Korea’s Road to Digital Transformation and Prospects for Korea-Chile Cooperation

Korea’s Road to Digital Transformation and Prospects for Korea-Chile Cooperation

Seungho Lee (Associate Research Fellow)

This Presentation

• explains the motives behind the Korean government’s recent drive for digital transformation

- prolonged productivity stagnation

- recent economic and geopolitical disturbances

• provides an overview of Korea’s recent initiatives to promote the digital economy

- the Digital New Deal and its core elements regarding data governance and e-government - digital-related provisions in preferential trade agreements

• suggests potential areas of cooperation in the realm of digital economy between Korea and Chile

- natural partners in building digital rules and standards at the global level

Why Digitalize? Stagnant Productivity Growth in Korea

Growth Rate of Value Added per Worker in Korea (%)

• declining average growth rate of workforce productivity in Korea over 1991-2018

0 1 2 3 4 5 6 7 8

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Author’s Calculations based on The Economic Transformation Database (2021)

Why Digitalize? Stagnant Productivity Growth in Korea

Growth Rate of Value Added per Worker in Manufacturing in Korea (%) Growth Rate of Value Added per Worker in Services in Korea (%)

-5 0 5 10 15 20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-1 0 1 2 3 4 5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

• declining average productivity growth observed both in manufacturing and services sectors

- for manufacturing: 10.6% (1991-2000); 6.6% (2001-10); 1.7% (2011-18) - for services: 3.5% (1991-2000); 1.6% (2001-10); 1.3% (2011-18)

Source: Author’s Calculations based on The Economic Transformation Database (2021) Source: Author’s Calculations based on The Economic Transformation Database (2021)

Digital Transformation as an Engine for Productivity Growth

• stagnant productivity growth combined with recent economic and geopolitical disturbances

- The slowdown of productivity growth in manufacturing is particularly worrisome.

- inherent problem with productivity divergence between sectors, firms, and generations i.e. manufacturing sector vs. services sector; conglomerates vs. SMEs; young vs. old - Productivity growth is further stalling given recent uncertainties and volatilities.

i.e. COVID-19; geopolitical factors; supply chain disruptions; inflation; potential impending recession

• Against this backdrop, Korea is betting big on digital transformation.

- In 2020, the Korean government unveiled the roadmap of the $48.2 billion-scale Digital New Deal.

- The 5-year plan is to support transitioning to a digital economy, ensuring the digitization of key industries.

- leverages the nation's robust tech infrastructure to integrate AI, big data and 5G into daily lives

Is Korea Ready for the Digital Leap?

• top-level digital infrastructure as measured by global standards

- 97% of population has access to internet (WDI 2020)

- world’s highest 4G telecommunications availability (CircleLoop 2020)

- 6^thin the number of fixed broadband subscriptions per 100 people among OECD countries (ITU 2020) - world’s fastest median 5G download speed (Speedtest Intelligence 2021)

• active online participation of citizens and quality e-government

- 2^ndin e-Government Development Index (UN e-Government Survey 2020)

The Digital New Deal: Core Pillars

Improve the Ecosystem for Data,

Networks and AI

• Promote the collection, sharing and use of data

• Expand the integration of 5G and AI into industries

• Make a smart

government that utilizes 5G and AI

• Advance cybersecurity

Digitalize Education Infrastructure

• Create technology-based education infrastructure for grades 1-12

• Strengthen the online education system of universities and job training institutions

Advance Contactless Industry and Infrastructure

• Achieve digital transition of care and healthcare infrastructure

• Promote remote working in SMEs

• Support online activities of microbusinesses

Digitalize Social Overhead Capital

• Introduce a digital management system for core infrastructure

• Add digital innovation to urban spaces and

industrial complexes

• Build a smart logistics system

Fiscal Investment Private Participation Institutional Backing

Notable Elements of The Digital New Deal: Data Governance

• The plan’s pledge to improve the data ecosystem would be meaningless:

- if some important prerequisites had not been present

i.e. favorable ICT environment; certain degree of cybersecurity;

ongoing in-depth discussion for cross-border data flows and data protection

• Indeed, Korea has over the past decades pioneered important approaches to data governance.

- deployment of key technologies that is crucial in improving infrastructure e.g. rollout of broadband internet

- a wide, flexible range of effective online authentication systems providing secure access to various services e.g. e-government services; online banking; online shopping

- consistent efforts to facilitate the international flows of data while protecting the privacy of Korean citizens

• Korea’s data governance policy has evolved largely by trial and error with presidential leadership.

Notable Elements of The Digital New Deal: Data Governance

• has built an institutional foundation for promoting a ‘data economy’ through key legislations

- In 2020, the National Assembly passed the amendments to Korea's three main data privacy laws.

i.e. Personal Information Protection Act; Act on the Promotion of the Use of the Information Network and Information Protection; Credit Information Use and Protection Act

- these amendments allow for more flexible data governance with the concept of ‘pseudonymised data’

• has embarked on the way to redesign industrial strategy with emphasis on information and data

- collecting and utilizing data in strategic areas

e.g. advanced manufacturing; high-end automobile; medical; energy; education; smart city

• has pledged to expand and sustain investments in general data technologies in the longer term

Notable Elements of The Digital New Deal: e-Government

• Korea’s impressive digital governance development through institutional backing and innovation

- e-Government Act (2001); Integrated Government Data Center (2005)

- Cloud-Based Government Data center (2012); Integrated Government Service Portal (2017)

- On-Nara(e-document system), Gov24(single channel to government services), HomeTax (online tax service)

• has pledged to digitalize public service delivery even further

- expanding contactless government services with mobile digital ID and MyData - using accumulated data to its fullest potential at the pan-government level - promoting collaboration between the public and private sectors

Digital Provisions in Korea’s Preferential Trade Agreements

Number of e-Commerce Provisions in Korea’s PTAs

• Korea has been active in introducing digital provisions to its PTAs.

- increasing number of (binding) e-commerce provisions and intellectual property provisions over time

0 5 10 15 20 25

Number of e-Commerce Provisions Number of Binding e-Commerce Provisions

0 2 4 6 8 10 12 14

Number of IP Provisions Number of Binding IP Provisions Number of Intellectual Property Provisions in Korea’s PTAs

Source: Author’s Calculations based on Trade Agreements Provisions on e-Commerce and Data (2021)

Digital Provisions in Korea’s Preferential Trade Agreements

CHL SGP EFTA USA CEPA EU PER COL AUS CAN NZL VNM CHN 5CA RCEP

Free Movement of Data ^{X X X X X X X X X X X}

ICT Cooperation ^{X X X X}

Standardization on Digital Means X

Rules on Trade in Goods Related to

Big Data ^{X X X X X X}

• majority of PTAs with provisions governing the cross-border movement of data

• a few PTAs with provisions calling for cooperation in digital-related areas

Source: Trade Agreements Provisions on e-Commerce and Data (2021)

Presence of Digital-Related Provisions in Korea’s PTAs

Digital Economy: Future Direction for Korea-Chile Cooperation

• Digital economy can shape future direction for Korea-Chile bilateral cooperation.

- impressive standing of the two countries in the digital economy

- opportunities for bilateral cooperation in the digital economy, especially in the trade realm - Chile has been leading the digital agenda in trade agreements, just like Korea.

• existing FTA as an excellent mechanism to implement cooperative projects on digital economy

- Korea and Chile in the middle of the negotiation process to upgrade the existing FTA - The inclusion of a digital chapter is a must and the introduction of binding rules are crucial.

• Chile’s support may facilitate Korea’s entry to DEPA.

- enhanced commitments on facilitating digital trade and multilateral cooperation on advanced technologies - DEPA aligns quite well with Korea’s domestic and international digital policy objectives.

Digital Provisions in Chile’s Preferential Trade Agreements

Number of e-Commerce Provisions in Chile’s PTAs

• Chile has been more active than Korea in introducing digital provisions to its PTAs.

- increasing number of (binding) e-commerce provisions and intellectual property provisions over time - The provisions included in PA, CPTPP and DEPA in particular deserve attention.

Number of Intellectual Property Provisions in Chile’s PTAs

0 5 10 15 20 25 30

Number of e-Commerce Provisions Number of Binding e-Commerce Provisions

0 2 4 6 8 10 12 14 16

Number of IP Provisions Number of Binding IP Provisions Source: Author’s Calculations based on Trade Agreements Provisions on e-Commerce and Data (2021)

Digital Provisions in Chile’s Preferential Trade Agreements

EU KOR USA TPSEP CHN COL JPN AUS TUR THA PA TPP URY ARG CPTPP BRA DEPA

Free Movement of Data ^{X X X X X X X X X X X}

ICT Cooperation ^{X X X}

Standardization on Digital Means Rules on Trade in Goods Related to

Big Data ^{X X X X X X X X X X}

• majority of PTAs with provisions governing the cross-border movement of data

• a number of provisions calling for cooperation in rules on trade in goods related to big data

Source: Trade Agreements Provisions on e-Commerce and Data (2021)

Presence of Digital-Related Provisions in Chile’s PTAs

Digital Economy: Future Direction for Korea-Chile Cooperation

• Digital economy is an area in which Korea and Chile can lead the global discussion.

- The pandemic has made digital transformation a necessary practice.

- fragmentation of digital rules and standards and non-interoperability of digital systems

- The two countries can assume leading roles in garnering international cooperation in the rule-making process.

- Both countries have made substantial progress on digital transformation, both at the domestic and global level.

• natural partners in the making of digital rules and standards at the global level

- significant middle powers with a reputation as leading open economies and robust democracies - have been assuming a certain degree of leadership in the Asia-Pacific

- potential to provide a “North-South bridge” in multilateral negotiations

• need to elevate a level of cooperation on the multilateral stage as responsible middle powers

Thank You