This chapter discusses the Australia / Korea
relationship in various industry sectors. The emphasis is on how these
relationships can be developed in the future. The emerging areas are in
technology sectors (e.g. information and communications technology,
biotechnology, environmental technology), education and training, and
infrastructure and utilities.

4.1. Agriculture
and Food/Minerals and
Energy

Australian exports to Korea have been
dominated by minerals and energy products (particularly coal and iron ore and
petroleum) followed by agricultural and food products (particularly sugar,
wheat, beef and dairy products).

The challenges for Australia are:

(i) to
maintain and ideally increase its share of Korea's imports of minerals and
energy in the face of increasing competition from countries such as China,
Brazil and India;

(ii) to
increase its share of agricultural products; and

(iii) to
diversify further the range of products supplied from Australia such as
processed food.

In the minerals and energy sector, the role
of the Australian Government is relatively limited in maintaining and expanding
trade - other than to support Australian firms in their efforts to open up new
markets such as LNG and to ensure that non-economic factors are not allowed to
influence the purchasing decisions of major Korean buyers.

In the agriculture and food sectors, there
is a much more important role for the Government because of the protectionist
approach by Korea to its domestic industry, which is not internationally
competitive. The role of the Government is to maintain the pressure on Korea to
continue the liberalisation of its market, including the detailed rules that
will apply to the beef market as well as the higher tariffs that apply to more
highly processed food, and to ensure that pressure from other countries such as
the USA does not lead to decisions being taken on sourcing that deliberately
favour the USA at the expense of Australia. A Free Trade Agreement between
Australia and Korea that included agriculture and food would be of significant
benefit to Australia, but it is difficult to envisage Korea agreeing to such an
agreement in the near to medium term.

A feature of the global processed food
industry is the consolidation of the number of major participants on the supply
side and on the retail side. This consolidation provides an opportunity for
Australia, particularly because of the presence of major global food processors
in Australia. However, capturing the opportunities available will depend not
only on Australia being price competitive but also being a source of new and
innovative products that satisfy food safety issues. That is, Australia needs
to be regarded as a centre of excellence for food and so develop the "Made
in Australia brand".

The adoption of e-commerce
(business-to-business) in the minerals and energy and agriculture and food
sectors opens up possibilities to improve the competitiveness of Australian
suppliers. This opportunity involves close cooperation between Australian
suppliers and Korean purchasers. E-commerce that allows a more integrated
relationship between buyers and sellers of the products can reduce the stocks
that need to be held, particularly by the buyer, as well as speed up the
transmission of documents and payments between the parties. Adoption of
e-commerce of this nature implies that the buyer may want to deal with fewer
suppliers, thereby making it necessary for Australian suppliers to ensure that
they are the most attractive participants on the selling side. The other aspect
of e-commerce is the initiative by some companies in the Korean meat trade to
set up internet auction websites for the import, sale and distribution of beef (Interview on 22 February 2001 with Meat and Livestock Australia.).

Other approaches to strengthening
relationships between Korea and Australia in this area are:

• Wider
  and deeper investment links between the two countries. Wider investment links
  means even more investments than the existing investments such as those of
  POSCO and KEPCO in the Australian minerals industry. Korean interests could be
  encouraged to invest in the agriculture industry; for example, it would make
  sense for Korean interests to invest in the beef processing industry as well as
  other food processing sectors (Purchasing Australian farms by Koreans is of some interest but is unlikely to be as
  effective as investments at the processing stage where the buyers and sellers have a
  closer relationship.). Deepening the investment links means
  Australian interests investing in the processing and distribution chain in
  Korea. This could involve Australian businesses investing in warehouses in
  Korea that could be linked to Korean investments in food processing in
  Australia – this approach could be used to improve the Korean system for
  handling chilled beef as distinct from frozen beef. Similarly, investment and
  other linkages with major food processors in Korea in segments where Australia
  has particular strengths provides a means of overcoming barriers in Korea in
  the medium term and provides a platform for joint marketing efforts in third
  countries.
• Australia
  supporting the attendance of Korean officials involved in the agriculture and
  food sectors at training courses in Australia, e.g. at the TAFE colleges in
  Australia that provide courses on food inspection, food standards, etc. This
  will develop over time awareness among Koreans of the techniques and processes
  used in Australia, which may translate into similar systems being used in
  Korea.
• Encouraging
  agricultural producers in Australia and Korea to meet regularly to share their
  concerns about the issues that confront them. These person-to-person contacts
  may not lead to immediate or medium term breakthroughs in the Korean market,
  but they will improve the understanding of each country's attitudes and the
  reasons therefor.

Conclusion

Initiatives could be taken by the Government
to promote closer linkages between Korean and Australian participants in the
minerals and energy and agriculture and food sectors by way of e-commerce,
closer investment linkages, training in Australian food standards and
conformance systems, and person to person contacts.

4.2. Manufactures

4.2.1. Simply
Transformed Manufactures (STMs)

Australian exports of STMs are dominated by
gold bullion and aluminium. Other products such as unwrought zinc are also
important.

The challenge for Australia is the same as
that for minerals and energy products, namely, to maintain and ideally increase
its share of Korea's imports. The role of the Australian Government is probably
even more limited in STMs than in the case of minerals and energy.

As in the previous section, e-commerce and
closer investment links are possible initiatives. Korea Zinc is already an
example in the STMs sector. A future possibility could be encouraging POSCO to
establish a position in Australia's iron and steel industry, e.g. through
taking up an interest in the iron and steel manufacturing facilities to be
disposed of by BHP as part of its merger with Billiton.

4.2.2. Elaborately
Transformed Manufactures (ETMs)

Australian exports of ETMs are dominated by
automotive components – the major item is the engines exported by Holden to
Daewoo Motors. There may be prospects in other ETMs (e.g. communications
equipment) where trade is possibly hindered by perceptions about barriers, real
or imagined, facing Australian exports to the Korean market. The automotive
industry is one where the knowledge-based activities are very important, e.g.
in design and engineering and in cooperation between assemblers and component

suppliers so as to keep track of supplies and inventories.

The challenge for Australia is to find niche
areas where closer ties can be developed between Australian and Korean
manufacturing industry sectors, for example, by investment linkages based in
many cases on Australian technological strengths and by initiatives on a sector
by sector basis to remove the real or perceived barriers.

As discussed in a previous section, there is
a strong interest by Korean automotive manufacturers in widening the trade in
automotive components. This interest is particularly related to Australian
competitive strengths (quality, technology and price). This interest is
reciprocated by Australian companies investing in Korean component
manufacturers using Australian skills and technologies and using Korea as a
base for manufacturing and marketing to Korea and other countries. These are
activities that are in the private sector realm.

One other area of ETMs that came to notice
where there is an interest in exporting to Korea is in communications
equipment, particularly products that have a high intellectual property
content. However, Australian businesses perceive the Korean market to be
difficult to enter because of the relatively complicated regulatory process.
Intellectual property was also perceived as a concern (See also the section on Intellectual Property in Cross Sectoral Issues.). Addressing these
issues is an area where the Government can have an important role.

Conclusion

Initiatives can be taken by the Government
to facilitate stronger linkages between Australia and Korea in ETMs, for
example –

(i) Examining
the possibility of a bilateral arrangement between Australia and Korea where
the Governments would undertake to try and harmonise their approach to the
implementation of intellectual property protection. The implementation could
include a Code of Practice and possibly a joint forum that would consider
tangible issues raised by Australian and Korean firms about infringements of
their intellectual property rights.

(ii) While
there were mixed views among Australian industry about the benefits of Mutual
Recognition Agreements (MRAs), there is support for mechanisms to be put in
place that are similar to MRAs. These can be addressed on an
industry-by-industry basis rather than across the board. In the communications
equipment area, there is support for a bilateral arrangement between Australia
and Korea that harmonises or at least moves towards a more common compliance regime
for obtaining approvals for equipment in this industry sector.

4.3. Technology

A key element of the Korean Government's
economic policy is the development of a strong knowledge-based economy (KBE) –
along with the major reforms of the financial, corporate, labour and government
sectors (President Kim Dae-jung's New Year news conference, 11 January 2001.). Examples of knowledge-based industries are information and
communications technology (ICT), biotechnology, nanotechnology, space
technology, alternative energy technology, and environmental technologies (What tends to distinguish knowledge-based industries from other industries is the
relatively high level of innovation and human capital involved as well as a reliance
on information and communications infrastructure.) .
Some of these "industries" overlap, e.g. some of the environmental
technologies use biotechnology. The term technology in the context of this
report is not just the technology per se but includes the goods and services
that may accompany the implementation of the technology (e.g. equipment and
consulting services on the use of the technology and equipment). The areas
targeted for foreign investment in Korea are those that incorporate advanced
technologies.

Major elements of Korea's development plan
for the KBE are: the development of ICT, upgrading the R&D/innovation
system, and improving the education/human resources development system.

In the initial stages of Korea's economic
development, it sought to commercialise R&D through the transfer,
assimilation and improvement of technology from more advanced countries. Korea
has acknowledged that this approach failed to secure core and fundamental
technologies and so it was not able to keep pace with more advanced countries
in terms of economic development. The future plans indicate an approach that is
less reliant on other countries and more reliant on the development of its own
technologies (Vision 2025: Korea's Long-term Plan for Science and Technology Development.). This is described in the Ministry of Science and Technology's
website as a policy shift "from imitation to innovation". As part of
this new approach, Korea is looking to widen its international cooperation in
science and technology away from USA, Europe and Japan to other countries, both
bilaterally and multilaterally.

The goals of Vision 2025 are:

• By
  2005 – to join the top 12 nations in the world ranking for science and
  technology and thereby get ahead of all other Asian nations.
• By
  2015 – to join the top 10 nations in the world ranking for science and
  technology and be the centre of research in the Asia Pacific region.
• By
  2025 - to join the top seven nations in the world ranking for science and
  technology.

The challenge for Australia is to become an
important ally for Korea in achieving its science and technology objectives.
While Korea will want to use many technologies developed within Korea,
Australia could play an essential complementary role. Working towards such an
objective will considerably strengthen the economic partnership between the two
countries. It will have advantages for both countries.

In many ways Australia and Korea are
complementary in the technology area. Australia is relatively stronger in basic
R&D and in the services sector, including education and training, that
underpins the science and technology sector. Korea is relatively stronger in
large-scale industrial application of technology and in marketing. Korea is
also relatively stronger in the successful commercialisation of R&D. While
Australia benefits from the widespread use of English and in its innovative
education system.

Australia could become the source of much of
Korea's R&D capability (with the added role of assisting Korea to improve
its own R&D capabilities through the education and training sector) and
Korea could become the source of the financial and commercial skills needed to
develop Australian R&D successfully on a large scale.

Such a vision does not need to be restricted
to any particular technologies, but the more obvious possibilities would appear
to be in ICT, biotechnology, and environmental technology (Vision 2025 (pages 78-79) identifies the six major promising technologies of the future as
information technology, biotechnology, environmental technology, energy technology,
mechatronics and systems technology, and materials and processing technology.). These are in
addition to manufacturing technologies such as automotive components where
there is already a strong Korean interest in Australian capabilities.

There is emerging a new paradigm of
comparative advantage between Australia and Korea. Australia has a comparative
advantage in basic R&D, science and technology and human resources
development. Korea has a comparative advantage in the commercialisation and
industrialisation of technologies. By working together Australia and Korea can
develop technologies, products and services for marketing to third countries:
high technologies to countries such as Japan and USA and medium technologies to
countries such as China.

The major barriers confronting the
achievement of such a vision are:

• The
  perception of Koreans generally that Australia is not a source of technically
  or intellectually advanced inputs to assist Korean development (i.e. the lack
  of an Australian technology profile).
• Concerns
  among some Australian interests about intellectual property issues.
• Lack
  of sufficient capital to develop new Australian ideas and technologies through
  the initial commercialisation stage and into full-scale production.

4.3.1. Information
and Communications Technologies

Information and communications technology (ICT) is at the core of the change in Korea's development paradigm. The
previous paradigm was underpinned by strong capital accumulation and growth in
labour inputs with the Government assuming the major role as a nationwide
mobiliser of resources and overall manager. The new paradigm is the KBE, in
which ICT is the principal enabler. ICT has two roles: it provides the
infrastructure for the KBE and, at the same time, its own output is a large
part of the KBE.

The ICT industry in Korea is composed of
information and communication services, information and communications
equipment, and software and computer-related services. The industry is
dominated by the manufacturing of information and communications equipment (75%)
(More than one-half of which is components manufacturing with other large contributors being communications equipment and information equipment plus some
broadcasting equipment) followed by 20% for information and communication services and 5% for
software and computer-related services (Ministry of Information and Communication, Information Technology Overview of
Korea: Statistical Profiles (January 2001).

While Korea has advanced-level technologies
in some areas of ICT, it is said that the overall level of technology is 60-70%
of that in advanced countries. Major technology lags occur in some areas of the
internet (e.g. security), optical communications, digital broadcasting, and
computer software. Another issue for Korea is insufficient professional manpower
(Korea Development Institute, draft (January 2001) of a paper on IT in Korea: Current
Situation and Policy Direction at pages 11 and 12.).

The Korean Government has released Cyber
Korea 21, a plan to boost information technology (IT) at the school level,
through the provision of around 160,000 personal computers to schools,
construction of local area networks for 2,500 high schools, and comprehensive
IT training for over 85,000 teachers.

A second goal of Cyber Korea 21 is to boost
industrial competitiveness - primarily in the steel and shipbuilding sectors -
through e-commerce. Government departments, too, are to be made more
internet-capable, with a plan to introduce electronic document distribution.

As indicated above, there is, however, a
problem with the government's ambitious plans – namely, a skilled manpower
shortage in the IT sector. The Ministry of Information and Communication has
conceded that there is likely to be a shortage of around 200,000 highly trained
skilled personnel by the end of the year 2004. To counteract the problem, the
government has recognised the need for remedial measures, including increasing
its funding to IT colleges.

Part of the KBE development plan involves promotion
of the Korean software industry. This includes providing financial support for
foreign language programs for software specialists and for high quality workers
who wish to study overseas. It also involves promotion of the culture
industries, which includes the animation and game industries (including support
for a Game Academy, an Animation Academy and a Film Venture Support Centre) and
traditional culture industry.

Australian companies are already active in
Korea in ICT, many of the companies being in the computer software industry
(e.g. software for the financial services industry, multimedia content, search
engines/web development and industry specific software). There is also an
interest by some Australian companies in supplying communications equipment.

Australia has not been a leading performer
in terms of ICT industry production. Australia accounts for a very small part
of the total world ICT production and exports. However, Australia has been a
rapid adopter of ICT products. The outcome has meant that Australia has
developed a large and growing trade deficit in ICT products. The potential is
far more positive in terms of international trade in software, services and
content where Australia is better placed to compete.

One of the main problems that Australia has
to continually face is the small size of its economy as well as its remoteness
from world markets, which has meant that the leading world ICT companies have
not seen Australia as a place to locate globally scaled manufacturing facilities.
Until recently, a further weakness has been the relatively poor track record in
terms of commercialising research coming out of the universities and publicly
funded research organisations.

While the personal computer is predicted to
maintain its role in the short term, as the principal access device for the
Internet, smart handheld portable devices such as mobile telephones are also
becoming another important market segment. Current predictions are that the
mobile phone will become the primary product in terms of future usage to funnel
users onto the Internet.

Third Generation Mobile Communication - 3G.

Australia on a per capita basis is one of
the largest users of mobile technology in the world and it is expected that the
3G wireless services will also be quickly adopted. Telecommunications have
normally been based on voice transmission through wire. Recently there have
been interesting developments as the telecommunications service has been
gravitating towards transmission of data through wireless communication. The
Asian region has emerged as the most dynamic wireless market in the world and
is likely to remain the dominant player in the medium-term. In the next three
years, Asia is expected to have approximately half of the world's wireless
Internet subscribers, while the USA will probably have around one third.

Korea is the regional leader in Asia in
internet access rates and has the highest ownership level of personal
computers. While most of the world is still catching up with 2.5G technology,
Japan until recently was expected to adopt 3G (third generation) technology by
late 2001, with Korea following in 2002. However, recent announcements by NTT
DoCoMo, the top-tier Japanese mobile operator, that it would delay the launch
of 3G services until October 2001, has caused some speculation in the industry.
The delay has also started to make a dent on Korea's mobile-phone business and
will probably impact the schedule of IMT 2000 services, Korea's ambitious 3G
project. Putting aside the current impediments, there is no doubt that there
will be many applications that can take advantage of this technology, utilising
high speed and portability that 3G will provide, including: e-mail; making
hotel reservations; booking airline/transport; entertainment; games; movies;
financing - stock market, exchange rates; video conferencing.

3G is expected to revolutionise mobile
communications, and will fundamentally change the way people communicate. The
benefits expected from 3G are more robust data capability, including Internet
access, and multimedia services. These new services will assist users to
conduct ordinary voice communication and use the broadband Internet service
through wire for domestic applications at home. While outside the home, it will
provide users with the ability to enjoy mobile Internet service access around
the clock, with ease of access and new dimensions in portability.

The internet is spearheading a massive
change in Korea with the country emerging as one of the world's most
"wired" economies. Internet penetration is about 49% of the
population at around 21 million as at March 2001, while PC home penetration has
been quoted at around 71%.(Source: Korean Ministry of Information and Communication.). What is even more significant is the Koreans'
determination and success rate in the introduction and implementation of
broadband Internet, which is at around 6.25 million users as at the end of June
2001. Accordingly, Korea is by far the leading user of broadband technology in
the world. Korea Telecom has the major share of the Internet market at 50%,
followed by Hanaro Telecommunications with 25% and Thrunet with 17%.

The Korean Government has been single minded
in its approach to build a knowledge-based economy as it realised that the
future survival and prosperity of Korea depended on its ability to adapt itself
to the digital revolution. Through this desire to change, a national vision of
an "e-Korea" to become one of the ten leading nations in knowledge
and information was fostered and implemented.

As the Korean internet population increased,
a wide range of bandwidth intensive applications such as multimedia video,
multimedia games, music etc were becoming available. Internet users became
aware of the limitations of using the slow 64Kbps dial up modems and started to
voice their discontent with the slow downloading speed, the heavy tariffs,
difficulties in searching for information, poor connectivity, and the additional
financial burden as increasing usage led to higher service fees. This was the
background to an amazing turnaround. In three years Korea has become the
"pilot-site" for the world in the utilisation and implementation of
broadband technology.

Broadband lines per 100 inhabitants in OECD countries (Source: DCITA State of Play - Broadband Services in Australia, May 2001)

2000 Year-end installed lines
Country	DSL	Cable Modem	Total
1. Korea	5.88	3.32	9.20
2. Canada	1.29	2.62	3.91
3. United States	0.89	1.36	2.25
4. Austria	0.48	1.22	1.70
5. Netherlands	0.09	1.58	1.68
6. Belgium	0.42	1.00	1.42
7. Sweden (+ 0.14 subs to the B2)24	0.45	0.62	1.21
8. Denmark	0.49	0.56	1.05
9. Iceland	0.70	0.00	0.70
10. Finland	0.29	0.29	0.58
11. Japan	0.01	0.49	0.50
12. Switzerland	0.06	0.38	0.43
13. Australia	0.05	0.34	0.39
14. Norway	0.01	0.34	0.34

24. B2 is a Swedish broadband provider that provides broadband access to urban areas
using technology that bypasses the local loop.

The above table illustrates the broadband
penetration in OECD countries as at 1 January 2001. At this time, commercial
DSL services were available in 22 out of the 30 OECD countries, but it is
interesting to note that, just three countries, Korea, USA, and Canada
accounted for 91% of all DSL subscribers and 81% of all cable modem
subscribers.

There are a number of factors that have
helped Korea achieve their leading status in first internet, then broadband
penetration. First, the unique Internet PC cafes that have sprouted up all over
Korea since 1999. By mid 2001 there were over 20,000 Internet PC cafes offering
broadband Internet services. This has developed a unique entertainment culture
for the youth of Korea. They are exposed to the fascinating speed of the
broadband Internet through a wide range of multimedia games and multi-user
games where they are playing in teams of twenty or more, breaking the mould of
the usual concept of the solitary "nerd" addicted to computer games –
these games are now able to be joined by team mates even from remote locations,
and technology permiting international locations. In addition, the lack of
available space for outdoor games makes Korea an ideal location for these high
speed dependent virtual reality games as a substitute.

Second, Korea's unique domestic housing
environment has been a major contributor. As over 70% of the total population
of Korea live in the seven largest cities including Seoul (10 million), the
Internet service providers are able to focus on huge installation possibilities
through hundreds of high-rise apartment complexes. The initial network
deployment was thus achieved at a fraction of the cost in Australia.

Third, the usage cost of broadband (55%
ADSL) is also a critical factor in the high utilisation in Korea. The average
user pays around 40,000 won or around US$28.00 per month for a continuous
connection service (no dial up) that provides between 1Mbps to 5 Mbps access
speeds. This compares with around A$24.00 per month in Australia for a dial up
"narrow band" 28.8Kbps - 56Kbps connection that usually also has a
time related and or download cost as well. Broadband ADSL connections through
Australian service providers vary from A$84.00 per month for home consumption
at around 512Kbps download, to faster options available for business
connections at around A$116.00 per month with up to 1.5Mbps download. In
Australia, the user base is demanding faster access rates and a more reliable
service delivery.

The low cost of internet usage in Korea is
conducive to heavy use. The average monthly broadband subscription is US$28
with unlimited access time, and the average ISP connection through a telephone
line is only US$8 per month with unlimited access time.

Koreans have also become major users of
shopping online. Internet sales rose almost 40% to 665.7 billion won (US$532.5
million) in the last quarter of 2000, according to a survey by the National
Statistics Office.

In Australia the situation is vastly
different. Of an estimated 3.9 million internet accounts in December 2000, 97%
were still with "narrowband" dial-up providers (Source: Australian Bureau of Statistics.). High-speed
internet/broadband is still a long way from becoming anywhere near as widely
used as in Korea. Although there are numerous service providers now rolling out
broadband around Australia, the uptake by Australian customers is very low, due
in part to the comparatively high costs, restricted availability, and relative
instability. The total national figures are estimated at around 120,000 users.

Connection through the dial up telephone
line has been quite effective for sending and receiving email and for text
based information such as newsletters, but it starts to show its limitations
even with simple photographs, which can take up to a minute to download. The
initial utilisation of the internet in Australia was impressive but once the
novelty of the technology had worn off and the users became aware of the
potential possibilities, they became frustrated at the limitations that the
infrastructure was imposing on the use of this technology.

This also impacts on Australian software
developers, especially in the Games and Video and Audio markets, who are
inhibited from testing the products that they are developing on the very medium
that they are developing it for, the Internet. Demonstrations to potential
overseas customers at times have to be delivered by other means, such as CD's
while some promising developments in Cyber Education (with Korea) have had to
be shelved due to the inability of Australia's Internet system to cope with the
high speed requirements. The concept of convergence, where video, audio, the
internet and various other entertainment media are accessed from a single
device, requires higher access speeds. The problem for Australia's software
developers is that the solution, high-speed broadband technology, which
provides connections at least 10 times faster than the standard phone line, is
available and already utilised, but in Australia only on a limited basis,
especially when compared to Korea.

Despite these obstacles there would still
appear to be opportunities in terms of Australian value-added services
provision. The potential for Australian products, including education and training,
software development, hardware integration and services provision appear to
present mutual opportunities for Australia and Korea.

CASE STUDY: PowerSource Software Pty. Ltd. PowerSource's principals have successfully developed innovative software technology and licensed it to leading Australian and overseas firms. The company has been working successfully with leading Korean IT organisations continuously since 1997. These have included the Korea Racing Association (KRA), Daewoo Information Systems Co. Ltd. (DISC), Korea Electronics Technology Institute (KETI), and Samsung SDS. The principal of PowerSource Software is Mr Arnold Kopff. In 1975, he joined Amalgamated Wireless Australasia Limited (AWA) and helped build the world's first sell-pay totalisator system. He left AWA in 1978 to become a founding member of RT Real Time Systems (RT). From 1978 through to 1985 RT developed the betting systems used by the TABs in Victoria, Tasmania and South Australia. In addition, tote systems designed by Mr Kopff were installed at over 30 racetracks in Australia and at two tracks in the Philippines. In 1986 he co-founded Advanced Wagering Systems (AWS). In 1988, AWS supplied a totalisator system to the British bookmaking conglomerate William-Hill Mecca for installation in Botswana. In 1991, AWS and another Australian company, M&B Electronics, jointly developed the ARION wagering terminal and several hundred of these were subsequently sold to Australian racing clubs and casinos. In 1992, AWS designed and implemented a pilot on and off-track betting system for Greenwood Racing Inc. in Philadelphia. In late 1992 and early 1993, he was retained by Concurrent Computer Corporation and Stratus Computer Inc. to assist each company with the design of their benchmark systems needed for the Victorian TAB's RFP for a new betting system. In 1993, UNIX-based software developed by Mr Kopff was licensed to Video Lottery Technologies Inc. the world's second largest supplier of on-line lottery systems. After returning to Australia at the end of 1994, AWS licensed similar software to Tattersalls Sweep Consultation. In 1996, a UNIX-based betting system designed by Mr Kopff was adopted by Jupiters Limited as the foundation for their statewide keno system in Queensland. In late 1997, he was retained by Daewoo Information Systems Co. Ltd. to assist them and the Korea Racing Association with the detailed design study for a new on and off-track betting system for deployment throughout Korea. In early 1999, PowerSource was retained by the Korean Electronics Technology Institute (KETI) to devise an architecture and implementation plan for a national Korean sports lottery. In January 2000, PowerSource was retained by the Korea Racing Association and Samsung SDS, Korea's largest systems integrator, to provide technical consulting services for the duration of the four year project. Specifically, PowerSource is assisting both groups with the architecture, detailed design, implementation and testing of the new Korea-wide totalisator system. During the second half of 2000, PowerSource developed a number of new technical innovations. These included advances in state-of-the-art Internet-based wagering, and the development of the JetStream Dynamic Content Engine, a high performance dynamic content accelerator. JetStream uses innovative technology devised by PowerSource that the company is presently patenting. Source: Mr Arnold Kopff, Managing Director – PowerSource Software

4.3.2. Biotechnology

Biotechnology covers human and animal
health, agriculture and food, industrial biotechnology, bioinformatics,
materials science and bioengineering (e.g. some environmental technologies). There
are more than 2,500 companies worldwide dedicated to researching, developing
and supplying biotechnology products and applications and many more with
substantial involvement in the technology. Venture capital exceeding $1.5
billion and overall equity finance of more than $6 billion are flowing into
biotechnology-based firms each year (DFAT, Australia's Trade: Influences into the New Millennium (2001) at pages 74-75.).

Australian Governments are supporting the
development of the biotechnology industry in Australia, e.g. the Commonwealth
Government's National Biotechnology Strategy and the Victorian Government's
financial support of the $400 million Bio21 Australia project to create a
cluster of research institutes and corporations in Melbourne. There are also
specific Innovation Funds aimed at the biotechnology industry (The Australian Financial Review, 2 April 2001 at page 28.).

According to the Korean Ministry for Science
and Technology, the Korean Government's R&D budget for this year includes
$US250 million for biotechnology. The Government has declared the year 2001 the
"Year of Biotechnology" and plans to put available science and technology
resources together to build "B-Korea".

There is scope for substantial cooperation
between Korea and Australia in biotechnology. There has already been a
collaborative research project for the development of anti-viral drugs carried
out by Biomolecular Research Institute (BRI) of Melbourne and the Korean
Hepatitis Consortium. Funding and research proceeded for four years but work
ceased towards the end of 2000 (It is understood that the first meeting of the Australia-Korea Joint Committee on
Science and Technology held on 29 March 2001 discussed the progress of the collaborative research project, but no decision has been taken on its future. Advice
received in Korea in March 2001 was that the Korean interests are presently considering how the work done may be taken forward. That advice indicated that
the Korean Minister for Science and Technology was arranging for the data developed under the project to be put into a Korean venture company (i.e. a start-
up company) with the information providing the basis for the capital of the company
and that a CEO for the venture company was being sought.).

Interviews in Korea indicated there was
potential for further Korea/Australia collaboration in areas such as
biotechnology (For example, interviews in early March 2001 with the Korea Rural Economic Institute
and Korean Venture Business Association.). One Korean comment was that there was scope for Korean
investment in the commercialisation of Australian biotechnologies, which could
short-circuit the wait for the results of Korean investment in biotechnology.

The Bioindustry Association of Korea (The Association has over 60 companies as members plus over 150 associate members
(individuals and organisations) presently has relationships with USA, Japan, France and Germany and is starting
to build relationships with Israel and Canada. The Association organises large
Korean delegations to international conferences such as the BIO conference in
San Diego as well as bilateral conferences such as the Korea – USA/USA – Korea
Biotechnology Industry Investment and Cooperation Conference held in Seoul in
March 2001. The Association is also organising the Bio Korea 2001 International
Exhibition and Conference to be held in Korea in November 2001.

Discussions in Korea in June 2001 indicated
a strong desire by the Association to link with similar associations in
Australia. Similarly, Korean biotechnology businesses, including those of the
large Korean conglomerates are looking for opportunities in the biotechnology
sector in which to invest; there is a desire to know about biotechnology
developments and opportunities in Australia, which will enable the Korean
businesses to spread their interests beyond Korea and USA.

4.3.3. Environmental
Technology

Korea acknowledges that its environmental
technology lags behind that of more advanced nations by four to five years. The
level of overall environmental technology is about 30-60% of that of developed
countries. Core post treatment and pollution prevention technologies are
especially underdeveloped (Ministry of Environment, Green Korea 2001 at page 70.). The major environmental policy issues include:
water conservation; the supply of clean water; the management of water supply
(e.g. there is a high water leakage rate in the water pipeline network); sewage
and wastewater treatment, management and reuse; air quality (the major
pollutant is diesel fuelled motor vehicles); and landfill site management.

In January 2001 the Ministry of Environment
formulated the Environmental Technology Development Strategy to nurture Korea's
environmental technology industry into a highly competitive strategic export
oriented industry. The strategy is being funded with about two trillion won
(about $A3.33 billion) over three years and involves eight government agencies.
The strategy aims to lay the foundation for the Korean environmental technology
industry to reach the level of advanced countries by 2010 (Korea's long-term plan for science and technology development also calls for the
development of technologies for alternative energy sources (including solar and hydrogen technology) and energy efficiency.).

The strategy includes –

• an
  investment fund to assist environmental start-up businesses, and
• a
  fund (the Eco-technopia 21 program) to develop environmental technology
  essential for the growth and competitiveness of the environment technology industry.
  The plan includes developing new technology expected to be in high demand as
  well as improving other technologies.

In addition, the Government will invest 5.5
trillion won (about $A9.16 billion) in building environmental infrastructure,
including wastewater treatment plants and waste incinerators, to help create
market demand for environment technology.

The Korean Ministry of Environment has
estimated the Korean market in 2000 for the environmental technology industry
at 11 trillion won (about $A18.33 billion) and expected to grow at about 15%
per annum through 2005. The Ministry has established the Korea Environmental
Technology Information Centre, which has a website which has a database on
technologies; apparently, there are no Australian technologies on this site.
There is a biannual trade exhibition, ENVEX (June and November), where
technologies can be introduced to Korea (While the organisers are Korean, there are two special organisers: the European
Union Chamber of Commerce in Korea and the US-Asia Environmental Partnership)..

There are no restrictions on the import of
environmental technologies into Korea. As part of the Eco-technopia 21 program,
Korean companies can cooperate with foreign research centres in developing
environmental technologies. Korea could provide a basis for Australian
businesses to work with their Korean counterparts in China.

The major opportunities for Australia would
be in water, wastewater and marine technologies, including sensors (There may also be opportunities in site remediation as these technologies are not
well developed in Korea and USA companies are offering these types of technology.). The
private sector is able to become involved in the environment sector such as
water and incineration. There are already examples of French water companies
becoming involved in the water sector. However, the number of Korean and
overseas private companies involved is small. Most water related plants are
owned by provincial and local governments; many would like to change but each
government is adopting a "wait and see" approach – once there is a
good example, others will follow.

Some linkages between Korea and Australia
are already being established. The Korea-Australia Science and Technology
Exchange Centre (KASTEC), which is based at the Pusan National University and
at the CRC for Waste Management and Pollution Control in Sydney, is promoting
the exchange of environmental technologies between Australia and Korea with a
view to developing demonstration projects and commercial linkages. Individual
companies are also pursuing environmental protection business in Korea.

Conclusion

Some initiatives to overcome the barriers in
the way of a stronger economic partnership between Australia and Korea in
technology sectors are mentioned elsewhere (e.g. a Code of Practice in relation
to intellectual property). (Korea's long-term plan for science and technology development calls for the
strengthening of the laws to protect intellectual property rights. Vision 2025 alsostates at page 147: "(A)s an active response to the growing international trend of
protecting intellectual property rights, public awareness about intellectual property
rights must be strengthened over the long-term." )

In addition to those suggestions, the
broader solution is to develop linkages throughout the industrial/commercial
chain. There are some linkages through the Australia-Korea Business Council and
its Korean counterpart, but these linkages are mainly in the traditional trade
areas of minerals and agriculture. What is needed are effective linkages in the
newly emerging technology intensive sectors, but should be closely linked with
the education and training sector because of the role of that sector in
assisting the development of the Australian profile.

What is needed initially is a mechanism to
promote a greater understanding among Koreans of Australia's strengths and
among Australians of Korea's strengths. Most of the cooperation to date has
been in the R&D field; many Koreans working at the R&D level in ICT,
biotechnology and environmental technology are aware of Australia's
capabilities. This awareness does not extend in any meaningful way beyond
researchers. Discussions in Korea indicate that many people in businesses in
these technology areas were not aware of or did not understand the depth of the
Australian strengths.

There have been symposia involving
Australian and Korean researchers. These should continue. However, what is
really needed are workshops in particular technology segments that also include
those who are responsible for the commercialisation, including marketing, of
newly developed technologies. These types of workshops can improve awareness
above and beyond researchers. The workshops can discuss issues such as –

• what
  is available in Korea and what are Korea's needs;
• what
  is available in Australia and what are Australia's needs;
• what
  are the strategic directions in Korea and Australia in the different segments
  of technology and in their commercialisation; and
• what
  are the needs and strategic directions of other countries in the Asia Pacific
  region such as Singapore as well as the major markets of China and Japan.

It may be desirable to have separate
workshops in Australia and Korea before coming together in joint workshops.

If the workshops in particular segments are
successful, they could lead to the creation of a Korean/Australian
"cluster" in particular technology segments that would include in
each cluster:

• relevant
  firms from each country,
• relevant
  R&D agencies,
• education
  and training institutions,
• financial
  services institutions,
• legal
  services, and
• product
  development and marketing specialists.

Initially, such clusters do not need to be
created on a very formal basis. The major task is to get the participants
talking together on an ongoing basis and to be linked by some form of Intranet.
Some seed funding may be needed to promote the clusters, for example, the
Australian-Korea Foundation could expand its current activities in the
technology sectors to include the sponsoring of the workshops and clusters. If
they are successful, they could be developed into more formalised fora where
the Governments of Korea and Australia could also participate; this would allow
joint industry/government discussion of issues affecting the particular sector.

4.4. Education
and Training

Education and training has two roles in
strengthening the economic partnership between Australia and Korea. The first
is as a services export that not only earns income for Australia but also
augments Korean education and technology. The second is as a means to change
Korean perceptions of Australia.

As indicated in the previous sections on
technologies, there is an awareness among some Koreans about Australia's
strengths in R&D and science and technology. However, this awareness is
limited to scientists working in particular fields. This awareness does not
extend to education and training. Most Koreans when they consider overseas
education think about the USA (About 40,000 Koreans went to universities in USA in 1999/2000.).

The major challenge for Australia is to get
across the message that Australia is both a centre of excellence for education
and a source of technically or intellectually advanced inputs to assist Korean
development. Increasing the number of Korean students participating in
Australian university and vocational education will be a means, albeit medium
to long term, of meeting this challenge.

Korean Students in Australia

Korea had become an important source of
overseas students for Australia with some 20,231 students in 1996. The numbers
dropped substantially after 1997 to a trough of 9,547 in 1999 and have since
risen to 11,556 in 2000. However, the largest component of these figures has
been Koreans studying English Language in Australia and it has been the
fluctuations in those numbers that have accounted for the variations in the
total numbers. While there has also been a decline in the number of Korean
students at schools and vocational education institutions, there has been a
steady increase, albeit relatively small numbers, in Korean students at
Australian universities: increasing from 1,157 in 1996 to 2,050 in 2000.

	1995	1996	1997	1998	1999	2000
Schools		1,791	1,881	1,552	1,174	1,010
English Language*		13,032	10,682	4,912	4,197	6,228
VET Total		4,251	4,251	3,091	2,413	2,268
TAFE					541
Private					1,872
University Total		1,157	1,477	1,598	1,763	2,050
Undergraduate				1,174	1,297
Postgraduate				424	466
TOTAL	13,854	20,231	18,291	11,153	9,547	11,556

Source: Overseas Student Statistics 1998 and 1999. 2000 figures from Table 3 attached to www.aei.detya.gov.au/industry/news/psnumbers/psn2000.htm

* Table 48 of Overseas Student Statistics
1999 states that in addition to the 10,682 and 4,912 South Korean students in
the English Language sector on student visas in 1997 and 1998, there were an
additional 4,150 in 1997 and 3,250 in 1998 on non-student visas.

Korea is one of the largest sources of
international students in Australia for English Language along with Japan and
China. However, Korea has been a minor source of university students compared
with Malaysia, Singapore, Indonesia and Hong Kong. Although the Korean numbers
are in general small compared with overall international university students,
Korea is usually ranked about equal third with Japan as a source of vocational
education students and school students.

Korean Education and Training System

The Korean education system served Korea
well though to the 1990s in providing a general education for most Koreans who
sought education and in supporting Korea's industrialisation policies from the
1960s to the 1990s. The Korean education system tended to focus on teaching
students subject matter content ("know-what" knowledge) rather than
teaching or coaching them on how to apply or utilise knowledge
("know-how" knowledge).

This type of education system is not well
suited to the change in Korean industrial policy where the emphasis is now on
becoming an advanced knowledge based economy. The education system now needs to
be based around overall human resources development where there is a need for
education and training that promotes quality, creativity and lifelong learning
as well as education that is relevant to the needs of industry (and which
prepares students to be more productive on entry to employment). Areas of
reform that have been identified by the OECD/World Bank (OECD/World Bank, Korea and the Knowledge-based Economy: Making the Transition
(2000) pages 57 to 77.) as critical for
Korea's knowledge based economy are:

• Deregulating
  the education system and increasing autonomy for private secondary and higher
  education, involving changes in curriculum and tuition, and permitting
  universities to set their own admission requirements, number of places, etc.
  This will promote diversity in the education and training system.
• Integrating
  the current formal, vocational, adult and distance education and training
  systems to meet the growing needs of lifelong learning.
• Reorienting
  the use of public and private resources to emphasise improvements in the
  quality of education at all levels.
• Introducing
  outcome-driven governance systems in education with clearly defined autonomy
  and accountability at the institutional levels and decentralisation to enhance
  local decision-making at schools and universities.
• Strengthening
  Korea's links to the global educational system. Universities should be
  encouraged to develop strategic alliances with world-class universities and
  encourage faculty exchange and joint courses. In addition, the curriculum in
  English and information and communications technologies should be strengthened
  to facilitate global communication and international links so as to better
  prepare Korean students for a globalised world.

Korea is moving to meet these challenges and
there are some examples of where new initiatives are taking place such as cyber
universities and colleges. Nevertheless, there is a realisation among
decision-makers that much more needs to be done. A working group of Korean
Government officials and advisers are currently developing a comprehensive
human resources development plan (The Korean recognition of the importance of human resources development can be
seen in the changing of the name of the Ministry of Education to the Ministry of
Education and Human Resources Development and in the promotion of the Minister to hold concurrently the position of Deputy Prime Minister so as to oversee all
Ministries with responsibilities that impact on human resources development.). This plan, a national framework for human
resources development, could be finalised by September/October 2001.
Discussions in Korea in June 2001 indicate that Korea is looking for new ideas
and initiatives and that proposals by Australia to support Korea's new human
resources development directions would be welcomed. There is a window of
opportunity for Australia to become a strategic partner for Korea's education
and training sector.

Conclusions

(i) A
coordinated program by the Australian education sectors to the Korean market is
necessary. While it is possible for individual institutions to go it alone in
Korea, such an approach will not fully capture the emerging opportunities. A
coordinated, long-term strategy involving the Australian Government and
educational institutions is needed to capture the attention of Korean
Government and educational decision makers as to the quality and relevance of
the Australian education and training system and products to the human
resources development needs of Korea. Such an approach can also emphasise
Australian strengths in R&D and science and technology and so broaden
Australia's high technology profile.

(ii) The
first step should be to develop a Government to Government cooperative
agreement whereby Australia agrees to provide advice to Korean authorities and
institutions on developing the new Korean human resources development system
and introducing Australian institutions that can provide the particular systems
and courses that meet Korea's needs.

(iii) The
most immediate needs of Korea that have so far been identified are:

• courses
  that provide not only the necessary theoretical education but also practical
  training tailored to the employment needs of the student – either in his/her
  current employment or prospective employment; (Korean business groups are looking for students that have skills immediately relevant
  to the needs of the business. There should be scope for Australian institutions to
  work with such businesses to develop courses that are relevant to their needs such
  as the corporate training courses already being provided by Australian institutions
  (e.g. the Ericsson/ANU cooperative approach in China.)
• advice
  on Australia's skills in providing lifelong learning and in delivering distance
  education, particularly through on-line (or "cyber") delivery
  systems, and
• courses
  that can be delivered on-line that are global in nature (i.e. globally
  developed content leading to a globally recognised qualification). The growth
  areas are English Language, business, certificate based information technology
  and financial planning and management courses that are internationally
  recognised. (Koreans could be particularly interested in courses that are recognised by large
  multinational companies as such qualifications would increase the opportunities of
  obtaining employment with such corporations where the working conditions are
  usually attractive.)

(iv) The
changing nature of the Korean economy should create a demand for vocational
courses which can be delivered in a variety of modes – by studying in
Australia, by off-campus (distance education) or by an offshore campus. An
offshore campus would need to be a joint venture with a Korean institution
where some (or all) of the courses are delivered in Korea with articulation
(and English language studies) to vocational education and/or university
courses in Australia. Different types of delivery could also apply to
university courses, particularly specialised courses such as business and
computer studies, health care, etc.

(v) The
use of scholarships and work placements for Korean postgraduate students in Australia
as a longer-term means to raise the general profile of Australian education and
training among younger Koreans and to build a counterweight to the usual
attraction of postgraduate students to the USA. This longer-term strategy
should also involve the building of Australian alumni groups in Korea.

(vi) The
education sector should work closely with other sectors, especially those in
the high technology sectors (e.g. information and communications technology,
biotechnology, environmental technology) (Such cooperation with other industry sectors is also pertinent to other sectors, e.g. in
providing training to Korean food and agriculture officials on Australian food standards and conformance
systems) to ensure consistent messages are
delivered to Korea. Such cooperative efforts may lead to Government/business
sponsoring scholarships/work placements for Korean students in Australia.

4.5 Infrastructure
and Utilities

4.5.1. Utilities

Korea has embarked on a large-scale program
of privatisation. It covers telecommunications, electricity, gas, water,
pipelines etc. (Meeting on 20 April 2001 with Professor Chang-hyun Cho, Chairman of the
Presidential Commission on Government Innovation). For example, Korea is working towards making the electricity
market more competitive, based on the Victorian model. KEPCO is being
restructured into six generating companies, including one for nuclear power.
The five non-nuclear generating companies will be open to foreign investment as
well as having a requirement for professional services. A similar approach, and
therefore opportunities, is expected to be taken to the restructuring of the
gas industry (Interview on 8 March 2001 with the Energy Policy Office of the Korean Ministry of
Commerce Industry and Energy).

In the water industry, it has been reported (Global Water Report 99, 7 July 2000 at page
10) that the Lyonnaise group of France (now ONDEO) is the preferred
bidder for the first international wastewater tender in Korea. The 24-year BOT
contract covers the design, construction and management of three sewage plants
and an 85-km collecting network. Wastewater services will be supplied to Yangyu
county (population 100,000), 60 km from Seoul, in Kyonggi province. The ONDEO
group will take a 60% share of the consortium with 40% taken by Hanwha of
Korea.

The Australian water industry is going
through a reform process driven by the National Competition Policy with
improved productivity being the result. The competition principles relevant to
the water industry include:

• pricing
  oversight of water businesses as government business enterprises,
• competitive
  neutrality,
• structural
  reform of public monopolies,
• review
  of legislation to identify anti-competitive elements, and
• access
  to services of significant infrastructure facilities.

These changes provide a basis for the water
businesses themselves to market their services to other countries that are
embarking on a similar process of reform as well as providing reference sites
for those firms that provide services to water businesses.

4.5.2. Infrastructure

The Australian Model of Infrastructure
Project Finance – Relevance to Korea

The Korean infrastructure market has
recently shown that it is following the evolution in lending structures in
other more mature western countries, by moving from a corporate finance focus
to a project finance emphasis. From a pre Asian economic crisis situation,
where all infrastructure borrowing was undertaken on a full recourse basis to
the project sponsors, signs are now emerging of the development of
international project finance techniques, including non-recourse finance.

Accordingly, Australia's sophisticated and
mature finance industry is well placed to capitalise on developments in this
marketplace. Since the early 1980s, Australia has developed its world-leading
financial skills and practices in the infrastructure sector, pioneering now
established industry practices such as non recourse project funding, inflation
linked bonds and the listing of infrastructure investment vehicles. These
practices have sought to better link and reward the provision of equity and
debt capital to project risks, and have produced an educated, informed market
with a highly efficient allocation of project capital.

Australian companies in Korea now have the
opportunity to focus on specialist financial activities that range from
infrastructure and project finance, structured finance and cross border leasing
to the management of specialised infrastructure investment funds.

Korean Infrastructure Developments

Korea's investment in the transport and
infrastructure sector has not kept pace with the growth in transport demand that
has accompanied its transformation from an essentially agrarian economy to a
sophisticated manufacturing producer and exporter. As a result, traffic
congestion has risen rapidly, undermining Korea's international competitiveness
and presenting challenges for policy makers in meeting such a long-term
investment shortfall. More than 16% of Korea's GDP is logistics costs and more
than 4% of its GDP is lost through traffic congestion costs.

Since the early 1990s the Korean Government
has faced the dilemma of how to meet this investment shortfall, either through
massive public works spending the country cannot afford, or by encouraging the
private sector to build the nation's infrastructure.

The Government opted for the latter course,
introducing the concept of public/private partnerships through the Private
Participation in Infrastructure (PPI) Act, which uses tax and other incentives
to encourage domestic and international investors in roads, rail and port
facilities to 2011. These investments are assessed against Social Overhead
Capital (SOC) requirements, which are designed to take into account
non-financial interests such as community needs and considerations.

Already a new international hub airport has
been built outside Seoul, and high-speed railways are being built to lower
traffic congestion and logistics costs. Subways are being expanded and
alternative roads are being added to and around all urban areas in order to
alleviate urban transport problems.

The plan is highly centralised and
administered by the Ministry of Construction and Transportation, which oversees
national development planning, infrastructure, surface transport and civil
aviation affairs. The maritime and port functions are the responsibility of the
Ministry of Maritime Affairs and Fisheries.

To feed its industrial base, Korea is highly
reliant on the supply of natural resources from overseas markets. Consequently,
an internationally viable shipping and shipbuilding industry has developed.
However productivity delays and port congestion rob the country of almost 0.2
per cent of GNP annually (Ministry of Maritime Affairs and Fisheries). As a result, Korea has embarked on an ambitious
$US30 billion port modernisation and building program to 2011.

The last decade has seen an enormous shift
in freight traffic, from rail to the road and maritime sectors. While total
domestic freight traffic grew more than 250% during the 1990s, rail traffic
only rose 11% - representing a 20% decline in its share of the freight market.
Notwithstanding this, Korea has an extensive and mature rail system, with the
first intercity track linking Seoul and Inch'on in 1899.

Korea's rising economic prosperity is having
profound effects on transport modes. Not only are more Korean commuters using
their own vehicles, greater urbanisation has seen a drift away from the public
bus system to a subway rail alternative. This has brought with it the need for
new networks and more advanced urban public transport solutions.

A high-speed train service, similar to that
found in Japan and France, is being constructed to link Seoul with Pusan while
a second link to Hanan is being examined. To complement the subway system, an
increasingly sophisticated and extensive road network is being constructed
around the major cities, particularly Seoul, most of which was constructed to
coincide with the 1988 Olympics. It is anticipated that seven north-south road
trunk routes and nine east-west trunk routes will operate shortly, linking
major city centres.

Policy Co-ordination

In an attempt to introduce a long-term
planning culture, the Korean Government follows the Comprehensive National
Territorial Plan (CNTP) for the use, development and preservation of land. The
CNTP presents policies related to the distribution of population and
industries, infrastructure supply, living conditions, the management of natural
resources, and environmental conservation. Among the key policy initiatives
are:

• the
  construction of high-speed transport and information networks, transforming
  Korea into the gateway to North East Asia.
• the
  reduction in surface travel time between any two points in Korea to a maximum
  of half a day, allowing more efficient distribution and transport flows.
• the
  building of information/telecommunication infrastructures so that Korea evolves
  into a "digitalized territory".
• the
  planning for a unified Korea between North and South.

Regulation and Government incentives

The Private Participation in Infrastructure (PPI) Act indicates the Korean Government's commitment to reform the way Korean
infrastructure projects are financed, managed and owned by engaging the private
sector in this task. Introduced in 1995, and amended in 1998 following the
Asian financial crisis, the Act seeks to:

• move
  away from a regulatory system towards a promotional system, where the
  "creativity" of the private sector is rewarded;
• shift
  the development focus from the public to private sector;
• formulate
  a clearly defined and transparent bidding process;
• introduce
  legally recognisable legal practices, and
• establish
  standard and internationally accepted institutional arrangements for project
  execution.

The definition of "infrastructure"
is broad and includes roads and ancillary facilities, railways, urban railways,
harbour and port facilities, airport facilities, fishing harbour facilities,
cargo terminals and warehouses, passenger terminals, non-road parking lots and
urban parks. Projects qualify for consideration if they involve construction,
expansion, renovation or operation of infrastructure facilities.

Projects worth over 200 billion won (about
$A333.33 million) are reviewed through a preliminary feasibility study. For a
project to be approved, the Act requires the Government and Concessionaire to
agree to revenue projections, project costs and an un-geared real project IRR
to determine the level of government subsidy for the project. Gearing of the
project enables equity returns to be significantly higher than un-geared
projects.

Financing can be conducted in a number of
ways:

• BTO
  (Build-Transfer-Operate): The most widely pursued method. Ownership of the
  infrastructure facilities is transferred to the central or local government
  upon completion of construction, and the concessionaire has the right to
  operate the infrastructure facilities for a specified period of time.
• BOT
  (Build-Operate-Transfer): The concessionaire assumes ownership of the
  infrastructure facilities for a specified period of time after completion of
  construction, upon which ownership is transferred to the central or local
  government upon termination of the concession period.
• BOO
  (Build-Own-Operate): The concessionaire owns and operates the infrastructure
  facilities upon completion of construction.
• BLT
  (Build-Lease-Transfer): Upon completion of construction, the concessionaire
  leases facilities to the government for a set period of time and upon
  termination of the lease, ownership is transferred to the central or local
  government.
• ROT
  (Rehabilitate-Operate-Transfer): Upon rehabilitation of existing infrastructure
  facilities owned by the central or the local government, the concessionaire has
  the right to operate the facilities for a specified period of time.

Private sector investors can participate
through open bidding in the case of solicited projects or by submission of a
proposal in the case of unsolicited projects. The incentives include:

• a
  minimum revenue guarantee of up to 90% for solicited projects (110% revenue
  cap) and 80% for unsolicited projects (120% revenue cap);
• a
  buy-out clause in the case of a force majeure and in the case of a breach of
  agreement by the government;
• measures
  to stimulate creativity on the part of the private sector. For example, in the
  case where a concessionaire completes construction at a lower-than-projected
  cost, the guaranteed tariff is not adjusted accordingly. The cost reduction is
  then the concessionaire's additional gain;
• partial
  compensation for foreign exchange rate fluctuations;
• put
  options for foreign equity investments up to 50% of the total cost of a
  project;
• a
  50% reduction on capital gains, and
• exemption
  of acquisition tax and registration tax.

Concurrent with the PPI Act is the concept
of Social Overhead Capital (SOC), which is a means of assessing private sector
investments against common criteria. Under this process, the Ministry of
Construction and Transportation presents a list of projects to a committee of
Ministers, including the Ministry of Finance for approval in the Basic Plan.
The committee ensures there is no over-investment in any one sector, unlikely
given the parlous state of the infrastructure sector overall, and that the
Government's share of investment and the proposed toll charges are reasonable.

The SOC Investment plan extends to 2020 and
amounts to investment in roads, power, communication, rail, water, ports and
airports totalling 1,004 trillion Won (about $A1.67 trillion). Of this, 747
trillion Won (about $A1.24 trillion) is to be spent between 2002 with a private
sector contribution of 389 trillion Won (about $A648 billion).

Conclusion

There are many opportunities in the
infrastructure and utilities sectors as Korea modernises its infrastructure.

An Australian financial institution
(Macquarie Bank) has won many mandates in Korea in relation to the financial
structuring of infrastructure projects in areas such as toll roads, ports,
tunnels, power stations, communications, etc. The projects being managed offer
many opportunities for Australian firms in the engineering and construction
area, especially in the involvement of modern environmental technologies in the
construction and operation of the projects. There are no doubt other areas of
Australian skills and intellectual property that can participate in these
infrastructure developments such as software products for energy and utilities
companies.

If Australia can establish a track record in
these areas, it opens up potential opportunities in North Korea. North Korea
will require substantial rehabilitation of its power and energy (and possibly
other infrastructure) sectors. As South Korea is unlikely to be able to afford
to do that by itself, it provides an opportunity for Australia/Korean
collaboration.

The challenge for Australia is to increase
its profile as a source of expertise not only in the financing of
infrastructure but also in the construction, operation and maintenance of
modern infrastructure and utilities. The role for the Australian Government is
primarily one of promoting the capabilities of Australia generally and
particular companies in these areas.

Korean Cyber Village

In Korea the concept of the fully automated
home has become a reality through a series of Cyber Village apartment complexes
(costing around $US215,000 for a 146 sq m unit). There are 16 of these Cyber
Villages in Seoul currently and many more currently under construction. These
can be bought "off the plan" with a moving-in date of within two
years from a purchase deposit being made. There is a high demand for these
units – billed as the world's most technologically advanced. Some of the
features include a "webpad" – a portable Internet appliance that is
the size of a laptop computer screen with touch control facilities. Shopping is
simplified to clicking on grocery items, which are automatically ordered from
electronic supermarkets such as, Hanaro Mart, the country's largest supermarket
chain, which then offers free deliveries twice a day. Other options currently
available on the web-pad include: on line laundry services, online news and the
ability to log on to the internet from anywhere in the apartment.

In Korea, there are already around 10,000
such "smart" apartments, occupied by ordinary families, offering the
beginnings of a connected environment, with various levels of automation
currently in use.

From August 2001, a high-speed fiber-optic
network will make the "Cyber Village" environment even more powerful.
Residents will, for example, be able to unlock their doors by mobile phone for
their kids returning from school, check the security of their home remotely –
room by room via visual security cameras, activate home air-conditioning from
the office before leaving work at the end of a hot summer's day, draw the
curtains and so on.

In Korea, the home of the future has indeed
arrived and expectations are that networked homes will spread quickly, because
most key ingredients are already in place. Perhaps the most significant of
these "ingredients" is the hundreds of clustered high-rise apartment
complexes that are relatively easy and cost effective to wire with
high-capacity "broadband" cables. In addition, there is a large population
base of technology and "gadget" appreciating consumers, as well as an
abundance of appliance manufacturers such as LG Electronics, & Samsung,
eager to build Internet-enabled devices. The Korean Construction Ministry in
May 2001 issued a regulation requiring all new apartments to be equipped with
speedy Internet access.

Source: Based on article in Asia Week, 22
June, 2001, "Smart Homes Get Real" by Charles S. Lee

4.6. Other
Services

Over the past decades, Korea's
growth-oriented industrial policy rewarded those companies that were both large
and able to demonstrate continuing growth and thus an increasing number of jobs
for Koreans. However, industrial policies in Korea were not coordinated with
its legal structure, which did not allow the creation of holding companies.
With hindsight it became obvious that such a policy was holding back the growth
of a viable and specialised service sector.

The Korean answer was the creation of
business groups or "chaebol"` companies that bought and sold from
each other almost exclusively. This system inflated revenues and assets, and
ignored the requirement to net out intra-group sales.

Through this system the many chaebol formed
their own "in house" divisions/companies specialising in information
technology, chemicals, raw materials and construction. However, the rivalry
that existed among different chaebol created its own problems. The service
companies that were created to provide services to a particular chaebol could
not find clients from the other chaebol, because the potential client chaebol
would suffer a revenue loss if it did so. This also prevented the service
companies from doing their best to reduce costs and increase efficiencies.

Korean business settled for what they could
get rather than sought out the best service available. As Korea now transitions
to a future in which profit maximisation is accepted as an imperative for
Korean industries and companies, the domestic market is deregulated and
world-class companies can gradually compete in Korea, businesses will start to
seek the best available options in terms of quality and price. In April 1998
the Korean Government implemented a ban on corporate cross – payment
guarantees. Consequently, corporations could no longer finance their
subsidiaries with credit or payment guarantees. Corporations were thus forced
to trim down bloated businesses and had to dispose of their non – essential
subsidiaries.

As a result individual companies, banks, and
service companies now, no longer tolerate a poor-performing and high cost
in-house department, such as the group's IT business, when lower cost and
higher quality options are available and needed to improve the company's
profitability and enhance its ability to service its own customers.

Enterprises now need to determine where they
can be distinctive and add unique value in the overall business system, and
will outsource those parts of the value chain in which they are less
competitive to companies which can provide the service more effectively.

These changes have already impacted and will
continue to give rise to the emergence of more specialised and capable service
businesses that differentiate themselves from others based on the quality and
cost of services provided.

Companies with better skills and
capabilities will emerge to provide services that are far more specialised and
unique than those of today in areas as diverse as ICT, systems integration,
logistics and distribution, catering, property management, insurance, and
personal finance/credit card processing. In the course of this study a number
of Korean systems integration companies expressed a strong interest in forming
joint ventures with Australian systems integration companies with a view to
looking at opportunities in third countries – utilising the complementary
skills from each country to target markets in Asia and the United States.

Only more specialised and focused businesses
will be able to achieve the required scale and build the skills and
capabilities required to be successful in this more competitive "winner
focused" economy, where even small differences in performance will lead to
large differences in economic rewards.

The Korean economy has the potential to
create many millions of new services sector jobs in the next five to ten years,
and offer substantial investment/joint venture opportunities for Australian
companies that can recognise the service sectors magnitude and growth potential
in the new, knowledge based Korea.

Many of these new service sector jobs will
be high value-added, high skilled professional jobs in areas such as accounting
and finance, medical care and the legal profession as well as in education and
information technology.

Availability of IT Skills

R	Country	Survey
1	India	8.92
2	Hungary	8.10
3	Israel	7.61
4	Iceland	7.52
5	Australia	7.29
6	U.S.A	7.23
7	France	7.16
8	Turkey	7.03
28	South Korea	6.40

Measures the extent to which qualified IT
personnel are (10) or, are not (1) available in the country. (Source: The World Competitiveness Yearbook 2000, published by International
Institute of Management Development)

Tourism: The number of Koreans who travelled
abroad reached a new record in 2000, breaking the five million mark for the
first time. The numbers of Koreans who came to Australia (12 months to June
2000) were 160,200 or 2.9% of the total outbound travel from Korea. This was a
healthy 26.9% increase on the 1999 figures. The growth included sharp increases
in the numbers of students, backpackers and those travelling to study abroad.
Korean consumers, while remaining largely group travellers, have begun showing
interest in special interest itineraries, focusing on activities such as golf.

The primary source market for Australia is
Seoul, with secondary markets with promise being Pusan and Taegu. Australia is
currently rated the 8th most popular destinations for outbound Korean travellers, behind Japan, China, USA, Thailand, Hong Kong, Singapore, and the
Phillipines. Australia is most popular amongst the younger Koreans. In 2000 28%
of Korean visitors to Australia were aged in their 20's, while 21% were in
their 30's. In comparison only 16% of visitors from Korea were in their 40's
and 12% in their 50's (Source: Korea National Tourist Organisation - 2000 Tourism Statistics).

As indicated in other sections of this
report, the Internet is now well established in Korea as a significant
marketing tool. Most national tourism organisations have a dedicated Korean language
web-site, and there are already over 20 online travel agencies operating in
Korea. The Australian Tourism Commission launched its Korean language web-site
in March 2001. Deregulation of the telecommunications industry and the
expansion of digital media and broadband access is expected to create new, cost
effective communication channels for marketing and sales.

Table: Korean Visitors to Australia. (Source: Bureau of Tourism Research, Australia)

Year	Number of Korean Visitors
1995	167,975
1996	227,850
1997	233,815
1998	66,635
1999	108,634
2000	160,200

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