Seoul Buffoon

China, Japan and South Korea Seek Regional Economic Bloc

2013-05-12T11:16:00.000+09:00

First Published in EPW Vol - XLVIII No. 20, May 18, 2013

A decade after first being proposed, China, Japan and South Korea have finally kicked off negotiations on a trilateral free trade agreement (FTA). They made small but meaningful progress in their first round of talks in Seoul in late March as they seek to lay the groundwork for continued growth of their region based on mutually advantageous trade and investment.

The three countries adopted negotiation rules, agreed on the range of topics and basic guidelines on concessions. They have decided to carry out both bilateral and trilateral talks for merchandise goods, while engaging in trilateral talks for services, investment, and regulation.

They came to terms quicker than expected in the first talks, demonstrating how much hope and anticipation is riding on the trade deal, dubbed the China Japan Korea (CJK) FTA. Talks between the east Asian neighbours come amid a slew of moves to lower trade barriers, even as the three countries transitioned to new political leaderships.¹ The negotiations will eventually move to Beijing and then a third round will be held in Tokyo later this year.

China, Japan and South Korea are Asia’s largest, second largest and fourth largest economies, respectively. A tripartite deal would give rise to a super economic bloc of 1.52 billion people, accounting for roughly 17.43% of global trade and 20.44% of the world’s gross domestic product (GDP).² It will be the world’s third largest regional market, smaller only than the North American Free Trade Agreement (NAFTA) and the European Union (EU). The government–sponsored collaborative feasibility study carried out by researchers from the three countries³ has noted that there is some convergence and complementarity in the trade structures, demonstrating a similar layout of industries engaging in exports and imports and considerable flows of intermediate goods.

The intra-regional trade patterns among the three countries have also evolved significantly in recent years. This may constitute a good rationale for a trilateral FTA, since it can enhance the competitiveness and efficiency of the three countries by increasing competition, thereby facilitating the restructuring of industries and making a vertical and horizontal division of labour more efficient. In addition to this, there will be benefits for the consumers as well in the form of lower prices and access to a wider range of products, and the improved opportunities afforded to exporters through access to markets will in turn stimulate greater economic activity.

However, even as the talks have just begun, many observers are not sure that a deal will eventually be signed. There are a variety of hurdles to overcome, and politically important constituencies need to be accommodated in all the three nations. Historical problems and their traditional rivalry, coupled with territorial disputes may make it even harder.

Background of Talks

There are at least three fundamental factors that have led to the growing number of FTAs in east Asia since 2000. They include the Asian financial crisis; the rising trends on market-driven economic integration; and the progress of European and North American economic integration (Masahiro Kawai and Ganeshan Wignaraja 2008).

The financial crisis of 1997-98 helped east Asians to understand the importance of economic integration. The Association of South-east Asian Nations (ASEAN) + 3 (CJK) summit has been held every year since the first ASEAN + 3 summit in Kuala Lumpur, Malaysia in December 1997. Also, minister-level meetings such as the foreign ministers meeting, the finance ministers meeting, and the senior officials’ meeting have been held regularly since 2000.

Furthermore, they have been actively promoting bilateral agreements, which created an effective pathway to gradual regional economic integration in east Asia. The Japan-Singapore Economic Partnership Agreement (EPA), concluded in 2000, became the first FTA in the region. Two years later, China signed its first FTA with ASEAN. The same year, Japan launched bilateral negotiations with South Korea, but the talks were suspended after the sixth round.⁴ It was not until 2004, that South Korea signed its first ever FTA, with Chile.

Soon after, there was a steep rise in the number of FTA deals that the three nations separately signed with regional and outside countries.

The conduct of China, Japan and Korea is distinctly different in course of their FTA negotiations. Whilst Japan and Korea sought to negotiate comprehensive FTAs with selective countries bilaterally, China adopted a more pragmatic and flexible approach to negotiate “shallow” FTA agreements (Junji Nakagawa and Wei Liang 2011).

Following its accession to the World Trade Organisation (WTO) in 2001, to date China has trade agreements with ASEAN (2002), Hong Kong (2002), Macau (2003), Thailand (2003), Niger (2005), Chile (2006), Pakistan (2006), New Zealand (2008), Peru (2008), Singapore (2008) and Costa Rica (2010). Meanwhile, the Cross-Straits Economic Cooperation Framework Agreement between China and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu was also signed. It is further negotiating with Gulf Cooperation Council (GCC), Australia, Iceland, Norway and Southern African Customs Union.

Japan is pursuing economic partnership agreements, essentially FTAs, as complementary tools for trade liberalisation. It has reached agreements with Singapore (2000), Mexico (2004), Malaysia (2004), the Philippines (2006), Indonesia (2007), Chile (2007), Thailand (2007), Brunei (2007), ASEAN as a whole (2008), Vietnam (2008), Switzerland (2009), India (2011) and Peru (2011). It is negotiating with Australia, GCC, Mongolia and Canada.

South Korea is more aggressive, having signed deals with Chile (2004), European Free Trade Association (EFTA) (2004), Singapore (2005), ASEAN (2007), USA (2007, ratified in 2011), India (2010), EU (2011), Peru (2011), Turkey (2012) and Colombia (2013). Talks are under way with Canada, Mexico, GCC, Australia, New Zealand, Vietnam and Indonesia. China and South Korea launched negotiations on 2 May 2012, but soon faced difficulties over the scope of coverage and not much progress has been made.

As can be seen from the above list, while they have individually been successful in arriving at FTA deals with other nations, they have somehow not been very successful in bilateral deals amongst themselves. They hope that, given the ground reality, a trilateral deal may help them sort out their differences.

Chinese Premier Zhu Rongji first proposed exploring the possibility of a Northeast Asian FTA in 2002. The proposal was largely gathering dust, until China took a proactive stance last year perhaps to secure leadership in northeast Asian economic integration and counter the Trans-Pacific Partnership (TPP) Agreement led by the US.⁵

The rapid movement of the TPP agenda has caused China some disquiet, and it is actively promoting regional economic integration with 16 partner countries – three north-east Asian nations, ten ASEAN members, and Australia, New Zealand, and India – as well as a tripartite FTA to build a sturdier free trade bloc in the Asia-Pacific region.

Many Chinese policymakers and scholars consider the TPP agenda as a force that could rip apart the regional economic integration of east Asia. Moreover, a strong voice in Chinese academic and policy circles maintains that the main reason behind the Obama administration’s support for the TPP agenda is a desire to use it as a tool to economically contain China’s rise (Guoyou Song and Wen Jin Yuan 2012).

To counter-balance the US initiative, China is actively pushing for its own FTA agenda, in particular trying to move forward on the trilateral FTA, ultimately seeking to construct a regional web of its own free trade agreements.

It helps that Japan’s new government has shifted its trade policy by becoming more enthusiastically involved in free trade. In addition, Korea already has free trade accords with lucrative markets of the EU, US and ASEAN and now wants to go beyond bilateral trade deals and seek regional FTAs.

A multilateral forum could be more engaging for Tokyo and Seoul, as they bargain more options to contain China’s influence.

Geopolitical Fault Lines

While there is optimism in the air, worrying geopolitical fault lines still exist in the region. The three countries share a long and bitter history of antagonism and warfare.

Korea and China share a deep anger towards Japanese atrocities during the second world war and the continued lack of official recognition or apology. Koreans are still troubled by centuries of domination by Chinese dynasties followed by a ruthless occupation by Japan and attempts at forced assimilation. More recently territorial disputes over the sovereignty of a few islands have strained relations even further.⁶ Any future provocations will jeopardise talks.

Another major obstacle is that each country has its vulnerable sectors and each use not only tariff barriers but also non-tariff barriers to protect their weakly competitive industries. It will not be surprising if vocal farm lobbies in all three countries, particularly Japan and South Korea, vigorously oppose attempts to dismantle subsidies that enable them to earn a living.

An FTA would raise concerns in Japan and Korea for serious impacts on domestic agricultural production. Both nations have officially indicated that it would have asymmetrical effects on the trilateral agricultural trade and possibly lead to an uneven distribution of benefits in the agricultural sector of the three countries.

Then we have a very large sector of, small and medium enterprises, which are less competitive than conglomerates in all three nations. An FTA adds pressure on those engaged in these industries.

Last but not the least, North Korea remains a potential spoiler to continued economic growth and political stability in east Asia. The ongoing negotiations can also be easily interrupted by any flare-up in political tensions. Japan and South Korea would prefer to pressure China to control North Korean rhetoric, before they can even sit down once again to discuss economic cooperation.

Notes

1 Xi Jinpeg became China’s president, on 14 March 2013, in a confirmation vote by the 12th National People’s Congress in Beijing. Shinzo Abe assumed office as Japan’s prime minister on 26 December 2012. Park Geun-hye was sworn in as South Korea’s first female president on 25 February 2013.

2 As per World Bank Data and Trade Statistics compiled by the World Trade Organisation, in 2011, the combined GDP of the three countries was $14.31 trillion, with their total trade valued at $ 6.398 trillion

3 From 2003 to 2009, a Trilateral Joint Research Project was commissioned by the three governments, and conducted jointly by the Development Research Center (DRC) of the State Council of China, the National Institute for Research Advancement (NIRA) of Japan, and the Korea Institute for International Economic Policy (KIEP). The joint report was published on 16 December 2011. (http://www. meti.go.jp/press/2011/03/20120330027/20120330027-3.pdf.)

4 The FTA negotiations between Seoul and Tokyo have been suspended since November 2004, mainly because of Japan’s reluctance to lower tariffs on agricultural goods.

5 The TPP is a multilateral free trade agreement that aims to liberalise the economies of the Asia-Pacific region involving Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. On 12 November 2011, the leaders of these nine TPP partner countries announced the broad outlines of an expanded TPP: it will promote innovation, enhance economic growth and development, and support the creation and retention of jobs among the nine dynamic Asia-Pacific economies. Further negotiations are still underway, with Japan, Canada, and Mexico also having demonstrated a strong interest in joining.

6 Tokyo and Beijing contest ownership of a chain of islands called Diaoyu in China and Senkaku by Japan. Seoul and Tokyo also disagree on the sovereignty of two rocky islets the Koreans call Dokdo and known in Japan as Takeshima. In addition both Japan and South Korea are exasperated by the intrusions of aggressive Chinese fishing vessels into their waters.

References

Guoyou, Song and Wen Jin Yuan (2012): “China’s Free Trade Agreement Strategies”, The Washington Quarterly: Fall 2012, 35:4, pp 107-19, Center for Strategic and International Studies.

Masahiro, Kawai and Ganeshan Wignaraja (2008): “Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA”, Working Paper Series on Regional Economic Integration No 14, ADB.

China-Japan Korea FTA and Opportunities for India

2013-04-11T11:01:00.000+09:00

First Published in The Hindu Business Line

While most Indians are familiar with Asean, and businesses are aggressively seeking to tap the huge Southeast Asian market, there is a new trade bloc in the making, not too far away, that could deliver more economic benefits.
The Big-3 East Asian economies — China, Japan and South Korea — which account for roughly 17 per cent of global trade, 22 per cent of the global population and 20 per cent of the world’s GDP, kicked off negotiations in the last week of March, aimed at signing a trilateral free trade agreement. They made small but meaningful progress in their first round of talks late last month, seeking to roll out a free trade bloc that would be the world's third largest after North America and the European Union.

THE CONTEXT
Talks between the neighbours have begun amid a slew of moves to lower trade barriers, as they seek to bolster economic growth, hit by the global financial crisis. These thriving economic ties are among the rare positive signs for relations among three traditional rivals.
Historically, Japan’s colonial occupation of South Korea until 1945 and its World War atrocities in China still rankle across the region, while more recently territorial disputes over the sovereignty of a few islands have strained relations even further (Japan-China for the Senkaku/Diaoyu islands, Japan-South Korea for the Takeshima/Dokdo islets).
However, despite their ongoing differences, they are set on reaching a pact, especially now that all three countries are under new leaderships — Xi Jinping, Shinzo Abe and Park Geun-hye.

ECONOMIC MIGHT
China, Japan and South Korea are Asia’s largest, second largest and fourth largest economies. With a market of 1.5 billion people, the total GDP of the three countries was $14.3 trillion and total trade reached approximately $5.4 trillion in 2012.
While China is the main trading partner for Japan and South Korea, Japan and South Korea are China’s fourth and sixth largest trading partners. These statistics underline the region’s growing weight in the world economy, after more than two decades of swift growth in China and the rise of Japan and South Korea as industrial dynamos.
The trilateral FTA would create a massive economic zone, smaller only than the North American Free Trade Agreement (NAFTA) and the European Union. As major world economies, the Big-3 are not only geographically adjacent, but also important partners in trade and investment. If these FTA talks are successful, it will be a huge boost to the region.

SYNERGIES INVOLVED
Their economic relations are complementary, so establishing this trilateral FTA will reduce the influence of many trade barriers and build a huge market. Geographically, these three countries are neighbours, but economically, they are on different growth paths and at different development stages. Japan has the most developed economy, but the economy of South Korea, which took off in the seventies is quickly growing and catching up. China opened up its economy in the eighties, and since then its growth has been more than impressive. They are all outward-looking and depend for growth on their relations with other economies, trading heavily among themselves.
They are already highly integrated -- Japan and Korea are the major resources of FDI flow to China, while China is their major market. So far, the strategies adopted by the Big-3 have maintained their specific interests and relative political and economic influence. In spite of this, their trilateral relationship has expanded gradually, encouraged by growing interdependence and shared economic interests.
Given the economic troubles of Europe and the United States, East Asia cannot continue to depend heavily on these markets. The trilateral FTA could greatly expedite the expansion of intra-regional market, the improvement of production capacity and efficiency.
OVERCOMING BARRIERS
There is no denying that the Big-3 are divided by political mistrust, trade barriers and diverging investment policies, that would make for difficult negotiations. First, they would have to overcome a lot of issues, including the opposition of farmers in all the three countries, and of course, the various territorial disputes that regularly strain diplomatic relations. Negotiating a three-way deal among countries at different stages of development, and each with businesses lobbying for protection is by itself a very complex affair.
It may also take quite a while for the countries to conclude their negotiations and actually strike a treaty. Normally, it takes around two to three years to conclude FTA talks with a major trading partner, but this may take even more time, considering the importance and size of the involved countries and the fact that they are three-way negotiations. The ongoing negotiations can also be easily interrupted by any flare-up in political tensions.
Let’s not forget North Korea. Beijing faces incessant demands from Tokyo and Seoul to put more pressure on Pyongyang, whose nuclear weapons ambitions and rocket tests have alarmed the region. Any knee-jerk reaction by North Korea could derail all talks.
The lessons from the European Union suggest that economic cooperation can precede some intricate political issues in order to achieve regional integration. Market integration in East Asia would have to cope with the obstacles to a high level of cooperation.
OPPORTUNITY FOR INDIA
Among the Big-3, India’s trade relations with China are the strongest, despite the fact that there is no FTA in place between the two countries. Total trade between both sides amounted to $75.59 billion in fiscal year 2011-12 (9.51 per cent of India’s total trade).
On the other hand total trade between Japan and India was just $18.43 billion (2.32 per cent), and Korea-India trade was lower at $17.45 billion (2.19 per cent). Taken together, India’s trade with the region amounts to $111.47 billion, a share of 14.02 per cent of its total trade with the rest of the world. Although there is talk of an FTA between China and India, not much progress has been made.
There are no government sponsored feasibility studies as yet and negotiations seem distant.
India signed a watered-down FTA, what they call a Comprehensive Economic Partnership Agreement (CEPA), with Japan and Korea in 2011, but the ground results are far from satisfactory. There has been a gradual increase in Indian exports and investment in both regions, but the potential remains largely untapped. In fact, the agreement seems to have largely benefited Japanese and Korean companies, which are making inroads into India.
Since an FTA with China seems a distant dream, and is likely to involve many rounds of negotiations spread over years, this is the opportune time for Indian policymakers and businessmen to study how they can leverage the CEPA with Japan and Korea, to take advantage of a trilateral FTA in East Asia and make inroads into the Chinese market.

Challenges before South Korea's New President

2013-03-02T17:19:00.001+09:00

First Published in EPW,Vol-XLVIII, No. 10, March 09, 2013

On 25 February, Park Geun-hye, the daughter of former military ruler Park Chung-hee, was sworn in as South Korea’s first woman president following her tightly contested election victory on 19 December 2012.1
In more ways than one, her election marks a historic breakthrough for a traditionally Confucian country2 whose social, political and business fields are dominated by men. Although the country has shown a remarkably high level of economic performance over the past few decades,3 its global ranking in gender parity is not much to talk about.
Women hold only 14.7% of parliamentary seats, and only 79.4% of adult women have reached a secondary or higher level of education compared to 91.7% of their male counterparts. According to the Gender Development Index of the United Nations Development Programme (2011), female participation in the labour market is only 50.1% compared to 72% for men.

Background
Park’s rise to the top post has raised hopes that it could herald a significant gender power shift and help normalise the idea of women holding positions of power, even as historical evidence in other Asian countries suggests that the ground reality is far more complex and only makes for good media headlines.
Moreover, this is not Park Geun-hye’s first stint at the presidential office Blue House. Born in 1952 as the eldest of three siblings, she moved into Blue House in early 1964, shortly after her father, Park Chung-hee, an army general, grabbed power.4
After spending her school years at Blue House, she enrolled at a local university to study electronic engineering, and, following graduation, left for France to continue her studies. She had to return abruptly in August 1974, after a gunman killed her mother in a botched assassination attempt on her father. For the next five years, she served as the acting first lady until the intelligence chief gunned down her father in 1979.
While it can be argued that she did not have control over her father’s regime, the fact remains that she was from a privileged background, with access to power. Following her father’s assassination, she spent the next 18 years out of the public eye, a period during which, as noted in her autobiography (Park Geun-hee 2007), she endured the betrayals of many of her father’s close aides and also devoted much of her time to reading books on history, philosophy, and visiting cultural heritage sites across the country in an effort to broaden her perspective.
The liberal intelligentsia however has a different story to tell (The Hankyoreh 2012). They claim that all her activities were focused on the restoration of her father’s image, by defending the military coup as a revolution to save the nation, using the bogey of a North Korean communist invasion. She published several books, and appeared regularly in the media justifying the violence committed by her father’s regime.
Throughout her father’s rule, the state’s routine invocation of the threat of communism effectively blocked any popular demand for democratic participation in the political process. The regime functioned in a manner that extended beyond the routine infliction of violence by the state on its citizens, into a realm where the state authority infiltrated every corner of civil society to both control it, and stifle its potential (Korea Democracy Foundation 2010).
Park claims that the Asian financial crisis, which dealt a devastating blow to South Korea’s pride and economy,5 proved to be a turning point in her career and she decided to rejoin public life. She was first elected to South Korea’s National Assembly in 1998, serving five terms as a representative.
Many critics argue that she used it as an opportunity to put her father back on the pedestal.6 This she has apparently succeeded in doing, by becoming the 18th president of the country, and its leader for the next five years. With her success, she has also ensured that conservatives will have held power for a decade since her predecessor Lee Myung-bak took office in 2008.
However, despite her ideological affiliation, her victory owes a lot to her embracing a liberal agenda in areas like economic democracy. During her campaign, she came out with a relatively progressive platform on issues like chaebol reforms7 and social welfare. Park said she would “tend closely to the public’s needs like a mother of ten determined not to let the children go hungry”.
Her promise was that as the first female president, she would adopt a “maternal” approach to her leadership. As a single woman who has never married, she also said she is married to her country and pledged to think only about the people’s happiness.
Park surely realises that pre-election pledges are one thing, but actual governance is a totally different cup of tea. Particularly since there are many daunting challenges that she faces – not just the economic slowdown, but more importantly North Korea’s third nuclear test in defiance of United Nations (UN) resolutions, just 13 days before she assumed office.

Economic Challenges
Amid the continuing global financial crisis, South Korea’s economy has slowed down significantly in recent years. The government estimates that the economy grew 3.3% in 2012, but many worry that it could actually have been lower. It would follow 6.2% and 3.6% gains reported for 2010 and 2011, respectively. Things could ease to some extent this year, but risks, which have dogged the export-driven economy throughout 2012 are likely to remain in place, and the country could enter into a phase of low growth (Ministry of Strategy and Finance 2013).
The country is highly dependent on exports,8 which makes it even harder to recover. The prolonged eurozone debt problems and a possible global slowdown, as well as low domestic consumption and volatile exchange rates only accentuate the economic uncertainties. At present, there is very little that Park can do to provide an immediate boost to the economy.
An export-oriented country will always find times difficult when the world’s major importers are experiencing sluggish growth (ASAN Institute of Policy Studies 2012).
Another problem is the indebtedness of the Korean public. Today, household debt stands at greater than 160% of income, making a reorientation of the economy towards domestic consumption very difficult. The government will therefore have to make effective management of the macroeconomy its first priority in order to successfully deal with internal and external risks, continue to help boost the economy, and pursue inclusive growth.
The long-term challenges include a rapidly ageing population, inflexible labour market, and heavy reliance on exports. As a candidate, Park promised to work for the livelihood of individual families, making several pledges aimed at reversing the collapse of the middle class. She vowed to implement policies to improve growth, create jobs and increase social welfare spending.
She also highlighted the importance of reforming large conglomerates that dominate the economy by promising that she will stop their unfair practices and excessive profit-seeking. While this is certainly a core issue in rebalancing the country’s wealth distribution, her party has always been strongly pro-business, and there is every likelihood that she will back away from strong reforms.
Now, with power in her hands, the focus may be on economic growth and job creation rather than on reining in the chaebols. Clearly, keeping the campaign pledges will not be easy.

North Korea Relations
This year marks the 60th anniversary of the armistice agreement that ended the combat phase of the Korean War. The North Korean nuclear negotiations have lost all momentum. The six-party talks are part of a distant past and North Korea’s third nuclear test on 12 February, conducted in defiance of international warnings, have put a sudden halt to Park’s proposal to reach out to the communist neighbour.
During her campaign, she disapproved of the hard-line policy that came to define her predecessor over the past five years and said that a friendly relationship with North Korea will be the core of her foreign and security policies. Inter-Korean relations were effectively cut off during the Lee Myung-bak administration due to a string of provocations committed by North Korea and the response by Seoul.9 Park said she would find middle ground between the approaches of South Korea’s previous presidents – Roh Moo-hyun, who gave the North unconditional aid, and Lee Myung-bak, who treated it as an adversary. Back in 2011, Park announced her vision for foreign relations, national security, and unification policy, an idea she called “diplomacy of trust and a new Korean Peninsula”.
The measures she described emphasised incremental approach over radical changes in inter-Korean relations (Park Geun-hye 2011). This was clearly done to woo large sections of the voters who disapproved of the traditionally hard-line stance of her political party towards North Korea, and it worked in the elections.
What she did not expect was that Pyongyang would go to any extent to guard its regime and increase its negotiating power, even before she could occupy her seat. Moreover, even as the UN is in the process of discussing what actions it should take to penalise the country, North Korea warned it can acquire intercontinental ballistic missiles to counter hostile forces and bolster its self-defence capabilities.
On the whole, Park has made clear on numerous occasions that she cannot allow the North to have nuclear weapons, yet stressed her commitment to engaging the communist country in a dialogue to deal with all outstanding issues. The nuclear detonation has effectively tied up her options, since South Korea is likely to join other countries in sanctions. Such a stance can cause North Korea to take a more tough approach, making it harder for her to make any conciliatory overtures.
To make matters worse, just two days before her inauguration, the North Korean military’s representative at the truce village of Panmunjom was quoted by the official Korean Central News Agency as saying that the peninsula is facing “a grave situation where a war may break out any moment”.
The latest developments will clearly jeopardise inter-Korean relations that otherwise could have made headway under her administration. It will force her to reassess her “Korean Peninsula confidence building process”, which she has said is the cornerstone for better inter-Korean relations.
With pressure to fix the domestic economy and South Koreans’ individual welfare along with a desire to see improved relations with North Korea, Park will have to work quickly on both fronts to have a chance of succeeding. Her ability to handle relations with North Korea while working towards solutions to domestic issues will decide her legacy in the Blue House other than of being South Korea’s first woman president.
Notes
1 Since its transformation into a republic, the Korean government, except for a brief period between August 1960 and July 1961 when a parliamentary system was in place, has maintained a presidential system. Under the Sixth Republic that began in 1987, the president is directly elected for a single five-year term by plurality vote. It was a two-way competition between Park Geun-hye and the opposition candidate Moon Jae-in. With a high voter turnout of 75.8%, Park defeated her liberal rival by 3.6 percentage points garnering 15.77 million votes.
2 For 2,500 years Confucian teachings have influenced the thought and behaviour of people in China, Korea, Japan and Vietnam. Confucianism drew a clear distinction between the woman’s domestic sphere and the man’s public sphere, in the belief that the law of nature gave women an inferior and subordinate position in all aspects of life.
3 Popularly known as the “Miracle on the Han River”, South Korea’s highly accelerated export-fuelled economic growth, including rapid industrialisation, technological achievement, education boom, exponential rise in living standards, rapid urbanisation and globalisation transformed it into a wealthy and highly developed country with a globally influential trillion-dollar economy.
4 Park Chung-hee led a 1961 military coup, dislodging South Korea’s very first experiment with parliamentary democracy.
5 For South Korea the consequences of financial and economic crisis and the intervention of the IMF in overcoming the accompanying problems were extremely painful. These problems included: a large number of bankruptcies of industrial firms and private banks; the increasing pressure on industrial firms to carry out rapid restructuring; massive dismissal of workers; currency devaluation; drastic decrease in domestic households’ demand caused by income reduction and high interest rates, etc. An average of more than 100 companies went bankrupt each day and the number of laid-off workers increased from 5,00,000 to more than 1.2 million in only a few months.
6 Park Chung-hee won wide respect for transforming the poor war-ravaged nation into an economic juggernaut, but is also reviled in some quarters for his human rights abuses. Still, many older South Koreans remember the almost two-decade rule with fondness thanks to the economic successes of his government.
7 Chaebol refers to a South Korean form of family business conglomerates, such as Samsung, LG, Hyundai, and SK. Since the Asian financial crisis, several attempts have been made to decentralise their management, strengthen their accounting practices, enforce anti-trust laws and impede the ability of families to retain control.
8 The weight of exports in the South Korean economy hit an all-time high in the first nine months of last year. Exports of goods and services amounted to 57.3% of GDP, according to data by the Bank of Korea, the highest since the central bank began compiling related data in 1970.
9 In 2010, North Korea sank a South Korea naval vessel resulting in the deaths of 46 sailors and shelled an island in the Yellow Sea that left four dead, while in 2008 a woman tourist was killed at the Mount Kumgang resort. The North also detonated its second nuclear device in May 2009 and launched a long-range rocket despite warnings issued by the international community. Seoul halted most exchanges and cooperation projects between the two sides in May 2010.

SMEs in India Deserve a Better Deal

2013-02-18T16:01:00.002+09:00

First published in The Hindu Business Line: ____________________________________________________________________
How often have we read that small and medium enterprises are a strategic asset for the Indian economy? We are told that they contribute nearly 8 per cent of the GDP, 45 per cent of the manufactured output and 40 per cent of exports. The sector provides employment to about 60 million people through over 26 million enterprises producing over six thousand products.
However, what is seldom mentioned is that many of them are at the mercy of the larger corporations, with no effective relief from the existing government policies. For instance, delayed payments by large companies and the resultant crippling effects have always been the bugbear of SMEs, but at the risk of losing their large orders, they do not legally complain.
While the government efforts have always focused on ways to ease credit restrictions, strengthen training, marketing, technological support, exit policies and cluster development, very little thought has gone into the relationship between large corporations and their sub-contractors. At the risk of being accused of bringing back the “control regime,” our policymakers could well take a look at the recent initiatives in South Korea, a country that has built its strong economy on the basis of capitalistic free market principles.
On May 22, the nation's top conglomerate, Samsung Electronics, found itself in the national anti-trust agency's crosshairs, falling afoul of the unfair practices law for its repeated cancellation of parts' orders to small contractors.
The Korea Fair Trade Commission (KFTC) announced that it is imposing a $1.4 million fine on the company for withdrawing orders long after payments are due. It said that among 1.5 million parts orders placed by Samsung Electronics between January 2008 and November 2011, some 2 per cent or 28,000 orders were reneged on unreasonably. This left suppliers with bursting inventories, interest payments owed and disruptions to their production schedules. Although the company has strongly refuted the claims, this just goes to show that SMEs in South Korea which have been unfairly treated by their larger counterparts can always bank on help from government agencies. The same may not be true for Indian SMEs.
RESERVED FOR SMES
The anti-trust agency's proactive steps can be traced to the ‘shared growth' policy of the present government under President Lee Myung-bak, a former high-profile businessman. He has been pursuing co-prosperity between conglomerates and SMEs since last year as a means of addressing economic polarity.
As a response to concerns that big companies were thriving while small ones weren't under his administration, a ‘‘Presidential Commission on Shared Growth for Large and Small Companies'' was launched in December 2010, as a private institution, which is formally independent from, but actually supported by, the government.
Since its formation, the commission has announced many policy instruments to promote shared or mutual growth of large companies and SMEs through what it calls “cooperation profit distribution.” Representatives from both SMEs and large companies agreed to introduce the system and a number of proposals were then announced, including a list of business areas restricted only to SMEs.
The commission recently announced a list of 79 products that it believes should be produced by SMEs rather than big ones, an attempt to prevent big companies from driving smaller ones out of promising markets. The conglomerates have reluctantly accepted this proposal.
INDEX OF INCLUSION
‘Name and Shame' is another tool used by the Commission. It released a ‘‘shared growth index'' earlier in May, tracking how large businesses have made efforts to realise shared growth.
Of the 56 large conglomerates subject to the index calculation, seven companies received the lowest grade of “improvement needed”, while six companies, including Samsung Electronics, POSCO, and Hyundai Motor Company, received the highest grade of “superior”. Twenty companies were ranked as “good” and 23 others were listed as “average”. The index has been calculated by combining the performance assessment of the conglomerates by KFTC, plus a personal survey of 5,200 contractors of the 56 companies.
Large companies that received the lowest mark in the assessment will not face any disadvantages. However, 26 companies with the satisfactory grade or above will be given various incentives from government agencies, including tax breaks and subsidies.
It is the first time that the shared growth index has been calculated. Although some conglomerates may not be content with the index, it is desirable for them to acknowledge the commission's effort to improve the environment for achieving co-prosperity between conglomerates and SMEs.
In fact, following its active involvement in the ‘‘shared growth'' agenda, many large enterprises have recently reached mutual agreements with subcontracting SMEs for fair trade and shared growth. Two prominent examples of such arrangements are Samsung and Hyundai's agreements with their respective subcontractors.
GOVERNMENT PUSH
Nine Samsung group affiliates, including Samsung Electronics, made cooperative agreements for shared growth with 5,200 subcontractors. The package of financial assistance amounted to $5.7 billion, among which R&D support comprised $1.7 billion.
Samsung agreed to induce its subcontractors to make cooperative agreements with lower-level sub-subcontractors, and provide them with incentives. Similarly, six Hyundai group affiliates, including Hyundai Motors, made cooperative agreements for shared growth with roughly 1,600 subcontractors. The package of financial assistance amounted to $3.9 billion, with R&D and capacity investments making up $2.3 billion.
Hyundai promised to provide 300 R&D support manpower for its subcontractors. This is just the beginning, and many more large companies have announced similar initiatives.
With a small push from the government, the Korean companies have realised that they need to share the burden of their sub-contractors.
That is what is lacking in India. Any number of laws can be enacted but effective implementation is crucial. It also requires a concerted effort by the government; so that the large corporations in India automatically devise their own ways to help their sub-contractors survive and share their growth.
Many companies may still be doing it on their own initiative, but if there is a government push, it will make a world of difference.

Lessons for Retail Giants Hoping to Enter India

2013-02-18T15:58:00.002+09:00

First published in Business Standard: __________________________________________________________________
After a quiet period, intense lobbying for opening up multi-brand retail once again seems to be hotting up. On May 24, Carrefour’s India head, Jean-Noel Bironneau, met Commerce Minister Anand Sharma, and his counterparts from Wal-Mart, Tesco and Costco will no doubt follow soon.
Ever since the government announced its decision to allow foreign direct investment (FDI) in multi-brand retail trade, and then backtracked, there have been a flurry of articles on the pros and cons of such a move.
There is no clear answer and those in favour and against FDI have expressed ample views. So, another attempt to do so would be futile, although it must be stressed that allowing FDI does not mean that the global retail giants will automatically wind up capturing the market.
Take their experience in South Korea, home to one of Asia’s most dynamic and largest retail markets, ranking fourth behind Japan, China and India, with a relatively wealthy population. Wal-Mart and Carrefour have had to beat a retreat after struggling for years to increase market share. Tesco is the only successful foreign retailer, going from strength to strength.
The varying success of these three retail giants in South Korea has become must-read case studies for all potential foreign investors. It also holds lessons for them in the Indian market, given the high complexities in terms of a wide geographic spread and distinct regional consumer preferences. Historically, South Korea kept its major retailing operations closed to foreign ownership. It was only in 1988 that the government began a series of three-year plans designed to improve the efficiency and productivity of the retail and distribution industry.
The first stage of this process occurred in 1989 when regulations on the establishment of foreign companies’ subsidiaries and the inflow of FDI were eased. Then, foreign retailers were permitted to establish stores at a maximum size of 1,000 sq m, as prescribed by the second stage of the open-up policy. The regulations on the number and size of retail outlets of foreign companies were further relaxed in the third stage of the programme beginning in 1993, when foreign companies were allowed to open up to 20 stores with each store not exceeding 3,000 sq m.
It was not until 1996 that FDI in the Korean retail market was completely liberalised and foreign retailing companies began expanding there in earnest. Sensing huge opportunities, Wal-Mart, Carrefour and Tesco entered the country around the same time, but adopted different strategies.
Wal-Mart attempted to penetrate the Korean market by building stores in distant areas where land prices were low, replicating the US strategy of smaller-city store build-up. It had only 16 stores in all of Korea with just one in the Seoul metropolitan area and could not achieve economies of scale.
The company expected the Korean consumers to drive to its stores for price shopping as American consumers do. However, this location strategy did not match well with the Korean consumers’ lifestyle and shopping habits. They prefer to buy smaller units on a more frequent basis and to have accessibility to a store within walking distance.
As a result, Wal-Mart faced serious challenges in implementing its core competence in South Korea. Moreover, it could not enjoy its buyer power in the local vendor market and had no control over its Korean supply chain and procurement. Eventually, it packed its bags in 2006.
Carrefour had a similar story. Despite its experience elsewhere, the company failed to localise its stores to a sufficient extent. Instead, it tried to introduce its global practices and strategies in the country. Its store layout, ambience, products and location failed to attract customers. The company wanted to attract customers by providing them high-quality products in bulk at low prices. Its stores were styled like warehouses and were simple in appearance compared to the stores of its competitors. Initially, customers were enthusiastic, but most of them were not bulk purchasers.
Also, unlike other markets, Korean customers prefer a clean and sophisticated atmosphere along with low prices. At the time of its exit in 2006, Carrefour was the fourth-largest retailer in the country, with 32 hypermarkets. The company had invested $1.5 billion, making it the largest foreign investor in the Korean market, but that was not enough to guarantee it success.
In contrast, Tesco had an effective “localisation” strategy for downstream activities. It entered the market by forming a joint venture with a major local partner, Samsung, leveraging its knowledge and expertise of the local market. Tesco devoted considerable attention to transferring its core capabilities to this new market, but did not attempt to iterate the British version of its retail format.
It gradually increased its stake in the company to 95 per cent, but continued to localise its 450 stores, consisting of both large hypermarkets and small Express stores. Also, of Tesco’s 27,000 staff in Korea, only four are expatriates. As a result, it became one of Tesco’s biggest success stories, generating a third of its overseas sales.
One key factor that contributed to Tesco’s success was its ability to create “value” that is suitable for the Korean tastes and preference. While other foreign brands like Wal-Mart and Carrefour have failed, Tesco’s Korean brand, Homeplus, is moving from strength to strength, as it closes the gap with the market leader E-mart.
It also has leveraged Korean’s love for high-tech, having just launched innovative virtual stores in subway and bus stops where customers can use their smartphones to buy products that are delivered right to their homes.
These stories contain valuable lessons for the global retail companies who now wish to expand their presence in India, whenever the law permits. Their multi-brand retail strategy has to be different from their wholesale cash and carry stores. Moreover, it is important to heavily localise operations keeping Indian tastes in mind, with or without a domestic partner. Blindly applying western business models for the Indian market will not work.

Outbound Tourism Policy Need of the Hour in India

2012-10-10T17:56:00.000+09:00

It is more or less a quarterly gimmick by reporters in the Indian media who cover tourism. Since early 2011, they have been issuing reports (perhaps on ‘dry news days’) that the list of countries whose citizens will be provided Tourist Visa-on-Arrival (VOA) at international airports is being expanded. Do a Google search for ‘India visa on arrival’ and you will know what I mean. Under the policy implemented since January 2010, India currently issues VOA to 11 countries including Japan, Indonesia, the Philippines, Cambodia, Laos, Vietnam, Singapore, Myanmar, Finland, Luxembourg and New Zealand. Citizens of these countries can get a single entry visa on arrival with a maximum validity of 30 days, at Delhi, Mumbai, Chennai and Kolkata Airports. This list is sought to be expanded to include 13 countries largely from Europe, south-east Asia, even as more entry points will be included. The expansion of the list will no doubt give a major boost to the tourism industry in India, as more visitors land up on its shores. Tourism is not only a growth engine but also a big employment generator. Worldwide, the industry generates eight percent of jobs, and it is estimated that each job in the tourism industry creates two additional jobs in other sectors. As noted in the Declaration adopted by Tourism Ministers from G20 economies at the recent summit in Merida, Mexico, on May 16th, visa facilitation is central to stimulating economic growth and job creation through tourism. In particular, G20 economies could boost their international tourist numbers by an additional 122 million, generate an extra $ 206 billion in tourism exports and create over five million additional jobs by 2015 if they improve their visa processes. The Ministry of Tourism statistics show that foreign tourist arrivals in India during 2011 were 6.29 million, growing from 5.78 million during 2010. Last year, India received 12,761 tourists under the VOA scheme, the largest numbers coming from New Zealand and Japan with 2,762 and 2,344, respectively. These are still relatively low figures, if you compare the number of tourists who visited China last year (135 million). Though, it is still a good start, what is worrying is the fact that MEA is not looking at mutual reciprocity with countries in implementing the VOA policy. Rightly, the focus is to attract international tourist traffic and turn India into a major tourist destination, but regrettably, the plight of the outbound tourist is completely ignored. Today, Indian travelers and the estimated 25 million strong overseas Indian community require a processed visa from their country of residence, to visit all the major G20 economies (except Indonesia which allows for VOA). Information provided by the International Air Transport Association (IATA) shows that some 59 countries and territories provide visa-free or VOA access to holders of Indian passports.These include countries such as Burundi, Bolivia, Cape Verde, Central African Republic, Comoros, Djibouti, El Salvador, Ethiopia, Gambia, Guinea-Bissau, Guyana, Mozambique, Nauru, Sao Tome & Principe, Samoa, St Lucia, Timor Leste, Togo, Tuvalu and Kosovo, which hold little to no interest for the desi leisure traveler. It is only countries on the list like Thailand, Egypt, Cambodia, Indonesia, Hong Kong, Tanzania, Kenya, Madagascar, Maldives, Mauritius and Seychelles that may pique the interest of the Indian tourist. For that matter, the top tourist destinations for outbound Indian travelers last year were Singapore, USA, Malaysia, Thailand, China, Dubai, Hong Kong, UK, Italy, Australia, Switzerland and Canada. Since India’s tourism policy has been focusing on inbound travelers, the policy approach on outbound tourism has been relatively insufficient. This despite the fact that Indian outbound tourists topped 12.5 million, double the number of inbound tourists. The UN World Tourism Organisation predicts that the country will account for 50 million outbound tourists by 2020, while the ‘Kuoni Travel Report India 2007’ predicts that total outbound spending will cross the $28 billion mark in 2020. Pointers should be taken from the new study by London-based Centre for Economics and Business Research (CEBR), unveiled on May 10th. It highlights that outbound travel directly contributes over £22bn to the economy, representing 1.6% of UK GDP. With the inclusion of contributions made by industries supplying the sector, the total economic impact rises to over £54bn, or 3.8% of UK GDP! In addition to its economic contribution, the outbound sector makes a significant contribution to jobs. When jobs that are reliant on supplying the industry are taken into account, this reaches 5.2% of total UK employment. The report also reveals that the total tax take from the outbound sector is £6bn per year, with £1.2bn raised from indirect taxes such as Air Passenger Duty (APD). This is a significant contribution. Although there are no similar studies for India, it goes without saying that the Indian holidaymakers also spend at the local travel agent and shop for clothes, accessories, cameras, toiletries and other essentials before they embark on a trip. This consumer spending has a direct impact on the domestic economy, not to mention employment generation and taxes. Our policymakers assume that by going abroad on holiday, money is being taken out of the Indian economy. On the contrary, outbound tourists make a huge contribution to the Indian economy, both directly and indirectly. The government must recognize and support outbound travel in its current and future policies and plan strategies to deliver growth to the wider economy. The first step should be to simplify overseas travel for Indian tourists. Additionally, it should work to generate and promote demand for overseas travel in cooperation with the relevant ministries, state governments, travel agencies, airlines and overseas national tourism organizations. This segment needs to be tapped to benefit the Indian economy, and the policymakers ought not to ignore it.

European Investors in Taiwan

2012-07-10T14:48:00.002+09:00

European investments in Taiwan have been steadily increasing over the past two decades and the dramatic rise has been in parallel with the founding and rapid expansion of the European Chamber of Commerce Taipei (ECCT). The ECCT started with just 50 founding members in 1988. Since then it has expanded to approximately 400 companies and organizations and 700 individual members. As noted by Mr. Freddie Hoeglund, CEO of ECCT, today, European investors account for approximately 30% of all foreign direct investment in Taiwan, making them the largest group of foreign investors in Taiwan, well ahead of the next largest investors, the United States and Japan. “EU investment in Taiwan has exceeded $30 billion, far exceeding investments from the United States of $22.01 billion and Japan of $16.64 billion. The steady increase in investments over the past two decades indicates that Europeans remain confident in Taiwan’s economic prospects. Also, Taiwan rose five places on the list of the EU’s trading partners to 14th place, up from 19th place in 2009,” he said. Taiwan is of interest to European investors for a number of reasons, notably because of Taiwan’s important and dynamic role in the global economy, especially in global information and communication technology production chains. The country also has many other advantages such as a good transport and communications infrastructure, a relatively consistent legal system, a highly skilled and stable workforce, a functioning and affordable universal healthcare system and a good quality of life. These have been made possible thanks to sensible and progressive policies and programs made and implemented by the Taiwan government, although more needs to be done. Mr. Hoeglund noted that through a network of 28 industry and support committees, the Chamber has been successful in addressing specific concerns and providing concrete recommendations to all levels of government to facilitate improving the business environment. The ECCT annually publishes a series of position papers that comprise issues identified by its committees as hindering the further development of their respective industries and provide recommendations to the government of Taiwan for improvement of the business environment on general issues as well as industry-specific problems. They also serve to keep the European Commission, the European Parliament as well as the governments of individual European Union member states informed about Taiwan’s business environment. “Through lobbying government and formulating Position Papers, the ECCT ensures that the European agenda remains on the list of priorities of the Taiwan government. The government has taken our opinions seriously and taken action to improve the investment environment based on our recommendations. Since we began publishing position papers, we have seen progress made on an average of 20-30% of issues raised by its industry and support committees every year,” he said. The Chamber has a successful track record in promoting the business interests of European companies through communicating with all levels of the Taiwan government on a wide variety of business issues such as tax reform, labor standards laws, improved harbor administration and entry-exit regulations. Through regular committee activities, meetings with government officials and the formulation of Position Papers, the Chamber works with Taiwan's political and business leaders to ensure that conditions for European businesses in Taiwan continue to improve. “The ECCT's lobbying initiatives bring issues, which have an impact not only on European interests in Taiwan, but also Taiwan's economy and society, to the attention of the Taiwan government. Annually, we meet the government officials at least 70 to 80 times. We also frequently provide opportunities for members to meet with government officials, NGOs and the European Commission.” He also noted that recently the Chamber launched the Low Carbon Initiative (LCI). The objective of the LCI is to showcase and promote the best European low carbon solutions and practices in order to help Taiwan to meet its goals to reduce carbon emissions in Taiwan. The LCI will be structured based on its three main objectives arranged in three platforms: Advocacy with the Taiwan government on the best policies to reduce emissions; Best Practices - Showcasing European low carbon solutions ; and, CSR and Education - Raising awareness about low carbon solutions. Fourteen European firms from the Chamber have already signed up as founding members and have begun planning activities. This will include launching a website and holding seminars, workshops and a major exhibition and conference in June this year. European companies already contribute a lot in various fields towards energy saving, efficiency and consequently sustainability but, in order to reduce emissions, more effort is needed to increase Taiwan’s renewable energy installations and improve energy efficiency, especially in buildings, which account for up to 40% of Taiwan’s energy use. The chamber is also involved in the EU’s satellite development program. It has been granted funding by the European Commission as part of a consortium, called GNSS.Asia, of five European chambers (from China, South Korea, Japan, India and Taiwan) under the European Business Organisations (EBO) World Wide Network. The global navigation satellite system (GNSS) Asia project falls under the EU’s FP7 program and is linked to promoting technology development related to the Galileo satellite project. The GNSS.Asia consortium’s objective is to develop potential research and industrial partnerships between EU and Asian organisations, including Taiwan. Among the other recent initiatives, Mr. Hoeglund said that the Chamber recently commissioned Copenhagen Economics to conduct a follow up to its 2008 Trade Enhancement Measures (TEM) agreement study, which analyzed the case for a free trade agreement between the EU and Taiwan. The new study, to be conducted in the first half of 2012, will update the original study, taking into account important developments that have occurred over the past four years, including the Economic Cooperation Framework Agreement (ECFA) between Taiwan and mainland China and Korea’s FTAs with the European Union and USA. The original study made a clear case for a TEM agreement. The report on the study’s findings concluded that a trade deal would boost Taiwanese exports to Europe by €9.84 billion, in particular benefiting Taiwanese manufacturers of electronics and machinery and it would boost Taiwan’s annual GDP by €3.8 billion. The study also concluded that a trade deal would increase annual EU GDP by €2 billion while European exports to Taiwan would increase by €11.8 billion. Such a deal would therefore increase jobs and wealth in both Taiwan and the EU. Since the release of the original study report, the ECCT has been actively supporting a TEM by calling on the governments of both the EU and Taiwan to begin conducting studies and engaging in preliminary negotiations on a potential TEM, he said. In this context, he noted that his visit to Seoul from April 25th to 27th, along with an ECCT delegation was a good opportunity to learn about the FTA negotiations. The agreement was implemented in July last year, and the EUCCK played a very important role in assisting the European Commission. “The visit was part of the ECCT’s ongoing interactions with other chambers in the Worldwide Network of European Business Organisations (EBO). We visited Beijing in 2011 and Shanghai in 2010. During this trip, the delegation was briefed by experts from EUCCK and the EU’s representative in Seoul on details of Korea’s recent free trade deals with the EU and the United States. The delegation also had the opportunity to meet and exchange ideas with their industry counterparts to talk about business developments in their respective industries and regulatory issues in Korea and Taiwan.” He observed that many of the problems that EU investors face in Taiwain are similar to the issues faced in Korea prior to the FTA. For instance Taiwan has double-testing requirements and Taiwan-only standards, which have hindered imports of European electronics products, automobiles, pharma, cosmetics and other goods. Decisive action to harmonize Taiwan’s regulatory environment with international standards would go a long way towards improving Taiwan’s competitiveness and attractiveness as an investment destination, he noted. Speaking on the ECFA, he said that it is a preferential trade agreement between the governments of China and Taiwan that aims to reduce tariffs and commercial barriers between the two sides. The pact, signed on June 29, 2010, in Chongqing, was seen as the most significant agreement since the two sides split after the Chinese Civil War in 1949. The ECFA has been compared with the Closer Economic Partnership Arrangements mainland China signed with the Special Administrative Regions: Hong Kong and Macau. The deal is thought to be structured to benefit Taiwan far more than mainland China. The advantage to Taiwan would amount to $13.8 billion, while mainland China would receive benefits estimated at $2.86 billion. It is too soon to measure the full impact of the ECFA on European business but ECCT members have benefited from efforts so far taken to normalize cross-Strait business relations. The two sides signed off on an initial early harvest list of 539 products from Taiwan and 268 items from China to be exempted from tariffs starting on June 1st, 2011 and have since removed around 600 items from the list of products banned from import into Taiwan from China. This leaves another 2,126 items still subject to negotiation. Many of the items banned or restricted are manufactured by European corporations in China. The ECCT supports the move towards greater cross-Strait business normalization but the benefits of the opening up are being countered by the import ban or restrictions on the import of some 2,100 products manufactured in China. While the number of items on the list has fallen from over 2,700 last year, most of the items regarded as priority items manufactured by European companies in China remain banned or restricted. The ban fosters protectionism, hurts Taiwan’s own industry and consumers and works against the promotion of Taiwan as a regional hub. The ban on numerous models of cars and trucks manufactured by European automakers in China means that local consumers and businesses are deprived of superior quality vehicles at reasonable prices. “The ban on various motors and other electrical engineering equipment forces our member companies to source these products from alternative, more expensive production locations. This directly leads to a cost disadvantage when selling these products in Taiwan.” Lifting the ban and other restrictions would benefit businesses and consumers in Taiwan and make Taiwan more attractive to international investors. In turn this would boost Taiwan’s competitiveness. Tariffs currently in place are already low and the main benefits the EU would gain from a TEM would be in addressing non-tariff barriers (NTBs), just as the recent EU-Korea FTA has done. An EU-Taiwan TEM will be able to tap into the additional trade flows between Taiwan and Mainland China. Gains from an FTA will increase with the ECFA in place and subsequent agreements that would eliminate many of the remaining trade and investment barriers across the Taiwan Strait. Direct beneficiaries will be Taiwan-owned companies and JVs with European partners but ultimately all players will benefit from a more open business environment, he said.

Tips for Korean Companies Doing Business in India

2012-07-10T14:34:00.003+09:00

It is now close to two and a half years since Korea and India implemented the Comprehensive Economic Partnership Agreement (type of FTA), but economic relations between both sides is growing slowly. Although bilateral trade has been growing on an average at 20% annually over the last five years, the investment figures are much more modest. Compared to $2.52 billion in 2001 total trade stood at $ 20.57 in 2011, with a target of $ 30 billion set for 2014. However, Indian investment in Korea is still a low figure of $1 billion, while Korea’s total investment in India is just $2.3 billion. Some of the Indian companies with a presence in Korea are Novelis Inc., Tata Motors Limited, Mahindra and Mahindra, Nakhoda Ltd., and M/s Creative Plastic. Major Korean companies active in India include Hyundai Motor, Samsung Electronics, LG Electronics, POSCO, Hyundai Mobis, Wia Corporate, Lotte Group, Doosan Heavy Industries and Hankook Tires. In addition some 150 others have smaller businesses in India. I would argue that if more Koreans companies do not explore the Indian market, they will be left behind their global competitors. Having emerged as a global center for services and outsourcing, India is also becoming an attractive destination for outsourcing industrial production, specifically for specialty manufacturing. In addition, the expanding Indian middle class is about the same size as the population of the US. It has seen a significant rise in its desire to buy high-quality consumer products, thereby providing a large domestic market for companies that choose to set up consumer manufacturing operations and sales centers in India. Further, it is expected that as India continues to grow, its need for development of its physical and human infrastructure will correspondingly increase. In this context, it is anticipated that India will require some $500 billion over the next five years in investments into the infrastructure sector. All in all, there is little doubt that Korean companies need to devise an appropriate India-strategy. The Indian business market is large and bubbling with newer opportunities in possibly every sector - financial services, telecom, IT, automobiles, media, real estate and alike. The large talent pool of India also offers extensive opportunities. To explore these opportunities extensively, Korean companies need to build up strategic partnerships with the Indian industry. They should first keep India as a key focus, and after that, devise bold, long term targets. The entire decision-making process should be extensive so that India-specific business models pertaining to product, value and pricing can be effectively built. However, one should remember that there are also a number of key cultural challenges in India that can create misunderstanding and conflict as well as huge direct and indirect costs to the organisation if overlooked. Navigating the challenges of doing business in India can be difficult without a comprehensive understanding of Indian social and business culture. India is a country riddled with complexities – distinct differences in culture, language, class, hierarchy and communication styles. So a first-timer’s experience doing business in India can be both exciting and extremely vexing. I list below a few tips that may help you understand Indian business culture. Firstly, the attitudes towards authority are similar to Korean culture. Traditionally a caste society with roots in Hinduism, Indian culture places a high importance on authority and status. Communication between levels is relatively closed so valuable insight or suggestions from employees in lower positions will rarely be shared with their superiors. In this context, Koren companies will feel at home. Like in Korea, Indians have a high tolerance to uncertainty, generally accepting social etiquette and norms instead of rules and regulations. Even though rules do exist, the low level of adherence to them creates huge challenges for companies setting up business in India ,who are used to following Korean regulations. Another similarity between Korean and Indian business cultures is the focus on relationship and trust building. As is the communication style. Indians have a preference for indirect, high context communication. In other words, Indians prefer to see the whole picture, place a high importance on the impact relationships, body language and emotion have on communication and will often avoid saying ‘no’. What might be a bit upseting for Korean businessmen is the lack of respect for time schedules in India. People’s attitudes towards punctuality are relaxed and they tend to change priorities depending on their importance. Most Korean companies are accustomed to the ‘ppalli ppalli’ way of working which requires adherence to strict deadlines and fast decision-making, so they may struggle to cope with the idea that when doing business in India, time cannot be controlled. In India there are a number of cultural differences to keep in mind, especially as they relate to the day to day interactions with Indian clients and employees. The traditional caste system has been outlawed, however the large power distance indicates that the attitudes still remain. As a result, it will be important to make sure to adhere to formal titles and take great care to treat all with a great deal of respect. There is a lot of subtle emphasis on class and hierarchy. Language compatibality is also one thing that must be taken care of. Most Koreans are used to ‘American English’ which is quite different from ‘Indian English.’ Although most university graduates and Indians residing in major urban centres have a very high level of English, understanding them can be challenging, because of the different vocabulary and expressions as well as heavy accents. Many people are unaware of these differences and expect communication with Indians to be simple. In India, business is usually done over lunch as opposed to dinner. Remember to check what their culinary preferences are as many people in India are vegetarians and don’t drink alcohol. Also, gift giving is not a very important part of business and if receiving one, they should never be opened in the presence of the giver. Understanding the cultural differences which exist when doing business in India is only the first step. Korean companies must also develop strategies to effectively cope with these challenges. This will help companies maximize the immense opportunities and benefits of doing business in India.

Interview: Mr. Chip Pitts, Vice Chair/Chair Designate, Fairtrade International

2012-04-25T09:39:00.002+09:00

Fairtrade International (FLO) is a non-profit, multi-stakeholder association that develops and reviews Fairtrade Standards, assists producers in gaining and maintaining Fairtrade certification and capitalizing on market opportunities. Its mission is to enable the sustainable development and empowerment of disadvantaged producers and workers in developing countries through Fairtrade certification by: setting international Fairtrade Standards; facilitating and developing Fairtrade business; supporting producers in making maximum use of the opportunities offered by Fairtrade certification; and by promoting the case for trade justice in debates on trade and development. FLO is the only organization in the world that specializes in Fairtrade standard-setting. 25 members around the world produce or promote products that carry the FAIRTRADE Certification Mark. They developed the Fairtrade labeling model and are responsible with the global board of directors for governance and decision making within FLO. Its members include three producer networks, 19 labeling initiatives, two marketing organizations, and one associate member. The Europe Korea Foundation, philanthropic arm of the EUCCK, has been involved as it’s marketing organization for the initiative in South Korea since early last year. As noted by Mr. Chip Pitts, Vice Chair/Chair Designate of the FLO Board, Fairtrade represents a new way to do business that looks holistically at the supply chain to address market failures and their social impact at source. It is not about aid or charity, but about recognizing the global community as having rights and responsibilities that extend across all of its stakeholders. “This is a really exciting time for FLO because Fairtrade has had an exponential growth over the past years. This mega-trend of Fairtrade which leads to more sustainable, and more equitable economic relations is something we need to build on. We have to make sure that the movement is always at the cutting edge of being relevant and high impact for small farmers and workers in the quest for a more just world.” One of the focuses of the board is to take cognizance of the changing dynamics, the fact that there are these competitive approaches that are coming up, including ones that focus just on sustainability, or just on environment, or just on human rights or labor rights. The nice thing about his particular label is that it represents all of these things- environmental, human rights and labor rights. It also really contributes to the companies’ needs to have sustainable supply chains, he said. He observed that Fairtrade certification benefits marginalized producers and workers in the Global South in four critical ways. First, it provides producers with guaranteed prices that are higher than conventional world market prices, particularly in volatile tropical commodity markets. Second, it supports organizational capacity building for the democratic groups that are required to represent small-scale producers and workers. Third, it enhances production and marketing skills for participants and their families which extend beyond Fairtrade Certified production. Fourth, it provides a social premium to finance broader community development projects, such as health clinics, schools, better roads and sanitation, and other social services. Mr. Pitts is an academic, technologist, attorney, businessperson, and activist who has led technology enabled grassroots campaigns and coalitions for human rights, economic development, and social justice in the United States and in various countries around the world. Having started his international career with a public interest law firm working against apartheid in South Africa, he then became a partner at the world’s largest law firm, Chief Legal Officer of Nokia, Inc., and founding executive of startup companies in Silicon Valley and Austin while offering volunteer leadership to various non governmental organizations. He is also an advisor to the UN Global Compact and former Chair of Amnesty International USA, and serves on several other global boards and advisory boards, including the Business and Human Rights Resource Center (London), the Negotiations Center (Dallas), and the Electronic Privacy Information Center (D.C.). During the current academic year, he is serving as a Visiting Professor at CEIBS (Shanghai), Kyung Hee University (Seoul), and the Center for Human Rights (University of Minnesota), in addition to ongoing teaching in Corporate Social Responsibility and Sustainable Development at Stanford Law School and Oxford University. “I prioritized my personal activities in this region because despite being one of the most connected regions in the world, in terms of economic globalization, Asia is a bit of a laggard when it comes to human rights and social compliance.” For this reason, although the Fairtrade movement has been making inroads in many Asian countries, it has not made much of an impact in China. There are nascent pilot efforts because of the government obstacles that have to be overcome. Notwithstanding this, the other emerging markets are coming on-line and and are acting in big way. Without a doubt the ‘second world’ economies will be driving the process in the future, he said. There is a nascent ASEAN mechanism for human rights now, with the establishment of a Working Group whose primary goal is to establish an intergovernmental human rights commission for the region. It is a coalition of national working groups from ASEAN states which are composed of representatives of government institutions, parliamentary human rights committees, the academe, and NGOs. It is still at an early stage, while the mechanisms in America and Europe are well established. Even the African system is actually quite strong, while Asia is a latecomer, he said. “Asia is at the forefront of economic liberalization, but needs to catch up when it comes to CSR and human rights. We have seen amazing progress just in the last five years and there is a rapid race to catch up with the global norms. Not just WTO and commercial norms but also best practices and social norms. This old idea that CSR is just about philanthropy or giving back a percentage of your profits, that was dominant five years ago, is changing rapidly in countries like India, Malaysia, Indonesia, China and also definitely here in Korea.” “This is partly being aided by the United Nations Global Compact and the new UN Business and Human Rights Framework which have very strong roles for the State to protect rights. They also have roles for civil society and businesses, whereby human rights must be respected. It is not a discretionary matter anymore, but rather an imperative...a global norm, crystallized in ethical norms and also in soft law and hard law. We are seeing an explosion of soft law standards on this topic. In every industry in the world there is a code of conduct and often those codes are made into hard law,” he noted. The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption. The UN Framework on Human Rights and Business comprises the State’s duty to protect human rights, the corporate responsibility to respect human rights, and the duty to remedy abuses. “Asia is playing catch up, and the opportunity that Fairtrade presents is something that should be compelling to all stakeholders. It is in the interest of government and businesses as well as producers. It addresses the trust deficit that businesses are having globally and is a non-partisan, neutral, common- sense way to have more fair, sustainable trade that is in the interest of everyone. Moreover, consumers, too will benefit as they don’t want to be part of unethical trade,” Mr. Pitts noted “Human Rights are about empowerment. This was one of the best things going. Having studied international development, and been active with a lot of anti-poverty initiatives around the world, ranging from direct cash grants to less direct systems, I think that the Fairtrade system represents a sort of culmination of a market-based system based on enhanced transparency in the value of the supply chain but also enhanced equity. It has the potential to contribute a changed consciousness globally where we as consumers, business people, government, all the stakeholders, we all need to be aware that the old idea of “business as usual” --exploitation, violating labor rights, and destroying the environment -- is not only wrong morally is not sustainable. We cannot have business like that in the world; it’s not fit for our current population. That’s what fair trade represents...not just the commercial perspective but also people and the planet.” Fair trade guarantees that there are minimum standards that all rights will be complied with standard processes. So instead of the classic race to the bottom we have the race to the top. All companies can compete on a level playing field. “Frankly it’s sort of a microcosm of the core challenge of the 21st century economy: How do we have a more sustainable and ethical capitalism, showing the way for an equitable relationship between capital and the supply chain -- one that will be sustainable for the future? We can avoid these frequently recurring and ever more intense and problematic financial crises. Fairtrade and CSR offer circuit breakers for global capitalism so that we can achieve a more level playing field and a more resilient system that will allow people to survive and prosper in the future.” Speaking on the challenges that the movement faces, he said that the organization has to ensure that it is an adaptive learning enterprise, that can take on board scientific challenges like climate change, but also not lose its core anti-poverty mission, which is essentially to connect producers and consumers more fairly. It has to do so in a more equitable fashion, so that farmers and workers who are often excluded from the global economic system have a means of earning a more sustainable living, with more empowerment, more autonomy over their lives. “What we need is economic development, not growth, so that people have opportunities. We have to look at ways in which these are interrelated. South-South trade is increasing, and that’s a reality we have to encourage and recognize. We need to be cognizant of the need to have much bigger impact. We want to take it to next level and make a much bigger dent in global poverty by bringing more people into system,” he said.

Interview: Mr. Robert McKellar, CEO- Asia Pacific, Savills Asia Pacific Ltd.

2012-02-24T11:53:00.001+09:00

The Savills Group, established in 1855, advises on allmatters of commercial, residential and leisure properties. It provides a comprehensive range of advisory and professional property services to developers, owners, tenants and investors alike. These include consultancy services, facilities management, space planning, corporate real estate services, property management, leasing, valuation and sales in all key segments of commercial, residential, industrial, retail, investment and hotel property. The company which is listed on the London Stock Exchange, has an international network of more than 200 offices and associates throughout the Americas, the UK, continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. In Asia Pacific, it has over 44 regional offices comprising 20,000 staff. This regional market includes Australia, China, Hong Kong, Japan, Korea, Macau, Taiwan, Thailand, Singapore, Vietnam, with associate offices in Malaysia, Indonesia and New Zealand. As noted by Mr. Robert McKellar, Chief Executive Officer- Asia Pacific, Savills Asia Pacific Ltd., the company offers a unique combination of sector knowledge and entrepreneurial flair, giving clients access to real estate expertise of the highest caliber. “We choose to focus on a defined set of clients, offering a premium service to organizations and individuals with whom we share a common goal. Last year our revenue was approximately $500 million. We sold $9.2 billion worth of real estate in 2011, guided over 21000 valuations for $320 billion,managed over 111 million sq. m. of real estate property and leased over 2.4 million sq. m. for commercial, industrial and retail,” he noted Savills is synonymous with a high quality service offering and a premium brand, taking a long term view of real estate and investing in strategic relationships, he said. Mr. McKellar was appointed CEO, in March 2005 and is responsible for overseeing Savills’ regional operations across the Asia Pacific region. He relocated to Seoul in July 2009 to be able to focus more on North East Asia, while continuing to oversee the company’s operations across the region. At the same time, Savills increased its management team in the region, and delegated responsibilities for businesses in China and South East Asia to several core individuals reporting to him. Mr. McKellar joined the group in December 1988 as Financial Controller and then Managing and Financial Director for Savills Commercial Ltd., before being appointed Finance Director for Savills Plc in July 2000. Prior to working for Savills he worked for BP Minerals Ltd. and Babcock Power in London,and British Steel Corporation in Scotland. “There are several reasons why I chose to relocate to Seoul, as Asia Pacific CEO. Logistically, it is easier to travel to Shanghai, Beijing, Tokyo and Singapore. Our focus is North East Asia and it made sense to be based in part of the region. I see no reason why regional CEOs should be based in Singapore and Hong Kong all the time. Moreover, I travel all the time anyway, so I could be anywhere,” he said. He also noted that Korea is the third largest economy in Asia and is still a very big and attractive real estate market. “I think it is good for any CEO in Asia Pacific to spend time in Seoul. Because, then you begin to understand the market here and it is a good experience. Spending time in a market like Korea should be an opportunity anyone would welcome. We know it is much more difficult here than Hong Kong and Singapore. We all know it, but that adds to the value. Other reason is that Korean are big investors overseas, so why not spend time here and talk to the institutional investors.” This, despite the fact that Korea is not the biggest market for Savills. Looking at its split in terms of profile, the company is very heavily geared towards Hong Kong, China, Macau and Taiwan which account for 75 percent of its business in Asia Pacific. Other big markets are Singapore and Australia. “Korea and Japan are smaller. They are more mature, and more difficult to do business in. The emerging markets like China and Vietnam are easier for us to get a position there. More mature markets like Korea and Japan are difficult because of historical barriers to entry. Having said that, I must add that the opportunities in Korea are tempting.” In Korea, Savills has around 140 staff doing property management, investment sales, leasing, valuation, project management and closed asset property management. “Performance in 2011 was OK, it wasn’t great. We were profitable last year, the same as 2010 and the global economic slump did not really affect us because property management, asset management are consistent businesses. As regards investment sales, we roughly did two last year and two the year before. Leasing was quite good, but generally speaking it was OK...much the same as 2010.” “This year the company has got a few deals, a few investment transactions it is working on, and hope to transact soon. In fact last year would have been much better, if they had managed to complete one or two deals that slipped into 2012.” “We also reduced our costs. This year will be better, although not as good as Hong Kong or Singapore, but certainly better than 2011.” Speaking on the advantages that Savills enjoys vis-a-vis local competitors, he noted that being international players they can bring in international clients into the market and also can take the Korean clients overseas. Many Korean institutional investors are investing in London, since it is a very attractive capital market for overseas investors, and Savills can offer the ability to acquire real estate in Europe and other overseas markets. One of its strengths is internationalization, compared to local competitors. “We have some systems and applications and procedures which are international that help us to manage real estate in places like Korea and offer overseas sales that local players cannot offer.” For that matter, Savills is one of the advisors to the biggest institutional players in Korea, the National Pension Service, which has over $300 billion in assets. NPS aims to boost overseas investments to about 20 percent of its assets by 2016, up from 12.9 percent. “We are lucky to be able to advise some of the large institutions in Korea. Increasingly, we are seeing that capital flows are going from east to west...not just the Koreans, but the Chinese and Singaporeans too. This will continue to happen. Especially in big cities like London.” As regards the opportunities for investment arising from the eurozone sovereign debt crisis, McKellar noted that a lot of assets are going cheap. “However, most of the overseas investors tend to want to go to London as the prime focus since it is a liquid market, and a very big institutional market. Other markets in Europe tend to be less attractive. Even the other European investors are buying real estate in London because of the problems they perceive in the eurozone. There will be opportunities in eurozone if you are brave.” “While places like France and Germany continue to be attractive, most investors are focusing on London and the Scandinavian countries where there is less volatility. Europe will come back. The great thing about real estate is that it goes in cycles. The key is buying it near the bottom of the cycle. It’s all about timing,” he said. He picked as for the potential markets that will do well this year, besides London, “Australia is another market which has tremendous opportunity. It is a very transparent market, and the economy is strong with net immigration. In terms of risk, Indonesia may be stable, but real estate investments in Jakarta will give very good returns. Hong Kong and Singapore on the other hand continue to be volatile.” “I would consider Korea to deliver high returns, as long as you can access the product. Unfortunately, the real estate market is tightly held by the conglomerates. Many German funds want to come here, but are unable to proceed further.” In terms of product mix, he noted that despite global economic conditions, Asia Pacific’s retail sector will continue to grow off the back of continued consumer demand. “The retail fundamentals remain solid in the region, with sustained consumer spending in Hong Kong, Shanghai and Beijing. China has been the most significant growth driver for 2011 which has consequently led to higher retail rents in Chinese cities.” He also noted that the Asian market has become a prime target and pertinent region for retailers resulting in an increase in investment sales and retail constructions. This will continue, especially as new opportunities arise in countries like Vietnam and India. Referring to the challenges that a company like Savills faces in the Asia Pacific region, Mr. McKellar said that being a listed company, there are many compliance constraints which the local competitors, especially in China take advantage of. “The Asian way of doing business strongly relies on relationships, whereas the western model is different. Having to adjust to this is quite a challenge. Moreover, regulations in Asia tend to change very quickly and are unpredictable.” “We however still consider the region to be an exciting place to do business. We are expanding this year, to move into Malaysia, Indonesia and New Zealand. We are also keen on India, especially the retail sector.”

Interview: Mr. Kwon Hyouk-se, Governor, Financial Supervisory Service

2012-01-20T10:23:00.001+09:00

The Financial Supervisory Service was established on January 2, 1999, under the Act on the Establishment of Financial Supervisory Organizations by bringing together four supervisory bodies-Banking Supervisory Authority, Securities Supervisory Board, Insurance Supervisory Board, and Non-bank Supervisory Authority-into a single supervisory organization. The primary function of the FSS is examination and supervision of financial institutions but can extend to other oversight and enforcement functions as charged by the Financial Services Commission (the former Financial Supervisory Commission) and the Securities and Futures Commission. In an exclusive interview, Mr. Kwon Hyouk-se, Governor, FSS, speaks about his priorities, touching on many topics that are in the news.

Uncertainties in the global financial market continue due to the eurozone financial crisis. Can you briefly evaluate the Korean economy and financial market? The uncertainty emanating from the euro-zone debt crisis clearly has had a broadly dampening effect on global market outlook. To date, however, the overall extent of the impact of the debt crisis on the Korean economy and financial markets appears not as grave as initially feared. Korea’s exports continue to grow at a fairly steady pace, and the general expectation is that the economy will maintain growth momentum with improving employment and trade surplus. Looking ahead, a continued slowdown in the developed countries will likely mean slower export growth. Korea’s exports, however, are less dependent on these markets than in the past, so the overall growth trajectory should remain intact. In the financial markets, stock prices and exchange rates did fluctuate more than usual as was the case in other markets, but they are now settling down to more normal levels. I would also stress that the overall soundness indicators of financial institutions remain firm. Speaking more broadly, the declining proportion of short-term external borrowings in the banking sector and the sizable foreign currency reserve, currently in excess of USD300 billion, should leave no doubt about the strength of our foreign currency liquidity conditions. The introduction of hedges funds is seen by many as an innovative development if the Korean financial markets and acknowledge their economic utility, however detractors have also pointed out their risks. What are the measures to be implemented in order to minimize their potential side effect? Do you have plans to improve laws and regulations for the stable growth of the industry? Regulators imposed a 400% cap on leverage and derivatives trading of hedge funds against their assets as a way to minimize potential side effect. There are other similar checks and safeguards on hedge fund risk exposure, counter-party risk, and liquidity risk. Unlike global hedge funds, local hedge funds will start out as regulated entities. As the new funds take hold in the local investment market and become more established, there will be opportunities to take stock of where the market stands and whether more accommodating regulations are warranted. Most financial institutions in Korea have active Corporate Social Responsibility programs as they know they owe society and Korea a debt of gratitude. Do you think enough is being done? The spread of the anti-Wall Street protests in the U.S. and elsewhere is one manifestation of the general public’s desire for greater accountability and more socially responsible business conduct from the financial industry. In Korea, we do see financial institutions reducing their service fees and giving more to public causes to do their part as responsible corporate citizens. The general reception from ordinary citizens, however, seems be that the financial industry can and should do more, especially in doing away with arbitrary or heavy-handed industry-wide customs and practices that harm consumers. Less credit bias against the socially disadvantaged and low-income borrowers would also help. Since you took office, you have continuously emphasized the need for prudential supervision and financial consumer protection. Why? In the wake of the 2008 global financial crisis, financial consumer protection has emerged as a major policy priority worldwide. We see this in the common principles on consumer protection in the field of financial services that the OECD developed for all financial service sectors. As I alluded to earlier, the anti-Wall Street protests is just one of the growing calls on many fronts for better, more proportionate checks and balances on financial institutions for consumer protection as well. What financial institutions can draw from these developments is that consumer protection matters, matters enormously and that they should engage in an earnest effort to integrate consumer protection into their overall risk management from a long-term strategic perspective. Can you give us an evaluation of the progress made for financial consumer protection? What are the future directions? Because several mutual savings banks were on the verge of collapse when I took office, my early priority was to restore the public’s trust in financial institutions and to reinforce consumer protection. This led to the revamping of our organizational structure and the realignment of our supervision and enforcement focus to consumer protection so that we can better deal with anti-consumer practices. We have also expanded programs to improve consumer finance literacy and education. This year, we are going to take an aggressive stance on consumer protection as a key objective and commit ourselves to implementing the OECD principles on financial consumer protection. Under the KorEU FTA, both parties are expected to allow offshore data processing within 2 years from 1.7.2011 and additionally the FTA also calls for increased flexibility in allowing delegation of more back office function to onshore affiliates and offshore affiliates. The latter will require a change in business delegation regulations and licensing guidelines. What is the FSS’ position on this? The free trade agreements with the EU and the U.S. provide for offshore data processing for foreign financial institutions with some restrictions. For instance, restrictions may apply for certain types of customer data such as sensitive personal data in need of special care and protection and data deemed necessary for supervision purposes. It was also agreed that the implementation of offshore data processing would be suspended for two years when the agreements take effect to give time for fine-tuning of the supervisory processes and additional safeguards needed for handling of private information and preventing data breach. Following the ratification of the Korea-EU FTA by the National Assembly in July 2011, a task force comprising representatives from the Financial Services Commission and legal consultants has been working on a detailed implementation plan. The expectation is that the level of financial data to be allowed for offshore processing would be determined with an extensive review of private information protection policies at home and elsewhere and case studies of financial data protection and offshore data processing facilities in other jurisdictions. The FSS has recently urged banks to restrict the dividend pay-out ratio in order to further strengthen capital basis. In the cases of foreign banks (branches and subsidiaries) with only one shareholder, shouldn’t the FSS allow a little more flexibility in dividend pay-outs considering that the parent companies stand ready to inject capital as and when needed? The FSS is not contemplating any blank restriction on bank dividend pay-out practices, domestic or foreign. But there should be no argument about unjustifiably outsized dividend pay-outs that undermine the essential capacity to absorb losses or threaten the long-term capital soundness. Asset soundness and financial market conditions may deteriorate unexpectedly, and U.S. and European bank regulators nowadays keep a close eye on bank dividend plans and capital levels under various stress scenarios. This is a prudent step, and it makes sense for banks to set aside more when they can to strengthen their capital positions. In 2011, Korea’s financial market and FSS were marked by many big or small events. Can you tell us what was the most rewarding and memorable work progress this year? Regulators sought to keep financial markets calm and orderly by expediting resolution of the insolvent mutual savings banks and taking timely measures aimed at household debt growth and potential spillover effects from the euro-zone debt crisis. With regards to consumer protection, we significantly increased our supervisory resources and beefed up our internal oversight structures to better focus on such consumer priorities as more rational service fee structures. We also targeted small-cap share price manipulation (the so-called “theme-driven share trading), insurance fraud, loan fraud, and voice phishing as the four key consumer protection priority and reinforced our prevention efforts. In a move broadly aimed at revitalizing organizational culture and capability, we also carried out a large-scale personnel shuffling, brought about a clearer division between supervision and examination responsibilities, and sought to expand assistance to various disadvantaged groups. Briefly could you explain to us the supervisory policy and examination directions for 2012? The priority will be on safeguarding financial markets from disruptions that may be triggered by the euro-zone debt crisis. To this end, the FSS intends to step up monitoring of capital flows and encourage domestic banks to secure more foreign currency liquidity as an additional buffer against external risks. In addition, we are going to keep a close watch on the credit conditions of small- and medium-sized enterprises as well as industries especially vulnerable in a downward economic cycle such as construction, shipbuilding, and shipping. Our supervision of household debt growth will also continue in 2012. With more low-income households expected to come under financial pressure in 2012, we will continue to take strong supervision and enforcement actions against abusive business practices and conduct by financial firms. This will include more vigorous monitoring and supervision of private money lenders and consumer credit providers that prey on low-income borrowers. In terms of examination, we will be looking to improve the professional competence and efficacy of our safety and soundness examination. This means applying examination resources and intensity proportionate to the size of financial institutions. We will also intensify the scrutiny on abusive practices that harm consumers and small businesses. Financial firms will also be held to account for non-arm’s length transactions with large shareholders.

Interview: Mr. Bahk Jae-wan, Minister of Strategy and Finance

2012-01-19T11:21:00.001+09:00

The Korean government, in its announcement of the official economic policy directions for 2012, has projected that the Korean economy grew by 3.8 percent in 2011 and will have a slightly lower 3.7 percent growth for 2012. The nation’s consumer inflation will drop to 3.2 percent, trade will see $16 billion in surplus, and jobs will expand by 280,000, the government further predicted. In order to act preemptively against external threats caused by a slowing global economy, the Korean government will be allowing early access to the budget for the first half next year and boosting the domestic market to stimulate the economy. Meanwhile, Europe’s debt problem and slowing global recovery are expected to hold back Korea’s export and import growth from last years 19.2 percent and 23.2 percent to 7.4 percent and 8.4 percent, each. Though growth in exports tapers off, private consumption will fill in the slack by rising from 2.5 percent last year to 3.1 percent this year. In early December 2011, Minister of Strategy and Finance, Mr. Bahk Jae-wan, announced that the government will focus on boosting the economy and stabilizing people’s livelihoods this year in order to build a ground for ‘eco-systemic development’ or shared growth. However following the the death of North Korean leader Kim Jong-il, the government has now changed its economic policy priority for 2012 to risk management and discovering new growth engines from job creation. MOSF cited the euro-zone debt crisis, and the geopolitical risks of the Korean peninsula and the Middle East crisis as the three largest risk factors that will threaten the Korean economy this year. Korea’s contingency plan initially included the euro-zone debt crisis only, but North Korea and the Middle East were added in the list. Foreign investors are all aware of the risks and are confident that the Korean government will put in place suitable policies to minimize the fallout. They believe that despite the risks, domestic businesses can turn the current difficulty into an opportunity. In the end, relative to its neighbors, Korea was able to benefit from the Asian crisis in 1997 and 1998. It is sure to happen this time too. In an interview, Minister Bahk outlines the government’s strategies for this year.

What are the risk factors to the Korean economy this year? And what are the government priorities and plans to manage them? I do believe that there are many risk factors for the year 2012. I believe that the issue closest to the EUCCK would be the European financial crisis. Secondly, Korea has a high reliance on international markets, especially the import of raw materials. Therefore the developments of the Iranian situation and its impact on the international crude oil prices will impact Korea. Internally, in Korea, for the first time in 20 years we have the presidential elections and the general elections being held at the same time. Just like the eurozone decision, we may find that it is very difficult to make timely decisions. Decision making may be delayed, which will create more risk factors. Concerning the European financial crisis, as you are well aware the maturity for the Italian sovereign bond is between February and April and until June many EU banks will be securing their core capital rates which may lead to de-leveraging, which may impact trade finance for Korean companies, leading to instability. However, as you are aware, within the European zone there is to be the EU summit in the end of January. And at the end of February we will expect to be holding the G20 financial ministers meeting. There is also the agreement between the heads of Germany and France. As the crisis escalates, we look forward to a faster decision making process. And therefore our expectation is that we will be able to find the key to the solutions within the first quarter of this year. We do believe that we are considering the possibility of the impact of the European financial crisis on the Korean financial market. We have contingency plans in place and we are responding according to our plans. For example, there was the issuance of bonds by EXIM bank of $2.5 billion and there was a booking of over $9 billion. We do believe that our foreign reserves is adequate and we also have various plans for worst case scenarios. Concerning the developments of the Iranian situation. I don’t believe it is within our control. However we are coming up with various measures to mitigate the impact of the development . The reminder of the issues are diplomatic issues and I am not in a position to reveal the details. Concerning the two major elections to be held this year, unlike the EU, we do not have a system centered around the parliament. And it is centered around the president. Therefore the traditional bureaucracy within our government bodies including the ministry of finance are quite patriotic in our work, and traditionally we believe that these patriotic status of our bureaucrats impact the decision making of the state and therefore I do not think there is too much to worry about the contingencies following the 2 elections. As we rely on our mature media in Korea and our opinion leaders in Korea we will make sure that we keep a balance against populism. And difficulties in decision making as well as confusion in government policies. I have very optimistic views for this year. Over the last couple of years, the foreign exchange rate has been very volatile. Is the government planning to implement measures for making them more stable? The volatility of the exchange rate has been there since 2008, and it now reducing. It was 0.94 in 2008 which reduced to 0.48 percent last year. This is better than the European figures of 0.57 percent. As you are well aware the later half of last year saw a high degree of volatility in international markets and I do believe that in Korea it was relatively stable. Today I saw that there was a trend of depreciation in the morning but we do believe that any extreme change in any one direction is not ideal, therefore ewe will work to mitigate the volatility of our exchange rates What the government is considering is that our foreign exchange market is quite small at the moment and so we will work on adding depth and width to our market. As for capital market we will provide incentives to encourage long term investments we will continue to enhance the size of our capital market so that it will be able to absorb any shocks in the future. Concerning the inflow and outflow of capital, we believe that any rapid change is not ideal and we are therefore looking at ways to mitigate....so that is why we we have come up with three regulations for foreign currency. We will continue to analyze the pluses and minuses of these regulations and work on any improvement as necessary. As for the bond market, many of the central banks outside Korea, are well interested in the Korean market. And they believe that the forecast is positive. so we will continue to collaborate closely with some central banks of other countries. And we will also continue to work to make sure that there is a virtuous cycle to reduce the volatilities. The biggest burden on household finances this year is expected to be the rising costs of living. What are the government's countermeasures to tackle inflation issues? First of all, I believe that the role that the government can play in controlling inflation is quite limited and the efforts should be made in a market friendly manner. Compared to advanced nations the cost of living in Korea is not high but the increase is relatively high. We believe that the rate of increase is around 1 percentage point higher than other advanced nations we do have indepth analysis concerning the reason for such rapid increase and we believe it is the hindering of competition, the insufficient opening of information and the possible bubble that this creates in the market may contribute to the increases. The attitude of the consumers themselves is also contributing to such increases. Ostentatious display has also also led to bubble. There are also many different reasons . The reason that the government cannot control is the worsening of the climate conditions which leads to changes in raw material cost. However, the reason that we can deal with such as structural reasons, the sentiments of consumers, disclosure of information or encouraging of competition..these are the issues that the government will work on from the mid to long term, there are many micro aspects to the measures that we will be working.

Interview: Mr. Kwon Do-youp, Minister of Land, Transport and Maritime Affairs

2012-01-12T11:42:00.002+09:00

In May 2011, Mr. Kwon Do-youp was appointed as the Minister of Land, Transport and Maritime Affairs (MLTM), prior to which, he was first vice minister in the ministry. The First form of MLTM, named as Mnistry of Transportation, was organized at the time of the establishment of the Korean government on August 15, 1948. Since then the Ministry has been renamed as Ministry of Construction and Ministry of Construction and Transportation and finally was recreated by the Government’s reorganization through merging with the Ministry of Maritime Affairs and Fisheries in 2008. Minister Kwon is an expert official on housing affairs who took the head-post of Housing Division and acted as Director General for Housing Affairs in Ministry of Construction and Transport (MCT). He has shown both professionalism and driving force in handling land and housing affairs, and that he is judged the right man to upgrade housing environments through stable supplies of houses and to find new solutions to the various housing problems particularly for low-income people. He started civil service, assuming an officer post in deliberation of New Town Development in the Ministry of Construction (MC), and held several key posts including Land Policy Div. Director General (DG), Housing Div. DG and Public Relation Division DG and assistant VM in MCT. And he finally made the first VM in MLTM. Starting his civil service in construction sector, he is deemed to have acquired deep experiences with transport as president of Korea Expressway Corp., state-run, before he was appointed the first VM of MLTM. As a major in civil engineering and public administration, he is highly praised as a leader of consilience versed in engineering and civil service. Following the earlier merger of other ministries with MLTM, he has done his excellent job as the first VM, so he was deemed as the right man to smoothly address the various pending issues including Four River Development Project, real estates and the move of civil service offices to Sejong City (starting this year). He has been displaying his best ability in sorting out MLTM’s most pressing problems of house shortage and of jumping house rental deposit on the strength of his diverse experiences of 30 years since 1979 in the fields of construction and transport. In an exclusive interview, Minister Kwon speak on his priorities and policy plans.

Could you please tell us your vision and policy directions for the future? Land and ocean have been the foundation for Korea's economic development, but in the future it needs to play a bigger role by being a quality place where a new culture can be created. For this reason, the following three qualities--the quality of land, the quality of its inhabitants, and the quality of the institutions on which the citizens and land are based--need to be harmonized. Going forward, in order to increase the competitiveness of the nation's land and ocean through region-specific development strategies, the following efforts will be made: ● Infrastructure such as road, railway, housing, water resources, and aviation, will be made more effective through expansion and rigorous maintenance, improving the landscape of the nation ● Also, new growth engines in the maritime sector will be cultivated through maritime tour promotion and marine resources development; while, ● Regulations pertinent to land will be streamlined to suit the convenience of the public, providing a more scenic and beautiful land environment to the public. Despite the recent cargo volume increases, the maritime industry is seeing revenue decreases; what are the government's measures to analyze the reasons for this and overcome this problem? The global maritime industry started experiencing a downturn from the second half of 2010 and this continued to 2011, reducing maritime fares. For instance, the BDI (Baltic Dry Index) on Nov. 3 was 1,817p, which is 42% of the five-year average; HRCI (Howe Robinson Container Index) on Nov. 2 was 556p, which is 64% of the five-year average. The cargo volumes, such as dry cargoes and containers, all increased but, the vessels are being oversupplied compared to the cargo volume, causing profitability erosion of maritime companies. The soon-to-be-delivered vessels account for 31%, in the case of container vessels and 41% in the case of dry cargo vessels, of the current number of vessels, respectively. The rapid oil price increase (36% increased year-on-year as of June, 2011) is eroding the profitability of companies by increasing their costs, as the fuel cost takes up 15-20% of the total costs for maritime companies. Due to the advanced countries' economic uncertainty stemming from the sovereign debt crisis of the US and Europe, the cargo volume increase is expected to slow down markedly going forward. As it seems difficult to overcome the maritime industry's economic woes in the short term, focusing on internal growth instead of external expansion should be more emphasized. First, industry-wide efforts, such as replacing old vessels, changing docks to benefit from lower fee offers, are essential; while, the government will closely consult with relevant agencies and review measures that can strengthen the foundation of the nation's vessel financing, such as expanding the guarantee scope of the vessel financing and extending operation of the KAMCO vessel funds. As of late October, 2011, 430 billion won of loan guarantees have been made to maritime companies. Restructuring Funds, which are the main funding resources for the KAMCO fund, will be maintained till the end of 2011 before being withdrawn. How is the Four Rivers Restoration Project progressing? In Korea, 70% of annual rainfall is concentrated in summer. As it causes frequent flood and drought, the government spends 3~4 trillion won every year for the recovery from flooding damages. Recent climate change is expected to cause more frequent flood and drought. In addition, investment in rivers is urgently needed as high level of economic development raised awareness about the importance of rivers and demand for using rivers and water-front areas. In the past, riverfront areas were used for farming or neglected. Pollutants accumulated downstream in waterfront farmlands and insufficient fresh water during dry seasons undermined river ecosystem. In order to prevent large-scale natural disasters occurred by climate change and improve the soundness and diversity of ecosystem by securing clean and sufficient water resources, Korea carried out the four major rivers restoration project. Neglected water-front areas turned into bicycle lanes and ecology parks where people enjoy cultural and leisure activities. The four major rivers restoration project that was initiated in 2009 is now 92% completed, and the main stream project is 92% completed. Especially, the main stream project will be completed on schedule by the end of this year. During implementation of the project, there was massive criticism from environmental groups about river dredging, etc. However, as the project is bringing fruitful outcome by securing abundant water resources and building bike paths and water-front parks, many citizens now support the project. In particular, although this summer recorded an unprecedented rainfall during the rainy season, there was no serious damage in the four rivers compared to the past. The Korean government's efforts of restoring the four major rivers, responding to climate change and improving ecosystem, will be a good example to Europe. The 1,592km-long bicycle path along the four rivers is the largest and the most beautiful lane in the world and is attracting many tourists who enjoy and give a positive response to the path. What is the reason for last year's yearly housing lease fees and what is the MLTM's plan to stabilize the housing market? The increase in Jeonse prices was mainly resulted from the imbalance between demand and supply of housing for Jeonse and monthly rent. The global financial crisis in 2008 reduced housing supply was reduced since the housing construction market significantly shrank and raised controversy whether or not to abolish the housing-price-capsystem. * Annual authorization and permission for housing construction - (’05) 46.4→(’06) 47.0→(’07) 55.6→(’08) 37.1→(’09) 38.2→(’10) 38.7 Also, stabilized housing price and the increase in redevelopment·housing reconstruction and people's migration increased demand for Jeonse rather than housing sale·purchase. The Korean government will make continuous efforts to stabilize citizens' residence and housing prices. Considering the shortage of housing quantity and quality, it will supply around 400 thousand houses every year as Korea falls short of housing quantity and quality. In addition, the government is trying to diversify housing types and ease regulation in response to changes in demography and family structure due to increasing single and two-person families, low birth rate and aging population, and changes in housing market structure including increased demand for housing for monthly rent. * single, two-person family (%) : (‘90) 22.8 →(’00) 34.6→(’10) 48.1→ (’20) 57.7 * household of aged family members(%) : (‘90) 8.5→(’00) 12.1→(’10) 17.9 →(’20) 22.7 It will also develop and implement a housing policy fit for generation and social class to supply customized housing for new university graduates, middle aged and elderly people, etc. What is the role of the MLTM in carrying out the Korean government's green growth strategies? MLTM is carrying out an important mission of taking care of land, city, housing, transportation, and maritime affairs essential to life of all citizens, and is therefore in a crucial position to lead the way for greenhouse gas reduction and green growth in Korea. Thus, MLTM is pursuing a green growth policy based on the vision of "Creating Low Carbon Green Land and Ocean." At the same time, MLTM is contributing to the alleviation of climate change damages by reducing greenhouse gases, carrying out projects aimed at increasing the adaptation level against climate change, cultivating new economic growth engines such as green technologies and industries, and providing assistance to under-developed countries in the green technology field. First, in the greenhouse gas reduction category, Buildings and transportation, which take up approx. 42% of Korea's greenhouse gas emissions, are being transformed through diverse projects aimed at reducing greenhouse gas emissions, such as revision of regulations, demand volume management, and subsidies; in particular, the President's pledge to "reduce 30% of Korea's greenhouse gases compared to BAU by 2020" is being on track to be accomplished as the government set a goal of reducing 26.9% and 34.3% of greenhouse gases in buildings and transportation sectors, respectively, implementing relevant measures. Second, in the climate change adaptation category, for the purpose of reducing damages from extreme weather conditions like floods and droughts, the Four Rivers, stream maintenance, dam construction, and sea water desalination projects are being implemented, while other programs such as maritime observation network establishment, coastal region vulnerability assessment and maintenance are underway. Lastly, in order to create new growth engines based on green technologies MLTM is focusing its efforts on securing maritime energy using solar, tidal, algae, and wave power, cultivating renewable energy like maritime bio diesel, developing various architecture technologies for saving energy, and maintaining an IT-based efficient energy management system. MLTM will do its utmost to minimize life and property damage from natural disasters caused by abnormal weather conditions by making constant development of technologies and seeking global cooperation; in particular, it will actively contribute to increasing the quality of life for all humanity on earth by carrying out its green technology support projects. Any additional comments to the European FDI companies in Korea? The Korean government is developing high potential, investment-worthy future growth centers, such as Sejong City, Innovation City, Enterprise City, Saemangeum, six Free Economic Zones and Jeju Free International City. These centers will emerge as the country's economic growth drivers; investment made in the cities will bring about benefits not just to the concerned cities themselves but also to the investment companies. The government is striving to create a conducive environment for FDI companies for their investment and business activities, by providing tax benefits, subsidies, and lease fee reductions. It is hoped that these projects will draw more attention in the years ahead *************** Current FDI company assistance system overview - Cash assistance: if 20 or more staff are hired, education and training subsidies and employment subsidies are provided - Lease fee reduction: when leasing a government-owned land, the fees will be reduced by 50-100% - Tax reductions: (1) National tax (corporate tax, income tax) ▪ High tech industry assistance companies in open FDI areas: 100% for 5 years, 50% for 2 years ▪ Complex-style FDI areas: 100% for 3 years, 50% for 2 years (2) Regional tax (acquisition tax, property tax) ▪ According to relevant ordinances, up to 15 years can be applied ***************

Interview: Mr. Jean-Luc Valerio, President, European Aeronautic Defence and Space Company (EADS) Korea

2011-11-23T10:41:00.001+09:00

A French National, Mr. Jean-Luc Valerio is President of European Aeronautic Defence and Space Company (EADS) Korea, and has been in the country since February 2007. EADS is a global leader in aerospace, defense and related services. The Group includes the aircraft manufacturer Airbus, the world largest helicopter supplier Eurocopter and EADS Astrium, the European leader in space programs from Ariane to Galileo. In 2010, the Group’s 10th anniversary year, it generated revenues of € 45.8 billion and employed a workforce of some 122,000. Before relocating to Korea, Mr. Valerio was Senior Vice-President, EADS International-China, and also Head of Singapore Office of EADS International. An aeronautical engineering, he graduated from the French Air Force Academy (Ecole de l’Air) and also has a military pilot licence. “I have been here in Korea for four and a half years now, having arrived in February 2007. Over the past 17 years I have worked mainly in Asia, including Taiwan, Hong Kong, Thailand, Singapore, China and now Korea. Japan is the only country in this region that I haven’t worked in,” he said. Speaking on the business operations of his company, Mr. Valerio noted that EADS has had an average 500 million euro turnover over the last 5 years, and the major part is the sale of Airbus planes to the two national carriers Korean Air and Asiana : the other part being helicopter and Satellites. We are now targeting to introduce our combat jet (the Eurofighter) and some missile systems. In January this year, Asiana Airlines placed an order for six A380s, even as Korean air already started operating the superjumbo jets. Korean Air’s second Airbus A380 started operating long-distance routes from Aug. 9 on the Incheon-New York corridor. The first A380 made its debut on June 6 and is currently employed for the Incheon-Tokyo and Incheon-Hong Kong routes. The airline will take possession of a total of fiveA380s by the end of this year for its Paris and Los Angeles routes. In fact, according to the company’s estimates, Korea would account for around 3.6 percent of the 8,014 aircraft that will be ordered from the Asian region over the next 20 years. Korean orders would amount to around $55 billion out the $1.18 trillion that Asia is expected to spend on aircraft during this period. Another lucrative business section is the defense sector. In fact, it was on his watch that EADS was able to break the stranglehold of US defense companies in the country, with the signing of an MOU, with Korea Aerospace Industries (KAI) on October 18th, 2007, to create a Joint Venture Company for the worldwide sales and marketing of the Korean Utility Helicopter (KUH). The project is aimed at producing hundreds of helicopters to replace the aging UH-1H Hueys currently in service. Not only is KUH being built on Eurocopter's latest technology to be used domestically, but is also aimed for exports into the global market, starting next year. While test flights have already been conducted, mass production will begin in March 2012, and full-scale production in June 2012. In July this year, the company also announced a multi-million euro contract from Korean Aircraft Industries to supply 24 of its AN/AAR-60 MILDS missile warning systems, with deliveries continuing until 2013. Each system uses about 4 passive sensors, which detect the ultraviolet radiation signature of approaching missiles. As for the space sector, the Astrium-built multi-mission Communications, Oceanography and Meteorology Satellite (COMS) was officially handed over to the Korea Aerospace Research Institute (KARI) in August this year. Astrium was contracted by KARI, to design and manufacture the country’s first multifunctional geostationary satellite, COMS, and was launched by Ariane 5 on 26 June 2010. A veritable ‘Swiss Army knife’ of a satellite, COMS is the first three-axis stabilised geostationary observation satellite developed and manufactured by a European company to carry three payloads dedicated to meteorology applications, ocean observation and telecommunications. The handover follows in-orbit acceptance of the satellite, which was successfully completed on March 17th, 2011. He said that his company continues to see strong business prospects in Korea in all the three segments. The advantage of being in Korea is that the relationships are quite regulated and one knows what they have to deal with. This is mostly true for all democracies. For that matter, EADS has been very successful in Asia, with the region accounting for 25 percent of the global sales. Asia Pacific is an important region for the EADS Group. China and India, in particular, show huge market potential, while Korea, Indonesia, Malaysia and Vietnam also offer significant opportunities, he said. Speaking on his role as new president of EUCCK, Mr. Valerio said he was proud and honored to be given this opportunity. In his acceptance speech at the EGM, he had pointed out three reasons for applying to run for presidency: one, to continue and build on the accomplishments achieved by Mr. Hurtiger; second, to advocate the interests of EUCCK members and improve the business environment for EU companies in Korea; and finally to promote European culture and values to Korean authorities and the local business community. He emphasized that his working experience had reinforced the commitment to European values, such as teamwork and creativity. He encouraged EUCCK members to be proud of promoting European history to their Korean counterparts. Even though Europe was currently exposed to harsh economic developments, this crisis would in retrospect prove merely to be a historical anecdote. The new EUCCK President promised to consult and work together with different stakeholder to create a positive business environment for European companies in Korea. “I have always been a pro-European and believe that Europe is stronger by being united. I do believe that differences in diversities are a positive aspect. Many see it as a liability, but I consider it as an asset and in the end the richness of different cultures will prevail,” he said. He noted that his priorities as Chamber Head will be to make sure that the Korean government is respecting their meaningful choice to open the borders to EU products, with the FTA, and there will not be any new regulation to hamper fair activity. “I will make sure that we have all the wonderful resources of business communities to create an environment for small and medium enterprises to get better access and understanding of the Korean market.” In his message to all EUCCK members, Mr. Valerio noted that even as the EU is going through the sovereign debt crisis, everyone has to keep their optimism, and not to reduce their pace or confidence in business. “We cannot be disturbed by something that will be overcome, and must be as active in promoting and innovative to prepare for exit of this crisis,” he said.

Interview: Mr. Kim Byung-soo, Director General, Foreign Investor Support Office, InvestKorea

2011-11-23T10:39:00.001+09:00

Invest KOREA (IK), Korea's national investment promotion agency, was established within the Korea Trade-Investment Promotion Agency (KOTRA) with the sole purpose of supporting the entry and successful establishment of foreign business into Korea. With assistance extending to comprehensive post-establishment services, IK enables foreign corporations to maximize the benefits of the Korean investment environment to ensure their rapid settlement in Korea. The agency is committed to providing unmatched, comprehensive one-stop service that allows foreign investors to join many of the world's most successful corporations who have selected Korea as an investment destination and been rewarded by high returns on the investment. The new head of the Foreign Investor Support Office in the investment promotion agency, Invest Korea, is not only experienced and proactive, but is also full of fresh ideas to help investors. As noted by Mr. Kim Byung-soo, Director General, Foreign Investor Support Office, the agency attracts foreign investment by identifying potential foreign investors, supporting investment projects, providing aftercare services for foreign investors, and building a cooperative network with related organizations. Prior to heading the office in January this year, Mr. Kim was with the Ministry of Knowledge Economy as Director, Foreign Investment Policy Division. This Division comes under the authority of the Vice Minister for Trade & Energy in MKE. It is more like a back office of foreign investment related issues. “My main role in MKE was to provide all the logistics support for needed for the implementation of the Foreign Investment Promotion Act. This Act aims to encourage foreign investment through deregulation by providing tax incentives and financial assistance; deals with foreign investment and technology, and introduces a reporting system with regard to foreign investment in Korea. However, now my main job is to implement these very same policies,” he said. In a sense, this gives him the opportunity to deal directly with foreign investors and know their problems. While trying to solve the problems faced by investors, he has to sometimes deal with uncooperative officials in various ministries and local governments. But that has not stopped him from giving his 100 percent to the job, even at the risk of “begging” lower rank officials to help foreign investors. “For me, FDI does not refer to Foreign Direct Investment. Rather, it is Frontier Development Initiative and going even further, Friendship Development Intiative. It is very important to develop friendly relations with investors inorder to understand their problems to solve them,” he said. Since relocating to Invest Korea, he has made it a point to visit the various industrial sites which have a high proportion of foreign investors, to meet with them and understand the difficulties that they may be facing. He has also been going on invesment promotion trips abroad to meet potential investors. “One has to be proactive and meet foreign investors to anticipate what problems they may face. I do not like to wait for them to come to me with their problems, but want to solve them before they become big issues.” Recalling some of the notable cases that he has encountered so far, he said that Scania Korea and Edwards Korea faced some ‘unsolvable’ difficulties. But, after persisting with the various government departments, he was able to make a breakthrough. Speaking on the main objectives of the Foreign Investor Support Office, he said the investment promotion and support capability has been considerably strengthened by the introduction of the Project Manager (PM) system, under which a PM is designated for each investment project to offer customized support throughout its entirety, from providing investment consultation and obtaining licenses and approvals to actually launching a business. “In addition to the project managers, we have a pool of experts in such fields as finance, tax, law, securities, accounting, and construction to smooth the foreign investment process and ensure that investors claim the full range of benefits available,” he said. The office provides support throughout each stage of the investment project, from international promotion of Korea's image and identification of target companies to delivery of customized assistance ranging from research and planning to implementation. The agency also provides substantive feedback from investors to policymakers in order to constantly improve the investment environment. “The range of services we offer has been significantly enhanced following the opening of the Investor Consulting Center (ICC) within Invest Korea Plaza. The center provides information and assistance on a variety of matters relating to foreign investment and daily living in Korea, from selecting plant sites and forging alliances with Korean partners, to education and accommodation.” Additional business-related assistance are provided by officials seconded from the Ministry of Justice, the National Tax Service, the Korea Customs Office, and the courts of law, all of whom offer a broad range of administrative support and respond to complaints made by foreign investors. “I prefer to call this center as Inter Cultural Communication since we provide one-stop consulting services free of charge to foreigners who wish to invest in Korea.The services include pre-investment market research, administrative support, and settlement assistance, for the successful establishment of business in Korea.” The center is staffed by consultants, comprising private-sector experts recruited from key investment-related fields, and civil servants seconded from other major government agencies and ministries, in order to provide systematic and professional consultation services. At the ICC, investors can receive one-on-one consultations on taxation, accounting, and law in the beginning of an investment, and receive administrative assistance directly from government officials for visa application, certification of the completion of investment in kind, and business registration. The center also provides personalized life settlement consultations and a one-day, on-site assistance to help investors settle successfully in Korea. “My main role is to help the foreign investors and I am satisfied only if they do not face any problems while doing business in Korea,” he said.

Interview: Mr. Karel de Gucht, European Union Trade Commissioner

2011-10-24T11:31:00.000+09:00

In January 2010, Mr. Karel de Gucht, took over as the European Commissioner for Trade. At the same time, in the new Commission the trade portfolio was extended to cover the coordination of industrial relations with other world powers (Transatlantic Economic Council, TEC). Previously, he had served as the development & humanitarian aid commissioner, Belgian deputy prime minister, and Belgian minister of foreign affairs. He has a law degree from the Free University of Brussels, and at the age of 26 become a member of the European Parliament. After 14 years of active experience, Commissioner De Gucht became a Belgian senator, and a year later was elected to the Flemish Parliament as a member of the Vlaams Liberaal Democraten, and served as party chairman from 1999–2003. Commissioner De Gucht is a lawyer and teaches at the Free University of Brussels. In 2002, he received the title of minister of state. In an exclusive interview, Commissioner De Gucht speaks about the EU trade policy, EU-Korea FTA and his priorities:

In November last year, the European Commission laid out its blueprint for an EU trade policy, for five years, to help revitalise Europe’s economy. What are the main elements of this strategy and what has been the progress so far? This is a time when Europe and most of the other developed economies are under the threat of economic stagnation or even decline. We are facing years of constrained demand, arising from the financial crisis and the imbalances it brought to our economies. In this context, the main objective of the EU trade policy is to be a catalyst of growth and employment. Our main tools are the multilateral Doha agenda, as well trade agreements with individual partner countries. The multilateral track is very important as, in my opinion, the WTO framework is what kept the world from sinking into protectionism throughout the economic crisis. Bilateral agreements can also play a very useful and complementary role insofar as they allow us to pursue levels of liberalisation which go beyond the Doha agenda, and to pursue them faster. The EU-Korea FTA is one big achievement of this policy so far. We hope to secure similar deals with other major EU trade partners, such as India and Mercosur. We are also renewing our efforts to ensure that European business gets a fair deal and that our rights are respected. As an example of that, we are working on a EU instrument to help secure better and reciprocal access to public procurement markets in developed countries and large emerging markets. Our studies indicate that in the EU thirty-six million jobs depend directly on indirectly on trade. By completing the already tabled trade agreements, and working together with our partners to further liberalize trade, we can increase the EU GDP by 150 billion euro. To illustrate, this is the same as the GDP of a country like Ireland. Our message to European citizens, companies and Member States is that trade is not a cause our employment problems, but part of the solution, and a vital component of the EU overall strategy for smart, sustainable and inclusive growth. It is now over 100 days since the EU-Korea FTA was implemented. From an EU perspective, do you think the results so far are satisfactory? Although it is quite early to comment on the impact of the EU-Korea FTA after only 3 months of operation, we can already see some benefits materializing: Trade flows had a positive initial response to the FTA, especially on the side of EU exports which showed well over 20% growth relative to 2010. Export sales for certain EU agricultural products such as pork, cheese, wine, chocolate or luxury products such as cars, clothes and accessories have gone up, while prices have decreased for Korean consumers. This is good for EU companies but also for Korean consumers who have wider choice and cheaper prices. At a time of increasing inflationary pressures in Korea, in particular for foodstuffs, this must be a welcome contribution. At consumer level, FTA has created more awareness among Korean consumers and people for EU products. There is also a positive "perception" effect that quality EU products are becoming a better value for Koreans, due to the lower duties. On the regulatory field, since 1st July double certification is not required anymore for most safety standards for EU cars imported into Korea. EU industrial equipment and machinery can also can be self-certified in Europe by the manufacturer for Korean electromagnetic compatibility and electric safety requirements. This is a very important achievement, for two product categories that together represent nearly 40% of the EU exports. We also now have a more solid framework for regulatory co-operation, to try to avoid that any non-tariff barriers that might jeopardize trade between the EU and Korean in the future. In order to maximize benefits from the FTA, EU businesses still need to learn more about its rules, the import procedures and the Korean market. For example, EU exporters need to undergo the necessary procedures with their national customs in order to become approved exporter and thus get the benefit of reduced duties. According to the feedback we received, there is still some work to be done in this respect. The 1st EU-ASEAN Business Summit took place in May this year. What was the outcome of the summit, and what are your views on economic ties with the block of ten countries? This Business Summit was the first experience for us in the context of the annual ASEAN-EU Economic Ministers Consultation. It was a positive experience, in which I was very happy to participate. My previous impressions about the creativity and dynamism of the business environment in South East Asia was confirmed by a full day of discussions which focused on a number of concrete examples and success stories, but also highlighted some of the regulatory barriers in this region, on which we need to focus. ASEAN is a huge market and one of the world's sources of economic growth. We in Europe realize very well that our continued welfare in the decades to come depends on forging stronger links with those sources of growth. Likewise, connecting to the European market will be crucial for ASEAN’s economic success as well. The European Union remains actively engaged with ASEAN as a region as well as with its members as individual countries. We are negotiating free trade agreements with Singapore and Malaysia and our door is open to other ASEAN partners sharing our objective to negotiate trade agreements for the 21st century. Historically, our negotiations with ASEAN have been somewhat complicated by the diversity of the ASEAN member countries. Although we now recognize that there is no 'one size fits all' agreement, our ultimate goal of a regional EU-ASEAN trade agreement remains valid. We are following with great interest ASEAN's steps towards an Economic Community in 2015. We support the ASEAN economic integration process —both politically and economically. With 60 years’ experience of building our own single market, we know both the challenges and the rewards brought by economic integration. The Doha Development Agenda negotiations within the World Trade Organisation continue to be in a state of flux. Do you think there will be any scope for progress on this front? What is the EU position? There is wide agreement on the importance and value of the global multilateral trading system; global trade rules have helped to limit the attempts to protect markets during the current crisis and should be used to roll back protectionism where it has occurred. The WTO has demonstrated its flexibility to adapt to the new realities of the world economy: as a global institution it genuinely reflects the changing balance in the global economy – emerging countries are now major players in the WTO, as demonstrated by their key role in the DDA. Its dispute settlement system is probably the most effective international enforcement body – all WTO members obey its rulings, even if sometimes slowly and imperfectly. The WTO has proven its worth. The EU remains committed to finding a way through the Doha impasse, but to do so will demand even greater political commitment and that requires business to speak up for the Doha Round if we are to succeed. Doha remains a deal worth doing, with important benefits for developing and emerging economies and we are really not so far apart that it could not be done. Today the WTO rules offer an important base line and the successful conclusion of the Doha talks will strengthen that, for example in the chapter on Rules, by addressing non-tariff barriers. The European sovereign debt crisis has rattled the global economy. What are your views on the present crisis? Do you think this will adversely affect the trade relations with other countries? We are well aware that the backlash from the financial and economic crisis has weakened our economic image throughout the world. Our economic recovery is robust but still uneven and several member states have a tough job in adjusting their public finances. But the economic fundamentals of the European Union are still strong and healthy, and the political sense of urgency and effectiveness in dealing with the challenges must not be doubted. The euro will survive the present difficulties and it will come out stronger. Trade is the fuel that powers the global economy. It has been one of the most important factors in the recovery – in Europe and elsewhere. The volume of global trade has recovered from the low point reached in May 2009. In many countries, exports are the only engine of growth, while competitively priced inputs are helping to businesses to keep down costs. The crisis reconfirmed the importance of global trade rules which had been taken for granted. Global trade rules provide an important shield against protectionism and a framework within which the recovery takes place. The WTO has been in charge of monitoring trade restrictive practices and protectionism in the context of the economic crisis and has estimated that new import restrictions introduced by G20 members overall affected a very small fraction of world imports. Significantly, the few protectionist measures we have seen either affected areas not currently covered by the WTO such as government procurement or were introduced by countries that are not yet part of the WTO system. However, the longer the economic crisis lasts, the more we will see protectionist pressures and assorted restrictive measures being introduced, whether in Latin America, in Asia or elsewhere. The current crisis underlines the significance of moving ahead with an ambitious trade agenda to deliver growth much needed to maintain the EU's welfare States. Trade is part of our strategy to exit the current economic crisis. Our agenda will reach beyond tariff barriers and address the regulatory practices that stop trade flowing, particularly between developed and emerging economies.

Interview: Mr. Kim Dong-soo, Chairman, Korea Fair Trade Commission

2011-09-30T10:04:00.002+09:00

The Korea Fair Trade Commission (KFTC) is a ministerial-level central administrative organization under the authority of the Prime Minister and also functions as a quasi-judiciary body. The Commission formulates and administers competition policies, and deliberates, decides, and handles antitrust cases. It performs its roles and duties independently without any intervention from an outside organization. The organization is committed to four main mandates : promoting competition, strengthening consumers' rights, creating a competitive environment for SMEs and restraining concentration of economic power. To that end, the Commission enforces 12 laws including the Monopoly Regulation and Fair Trade Act (MRFTA). On 3 January 2011, Mr. Kim Dong-soo was appointed as the new Chairman of the KFTC. Prior to his appointment, he served as the Chairman of the Korea Exim Bank and as the vice minister of the Ministry of Strategy and Finance. In an exclusive interview, he tells me about his priorities and plans ahead.

Could you tell us about your goals and priorities as chairman of FTC? As chairman of the KFTC in charge of competition and consumer policies, my foremost goal is to make full commitment to the essential function of the organization; promoting competition and empowering consumers. I believe such effort by the KFTC will help the value of “Fair Society", one of the administrative goals of the Korean government, is fully embraced in the market economy of Korea. With the goal of building Fair Society, the government strives to provide just reward, ensure more opportunity and fair competition and achieve social integration based on mutual trust and shared growth. In this respect, it is directly related to competition policy, whose main objective is to promote the sustained growth of the market economy based on free and fair competition. It is also consistent with the “Ecosystemic Development” President Lee Myung-bak suggested in his speech for the 66th anniversary of the national liberation as a new market paradigm to address economic bipolarization and achieve sustained growth of the economy. In that respect, the priority of the KFTC is to make unchanged effort for its essential mission of establishing free and fair market order and ensure the policy benefits are shared by those in a weaker position of our society such as the working class and small companies First, the KFTC will make proactive efforts against anticompetitive conduct such as cartel in areas closely related to ordinary people’s lives, and improve distribution structure and overhaul entry regulations so that the competition-enhancing effect can be felt by market participants. It will also come up with specific policy measures for the shared growth between small and large companies, and change the perception of the business so the business itself makes voluntary efforts toward creating an environment where they can grow together. What do you think are the main challenges that FTC faces in ensuring fair trade? Even though Korea’s history of enforcing competition law is relatively short --30 years-- compared to the EU or the U.S, the country has produced meaningful results in establishing sound market order. But, I believe there are many challenges that lie ahead for the KFTC to take a leap forward. In Korea, cartels and large companies’ unfair business practices still remain as barriers to fair trade due to a combination of historical, structural and cultural factors. First, the government-driven economic development during the 1960s and 70s created imbalance between small and large companies, and business associations have been used as a channel for participating in a cartel. Second, small companies’ heavy dependence on large companies with dominant position in the domestic market has widened the gap in bargaining power between small and large companies, and delayed the development into the competitive market structure. Moreover, influenced by the Confucianism which controls the fundamental part of Korean society, companies have maintained strong solidarity with one another, which has created the business environment occasionally misconstrued as to the formation of cartel. Furthermore, the contract culture where companies enter into a contract with counterparty on an equal footing through due process of law has not been fully established in the Korean business community. In response to those challenges, the KFTC will take legal and institutional measures as well as actively support voluntary efforts by the business community to change the corporate culture with an aim to boost corporate competitiveness and establish sound market order. What is your opinion on the central government’s pledge to foster “shared growth” between large companies and their smaller suppliers? The past government-driven economic strategy highly focused on large companies has made imbalance between small and large companies deeply entrenched in the Korean economy, causing serious problems. Small companies increasingly depended on large companies, which took up dominant share of domestic demand, and this widened the gap in bargaining power between them. Unfair business practices caused by the power gap between small and large companies still remain, disrupting the development of the business ecosystem. Therefore, for sustained growth of the Korean economy, there should be further efforts to achieve the shared growth between small and large companies so that they can compete with each other on an equal footing. To realize the shared growth of small and large companies: ① relevant laws and systems should be improved; ② corporate culture should be changed (by, for example, encouraging the signing of the Agreement on Fair Subcontract and Shared Growth); and ③ there should be active enforcement efforts against law violations. Changes in corporate values and perception through voluntary efforts by companies are particularly important for establishing fair trade practices and the environment for the shared growth. That is because fundamental improvement on this matter can be made only when large companies change their perception, practices, values and culture, and small companies strengthen their competitiveness. With this in mind, the KFTC revised the Fair Subcontract Transaction Act to improve legal grounds for the shared growth between small and large companies, and supported the signing of the Agreement on Fair Subcontract and Shared Growth between 93 large companies and their 32,000 small suppliers. The KFTC will continue such efforts in the latter half this year by improving the criteria for assessing the implementation of the Agreement so that practical benefits from the shared growth efforts (e.g., adjustment in unit prices or sales commissions) can be enjoyed also by second- and lower-tier suppliers. Recently we saw instances of uncooperative behavior or obvious interference by businesses with a Fair Trade Commission investigation. What steps are you taking to ensure that this does not happen in the future? Obstruction of the KFTC’s investigation constitutes an act of defiance of public authority that severely undermines law and order. In that recognition, the KFTC will take all the possible legal measures within its authority against such violation to maintain legal order and send a clear message that the damage incurred to the company by obstruction of an investigation would be severe. For this purpose, the KFTC applies through penalty against those who interfere with an investigation by imposing administrative fines, heightening the ceiling of aggravated surcharge and bringing a charge to the prosecution. The KFTC will continually update its investigative techniques and enhance compliance of respondent companies through valid procedures to achieve administrative objectives without causing unnecessary friction with companies subject to an investigation. As part of the effort, the KFTC set up a digital forensics team to strengthen capability for obtaining digital evidences in May 2010, and provides staff education on investigative techniques on a regular basis. Furthermore, it makes utmost efforts to minimize inconvenience caused by an investigation and ensure procedural fairness by, for instance, informing an investigated company on its rights and clarifying the purpose and scope of an investigation. Moreover, the Ombudsman Program is in operation to listen to complaints of investigated companies that may arise in the course of the KFTC’s investigation. What is your message to EU investors? The EU is a very important economic partner to Korea as the nation’s second-largest export market and the biggest foreign investor that accounts for 43% of the investment destined for Korea. Korea, the 4th-largest trading partner to the EU, also has strong presence in the EU market based on strong collaborative relationship between the two sides with around 500 companies operating there. The Korea-EU FTA that came into effect on July 1, 2010 will open up new horizons for the economic relationship between the two sides with the accelerated market opening, strong push for corporate innovation and enhanced consumer welfare. The KFTC will faithfully perform its role of establishing and enforcing fair rules as a “referee in the market” so that benefits from the open and free market can be maximized across the Korean economy. The Commission will relax regulations, such as entry regulations, to ensure that all the companies in Korea do business freely regardless of their nationality, and take strict approach to unfair business practices that disrupt the market order to protect creative entrepreneurship and consumer rights. Foreign companies operating in Korea have made a lot of efforts to keep up to date with the global standard in competition law, as shown in its active use of the Cartel Leniency Program. I hope they make continued efforts to spread the pro-competitive culture, and understand the Korean government’s firm commitment to development of the market economy. And I assure you that the KFTC is always open to all the foreign business persons in Korea who have any complaints or suggestions in the course of doing business in Korea.

Interview: Mr. Lee Chae-pil, Minister of Employment & Labor

2011-08-23T11:49:00.002+09:00

In early June this year, President Lee Myung-bak carried out a cabinet reshuffle, replacing five key ministers. Mr. Lee Chae-pil, was nominated and then confirmed as the new Minister of Employment & labor. The new minister has been vice labor minister since March 2010. His work on labor issues dates back to 1982 and was a Blue House official for labor in the early 1990s. In an exclusive interview Minister Lee outlines his policy vision and plans.

Could you please describe the Ministry’s policy priorities and objectives for 2011? The Ministry of Employment and Labor recently announced our vision and mission. Our vision is ‘to ensure employment for all and to make a happy nation through work’. To realize this vision, the Ministry is promoting policy measures to provide support for job seekers, enhance competitiveness through vocational skills development, and develop labor-management relations based on trust and harmony, etc. I and the entire staff are determined to carry out those missions. We are reestablishing our resolve to make ourselves ‘warriors for jobs’. As shown in our vision, the Ministry’s foremost priority is to provide quality employment for anyone who wants to work. After being appointed as the Minister of Employment and Labor, I pledged to focus on improving the labor market and labor-management relations so that it can contribute to creating more jobs. Private companies which create jobs lie at the center of the labor market, and these companies are also able to grow and become more innovative through quality workforce. The Ministry will spare no efforts in setting up various support schemes for employed workers and jobseekers, as well as enabling companies to hire right people to strengthen their competitiveness. The Ministry currently implements a policy on improving labor market flexibility to attract foreign investment. What policy measures are being taken? It is not easy to make a uniformed assessment of the labor market flexibility in Korea. It seems that there is a wide-spread belief that Korea’s labor market is not flexible. I believe this perception mainly stems from the lack of flexibility in certain areas of the labor market such as large companies, companies that have labor unions and full-time employees. Contrarily, some experts point out that the Korean labor market in SMEs and non-regular workers is too flexible, and raise the issue of employment insecurity. In fact, Korea turns out to have a slightly more flexible labor market than other OECD countries according to the OECD’s assessment of Employment Protection Legislation (EPL). As of 2008, Korea ranked 13th among 30 countries. The main task of the Ministry is to find balance between employment flexibility and security, which is called ‘flexicurity’. For this purpose, more efforts will be made to spread a performance-oriented wage system and create a cooperative environment between labor and management. We are also going to strengthen support and protection for SME employees and non-regular workers. In order to support an effective operation of labor market, vocational training and employment service is continuously being reshaped and reinforced to meet the needs of job seekers and firms. Recently national employment service has been strengthened in collaboration with the private services. The Ministry is also concentrating on creating blue ocean jobs by trying to increase decent part-time jobs and supporting start-ups of new businesses and jobs. I believe such policy measures will not only help reform the labor market but also contribute to improving the investment climate by enabling companies to recruit more talented workers. Korea began to display a stabilized labor-management relations following the 1998 financial crisis; of note, the smallest number of labor-management disputes occurred last year. However, the labor market continues to demand the revision of the Labor Union Act, and the labor-management relations of foreign companies (including banks) seem unstable. What are your views on this? Labor-management relations in Korea have shown stability in 2010 and this year as well. In 2010, an indicator such as number of days not worked per 1,000 employees posted figures lower than the OECD average for the first time. As of mid-July 2011, the number of labor dispute cases declined 18.9% from the previous year. I’m glad to give the news that the paid time-off system, the multiple trade unions system and the single bargaining channel are being implemented very smoothly. Those policies are keys to enhancing labor-management relations to a more sophisticated level. The time-off system, which was introduced in July of 2010, has been adopted by 92.7% of business units as of June-end 2011 and 99.2% cases conform to the time-off ceiling. The multiple trade unions system and the single bargaining channel have also been in smooth implementation starting July of this year. I would like to emphasize that the revised Trade Union and Labor Relations Adjustment Act(TULRAA) was based on agreement among the labor, management and government, taking into account actual labor-management relations in Korea whilst complying with global standards. The revised law ensures the autonomy of labor union and the right to organize of workers. Going forward, the government will work towards establishing ‘a rule of law’ and ‘a rule of autonomy’ on labor-management relations via the time-off system and multiple trade unions system. Under the new circumstances, labor unions need to work towards better representing and providing quality services for its members and companies need to develop more reasonable labor-management relations. As a minister in charge of employment and labor, it is very unfortunate to see the prolonged dispute at SC First Bank. Dispute between labor and management not only causes tangible losses for the parties involved but also inconveniences of the public. It weakens the growth capacity of companies in the long run. I hope realistic solutions acceptable to both parties are developed soon so that the dispute can be resolved harmoniously and peacefully. The employment market in the first half of this year continued to improve thanks to steady industrial output and export growth. What is your outlook and assessment of the employment market, and what measures are being taken? In the first half of 2011, the number of employed people increased 412,000 from the previous year. Based on the steady improvement in employment numbers since last year, the employment rate (between the age of 15~64) recovered to the pre-financial crisis level of 64.7% in June. In particular, it is encouraging that full-time positions increased in the manufacturing and private sectors. However, the actual sentiment people has on the employment market has yet to improve. The number of people in the vulnerable employment group in the first half of 2011 remains high at 1.97 million. Unemployment of the young people is still severe, though the unemployment rate among the young people declined slightly to 7.6% in June 2011 from 8.3% in June 2010. Also, the employment markets in certain regions have deteriorated. The economic recovery trend is expected to continue in the second half of the year, but incessant efforts are needed so that the recovery trend leads to more employment opportunities. In particular, the Ministry plans to focus on implementing customized employment policy measures that take into account the needs of the unemployed youths and the vulnerable employment group. As a part of these efforts, we kicked-off the ‘On-Site Job+ Team’ in the first half of 2011. The Team, which consists of the Ministry’s entire staff, tries to identify difficulties in running business at first hand and works to resolve them through government-wide cooperation. A total of 9,955 workplaces were visited till June in which 8,498 complaints were heard such as difficulties in finding right people, inconvenience in commuting, etc. As of July, 4,443 cases have been resolved.Further support will be provided in the latter half of the year to reduce hurdles to job creation and change inadequate regulations.

Social Media Explained

2011-08-05T10:16:00.002+09:00

Interview: Mr. Tang Jun, Chairman, YangGuang Co. Ltd.,

2011-07-27T10:34:00.001+09:00

YangGuang Co., Ltd. is a public company listed on the Shenzhen Stock Exchange since 1996. In 2006, YangGuang signed an investment agreement with Reco Shine Pte Ltd., which is a subsidiary of GIC Real Estate Pte Ltd., and became the first A-share listed real estate company in China with a foreign investor being its major shareholder.

Mr. Tang Jun, Chairman, Yangguang, tells us bout his company plans and the Chinese real estate market.

Could you give us some background about your company?
YangGuang focuses on holding, investing, leasing and managing the operations of commercial real estate, while at the same time being involved with the development and management of high-end apartments, hotels, office buildings, and urban complexes. In order to establish a competitive advantage in the commercial real estate industry, our company strives to integrate commercial resources to create a model that covers investment, planning, development, and the business operations of the entire process. The company is committed to maximizing returns for investors, providing the best benefits for its tenants, and creating enjoyable shopping experience for consumers. With more than ten years of professional experience in real estate development operations, the company has set up a business scale that focuses on development around the Bohai Sea region, while at the same time emphasizing nationwide development and expansion. As of December 2010, the company owned and managed a total of 26 large-scale commercial real estate projects, covering a total floor area exceeding 1.5 million square meters. Taking into account all these accomplishments and plans, YangGuang is steadily marching towards the ultimate goal of “becoming China’s leading commercial real estate group”.Transformed from a residential housing real estate dealer to a commercial real estate dealer, YangGuang is endowed with competitive advantages that are lacking in traditional commercial real estate dealers, for instance, concept of innovative capital operation, whole value-chain operating mode, rich product development and operation, sound partnership resources, and professional real estate development team etc.As far as capital operation is concerned, YangGuang actively explores and develops new financing channel and establishes “finance + real estate” business mode, which provides commercial real estate operation with abundant fund guarantee. The company has already established long-term successful project cooperation with GIC RE, and will still expand the scale and scope for future cooperation. At the same time, the company has also established commercial real estate funds and is actively developing financing channel.With regard to business operation, YangGuang exerts itself to build the entire value-chain operating modes, covering investment, planning, development, leasing and operation. Through the entire value-chain system management and effective key aspect control and organic inter value-chain synergy, the company has formed core competitiveness. Meanwhile, YangGuang selects retail commercial real estate as its main business orientation, for among numerous commercial real estate classifications, retail commercial real estate has relatively convenient for redevelopment and improvement. If also supported by appropriate operation management, its long-term return will be quite considerable.After many years of development, YangGuang has accumulated rich product development experience; the three product brands, namely, the “Life Square” (阳光新生活广场), the “Shine City” (新业广场), and the “YangGuang Center” (阳光新业中心), which have been created through standardization process, cover the main types of commercial projects, and will be improved and upgraded continually in the process of product replication. The current successful commercial real estate development case in places, such as Beijing, Tianjin, Qingdao, Chengdu, and Shenyang etc., enabled the enterprise to have accumulated mature product development experiences.
Moreover, YangGuang has established strategic cooperative partnership with numerous international and domestic well-known brands, such as Carrefour, Wal-Mart Stores, Watsons, Ito Yokado, Gome, and Suning etc., and the stable and quality customer resources have ensured completion of investment promotion of commercial real estate projects in advance, endowing the company therefore with a complete operation system.Like all successful enterprises, YangGuang has a powerful team of commercial real estate management. At present, YangGuang owns a management team with several hundred members, and it will continue to grow along with increase of the number of commercial projects. Relying on its own professional team of commercial real estate management, YangGuang itself controls all aspects from development and investment promotion to later stage operation management. This is also the whole value-chain representation and preparation for output of future commercial real estate management operation.
Where to invest in China? Does the biggest potential lie in second – and third-tier cities rather than in first-tier cities?As far as commercial real estate is concerned, the best region for investment in China is still concentrated on cities, and whether in the first tier cities or the second and third tier cities, they all have opportunities. As early as in 2007, YangGuang developed a Bohai rim region strategy, while at the same time paying close attention to the balanced development in the national market. After carrying out an in-depth assessment in key areas, and taking expansion from one single project to more opportunities which cover the entire area as our layout strategy, we have currently mapped out and identified 10 cities covering the four major areas of China, and developed complete strategies for steadily expanding our projects. The layout cities include: Beijing, Tianjin, Qingdao, Shenyang, Chengdu, Xi’an, Zhengzhou, Yantai, Shijiazhuang, and Tangshan. In the future, in regions such as the Bohai rim region, North China, Central China, Northwest China, and Southwest China etc. where branch companies have already been set up with also project establishment, we will further strengthen and consolidate our basis. With respect to the Yangtze River Delta, Zhujiang River Delta, the Southwest Region and the Northeast Region of China, we will also actively search for quality resources conforming to our corporate strategy, and wait for opportunity for expansion.With respect to potentials, though the second and the third tier cities have indeed enormous opportunities for development, the first tier cities have also great space and opportunity for development. Even though the first tier cities have relatively less opportunities and a relatively higher threshold, with growth of population, they will certainly form many “emerging urban districts”, and these urban sub-centers are precisely where the potentials of the first tier cities lie, such as one of our commercial projects in Tongzhou District, Beijing (Tongzhou Life Square). In 2006 when we purchased this project, though it had advantageous geographical location and consumption potentials at that time, as a commercial real property, it had problems in architectural structure, retail format planning, brands level etc., which made it unfavorable for business operation. After purchase, the company re-planned its retail format, making it more reasonable. With these improvements, performance of this project has realized steady growth, and the sales volume of the anchor tenants and secondary anchor tenants also achieved steady increase. Within just a short period of three years after redevelopment, the rental income for the two years, namely 2008 and 2009, increased by 43% and 11% respectively on a year-on-year basis, and with impact of the 2009 financial crisis, it still achieved a steady growth.While making its layout in the suburbs of the first tier cities and in the second and the third tier cities, YangGuang hasn’t given up its steps of overall arrangement in the first tier city urban core areas. At present, the company has already been entrusted with the management of certain large-scale business project located in the Beijing core CBD area (Beijing International Center). At the same time, in the core area of Tianjin, a landmark “Tianjin YangGuang Center” is also in planning.As China’s real estate market is a typical “policy market”, one should pay attention to policy orientation. It is clear from the 12th five-year plan that, in the next 4-5 years, the second and the third tier cities will be the focus of national development. Adapting to the general background of the times, YangGuang had already started to gradually make overall arrangement in the second and the third tier cities as early as several years ago. With mega cities as support, small and medium cities as focus, the company has been vigorously developing the second and the third tier cities, helping to build some urban commercial centers with sustainable operation ability, building commercial ecological circle, and bringing harmonious local economic and social development. For instance, not long ago, YangGuang had reached an intent of cooperation with Beiguan Village of Xi’an city concerning reconstruction of the old marketplace of the urban village, and the project will be reconstructed into a local large-scale commercial complex.
What are the best market entry strategies as a foreign investor, developer, and retailer?At the early period of their market access, overseas investors, developers and retailers may consider finding a domestic cooperative partner in China and, through cooperation with local enterprise, steadily develop their business.With respect to the mode of operation, investors and developers may consider participating in cooperation with domestic enterprises by means of project cooperation or capital injection. For instance, the cooperation between YangGuang and GIC RE, in 2006, YangGuang entered into a strategic investment agreement with Reco Shine Company, a subsidiary of GIC RE, becoming the first domestic A-share market listed real estate company that has introduced international strategic investment into China. In 2007, after completion of private offering of additional shares, we conducted large-scale, extensive and in-depth cooperation with GIC RE. For instance, in 2008, we together completed large-scale overall acquisition towards 18 projects of the Home World (家世界), and both parties jointly held commercial property assets, which became a typical case of cooperation between overseas investors and domestic developers in the commercial real estate market.For access to the China market, overseas retailers may borrow lessons from the cooperation between YangGuang and Ito Yokado. YangGuang implements order-type of thought for commercial real estate development. In its very beginning of cooperation with Ito Yokado, YangGuang first defined its intention of shop setup and location requirements, and carefully examined and recommended appropriate projects. In its very beginning of design, construction and investment promotion, YangGuang “customized” the projects in strict accordance with the advanced Japanese concepts of shopping center and the spatial layout, architectural structure, public support, fire fighting arrangement, as well as traffic and people flow of commercial complex per requirements of Ito Yokado, and realized the maximum and perfect harmony and unity between the shopping environment and customers, and between customers and the architectural structure, thereby ensuring operation of the moved-in tenant in accord with their wishes and convenience and comfortable shopping of consumers. This kind of mode of commercial customization of YangGuang can ensure quick opening by overseas retailers of the China market and, at the same time, retain the local features and characteristics of overseas enterprises, it is therefore highly welcomed by various leading domestic and overseas retail enterprises and brands. At present, YangGuang has already established long-term strategic cooperative partnership with a number of large-scale domestic and overseas retailers, such as Ito Yokado, Carrefour, Vanguard, The Home Depot, and Wal-Mart Stores etc.
What are the major challenges as a foreign investor? How do you manage risk?In recent years, with continuous deepening of the opening-up of China’s business market, foreign capital business enterprises have landed in China one after another, and while bringing bout opportunities, the China’s market is also hidden with enormous challenges.Failure to adapt to the local circumstances and conditions is a major trouble for foreign capital. First of all, from the policy environment point of view, although a series of new policy measures to promote mutual investment have already been launched in recent years, for instance, the gradual lessening of restrictions on the percentage of shares of foreign investment and allowing domestic market listing of foreign enterprises etc., China nevertheless still has certain restriction policies on foreign investment and acquisition etc., and relative to local enterprises, foreign investors have certain threshold to cross. At the same time, many relevant policies and evaluation systems in China are somehow different from that of foreign countries. Moreover, with respect to market space, industrial support, and labor quality of China etc., there are still certain differences from that of foreign countries, and many overseas business models are not applicable to China at all.With respect to control of risks, overseas investors may search for reliable partners to gradually adapt to the rule of the game of the China market. For instance, GIC, the strategic investor of YangGuang and also one of the world largest fund management companies in the world, manages over USD 100 billion assets in the world, and its steady and robust investment style makes it select global-wide partners with deliberation, and at present, YangGuang is its only strategic cooperative partner in the field of retail real estate in China. As far as YangGuang is concerned, GIC is its financial investor on the one hand, and on the other hand, it also brings about the most advanced international project management and operation experience for YangGuang, and dissolved many worries in project development and operation. This multi-dimensional mode of cooperation can reduce risks of overseas investors and obtain stable investment return and, at the same time, enable fast development of local enterprises.From another point of view, as a local developer with certain basis, in the “policy market” environment of China, YangGuang is endowed with unparalleled advantages of foreign enterprises. We can, with sound government relations, maintain and get quality project resources; through control of project startup and completion schedule, ensure the time of project opening; through scientific mode of retail format planning and the accumulated investment promotion resources, ensure overall project business benefits; and through strengthening business operation ability and extent of promotion, ensure enhancement of business project operation and increase of rental income; and through whole value-chain control of the whole commercial real estate industry, minimize its own and investor’s return risks.Moreover, as far as overseas investors are concerned, if they are not interested in direct enterprise investment or worried about the withdrawing system, they may consider searching for inland powerful cooperative partners to access the domestic commercial real estate market by way of commercial real estate funds or commercial real estate trust through help in financing. For instance, YangGuang has also set up its own fund company, and it has had already some attempt in this type of business operation. The fund company is now in sound operation, and in the future it will be the focus of our business development.

Interview: Mr. Kim Young-hwan, Chairman, National Assembly's Knowledge Economy Committee

2011-07-08T10:15:00.001+09:00

The Standing Committees of the National Assembly examine bills and petitions falling under their respective jurisdictions, and perform other duties as prescribed by other Acts. There are 16 standing committees of which the Knowledge Economy Committee is quite important. The chairman of each Standing Committee represents the Standing Committee, regulate its proceedings, maintain order, and supervise its affairs.

Mr. Kim Young-hwan, Chairman of the National Assembly's Knowledge Economy Committee was born in Goesan, North Chungcheong Province. Graduating from Yonsei School of Dentistry, he got a master’s degree in economy from the same university. In 1996, he was first elected to enter the National Assembly. He was reelected in 2000 to serve for the second term, yet failed in his third attempt in 2004. In 2009, he was elected.

Under the Kim Dae-jung administration in 2001, he was appointed as the minister for education, science and technology, which he stayed for one year. He was the youngest in the ministry’s history, and was recognized again by his book entitled, “Will fart spark the fire.”

He assumed the chairman of the National Assembly’s Knowledge Economy Committee in 2009, for which he still serves.

In an exclusive interview to Infomag, Mr. Kim speaks on various issues under his mandate.

What is the first and foremost principle of the Knowledge Economy Committee?There are three. The first is laying the foundation for sufficient discussion and communication. We try to create an environment in which committee members can hold in-depth discussions and exchange views. The second is keeping our eyes and ears open. The committee welcomes companies, including small retailers and traders, to express their opinions. We would also like to meet with European business leaders to directly hear from them on challenges and difficulties in doing business in Korea. The third is keeping up to date with the latest industry-related news and issues. For this, we encourage government officials, businessmen and experts to come together and openly discuss issues whenever they arise.
What is your view of the government’s green growth policy?The government is working on meeting the target of reducing CO2 emissions by 20%, such as increasing R&D and encouraging businesses to save energy and increase the use of renewable energy. There are efforts being made to foster green industries (e.g. renewable energy) and develop the carbon capture & storage technology (CCST) to reduce CO2 emissions.
What advice do you have for the government in regards to realizing energy independence?We need to prepare for the post-Fukushima era. However, the government maintains the same energy mix and nuclear energy policy stance as it did prior to the explosion at the Fukushima nuclear plant. Unlike Germany and Switzerland which decided to shut down its nuclear power plants, the Korean government seems to have shifted its policy to focus more on nuclear energy. From a personal standpoint, I believe that there needs to be focus on other sources of power generation other than nuclear energy. What is needed is a roadmap for reducing nuclear energy use and concentrating on R&D and business support. Careful and meticulous planning is required as Korea is not abundant in natural resources. The government should aggressively pursue policies aimed at energy saving and renewable energy development.
Do you think the current policy is sufficient to promote small and medium-sized enterprises?In Korea, there are 304 small and medium-sized enterprises (SMEs), accounting for 99.9% of total number of companies, with relevant workers representing 87.7% of total employment. Although SMEs are a pivotal part of the economy, there seems to be a serious imbalance between large-sized companies and SMEs. Polarization is seen amid the turbulent economic environment, in which large companies posted record-high earnings whereas small and medium businesses saw operating margins decline. Moreover, large enterprises are aggressively moving into sectors that are led by SMEs and taking away their source of income. In order for SMEs to strengthen competitiveness, they need to concentrate on five areas: 1) increasing R&D investment 2) limiting sectors to prevent large companies from taking over 3) building infrastructure to foster small and medium-sized export companies 4) recruiting additional workers to address workforce-workplace mismatch 5) supporting one-man businesses and start-ups by young people. A structural system needs to be in place for SMEs to develop into larger and successful businesses. SMEs need strong foundations in order to grow and thus contribute to Korea’s economic growth.
What would you like to tell foreign investors?Korea following the 1997 Asian financial crisis has been striving to improve the foreign investment environment. In 2010, despite the challenging economic climate at home and abroad, Korea achieved economic growth rate of 6.1% (the highest among OECD member countries), exports amounted to $470 billion (seventh largest in the world), and per capita income re-entered the $20,000 level. Foreign investment companies played a key role in Korea overcoming the financial crisis of 1997 and the global financial crisis of 2008.
I consider Korea to be an island rather than a peninsula. Surrounded by the ocean on three sides and bordered to the north by China, Korea has remained an isolated island for thousands of years. It is time to decide whether to remain isolated or move forward. Korea will continue to open its doors to foreign investors going forward. As the chair of the Knowledge Economy Committee, I will also do my best to create a foreign business-friendly environment.

Interview: Ms. Sandra A. Urie, Chairman & CEO, Cambridge Associates

2011-07-06T11:22:00.001+09:00

Cambridge Associates is a privately held independent consulting firm that provides investment consulting and oversight services to more than 900 clients worldwide. The company strives to help global institutional investors and private clients meet or exceed their investment objectives by offering proactive, unbiased advice grounded in intensive and independent research.
In this interview, Ms. Sandra A. Urie, Cambridge Associates’ Chairman and Chief Executive Officer tells us more.

Could you give us a brief background about your organization?
Cambridge Associates was formed in 1973. The concept for our firm grew out of work done for Harvard University by our two founders, James Bailey and Hunter Lewis, who are still involved in overseeing the firm today.
Over our nearly forty years in business C|A has expanded into a global investment consultancy. Our mission has remained constant: we strive to help institutions and private investors around the world meet or exceed their investment objectives by providing proactive, unbiased advice grounded in intensive and independent research.
Cambridge Associates currently has over 1,000 employees based in London, Singapore, Sydney, Arlington, Boston, Dallas, and Menlo Park, with an office to be opened in Beijing in the summer of 2011. Our professionals are dedicated to serving over 900 clients globally including colleges and universities, charitable foundations, medical institutions, museums, Sovereign Wealth Funds and other government agencies, pension funds and families. Our clients represent aggregate assets of more than US$2.5 trillion.
Our only line of business is investment consulting and its supporting functions (i.e., research and performance measurement). One-hundred percent of our revenues are derived from providing these services to our clients, the owners of the assets we advise.
• Investment Consulting: Consulting is our core business, and we advise clients on a broad range of investment issues such as portfolio strategy and policy, asset allocation, manager selection, and performance evaluation across all asset classes, including alternatives (hedge funds, private equity and private hard assets). In addition, currency hedging has been a key issue in many countries where we have clients, including Korea. We also have significant experience in providing advice on investment operations, corporate governance, risk management, and best practices in institutional investing. These are all topics that should be of interest to Korean institutional investors as they contribute to superior investment returns.
• Research: Our high-quality, independent investment and capital markets research provides the foundation for all client recommendations. We currently have more than 190 research professionals working across four continents, bringing a global perspective to our work. Our research efforts are supported by our proprietary manager database, which currently tracks over 7,000 managers and 22,200 funds across all asset classes and geographical regions. This means our clients have access to a large and global opportunity set when considering implementation strategies for their portfolios.
• Performance Measurement and Reporting: As part of the consulting relationship with our clients, we undertake performance monitoring for both marketable (e.g. public equities, fixed income, hedge funds) and private investments (e.g. private equity, real estate, venture capital, infrastructure, energy, timber). Our reports include investment returns and regular analyses of fund performance. These reports help our clients analyze their performance results, how the results were achieved, and how they compare to customized benchmark statistics.
What is your view on the current investment strategies of Korean pension funds? Should they allocate more resources to Alternatives?
Korean institutions are certainly considering expanding their policy portfolios to include more exposure to alternatives and we would certainly support that move. Depending on the alternative classes included, they can provide the potential for higher returns and also, in the case of edge funds, lower volatility. However, implementation is critical, and requires a rigorous approach to due diligence and manager selection. Few institutions, including some in Korea, have the requisite in-house experience to effectively identify, complete the due diligence on, and gain access to the best alternative asset managers on a global basis. As a result, many investors have had less than positive experiences with hedge funds during the financial crisis and find themselves under-allocated relative to their original plans.
Fear of a potential Madoff repeat looms large and reinforces the need for disciplined and comprehensive due diligence, both before making an investment and on an ongoing basis once the investment is made. The Korean investment community was hit hard by exposure to Madoff. This has caused many investors to step back and examine their investment decision-making process. For many, around the world and not just in Korea, it was a fiduciary wake up call. One of the key oles we play at Cambridge Associates is to protect investors from mistakes by working alongside internal investment professionals to provide rigorous due diligence and a global perspective on manager selection. If Korean pensions want to build out their allocation to hedge funds, they must be prepared to invest in the process of researching, selecting, and monitoring managers.
This issue is also relevant to private investments (i.e., private equity, venture capital, real estate, energy, infrastructure, and timber). Given the significant dispersion of returns among managers and their funds, manager selection and rigorous due diligence are critical. Building a private investment portfolio can significantly enhance returns, but also requires a commitment to building the resources necessary to implement and monitor managers and the patience to build out the program over time to minimize so-called vintage year risk. Based on our observations, many Korean institutional investors are looking at a narrow subset of the universe of available private investment opportunities globally, which will likely limit their ability to generate good risk-adjusted returns.
We have also seen a tendency in Korea to focus on capital preservation in nominal terms. Protecting a portfolio against nominal losses can hide the effect of ongoing inflation and can expose the portfolio to inflation-adjusted capital losses. Such an approach requires an even more vigilant focus on due diligence and manager (or asset) selection. When perceived risk is low (i.e. because of a government guarantee) nominal returns are also generally lower. We like to think in terms of risk-adjusted returns: how much incremental upside could investors receive from an additional unit of risk, and where do asymmetries exist that investors can benefit from?
What are the real estate investment intentions of global investors?
At a very basic level, many people like investing in real estate because it is a “real” asset – something you can see and touch – it typically generates both an income return and a capital return. For people who are skeptical about securitized and less tangible assets, physical real estate can bring a sense of comfort to investors. We see this particularly in Asia. Real estate can also offer investors some inflation protection through exposure to the potential for rising rents and capital appreciation when financial assets are being hurt by inflation. Public and private real estate investments can also provide valuable diversification as well as equity-like returns over the long term. Private real estate offers greater prospects for active managers to exploit opportunities and add value. On the other hand, private real estate is illiquid and more expensive. Public portfolios provide the most immediate source of diversification, whereas private real estate requires time to build. REITs generate cash flow, are liquid, and have lower fees. However, they are subject to the supply, demand, and pricing pressures of the public equity markets. The correlation of REITs to the broad equity markets would likely increase during periods of stress within the market and historically, REITs have been highly correlated to small cap value stocks.
We advise global investors to invest in real estate through a diversified set of public and private fund opportunities and to consider relative value at the time of implementation. The other interesting trend is global investors’ portfolio mix of investments in limited partnership vehicles and direct investments in properties. Large institutional investors have typically first built a portfolio of limited partnership investments, allowing them to build relationships with the fund managers over time. This can then provide a foundation for co-investments alongside these managers, as well as eventually for a portfolio of direct investments, where a sufficient in-house resource with appropriate direct investing experience exists. In the context of a large, diversified portfolio, such direct investments may be appropriate. However, smaller institutional investors might be taking unnecessary risk with direct property investments, sized too large relative to the size of their asset pool. More often, these types of institutions build exposure to real estate through limited partnership vehicles, more appropriate to their size and diversification needs. The risk in Korea is that smaller institutions, in particular those without appropriate in-house investment resources, seek to emulate the leading investors when they do not have the internal resources to implement and replicate those strategies.
Are Asia and Korea an important part of their strategy?
Yes, Asia, including Korea, is definitely considered in the opportunity set in a global portfolio. Many of our North American clients travel regularly to the region and a few have opened up offices in Asia for the very purpose of analyzing Asian investment opportunities. They are gradually increasing their exposure to alternative assets in Asia, while paying close attention to relative value at a time when a great deal of capital is flowing into emerging markets. Investors should be careful to diversify by vintage year, strategy, geographic location, property type, and manager.
What asset classes and markets are favored by global investors?
Right now it is challenging for global investors, as we are not seeing many obvious, attractive opportunities from a valuations perspective. That means we are encouraging our clients to be defensively positioned.
What does that mean?
Within equities, overweight high-quality or mega-cap growth stocks and long/short equity hedge funds. Both strategies may under-perform in a rising market, but they should prove more defensive when market corrections occur. We are also encouraging allocations to managers with flexible mandates who can respond quickly to opportunities that arise in a rapidly shifting landscape. Of course, greater selectivity and ongoing oversight is required when hiring managers with more flexible mandates. These managers should have a depth of experience in the markets they participate in and a proven record of adding value through tactical moves. We continue to be cautious on most Western developed market sovereign bonds in light of weak fundamentals and expensive valuations. Both of these factors suggest that an allocation to sovereign bonds should not be expected to provide as much defense as it has historically, and that it should be supplemented by cash when yields are very low.
In terms of markets, we are recommending that our clients stay neutral on developed market equities. Equity valuations in developed markets are generally not excessive, although U.S. equities are currently overvalued. In emerging markets, while valuations are still somewhat stretched, maintaining exposure and building a strategic overweight are important from our perspective. For those with relatively large allocations to emerging markets, we would consider a more diversified exposure utilizing a multi-asset class approach, incorporating equity, local currency debt, hedge funds, and private investments if appropriate.

Interview: Mr. Choi Joong-kyung, Minister of Knowledge Economy

2011-06-27T13:21:00.000+09:00

Minister of knowledge Economy Choi Joong-kyung is a veteran finance official who has served in key finance posts in the government and Blue House. He passed the civil service exam in 1978, beginning his career as a finance official. He was appointed vice minister at the Ministry of Strategy and Finance when President Lee took office in February 2008 and pushed a weak won policy to boost the country’s exports during the recent financial crisis. He also held the post of President Lee’s senior secretary for economic affairs.
In an exclusive interview, he speaks about his priorities and plans for this year.

What are your main priorities for this year, and what is your proposed action plan?
Korea posted the world’s seventh-largest export volume in 2010 and overcame the global economic crisis. However, Korea is still responding to changes in the global economic environment, including the emergence of convergence and green industries. Korea also needs to address imbalances between large companies and small and midsize companies.
To ensure the sustainable growth of the Korean economy, the Ministry of Knowledge Economy (MKE) will nurture industries with significant potential to generate growth and create quality jobs. At the same time, the Ministry will train skilled workers and improve working conditions—for example, with the Quality of Working Life Valley. This project will involve turning outdated industrial complexes into multipurpose facilities that not only serve as workplaces, but also as education centers and cultural spaces. In this way, the government will attract more young people to the fields that most need workers.
In addition, the Ministry will establish a stable supply base for energy and resources in response to international price fluctuations. We will pursue more FTAs to expand Korea’s access to advanced markets. Furthermore, by strengthening industrial cooperation with emerging economies, we will achieve $1 trillion in annual trade.
In the process of implementing these policies, the Ministry will communicate closely with businesses and help them resolve any difficulties they may be facing. We hope foreign investors, who have played such an important role in the Korean economy, will invest more in the future.
How is the Ministry implementing the green growth strategy?
Korea’s green growth policy has two aims: to preserve the natural environment and to help the nation achieve sustainable growth. As of 2007, Korea ranked 38th in the world in terms of GDP per capita, and the economy needs to maintain a steady path of growth.
Korea is a nation with immense growth potential, and the government intends to encourage sustainable economic and employment growth by strengthening its efforts to address climate change. We will do this by improving energy efficiency, advancing the clean energy industries, promoting industrial convergence, and pursuing greater innovation in R&D.
The Framework Act on Low-Carbon, Green Growth was enacted on April 14, 2010. The Act requires the adoption of specific targets for energy efficiency and GHG emissions for different business categories. It also mandates the adoption of a certification program to attract green investment. Both the certification system and the strategy to reach our energy efficiency and GHG emissions targets will be in place before the end of 2011.
Furthermore, the government is making a proactive effort to strengthen the institutional framework for renewable energy and energy conservation measures. By the end of the year we will develop a strategy to enter the overseas renewable energy market and gain a sufficient share of the global market to create an export industry. To prepare for the adoption of the Renewable Portfolio Standard in 2012, the Enforcement Decree of the Act will be revised and a detailed action plan will be in place by the end of June.
What steps are you taking to increase Korea’s self-sufficiency rate in oil and gas resources? Could you tell us about support to local renewable energy test projects?
Korea depends on imports for 96.2 percent of its energy needs (2009). According to the IEA, Korea is the world’s 10th major energy consumer and its No. 9 petroleum consumer (2007). Clearly, energy self-sufficiency is an important goal because fluctuations in international energy prices affect key economic indicators such as the current account balance.
In pursuit of this goal, Korea continually seeks to improve energy efficiency and expand the use of clean energy so that we can cut dependence on fossil fuel to no more than 60 percent. By reducing demand for energy in every category (industry, transport, household, commerce), we will improve energy efficiency by 2.6 percent every year until 2030. By that time, renewable energy will account for 11.5 percent of Korea’s total energy consumption and nuclear energy will account for 27.8 percent. Development of the green industries will transform Korea’s industrial structure into one that is less energy intensive.
The government said it will set aside 700 million won from MKE and an additional 700 million won from the Small and Medium Business Administration to support the Commission of Shared Growth for Large and Small Companies. What other steps are you taking to support SMEs?
Like most countries, Korea has a variety of support policies for small and midsize enterprises (SMEs). These include tax incentives, policy funding support, technology development support and a public procurement program.
The global financial crisis hit SMEs especially hard. Accordingly, the Korean government worked to overcome the financial crisis through pre-emptive measures such as massive injections of liquidity for SMEs (e.g., extending maturity dates for 160 trillion won worth of SME loans; 37 trillion won worth of additional loan guarantees; a higher guarantee rate of up to 100 percent).
Going forward, the government plans to revise its SME support policies to better reflect the needs of the self-employed, small traders and small enterprises and to ensure that SMEs develop and grow into stronger companies. At the same time, the government will adhere to the principles of “support and nurture” and “free competition” to encourage the phased development of promising SMEs into large companies.

Interview: Mr. Robert Gilchrist, Founder & CEO, Rockspring Property Investment Managers LLP

2011-06-16T11:45:00.000+09:00

Rockspring Property Investment Managers LLP, now in it’s 27th year, specialises in the acquisition and management of commercial property throughout the UK and continental Europe on behalf of over 220 major institutional clients from around the globe. On behalf of single-client accounts, investment is made either directly into property assets or, indirectly, through the group’s series of tax-efficient, co-mingled investment funds.
Originally established in 1984 as MIM Property Services, Rockspring was one of the first UK-based property managers to specialise in European investment. Working exclusively with institutional investors, the business grew quickly, and in 1993, was bought by Prudential Financial of the USA and became PRICOA Property Investment Management. Following an MBO in 2004, Rockspring Property Investment Managers, as it is known today, was formed. Fully independent and 100% owned by its Partners and employees, Rockspring is headquartered in London with its own network of local investment and asset management offices in Amsterdam, Berlin, Brussels, Budapest, Madrid, Paris and Helsinki. In addition, Rockspring manages client support and services operations via dedicated offices in America and Australia and is in process of opening one Seoul.
Rockspring offers its clients a diverse range of products, from region-wide, pan-European funds to single country and sector specific specialist vehicles. These include the Rockspring Hanover Property Unit Trust, the Rockspring PanEuropean Property Limited Partnership, RockspringTransEuropean II, III, IV & V, The Industrial Trust, Retail Plus, The Rockspring German Box Fund, The Rockspring Portuguese Property Partnership, Rockspring Total Europe, Rockspring UK Value Fund and single client mandates. With property assets currently located in the UK and 12 other European countries, the firm today is one of Europe’s leading property investment managers.
Robert Gilchrist has been with Rockspring for over 23 years and has been active in the European property markets since 1983. After graduating from Cambridge University, he qualified as a Chartered Surveyor and joined Rockspring in 1987. He has been the architect of much of the firm’s significant growth, in particular, the development and launch of new fund products. The first of these was the launch, in 1991, of TransEuropean 1 and the subsequent management of this series of closed-ended funds – TransEuropean V is currently being marketed. In 1998, he was appointed Managing Director. In 2004, alongside Mr. Richard Plummer, the Chairman, he led the successful MBO from Prudential Financial, and was appointed Chief Executive. He has played a leading role in growing Rockspring into one of the UK's leading Europe-wide property investment managers and he continues to be closely involved in new business and overseeing the fulfillment of Europe-wide investment strategies.
Rockspring prides itself on its client-focused approach. “As all of our investment products are funded entirely by equity sourced from third-party, international, blue-chip, institutional clients, everything we do is based on our clear understanding of investors’ needs and ambitions. We invest the time getting to know them and we apply our exceptionally experienced market knowledge and independent status to find solutions that are the ideal fit. It’s an approach that has been proven in every corner of the commercial property market and enabled us to build enduring relationships with leading real estate investors from around the globe,” said Mr Gilchrist.
The recent awards received by the company recognize Rockspring’s enduring commitment to generating value through real estate for its international blue-chip client base. They include ‘Europe Firm of the Year’ - Global PERE Awards 2010, ‘Property Fund Manager of the Year’ – Financial News / Dow Jones Awards for Excellence 2010 and ‘Property Manager of the Year’ - Global Pensions Awards 2011. Mr Gilchrist, commented, “We have spent more than 25 years finding new and innovative ways to create value for our clients. Today, we are fully independent in both structure and spirit and, with a Europe-wide network of property professionals, we work in partnership with our clients to create unique, performance-orientated European property investment vehicles.”
Mr. Gilchrist noted that Rockspring frequently works with global investors looking to invest for the first time in Europe. “It really does help having an experienced local presence throughout Europe.” comments Gilchrist. “Our network of offices across Europe combined with our long history and knowledge of its markets puts us in an exceptional position to advise our clients. For investors that are not inclined towards our tax-efficient co-mingled investment funds, we can assist them co-invest directly in hand-picked assets with other like minded investors in Europe.”
Whilst few investors escaped the global melt down, Rockspring have fared better than many of their competitors. Their core / core plus investment approach combined with their consistent track record and client-centric focus meant investors not only stuck by them, many committed new capital – during 2010 Rockspring closed their UK Value fund with £700m. In 2010 Rockspring invested €1.2 billion across Europe and to 31st March 2011 has seen investments totalling €380m. Notable recent transactions include:
88 Wood Street – acquisition of an iconic, landmark tower building at in the heart of the City of London for £183 million on behalf of a separate client mandate (November 2009)
O’Parinor Shopping Centre, Paris – acquisition of a 51% stake for €223 million on behalf of a separate client mandate (August 2010)
Ferio Shopping Centre, Konin, Poland – acquisition of a retail park for €47m on behalf of the TransEuropean Property Limited Partnership IV (Dec 2010)
The Feulner Portfolio – acquisition of three retail warehouse properties in Neuss, Kassel and the Emspark in Leer, West Germany purchased off-market from a private investor for a total consideration of €62.2 million on behalf of the Rockspring German Retail Box Fund (April 2011)
Speaking on the economic situation in Europe, Mr. Gilchrist noted that the debt crisis has affected everybody around the world in varying degrees. This has resulted in recession in many countries, but has also led to varying responses by national governments. In Europe, there continue to be large regional differences. Greece continues to experience recession, while the Spanish and Portuguese economies have been experienced flat growth. Individual governments are using differing approaches to reduce budget deficits, he noted. This crisis halted the incessant rise in property values that took place from 2003 to 2008, driven as much by the widespread availability of cheap debt as a lack of seasoned understanding of real estate fundamentals.
“We are seeing a steady recovery in economic prospects and confidence in markets. Today a lot of focus on significant fallout has been on Ireland, Portugal, Spain and Greece. They continue to highlight some of the ongoing issues in the European periphery.” said Gilchrist.
However, the recession has not resulted in a significant amount of distressed assets coming onto the market. For instance, in UK there was a peak-to-trough fall in asset values of around 40 percent, but the period of decline was swift and subsequently experienced an equally fast recovery.
“Distress will come about largely as a consequence of the behaviour and reaction of the banks. There is a lot of talk about 2008-9 being one of worst recessions but in my experience 1990-93 was actually worse. The problem then was that a construction boom coincided with recession and oversupply in real estate was much greater then,” he said. The banks, having learnt their lesson, are choosing to hold on to assets today and working through problems before selling them in a steady and unforced manner.
In this context he noted that Korean investors who are selectively looking for landmark assets in UK and Paris are doing so at the right time. “The real estate fundamentals are better. While people may be scared of lower cap rates today, they actually reflect significant rental growth expectations. Their timing is perfectly reasonable and making investments today is safe.”
Typically non-EU investors look at London and it makes sense. London sits alongside New York, Sydney and Tokyo as a global city. It is very much on the radar screen, with Paris a strong second. More adventurous investors may be looking at Germany, Spain or other smaller cities in Europe, but they are in a much smaller proportion.
“One of the reasons I am extremely positive about prospects for investment and ownership in London and Paris is because we are in the middle of the globalisation of everything. Looking back at the London market in 90’s there were only a couple of Japanese, American and European investors. The predominant ownership was by UK institutions. Since then, the market has changed dramatically. Now there are Koreans, Australians, Canadians, Russians and Malaysians to name a few. This is not going to stop.”
In terms of core assets and core market, there is, inevitably, only a limited supply and so competition can be quite intense for investments in the core sectors.
He noted that there isn’t just one ‘right’ answer to the question of how the investors should approach the UK market - either directly or through co-investment club deals, but what is absolutely essential, for any investor that is considering investing globally, is the necessity of access to local expertise before even trying to negotiate and acquire an asset.
“Such investors have to work with a partner in Europe who can provide access to unbiased legal, tax and other structuring requirements in order to fully understand the implications of ownership and returns they can achieve. Once they understand this, then they can start to look at specific transaction opportunities, because by then they know the implications of investing in a particular market,” he said.

Interview: Mr. Hyun In-taek, Minister of Unification

2011-05-23T10:23:00.000+09:00

On May 9th, South Korean President Lee Myung-bak made a surprising offer by inviting North Korean leader Kim Jong-il to Seoul for an international nuclear summit next year with U.S. President Barack Obama and dozens of world leaders if Pyongyang makes a firm commitment to give up its atomic programs.
The proposal, if realized and followed through by Pyongyang, could theoretically lead to the North's reclusive leader attending an international summit with foreign leaders for the first time ever, as well as to a rare summit between leaders of the two Koreas.
The proposal was seen as aimed at pressuring Pyongyang to make a strategic choice to give up nuclear ambitions. It was also believed to be aimed at helping break the deadlock in inter-Korean relations, frayed badly after the North's two deadly attacks on the South last year.
President Lee's offer came as South Korea has increased pressure on North Korea to take concrete steps to demonstrate its denuclearization commitment before opening the six-party nuclear talks. The negotiations have been stalled since December 2008 due to Pyongyang's boycott and tensions over the North's deadly attacks on the South last year.
With tensions on the peninsula rising in recent months, we sought the views of Mr. Hyun In-taek, Minister of Unification, on the government’s policy towards the North and the way ahead.

Could you elaborate on the South Korean government policy towards unification and relations with the North, especially in light of the recent tension between both sides?
Basically, the South Korean government works to improve inter-Korean relations, build peace on the Korean peninsula and, ultimately, achieve a peaceful and gradual reunification of the Korean peninsula. We aim to achieve a Korean unity by building a peace, economic, and national community between the two Koreas. Since North Korea’s nuclear armament is the most pressing issue facing the Korean peninsula, we believe that building a peace community by denuclearizing North Korea should be the first step in our endeavours.
To this end, the Lee Myung-bak administration has proposed the “Vision 3000: Denuclearization and Openness” initiative. The initiative suggests that once North Korea decides to abandon its nuclear program, the South Korean government, together with the international community, will provide large-scale economic assistance to help North Korean economy make a substantial leap forward. In pursuing such a policy, the administration has maintained a “principled” approach by promoting sound inter-Korean relations based on mutual respect between the two Koreas and upholding such universal values as humanitarianism.
Despite our efforts, however, North Korea has continued to raise tensions on the Korean peninsula during the past three years with its brutal provocations, including the shooting death of a South Korean tourist at Mt. Geumgang in July 2008 and second nuclear test in May 2009, not to mention a torpedo attack on the Cheonan and shelling of Yeonpyeong Island last year.
To make a substantial improvement in inter-Korean relations, we believe that, more than anything else, North Korea must change its provocative attitude. In this regard, we have urged North Korea to take responsible measures regarding the two attacks it made last year, promise non-recurrence of such provocations in the future, and hold inter-Korean talks on the nuclear issue to confirm its sincere commitment to denuclearization.

What is your opinion of the economic cooperation programs like Gaeseong? What has been the progress of these ventures and do you think they should continue?
It has been already eight years since the two Koreas embarked on the Gaeseong Industrial Complex (GIC) in June 2003. The Complex has grown significantly over a short period of time. Even despite North Korea’s provocations last year, the South Korean government has sustained the Complex.
The number of South Korean companies operating in the GIC currently is 122, a 30% increase from three years ago. Although new investment in the Complex has remained restricted since the Lee Myong-bak administration suspended interactions with North Korea following North Korea’s attack on the South Korean corvette Cheonan, most South Korean companies in the GIC have been doing their business as usual. Last January, for example, the total production in the Complex reached US$ 31 million, recording an all-time high on a monthly basis.
Yet, if we are to make the GIC an industrial complex with a truly global standard, several key issues must be cleared. The most important of all is to allow South Korean workers commute more freely to the Complex. In this regard, we have urged the North many times to remove inconvenience related to so-called the “3C” issues--border crossing, communication, and customs clearance. Another issue arises from the very fact that the GIC is located in North Korea. This makes the Complex vulnerable to the ups and downs in general inter-Korean relations, which, in turn, may affect the investment climate. Moreover, the personal safety of our workers has yet to be fully guaranteed.
Nevertheless, as long as the situation does not deteriorate drastically due to such factors as military provocations by North Korea, the South Korean government is willing to maintain and even support steady growth of the Complex. While placing our highest priority on the personal safety of South Korean citizens working in the Complex, we will keep addressing the need for institutionalization to improve procedures for entry and stay for the GIC workers.

Early last month, we understand that North Korea jammed GPS signals and also resorted to hacking of many government websites. Given this, how well prepared is the Korean government to tackle North Korea’s cyber warfare capabilities?
The disruptive electronic waves that jammed our GPS signals last March seems to have originated from several regions in North Korea, including Haeju and Gaeseong. In response to such threats, the South Korean government has reinforced its security and monitoring system in order to prevent additional cyber attacks by North Korea. We have also reorganized and expanded relevant government agencies and increased cooperation among the government, military, and private sector.
South Korea certainly has technologies to counter North Korea’s cyber warfare. With capabilities far surpassing those of North Korea, we can and will properly counter any cyber threats from North Korea in the future.

The six party nuclear talks have stalled for some time now. When do you foresee the next talks taking place, and what are the main challenges on this front?
These days people often ask whether the Six-Party Talks will be resumed and, if so, when. I think, however, a more relevant question should be how productive the talks would be when they are resumed. When resumed this time, the Six-Party Talks should result in a concrete contribution to the denuclearization of North Korea. They should not be the “talks for talks’ sake.” To avoid it, North Korea must come to the table with a serious and sincere commitment to denuclearization.
North Korea has a long record of violating agreements, including the 1994 Geneva accord and the September 19 joint statement reached under the six-party framework. This is exactly why South Korea and the rest of the international community have continuously urged the North to prove its sincere commitment to denuclearization through actions, not just words.
The outcome of the talks is more important than whether the talks would be resumed or when they would. In this regard, I would like to stress once again that the North must abandon its nuclear ambition. To induce such a change in North Korean attitude, we must work with the international community.