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resident Roh Moo-Hyun has designated the project to establish Korea as the hub of Northeast Asia as a top priority policy for his new administration. To this end, the government struck a ¡°Hub Project Implementation Committee¡± that is chaired by a minister-level government official and will operate under the Office of the President.
  The new government¡¯s hub project is broader in concept than the one its predecessor pursued. To wit, it involves generating new economic growth by establishing linkages with neighboring Northeast Asian countries and Korea playing a pivotal role for change in the region. In more concrete terms, it can best be understood as combining the concepts of Northeast Asia economic cooperation with that of cooperation between North and South Korea and uniting the result with the original conception of Korea as a purely regional business/financial center.
  This article will focus on the strategies now being put in place that will realize the Hub Korea project in all of its economic, financial, business and political implications.

   SUPPLYING THE WORKSHOP OF THE WORLD Even without official sanction or encouragement, regional economic integration between Korea, China and Japan is actually taking place. Informed opinion throughout the region envisages that the formation of an integrated market in the manner of a Northeast Asian trading bloc will accelerate following China¡¯s entry into the World Trade Organization (WTO). The emergence of such a bloc will demand the creation of a center to effect the efficient transaction of human resources, goods and services.
  With the emergence of China as the 21st century¡¯s ¡°workshop of the world¡± due to its plentiful human resources and vast potential market, the manufacturing industries of Hong Kong and Taiwan are showing signs of ¡°hollowout¡± as production migrates to the mainland, raising concerns in Korea and Japan that the same will happen to them. On the other hand, the high level of growth and increasing diversity of the Chinese economy will stimulate new opportunities in neighboring Korea. China, in fact, is becoming an increasingly attractive market for goods and logistical services. In particular, the current Han-ryu or ¡°Korean pop culture craze¡± in China points to Korea¡¯s potential in servicing new demands in the areas of leisure and tourism.
  Since the 1997 financial crisis, the most severe in its history, Korea has felt the need for a shift in economic paradigm in order to respond to changes in global circumstances and achieve advanced-country status.

   CONCRETE MEASURES The hub project has the potential to gel a national consensus on the direction the Korean economy should take for the future.
  In early 2002, the basic hub project was announced in the Presidential New Year¡¯s press release made by then President Kim Dae-Jung. A road map to implement the project was finalized by the National Economic Advisory Council and the Economic Policy Council in April the same year. In July, a detailed action plan, ¡°Measures to Establish Korea as a Northeast Asian Business Hub¡± was published. The ¡°Designation and Operation of Economic Free Trade Zones¡± bill was tabled by the government at the National Assembly in November, passed the same month, promulgated in December and is expected to take effect July 1st 2003 when bidding by local governments for ecomomic zone designation will begin. (See ¡°Where to Invest¡±).
  The Economic Free Trade Zone initiative is significant in that it is a concrete expression of willingness at the government level to vest Korea with regional hub status. Establishment of the zones will not be without its challenges. First, it will take five to 10 years to establish these new zones (now known as ¡°Economic Free Zones¡±). Second, reverse discrimination against domestic enterprises and discrimination between enterprises inside and outside the zones may give rise to black-market dealings in the competition for resources. Third, the designation of an Economic Free Zone is not without political difficulties because of the incentives and special laws implemented for the benefit of foreign investors.

   BASING GROWTH ON OPENNESS, COOPERATION Should the zones show positive results, it is the aim of the government to extend the special rules and conditions that govern them to the rest of the country. In this way, the government will hasten the realization of the hub concept by fostering an environment more open and investor-friendly than either China or Japan while making the best use of the country¡¯s geo-economic location between these two giants.
  Korea¡¯s current economic standing is a result of its ¡°export-driven strategy,¡± the twin components of which are the nation¡¯s land and labor resources. The hub project, by contrast, is geared to creating an advanced and highvalue economy in Korea through utilizing both these two factors, plus forging economic linkages with neighboring countries and developing a sufficiently attractive business climate that will attract and absorb global enterprises, capital, technologies and professionals.
  While the export-driven model was built on a narrow commercialism, the new hub-based model of development will be based on openness and cooperation. Thus, the hub project represents a new paradigm for the Korean economy in its quest to prosper in an age of globalization and strengthened regionalism.

   FORGING A PACT A characteristic common to all major business hubs is that they have base economic policy of market liberalization, a social safety net, an open-minded global mindset and an excellent geographical location. While Korea has an excellent geographical location, it lags in terms of the other three characteristics. Therefore, for Korea to become a true regional hub fundamental measures must be taken in order to improve upon its deficiencies.

  Since the hub project is based primarily on market liberalization, it is imperative that an active market opening policy should be pursued to attract foreign investors. However, such a policy might encounter strong resistance from the chaebol, Korea¡¯s conglomerates and the unions. To obviate these difficulties, all parties should work to forge a Korean-style pact (of the kind forged to pull the country out of the financial crisis) designed to overcome narrow concerns and focus on the greater national interest.

  The hub status envisioned for Korea is multifaceted, encompassing regional logistical and financial services, as well being a center for multinational corporate headquarters and R&D. In this connection, a prerequisite for multinational business and international finance to feel truly at home in Korea is the development of the business service area.

   THE FREE TRADE FACTOR Despite major infrastructure components such as Incheon International Airport, plus Busan and Gwangyang Ports, Korea cannot achieve hub status on its logistical capabilities alone. Because of barriers to cross-border trade in Northeast Asia, multinationals might opt to establish distribution centers in each country. For Korea to attract corporate distribution centers of a scale that would serve the entire region, the countries must first enter into a customs union or free trade agreement (FTA). Japan and Korea have both commissioned study groups, now at work, to examine ways and means by which a mutual FTA could be achieved.

  Although Korea lags in business services, it should direct its efforts to serving as a center for regional corporate R&D, an area in which it has demonstrated a competitive edge. Likewise, it would be advantageous for Korea to put emphasis on attracting the regional administrative and operational headquarters of corporates in the field of IT and other industries where the country is a proven global leader.

   BUILDING INFRASTRUCTURE & FINANCIAL CAPABILITY Despite great strides in recent years, a concerted effort is required to further raise the international competitiveness of the financial sector, since Korea cannot fully emerge as a Northeast Asian hub without becoming the financial center of the region.

  The next five years will be decisive in determining which country or region will attain the position of hub status for the region. The strength of competition means that Korea has insufficient time to first build up its logistical capability, then shift focus to attracting regional headquarters and finally redirect its energies to becoming a financial center. Since building logistical capability involves building infrastructure such as harbors and airports, while becoming a financial, multinational corporate center or R&D center requires an improvement in systems and nurturing of professional personnel, both can be pursued at the same time.

   THE VALUE OF INTANGIBLES Realizing the hub project requires not only the construction of tangible infrastructure such as harbors, roads and airports. It also requires the creation of intangible infrastructure in the form of support systems and institutions. It is equally vital to nurture the development of a class of creative and internationally minded professionals as well as foster a national mindset that is open and inclusive. The different component strategies necessary to realize the project can be prioritized thus:

Tangible infrastructure
Intangible infrastructure
Creative professionals
Open and inclusive mindset.

   A SENSE OF COMMUNITY While pursuing cooperative projects among the three countries of Northeast Asia, it is necessary at the same time to promote and enhance a sense of community and mutual trust within the region, which includes supporting development in North Korea. The relinking of North/South road and rail connections now in progress is pivotal to promoting economic progress in the North and the creation of a regional land transportation network. This would eventually help facilitate energy projects such as the exploitation of the Irkutsk gas fields by providing access to markets in the South and Japan.
  At the same time, the Sakhalin Island oil and gas fields represent another opportunity for regional cooperation while the establishment of a Northeast Asia Development Bank would finance such projects of regional import.

  A key initiative would be the formation of a Northeast Asian economic cooperation forum that would advise on how these projects should be executed.
  To successfully realize the hub project, a national consensus must be achieved because of the length time that it will take to bring it to fruition. The Hub Project Implementation Committee, therefore, should draft an implementation plan at its earliest opportunity in concert with representatives of business, labor, agriculture and academia so that the project might be adopted as a truly bipartisan national strategy.

by Lee Chang-Jae
Director, Northeast Asian Research and Information Center
Korea Institute for International Economic Policy (KIEP)
(cjlee@kiep.go.kr)