List of Figures

List of Tables

Contributors

Preface

Introduction and Overview

Part I: Financing for Regional Economic Integration for Northeast Asia 
1. Currency and Financial Coordination in Northeast Asia (Eiji Ogawa)
2. Will Northeast Asia’s Functional Economic Integration Lead to Formal Regional Economic Integration? (Chang Jae Lee) 
3. Will China’s Rise and Functional Economic Integration Lead to Formal Regional Economic Integration? (Chung Lee) 
4. New Regionalism Across the Korea-Japan Strait: Cross-Border Region Between Busan and Fukuoka (Jung-Duk Lim) 
5. Global Financial Crisis and Policy Responses in Korea (Joon Kyung Kim) 
6. Macroeconomic Challenges and Russian Energy Policy in North-East Asia Cooperation (Pavel Minakir) 
7. China’s Thoughts on the Reform of the Global Financial System and Asia Financial Cooperation (Tong Jiadong) 
8. Financing Infrastructure Development Projects: Case History, Market Realities, and the Future of Financing Development (John Tichotsky) 

Part II: Mechanisms and Architecture to Actualize a Proposed Multilateral Financial Institution 
9. Steps Towards a Northeast Asia Bank for Cooperation and Development (Hiroshi Watanabe) 
10. China’s Efforts on Establishing the Northeast Asia Bank for Cooperation and Development (Wang Shuzu) 
11. Northeast Asian Development Finance Cooperation: The New Bank and the Support Network (Chiba Yasuhiro & Yamamoto Takashi)
12. Proposal for the Roadmap of the Northeast Asia Bank for Cooperation and Development (Zhang Xiaoyan) 
13. Economic Integration of Northeast Asia and the Function of the Northeast Asia Bank of Cooperation and Development (Ma Junlu) 
14. The Comparison of Large-scale Cross-border Financing and Project Management (Ma Junlu) 
15. Analyzing a Strategy for Development Finance Cooperation in Northeast Asia (Yamamoto Takashi) 

Part III: History, Roadmap and Strategy for Establishing a Northeast Asia Bank for Cooperation and Development 
16.  The Northeast Asian Bank for Cooperation and Development: From Rhetoric to Reality (Stanley Katz) 

Summary and Conclusions: Financing for Regional Economic Integration for Northeast Asia 2009 

Appendix: Agendas

The Northeast Asian region includes the major players China, Japan, and Korea, with productive linkages to resource-rich Russia and to the United States and is one of the most dynamic economic regions in the world. In contrast to the region’s robust economic growth, regional security has long been fragile, mainly due to the geopolitical conditions resulting from the Cold War era. If the countries in Northeast Asia wish to further their development and prosperity, they will have to learn to harness their dynamic economies and create a region in which peaceful coexistence and common prosperity prevail. Northeast Asia has a northern subregion that includes North Korea, Mongolia, the Russian Far East, and the northeastern provinces of China—an area that is well-endowed with latent natural and human resources. This subregion has the potential of becoming an important source of natural resources for the entire region, and what is needed is to realize that potential through infrastructure investment. Energy security and environment is for example, an important area of cooperation, as the three major countries are heavily dependent on energy imports and are highly vulnerable to energy crisis in the event of an interruption -- especially in the case of oil, natural gas and minerals imports. Financing requirements for this investment are likely to be large, and a regional development bank is a key in meeting that financing need. This volume presents the results of the project implemented in 2009 on financial cooperation in Northeast Asia aimed at supporting the establishment of a regional institution for financing infrastructure investment. This volume is comprised of papers, research reports and summaries of a main conference and several specialized meetings, as well as affiliated activities, that took place under this project. The results of this project represent a considerable benefit to the region and have been carried out in a spirit of cooperation that we esteem.

There are raising concerns on protectionism while global countries are recently implementing policies to protect their internal industries after economic crises. World leaders in two G-20 summits, which held both in November 2008 and April 2009, had arrived at an agreement on observing fundamental principles of trade liberalization and stopping protectionism measures. Korean government is strategically promoting commercial policies through FTAs in the respect of the even though Korean government is for the multilateralism through the WTO in principle. The FTA negotiation between Korea and Turkey is understandable in the context of our government's commercial policies, and it will begin sooner or later. Even though Turkey has maintained good ties with Korea for last 50 years after participating in the Korean War to outbreak in 1950, the economic relation between both countries has been below the expectation. Also Korea's trade with Turkey has kept the balance in black since 1992, therefore Turkish government has consistently asked the correction of trade imbalance to Korean government. Although Turkey asked the FTA between Korea and Turkey first, the FTA with Turkey is worth consideration in mid-term. The Korea-EU FTA will take effect in the near future as the FTA negotiation, which began in January 2007, was over and both countries provisionally signed a draft in October 2008. On the other hand, Turkey has to pursue the FTA with any countries to conclude the FTA with the EU according to the Custom Union. This study concentrates on supplying fundamental references to be needed in the FTA negotiation with Turkey which will be initiated in the near future by analyzing the feasibility and the economic effects of a Korea-Turkey FTA. Furthermore, this study tries to look for approaches to enhance the economic cooperation with Turkey for opening up new emerging markets. First of all, we analyze current political and economic issues in Turkey, the potential of Turkish economy as an emerging market, strengths and threats in order to raise the understandings of Turkish political and economic circumstances. And then we review trade and investment between both countries for the economic relation. This study use sources for comparative advantage, such as RCA, MCA, and TSI to analyze the industrial competitiveness between Korea and Turkey. In addition, this study estimates the economic effects of the FTA between Korea and Turkey by CGE model. Finally, this study is to seek some measures to enhance the economic cooperation between both countries in terms of the basic directions of the economic cooperation, trade-invigorating measures and the revitalization of investment toward Turkey. In Chapter 2, the FTA with Turkey is likely to benefit our national interest on the basis of geographical importance and the potential as an emerging market of Turkey. And it is a help to stimulate the expansion of both trade volume and investment, and furthermore to resolve the trade imbalance given that trade volume and investment have been very small in comparison with the economic power of both countries. Competitiveness analyses in Chapter 3 show that Turkey is a very important Korea's export market in terms of petrochemical and rubber products, general machinery, textile and clothing and other manufacturing. Therefore the Korea-Turkey FTA is able to play an active role in these industries. According to the CGE analysis in Chapter 3, the Korea-Turkey FTA is likely to minimize domestic production, or trigger the deterioration of the trade balance when considering that Turkey has been composed of the Custom Union with the EU. In other words, economic benefits that Korea will gain from the Korea-Turkey FTA seems to be very small or even negative on the assumption that the Korea-Turkey FTA takes effect after the Korea-EU FTA comes into effect. The CGE analysis, however, is likely to underestimate the economic effects of the Korea-Turkey FTA due to dealing only with the elimination of custom duties on goods. We can really recognize that the economic effects of FTA will trigger not only changes of GDP and welfare effect, but also investment increase between both countries, elimination of NTB, and improvement of economic relations. Therefore it is desirable that the FTA between Korea and Turkey may be the comprehensive FTA including NTB, services, investment as well as goods. In conclusion, this study suggests that the Korea-Turkey FTA should be comprehensive and high-level, as recently Korea has a comprehensive and high-level FTA approach to include not only goods but also service and investment liberalization. In Chapter 4, this study suggests some basic directions for the economic cooperation between both countries. First of all, among basic strategies to Turkey as an emerging market is the comprehensive economic cooperation to make it possible to advance into promising neighbor regions and countries such as the Central Asia, the Middle East, and Russia. Secondly, we can see a possibility of the win-win FTA approach by suggesting policies to facilitate trade between both countries as a resolution for a trade imbalance while strategically expanding Korea's export to Turkey. Thirdly, this study proposes measures to improve the economic cooperation through expanding governmental and civil exchanges between both countries. Finally, this study suggests in detail some measures to facilitate investment to Turkey in four areas of energy industry including natural gas, transport infrastructure, ICT and automobile parts, which are main investment projects of Turkey in the future.

I. Introduction

 

II. Enlargement of the EU toward the East

1. CEECs' Accession to the EU

2. Changes in Intra-European Trade and Investment in the Context of the Enlargement

 

III. Intra-industry Trade

1. Economic Integration and Intra-industry Trade

2. Measuring Intra-industry Trade

 

IV. Results: Intra-industry Trade in an Enlarged Europe

1. Intra-industry Trade at the Static Dimension (GL index)

2. Intra-industry Trade at Dynamic Dimension (MIIT)

 

V. Determinants of IIT

1. Hypothesis of Determinants of IIT

2. Regression Model

 

VI. Conclusion

 

References

 

Appendix

In this paper I examine the evolution of intra-industry trade (IIT) in intra-European trade in the period of accession of the Central and Eastern European countries (CEEC). In order to identify changes in IIT in intra-European trade, I calculate the Grubel and Lloyd index for the static dimension and Brülhart A index for the dynamic dimension. Based on Grubel and Lloyd index, I conduct gravity-type empirical tests to verify determinants of IIT at the intra-European level. I find that CEECs experienced considerable increase in IIT, particularly during transitional periods before their accession. However, the level of IIT between CEECs is still considerably low. Given that a trade-investment nexus exists to explain IIT in intra-European trade, IIT in CEECs can increase further, as they receive more FDI from their neighbors.

I. Introduction

II. The Methodology

1. Model Specification and Data

2. Scenarios

Ⅲ. Simulation Results

1. Potential Impacts of the DDA Negotiations by Various Scenarios

2. Economic Effects of the DDA Negotiations on the G-7 Countries

IV. Conclusion and Discussion

 References

Appendix

This paper aims to implement the simulation studies using a CGE approach to identify ideas on how to finalize the DDA negotiations by making some mutual concessions and deal with contentious issues yet to be agreed. The simulation results of this paper, which lay between those of the previous literature, indicate that the DDA negotiations will boost the global economy to a substantial degree. It reveals that the world GDP effects will amount to US$ 49.9~186.2 billion (0.12~0.45%) and the welfare gain will amount to US$ 49.7~157.7 billion. The GDP growth effects are mainly due to effects of trade expansion, which amount to US$ 265.3~382.0 billion. The simulation result also indicates that developed countries need to consider positively the arguments of developing countries on the controversial issues related to agriculture. In return for the concessions by the developed countries, the developing countries will likely accept further discussions related to the sectoral proposals and services liberalization.

This study examines the history and structure of EU’s ‘New Energy Policy’, which has been promoted by the European Commission since 2005.
First, the procedures for policy decisions at the EU was examined because the EU, as a consensual union of dozens of states, has unique characteristics in its policy decision processes. And then, the history of EU's ‘New Energy Policy’ will be scrutinized. The EU has published many policy documents (generally, ‘communication’ documents of European Commission) and energy legislative packages related to the ‘New Energy Policy’ since 2005. Reviewed in this study are relationships between New Energy Policy's ‘communication’ documents and legislative packages published since 2005.
Second, this paper conducts an evaluation of the structure of the ‘New Energy Policy’, which was found to be very well-structured, although the Policy was based on the existing policies of each energy-related sector. The three goals of the ‘New Energy Policy’ are sustainability, supply security, and competitiveness.
To achieve these goals, EU has developed energy policies both internal and external. The EU has also come up with the ‘20-20-20’ initiative (GHG Reduction/renewable energy/energy efficiency) and the policy of securing supplies of fossil fuels and nuclear energy. There is also a platform established so that EU may implement the two previous policies effectively. There are policies for creating a single energy market (especially for gas and electricity), energy technology development, and setting up financial instruments for the New Energy Policy.
As for the external policies, It will implement the ‘common’ policy for climate change, energy efficiency, and security of energy supply in spite of the structural weakness for the asserting power to the outside of EU.The EU also wants to install ‘market governance’ based on EU energy rules and Energy Charter Treaty in neighboring energy markets. Another external policy is to link the EU energy market to neighboring energy markets (except the current Russian energy market) through new gas and electricity networks.
Based on results of this study, it can be concluded that the ultimate goal of the ‘New Energy Policy’ of EU is to found a new world market that is based on EU's new energy technologies, which will be developed through the ‘New Energy Policy.’ This is the reason for the EU protecting its internal markets with energy efficiency policies for reducing greenhouse gas as stated in the New Energy Policy, so that EU can create a new single internal market for new industries based on energy technology development. The EU will attempt thereafter to apply the structure and rules of EU's internal market to the international market.
In short, EU wants to begin a new industrial revolution and create a new world market based on EU's low-carbon and high-efficiency energy technology.

This study analyzes the Political Elite and Power Structure of the Central Asian nation of Kazakhstan. After the Soviet Union collapsed in 1991, Central Asians had to face the confusion resulting from their introduction to Capitalism and Democracy based on US values, while being out of favor with the international community. However, Central Asia soon attracted global interest as it was found to possess abundant resources such as Oil, Natural Gas, and Minerals and the potential for development, and most countries in the region are concerned with improving economic relationship and cooperations with South Korea. As Kazakhstan has the most powerful economy among the Central Asian republics, it is expected to become a regional economic and diplomatic 'hub' by soon overcoming the recent recession resulting from the global financial crisis and the drop in oil prices.

The Global Financial Crisis had a catastrophic effect on Central Asian economies, which had been growing rapidly up to that point. The economic growth rate in Kazakhstan was over 10% annually from 2001 to 2007, but nose-dived to 3.2% in 2008, and the country would record minus growth in 2009. The sharp recession of the economies of Central Asian countries caused by the global financial crisis was the result of Central Asian countries having weak economic structures that were vulnerable to the external factors. Central Asian countries made an effort to transform their Soviet-style, centrally-planned economies to market economies starting in 1991, but had experienced difficulties in the rest of the 90s. Their economies began growing actively from early 2000s, yet it was growth driven by heavy dependence on natural resources such as petroleum, gas, nonferrous metals, and raw cotton. The exports of natural resources depends upon the world economic situation, and the lack of the demand for the natural resources following the crisis had a destructive impact on Central Asian economies, as the Crisis caused a drastic contraction of the world economy, which greatly reduced the demand for natural resources. In order to overcome the Global Financial Crisis, Central Asian countries are focusing on economic recovery and the stimulation of exports not through increasing investment in natural resources for a short-term strategy, but make an effort to build a sustainable system for economic development. A 'sustainable' development strategy for Central Asian countries means that they want to improve the structure of their economies, that are overly reliant upon exports of natural resources. This new development strategy following the Global Financial Crisis is rapidly changing the trading and investment environment in Central Asia. The purpose of this book is the study of the strategic approach to the rapidly-changing trading and investment environments of Central Asian countries. Chapter 2 analyzes the impact of the Global Financial Crisis on Central Asian countries, the possibility of their economic growth, and their new development strategy. Chapter 3, 4 are concerned with the study of the investment environment from the perspective of finance and logistics, and the search for investment strategies. Chapter 5, 6 looks at market opening strategies for Kazakhstan and Uzbekistan, the two representative Central Asian countries. Chapter 7 studies various cases of Korean investments, and Chapter 8 searches for possible strategies and new approaches for trade and investment to Central Asian countries after the Global Financial Crisis. New strategies for Korea's advance into Central Asia are as follows: First, the package strategy for natural resources has to be strengthened. These strategies are especially applicable to Central Asian countries, which have weak SOC infrastructure and manufacturing industry. As for details of the strategy, the exchange of the plant and natural resources would be very effective. Korea already signed contracts for the exploitation of the Surgil gas field and construction of the oil and gas complexes in Uzbekistan. And the contract for the construction project of the Balkhash Power Station in Kazakhstan can be considered part of a package strategy. Furthermore, neighboring countries like Azerbaijan and Turkmenistan are placing orders for plants in spite of the Global Financial Crisis, which makes application of the Korean model for 'exchange of natural resources and plant' that much more hopeful. Second, the Korea Investment Fund for Korean companies intending to enter the Central Asia market must be created. 'Natural Resources-Plants package model' needs a great amount of money for the development of natural resources and construction of plants. Therefore we need to devise a plan for suppling the money for the project. Third, there is a need to expand actively into logistic and financial markets, which have existed as obstacles for the investment of Korea. Central Asia's financial market is premature, but has a highly-rated growth potential. Korean financial agencies are already achieving notable successes in Central Asia thanks to advanced financial technologies, risk management, and by securing customer confidence. The Korea Development Bank in Uzbekistan and Kookmin Bank in Kazakhstan adapted successfully to local markets and are ready to move forward to a new stage. Other commercial banks are advised to follow suit and invest actively in the Central Asian market. Fourth, the Korean government should take aggressive measures, to show that official attention is being given to the service market concerning the business environment in Central Asian countries. Kazakhstan is currently a member of a customs union formed with Russia and Belarus, and is also trying to get the membership for WTO. It is necessary for Korea to occupy advance positions ahead of the competition in service sectors such as IT, finance, medicine and transportation. In order to achieve this goal, it is desirable that Korea take the initiative in agreeing to a CEPA with Kazakhstan and Uzbekistan which already have formed strategic partnerships with Korea. To enhance cooperation in trade with Central Asian countries, there is a need to strengthen investment and cooperation in the Special Economic Zones. In particular, Korea's participation in 'Navoi FIEZ' is highly recommended, which Uzbekistan is driving forward at the government level. Korea needs access not simply through strategies on all the various possible industries, but through strategy focused on competitive high technologies, asking the Uzbek government for market-friendly investment atmosphere in currency exchange and customs service. Fifth, elements of soft power such as experience in economic development and the Korean Wave should be enhanced. Korea is regarded as one of the role models to Central Asian countries and they consider Korea to be an ideal partner that is not politically imposing. Moreover, to strengthen cooperation in the private sector, the Korean government needs to encourage introduction of various development models in a diverse field that includes economy, medicine, education, culture, etc. Sixth, Korea should take the initiative in Green Growth. Despite their huge endowments of natural resources, Central Asia suffers from desertification and shortage of water caused by the global warming. Once Korea is able to show its capabilities in reforestation, desalination and green energy recycling, Koreans will be able to secure support from the locals and find new potential for economic growth. Seventh, Korea should also look towards countries like Turkmenistan and Azerbaijan as areas holding future promise, aside from Kazakhstan and Uzbekistan where her investment has hitherto been centered. In Turkmenistan, there is much room to take advantage of its resources and Korean participation in plant export and construction is greatly anticipated. Since Azerbaijan has already accepted Korea's know-how in IT and New Town Construction, the Korean government should sustain a more aggressive strategy. In addition, the Korean government must support medium-size and small companies in expanding into Kyrgizstan and Tajikistan through overseas assistance and KSP. Lastly, Korea has to enlarge exchange of human resources with Central Asian countries. The ethnic Koreans living in that area will be especially very helpful in establishing the Korean Entrepreneur Network to gain reliable information and to help companies obtain localization. Sustainable and stable relationship with Central Asia is possible when the relations are developed in all social and cultural fields beyond simple economic cooperation. Since Korean and Central Asia share much in terms of common cultural and ethnic heritage because of their common Altaic roots, it is easier for Korea to expand exchange in cultural, social, and human resources with those countries. This will make for a more reliable relationship and help establish more successful economic relations.

Korea imports most of its energy resources from the Middle East. In particular, the region supplies Korea with 80 percent of its oil. Yet, this region is unstable due to various political, territorial, and religious issues. Under these circumstances, the Korean government perceives the need to diversify its sources of energy resources and is attempting to secure these resources in regions such as Central Asia, Russia, Latin America, and Africa. The Central Asian region contains abundant natural resources. In particular, four countries in the region; namely, Kazakhstan, Uzbekistan, Turkmenistan, and Azerbaijan possess large amount of oil and gas. The Korean government and corporations have sought to secure these resources. But these efforts were not so successful compared with those by other countries such as Russia, China, the United States, and Europe. This does not necessarily mean that prospects for Korea are bleak. The country only recently began to invest in Central Asia's oil and gas industry. Therefore, if Seoul conceives an appropriate long-term strategy followed by consistent implementation, there is much likelihood of success in this region. To improve this chance, Korea needs to fully understand Central Asia's present conditions such as its energy resources, its transportation routes, tax systems, and investment environments. This report suggests several policy guidelines for improving Korea's chances of success in the Central Asia region. First, Korea needs to promote political ties with Central Asian countries. To do this, the Korean government must not only employ summit diplomacy, but also maintain regular contacts with officials and opinion leaders from those countries. These contacts should include people in diverse spheres such as energy, academia, and art. Second, the Korean government and corporations need to find out in detail what Central Asian countries want. The Central Asia republics are attempting to draw benchmarks from the Korean developmental model and hope to improve technology in the various industries. Recently, the Korean government began to extend invitations for programs for Central Asian officials and scholars, with the intention of improving their understanding of various Korean development policies. These programs should be greatly expanded. Third, Korea should make good use of opportunities in the area of Central Asian countries' construction and plant (building) industry, as those countries are attempting to develop downstream industry; for example, building oil refineries. In the case of gas-abundant Uzbekistan and Turkmenistan, they want to build petrochemical plants. These represent excellent opportunities for Korean corporations to participate in this region's downstream industry. Fourth, Korea needs to develop a separate strategy for each energy-abundant Central Asian country (Kazakhstan, Uzbekistan, Turkmenistan, and Azerbaijan). The geopolitical situations in the Central Asia region is changing rapidly. While Russia's influence is diminishing, China's influence is increasing and each Central Asian country is becoming more assertive in its foreign policy. Korea should fully understand these developments and take a different approach for each Central Asian country. Fifth, Korea should consider entrance to Central Asian countries' oil and gas industry in collaboration with other states. For example, Korea can participate together with Azerbaijan in other Central Asian countries' energy industry. Moreover, Korea can penetrate this industry in partnership with Russian or Chinese national oil companies. Sixth, Korea should systematically manage information regarding Central Asia. Information collected by various organizations including the government, corporations, and research institutes should be shared and exchanged. In particular, stories of Korean corporations' success or failure in Central Asian countries' oil and gas industry should be disseminated. This is likely to minimize risk associated with investing in those countries.