Korean investments in India: Growing, but at a slow pace

First published in The Hindu Business Line, July 25th
Large Korean brands are household names in India and their strength has grown in the years since they first started operations.

However, the fact remains that Korean FDI inflows have been growing at a very tardy pace, and companies seem to be keener to explore other emerging markets.

Many Korean companies were the first movers as FDI investors in India, following the spate of reforms and liberalization since 1991. They started to invest by forming joint ventures with local companies or established wholly owned subsidiaries, predominantly in automobiles and white consumer goods. With clever business models, they managed to make deep inroads into the Indian market, in a relatively short period of time, led by technology giants Samsung Electronics, LG Electronics, and Hyundai Motor.

More recently Lotte Group, Doosan Heavy Industries and POSCO have become familiar names in the Indian business lexicon. As of today, there are officially 603 large and small Korean firms, which have offices in India.

It may come as a surprise, therefore, that India figures quite low on the list of favored investment destinations for Korean companies, with a rank of 16 worldwide.

According to the latest foreign investment statistics published by Exim Bank Korea, till end-2012, total Korean investments in India amounted to just 1.25 per cent ($2.67 billion of their $215 billion overseas investments).

In comparison, across the Asian countries, the Korean companies have pumped in $39.67 billion in China, $14.18 billion in Hong Kong, $8.38 billion in Vietnam, $6.73 billion in Indonesia and $4.65 billion in Singapore, $3.95 billion in Malaysia and $3.81 billion in Japan.

Looking at it from India’s point of view, the latest available analysis of FDI equity inflows from April-2000 to end-February 2013, by the Department of Industrial Policy & Promotion shows that Korea ranks 13th with $1.22 billion, which represents 0.64 per cent of the cumulative inflows received.

The top sectors that attracted FDI equity inflows from Korea are: metallurgical industries (26 per cent); prime mover- other than electrical generators (10 per cent); machine tools (8 per cent); automobile industry (7 per cent); and electronics (6 per cent).

Among the companies that invested, POSCO tops the list for this period, followed by Hyundai Mobis, Mirae Asset Investment Management, Samsung Electronics, Doosan Heavy Industries, Korea Western Power, Hyundai Heavy Industries, Lotte Confectionery and Lanco Intratech.

INDUSTRIAL ZONE

In the next few years, more investments are likely in the exclusive Korean Industrial Zone that will soon come up in the Neemrana region of Alwar district in Rajasthan. The 250-acre zone is seeking to attract Korean entrepreneurs and facilitate technology transfer between the nations.

A memorandum of understanding was signed between the Rajasthan Industrial Development and Investment Corporation (RIICO) and the South Korean Trade Promotion Agency (KOTRA) in March. But it remains to be seen how the project progresses before drawing any conclusions.

As can be seen from the table, Korean investment has indeed perked up during the last two years, but is still way below potential. The India-Korea Comprehensive Economic Partnership Agreement (CEPA), in force since January 2010, has not really been effective in attracting large-scale investments into the country, as desired.

Some experts argue that it is too early to draw any conclusion on the effect of CEPA in attracting Korean investments, and it could also be because of the global economic downturn and problems in the European Union.

As noted by Dr Cho Choong-jae, Head of India-South Asia Division at Korea Institute of International Economic Policy, for the most part, Korean companies are satisfied with their growth in India, and positive concerning prospects for growth in the next three years.

WAGE FACTOR

A survey conducted by his institute among Korean companies based in India showed that entering and gaining access to India’s domestic market constituted the biggest motivation for Korean manufacturing companies in India. Particularly since wages were lower than those in China, but comparable to Indonesia and only slightly higher than in Vietnam.

Entry into India’s domestic market was also the prime-motivating factor in investments by Korean non-manufacturing firms, in addition to expanding their presence in the subcontinent.

“It is, however, a fact that foreign firms continue to face many non-tariff barriers in India and unless the situation improves, there will be very little motivation for other companies to seriously consider India as an investment location.”

PROBLEMS

As he points out, India’s FDI policy has been one of gradual opening up. Much of the increase in FDI inflows is in the services sector. However, FDI inflows from Korea have been mostly in the manufacturing industries.

The main irritants are, of course, poor infrastructure, corruption, labour management, taxes, administrative services, fluctuating government policies at the central and state levels, political intervention, customs and clearance procedures.

In the words of Dr Lee Soon-chul, Assistant Professor at Busan University of Foreign Studies, “many recent policies of the Indian government have confused foreign investors.”

He was referring to the delay in opening of the retail sector, telecom policy flip-flops and retroactive taxation of foreign firms that have invested in India.

Such uncertain policies have made investors opt for divestment or to delay their planned investment.

There have been many instances of Korean companies sending a few executives to India for a couple of months to scout for opportunities, but then giving up in despair because of the red tape and corruption.

A senior executive of a large construction conglomerate in Korea, who did not want to be named, confessed that he spent six months in New Delhi last year, along with a few colleagues, trying to negotiate government infrastructure projects with an Indian partner. However, the large scale corruption and lack of transparency made them shift focus to Vietnam.

“The licensing and inspection costs are very high. Additionally, cumbersome bureaucratic procedures, the lack of government accountability and a congested judicial system where cases can linger on for several years, made my company change its mind. The Indian government does not walk the talk.”

There are also other barriers such as problems of land acquisition at the stage of investment implementation, due to the opposition of local residents. Many Korean companies realized that if a big company like POSCO can face difficulties, despite government assurances, it would be even tougher for smaller companies to survive in India.

Dr Choi Ho-sang, Research Fellow at the Korea Center for International Finance, in a recent article, observes that the reason FDI in India has been sluggish is that foreign capital regulations have not been relaxed sufficiently.

“The second UPA administration, which came into power in 2009, set the relaxation of regulations as one of its major policies in order to attract foreign capital. Foreign investors welcomed the new policy with great expectations, but when foreign capital regulations were not relaxed as had been promised, the expected increase in foreign investment did not happen either.”

“Moreover, the protectionist labour laws, complex tax system, and inadequate infrastructure such as roads and electricity, all render India a less attractive investment outlet compared with other Asian countries,” Dr Choi said.

Unlike most other countries, the Indian government does not provide attractive incentives to foreign companies entering the market.

For instance, the Delhi Mumbai Industrial Corridor (DMIC), aimed at the development of futuristic industrial cities in India, can compete with the best manufacturing and investment destinations in the world and is expected to attract huge FDI inflows. Ordinarily, Korean investors would jump at such an opportunity. However, no special incentives are being offered to foreign investors under this initiative.

The implementation of genuine and operational policies of opening up to foreign capital is the key to sustaining investment growth.

OPPORTUNITIES

India’s booming knowledge-based service industry complements the hardware and manufacturing-based economic structure of Korea. India’s capabilities in pharmaceutical industry, IT software and auto components usefully complement Korean competence in heavy engineering, automobiles, machinery and electronic hardware. There is also potential for bilateral cooperation in India’s CDMA service, high speed Internet and e-governance.

As noted by Indian Ambassador to South Korea Vishnu Prakash, “the synergies inherent in the complementarities of the two economies can be harnessed for mutual benefit by the business and industry of the two countries. The expansion in trade and investment flows would create demand for related infrastructure and other supporting socio-economic services.”

Opportunities for expanding business cooperation exist in engineering, design engineering and construction services. Then there is the power sector and India’s plans to enhance civil nuclear power generation capacity.

The economies of India and Korea are highly complementary in terms of factor endowment, capabilities and specialization. If the investment barriers are effectively tackled, India’s cost-effective human resources may complement growing labour scarcity and rising wages in Korea, and a number of companies may consider India as an ideal destination for their relocation or global sourcing.

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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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Water Challenges for the Food Industry

The role of the food industry in helping consumers eat healthily and sustainably has been receiving considerable attention in recent years. There are many challenges the industry faces, in securing the future supply of food –water being among the most important.

The United Nations has declared 2013 the International Year of Water Cooperation. The objective is to raise awareness, both on the potential for increased cooperation, and on the challenges facing water management in light of the increased demand for water access, allocation and services.

The year will highlight the history of successful water cooperation, as well as identify issues on education, diplomacy, trans boundary water management, financing, national and international legal frameworks, and linkages with the Millennium Development Goals. It also will provide an opportunity to capitalize on the momentum created at the United Nations Conference on Sustainable Development (Rio+20), and to support the formulation of new objectives that will contribute towards developing water resources that are truly sustainable.

Water, a vital resource unlike any other knows no borders. But for perhaps the first time in history, global demand may outstrip supply. The world’s population is around 7 billion people and by 2050 it may well grow to 9 billion. And by that time, 70% of the people will be urbanized. Cities may take less than 1% of the land, but they can take up to 20% of the water. As rapid urbanization, climate change and growing food needs put ever-increasing pressure on freshwater resources; the objective of the year is to draw attention to the benefits of cooperation in water management. It will serve to highlight successful examples of water cooperation and explore key issues, including water diplomacy, trans-boundary water management and financial cooperation.

The potential for water cooperation is great and its benefits, whether in economic, social or environmental terms, are considerable. All water systems are extremely complex, be they management systems at the local or national level, internationally shared river basins or parts of the natural hydrological cycle. Managing these systems requires multiple actors, from users and managers to experts from various disciplines and decision-makers.

Cooperation is crucial not only to ensure the sustainable and equitable distribution of water but also to foster and maintain peaceful relations within and among communities. At the government level, different ministries can cooperate and mainstream awareness on water management into other sectors; at the community level users can cooperate through water users’ associations; at the trans boundary level joint management institutions can help to distribute and protect shared resources; and at the international level the various UN agencies can work together to promote the sustainable management of water worldwide.

Cooperation mechanisms vary in terms of decision-making structures, levels of participation and rules and regulations. They can take the form of informal agreements or formal institutions, and they range from a simple exchange of information to joint management mechanisms.

While governments the world over are geared up to meet the water challenges, what about the corporate sector?

Water in Industrial Use

Agriculture at present uses the lion's share of water worldwide, with between 70% and 90% of all water in most regions. As noted by Dr Ania Grobicki, Executive Secretary of the Global Water Partnership, United Nations Industrial Development Organization, in her study on ‘The Future of Water Use in Industry,’ interestingly, the East Asia/Pacific region and sub-Saharan Africa are the two exceptions to this, with industrial water use taking a large proportion of water, but for opposite reasons: in East Asia/Pacific, industry has grown extremely rapidly and often unsustainably in recent years. Industry now provides 48% of the total GDP in the region, and this proportion is still increasing.

On the other hand, in sub-Saharan Africa, industry takes a large share of total water use not because the industrial sector is especially strong, but because most agriculture is rain-fed and there is relatively little water storage available on the continent.

A 2010 report titled Direct and Indirect Water Withdrawals for U.S. Industrial Sectors, published by Carnegie Mellon University, has segmented water usage by industry sector, taking into consideration both direct water usage (bringing water into a manufacturing facility) and indirect water usage (when a manufacturing facility is buying items from the supply chain that were manufactured by someone else using water).

The findings show that in terms of direct water usage, the agriculture and power-generation industries together are responsible for 90 percent of direct water withdrawals. However, a majority of water usage (about 60 percent) is indirect and more than 96 percent of industry sectors use more water indirectly in their supply chains.

Fruit & Vegetable Farming

According to the report, while meat farming is often targeted as an energy- and carbon-intensive sector, it shows up lower on the list in terms of water use per dollar of economic output than fruit, grain and vegetable farming. Thirsty cash crops like wheat, corn, rice, cotton and sugarcane lead the pack in water usage.

Power Generation

Water is used at almost every stage of energy production, including pumping crude oil, removing pollutants from power plant exhaust, generating steam to run turbines, washing away residue after fossil fuels are burned and keeping power plants cool. Within the energy industry, the most water-hungry process is the thermoelectric-power industry, which uses plentiful amounts of water to cool electricity-generating equipment. Overall, electrical power production uses more water than any other single industrial process, according to IEEE Spectrum.

Textiles and Garments

The textile industry is one of the biggest creators of wastewater worldwide.  According to the U.S. EPA, it takes 2,900 gallons of water to produce a single pair of jeans. Most of this water is used in what’s known as “wet processing” as well as dyeing of fabric.

Meat Production

According to a study by the UNESCO Institute for Water Education, conducted between 1996 and 2005, “29 percent of the total water footprint of the agricultural sector in the world is related to the production of animal products.” One-third of that water is used to raise beef cattle.

Beverage Industry

Another heavy user of water is the beverage industry, which produces sodas, beers, juices and other drinks. Yet it isn’t necessarily the production and bottling processes that are to blame. Rather, it is the plants: the beverage industry requires farmed products such as sugar, barley, coffee, chocolate, lemons, vanilla and other plant-derived ingredients. All in all, it takes between 180 and 328 gallons of water to produce a 2-liter bottle of soda, 20 gallons of water to make a pint of beer and nearly 37 gallons of water to produce the ingredients to make a single cup of coffee, according to the Water Footprint Network.

Automotive Manufacturing

It takes about 39,000 gallons of water to produce the average domestic car, including the tires. Major water uses in the automotive manufacturing industry include surface treatment and coating, paint spray booths, washing/rinsing/hosing, cooling, air conditioning systems and boilers.

Water in Food Industry

It goes without saying that the corporate sector, in particular the food and beverages industry too can play a very important role in water cooperation.

Water is a critical resource for the F&B industries. It is used for numerous purposes, including chilling, heating, washing, rinsing, sanitizing, processing, and conveying. Large amounts of water are also incorporated directly into a wide range of products.

As noted by Grace Communications Foundation (www.gracelinks.org), which builds partnerships and develops innovative media strategies that increase public awareness of the relationships among food, water and energy systems, it takes a surprisingly large amount of water to make processed foods and beverages.

What we eat everyday – our diet – makes up 50 percent of our total water footprint, which includes the enormous volume of “virtual water” needed to produce our food.

“For instance, wheat requires 132 gallons of water per pound, and a pound of cheese takes about 600 gallons. Therefore, a cheese sandwich represents approximately 100 gallons of water (and that’s just for a couple of cheese slices). Throw in a bag of potato chips and it takes about 150 gallons of water to make your lunch! Thirsty? If you feel like rinsing it down with a cold glass of milk, add an extra 100 gallons of water onto your tab. The sheer amount of water used to make the food we eat every day can be mind-boggling.”

On average it takes about 108 gallons of water to produce one pound of corn. If that corn is then used as cattle feed, additional water is required for cleaning and processing. Factoring in feed and water, it can take around 1,800 gallons of water to produce a single pound of beef.

The major demands for water during food processing are:

• Washing / cleaning of (raw) products

• Transport of products

• Dissolving of ingredients

• Treatment of the product (e.g. alteration, separation)

• Provision of appropriate water content in the final product

• Cooling processes

• Steam generation

• Cleaning / rinsing of equipment

• Abnormal incidents (e.g. fire protection)

• Sanitation.

The problems caused by pressures on water supplies mean that the food industry is being forced to consider both more efficient uses of water and alternative sources of water. It is also necessary to minimize the use of water in both production and processing, and this will inevitably lead to reuse of water in both.

In food processing a broad range of possibilities exist with regard to water management, including increased efficiency of water use and the promotion of water reuse. The latter can be made more efficient by tailoring the water quality requirements to the particular process.

Water and Wastewater Usage

Traditionally, the food-processing industry has been a large water user. Water is used as an ingredient, an initial and intermediate cleaning source, an efficient transportation conveyor of raw materials, and the principal agent used in sanitizing plant machinery and areas. Although water use will always be a part of the food-processing industry, it has become the principal target for pollution prevention, source reduction practices.

In food processing plants, water is used for many purposes. Its use starts with conditioning raw materials, such as soaking, cleaning, blanching, and chilling. It continues with cooling, sanitizing, steam generation for sterilization, power and process heating, and finally, direct 'in-process' use. The water classification categories used in the food and beverage industries are: general purpose, process, cooling and boiler feed.

Sanitary conditions have always been a concern for food products created in the manufacturing process. Disinfection through chlorination has been the quickest means of disinfecting wastewater. Disinfection has come under criticism due to chlorination byproducts and toxicity concerns that residual chlorine pose to aquatic life. The two principal means of disinfecting wastewater without using chlorination are ozone disinfection or UV disinfection. Ozonation works on the same principle as chlorination but leaves no residual in the treated wastewater and does not produce the magnitude of disinfection byproducts that chlorination produces. UV disinfection is even more environmentally friendly than ozone but requires more space and cleaner wastewater to be effective. Both technologies require high capital and operating costs.

General Purpose Water

This water includes all water used in washing and sanitizing raw materials, processing equipment, plant facility and ancillary equipment. It is used in the largest amounts and it should be potable, clear, colorless, and free of contaminants that affect taste or odor. In-plant chlorination is usually the only treatment required.

The main advantage of in-plant chlorination of general-purpose water is the reduction of microbial number on raw materials, prepared products, and on equipment surfaces in the plant. There is no action as important to food and beverage processing as control of microorganisms.

Chlorinated water is often used for direct rinse of raw material or prepared products. When this is done, precautions must be taken to ensure that the flavor of the finished product has not been adversely affected

Process Water

Water used for cooking or added directly to the product must be potable and must be of sufficient quality not to degrade product quality. This includes being free of dissolved minerals that make water excessively hard or affect taste.

Most of the product in beverage production consists of process water, so treatment to achieve taste objectives is especially important. Often, treatment beyond that required to meet safe drinking water standards is essential for consistent high quality.

Treatment processes used in bottled water often include softening, reverse osmosis, and deionization. Many other beverages would require similar treatment.

Hard water contains minerals the can affect the texture of the raw materials to be processed, such as certain vegetables. Iron, manganese or sulfate can have an undesirable affect on the taste of the product.

Water softening might be required to prevent the formation of deposits on the surfaces of equipment, and canning and bottling materials. The type of food process determines specific quality requirements of the water beyond being potable.

Prior to its use in food processing, water must be microbiologically safe (free of bacteria, virus, protozoa cysts, and worms). Methods to remove suspended matter greatly reduce microorganisms, but terminal disinfection provides an essential added barrier.

The methods used for terminal disinfection include chemical, thermal, radiation, and ultrasonic treatment or cell disruption. Chemical treatment with chlorine or chlorine derivatives is the least expensive and most common process.

Cooling Water

Cooling water not in contact with food products or sealed containers does not have to be potable or meet the requirements of process water. The removal of staining minerals and odors is not as important. However, preventing the accumulation of scale in pipes and equipment is important, especially when cooling water is recycled.

The most efficient processing systems include recycling circuits to reduce cooling water waste, thus reducing processing costs. Potable water, even from public supplies, often has to receive additional treatment such as softening to avoid scale and deposits to be suitable for cooling.

Boiler Feed Water

Boiler feed water requires the removal of hardness. This may be the only treatment process applied to the water. If this water is not in contact with food, it does not have to be potable. Boiler feed water for high-pressure boilers requires the removal of all dissolved solids or demineralization. Almost all-potable water must have minerals removed through additional treatment to be suitable for boiler feed.

Not only can microorganisms produce color and odor in water, but also if they are introduced into the production process, they can contaminate the equipment and finished product. Process contamination could damage and spoil foodstuffs. If pathogenic bacteria are introduced in the contamination, food poisoning could occur.

When water is used as a food ingredient, its quality can affect the properties of the food, including texture, shelf stability, appearance, aroma and flavor.

As a processing aid, water may be used for conveying, heating, cooling, rinsing, dissolving, dispersing, blanketing, diluting, separating, steam generation and other activities. In each case, purity of the water will affect its performance. Cleaning activities in the food industry involve the use of water as a carrying agent, dispersant, solvent and diluent.

Water Sources

The two primary sources of fresh water are surface and ground water. Food processors generally obtain water from municipal sources or owned wells. Knowledge of the water source and how it was obtained will help to indicate any required in-house treatments. Surface waters are from rivers, lakes and reservoirs, and may have higher levels of suspended materials, turbidity, temperature fluctuations and mineral content. Ground water from springs and wells tends to be high in dissolved minerals, with a relatively constant temperature over time.

Water Quality

Impurity of water is identified and measured in three basic categories: qualitative, general quantitative and specific. Qualitative identification, includes turbidity, taste, color and odor, and describes obvious conditions of water. Most qualitative measures do not describe the concentration of the contamination and do not identify the source. It should be noted, however, that taste, color and odor evaluations may be very accurate qualitative measurements that can be rapidly completed.

Water scarcity is a key concern for the food and drink industry, as disruptions in operations due to water availability, increases in water expenses and other adverse water-related impacts would be detrimental to the industry’s competitiveness.

Water Usage

As Food Drink Europe’s  (www.fooddrinkeurope.eu/) Environmental Sustainability Vision towards 2030 points out, the food and drink industry has shown leadership in its voluntarily actions to reduce water use, as the quality and quantity of water available is critical for the sector’s sustainability. A certain amount of water use is unavoidable for the production of food and drink products and to ensure compliance with stringent EU hygiene requirements, as food safety and hygiene are of utmost importance.

“While the Europe’s food and drink industry already leads in the field and “water footprint” is minimal (1.8% of total private sector use), producers across the world have strived to further reduce their water use and better manage water resources from factory to final product. Leading companies are already reporting measurable achievements in improving water efficiency.

Actions include developing and using water consumption monitoring tools, rainwater harvesting, installing water recovery and recirculation systems, modifying cleaning and housekeeping practices, preventing and stopping water leakages, using sensor-controlled taps or hand-controlled triggers on hoses, using low volume high pressure water jets, redesigning processing techniques to reduce water use and staff training.”

A 2012 report from sustainable business analyst Verdantix, titled The State of Global Corporate Water Strategies, was compiled after interviewing senior executives in a number of $1 billion or greater firms from different sectors in 10 countries. Verdantix found that formal water strategies are becoming more common. In water-intensive industries, about 90 percent of businesses report having a formal water strategy. The numbers are lower in non-water-intensive industries, but are still substantial: about 60 percent. In water-intensive industries, about 93 percent of companies issue formal reports about their water usage and conservation practices, as do about 77 percent of companies in lower water-intensive industries.

Companies are realizing that as water becomes scarcer in places they manufacture, wasteful production methods present a danger to operations, particularly if local governments turn off the tap or put huge surcharges on water use. It’s in the businesses’ best interests to put some water conversation programs into place now and wean themselves off wasteful processes in favor of more water-conserving production methods.

To that end, according to the study, companies are using water metering and other technology solutions, such as water accounting; water-footprinting tools and product lifecycle assessment (LCA) software that helps them outline the environmental impact of their products and processes.

Suggestions for Improvement

The changing climate with more frequent extreme weather events requires today’s businesses to plan for an unpredictable and inconsistent water supply via more sophisticated water management practices, according to a new report released on April 15^th, by the World Business Council for Sustainable Development (WBCSD).

The report, Sharing Water: Engaging Business emphasizes the crucial role of business in ensuring responsible management of water resources and encourages greater collaboration across sectors. The report finds that leading companies have begun shifting their perspective beyond merely managing operational water use to becoming more conscious of how corporate actions impact local and regional water resources and, conversely, how water resources and watersheds impact business.

“Increasing global demand and the impacts of climate change are placing unprecedented strain on freshwater resources,” said WBCSD President Peter Bakker. “In order to ensure a viable business future, companies are calling for collective management and collaboration at the watershed level to ensure continued access to water supplies among competing demands.”

Water conservation groups say there is room in every step of the manufacturing process for improvement, whether by changing or modifying machinery to use less water, switching to waterless processes, or treating and reusing water. It’s a daunting prospect, and should begin with a comprehensive review and planning strategy.

Keep track of water usage. Many manufacturers today don’t track their water consumption, which should be the first step of reducing its use. Companies can begin by implementing a water auditing system that reviews the life cycle of water in the plant from intake to discharge. An audit should track primary uses, and also secondary uses, such as wash water, irrigation water for landscaping, and water used in restroom facilities. It should include where the water is used, what quality it needs to be, and where savings opportunities might exist. This can be accomplished by sub-metering of water, or breaking out each water-using process and measuring precisely how much is used.

Build a water management strategy. Once a company knows how much water it uses, it can begin to set specific targets for reduction and plan how to achieve them. This strategy should be reviewed at least once a year to ensure that it accommodates changing business needs.

Determine the areas where wastewater can be recaptured and reused. Chances are, not every water-based process requires fresh water: so-called “gray water” will do just as well for the purposes of cooling, rinsing, boiling, or flushing. There are benefits to such a switch beyond cutting water use. By reducing water discharge, companies may be able to minimize regulatory and discharge fees.

Recover waste heat instead of dousing it with water. One of the most common uses of water in manufacturing is for cooling hot machinery. Conversely, one of the easiest ways to reduce energy consumption is to recover waste heat and use it to heat the facility. Moving to a waste heat capture (or “cogeneration”) system can reduce both water usage and energy costs.

Invest in on-site water treatment. Rather than discharging used water and pulling fresh water from municipal systems, many companies have turned to treating wastewater on site to prepare it for re-use, in some cases using relatively inexpensive carbon filtration.

Recover water from steam boilers. Another common use of water in manufacturing is for boilers to generate steam. There is great potential for water loss here as the water turns to vapor and escapes the system. Many eco-minded companies are recapturing steam in heat exchangers designed to collect the condensate and return the water to the boiler.

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China, Japan and South Korea Seek Regional Economic Bloc

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

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

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

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

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

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

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

Background of Talks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Geopolitical Fault Lines

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

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

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

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

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

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

Notes

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

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

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

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

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

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

References

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

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

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China-Japan Korea FTA and Opportunities for India

First Published in The Hindu Business Line

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

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

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

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

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Challenges before South Korea's New President

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

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

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

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

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

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