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Summary
Strategies for Collaborative Regional Development across the Korea-Japan Strait Zone
This volume is a collection of research papers, which have been carried out by researchers from both Korea and Japan. The report is composed of five parts. Part I deals with the historical and contemporary background of inter-local cross-border exchanges across the Korea-Japan strait. With the assessment of past performance in inter-local cooperation efforts, chapters in Part I examine achievements and problems in inter-local cooperation. It is noted that passengers and freight traffic has increased sharply between southeast Korea and northern Kyushu since 1999. In contrast, investment across the border has been inactive. There are many reasons for such low level of investment. One of them is the branch economy characteristics of both Kyushu and southeastern Korea. Another reason is that Korea is no longer a suitable location for low-cost production. This is partly reflected in the increasing trade imbalance between Japan (Kyushu) and Korea. Japan (Kyushu) imports more from China, while it exports more machinery products to Korea. Another important issue is that inter-local cooperative efforts did not produce tangible economic results despite many meetings and forums held among public authorities in the Korea-Japan strait zone.
Nonetheless, the Korea-Japan Strait Zone Governors’ Summit provides an institutional foundation for inter-local cooperation across the strait.
Against this background, chapters in Part I stress the need for closer inter-local cooperation. The basic rationale comes from the branch economy characteristics of both regional economies—southeastern Korea and northern
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Kyushu. The fate of these regional economies depends more on external forces than internal. Given the likelihood of free trade agreement between Korea and Japan in a few years of time (both Korean and Japanese governments were in negotiation for the conclusion of FTA at the end of 2005), regional economies that do not have international competitiveness will lose in a more liberalized economic environment. Thus, it is critical for these regions to capture the opportunities arising from FTA and in general globalization. If they do not make successful adjustments, they will fall back into the peripheral position. Of course, closer cooperation with the core region, for example, the Seoul capital region, is an option for southeast Korea. Given the structure of unequal relationship between the core region and non-core regions, it is difficult to expect that any non-core region such as northern Kyushu can break out of the structure of unequal relationship.
Although authors do not advocate the separation of domestic inter-regional dependency, they agree on the need to restructure this domestic inter- regional dependency by actively pursuing international inter-local cooperation. Certainly, this is one avenue for those semi-peripheral regions to upgrade themselves. The basic concept to be employed for this cross- border inter-local cooperation in the Korea-Japan strait zone should be ‘joint comparative or competitive advantage’ instead of simple comparative advantage.
Part II examines the rationales for cross-border cooperation in the Korea-Japan Strait Zone in theoretical and empirical terms. Chapter 4 argues for the need to consider cross-border cooperation as an important element of regional development strategy. This is particularly so under the circumstance of Northeast Asia, wherein economic interdependency is rising and free trade movements are gaining a momentum. Chapter 5 draws lessons from the European and North American experiences in cross-border cooperation. The major lesson from the European experience is that European integration and the emergence of a supra-national organization like the European Council
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provided a favorable environment for cross-border cooperation at the local level. Although it is not possible to replicate the European examples in Northeast Asia, one can certainly apply some of cross-border institutional structures to the Korea-Japan Strait Zone. The North American experience provides valuable lessons as well since Northeast Asia’s macro institutional conditions resemble those of North America. It reminds us of the importance of methodology--how to utilize a partnership between the public and the private sector, given the weak institutional foundation for inter-local cross- border cooperation.
Part III explains about the likely impact of Korea-Japan Free Trade Agreement on the regional economies of southeastern Korea and northern Kyushu. Undoubtedly, FTA is expected to increase trade volume between Korea and Japan. Similarly, trade between southeastern Korea and Japan on one hand, and trade between northern Kyushu and Korea on the other, will grow but trade imbalance may grow too in favor of Japan. Although the Korean side anticipates more Japanese investment from Japan following the Korea-Japan FTA, it is difficult to predict how much investment will flow into Korea and the southeastern region. For the southeastern region and Korea as a whole, investment environment must be improved to attract more Japanese investment so as to capture the benefits of FTA between the two countries. The second chapter in Part II deals specifically with the agricultural sector, which is regarded as a sensitive area. The author, while acknowledging the need to carefully deal with the sector, suggests that both governments of Japan and Korea establish some mechanisms in order to minimize negative impact on this sensitive sector. Sharing the benefits of free trade is one of important policy objectives and therefore both countries should work together to set up a joint fund to compensate for the enterprises or residents who may be negatively affected by the free trade agreement. It is also advised to set up a cross-border market for agricultural products.
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The other two papers in Part III introduces the results of the survey taken for this collaborative research. Community leaders and firm managers in the BUG (Busan-Ulsan-Gyeongnam) area favor the Korea-Japan free trade agreement, although they do not expect that the agreement will be concluded as scheduled. Most of respondents in the BUG area expressed a concern about the negative effects of the Korea-Japan FTA. This is in contrast to the opinion of the respondents in the FNSY (Fukuoka-Nagasaki-Saga- Yamaguchi) area. Japanese respondents are more in favor of the Korea-Japan FTA and about half of them have an opinion that the agreement should be concluded as early as possible. Korean and Japanese respondents also differ in terms of the perceived effects of the Korea-Japan FTA on their regional economies. Whereas a large proportion of Japanese respondents (89%) expect positive effects on the regional economy, lesser proportion of Korean respondents (51%) regard the FTA will bring positive benefits to the regional economy. However, both Korean and Japanese respondents agree that language problem, lack of information and differences in customs in commercial transactions are obstacles to economic cooperation across the strait. In response to the question of the most promising fields of cooperation, Korean respondents rank automobiles/parts, tourism, machinery and logistics in descending order. In contrast, Japanese respondents mention tourism, environment, semiconductor and automobiles/parts as most promising sectors. With a slight variation in the order of importance, both Korean and Japanese respondents consider that forming an integrated regional economy across the strait, expansion of exchanges at the private level, starting with cooperation in a few promising sectors or the earlier conclusion of Korea- Japan FTA will facilitate economic cooperation across the Korea-Japan strait.
Korean respondents consider that the role of local government in facilitating economic cooperation should focus on financial support, information provision and removal of institutional barriers. In contrast, Japanese
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respondents place similar emphases on information provision and removal of institutional barriers, while they put less weight on financial support.
The above survey results indicate that there are subtle differences in opinion between Korean and Japanese respondents with regard to the FTA, regional economic integration, the promising sector of cooperation, and so forth. Obviously, these differences stem from the perceptions that each side has on the other. As we are aware, these perceptions are not always based on facts and they are often tainted with misinformation and prejudices. In this regard, generation and dissemination of information as revealed in the survey results is the foremost important task to be done in order to promote cross-border cooperation.
Part IV examines the possibility of cross-border cooperation in specific industry or sector. Those sectors examined cover a wide range of industries including manufacturing, services and R&D. Although the level of analysis is uneven across the sectors, chapters in Part IV look at the potential and prospect of cooperation in each sector in the Korea-Japan strait zone.
Considering a substantial agglomeration of automobile and parts factories in southeast Korea and northern Kyushu, it is not too far fetched to imagine a cross-border automobile corridor in the strait zone. The Ontario- Michigan automobile corridor in North America provides an example of cross-border integration. We should remember, however, that the US-Canada auto pact was made long before North American Free Trade Agreement. In other words, an automobile corridor in the Korea-Japan strait zone will take time to mature. More importantly, it is not government but multinational companies that can bring the idea into reality.
Both southeast Korea and northern Kyushu have a strong base in machinery and metal industries. As such, potential for cooperation exists but the issue of how remains. In terms of technology, Japanese firms are ahead of Korean firms. Although Korean firms want technology transfer from Japan, Japanese firms are reluctant. The issue here is related to intellectual
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property ownership. Unless this issue is resolved and the attitudes of Japanese firms are changed, it seems difficult to have a mature cooperative relationship in the machinery industry. Given technological superiority, Japanese firms will enjoy the benefits of more export to Korea when the two countries conclude FTA. Unless the resulting trade imbalance is complemented by Japanese investment in Korea or some form of technological cooperation between the two sides, the machinery industry in southeast Korea is likely to have negative impact. Korea-Japan FTA will enlarge the opportunity of outsourcing or subcontracting for both Korean and Japanese firms in the machinery and metal industry. Whether or not firms will capture this opportunity depends on the evolving pattern of inter-firm relations across the border, wherein non-tariff barriers such as customs in commercial transactions and lack of trust between partners across the border are still high.
The information service industry, even though it is not the major industry yet in both southeast Korea and northern Kyushu, is growing fast and promising for cross-border cooperation. Given a rather recent birth of the industry, there is no significant technological gap between Korea and Japan. However, the information service industry and in particular software industry is sensitive to labor costs. Given that Korea’s wage level is much higher than that of China and India, there is no possibility of Korean firms to succeed in the order-made software market. There is a chance for cross- border cooperation in package software. Japanese firms in northern Kyushu can utilize the talents in the information service industry in Korea. By doing this, Japanese firms can avoid spending large expenses for the development of package software, while Korean venture companies can expand their market into Japan. For the moment, selling tie-up is considered to be a feasible and effective cooperation strategy.
The environment industry is another candidate for cross-border cooperation. Northern Kyushu is relatively advanced in terms of pollution
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abatement technology and recycling. As a matter of fact, Kitakyushu is at the vanguard of environment industry in Japan. Given the heavy industry orientation of southeast Korea, there is an obvious need to develop the environment industry and in fact the market is growing fast. Japanese firms in northern Kyushu can render technological support to southeast Korea. The city of Ulsan, for example, can learn a great deal from the experiences of the city of Kitakyushu. In order to develop cross-border cooperation in the environment industry across the strait, both sides should go beyond the above one-sided cooperation. There are a few avenues to realize higher levels of cooperation across the strait. One avenue would be in the re- exporting of recycled goods including automobiles, home appliances and others. The existing recycling facilities and logistics platform in the Korea- Japan strait zone would be a great asset for both sides. Another avenue, which is likely to take more time, would be advancing into the third country market jointly, utilizing technical expertise and financial resources in northern Kyushu and plant construction capability of firms in southeast Korea. Yet another would be to collaborate in the development of advanced environmental equipments. Firms in northern Kyushu plan, design and market the products in overseas market, while firms in southeast Korea manufacture the products. However, these possibilities should be further probed since there are many practical issues involved in realizing cross- border cooperation between Korean and Japanese firms.
As revealed in the survey results, tourism is one of the most promising sectors for cross-border cooperation. Obviously, tourism is a target sector for many urban and rural economies in Asia and Europe. Geographical proximity and cultural similarity between Japan and Korea provide very favorable initial conditions. Language barriers, border formalities, transportation, and expenses in turn pose frictions in cross-border tourism industry. There are two categories of measures to promote tourism in both southeast Korea and northern Kyushu. One applies to just between the two
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regions and the other is for anyone who comes to each region. Posting Korea’s street signs in Chinese characters for example will not only help Japanese tourists but also Chinese tourists. Japanese (Korean) language course in public broadcasting system in southeast Korea (northern Kyushu) would stimulate the interest of the residents in each region about the other country. Currency exchange is another negative factor for tourists. If hotels and restaurants in both southeast Korea and northern Kyushu accept either Japanese or Korean currency, it would be much more convenient for both Japanese and Korean tourists. An early adoption of visa exemption, which is under discussion now between Korean and Japanese government, will stimulate tourism in both places, especially from Korea. Especially for the residents in southeast Korea and northern Kyushu, we can consider coupon system—discounted prices for hotels, restaurants and airfare and sea fare.
Apart from tourism promotion between the two regions or countries, local authorities and tourist firms in southeast Korea and northern Kyushu can jointly promote tourism to attract tourists from China and other countries.
Another area of cross-border cooperation would be developing a new industry of medical services and health care based on the potential of a combined region covering both southeast Korea and northern Kyushu. This is not simply exploiting comparative advantage. Instead it is creating competitive advantage by pooling resources available in both regions. The combined region already provides a market of 17 million populations, with a significant proportion owed to the aged. Given the worldwide trend in the medical service industry, both Japan and Korea cannot close their medical service markets indefinitely. As shown in the case of Singapore, the medical service industry is one of the fast growing industries in Asia. Given the climatic and geographical advantages of the strait zone, there is a strong possibility to develop a medical hub (maybe not as a hub for comprehensive medical services but for medical services specialized for the aged, for instance). Of course, there are many obstacles to overcome beginning from
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domestic regulations on medical services and medical insurance system.
Nonetheless, joint efforts can begin in the areas where medical insurance does not cover. The two regions can begin cross-border cooperation in R&D and exchanges of technology and professionals. Given large inter-industry effects of the medical sector, it would be profitable to build a medical hub in the Korea-Japan strait zone with an emphasis on silver care.
The last topic in Part III is a key to building cross-border learning region.
As shown in the example of Copenhagen-Malmo in Scandinavia, cross- border cooperation in R&D and education can open up new possibilities of creating competitive advantage. There are many obstacles to building a cross-border learning region across the strait. Language barrier is one. Lack of information and trust is another. However, given the complementarity in terms of manpower and R&D facilities endowment between southeast Korea and northern Kyushu, there is a strong possibility for cooperation in R&D and education field. What is needed most is a sort of ‘clearing house’
organization, which can broker and coordinate interests between various types of organizations such as universities, research institutions, and private companies. Local governments can provide financial support in establishing this coordinating organization. This coordinating organization can utilize the existing channels of cooperation in the field of science and technology at the national level. It can also consolidate technological cooperation programs that are separately carried out by various organizations in the southeast region of Korea. Firms in northern Kyushu are keen about utilizing high- level manpower in southeast Korea for the development of IT service industries. Language courses offered at the coordinating agency will help the transfer of manpower between southeast Korea and northern Kyushu.
Increased exchanges in manpower and technology across the strait are in the long run believed to pave the road for building a cross-border learning region.
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Papers in Part IV discuss strategies and measures to promote cooperation across the Korea-Japan strait zone. Ideas suggested here, although they are tentative, include a localized network of free zones or a vision of an integrated cross-border regional economy based on a few promising industrial clusters. However, the first step in the efforts to promote cross- border cooperation should be building an institutional infrastructure. The existing Korea-Japan Strait Zone Governors’ Summit is one platform, on which more refined institutional structures can be built. In addition, local and regional authorities in the southeast region of Korea and in the northern Kyushu and Yamaguchi region of Japan respectively must set up a coordinating agency that covers two cities and one province in southeast Korea and the two large cities and four prefectures in northern Kyushu.
Following institutional infrastructure building, concrete cooperation programs should be developed in joint commissions under the council representing all the member units of southeast Korea and northern Kyushu.
A couple of commissions can be set up under the council to deal with various issues and sectors of cooperation. Cross-border cooperation of course can begin with sectors and areas, which can be easily carried out.
Some measures can be taken unilaterally and others by mutual agreement.
Local and regional public authorities can certainly lead the process of cross- border cooperation and they can begin with setting up information dissemination in appropriate organizations in two languages (Japanese and Korean). They can also strive for reducing institutional barriers to the maximum extent possible. Both regional authorities in southeast Korea and northern Kyushu can lobby national parliament and central government: 1) for the inclusion of a clause in the Korea-Japan free trade agreement in negotiation; and 2) for the elimination of institutional barriers as well as the provision of funds from national ODA funds.
The final chapter on conclusions and policy recommendations summarizes major findings from the theoretical and empirical investigations
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and suggests key policy recommendations. Given the prospect of radically changing industrial landscape in Northeast Asia due to the free trade movement and the emergence of China as the world’s major manufacturing center, city-regions with less competitive power are expected to face hard times. The fate of these semi-peripheral regions will depend on how they respond to changes in the external economic environment. One avenue that cities and regions can pursue in order to enhance their competitive position lies in cross-border or trans-border cooperation. The logic of cross-border cooperation especially in the Korea-Japan Strait Zone can be formulated from joint comparative advantage and competitive advantage instead of the conventional comparative advantage rule based upon factor cost differentials.
Considering the importance of institutional environment and cross- border governance structures in the success of cross-border cooperation, it is recommended to set up cross-border institutions by which local authorities across the strait can work together. Specifically, these institutions can be composed of a committee, council and secretariat. Before setting up these cross-border structures, both sides of the strait need to set up a regional association, by which municipalities and provinces (prefectures) can coordinate their economic development and international cooperation issues.
A round table conference of experts is suggested under the council in order to design a vision and key projects and their time table. The vision of cross-border region in the ‘Rainbow Strait’ should focus on the formation of cross-border industrial clusters. To achieve this vision, there should be detailed programs and funds. Many specific projects can be included in cross-border programs but they should be implemented in stages. A sort of principle to keep in mind is ‘agglomerations first’ and ‘clustering later.’
Although local authorities can allocate some portion of their budget for cross-border cooperation projects, additional funding should be sought from the central government, in particular, ODA funds. A network of free zones among many possible cross-border initiatives is recommended as the first
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priority strategic project. The strait zone already has similar types of free zones and what they need is a common framework and incentive system.
This network of free zones is not only an effective means to form a cross- border economic region but also an interim policy alternative to a delayed conclusion of the Korea-Japan free trade agreement. Finally, this concluding chapter emphasizes once again the importance of cross-border cooperation as an essential element of regional development strategy and as a stepping- stone for constructing a positive future for Korea and Japan.
December 2005 Won Bae Kim
