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Local Content Policy and Industrial 2017/18 Knowledge Sharing Program with Mexico (II): Local Content Policy and Industrial Development for the Energy Sector 2017/18 Knowledge Sharing Program with Mexico (II) 2017/18 Knowledge Sharing Program with Mexico (II) Project Title Local Content Policy and Industrial Development for the Energy Sector Prepared by Korea Development Institute (KDI) Supported by Ministry of Economy and Finance (MOEF), Republic of Korea Prepared for The Government of the United Mexican States In Cooperation with Mexican Agency for International Development Cooperation (AMEXCID), Mexico Secretariat of Economy, Mexico Program Directors Youngsun Koh, Executive Director, Center for International Development (CID), KDI Kwangeon Sul, Visiting Professor, KDI School of Public Policy and Management, Former Executive Director, CID, KDI Project Manager Kyoungdoug Kwon, Director, Division of Policy Consultation, CID, KDI 3URMHFW2I¿FHUV Seung Ju Lee, Research Associate, Division of Policy Consultation, CID, KDI Jinha Yoo, Senior Research Associate, Division of Policy Consultation, CID, KDI Lorena Garcia, +ead of the Department for AsiaPaci¿c, AMEXCID Principal Investigator Chong-sup Kim, Professor, Seoul National University Authors Chapter 1. Chong-sup Kim, Professor, Seoul National University Chapter 2. Ji-Chul Ryu, Director, Future Energy Strategy Research Cooperative Chapter 3. Myung Kyoon Lee, Visiting Senior Fellow, Korea Development Institute English Editor IVYFORCE Government Publications Registration Number 11-1051000-000830-01 ISBN 979-11-5932-316-4 94320 ISBN 979-11-5932-302-7 (set) Copyright ؐ 2018 by Ministry of Economy and Finance, Republic of Korea *RYHUQPHQW3XEOLFDWLRQV 5HJLVWUDWLRQ1XPEHU 2017/18 Knowledge Sharing Program with Mexico (II): Local Content Policy and Industrial Development for the Energy Sector Preface Knowledge is a vital ingredient that determines a nation’s economic growth and social development. Its true value was brought to light by the advent of the knowledge economy and a key question policymakers now face, especially in developing countries, is how an environment can be established that encourages and facilitates the creation and dissemination of knowledge across the nation. This need has led many countries to engage themselves in active policy dialogue to share their development experiences and benefit from mutual learning. Korea’s development has also depended heavily on knowledge. Its remarkable transition from a predominantly agrarian economy to an industrialized country was made possible by its well- rounded and extensive understanding of technology, management, public policy, and other diverse issues acquired from domestic and foreign sources and through trial and error. Building on these rich experiences, the Korean Ministry of Economy and Finance (MOEF) launched the Knowledge Sharing Program (KSP) in 2004 to assist partner countries to improve their policymaking. KSP, as implemented by Korea Development Institute (KDI), focuses on providing solutions customized to each country’s economic, social and administrative settings, building capacity for effective policymaking and strengthening global networks for development cooperation. In 2017/18, KSP policy consultations were organized with 31 partner countries, with Mekong River Commission joining the partnership for the first time. The 2017/18 KSP with the Mexico (II) was undertaken by the MOEF and the Mexican Agency for International Development Cooperation (AMEXCID) with the aim of “Local Content Policy and Industrial Development for the Energy Sector.” To that end, the KDI research team and the Mexican counterpart made a range of collaborative efforts by exchanging development experiences, conducting joint studies and designing a policy action plan in line with the country’s development targets. With that, it is with great optimism for the future of Mexico that the results of the 2017/18 KSP are presented. I firmly believe that KSP will serve as a stepping stone to further elevate the mutual learning and economic cooperation between the two countries and hope it will contribute to Mexico’s sustainable development in the future. I wish to convey my sincere gratitude to Principal Investigator Prof. Chong-sup Kim as well as project consultants Dr. Ji-Chul Ryu and Dr. Myung Kyoon Lee for their extensive contributions to the successful completion of the 2017/18 KSP with Mexico (II). I am also grateful to Executive Director Dr. Youngsun Koh, Project Manager Dr. Kyoungdoug Kwon, Project Officer Ms. Seung Ju Lee and all members of the Center for International Development for their hard work and dedication. Lastly, I extend my warmest thanks to the AMEXCID, Ministry of Economy and related Mexican agencies for their active cooperation and great support. Jeong Pyo Choi President Korea Development Institute (KDI) Contents 2017/18 KSP with Mexico (II) ................................................................................................. 013 Executive Summary ............................................................................................................. 016 Chapter 1 Local Content Policy and the Development of the Oil and Gas Supplier Industry Summary .......................................................................................................................... 024 1. Introduction ............................................................................................................ 026 1.1. Background of the Research ................................................................................. 026 1.2. Purpose of the Research ...................................................................................... 026 1.3. Structure of the Report ....................................................................................... 027 2. Energy Reform in Mexico ........................................................................................... 027 2.1. Energy Reform ................................................................................................... 027 2.2. Oil and Gas Upstream ......................................................................................... 028 2.3. Local Content .................................................................................................... 031 3. Korean Experience 1: Domestic Production of Parts, Components, and Materials ................ 035 3.1. Import Substitution and Domestic Production of Parts, Components, and Materials ....... 035 3.2. Instruments for Domestic Production of Parts, Components, and Materials ................... 038 4. Korean Experience 2: The Development of the Shipbuilding Industry ................................ 056 4.1. Evolution of the Shipbuilding Industry ................................................................... 056 4.2. Korean Policies to Develop the Shipbuilding and Supplier Industry ............................. 058 5. Competitiveness and Investment Attractiveness of the Shipbuilding and Supplier Industry in Mexico ........................................................................................ 062 6. Policy Recommendations and Conclusion ..................................................................... 065 References ......................................................................................................................... 069 Chapter 2 Policy to Revitalize the Oil and Gas Industries in Mexico Summary .......................................................................................................................... 072 1. Introduction ............................................................................................................ 074 1.1. Background ....................................................................................................... 074 1.2. Objective ........................................................................................................... 075 1.3. Research Scope ................................................................................................... 075 1.4. Methodology ..................................................................................................... 075 2. Review and Perspective on the Oil and Gas Sector in Mexico ............................................ 076 2.1. Historical Review on Supply, Demand, and Trade ...................................................... 076 2.2. Energy Reform in Mexico ..................................................................................... 081 2.3. Perspectives and Challenges in the Oil and Gas Industry in Mexico .............................. 083 2.4. Major Challenges in the Oil and Gas Sector in Mexico ............................................... 090 2.5. Policy Efforts to Enhance Local Contents in the Oil and Gas Industry ............................ 093 3. Korean Experiences of the Oil and Gas Sector Development ............................................ 104 3.1. Overview .......................................................................................................... 104 3.2. Oil Industry Development .................................................................................... 105 3.3. Gas Industry Development ................................................................................... 113 3.4. Role of Oil and Gas in Korea ................................................................................. 115 3.5. R&D Infrastructures and Technology/Equipment Development for the Oil and Gas Industry in Korea ..........................................................................................
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