentives, and systematic talent development and recruitment programs. Second, China has pursued the localization of critical technologies with the explicit objective of achieving technological self-sufficiency. Particular emphasis has been placed on increasing domestic production capacity in semiconductor equipment and materials, where reliance on foreign technologies has historically been most pronounced. Third, from a medium- to long-term perspective, China has sought to establish China-centered industrial clusters amid the ongoing reconfiguration of global semiconductor supply chains, thereby fostering a domestically anchored semiconductor ecosystem.

Despite these sustained policy efforts, China’s semiconductor industry remains heavily dependent on foreign technologies in several critical process stages. This dependency is especially evident in extreme ultraviolet (EUV) lithography equipment, advanced electronic design automation (EDA) tools, cutting-edge manufacturing equipment, and specialized materials. These structural vulnerabilities have become primary targets of U.S.-led export control measures. In particular, the strengthened restrictions implemented since October 2022 have imposed material constraints on China’s ability to produce advanced semiconductors. Empirical evidence indicates that China’s semiconductor imports from the United States declined by approximately 31 percent following the implementation of these measures—a contraction more than three times larger than that observed for non-sanctioned items.

The main policy effects identified through Event Study and Difference-in-Differences (DID) analyses can be summarized as follows. First, U.S. export controls have functioned not as a temporary shock but as a persistent structural constraint, with their impact concentrated on key process inputs such as high-performance chips, high-purity materials, and advanced manufacturing equipment. Second, although import substitution through alternative sourcing channels initially mitigated some of the supply disruptions, these channels have become increasingly constrained over time. Third, the coordinated export controls imposed by the United States and its allied countries have exerted sustained pressure on China’s capacity to secure alternative supply sources, further tightening supply-chain bottlenecks.

Importantly, the policy effects have exhibited a dynamic temporal pattern rather than a one-off disruption. Semiconductor imports fell sharply in 2022, showed partial adjustment in 2023, and declined again in 2024, suggesting that export controls have generated cumulative and reinforcing constraints rather than transitory effects. This pattern underscores the structural nature of the restrictions and highlights the growing difficulty China faces in sustaining advanced semiconductor production under an increasingly restrictive external environment.

From an academic perspective, this analysis contributes to the existing literature by providing quantitative evidence for policy effects that have often been discussed primarily in qualitative terms. By empirically tracing both the magnitude and temporal evolution of import reductions, the study offers a more rigorous assessment of how export controls reshape semiconductor supply chains over time.

Several policy implications emerge from these findings. Korea faces both risks and opportunities as China advances its semiconductor self-reliance strategy amid global supply-chain reconfiguration. In the short term, Korea may benefit from opportunities to supply advanced equipment and materials to China, partially filling technology gaps created by U.S. export restrictions. In the longer term, however, Korea must simultaneously safeguard its proprietary technologies and strengthen supply-chain resilience. This calls for a dual strategy that combines the strategic utilization of production bases in China with reinforced domestic capabilities aimed at sustaining technological leadership.

In conclusion, China’s semiconductor industry is undergoing rapid transformation under the combined pressures of external constraints and internal strategic realignment. As competition and selective cooperation among major economies reshape the global semiconductor landscape, Korea stands at a critical strategic juncture. Carefully calibrated and balanced policy responses will be essential to maximize emerging opportunities while effectively managing long-term risks. This study provides an empirically grounded framework to inform such strategic decision-making, offering deeper insights into the evolving structure of global semiconductor competition than those available in previous research.

Brazil has become one of the most attractive partners, especially in light of recent changes in the global environment. Rising uncertainty and instability call for the need to diversify trading partners. As of 2024, Brazil’s GDP has reached 2.2 trillion US dollars. Brazil ranks as the world’s seventh-largest economy, following the United States, China, the European Union, Japan, India, and the United Kingdom. Despite its significance, however, relatively little research has been conducted in Korea to investigate and understand the Brazilian economy. This report aims to analyze Brazil’s consumer market through the lens of the informal economy in particular. The informal economy refers to economic activities that would be included in GDP if monitored by the government but are not officially documented due to institutional or regulatory contexts. The size of Brazil’s informal economy is so large that understanding it is essential to understanding the Brazilian economy in depth. More specifically, the informal economy share in Brazil amounts to 33.4% of GDP. This figure is significantly high for a country with a decent level of GDP per capita compared to other Latin American countries.

This report exclusively investigates three features of the Brazilian economy, all of which are closely related to the informal economy. First, the low-income and low-wealth groups experience severe and the poverty rate is high. Both income and wealth mobility are low. Inequality is pronounced not only in a static sense but also in a dynamic sense. Second, access to financial intermediaries is limited for both low-income (low-wealth) households and small and medium-sized enterprises (SMEs). As of 2025, the Selic rate is 15%. Borrowing rates for households and SMEs are particularly high, as household borrowing rates typically exceed 50% annually. Although fintech has recently made access more feasible, demand for cash transactions still remains high. Lastly, informal labor contracts are prevalent. Approximately 37.9% of total employment is informal.

Furthermore, Brazil is well known for its inequality and polarization. Although the income Gini coefficient has declined over the last 30 years, it remains high, exceeding 50. The top 10% income share in Brazil is 39.1%, which is higher than the Latin American average of 34.2%. Meanwhile, the bottom 10%’s income share is 1.4%, which is relatively lower than the Latin American average of 1.7%. Brazil also demonstrates a high degree of urban concentration, contributing to heightened regional inequality.

Using a simplified macroeconomic model, this report provides a theoretical foundation for the underlying mechanisms through which the informal economy exacerbates the above-mentioned features. Limited access to financial intermediaries and the prevalence of informal labor worsen inequality and generate a poverty trap. Low returns on assets for wealth-poor households raise their marginal propensity to consume, leading to low savings. As the informal economy grows, capital accumulated in the formal sector shrinks and the rate of return rises. Wealthy households benefit from the high returns, and polarization widens on the right tail of the wealth distribution. The model quantitatively evaluates the potential gains that the Brazilian government could achieve through implementing policies aimed at improving financial accessibility.

This report examines Brazilian policies that partially mitigate the informal economy. Of course, few policies are designed to directly target the informal economy. However, the Brazilian government has implemented numerous policies to support low-income and low-wealth households, improve financial accessibility nationwide, secure tax revenues through formalization, and increase aggregate productivity through worker education. All of these policies are closely related to the informal economy.

Next, the report analyzes consumption patterns among Brazilian domestic consumers. Due to Brazil’s high level of income inequality, it is common practice to classify households into five groups—A, B, C, D, and E. With Group A representing the highest-income class and Groups D and E representing the lowest-income classes, these polarized consumers tend to exhibit distinct consumption patterns. The report also presents case studies of marketing strategies targeting low-income and low-wealth households as well as top income earners. In general, expanding the consumer base and improving financial inclusion play key roles in low-income markets. Regardless of income level, consumers rely heavily on the established images of companies.

Finally, we suggest several broad policy implications based on the observations discussed above. Due to the Brazilian government’s multifaceted policy efforts related to the informal economy, there is substantial potential for public-sector cooperation between Korea and Brazil. Brazil has recently established the Ministry of Entrepreneurship, Microenterprise, and Small Business (MEMP), signaling a strong policy commitment to supporting SMEs. In this context, cooperation through Korea’s Ministry of SMEs and Startups and the Knowledge Sharing Program (KSP) appears promising. Bilateral programs could also be pursued within the framework of the Global Alliance Against Hunger and Poverty, which was launched under Brazil’s leadership. Moreover, due to the polarized nature of Brazil’s domestic consumer market, Korean firms could benefit from entering the Brazilian market through strategies such as product differentiation and image-based marketing.

Executive Summary

Contributors

Chapter 1. Introduction
1. Background
2. Objective

Chapter 2. The Historical Evolution, Achievements, and Collaborative Dynamics of GTI
1. Overview of GTI: Historical Background and Evolution
2. Achievements and Limitations
3. Looking Ahead: Balancing Achievements and Challenges

Chapter 3. Rationale for Legal Transition
1. Previous Discussions on Legal Transition
2. Environmental Analysis

Chapter 4. Comprehensive Frameworks and Strategic Suggestions for Legal Transition
1. Comparative Analysis of Regional Cooperation Models and Implications
2. Strategic Plan for Legal Transition

Chapter 5. Perspectives and Evaluations of Member Countries
1. China
2. Mongolia
3. South Korea
4. Russia

Chapter 6. Conclusion
1. Summary of Findings
2. Policy Implications
3. Strategic Directions for GTI’s Institutional Transformation

References

This study examines the current status of the Greater Tumen Initiative (GTI) by reviewing its establishment background and historical evolution, major activities and achievements, and the development of internal discussions on its transition into an international organization. It assesses the necessity and feasibility of GTI’s legal transformation. Over the past three decades, GTI has played a meaningful role as a platform for dialogue and cooperation in Northeast Asia; however, the absence of an independent international legal personality has imposed structural constraints on project implementation and resource mobilization. To overcome these limitations, GTI member states have formed a broad consensus in principle on the need for legal transformation, and past discussions have already laid a substantial institutional and legal foundation for such a transition. Drawing on comparative analyses of regional development and cooperation frameworks similar to GTI−such as APEC, ACMECS, CAN/CAF, and ADB−this study derives policy implications and proposes a concrete, step-by-step legal, institutional, and policy roadmap for GTI’s transition into an international organization. In particular, through joint research with participating institutions of the GTI Research Institute Network, the study synthesizes member states’ positions and perspectives on the legal transition, and explores cooperative approaches to overcoming differences and building consensus. In this respect, the study makes a significant contribution to advancing practical pathways toward GTI’s institutional transformation.

This study attempted an in-depth analysis of the changing world order under Trump’s second term and Russia’s strategy for a multipolar world. In particular, the research focused on the Shanghai Cooperation Organization (SCO), which has recently emerged as a leading multilateral organization in Eurasia. In other words, the study examines Russia’s strategy for utilizing the SCO as a key policy instrument to advance its global strategy for a multipolar world under Putin’s fifth term, adopting a multifaceted analytical perspective. Chapter 2 provides an in-depth examination of the changing world order under Trump’s second term and the international relations of major powers. To this end, the study examined the key aspects and characteristics of these changes, as well as the structure and nature of major power relations among the United States, China, and Russia. At the same time, it examined how the improvement and development of China-Russia relations were specifically realized through the SCO.

The international order is currently undergoing a major transformation. This transformation was essentially triggered by the inauguration of Trump’s second term and the shift in the United States’ foreign policy. In particular, the diplomatic and security, economic and trade environments are rapidly changing at global level. Above all, due to the Trump administration’s pursuit of an “America First” foreign policy, the world is now facing a completely unfamiliar new world order. In the familiar world of post-Cold War “globalization,” the United States, as a global leader, has played a leading role in protecting human rights and liberal democratic values, opening markets, countering aggressive authoritarian forces, and ensuring global security.

Amidst the new structure and dynamics of the US-China-Russia trilateral relationship, including the ongoing and intensifying US-China hegemonic competition, the possibility of resuming US-Russia dialogue and normalizing bilateral relations, and the strengthening of strategic ties between China and Russia, this study provides a more objective and comprehensive understanding of Russia’s vision and implementation of a multipolar world order, including its pursuit of strategic relationships with the Global South, BRICS, and the US and China.

Chapter 3 systematically examines the key contents and characteristics of the SCO’s inception and development. It also examines key directions of cooperation and key tasks following the recent expansion of the SCO. Furthermore, we assessed the SCO’s international standing and developmental potential within the international community, while comprehensively examining its development prospects.

The SCO, led by China and Russia, has recently seen its international standing and role significantly increase. With the continued expansion of SCO membership, the scope and role of cooperation are expanding. Since its launch, the SCO has undergone continuous development, evolving beyond a simple regional security cooperation organization into an integrated platform encompassing security, politics, and economics representing the global and Eurasian region. Notably, the 2025 Tianjin SCO Summit produced tangible results for the organization’s development. The summit laid a systematic institutional foundation for military and economic security (including the establishment of four new security centers and the SCO Development Bank), while also further expanding its international standing (including the expansion of member and partner countries) and role. In this respect, it can be assessed as opening a promising path toward expanding Eurasian multilateral cooperation and global multipolarity.

Chapter 4 examines Russia’s strategy for a multipolar world during the Putin era. First, we traced the theoretical origins and development of Russia’s multipolar world strategy, identifying its key features. Simultaneously, we examined the goals, direction, and challenges of Russia’s SCO utilization strategy, aimed at building a multipolar world under Putin’s fifth term from a political and diplomatic perspective. Furthermore, we examined the economic and trade relations between Russia and key SCO member states since the outbreak of the war.

The Russian leadership has outlined strategic goals for establishing a multipolar world order. In summary, first, as a countermeasure to the West’s all-out anti-Russian pressure campaign and strategic containment policy, Russia seeks to strongly check the expanding influence of the West, including the United States and NATO. To this end, Russia seeks to strategically utilize regional multilateral cooperation structures like the SCO to exert its unique influence on Eurasia and consolidate its sphere of influence. Second, Russia is working to expand its support and friendship with Russia in the global arena. Russia prioritizes enhancing cooperation with countries in the Global South, citing the greater cause of solidarity with the “World Majority,” in addition to its existing core partners such as China and India. Russia is striving to expand strategic cooperation with major regional powers such as India, Brazil, Turkey, and Iran, in addition to its strategic and comprehensive partnership with China. Third, economically, Russia seeks to overcome international isolation and circumvent Western sanctions against Russia. To this end, Russia’s primary goal is to further strengthen cooperation with countries in the Global South, including Africa and Latin America, on economic security issues such as energy and food. Furthermore, Russia is seeking to establish alternative economic systems, such as the yuan or local currencies, in trade settlements.

Chapter 5 presents policy implications and recommendations based on an objective of understanding the current situation, essential for formulating a new Eurasian and Northern strategy. This is because it is a crucial issue that is closely related to the following issues: diversifying economic security, such as securing energy and mineral resource supply lines; seeking ways to improve relations with Russia in terms of strategic management of countries surrounding the Korean Peninsula; establishing a plan to strengthen access to Central Asia with the goal of expanding the Eurasian multilateral cooperation network; expanding external support for the Korean Peninsula peace process (securing friendly forces on the North Korean issue using multilateral organizations); and establishing the external position and strengthening the capabilities of a leading middle power through multilateral and pragmatic diplomacy.

Chapter 1. Introduction

Section 1. Research Background and Objectives
The Act on the Conclusion Procedure and Implementation of Commercial Treaties (hereinafter, the “Commerce Treaty Act”) was enacted in 2012 to address the lack of procedural transparency and insufficient public participation revealed during major trade negotiations, notably the Korea–U.S. Free Trade Agreement (FTA). The Act aimed to institutionalize transparency, predictability, and stakeholder participation across all stages—from negotiation to post-entry implementation—while ensuring systematic and democratic oversight of Korea’s trade policy.
Despite its initial promise, several institutional limitations have emerged. Certain procedures risked becoming mere formalities, undermining the Act’s purpose, while rapid shifts in the trade environment, including digital trade, supply chain realignment, and climate-related regulation, exposed gaps in its scope and adaptability. In particular, new forms of economic agreements that diverge from traditional tariff-based liberalization often fall outside the statutory definition of a “trade agreement,” weakening both democratic control and policy responsiveness.
This study therefore seeks to identify reform directions that can strengthen the Commerce Treaty Act’s legal coherence, democratic legitimacy, and practical effectiveness. The research focuses on four main objectives: enhancing institutional coherence, improving democratic transparency and oversight, ensuring effective domestic implementation, and reinforcing the legal framework to address structural changes in global trade governance.

Section 2. Scope and Limitations of the Study
This study examines the historical evolution, legislative intent, and operational performance of the Commerce Treaty Act, alongside a comparative analysis of treaty-making and implementation systems in the United States, the European Union, Japan, and China. Methodologically, it combines doctrinal and empirical approaches through the analysis of statutes, policy documents, and negotiation practices, complemented by expert interviews.
Although the confidentiality of trade negotiations imposes empirical limitations, the study nonetheless offers an analytical and policy framework for reforming Korea’s legal foundations for trade governance. It argues that international trade law research must extend beyond theoretical analysis to inform real policy reform and institutional design.

Chapter 2. Objectives and Legislative History of the Commerce Treaty Act

Section 1. Constitutional and Institutional Background
Article 6(1) of the Constitution of the Republic of Korea grants treaties the same legal effect as domestic statutes. Yet, before 2012, the practical exercise of this principle lacked sufficient checks and balances, as trade negotiations and ratifications were dominated by the executive branch with little parliamentary oversight. As modern trade agreements began to regulate sensitive domestic policy domains—such as environmental standards, labor protection, and investment policy—the need for greater transparency and democratic legitimacy became urgent.
The Commerce Treaty Act was thus established to give effect to constitutional principles of accountability and separation of powers. It introduced procedural obligations for prior, interim, and post-reporting to the National Assembly; mandated public hearings and information disclosure; and required the government to assess both the economic effects and implementation of trade agreements. These mechanisms were designed to secure procedural legitimacy and foster cooperation between the executive, the legislature, and civil society, thereby embedding democratic control into Korea’s trade policy architecture.

Section 2. Key Issues in the Legislative Process and Their Resolution
The legislative history of the Commerce Treaty Act reflects the accumulated tension between democratic oversight and the need for efficiency in foreign-economic negotiations. During the drafting process, lawmakers confronted several unresolved questions that had surfaced in earlier controversies surrounding the Korea–Chile, Korea–U.S., and Korea–EU FTAs. At the heart of the debate lay the appropriate degree of parliamentary participation. Some legislators argued that the National Assembly should possess the authority to approve the opening of negotiations in advance, thereby ensuring democratic legitimacy from the outset. The executive branch, however, warned that such ex ante approval would unduly constrain its flexibility in rapidly changing diplomatic contexts. The final text consequently adopted a compromise: the government would retain discretion to initiate negotiations but would be legally obliged to report to the Assembly at each major stage and to obtain its consent before ratification.
Another contested issue concerned the domestic effect of treaties. Certain early drafts had proposed conditioning the entry into force of an agreement on the prior enactment of implementing legislation, a design that would have delayed Korea’s international commitments until all domestic legal adjustments were complete. Because this approach was considered inconsistent with the country’s monist constitutional order, the provision was ultimately omitted. Instead, the Act emphasizes the timely preparation of necessary implementing legislation before a treaty’s entry into force.
Debates also arose over the definition of “trade agreement” and the treatment of information disclosure. Lawmakers sought to balance transparency with national security by adopting a principle of disclosure subject to narrowly tailored exceptions. When the National Assembly requests access to confidential materials, the executive is obliged to provide them under conditions safeguarding strategic interests. To enhance participatory governance, the Act further established a standing advisory committee composed of experts and industry representatives to channel stakeholder perspectives into negotiation planning. Finally, the Act introduced requirements for ex ante, interim, and ex post assessments of industrial impact and adjustment measures for sectors expected to suffer serious injury. In sum, the law emerged as a negotiated equilibrium between legislative demand for procedural legitimacy and executive insistence on operational flexibility.

Section 3. Assessment and Implications
The Act represents an important institutionalization of democratic control over Korea’s trade policy and a step toward restoring public confidence in governmental transparency. Nevertheless, continuous improvement is required to ensure that these procedures retain substantive meaning. Strengthening parliamentary review, enhancing legislative expertise, and linking trade policymaking to a medium- and long-term national strategy would ensure that democratic oversight remains compatible with efficient diplomacy.

Chapter 3. Treaty-Making and Implementation Systems in Major Jurisdictions

Section 1. United States
The United States operates under a dual system balancing executive flexibility and congressional authority. The Trade Promotion Authority (TPA) grants the President the power to negotiate trade agreements, subject to detailed congressional oversight and an expedited “up-or-down” approval procedure. While this enhances efficiency, it also preserves accountability through continuous consultation and reporting. The U.S. distinction between self-executing and non-self-executing treaties ensures that Congress retains control over domestic implementation. In comparison, Korea’s rigid parliamentary consent model provides clarity but can limit agility in fast-moving negotiations.

Section 2. European Union
The European Union’s common commercial policy, grounded in Articles 3 and 207 of the Treaty on the Functioning of the EU, constitutes an area of exclusive EU competence. The European Commission negotiates under mandates authorized by the Council, with the European Parliament exercising oversight and consent. Implementation occurs through the ordinary legislative procedure. Transparency is achieved through public negotiation directives, stakeholder consultations, Domestic Advisory Groups (DAGs), and annual implementation reports. The Chief Trade Enforcement Officer (CTEO) and Single Entry Point mechanism centralize enforcement. Korea could selectively adopt these practices—particularly in transparency, structured stakeholder participation, and integrated enforcement—to enhance the legitimacy and coherence of its trade governance.

Section 3. Japan
Japan, although lacking a dedicated statute equivalent to Korea’s Commerce Treaty Act, ensures coherence between international and domestic law through concurrent submission of implementing legislation and trade agreements to the Diet. This practice minimizes legal gaps between approval and enforceability, offering a pragmatic model that Korea could emulate to strengthen policy coordination.

Section 4. China
China maintains a dual ratification system shared between the State Council and the Standing Committee of the National People’s Congress. While WTO obligations are generally implemented through domestic legislation, many free trade agreements have achieved quasi-direct effect, reflecting pragmatic adaptation. China’s emerging mechanisms for treaty compliance review highlight the importance of maintaining internal consistency between domestic law and international commitments—a lesson equally relevant for Korea’s institutional development.

Chapter 4. Core Provisions and Practical Operation of the Commerce Treaty Act

Section 1. Analysis of Key Provisions
The Commerce Treaty Act regulates the entire life cycle of trade agreements—pre-negotiation, negotiation, ratification, and post-implementation—with the goal of embedding democratic control in each phase.
At the pre-negotiation stage, the Act mandates public hearings, parliamentary reporting, and economic feasibility assessments. These mechanisms were designed to make early-stage decision-making transparent and participatory. In practice, however, hearings have often been perfunctory and conducted with limited disclosure of substantive information. The absence of uniform standards regarding timing, content, and participant selection has weakened their legitimacy. Future reform should specify minimum procedural guarantees, require publication of background materials in advance, and ensure that stakeholder comments are publicly addressed. Economic feasibility studies, though conceptually sound, frequently rely on government-led modeling that omits sustainability variables such as labor and environmental impacts; they would benefit from independent review and mandatory submission to the National Assembly.
During the negotiation phase, the Act entrusts the executive with the duty to report material developments and to receive the Assembly’s opinions. While this arrangement represents progress toward legislative oversight, ambiguity persists as to what qualifies as a “material” change, and there is no binding obligation for the executive to incorporate parliamentary feedback. Establishing phased reporting—before, during, and near the conclusion of negotiations—could transform these exchanges from formality into genuine deliberation.
At the ratification stage, the government must submit a comprehensive impact assessment together with the agreement for legislative consent. Yet the current focus on macro-economic indicators limits the analysis of social or environmental consequences. Because assessments are usually completed after negotiations are substantially finished, opportunities for meaningful revision are scarce. Introducing interim assessments during negotiations, as practiced in the European Union, would allow earlier corrective action.
Furthermore, explanatory sessions that accompany ratification have often functioned as one-way briefings. Converting them into structured dialogues involving experts, labor, and industry would enhance transparency and accountability.
After a treaty enters into force, the Act requires evaluation of its economic effects and the adequacy of adjustment measures within ten years. This long-term review is commendable but administratively burdensome. Developing standardized templates, prioritization criteria, and shorter review cycles could improve feasibility. Publication of evaluation results must also strike a balance between public transparency and the protection of sensitive negotiating information. Finally, evaluations should expand beyond compliance metrics to include distributive and regional impacts, thus linking the Act’s procedural legitimacy with tangible socio-economic outcomes.

Section 2. Practical Application and Assessment
The experiences accumulated through the Korea–Chile FTA, the Korea–U.S. FTA, and the Korea–EU FTA demonstrated the growing importance of procedural transparency. However, even after the Act’s adoption, its implementation revealed persistent weaknesses. Parliamentary engagement remained limited, public hearings were criticized as symbolic, and ex post evaluations were inconsistent. The rise of new-generation trade instruments such as the Digital Economy Partnership Agreement (DEPA) and the Indo-Pacific Economic Framework (IPEF) further exposed definitional blind spots, as these agreements often escaped the Act’s procedural requirements.
To address these issues, the study proposes expanding the Act’s definition of “trade agreement” to include economic security–oriented instruments and digital cooperation agreements, introducing a procedural trigger system based on anticipated economic and social impact, and institutionalizing regular post-entry evaluations to strengthen both accountability and adaptability.

Chapter 5. Key Issues and Reform Proposals Concerning the Commerce Treaty Act

Section 1. Definition of “Trade Agreement”
The Act’s current definition focuses narrowly on comprehensive market- opening treaties, excluding new economic instruments that substantially influence Korea’s domestic economy. The definition should be broadened to encompass agreements addressing digital trade, supply chain resilience, or economic cooperation. By creating an extended category—“trade agreements and related economic arrangements”—the law would ensure that emerging instruments are subject to democratic oversight and transparency obligations.

Section 2. Trade Negotiation Structure and Policy Formation
Korea’s trade policymaking remains fragmented among ministries, including the Ministry of Trade, Industry and Resources and the Ministry of Economy and Finance. This dispersion hinders coordination. A reinforced inter- ministerial mechanism that allows early joint decision-making is necessary. At the legislative level, oversight should be shared among relevant committees—such as foreign affairs, agriculture, and environment—to reflect the multi- sectoral nature of trade policy. Integration between evaluation and adjustment mechanisms should also be codified within the Act to clarify responsibility and accelerate remedial responses.

Section 3. Implementation and Evaluation
Despite the Act’s commitment to transparency, negotiation stages remain opaque due to frequent claims of confidentiality. Public hearings occur infrequently, and stakeholder input rarely influences outcomes. Introducing interim disclosure and assessment procedures would enable real-time accountability. The government should be obliged to respond substantively to public submissions, and standing consultation platforms involving industry, labor, and academia should be established to ensure continuous dialogue. These reforms would enhance policy credibility and predictability.

Section 4. Additional Considerations under the Act
Article 20 of the Commerce Treaty Act allows for reciprocal measures when a counterpart fails to comply with obligations. However, it lacks operational clarity. Establishing detailed conditions, proportionality criteria, and termination procedures would improve enforceability. Likewise, Articles 16 through 19, which provide for domestic relief, should be supplemented with enforceable timelines and inter-ministerial coordination duties to ensure that adjustment measures function effectively.

Chapter 6. Conclusion

Since its adoption in 2012, the Commerce Treaty Act has provided Korea with an essential procedural framework for democratizing trade policy. By institutionalizing public hearings, economic feasibility analyses, and parliamentary reporting, it has strengthened legislative oversight and partially restored public trust that was eroded by earlier non-transparent negotiations. Nevertheless, profound transformations in global trade—ranging from digitalization and data governance to supply-chain security and climate policy—have exposed the limits of a statute conceived in the era of traditional FTAs.
The study therefore concludes that the Act must evolve from a procedural instrument into a comprehensive Trade Governance Integration Act. This re-envisioned framework should expand its legal coverage to include digital, environmental, and economic-security agreements, thereby ensuring that all significant external economic instruments are subject to democratic scrutiny. It should incorporate a differentiated procedural trigger system calibrated to the anticipated economic and social impact of each agreement, enabling agility without sacrificing accountability. Parliamentary oversight should be broadened across multiple committees so that trade’s cross-sectoral effects are adequately examined, while confidential information-sharing mechanisms safeguard national interests. At the executive level, the Act should codify explicit accountability through structured reporting and establish a permanent advisory council representing industry, labor, and civil society. Implementing legislation should be reviewed in parallel with treaty ratification to minimize the temporal and legal gap between international obligations and domestic enforceability. The linkage between post-entry evaluations and adjustment measures must be formalized to ensure that assessment results translate into concrete policy responses. Finally, the reciprocity clause should be operationalized through clear procedures for proportional countermeasures, aligning Korea’s enforcement capacity with global standards.
Through these reforms, the Commerce Treaty Act could assume the character of a quasi-constitutional foundation for Korea’s trade policy—a framework that unites democratic legitimacy, legal coherence, and strategic flexibility. By embedding the guiding principles of legal comprehensiveness, procedural democracy, coherent implementation, and international credibility, Korea would reinforce its position as an advanced trade state capable of navigating the intertwined domains of digital transformation, economic security, and sustainable development in the twenty-first-century trading system.

This study analyzes how patterns of change in global value chains (GVCs) have evolved among seven major Asian countries as the structural transformation of GVCs has deepened after the U.S.–China trade war. In particular, we closely examine whether India, Vietnam, and other key ASEAN countries are likely to play roles as indirect export and production hubs in response to GVC change. To this end, we use the ADB Multiregional Input–Output (MRIO) data for the 2015–2023 period and conduct an analysis that includes the latest information. To identify the flow of GVC change before and after the U.S.–China trade war, we divide the analysis period into three stages: the pre-trade-war period, Trump’s first term, and the Biden administration period. Through this analysis, the study aims to present policy proposals that enable Korea to respond effectively to the rapidly changing GVC environment by cooperating with India and major ASEAN countries such as Vietnam and Indonesia, thereby coping effectively with the evolving global economic order. To achieve this purpose, Chapter 2 analyzes the changes in the value-added exports of major countries before and after the U.S.–China trade war. Chapter 3 examines mutual export dependence and production fragmentation on a value-added basis. Chapter 4 identifies the drivers of value-added change for major countries. Chapter 5 analyzes structural changes by indirect export hub, structural changes by final destination, and at the country and industry levels in roundabout (indirect) export structures. Chapter 6 presents policy recommendations and corporate response strategies that focus on cooperating with India, Vietnam, and Indonesia in response to GVC changes. It also discusses directions for the future development of this research. In Chapter 2, we find that the Trump administration’s high tariff policy shocked GVC structures across the board. However, the relatively more industrialized economies of Korea, China, Japan, and Taiwan showed resilient responses. In contrast, India, Vietnam, and Indonesia were more strongly affected, and structural change was observed. Korea, Japan, and Taiwan maintained intermediates- oriented export structures, while China, maintained an FVA structure with final goods and defended its position as a global production base despite receiving relatively strong shocks. India shifted to an intermediates-oriented export structure, while Vietnam moved toward an export structure with higher dependence on FVA. Indonesia recorded a somewhat larger share of intermediate goods and re-exports. Overall, we interpret the high-tariff policy of the Trump administration as having had a substantial impact, exposing the external dependence of industrial structures in Asian countries and revealing limits of their domestic value-added export capacity. In Chapter 3, we analyze changes of vertical specialization index. Korea, China, Indonesia, and India experienced declines in participation during the Trump period, followed by a short-term rebound, and then showed a renewed downward trend from 2021. Japan and Taiwan underwent continuous declines from 2015, then turned to an upward trend from 2021. Vietnam, although showing some fluctuations, exhibited an overall steady upward trend. In Chapter 4, we break down the export variation arising from the U.S. high-tariff policy into changes in value-added coefficients, changes in technical coefficients, and changes in the scale of final demand. Our analysis shows that the degree of industrial upgrading leads to different effects on value-added exports and technological capability. For advanced industrial countries such as China, Korea, and Japan, changes in value-added and technical coefficients are identified as important drivers. Productivity improvement and technological innovation are interpreted as key factors behind export growth in these countries. By contrast, for emerging economies such as India, Vietnam, and Indonesia, expansion of final demand is analyzed as the most important driver of value-added exports. This reflects the fact advanced countries participate in GVCs based on technology- intensive industries, while emerging countries expand their demand base through inflows of foreign direct investment (FDI) and backward participation in GVCs. In Chapter 5, we empirically analyze whether major Asian countries are likely to perform strategic roles as indirect-export and roundabout- export hubs under GVC change. Advanced industrial countries such as Korea, Japan, and Taiwan are analyzed as pursuing diversification of routes for exports to the United States. Due to their technology- intensive industrial structures and high GVC participation, these countries are upgrading their networks of indirect-export hubs and deploying sophisticated multi-route strategies. China plays a dual role as both a major indirect-export hub and a final-destination country of the indirect export. By contrast, emerging economies such as India, Vietnam, and Indonesia are emerging as new hubs for indirect and roundabout exports, and their strategic importance as platforms targeting the U.S. market is assessed to be expanding. In addition, we analyzed the structure through which China’s intermediate goods are indirectly exported to the United States via other countries and observed relatively high re-routing-export shares of roughly 20–30%, with cross-country differences. In particular, re-routing-export shares via Korea, Japan, and Taiwan are very high, suggesting that Chinese products use higher value-added economies as re-routing routes. India, Vietnam, and Indonesia are shown to be moving beyond simple roundabout hubs and elevating their status as major production hubs within the GVC. In Chapter 6, based on the preceding findings, we propose cooperation measures for Korea with major ASEAN countries such as India and Vietnam in response to GVC change. As GVC response strategies, we present the following implications: technically based trade diversification, establishing Korea’s GVC positioning strategy, mapping tariff differentials and preparing GVC reconfiguration plans, and maximizing and expanding the use of preferential trade agreements (FTAs). Along with policy recommendations regarding the evolving roles of India and ASEAN as roundabout/indirect-export hubs, we propose strategies for establishing global production and export hubs, as well as product- level response strategies for firms. Finally, we discuss the contributions and limitations of this study and directions for future research.

Since the early 2020s, a series of global economic disruptions—including the escalation of the U.S.–China trade conflict, the outbreak of the COVID-19 pandemic, the Russia–Ukraine war, and persistent political instability in the Middle East—has heightened geopolitical risks across East Asia and intensified the pressure for a restructuring of global value chains. In particular, following the inauguration of the second Trump administration in 2025, deepening political and economic tensions between the United States and China have exerted a substantial impact on the Korean economy, which had long relied on China as a pivotal component of its value chain. Under these circumstances, ASEAN has emerged as an alternative production base to China, underscoring its growing significance as a potential partner for more dynamic and diversified value chain integration with Korea.

Major research on international supply chains and value chains between Korea and ASEAN can broadly be classified into two categories:
(1) studies that analyze the overall industrial structures of Korea and ASEAN member states to identify complementarities and substitutabilities between the two regions, and (2) studies that investigate the general patterns of trade relations between Korea and ASEAN.

Empirical analyses drawing on more than two decades of statistical data indicate that trade and investment flows between Korea and ASEAN have expanded significantly, leading to the formation of complementary value chains shaped by differences in per capita income levels, wage structures, and resource endowments.

However, as most existing studies concentrate on national and industrial levels, they do not directly examine the activities or organizational structures of firms—the fundamental entities that constitute supply chains. These studies also fail to differentiate among various types of firms, including large corporations, small and medium-sized enterprises (SMEs), and foreign-invested companies operating within ASEAN. The present study seeks to address this limitation by conducting a firm-level analysis of ASEAN enterprises in order to identify the structural patterns and distinctive characteristics of value chains linking Korea and ASEAN.

The scarcity of firm-level analyses on Korea–ASEAN value chains can be attributed to several factors. First, comprehensive datasets and statistics on individual firms are largely unavailable in most ASEAN countries. Owing to relatively low income levels and limited corporate transparency, substantial portions of firm-level information are not publicly disclosed. Although listed companies are required to publish data in accordance with stock exchange regulations, the absence of well-established international accounting standards reduces the reliability of these statistics. Furthermore, a considerable number of firms remain unlisted and are therefore under no legal obligation to disclose their financial or operational information.

Second, even when firm-level data are obtainable at the national level, the process of compiling and analyzing regional datasets encompassing all ASEAN member states remains an extensive and resource-intensive undertaking. Given that ASEAN comprises ten countries, each with a vast number of enterprises, the collection and harmonization of such data represent a formidable challenge that is both time-consuming and difficult for individual researchers to execute independently.

To overcome these constraints, the present study assembled a comprehensive dataset on ASEAN firms and conducted the following analyses. First, financial information from listed companies across nine ASEAN stock exchanges was collected and systematically examined. The available data primarily encompassed indicators such as assets, liabilities, and profitability. A standardized analytical framework based on these financial metrics was employed to facilitate cross-country comparisons.

Second, for unlisted large firms, major representative companies in each country were selected, and publicly available information—such as newspapers, magazines, promotional materials, and websites—was used, given the lack of systematic financial data. For SMEs, the study relied on existing research on their characteristics and expert interviews.

Third, to examine the potential for cooperation between Korean and ASEAN firms, the presence and activities of Japanese and Chinese firms operating in ASEAN were also reviewed. Although most of these foreign companies were unlisted and reliable statistical data were limited, publicly accessible information sources were used.

The results of the analysis are as follows:
First, listed firms in ASEAN are mainly concentrated in (a) the domestic service sector, (b) the manufacturing sector—particularly food production, and (c) export-oriented mining and resource development. Within manufacturing, food processing had the highest share, followed by chemicals, basic metals, and rubber/plastics—indicating a focus on agro-processing and natural resource–based industries.

Second, unlisted large firms in ASEAN mainly focus on (i) domestic- oriented businesses and (ii) resource development. Specifically, they dominate sectors such as retail, real estate, and food production on the domestic side, and energy and resource extraction (e.g., oil, coal, cobalt, lithium) on the export side. These firms often operate as monopolies or oligopolies with close political ties and family-based management, resulting in non-transparent governance structures.

Third, while definitions vary by country, ASEAN SMEs are generally small in scale and concentrated in the service sector. They face limited access to finance, weak technological foundations, insufficient use of digital technology, and low productivity.

Fourth, Japanese and Chinese firms in ASEAN show distinct characteristics. Japanese firms have been active since the early 1990s, building regional value chains in electronics and automotive sectors, while also investing in local infrastructure and human resource training. In contrast, Chinese firms entered later, mainly after the 2010s, driven by the Belt and Road Initiative and China’s efforts to mitigate trade frictions with the U.S. Their investments have focused on large-scale, resource-related infrastructure projects financed by Chinese banks.

Fifth, Korean firms in ASEAN exhibit the following characteristics. Their initial entry in the 1990s was led by labor-intensive industries that were declining in Korea, expanded in the 2000s, and more recently diversified into electronics and automotive manufacturing, sometimes leveraging local natural resources. Large Korean firms operate local plants mainly in manufacturing, importing intermediate goods from Korea and exporting finished products to third countries. Many Korean SMEs and mid-sized firms function as suppliers to these large Korean firms, providing components and intermediate goods through local operations. However, cooperation with Japanese, Chinese, or local firms for parts procurement remains limited.

Future changes in Korea–ASEAN supply chains will depend on the evolution of ASEAN firms’ industries and roles. If ASEAN firms continue their current business models without expanding into manufacturing, Korea’s regional supply chains and value chains will likely continue to rely primarily on Korean firms operating locally.

In this case, the Korean government should implement policies to improve the productivity of Korean firms in ASEAN. Rising wages, land rents, and transport costs could erode profitability and even drive firms to relocate to other regions. As Latin America, India, and Africa are not yet viable alternatives, Korea must pursue policies that enhance labor productivity and business efficiency in ASEAN.

The most practical approach is to increase local labor productivity and reduce costs such as logistics.
1. Education and training for ASEAN workers are needed to upgrade them from unskilled to skilled or semi-skilled labor with higher productivity.
2. Management consulting should be provided to improve the productivity of both Korean and local firms in ASEAN.
3. Cooperation between large and small Korean firms should be strengthened to enhance overall supply chain efficiency.
4. Infrastructure support is crucial to control rising logistics costs—through port and road construction, customs digitalization, and energy system improvements.
5. New industrial parks and free trade zones should be established to mitigate rent and logistics cost increases.

To effectively promote these policies, several urgent tasks must be addressed: First, the Korean government and the public must recognize that supporting Korean firms in ASEAN is part of building global supply chains and value chains that contribute directly to Korea’s economic growth. Many policymakers and citizens still perceive international trade as simply exporting domestically produced goods abroad, overlooking the complex cooperation among firms across borders. Public communication and education should emphasize that supporting Korean firms in ASEAN ultimately strengthens Korea’s own industrial base.

Second, Korea should actively utilize ODA (Official Development Assistance) funds in ASEAN. Currently, about 23.8% of Korea’s ODA goes to ASEAN countries—five of which (Indonesia, Vietnam, Cambodia, the Philippines, and Laos) rank among Korea’s top ten ODA recipients. If ODA projects are designed to include participation by Korean firms in ASEAN, the effects of value chain formation could be maximized.

Third, political and business exchanges between Korea and ASEAN should be expanded through regular forums and seminars to build mutual understanding and cooperation.

Finally, youth and academic exchanges between Korea and ASEAN should be encouraged, as young people will be the future leaders of business collaboration between the two regions.

The study examines methodologies for quantitatively analyzing the impact of global supply chain fragmentation and applies these approaches to scenarios involving critical minerals. It identifies two primary analytical approaches: microeconomic and macroeconomic.

Microeconomic methods provide detailed insights at the item or firm level but face challenges due to limited access to specific supply chain data. Macroeconomic methods, while suitable for industry- or national-level analysis, often rely on unrealistic assumptions when applied to item-level fragmentation. Despite the significant macroeconomic effects of disruptions in critical supply chains, existing item-level analysis techniques struggle to capture these impacts accurately. For instance, efforts to link item-level analysis with GDP using linear programming or inoperability input-output analysis often encounter limitations due to rigid assumptions about input-output structures. High-tech items, in particular, pose challenges due to their complex supply chain interdependencies and their significant influence on final production.

To address these issues, the study proposes an integrated methodology combining machine learning techniques for microeconomic analysis with the OECD METRO model for macroeconomic evaluation. This approach considers key issues and transmission channels identified in previous research. The study also reviews critical mineral management policies in major economies such as the United States, European Union, China, and Korea. The United States identifies critical minerals essential for economic and national security through legislative measures like the 2020 Energy Act and has implemented strategies to strengthen North American supply chain resilience. The European Union has updated its critical raw materials list every three years since 2008 and enacted the Critical Raw Materials Act in 2024 to expand production capacity and enhance international cooperation. China, despite lacking a clear legal definition of critical minerals, strengthens its resource management through export controls and cooperation with resource-rich countries. Korea designated 33 minerals as critical through its 2023 Critical Minerals Securing Strategy, prioritizing 10 strategic minerals essential for industries like electric vehicles and semiconductors. However, Korea’s reliance on imports for most critical minerals highlights its vulnerability.

The study conducts a vulnerability analysis of Korea’s critical mineral supply chains using indicators such as the Trade Specialization Index (TSI) and Herfindahl-Hirschman Index (HHI). It identifies high global supply chain concentration in minerals like cobalt, lithium, and neodymium, which are crucial for secondary batteries and electric vehicles. To assess geopolitical risks, it examines import trends from China across seven countries from 2017 to 2023. Sharp declines in imports of gallium, graphite, and rare earth elements suggest potential disruptions due to trade conflicts or export controls.

The study employs a Dual-Stage Attention-Based Recurrent Neural Network (DA-RNN) model to predict the impact of critical mineral fragmentation on Korea’s exports of key items like batteries and semiconductors under three scenarios involving germanium, graphite, and rare earth elements. The results show significant decreases in export values across all scenarios. For example, restrictions on germanium imports led to a 3.9% decline in battery exports, while rare earth element shortages caused a 10.8% drop.

Using the OECD METRO model, the study evaluates the macroeconomic impact of critical mineral fragmentation under two approaches: direct analysis of import disruptions (Approach 1) and integration of microeconomic results into macroeconomic simulations (Approach 2). The findings indicate that germanium fragmentation could reduce Korea’s real GDP by 0.15%, while graphite and rare earth element disruptions could lead to decreases of 0.14% and 0.89%, respectively.

Based on these findings, the study recommends strengthening supply chain monitoring systems by integrating fragmented platforms across government agencies and establishing a centralized control tower. It also suggests diversifying procurement strategies, promoting R&D for substitute materials, and supporting SMEs through digital-based supply chain management platforms. Additionally, it emphasizes harmonizing policies with major economies to prevent over-securitization and redundant investments while expanding international cooperation for joint mineral exploration and development projects.

Foreword

Part 1 Key Policies for Open Strategic Autonomy
01. The Evolution of South Korea’s Economic Security Strategy | Seungjoo Lee |
02. Partners Under Pressure: Strengthening Dutch-South Korean Economic Security Amid a Fractious Indo-Pacific | Richard Ghiasy |
03. Toward a Strategic Partnership in Science and Technology between Korea and the Netherlands | Myong Hwa Lee |
04. Cooperation on Control Points is Needed for Strategic Autonomy | Joris Vierhout, Amber Geurts |

Part 2 Key Technologies for Open Strategic Autonomy
01. Korea–Netherlands Cooperation Agenda for Advanced AI Semiconductor R&D | Seokjoon Kwon |
02. Quantum Technology as a New Frontier of Cooperation: NL-ROK Partnership Opportunities | Anna Grashuis, Ingrid Romijn, Ulrich Mans, Mayra van Houts |
03. ROK-NL Strategic Cooperation in Energy Security | Sunghun Cho |
04. Key technologies for Open Strategic Autonomy in Korea and the Netherlands: Critical Raw Materials for Defense | Irina Patrahau, Benedetta Girardi |

Conclusion and Policy Recommendations

As has recently been observed, the global economic order is undergoing a profound transformation. The intensifying geopolitical rivalry among great powers, the retreat from multilateralism, the resurgence of protectionist policies, and the weaponization of trade and technology have shaken the foundation of the open and inclusive global economic order, which has been around for a long period. These changes underscore the growing importance of technological leadership, secure supply chains, and resilient industrial ecosystems in shaping the economic security and strategic autonomy of individual nations. However, pursuing security and autonomy does not mean isolation. Ironically, the necessity for like-minded countries to cooperate has never been greater, as no single nation can cope alone with the shift in the global economic order.

The Republic of Korea and the Netherlands, as middle powers and trading nations, share a deep interest in preserving the stability, openness, and resilience of the global economy, which ultimately contribute to the prosperity of all participating countries. South Korea, for example, has long been a globalized manufacturing power house, heavily relying on global value chains to support its growth. However, a series of shocks, including China’s economic retaliation over THAAD, Japan’s export controls, the COVID-19 pandemic, and US–China technology competition, revealed structural vulnerabilities of Korea’s export-oriented economy. Korea’s new economic security strategy, as detailed in this volume, reflects efforts to reconcile its position as an export leader and an import-dependent economy. Similarly, the Netherlands, one of Europe’s most open trading nations, faces the challenge of mitigating risks while preserving openness. The country positions itself as a logistics hub, a high-tech innovator, and a host of globally competitive firms such as ASML. As the European Union attempts to lower its external dependencies in strategic sectors, the Netherlands plays a significant role in shaping Europe’s economic security agenda.

Against this backdrop, Korea and the Netherlands emerge as natural partners. Their complementary strengths in semiconductors, advanced manufacturing, quantum technology, and clean energy transition can create opportunities for them to build resilient supply chains and shape global standards jointly. Their partnership also aligns with broader Indo-Pacific regional frameworks, including the EU–Korea Strategic Partnership and the international component of Horizon Europe, positioning both countries to contribute to a stable, rules-based global order.

This edited volume, “Industrial Open Strategic Autonomy in the Indo-Pacific: Focusing on High-tech Industrial Innovation and Supply Chain Security”, examines how Korea and the Netherlands can deepen their cooperation across key policy areas and critical technologies to advance open strategic autonomy. Drawing on contributions from leading experts, the volume is organized into two parts. Part I analyzes the policy foundations of economic security and strategic autonomy and Part II explores the technological domains essential to achieving these goals. Based on the authors’ in-depth analyses, three main recommendations for ROK-Netherlands cooperaion on open strategic autonomy are suggested: first, establish a shared economic security foresight mechanism. Third, coordinate sustainable supply chain resilience. Third, coordinate sustainable supply chain resilience.

The importance of tariff measures in recent international trade has been highlighted again with the universal tariffs and reciprocal tariffs of the second Trump administration in the United States, as well as the retaliatory tariffs from trade partners. Interest in their economic effects is growing day by day. To properly analyze these economic effects, it is essential to accurately estimate the tariff elasticity of trade. This study comprehensively analyzes the main content of previous researches on the tariff elasticity of trade through a literature review, presenting various theoretical grounds and analytical methodologies. We applied these to Korea’s 2014 import clearance data to empirically estimate tariff elasticity. The main contents and analysis results of this study are as follows.

First, this study introduces the basic theoretical model of Fontagné et al. (2022) and derives an equation to estimate tariff elasticity. According to this, the tariff elasticity of trade can be estimated by the elasticity of substitution between items. If a consumer can easily substitute another product when the tariff of a specific product rises, the import of that product is expected to decrease more actively.

Second, this study suggests the possibility of developing a more realistic model based on the basic theoretical model of Fontagné et al. (2022). Particularly, the development of theoretical models and empirical analysis strategies that appropriately reflect other factors affecting tariff elasticity in addition to the elasticity of substitution between items is necessary. These suggestions can be categorized into 1) the level of hierarchy in the CES utility function, 2) consideration of the export supply function, 3) the possibility of partial pass-through, 4) consideration of other trade costs, 5) resolution of endogeneity issues, and 6) consideration of the customs valuation.

Third, this study investigated several empirical analysis studies on the tariff elasticity of trade. The results showed that the estimated value of tariff elasticity of trade ranged from an absolute value of 2.5 to 5.1 on average, but the variance was quite large depending on the sample, data characteristics, and analysis methodology. By country characteristics, it was confirmed that the greater the market dominance of the importing country, and when the exporting country is a developed country, the smaller the tariff elasticity of trade. Also, tariff elasticity was relatively large when there was a bilateral trade agreement, but smaller in cases of past colonial relationships, large price gaps, or great geographical distances. By industry and item characteristics, homogeneous and standardized products such as agricultural and mineral products had higher tariff elasticity, while heterogeneous products like machinery and textiles had lower tariff elasticity. In terms of industrial structure, the higher the use and diversity of intermediate goods, the greater the productivity differences between items within the industry, and the more products traded on regular exchanges, the higher the tariff elasticity of trade. Regarding market competitiveness and structure, the more intense the market competitiveness, the higher the tariff elasticity, but items with larger profit margins had lower tariff elasticity. It was also confirmed that various non-price competitive factors such as technological advantages and brand awareness were important. By firm characteristics, tariff elasticity of trade was greater when strategic complementarity between firms was high but smaller when firm productivity was high. Regarding data characteristics, the finer the aggregation level of item classification, the greater the tariff elasticity appeared. It was also confirmed that the analysis period and scope, data source, and consideration of proxy variables could also affect changes in estimated tariff elasticity.

Fourth, this study applied these discussions to the quarterly HS 6-digit import clearance data of Korea in 2014 to estimate tariff elasticity. The empirical analysis methodology mainly considered the Poisson Pseudo- Maximum Likelihood (PPML) estimation based on the structural gravity equation. The empirical analysis results estimated the absolute value of tariff elasticity to be about 5 to 10, confirming it to be similar to existing previous studies. However, it was found that the estimated tariff elasticity significantly differed statistically depending on the aggregation unit of the product, and the pattern of difference varied according to the setting of fixed effects. By product characteristics, the tariff elasticity of consumer goods was the highest, followed by intermediate goods and capital goods. By product group, the tariff elasticity of homogeneous items such as mineral products was estimated to be very large with an absolute value of 10 or more, but statistically significant elasticity was not observed in some product groups such as stone and ceramics. To verify the robustness of the main analysis results, both the log-linear equation and asymptotic bias-corrected PPML estimation method were applied, but the analysis results were qualitatively similar and statistically significant consistently.

Based on these analysis results, this study draws the following implications. First, the government should manage and pay close attention to the elasticity of substitution between similar products when establishing tariff policies. In particular, since the elasticity of substitution varies by industry and item, tailored tariff policies that consider the characteristics and substitutability of each industry and item are necessary. Especially for homogeneous products like agricultural and mineral products, meticulous policy design is required as they are sensitive to tariff changes. Second, the government should consider various factors in addition to the elasticity of substitution when establishing tariff policies, including economic and political relations with trade partners, strategic behavior of related firms, and market competition structure. Comprehensive consideration of these variables becomes a prerequisite for the government to design more effective and sustainable tariff and response measures. Third, when estimating tariff elasticity as a basis for policy, the aggregation method of data is crucial. In particular, it is important to divide the data in detail by item rather than total data to design the correct policy. Fourth, in analysis methodology, appropriate fixed effects should be selected by fully considering the analysis purpose and data characteristics. Fifth, when establishing and evaluating trade policies, careful consideration of other trade costs, such as freight insurance rates, in addition to tariffs is necessary. Lastly, regarding empirical analysis techniques for estimating tariff elasticity of trade, it is proposed that the general PPML estimation method is a sufficiently reliable and valid approach for analyzing tariff elasticity.