www.katis.or.kr

KATIS/KIEP/MEIJO 2018 International ConferenceG2 Risk and Economic Cooperationof East Asian Countries
July 05 2018 ~ July 07 2018
Nagoya, Japan

Co-hosted by
Organized bySponsored by
Global Partner

Thai Nguyen University of
Economics and Business
Administration

July 06 2018
Date : July 06 12:30 ~ 17:50
Venue : Room 1002, Tower 75, Meijo Univ., Nagoya, Japan
Contents

Speakers
Registration (12:30 ~ 12:50)

Welcoming Remarks

Mitsunori Noguchi (Vice President of Meijo Univ., Japan)
Se-Young Ahn (Former Chairman (Minister) of National Research Council, Korea)

Opening
Ceremony(12:40 ~ 13:00)

Soocheol Lee and Yuri Sadoi(Co-Chairman, Professors, Organizing Committee, Japan)

Congratulatory Address

Chul Chung (Vice President of KIEP, Korea)
Nguyen K. Doanh (Director of Int’l Affairs, Thai Nguyen Univ., Vietnam)

Opening Remarks

Yoon Heo (President of KATIS, Korea)

Is a U.S.-China Trade War Inevitable?
Moderator

Chung-Mo Koo (Former President of Korea Economic Association, Korea)

Impact of CPTPP to Japan and to US andChina’s Trade War

Yomizumi Watanabe (Professor of Keio Univ., Japan)

Deepening East Asian Economic

Byung-il Choi (Professor of Ewha Womans Univ., Korea)

Plenary Session 1 Cooperation and G2 Risk
(13:00 ~ 14: 20) Global Value Chain and G2 Trade Conflict

Inkyo Chung (Vice-President of Inha Univ., Korea)
Yuri Sadoi (Professor of Meijo Univ., Japan)

Panel Discussions Univ., Korea)
Insoo Kang (Professor of Sookmyung Women’

Q&A Floor
Coffee Break (14:20 ~ 14:30)

Reshaping the Future Cooperation of East Asian Countries
Moderator

Yorizumi Watanabe (Professor of Keio Univ., Japan)

Air Pollution in East Asia and Cooperations of CJK
Energy/Environment Sector

Soocheol Lee (Professor of Meijo Univ., Japan)

Northeast Asia Economic Cooperation from New

Norihiro Nishimura (Professor of Mie Univ., Japan)

Plenary Session 2 Generation Partnership(14:30 ~ 15:50)

Reshaping the Future of ASEAN’s Trade with
Northeast Asian Countries

Nguyen K. Doanh(Professor of Thai Nguyen Univ., Vietnam)

Baekhoon Song (Professor of Dongguk Univ., Korea)

Panel Discussion

Kyu-yub Lee (Ph.D/Researcher, KIEP, Korea)
Coffee Break (15:50 ~ 16:00)

CJK, TPP and Vietnam: Building Up the New Partnership in the Region
Moderator

Seyoung Ahn (Former Chairman of National Research Council, Korea)

The Spillover Effect Analysis of TPP’s Global Value
Chain Reorganization on Domestic Employment

Namsuk Choi

Economic Cooperation of Northeast Asia:
Opportunities and Challenges

Yuri Sadoi (Professor of Meijo Univ., Japan)
Kuan-Ju Lin (Aletheia Univ., Taiwan)

Anatomy of the Trade Collapse, Recovery, andPlenary Session 3 Slowdown: Evidence from Korea(16:00 ~ 17:50)

Vietnam’s Trade Policy and Future Cooperation
with Korea and Japan(Professor at the Chonbuk National Univ., Korea)

Sooyoung Lee (Ph.D. Researcher, KIEP, Korea)
Tran Nhuan Kien (Vice-Rector of Thai Nguyen Univ.,of Economics and Business Administration, Vietnam)
Taewhang Kim (Professor of Myongji Univ., Korea)

Panel Discussion

Joon Seok Oh (Professor, Sookmyung Women’s Univ., Korea)
Q&A Floor

DinnerJuly 05 2018
Date : July 05 Special Session1 15:40 ~ 17:40
Venue : Tyoku Hotel, KIRI room

Contents
Moderator
Digital Trade & Its Taxation Focusing
on GAFA Company
Welfare Effects of Data Regulation ina Quantitative Trade Model:
Application to the EU GDPR
Technological Neutrality as a Bridge
between Analogue Trade Regime andDigital Economic Reality
Industry 4.0 and the Economic Cooperation
between Germany and Japan
Discussion

Speakers
Chul Chung (Vice President of KIEP, Korea)

Joon Seok Oh(Professor, Sookmyung Women’s Univ., Korea)

Kyu-Yup Lee(Ph.D. Researcher, KIEP, Korea)

Dong Chul Kwak
(Ph.D. Candidate, SNU/Researcher, KATIS, Korea)

Marisa Muth
(ABD, Researcher, Sogang Univ., Germany)

Yoon Heo (President of KATIS, Korea)
Seyoung Ahn(Former Chairman of National Research Council, Korea)

Inkyo Chung (Vice-President of Inha Univ., Korea)
Insoo Kang(Professor of Sookmyung Women’s Univ., Korea)

Baekhoon Song (Professor of Dongguk Univ., Korea)
Chung-Mo Koo(Former President of Korea Economic Association, Korea)

Taewhang Kim (Professor of Myongji Univ., Korea)
Sooyoung Lee (Ph.D. Researcher, KIEP, Korea)
Jungsuk Kim (Professor of Sejong Univ., Korea)
Junhyun Park (Secretary of KATIS, Korea)

INVITATION
G2 Risk and the Economic Cooperation of East Asian Countries
Over the years, East Asia is facing an increasing array of security problems and tradechallenges to maintaining peace and prosperity in the region. Various sources of interstate conflictssuch as North Korea’s nuclear threats, opaque regulations and practices ofChinese Gov’t, including THAAD retaliation, and unilateral protectionist pressure fromthe U.S.- have surfaced. A looming US-China trade war is likely to hit export-oriented
East Asian countries most. It is thus high time to examine the real impacts of G2 risks on
the major East Asian countries like Japan, Korea, Taiwan and Vietnam and to re-shape ourcooperation mode to make our collective efforts work for the prosperity in the region.
This year, KATIS, Meijo University and KIEP re-design the way the regional
collaboration can be effective energized for the region, thereby guaranteeing sustained
economic growth of the area. We explore what alternatives we have to minimize serious
negative impacts expected due to a possible US-China trade war. We hope innovative bold
solutions are suggested through the presentations and discussions in the conference andalso active cultivation of the cooperative consensus for the region is pursued. By furthering
our windows of knowledge and ideas stemming from this year’s conference, we hope thisacademic event can provide useful insights and guidelines for all of us to cope with serious
global economic and trade challenges we face.
We all appreciate your participation!

Yoon Heo

Koichi Yoshihisa

Jae-Young Lee

President ofProfessor, President of

President ofCONTENTS

Plenary
Session1 Is a U.S.-China Trade War Inevitable?

“Impact of CPTPP to Japan and to US and China’s Trade War”
Yomizumi Watanabe (Professor of Keio Univ., Japan) ………………………………………………………………………………

9“Deepening East Asian Economic Cooperation and G2 Risk”
Byung-il Choi (Professor of Ewha Womans Univ., Korea) …………………………………………………………………………… 29“Global Value Chain and G2 Trade Conflict”
Inkyo Chung (Vice-President of Inha Univ., Korea) …………………………………………………………………………………… 39

Plenary
Session2 Reshaping the Future Cooperation of
East Asian Countries“Air Pollution in East Asia and Cooperations of CJK Energy/Environment Sector ”
Soochul Lee (Professor of Meijo Univ., Japan) ……………………………………………………………………………………… 59“Northeast Asia Economic Cooperation from New Generation Partnership”
Norihiro Nishimura (Professor of Mie Univ., Japan) ………………………………………………………………………………… 87“Reshaping the Future of ASEAN’s Trade with Northeast Asian Countries”
Nguyen K. Doanh (Professor of Thai Nguyen Univ., Vietnam) ……………………………………………………………………… 99

Plenary
Session

3 CJK, TPP and Vietnam: Building Up
the New Partnership in the Region“The Spillover Effect Analysis of TPP’s Global Value Chain Reorganization on Domestic
Employment”
Namsuk Choi (Professor at the Chonbuk National Univ., Korea) …………………………………………………………………

137“Economic Cooperation of Northeast Asia: Opportunities and Challenges”
Yuri Sadoi (Professor of Meijo Univ., Japan) and Kuan-Ju Lin (Aletheia Univ., Taiwan) …………………………………………

167“Anatomy of the Trade Collapse, Recovery, and Slowdown: Evidence from Korea”
LEE Sooyoung (Ph.D. Researcher, KIEP, Korea) …………………………………………………………………………………

183“Vietnam’s Trade Policy and Future Cooperation with Korea and Japan”
Tran Nhuan Kien (Vice-Rector of Thai Nguyen Univ., of Economics and Business Administration, Vietnam) …………………

231

Plenary Session 1

Is a U.S.-China
Trade War Inevitable?

▶ Impact of CPTPP to Japan and to US and China’s Trade War
Yomizumi Watanabe (Professor of Keio Univ., Japan)▶ Deepening East Asian Economic Cooperation and G2 Risk
Byung-il Choi (Professor of Ewha Womans Univ., Korea)▶ Global Value Chain and G2 Trade Conflict
Inkyo Chung (Vice-President of Inha Univ., Korea)

Plenary Session 1 - 1

Is a U.S.-ChinaTrade War Inevitable?

Impact of CPTPP to
Japan and to US andChina’s Trade War
Marisa MuthYomizumi Watanabe(Professor of Keio Univ., Japan)

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Plenary Session 1 - 2

Is a U.S.-ChinaTrade War Inevitable?

Deepening East Asian
Economic Cooperation
and G2 Risk
Byung-il Choi
(Professor of Ewha Womans Univ., Korea)

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Plenary Session 1 - 3

Is a U.S.-ChinaTrade War Inevitable?

Global Value Chain and
G2 Trade Conflict
Inkyo Chung(Vice-President of Inha Univ., Korea)

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Plenary Session 2

Reshaping the Future Cooperationof East Asian Countries▶ Air Pollution in East Asia and Cooperations of CJK Energy/

Environment Sector
Soochul Lee (Professor of Meijo Univ., Japan)▶ Northeast Asia Economic Cooperation from New Generation

Partnership”
Norihiro Nishimura (Professor of Mie Univ., Japan)▶ Reshaping the Future of ASEAN’s Tradewith Northeast Asian Countries
Nguyen K. Doanh (Professor of Thai Nguyen Univ., Vietnam)

Plenary Session 2 - 1

Reshaping the Future Cooperation of East Asian Countries

Air Pollution in East Asia
and Cooperations of CJK
Energy/Environment Sector
Soochul Lee(Professor of Meijo Univ., Japan)

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Plenary Session 2 - 2

Reshaping the Future Cooperation of East Asian Countries

Deepening East Asian
Economic Cooperation
and G2 Risk
Byung-il Choi
(Professor of Ewha Womans Univ., Korea)

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Plenary Session 2 - 3

Reshaping the Future Cooperation of East Asian Countries

Reshaping the Future of
ASEAN’s Trade with Northeast
Asian Countries
Nguyen K. Doanh(Professor of Thai Nguyen Univ., Vietnam)

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Plenary Session 3

CJK, TPP and Vietnam:
Building Up the New Partnershipin the Region▶ The Spillover Effect Analysis of TPP’s Global Value Chain

Reorganization on Domestic Employment
Namsuk Choi (Professor at the Chonbuk National Univ., Korea)▶ Economic Cooperation of Northeast Asia:

Opportunities and Challenges
Yuri Sadoi (Professor of Meijo Univ., Japan) and Kuan-Ju Lin (Aletheia Univ., Taiwan)▶ Anatomy of the Trade Collapse, Recovery,

and Slowdown: Evidence from Korea
LEE Sooyoung (Ph.D. Researcher, KIEP, Korea)▶ Vietnam’s Trade Policy and Future Cooperation

with Korea and Japan
Tran Nhuan Kien (Vice-Rector of Thai Nguyen Univ., of Economics and Business Administration, Vietnam)

Plenary Session 3 - 1

CJK, TPP and Vietnam:
Building Up the New Partnership in the Region

The Spillover Effect Analysis
of TPP’s Global Value Chain
Reorganization on Domestic
Employment
Namsuk Choi
(Professor at the Chonbuk National Univ., Korea)

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Plenary Session 3 - 2

CJK, TPP and Vietnam:
Building Up the New Partnership in the Region

Economic Cooperation of
Northeast Asia:
Opportunities and Challenges
Yuri Sadoi (Professor of Meijo Univ., Japan)
and Kuan-Ju Lin (Aletheia Univ., Taiwan)

CJK, TPP and Vietnam: Building Up the New Partnership in the Region- 169 -

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Plenary Session 3 - 3

CJK, TPP and Vietnam:
Building Up the New Partnership in the Region

Anatomy of the Trade Collapse,
Recovery, and Slowdown:
Evidence from Korea
LEE Sooyoung(Ph.D. Researcher, KIEP, Korea)

CJK, TPP and Vietnam: Building Up the New Partnership in the Region- 185 -

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Plenary Session 3 - 4

CJK, TPP and Vietnam:
Building Up the New Partnership in the Region

Vietnam’s Trade Policy and
Future Cooperation
with Korea and Japan
Tran Nhuan Kien
(Vice-Rector of Thai Nguyen Univ., of Economics
and Business Administration, Vietnam)

CJK, TPP and Vietnam: Building Up the New Partnership in the Region- 233 -

G2 Risk and Economic Cooperation of East Asian Countries- 234 -CJK, TPP and Vietnam: Building Up the New Partnership in the Region- 235 -

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G2 Risk and Economic Cooperation of East Asian Countries- 248 -

CONTENTS

Special Session

1

Digital Trade and the 4th Industrial Revolution“Digital Trade & Its Taxation Focusing on GAFA Company”
Joon Seok Oh (Professor, Sookmyung Women’s Univ., Korea)………………………………………………

255“Welfare Effects of Data Regulation in a Quantitative Trade Model:
Application to the EU GDPR”
Kyu-yup Lee (Ph.D. Researcher, KIEP, Korea) ……………………………………………………………………… 281“Technological Neutrality as a Bridge between Analogue Trade Regime andDigital Economic Reality”
Dong Chul Kwak (Ph.D. Candidate, SNU/Researcher, Korea International Trade Association, Korea) ……… 299“Industry 4.0 and the Economic Cooperation between Germany and Japan”
Marisa Muth (ABD, Researcher, Sogang Univ., Germany) ……………………………………………………… 311

Special Session 1

Digital Trade andthe 4th Industrial Revolution▶ Digital Trade & Its Taxation Focusing on GAFA Company
Joon Seok Oh (Professor, Sookmyung Women’s Univ., Korea)▶ Welfare Effects of Data Regulation in a Quantitative Trade Model:

Application to the EU GDPR
Kyu-yup Lee (Ph.D. Researcher, KIEP, Korea)▶ Technological Neutrality as a Bridge between Analogue

Trade Regime and Digital Economic Reality
Dong Chul Kwak
(Ph.D. Candidate, SNU/Researcher, Korea International Trade Association, Korea)▶ Industry 4.0 and the Economic Cooperation between

Germany and Japan
Marisa Muth (ABD, Researcher, Sogang Univ., Germany)Special Session 1 -1

Digital Trade and the 4th Industrial Revolution

Digital Trade &Its Taxation Focusing
on GAFA Company
Joon Seok Oh(Professor, Sookmyung Women’s Univ., Korea)

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G2 Risk and Economic Cooperation of East Asian Countries- 258 -

Digital Trade and the 4th Industrial Revolution- 259 -

G2 Risk and Economic Cooperation of East Asian Countries- 260 -

Digital Trade and the 4th Industrial Revolution- 261 -

G2 Risk and Economic Cooperation of East Asian Countries- 262 -

Digital Trade and the 4th Industrial Revolution- 263 -

G2 Risk and Economic Cooperation of East Asian Countries- 264 -

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Special Session 1 -2

Digital Trade and the 4th Industrial Revolution

Welfare Effects of Data
Regulation in a Quantitative
Trade Model:
Application to the EU GDPR
Kyu-yup Lee(Ph.D. Researcher, KIEP, Korea)

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Special Session 1 - 3

Digital Trade and the 4th Industrial Revolution

Technological Neutrality asa Bridge between Analogue
Trade Regime and Digital
Economic Reality
Dong Chul Kwak
(Ph.D. Candidate, SNU/Researcher,
Korea International Trade Association, Korea)

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Special Session 1 - 4

Digital Trade and the 4th Industrial Revolution

Industry 4.0 and
the Economic Cooperation
betweenGermany and Japan
Marisa Muth
(ABD, Researcher, Sogang Univ., Germany)

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G2 Risk and Economic Cooperation of East Asian Countries

Industrie 4.0 and the Cooperation
between Germany and Japan
Marisa Muth*

Abstract
The Fourth Industrial Revolution (4IR hereafter) and Germany’s “Industrie 4.0”
policy received attention from policy makers in Korea and other countries but theobjectives behind the German approach to the 4IR and the implementation of thepolicies in place have not been examined in detail. This working paper aims toprovide an overview of Germany’s “Industrie 4.0” policy and the policy measures inaction, including a brief case study on bilateral cooperation between Germany andJapan regarding the 4IR. The overarching aim behind the government’s “Industrie 4.0”
initiative is to maintain technological leadership, enhance the competitiveness of theGerman manufacturing sector and to establish Germany as a lead market and supplierof “Industrie 4.0” production equipment. This objective is partly reflected in theinternational cooperation with Japan where standardization and cooperation regarding
SMEs are some of the major areas of cooperation. This study provides two generalinsights for Korea. First, contrary to Germany that focuses on industrial production,
Korea should base its 4IR strategy on a broad vision of the 4IR that makes useof its strengths. Second, Korea could expand its relatively limited engagement
in international cooperation on the 4IR with other countries like Germany, while
using this form of cooperation as a means to foster trade and to promote theinternationalization of Korean SMEs.
Keywords: Fourth Industrial Revolution, Industrie 4.0, Germany, Japan, Society 5.0,
cooperation

This working paper is based on an earlier version that was presented at Sogang IIAS
Research Series on International Affairs, Vol.17, in December 2017.
*PhD candidate, Sogang University GSIS, Marisa_Muth@naver.com- 320 -

Digital Trade and the 4th Industrial Revolution

I. Introduction
The World Economic Forum in Davos 2016 announced that the world is about toenter the era of the so-called Fourth Industrial Revolution (4IR hereafter), basedon digital technologies like Internet of Things (hereafter IoT), robots or Artificial
Intelligence (hereafter AI), which constitutes according to the Forum’s founder, Klaus
Schwab, “(…) nothing less than a transformation of humankind.”1
The 4IR is expected to transform economies and societies and Germany, Japan and
Korea all want to take a leading role in shaping this new digital era for the benefit of
their economies.
Recently, Germany’s “Industrie 4.0” policy and Germany’s international cooperation
regarding the 4IR has received attention from Korean policy makers and scholars
who are looking for best practices to shape Korea’s 4IR policy. However, Germany’s
objectives and the policy implementation, including bilateral cooperation have notbeen examined in detail.
Using various sources of national government publications and documents, thisworking paper aims to extent the current knowledge of Germany’s “Industrie 4.0”
policy and the practical implementation in order to provide insights for Korea.
Moreover, this working paper presents a case study on the cooperation between
Germany and Japan in order to shed some light on the recently emerging international
cooperation regarding the 4IR.
The paper is structured as follows. Section two defines key terms in order to provide
an understanding of what “Industrie 4.0” is about and outlines the policy background,objectives and the policy mix. The third section presents a case study on GermanJapan cooperation on the 4IR, briefly contrasts national policies and investigates areasof cooperation, focusing on SMEs and standardization. The last section concludes andprovides implications for Korea and areas for further research.

II. Industrie 4.0
2.1 Background
The German term “Industrie 4.0”2 (Industry 4.0 in English) in connection withan upcoming Fourth Industrial Revolution was introduced at Germany’s Hanover

1 Klaus Schwab, The Fourth Industrial Revolution (Geneva: World Economic Forum, 2016), p. 1.
2 The German government consistently uses the German term in international communication.
“Industrie 4.0” refers to Germany’s country-specific concept and policy. Therefore, this paper adopts- 321 -

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Fair 2011, a major trade fair of industrial technology. 3 In recent years, “Industrie4.0” became a buzzword in Germany, however, there is still no consensus on what it
actually means and a generally accepted definition is lacking.4 In Germany, “Industrie4.0” is used as a synonym for the 4IR in manufacturing, following three previous
Industrial Revolutions, as shown in Figure 1.5 After mechanical production enabled
by water and steam energy (First Industrial Revolution), industrial mass production
powered by electricity (Second Industrial Revolution) and automated industrial
production driven by IT and electronics (Third Industrial Revolution), the Fourth
Industrial Revolution or “Industrie 4.0” builds on the third, connecting physical andcyber world.
● Figure 1. The four stages of the Industrial Revolution

Source: DFKI (2011) as cited in Kagermann, Wahlster and Helbig , p.13.

Technically, “Industrie 4.0” could be regarded as an umbrella term that refers to theapplication of key technologies Cyber-Physical Systems (hereafter CPS) and IoT in
manufacturing, industrial production processes and logistics.6 CPS in manufacturing
involve smart machines, warehousing systems and production facilities that exchange
information, take actions and control each other independently. 7 IoT refers tophysical objects and devices, connected with the internet via sensors, that are able to

3 Henning Kagermann and Wolf-Dieter Lukas, “Industrie 4.0,” April 1, 2011
4 Mario Hermann, Tobias Pentek and Boris Otto, “Design Principles for Industrie 4.0 Scenarios: A Literature
Review,” 2015, p. 3
5 Paragraph based on Henning Kagermann, Wolfgang Wahlster and Johannes Helbig, “Recommendations
for implementing the strategic initiative Industrie 4.0,” April, 2013, pp.13-14.
6 Ibid., p. 14.

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communicate with humans or other devices.8 The main idea behind “Industrie 4.0” isthe implementation of a “Smart Factory” where humans, machines and resources areinterconnected and interact with each other enabled by the technologies of CPS and
IoT.9 The implementation of “Industrie 4.0” technologies in German manufacturing
processes is expected to optimize production and affects value creation, businessmodels, related services and the way how work is organized.10

2.2 Economic impacts of “Industrie 4.0”
There is a widely held expectation among German politicians and industry
representatives that the implementation of “Industrie 4.0” in the German
manufacturing sector generates positive effects for the German economy.11 Table 1
summarizes frequently mentioned effects of “Industrie 4.0” since a full discussion
goes beyond the scope of this paper.
However, empirical studies on the economic effect of the digitization of
manufacturing are rare and only two studies tried to quantify the impact of “Industrie4.0” on the German economy.12 A study by the Boston Consulting Group forecaststhat “Industrie 4.0” generates a contribution to the German GDP of 1 percent per year
over the next decade.13 Another frequently mentioned study conducted by a major
association of the ICT industry predicts cumulative productivity gains in certain
sectors of up to 30% by 2025, with the mechanical engineering sector as a major
beneficiary of “Industrie 4.0”.14 However, overall labor productivity growth is on a
downward trend since 1992 and productivity in manufacturing slowed down in recent
years as shown in Figure 2. Moreover, contrary to the predictions of the previously
mentioned study, the latest sectoral productivity statistics reveal that the mechanicalengineering sector exhibited a negative productivity growth of 6 percent in the
period 2016-2018. In contrast to politicians, German economists are skeptical of the
expected results of “Industrie 4.0” because of methodological shortcomings of the

7 Ibid., p. 5.
8 Schwab, The Fourth Industrial Revolution, p. 18.
9 Kagermann, Wahlster and Helbig, “Recommendations for implementing “Industrie 4.0”,” p. 19.
10 Ibid., p.14.
11 Hartmut Hirsch-Kreinsen, “Industry 4.0 as Promising Technology: Emergence, Semantics and AmbivalentCharacter,” 2016, pp. 12-13
12 OECD, The next Production Revolution: Implications for Governments and Business (Paris: OECD
Publishing, 2017), p. 77.
13 Rüßmann et al., “Industrie 4.0,” Boston Consulting Group, 2015, pp.7-9.
14 BITKOM, “Volkswirtschaftliches Potenzial für Deutschland,“ 2014, p. 36.

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previously mentioned studies and the difficulty to quantify “Industrie 4.0”’s impact
on labor productivity or GDP. While the use of ICT in manufacturing might havepotential to increase productivity, the expected impacts of “Industrie 4.0” should beconsidered with caution and might at best serve as a rough estimate.
● Table 1. Potential economic benefits of “Industrie 4.0”
Micro-level

Macro-level

Automation → Production optimization,
efficiency gains, cost reduction

Productivity enhancement→ up to 30 % until 2025 (mechanicaland plant engineering) → GDP growthFlexible production enables customization

Export opportunities(machinery, production equipment)

Improved decision-making due tointerconnected value-chain

Maintaining competitiveness of German
manufacturing industry

Creation of new business models, products
and services

Preserve Germany as industrial base

Source : Author’s compilation based on Kagermann, Wahlster and Helbig, pp.15-16; Rüßmann et al.,pp.7-9 and BITKOM, p.36.

● Figure 2. Sectoral labor productivity in Germany 1992-2015

Source: Figure adopted from Sachverständigenrat ascited in Elstner, Feld and Schmidt, p. 5.

15 Ebnet and Timiliotis, “Leidet die deutsche Industrie an einer Produktivitätsschwäche?”, 2018, p. 34.
16 Elstner, Feld and Schmidt, “The slowdown of German productivity growth,” 2016, p. 21; and Falck et al.,“Industrie 4.0: Erwartungen und absehbare Effekte,” 2015, p. 17.
17 Elstner, Feld and Schmidt, p. 21.

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2.3 Policy background and implementation
The concept of “Industrie 4.0” has been promoted in Germany by various actors
driven by their individual self-interests, including IT scientists and engineers, industry
associations of the ICT, mechanical engineering and electronics industry who
could be considered as main providers of the underlying technology and machineryand therefore potential beneficiaries of “Industrie 4.0”, large German technology
companies and most of all, the federal government.18
The federal government incorporated “Industrie 4.0” as a “strategic initiative”
in 2011 within the context of the government’s innovation strategy “High-Tech
Strategy”.19
From a political perspective, “Industrie 4.0” is a means to achieve a range of broad,long-term industrial, trade and technology policy objectives. Concrete, quantifiableobjectives regarding its “Industrie 4.0” policy are not specified by the government.
The overarching aim behind “Industrie 4.0” is to preserve Germany as an industrial
base and to “(…) establish Germany as the world’s most modern industrial location ”.20
Other strategic goals are to maintain technological leadership and the competitivenessof German manufacturing, particularly in sectors where Germany enjoys acompetitive advantage like production technology and equipment, amid threats offiercer competition from the US, China, Japan and Korea that could erode Germany’scompetitive edge.21 A major concern is that Germany lags behind other countries interms of digitization of its economy and that large, global internet firms like Google
threaten Germany’s traditional manufacturing sector.22
In order to enhance the competitiveness of the German manufacturing industry, a“dual strategy” is pursued that aims to establish Germany as a 1) lead market and2) lead supplier of “Industrie 4.0” production equipment and key technology CPS.23
However, this strategy remains vague since there is neither an explanation of what

18 Hartmut Hirsch-Kreinsen, “Wandel von Produktionsarbeit – “Industrie 4.0,” 2014, p. 422,
19 Kagermann, Wahlster and Helbig, p. 77.
20 Federal Ministry for Economic Affairs and Energy, “Digitale Strategie 2025,” March 2016, p. 41.
Translated from German by the author.
21 Federal Ministry for Economic Affairs and Energy, “Industrie 4.0,” Federal Ministry for Economic Affairs
and Energy, “Digitale Strategie 2025,” March 2016, pp. 41-42.
22 Hartmut Hirsch-Kreinsen, 2016, p. 13 and The Economist, Nov. 21, 201523 Federal Ministry of Education and Research, “Innovationen für die Produktion von morgen,” 2015, p. 2, p.
148 and Kagermann, Wahlster and Helbig, p. 16.

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these terms exactly mean nor an elaboration of how these goals should be practicallyachieved.
While lead supplier is not further specified, the term “lead market” originates fromthe area of innovation theory and describes“(…) a country where users prefer and demand a specific innovation design that not
only appeals to domestic users, but can subsequently be commercialized successfullyin other countries as well. The technical design preferred by the lead market squeezes
out other designs initially preferred in other countries and becomes the globallydominant design.” 24
The government has applied the lead market strategy in other fields as well, forexample in the case of electric mobility.25 The objective of becoming lead market
and lead supplier is reflected in the policy mix applied which will be described in thefollowing section.

Overview of policy measures
The federal government established a complex and fragmented landscape of“Industrie 4.0” policy measures, administered by two ministries, to promote thetechnological diffusion of IoT in industrial production. Table 2 is the outcome of acomprehensive analysis of policy measures and provides an overview of the various
measures in action. It can be summarized that “Industrie 4.0” policy consists of threepillars, namely 1) R&D subsidies, 2) SME support and 3) platform.

R&D subsidies
The federal government set up various R&D programs that are project based andpromote specific technologies that are considered essential for “Industrie 4.0”. For
instance, the federal government provided funding of 100 million Euro to support
industry research activities in the field of “Industrie 4.0”, comprising of two major
programs “Autonomics for Industrie 4.0" and “Smart Service World".26

24 Thomas Cleff and Klaus Rennings, “Are There Any First and Second Mover Advantages for Eco-Pioneers?
Lead Market Strategies for Environmental Innovation,” Interdisciplinary Management Research 10 (2014) p. 167.
25 Cleff and Rennings, p. 184.
26 Federal Ministry for Economic Affairs and Energy, “Industrie 4.0”

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Digital Trade and the 4th Industrial Revolution

SME policy initiative
The main target of “Industrie 4.0” policies are German SMEs in the manufacturingsector, who the government regards as the backbone of the German economy.27 Given
that the German government wants to establish the domestic market as lead market
for “Industrie 4.0”, the goal of the measures is to induce SMEs to integrate digitaltechnologies in their business operations and therefore creating domestic demand for“Industrie 4.0”. 23 regional competence centers for SMEs have been set up in recent
years where SMEs receive information on “Industrie 4.0” and can test “Industrie 4.0”
technologies in practice.28
Despite the efforts that are made to promote “Industrie 4.0” on the firm level,“Industrie 4.0” remains rather a vision than reality since it has not been broadly
applied in practice, particularly not in SMEs. 29 However, implementation has
increased in recent years from 260 applications in 2016 to 353 practical “Industrie 4.0”
applications in Germany as of June 2018.30● Figure 3. Structure of Plattform Industrie 4.0

Source: Figure adapted from Plattform Industrie 4.0, “The background to Plattform Industrie 4.0

27 Ibid.
28 Federal Ministry for Economic Affairs and Energy, “Mittelstand 4.0”
29 Ralf Kopp, Jürgen Howaldt and Jürgen Schultze. “Why Industry 4.0 needs Workplace Innovation.
A critical look at the German debate on advanced manufacturing,” European Journal of Workplace Innovation. Vol. 2.
No.1 (2016), p. 10.
30 Federal Ministry for Economic Affairs and Energy, “Wirtschaft digital. Erfolge und Ziele,“ 2016, p. 23 and Plattform“Industrie 4.0”, “Map,“ 2018.

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Platform
The Plattform Industrie 4.0 (platform hereafter) can be considered as the main
policy tool. It is a government-industry-science-unions consortium led by the
Ministry of Education and Research (hereafter BMBF) and the Ministry for Economic
Affairs and Energy (hereafter BMWi), consisting of more than 300 participantsfrom 159 organizations.31 The platform was originally founded by three industrial
associations of the ICT, mechanical engineering and electronics industry in 2013 andwas relaunched after a restructuring in 2015 under government leadership. Its maintask is to promote the practical implementation of “Industrie 4.0”. Figure 3 illustrates
the recent organizational structure of the platform.
Moreover, there have been increasing efforts in recent years to promote “Industrie4.0” beyond German borders. Intergovernmental cooperation and international
alliances between the platform and similar initiatives in China, USA, Australia, Italy,
France, Czech Republic and Japan emerged in the last two years.32 Although Korea
is seen as a promising export market for German “Industrie 4.0” manufacturing
equipment, there is no cooperation between Korea and Germany.33● Table 2. Overview of government policy measures

Source : Author’s compilation based on analysis of various documents from the Federal Ministry for Economic
Affairs and Energy (n.d.-a; n.d.-b; Nov. 2016; Jan. 2017, Feb. 2017)31 Paragraph based on Plattform “Industrie 4.0”, “The background to Plattform “Industrie 4.0” 201832 Plattform “Industrie 4.0”, “International Cooperation,” 2018
33 Henning Kagermann et al., “Industrie 4.0 in a Global Context,” 2016, p. 11.

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III. Cooperation between Germany and Japan on “Industrie 4.0”/IoT
3.1 Japan’s Society 5.0
Society 5.0 is Japan’s 4IR strategy and was introduced in Japan’s 5th Science andTechnology Basic Plan in 2016 with reference to “Industrie 4.0” in Germany andsimilar initiatives in the US and China.34 As illustrated in the following figure, Society
5.0 stands for the 5th stage of human society which is referred to as “super smart
society”, following the hunter and gatherer society (Society 1.0), agricultural society(Society 2.0), industrial society (Society 3.0) and information society (Society 4.0).35
The Japanese government defines Society 5.0 as follows:“A human-centered society that balances economic advancement with the resolutionof social problems by a system that highly integrates cyberspace and physicalspace.”36● Figure 4. Society 5.0 and Connected Industries

Source : Figure adapted from METI 201734 Franz Waldenberger, “Society 5.0 - Japanese Ambitions and Initiatives,”April 16, 2018, p. 50
35 The Government of Japan, “Realizing Society 5.0”
36 Cabinet Office, “Society 5.0”

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Society 5.0 aims to integrate the 4IR key technologies such as AI, Big Data and IoT
in all industries as well as in society in order to simultaneously achieve economic
development and address social issues.37 Similar to the German case, the industrial
sector plays a major role within Society 5.0, reflected in the initiative “Connected
Industries” that aims to connect industries, companies and technologies with eachother.38 The initiative targets five areas, namely 1) Manufacturing and Robotics 2)
Plant/ Infrastructure safety management 3) Automated Driving 4) Biotechnology 5)
Smart Life.39

3.2 Policy comparison

Germany and Japan’s policy concepts for the 4IR differ regarding their scopeand objectives. As illustrated in Table 3, “Industrie 4.0” has a narrow focus on thedigitization of industrial production processes, emphasizing the mechanical andplant engineering sector, whereas Japan’s strategy is comprehensive and addresses
all industries as well as society. Goals differ in the sense that Japan’s Society 5.0
aims to address economic and social issues like the ageing society at the same time
whereas “Industrie 4.0” focuses on the firm-level at optimizing production in smart
factories and at the sectoral level on strengthening the competitiveness of German
industry, particularly mechanical engineering and machinery industry. Moreover,Japan’s strategy is issue-oriented whereas “Industrie 4.0” is technology-centered.40
Despite the differences, industrial production plays an important role for bothcountries and they have designed their policies based on areas in which they are
enjoying a competitive advantage, such as robots and sensors in the case of Japan andmechanical engineering and machinery for Germany.41

37 Cabinet Office, “Society 5.0”
38 Ministry of Economy, Trade and Industry, "Connected Industries"
39 Ministry of Economy, Trade and Industry, “Connected Industries- Tokyo Initiative,” February 10, 201740 Waldenberger, “Society 5.0 - Japanese Ambitions and Initiatives,” p. 53.
41 Ibid p. 50.

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Digital Trade and the 4th Industrial Revolution● Table 3. Policy comparison
Japan

Germany

PolicySociety 5.0“Industrie 4.0”

Year

2016

2011

Vision“Super Smart Society”, using 4IR
technologies IoT, Big Data, AI, robots
in all industries and society“Smart Factory”, connecting
manufacturing production with IoT, CPS

TargetIndustry, agriculture, healthcare,services, society

Industry (machinery, mechanicalengineering)

Focus

Issue-oriented

Technology-driven

Strengths

Sensors, robots

Mechanical and plant engineeringMajor
objectives

Economic growthSocial issues (e.g. ageing society)

Productivity→ economic growth
Production optimization
CompetitivenessSource: Author’s compilation based on Waldenberger, Cabinet Office

3.3 Background and major contents of cooperation
Bilateral cooperation between Germany and Japan regarding “Industrie 4.0”
and IoT was initiated in 2015, one year before the announcement of the 4IR in
Davos and Japan’s Society 5.0 vision. In March 2015, Chancellor Merkel andPrime Minister Abe agreed to promote bilateral cooperation, followed by a joint
declaration of cooperation between two economic ministries METI from Japan andBMWi from Germany in 2016.42 Moreover, the German “Plattform “Industrie 4.0”
and the Japanese industry consortium “Robot Revolution Initiative” announced tocooperate.43 In March 2017, the ministries signed the so-called Hannover Declaration
which outlined eight areas of cooperation that include 1) Industrial Cyber Security 2)

42 Federal Ministry for Economic Affairs and Energy, “Joint Statement on Cooperation between the Federal Ministry for
Economic Affairs and Energy of the Federal Republic of Germany and the Ministry of Economy, Trade and Industryof Japan Regarding the Internet of Things/Industrie 4.0,” April 28, 2016.
43 Plattform Industrie 4.0, “Hannover Declaration”, 2017

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Standardization 3) International regulatory reform 4) SME support 5) R&D and 6)
Platforms. Cooperation regarding 7) Human Resources and 8) Automobile sector isplanned. Table 4 provides an overview of the areas of cooperation and actions taken.
Given the fact that Japan was mentioned as one of Germany’s main competitors in
the area of production equipment and technology, there might be various strategic
considerations behind the recently established cooperation. 44 One consideration
could be that both parties view the cooperation as a strategic countermeasure against
the potential threat of disruptions in traditional sectors posed by US internet firms
like Google or Amazon.45 Another consideration might be potential synergy effects
resulting from complementary strengths (e.g. Japan in robots, sensors and Germany
in production equipment and mechanical engineering) that can be combinedin interconnected production processes. Other reasons might include access totechnological knowledge, cost- and risk sharing of R&D projects, promotion ofstandardization, gaining access to the partner’s domestic market and suppliers andboosting trade, among probably many others.

● Table 4. Areas of bilateral cooperation and status quo
Area

Actions

Industrial Cyber Security

Joint paper, ministerial meetings

Standardization

Information exchange, joint paper, promotion ofGermany’s “RAMI” model at int. standardizationorg.

International regulatory reform

Discussions

SME support

Trade missions, use cases, best practice exchange

R&D

Joint R&D projects between research institutes

Platforms

Open national platforms, large firms joined

Human resources, digital skills-planned

Automobile-planned

Source : Author’s compilation based on Plattform Industrie 4.0 “Hannover Declaration”- 332 -

Digital Trade and the 4th Industrial Revolution

SME support
Germany and Japan want to facilitate information exchange on policy experiences
regarding the integration of digital technologies in SMEs.46 Moreover, another findingis that SME cooperation has been linked with trade promotion measures in order toenhance market access for SMEs in the respective partner country. In 2017, reciprocal
trade missions for SMEs in the mechanical engineering and machinery sector wereorganized and most recently, a German delegation of SMEs in the robotics and IT
service sector visited Japan.47 These trade-promotion measures could help SMEs togain market access but due to the small-scale of these measures, their impact on thedevelopment of bilateral trade could be expected to be limited.

Standardization
Standardization of “Industrie 4.0” goods and technologies has been a priority
for the German government and industries with the goal to promote Germany’s
domestically developed reference model “RAMI 4.0” as a global standard for digitalmanufacturing.48
Standards are considered important for the commercialization of products since they
ensure compatibility, which is fundamental for interconnected production processes
underlying “Industrie 4.0”, and reduce transaction costs, which can be especially highfor complex products.49
Both Germany and Japan emphasize that standardization is crucial for the
success of their industries and work together on standardization regarding “smart
manufacturing”.50
Germany might have been successful in promoting its national standards since Japan
and Germany agreed to jointly promote Germany’s “RAMI 4.0” model as a leadingworld standard in international standardization bodies.51
Since the cooperation with Japan has only been recently established, theexamination has been limited to initial results. Nevertheless, it can be concluded

46 Plattform Industrie 4.0, “Hannover Declaration”
47 German Asia-Pacific Business Association, October 28, 2016 and Ixpos German Business Portal, 2018
48 Federal Ministry for Economic Affairs and Energy, “Digitale Strategie 2025,” p. 43.
49 Gregory Tassey, “The Impacts of Technical Standards on Global Trade and Economic Efficiency” Working Paper,
December 2015, p. 4.
50 Plattform Industrie 4.0, “The Common Strategy on International Standardization in Field of the Internet of Things
Industrie 4.0
51 Plattform Industrie 4.0, “Hannover Declaration”- 333 -

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that standardization and therefore enhancing the prospects for internationalcommercialization and exports of “Industrie 4.0” goods and technology seem to be
the major objective behind Germany’s cooperation with Japan. This can be underlinedby the fact that Germany takes a leading role in terms of standard setting with othercooperation partners as well. For example, Germany leads the working group on
standardization within the trilateral cooperation Between Germany, Italy and France.52
Given the fact that the EU and Japan have recently finalized a free trade agreementthat has been negotiated since 2013, the bilateral cooperation comes at a strategic
time.53 At present, it remains to be seen which concrete outcomes will follow andhow the dynamics of the FTA in combination with the on-going Germany-Japan
cooperation will shape bilateral relations and trade.

IV Conclusion
The analysis of Germany’s and Japan’s 4IR policy has shown that each country has
its own understanding of the 4IR and implemented distinctive policies to strengthen
existing strengths.
Germany’s approach for the 4IR has a strong country-specific focus on industrial
production and on maintaining Germany’s competitive advantage in traditional
domains like mechanical engineering and production equipment, which could be an
opportunity, as envisioned by the government and industry associations, but also alimitation. The narrow focus on industrial production and the domestic policies thathave been created to promote “Industrie 4.0” entail the risk that growth opportunities
in the service sector and potential newly emerging business models, which arise withfurther advances in ICT outside of the industrial sector, are overlooked.54 In thisrespect, the government’s advisory council on innovation, criticized the government’s
narrow perspective on digitalization pursued with technology-specific strategies like“Industrie 4.0”.55 Therefore, a broader vision of the 4IR is recommended that goesbeyond industrial production to make full use of the potential of the emerging digitaltechnologies. Germany’s network of international cooperation is an opportunity to

52 Plattform Industrie 4.0 “Shared Action Plan,” 201753 European Commission “EU-Japan Economic Partnership Agreement,” 2018
54 Klaus Schmitz, “Zur Zukunft von “Industrie 4.0,“ November 14, 2013, andCommission of Experts for Research and Innovation, “Report 2016”, 2016, p. 67.
55 Commission of Experts for Research and Innovation, “Report 2016”, p. 15.

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Digital Trade and the 4th Industrial Revolution

learn about different approaches towards the 4IR, like Japan’s “Society 5.0”, which
could broaden Germany’s perspective.
While it is too early to recommend specific best practices from the German case dueto the recent policy implementation and lack of evaluation and quantitative impact
assessments, two general insights can be derived out of this study for Korea’s 4IR
policy.
First, there is no “one-size fits all approach” for the 4IR and Germany’s “Industrie4.0” approach might not serve as a masterplan for Korea due to its country-specificobjectives, policy design and implementation. Therefore, Korea should create its own
strategy based on a broad understanding of the 4IR while making use of its strengths,
for example in ICT.
Compared to Germany, Korea’s engagement in international cooperation regarding
4IR is relatively limited and it has been suggested that Korea utilizes its strengths in
ICT infrastructure such as 5G technology in international cooperation. Therefore, asecond insight could be to expand international cooperation with advanced economies
like Germany. Korea could engage in a German-Korean 4IR cooperation which could
offer room for synergies and serve as a channel to stimulate bilateral trade and theinternationalization of Korean SMEs.
Lastly, despite all the efforts from governments to take the lead in the 4IR, only time
will show whether there will be a 4IR at all, and if so, whether it constitutes “(…)
nothing less than a transformation of humankind.” 57

Limitations and future researchThis working paper is exploratory and at an early stage. The major limitation is its
descriptive nature which is due to the lack of quantitative data regarding “Industrie
4.0”.
This paper suggests three areas for future research. First, there is a lack of researchin Germany on the economic impacts of “Industrie 4.0” with regard to trade. This
working paper will be extended in this direction and aims to assess the export
potential for German “Industrie 4.0” goods to Japan and Korea. Second, future
research could investigate Germany’s cooperation with other partners. Third,
empirical trade research could try to assess the impact of the 4IR (for example,
captured by a proxy like ICT investments) on manufacturing trade of different
technology categories, applying the gravity model.

55 Commission of Experts for Research and Innovation, “Report 2016”, p. 15\
56 김 et al. 2018, p. 17.
57 Schwab, The Fourth Industrial Revolution, p. 1.

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G2 Risk and Economic Cooperation of East Asian Countries

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