There have been numerous merger and acquisition (M&A) activities in the world, primarily in the United States and Europe. Cross-border M&A transactions have also been on the rise.
In the United States, most M&A activities have, thus far, taken place among large firms, but lately even more large firms have joined the trend. Consequently, the volume of mergers has been steadily increasing.

With the launching of the European Monetary Union (EMU), there has been a wave of mergers among large European firms in response to the enlarged market.

In addition to Europe, where universal firms have traditionally been permitted, firms in the United States and Japan have increasingly conducted intersector transactions, following the relaxation of regulations governing such transactions in those markets.

M&A activities have become prevalent worldwide as more countries have opened themselves up economically with the launching of the World Trade Organization.

The 1990s have seen an almost unlimited, transnational competition among firms everywhere with the advent of globalization and the development of information technologies.

In response to those conditions, many firms adopted strategies designed to meet them. They have increased their market power by raising market share. They have also reduced unit costs and increased operating efficiency by eliminating redundant facilities and personnel.

Overall economic conditions are favorable in the United States and Europe. When the economic conditions are likely to remain favorable for the foreseeable future, firms tend to increase their size and expand into other businesses since the cash flow is vibrant and the expected rates of return are predictable.

M&A intermediaries, such as investment banks, contribute to the rise in the number of M&A transactions by assisting in the process of selecting and evaluating firm suitable for merger or acquisition, negotiating the terms and signing the agreements.

Korea can gain valuable insights and knowledge by understanding, and learning from, the increased M&A activities. Korean firms need to focus on increasing profit margins by restructuring themselves and adopting advanced skills and techniques.

The need for economic cooperation between Northeast Asian countries is increasing due to several factors. These are the deepening of the economic interdependence among the three countries; the need for the prevention of overlapping investment in major regional industries; as a response to the formation of economic blocs in the world economy and the growing number of fields requiring the coordination of common interests such as fishing activity rights and the problem of trans-boundary pollution.

None of the Northeast Asian countries has joined any regional trade agreement so far but and Japan and Korea have recently renewed their interest in concluding some kind of regional trade agreement. Also, China has intensified its trade liberalization process and tried to modernize its institutions in order to become a member of the WTO. Thus, the possibility of establishing Northeast Asian economic cooperation is higher than ever before.

However, we still face some obstacles in achieving any kind of economic integration in the form of a Free Trade Area because of widening intraregional trade imbalance, the economic differences between members, China's adherence to its socialist regime and also a lingering and bitter history in the region. Therefore, in creating the Northeast Asian Free Trade Area, we need to implement a strategy that will gradually lead to regional economic integration while overcoming the aforementioned obstacles. That is, it is essential for the three countries to actively pursue coordination for the successful launch of regional economic integration. In the short-term, we need to standardize and modernize the differing trade norms of each country, such as customs procedures, anti-dumping rules, the unification of product classification, rules of origin, etc, in order to lay the groundwork for economic integration and we should implement a common incentive policy to accelerate the restructuring and cooperation of regional industries. In the mid-term, we should facilitate intra-regional trade by reducing tariff rates of items of concern for the three countries as well as for Japanese tariff rates with high customs duties. In the long-term, we should create the Northeast Asian Free Trade Area by achieving mutually preferential trade liberalization based on a liberalization scenario designed to solve the regional trade imbalance. The liberalization scenario consists of the differential liberalization based on the early trade liberalization of Japan and the subsequent liberalization Korea and China at the midpoint of Japan's liberalization process. In addition to tariff reduction, deliberate measures for promoting intraregional trade, such as preferential ROO, will be needed.

In order to carry out this long-term economic integration program successfully, we need to create the Northeast Asian Economic Integration Promoting Commission composed of high level officials and professionals from each country, which will occur when there exits a favorable environment within each of the three countries for integration. The commission will be responsible for preparing long-term plan for integrating the three economies and for overseeing the integration process into a single free market.

Since the recent turbulence in emerging markets, which gave rise to fears of global recession, has settled down, most of the economies recently in crisis have begun to recover, and the economic conditions of the major industrial countries are robust. The international financial environment has stabilized with the spread, to the emerging market economies, declining after the Brazilian crisis in January. The Japanese economy recorded a positive growth rate in the first half of 1999 after a negative growth in 1998, expectations for a European economic recovery have materialized, and the U.S. economy has maintained its long-term growth with low inflation and a low unemployment rate.

The world economy in 2000 will show stable growth with the economic conditions of the crisis affected economies being improved and the Japanese and European economies recovered. The U.S. economy will show a slowing of growth to sustainable rates, a soft landing, due to the correction of the stock market and an increase in interest rates. The low interest rates and an recovery of the Asian economies will help the Japanese economy to grow faster than it had in 1999. The EU economy will grow by 2.6-3.1 percent based on the improvement of consumer and business confidence, and the increase in exports to emerging market economies. The continuation of the economic restructuring and the improvement of the international economic environment will lead the East Asian economies to strong growth.

However, there remain risks which may hinder the stable growth of the world economy. First, the slowdown in the U.S. economy may be more abrupt than expected if inflation pressure grows, or if the stock market correction surpasses expectations. Secondly, if the economic recovery of the Japanese and the European economies will not be sufficient, the Asian developing economies and the Latin American countries will suffer. Thirdly, large increases in current account imbalances among the major economies may create protectionist pressures or destabilizing movements in international exchange rates.

21 member economies submitted Individual Action Plans in 1998. This includes first submissions by three new member economies; Peru, Russia, and Viet Nam. Even though the volume of IAPs is heavy, the content is not faithful enough. Some economies have submitted an identical version three times. Others did not follow the IAP guidelines adopted at the Senior Officials' Meeting(SOM), therefore, it is very difficult to find out what has been achieved and what has been newly added to the IAPs.

Overall, the current IAP system requires major reform in order to enhance the utility needed for the achievement of the Bogor Goals. First, member economies should submit their IAPs in conformance with the SOM guidelines. Second, the Peer Review Process of IAPs should be strengthened including the standardization of the Process. Third, the submissions should be made more widely available to the public and the press so that the member economies gain more input and stimulus as a result of their publication of their IAPs.

A Study on the National Competitiveness Assessment of the IMD Baksoo Kim·Yunjong Wang·Dongwha Shin·Hyongkun Lee
Korea's national competitiveness, based on The World Competitiveness Yearbook 1999 of the International Institute for Management Development (IMD), has continually declined over the past five years. In particular, it is a genuine surprise that our national competitiveness is remarkably inferior to that of countries which experienced the recent financial crisis such as Malaysia and Thailand as well as competitors like Taiwan and even China.

National competitiveness may be defined as a country's overall capability to create the most effective social structure, institutions and policies that allow its company within the national boundary to be more competitive in the world market. Therefore, our diminished ranking brings us to admit that our country has gradually lost its competitiveness in the global market.

The ranking of national competitiveness, as given by the IMD, is utilized as a useful source of information when multinational companies seek investment opportunities. Since Korea is currently, and urgently, focusing on the policy issue of attracting foreign direct investment, our diminished competitiveness is a serious problem. Also, in the event that our national competitiveness continues to decline, or remains at a low level, domestic companies would be inclined to move their production sites abroad. This is simply because there is no attraction in maintaining business operations in a country with a bad business climate. In addition, if a hollowing out phenomenon occurs, both a sharp increase in unemployment and in the long term a collapse of the very foundations of manufacturing would result. Therefore, we have to improve our competitiveness both to successfully compete with other countries in the world market, through maximizing the competitiveness of Korean companies, and to attract global multinational companies.

However, there exist some views suggesting that the continual decrease in our level of competitiveness is basically caused not only by our internal problems but may, in fact, also be falsely reported due to the methodology used by the IMD. Namely, there exist a number of questions pertaining to the credibility of the methodology of the IMD. According to our study, it has become apparent that the competitiveness methodology of the IMD is problematic. Albeit some problems with the methodology used by the IMD, it is very important for us to recognize, and focus on, the issues which we can address in order to better promote our state of national competitiveness. That is, the IMD assessment gives us a lot to think about and to improve upon.

With this critical, yet analytical, approach in mind, our study deliberates on the definitions and determinants of national competitiveness, the methodology of the IMD, and improvements thereof, in addition to our current state of competitiveness as assessed by the IMD.

This study discovered that Japanese, Singaporean, and Taiwanese firms, which compete with their Korean counterparts in the global market, have developed their unique systems of foreign exchange (FX) risk management. The uniqueness and differences are attributed to their own business environment characteristics and the different developmental stages of their FX markets. As their domestic economies are deeply integrated into the global financial markets, however, companies in all three countries are becoming more exposed to FX risks. Recognizing the costs incurred by ever increasing FX exposures and risks, they all endeavored to develop FX risk management systems.

FX risk management techniques can be classified into internal and external ones. Internal management refers to techniques that involves only in-house resources to avoid FX risks while the latter resort to external resources and market instruments such as financial derivatives to hedge the risks that cannot be avoided through internal management.
It is commonly observed in both Korean companies and foreign counterparts that larger firms with bigger exposures to FX risks tend to more keenly recognize the importance of FX risks. Also, those firms having overseas networks are more inclined to use internal techniques, such as netting through foreign subsidiaries.

The countries with longer histories of flexible exchange rate regimes, such as Japan and Singapore, have shown more systematic management of FX risks. Japanese firms focused more actively on coping with changing business environments caused by the New Foreign Exchange Transaction Act of 1998, rather than passively reacting to a strong Yen as in the past. Multinational companies in Singapore have practiced the most advanced system of FX risk management by using overseas networks. Taiwan, on the other hand, has displayed a rather passive stance towards FX risk management. Even though Taiwan adopted a floating exchange rate regime in 1978, and the size of its daily FX trading volume is almost same as that of Korea, most small and medium-sized companies in Taiwan have not practiced FX risk management.

While Japan, Singapore, and Taiwan have shown different degrees of development in the FX market, Japan - the third largest foreign exchange market in the world  possesses various FX risk-hedging products. The most extensively used market instrument is the outright forward contract. Outright forward contracts have been more widely used since the abolition of the Real Demand Principle in 1984. Larger Japanese firms have developed the Asset and Liability Management (ALM) system to cover overall FX exposures more flexibly on a continuous basis.

The foreign currency-denominated bonds have been also used as hedging devices. Impact loans have been widely used before the New Foreign Exchange Transaction Act. Impact laons are now utilized primarily for ALM purposes.
Singapore, as a small open economy, originally maintained a very passive stance towards the internationalization of the Singapore dollar. However, Singapore has devoted itself to making Singapore an international financial center by initiating capital account and foreign exchange liberalization along with the augmentation of its financial infrastructure. Multinational enterprises located in Singapore are also using outright forward contracts extensively. Since these firms hold high international credibility, they do not have any difficulty in securing credit lines from financial intermediaries in Singapore. In addition, the active transaction of Asian currencies in the Asian Dollar Market (AMD) has been supporting Singapore as an efficient international financial center for FX risk management.

With regards to Taiwanese firms, which are mostly small and medium-sized enterprises, FX risk management cannot, by nature, be a top priority. Especially when the government has frequently intervened in the foreign exchange market for the purpose of its currency stability. Thus, most companies have not recognized the need for FX risks management.
External asset and liability management is becoming increasingly important for large Korean companies with foreign subsidiaries. The efficient and comprehensive ALM system will be an important building bloc for FX risk management and requires a specialized system and competent human resources. The experiences of Japan and Singapore can be viewed as benchmarks for Korean companies. Regarding small and medium-sized firms in Korea, the Taiwanese case of using main banks or general trading companies can be considered as alternative options. In addition, it would be a desirable scheme to create a consortium for FX risk management among small and medium-sized companies.

Obviously, as the depth and breadth of the foreign exchange market in Korea is increasing, various financial products for FX risk hedging will be introduced. However, overall financial markets should be normalized and strengthened along with the development of institutional infrastructures. Although recovery of the economy from the financial crisis is underway, there still are many firms that cannot receive enough credit line for forward contracts. The reasons are twofold. First, the financial intermediaries are hesitating to make contracts because of the default risk of the firms. Second, financial intermediaries cannot square their position by contracting with foreign banks or entering Non-deliverable forward (NDF) markets because of low credit ratings. Only when the credit ratings of those domestic financial institutions have been enhanced through rigorous restructuring, will credit lines become more accessible.

OECD Issues on Trade and Competition Policy and Implications for Korea
Mikung Yun·Jongkeun Kim·Yongsook Na

The OECD has pronounced competition policy to be an important trade issue of the 1990s and by establishing a specialized working group, has been a forerunner in providing a forum to discuss the relationship between trade and competition policy. This report examines salient aspects of the discussion - multilateral agreement and other forms of international cooperation with respect to competition policy, effects of anti-dumping measures, vertical restraints, mergers, and international cartels on market access - that took place in the OECD and elicits implications for Korean policy makers.

The report pays particular attention to real world examples to help explain the conceptual issues. The study concludes that the focus of the OECD discussion has shifted from particular anti-competitive issues such as vertical restraint or anti-dumping to rights of firms under local competition laws, the merits of bilateral agreements, and application of WTO principles such as transparency and non-discrimination to bilateral agreements. This leads the authors to predict that whether a multilateral agreement is concluded or not in the new round of the WTO, pressure from developed countries to conclude bilateral agreements will take on a greater force.

The need for economic cooperation in Northeast Asian region is increasing due to several factors. These are the deepening of the economic interdependence among the three countries; the need for the prevention of overlapping investment in major regional industries; as a response to the formation of economic blocs in the world economy and the growing number of fields requiring the coordination of common interests such as fishing activity rights and the problem of trans-boundary pollution. None of the Northeast Asian countries has joined any regional trade agreement so far but Japan and Korea have recently renewed their interest in concluding some kind of regional trade agreement. Also, China has intensified its trade liberalization process and tried to modernize its institutions in order to become a member of the WTO. Thus, the possibility of establishing Northeast Asian economic cooperation is higher than ever before.

Economic cooperation should be pursued through a preferential trading bloc that is compatible with WTO rules and that can gain momentum in the process of implementation. One possibility is to conclude a close economic cooperation organization in the region. An alternative can be an FTA among the three. However, this option has so far not been under serious consideration, due to the socialist regime of China, the attitude of Northeast Asian countries suspicious toward Japan because of the history of the past, and the fear of the aggravation of existing economic gaps. But the need for economic cooperation among East Asian countries has been reemphasized after recent changes in the international economic environment, especially after the East Asian financial crisis.

To examine the economic feasibility of Northeast Asian regional economic integration through the expansion of market approach, let us analyze the economic effects of trade liberalization between Korea and Japan, prior to exploring a simulation of economic integration of the three countries. If Korea and Japan eliminate tariff barriers on a preferential basis, Korea is projected to lose by USD 2.0 billion annually, and its trade balance with Japan will worsen by USD 7.1 billion. On the contrary, it appears that Japan will realize substantial gains. This result can be explained by the special conditions of both countries' economies. Korea's major industries overlap with Japan and thus are trade competitors, while Korea has weaker international competitiveness. Moreover, Korea's general tariff rates are higher than Japan's. Therefore, trade liberalization between the two countries will enhance Japanese price competitiveness over Korea's. Korea's dependence on high-tech industrial products from Japan will be higher, while Korea's industry structure will tend towards the development of low value-added industries such as textiles, clothing, shoes, etc, which will deteriorate the overall efficiency of resource allocation in Korea.

Next, a simulation was performed by adding China to the Japan-Korea FTA. Results similar to those in Korea-Japan FTA were obtained. The trade liberalization of the whole Northeast Asian region, however, would increase intraregional trade in a considerable way but at the same time, there is also a possibility that it would deteriorate the regional trade imbalance. This shows the importance of having a well-thought out strategy in achieving regional economic integration.
According to simulation results, the formation of an FTA would substantially improve Korea's and Japan's trade balances, while China would experience a sizeable increase in its trade deficit. This indicates that simple enhancement of market access by removing tariffs and non-tariff barriers (NTBs) within a short period of time is not a feasible approach for economic integration in Northeast Asia. Therefore, in creating an FTA, measures to mitigate anticipated problems should be devised. In creating the Northeast Asian Free Trade Area, we need to implement a strategy that will gradually lead to regional economic integration while overcoming the aforementioned obstacles.

APEC is celebrating its tenth anniversary in 1999. Established in 1989 as "the first broad regional institution for intergovernmental dialogue on economic policy issues" in the Asia-Pacific region, APEC has emerged as one of the most powerful regional groups in the world economy, assuming more than 50% of world GDP and trade volume, respectively. In the period since its inception APEC has gone through three development stages: (1) official inauguration and institutionalization (1989-1992); (2) preparation of visions and action plans (1993-1996); (3) implementation (1997-now). Throughout these three stages of its evolution, economic cooperation agenda within APEC has been focused primarily on its two pillars of cooperation -economic and technical cooperation (Ecotech) and trade and investment liberalization and facilitation (TILF) -with financial and currency cooperation gaining importance only after the outbreak of the Asian crisis. In relations to non-members, APEC officially adopted open regionalism as an instrument to contribute to the strengthening of the multilateral trading system governed by the GATT/WTO. Therefore trade policy measures of APEC are serving as the interface between APEC and the WTO. With its big economic (market) size and intense trade relations both within the region and with non-member countries, APEC has acquired some degree of influence in global economic issues. However, APEC has had in reality enormous difficulties in reaching internal consensus on whether and how to implement open regionalism both within the Asia-Pacific and in relations to non-member countries. In the light of the WTO's Millenium Round, this paper elaborates trade policy options available for APEC in relations with the multilateral trading system under the WTO. Main conclusions are as follows: First, In the short- and mid-term, APEC has to contribute to the successful launch and completion of the Millenium Round, whereas in the long-term APEC should concretize and, in possible, revise the operational definition of open regionalism. Second, in the short-term strategy the author regards the successful integration of the ATL initiative of APEC into the official agenda of negotiations of the WTO's Millenium Round as the most important contribution of APEC to the WTO system. Third, developing a single position of APEC on the coverage, modality of the Millenium Round will be an additional contribution of APEC. Especially, balancing the developing and developed memebr economies' interest within APEC will ease the potential tensions between developing and developed member countries of the WTO in the upcoming new round. Fourth, APEC has to reconsider and/or concretize the concept of open regionalism. A well-designed and well-implemented open regionalism concept has the potential to contribute to the strengthening of the multilateral trading system. However, APEC has had so far enormous difficulties in reaching agreement how to practically implement the concept. For this, APEC has three options to choose: implement open regionalism in the form of unconditional MFN treatment; making APEC's liberalization to happen at same speed and coverage as that of the WTO; abandon open regionalism and adopt its own regionalism. With three options showing their own advantages and disadvantages, the central message of the paper is that APEC has to clarify its long-term vision that is viable for the new century.

An effective innovation policy for the less developed countries would be different from that of the advanced ones. In most of the less developed countries, we argue that innovation policies designed to link demand and supply for technology will not be as effective as has been strongly indicated in previous literature. In addition to building a competitive market condition, government R&D expenditure has to be made for a certain period of time, as one of the necessary conditions for indigenous private R&D.

In this paper, we examined the importance of government R&D expenditure for stimulating private R&D. Our main hypothesis is that government R&D expenditure has significant impacts on private R&D expenditure for the NICs even though the effectiveness may vary by the stage of industrialization. That is, government R&D expenditure does not generate any R&D investment from the private sector at the initial stage of industrial development. However, once the economy's technological capability reaches a certain level the government sector starts to induce investment from the private sector until the share of private firm's R&D grows to a certain level. Using a time series analysis we test the hypothesis for three advanced and two developing member economies in the APEC: U.S., Japan, Canada, Taiwan, and Korea.

We found mutual Granger causality relations between GERD and PERD in the U.S, a unilateral causality from GERD to PERD in the case of Japan, and no causality relation in Canada and Taiwan. For the case of Korea, we found bilateral causality relations for the full period of sample from 1971 through 1997.

Dividing the sample period by two we have no causality relation for the first half from 1971 through 1981. For 1982-1997, however, there exists only uni-directional causality from GERD to PERD as in the case of Japan.