Government Curbs Stifle South Korean Lottery Industry Growth

First published in Asia Gambling Brief
Gaming regulators in South Korea, backed by a powerful anti-gambling lobby and the media, have declared that the domestic lottery market is overheating - although even a cursory glance at the figures reveals little evidence of the claim

The headline numbers show that lottery sales, which hit an eight-year high last year, continued the momentum in the first half of 2013, with the official sales target for 2013 set at 3.29 trillion won ($3 billion), a 3.2 percent annual increase.

But the latest statistics released by the Korea Lottery Commission, the regulatory authority under the Ministry of Strategy and Finance, reveal sales in the first half of this year rose by a modest 0.45 percent, or 7.5 billion won from 1.6 trillion won in the previous year.

Far from overheating the market is actually being artificially constrained, according to industry executives. It not only puts a severe strain on the lottery industry, but also helps sustain the growth of illegal gambling.

The effect of the curbs becomes obvious when you contrast the performance of South Korean lottery sales with average performances in Asia Pacific. Estimates released by the World Lottery Association, show that Asia Pacific lotteries witnessed an increase in sales of 11.1 percent for the first half of 2013.

The fastest growing market remains China where total lottery sales rose 16 percent year on year. In comparison, the increase in South Korean lottery sales seems miniscule.

According to Chris Moumouris, principal consultant and vice president of business development at QLot Consulting, the market growth in South Korea is insignificant given its potential. And he should know. Before joining QLot, a Swedish lottery consultancy with offices in Europe and in North America, he worked for many years at Intralot, part of the Nanum Lotto Consortium that has been given the mandate to run the online lottery business in South Korea until 2017.

As board director at Intralot Asia Pacific and Intralot Korea, he was chiefly responsible for bagging the South Korean deal in 2007 and oversaw the project until 2011.

“In Greece, for example, a country with a population of just under 11 million and income levels historically similar to South Korea, the lottery market is almost four times higher. South Korea, although a first-world nation and a global technology leader, is way under developed,” he told AGB.

In the past, it might have been argued that the industry’s growth potential was bound to be limited because of the social stigma attached to lotteries in a Confucian society but that restraint has slowly faded over the years thanks to government promotions and the knowledge that most of the proceeds go towards welfare programs.

According to a recent poll by the Ministry of Finance, nearly six in every 10 South Koreans purchased lottery tickets at least once last year. In the survey of 1,002 people, 55.2 percent said that they had bought lottery tickets.

So, what is holding back the market?

Moumouris maintains that if it is to expand, the legal and regulatory framework needs drastic changes.

“Europe is the world’s most pioneering region as far as lotteries and gambling is concerned and the South Korea legislative and regulatory framework has a lot to learn from that. The lottery operators should be allowed a wide portfolio of games, which they should be able to offer across all channels (retail, internet, mobile).”

The Korea Lottery Commission is responsible for formulating and implementing lottery-related policies, and has exclusive authority to issue, sell, and manage lottery products, but it entrusts private lottery companies with the operations. Nanum Lotto Co. Ltd. conducts the only allowed online lottery (Lotto 6/45) operations, while Korea Union Lottery Co. Ltd. handles printed and Internet lotteries that include one draw game (Pension Lottery 520), three instant games (scratch cards) and seven Internet lottery games (four draw games, three instant games).

The sales data reveals that the market is lop-sided and depends too much on Lotto sales. The share of Lotto in total lottery sales increased from 2 percent in 2002 to 96.2 percent in 2010. In 2011, when a new product (Pension Lottery 520, which offers winners 5 million won of annuities every month for 20 years instead of a lump sum) was introduced, the Lotto share of the market declined to 89 percent, but it has been rising steadily since then. It was 90 percent in 2012 and 92 percent in the first half of this year..

Moumouris believes that people want to try out new lottery products but the lack of options and lack of enthusiasm for other products that offer lesser payouts made them switch back to Lotto.

Lotto continues to offer the highest prize money among all available lotteries but it is just a fraction of that in other developed markets. While jackpots often run into hundreds of millions of dollars in Europe and the US, in South Korea, the most a single jackpot winner can expect is around $10 million.

In 2003, Lotto fever peaked when the prize money hit 40.7 billion won after there was no winner for the seventh, eighth and ninth weeks of the year. Grumbles over the get-rich-quick attitude made the government limit prizes in 2004 and these restrictions have been in place since then.

Unlike other markets, the National Gaming Control Commission (NGCC), a gambling regulator under the Prime Minister’s Office, sets a regulatory limit on sales each year for the gaming industry as part of its efforts “to prevent and curb gambling addiction”.

The Finance Ministry asks the NGCC every year to eliminate the sales ceiling, arguing that the lottery is less addictive than other gambling industries and its share of GDP is half of the OECD average and a third of other Asian countries. To date, the NGCC has consistently refused the request, afraid of annoying the anti-gambling lobby.

This artificial sales cap imposed in the face of growing demand does not augur well for the lottery industry. Experts argue that instead of imposing penalties and curbing the growth of the market, the NGCC should do away with any limits and let the markets decide.

Moumouris, perhaps unsurprisingly, argues that the only solution is for the government to employ an international, independent lottery specialist firm to redefine its legal and regulatory framework for lotteries.

When non-lottery specialists like law firms were involved, the result was often a flawed framework, he said, while technology vendors and operators should also be avoided as a source of advice as they will be biased.

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Interview: Dr. Ad Juriaanse, Managing Director and Dr. Liz Kamei, Vice President of business development for Asia Pacific, NIZO Food Research

Dr. Ad Juriaanse did a PhD in Biochemistry. He worked for 14 years for Unilever in the Netherlands and the United Kingdom in different positions in both R&D and operating companies.  Since 1995 he is managing director of NIZO food research.

Dr. Liz Kamei obtained her PhD in biochemistry in the UK and then went to work as a research scientist for Kirin Breweries, a Japanese beverage company. She transferred to Gunma University where she worked as associate professor in the Faculty of Engineering before returning to a business position in the UK. Liz has worked in business development and open innovation roles, mainly focusing on the Asian-Pacific food & beverage markets.

She is fluent in Japanese and is currently learning Korean with the aim of creating good working relationships with our friends in the Korean food & beverage industry. At NIZO, she is the Vice President of business development for Asia Pacific.

Ad: It is a pleasure to speak about NIZO and our aspirations for developing our business within Korea. It is my role to oversee NIZO’s activities on a global basis, and Liz is leading our business activities in Asia-Pacific. I am inviting Liz to comment in this interview as it is our hope that our friends in Korea will see her as the point of contact for NIZO and will reach out to her to discuss their innovation ambitions and objectives.

What are the key objectives of NIZO this year, in terms of expanding operations?

Ad: Our overall objective is to carry on being relevant to the global food industry by maintaining our cutting edge capabilities and evolving as an organization so that we are always a key part of food innovation networks. Liz, what do you have to say about our activities in Asia-Pacific?

Liz: Our ambition for Asia Pacific is to really understand the innovation needs of our current and potential partners and provide the best match of NIZO expertise to meet those needs. That expertise might be flavour, texture, gut health food safety or process optimization – it depends on the needs of the client. My personal aim is to act as an initiator of relationships that lead to co-creation and breakthrough innovations.

 What are the competitive advantages that NIZO offers?

Ad: NIZO is an independent research company that assists the food industry with their innovations and optimizations on a project basis giving maximum flexibility to the client. We are convinced that good food needs good science and that can be achieved by working together intimately with our clients on those things that are relevant to their business.  As a hub of food science expertise, working with NIZO gives our clients access to the latest science and technology. We believe it is important to stress that IP generated during projects belongs to the client.

Our experts have a variety of backgrounds - both academic and industrial – and they understand the needs of industry. In addition, our understanding and expertise has grown as a result of the many successful projects carried out for food and ingredient companies over our 65 year history.  Thus, NIZO also serves as an excellent gateway to the European markets.

Liz: I would emphasize the fact that our scientists have a broad range of experiences gained from different organizations. As you may know, innovation happens when a diverse set of skills and experiences are brought together to create something new. In addition, our scientists all have their own personal networks into industry and academia – they span the boundaries of our organization – and that also amplifies the opportunities to innovate. This really illustrates the importance of being part of diverse networks –and it is something that is not easy to replicate in other organizations.

What are your plans for operation in Korea?

Ad: Liz has the overview of our ideas for Korea, so I will let her answer.

Liz: We realize the importance of building the business relationship and understanding our client’s needs and ways of working. We welcome the opportunity to learn how to best work with you.

We are considering opportunities in the near future (2014)  to take NIZO experts to Korea and to run one of the well-respected NIZO technical courses. This will be a learning opportunity for NIZO, and a chance for potential clients to interact with our experts and learn about NIZO. Our experts are of course available for consultancies, depending on the needs of Foodpolis in general and specific companies in particular. We welcome the chance to discuss potential opportunities with our friends in Korea.

Any thoughts on FOODPOLIS, the Korean government initiative to develop the food industry in Northeast Asia?

Liz: The incredible progress made by Korea in other technical fields is well known and we expect that this initiative will be backed by the same dedication and energy. We are excited by the future of Foodpolis.

Ad: All I can add is that we are delighted to be invited to attend the 3rd International Food Cluster Forum and have the chance to visit the site of Foodpolis.

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European Investors in Taiwan

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.

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

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.

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

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.”

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

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.

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

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.

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

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 ***************

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

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.

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