8. Role of RTAs for promoting SMEs in GVCs of... · 2017. 7. 3. · Cotton, Wool, silk, etc. Oil,...
Transcript of 8. Role of RTAs for promoting SMEs in GVCs of... · 2017. 7. 3. · Cotton, Wool, silk, etc. Oil,...
Role of PTAs for Promoting MSMEs’ Integration in GVCs
Masato Abe, Ph.D.IEDS, TIID, ESCAP
Regional Dialogue on“ENHANCING THE CONTRIBUTION OF PREFERENTIAL TRADE AGREEMENTS
TO INCLUSIVE AND EQUITABLE TRADE”UNCC, Bangkok, Thailand, 22 June 2017
1
Topics
• Opportunities and challenges for MSMEs in the context of economic integration through RTAs
• Policies to facilitate MSMEs’ integration into GVCs effectively
• ASEAN/CLMV cases (thus talking about AEC)
Mega-RTAs in the future
Stages of economic integration
1. Reduction in trade barriers– Preferential trading area (PTA)
– Free trade agreement/area (FTA)
2. Customs union
3. Common market
4. Economic union
5. Monetary union
6. Fiscal union
7. Complete economic integration
AEC
NAFTA
Mercosur
EU
Deeper Integration
TPP, RCEPFTAAP
Trade shares of selected RTAs, 2014
0%
10%
20%
30%
40%
50%
60%
70%
ENEA EU ASEAN NAFTA
Intra-subregional trade (% of total subregional trade) Share of world trade (%)
Source: IMF, Direction of Trade Statistics (DOTS). Available from https://www.imf.org/en/data (accessed 18 November 2015).
Notes: 2013 data used for Brunei Darussalam; data for Democratic People’s Republic of Korea and Myanmar are not available.5
AEC
What is a global value chain?
• A sequence of all functional activities required in the process of value creation involving more than one country (UNCTAD, 2013)
• Cross-border trade in intermediate goods and services that are incorporated within the production process of goods and services for final consumption
• About 60 per cent of global trade under GVCs (UNCTAD, 2013)
• Production fragmentation• Sector-specific characteristics• Led by multinationals
6
A simplified GVC
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3RD PARTY LOGISTICS PROVIDER
2ND TIER
SUPPLIER
LEADING ENTERPRISE
FINANCIAL
INSTITUTION
MARKET
RESEARCH FIRM
DISTRIBUTOR END
CUSTOMER
1ST TIER
SUPPLIER
PRODUCTION DISTRIBUTION CONSUMPTION
FINAL
PRODUCT FINAL
PRODUCT
FINAL
PRODUCT
RAW
MATERIALS
INTERMEDIATE
PRODUCT
Value added Value added Value added Value added
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Function R&D &
Design
Materials Parts sourcing Parts integration Assembling Marketing
& services
Cost for
assembler
Low to medium Low High High Low Medium to high
Simplified auto value chains
• Body panels• Mechanical &Electroniccomponents• Wheels, tyres& seats•Engines•Transmissions•Others
• Glass• Rubber• Plastic• Steel• Textile• Electronics
(CKD)
(CKD)
Note: Logistics costs are included in each function.
Componentspecialists
(1st – lower tire)Materialsuppliers
(1st - lower tire)
Integrators(1st tire)
Standardizers Assembler owned
distributors
Dealers &service centres
Exportingto other markets
Assemblers
Distribution
Centre JSupplier L
Custo
mers
600km
Country L Country T
Home Country J
Country V
Distribution
Centre V
1 month by ocean
1200km
100km
Supplier T
5 days by air
Customers
Distribution
Centre T
Customers
A GVC example
Assembling
Auto parts supply
Production nodes
Distribution links
R&D centres
1960s
1990s
2000s
2010s
1970s-80s
Automotive supply chains
Main factors driving GVCs
11Source: Modified from ESCAP (2015)
RTAs can provide necessary fundamentals to the development of GVCs
Intraregional exports of GVC products by country income level groups, 2013
12Source: The authors’ calculation based on data from the United Nations Comtrade database
(Percentage of intraregional exports)
Who are MSMEs?
• More than 99.9% of entire business/commercial entities in a nation– Micro, small and medium, as well as those in the
informal sector
– Typically less than 250-300 employees
– All sectors• Diversified needs
• Niche market and smaller production– Lack of economies of scale
• Resource and capacity constraints– Supply, human resources, technology
– Finance
GDP Contribution of SMEs
Source: Ayyagari, Beck and Demirgüç-Kunt, 2003.
Note: “Residual” includes large enterprises and public sector.
MSME contribution to economic activity by country
0 10 20 30 40 50 60 70 80 90 100
Indonesia
Malaysia
Viet Nam
India
Thailand
Philippines
Republic of Korea
MSMEs to total (%) MSMEs employees to total (%)
MSMEs contribution to GDP (%) MSMEs exports to total (%)
Sources: ADB (2015); Department of Trade and Industry of the Philippines (2014); Ministry of Planning and Investment of Vietnam (2014).
MSME density versus national
productivity
India
Republic of Korea
Singapore
Thailand
Australia
United Kingdom
Hong Kong (China)
Indonesia
United States
Viet Nam
Russian Federation
Philippines
Burundi
Qatar
Myanmar
Madagascar y = 0.1166x2 - 0.0454x + 3.9695R² = 0.29
3
3.5
4
4.5
5
5.5
0 0.5 1 1.5 2 2.5 3 3.5 4
Log
GD
P p
er
cap
ita
(20
15
)
Log SME density
Sources: Chu (2015); SMEAJ (2015); Ping (2014); SME Finance Forum (2016); World Bank (2016).
RTAs: Challenges and Opportunities I
• Provide more opportunities to (a) relatively larger businesses and (b) businesses based in the relatively wealthier countries
• Provide significant potential for MSMEs who can offer better quality, cost and delivery
• Intensify competition for MSMEs with the inflows of foreign-made goods and services
• Put pressure on upgrading product quality or decreasing prices through R&D activities, technological advancement and innovation
RTAs: Challenges and Opportunities II
• Combined with infrastructure improvements in energy, ICT, and transport, enable MSMEs to have cheaper, more reliable access to the goods and services
• Create upward pressure on wages (as well as lands and other services) as the region becomes more fully integrated
• Enhance the ability of MSMEs to get money from banks or other financial institutions as the financial sector is likely to have a much improved capacity to loan out money
Benefits of GVCs for local SMEs
• Bolster productivity of participating enterprises, including SMEs
• Provide opportunities for creation of high(er)-skilled and better paid jobs
• Require different styles of engagement with GVCs for different development levels– Limited opportunities in low-income economies to
benefit from technology dissemination and skills upgrading whose firms specialize in tasks that rely on low-wage/unskilled labour
– Knowledge-intensive tasks of GVCs in high-income economies
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Three major strategies
End-tier supplier
Third-tier supplier
Second-tier supplier
First-tier supplier
Lead firm/Retail outlets Consumers
Brand-named apparel or
textiles companies
Overseas buying offices
Trading Companies
Yarn(Spinning)
Petrochemicals
Cotton, Wool, silk,
etc.
Oil, Natural Gas
COMPOENTNETWORKS
PRODUCTIONNETWORKS
EXPORTNETWORKS
MARKETINGNETWORKS
All Retail Outlets
TEXTILE COMPANIES FINAL MANUFACTURERS
Fabric
Chemical Fibers
Garments factories
Domestic Designers
Subcontractors
Home textiles factories
Industrial textiles factories
Department Stores
Off-price, factory outlets, mail order,
others
Mass merchandise chains
Discount chains
Specially stores
Online stores
Consumers
Raw Material NETWORKS
Source:Modified from Liu (2016).
Downstream ExpansionUpstream Expansion Stay-in
Market or Demand Signal
Upgrading of SMEs in GVCs
• Process upgrading– Transforming inputs into outputs more efficiently by
recognizing the production system or introducing superior technology
• Product upgrading – Moving into more sophisticated product lines in terms
of increased unit values
• Functional upgrading – Acquiring new, superior functions in the chain, such as
design or marketing
• Intersectoral upgrading– Applying the competences acquired in a particular
function to move into a new sector21
Global Enterprises in Emerging Asia
0
20
40
60
80
100
120
140
160
180
200
China India Hong Kong,China
Singapore Malaysia Thailand Philippines Indonesia Viet Nam ASEAN
2006
2015
Source: Compiled based on the dataset of the Forbes Global 2000 (2015).
Ease of doing business and corruption perceptions
PhilippinesViet Nam
IndonesiaIndia
Thailand
Malaysia
Singapore
Republic of Korea
Hong Kong, China
Taiwan, China
Japan
Lao PDR
Cambodia
China
Denmark
U.K.
U.S.
Germany
0
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100 120 140
Co
rru
pti
on
Pe
rce
pti
on
s In
dex
20
15
0=h
igh
ly c
orr
up
t
Ease of Doing Business, 2016 ranking, 1=best
Sources: Developed by the authors based on Transparency International (2015); World Bank (2016).
Credit to business, percentage of GDP
0
50
100
150
200
250
2005
2010
2015
Source: Developed by the authors based on World Bank (2016).
Logistics performance and quality of infrastructure, 2014
Source: Asian Development Bank (ADB). (2014). Myanmar Unlocking the Potential: Country Diagnostic Study.25
Public Investment Projects in CLMTV(by cost)
26
Source: ADB (2015)
Core Non-tariff measure Restrictiveness Index in ASEAN, 2009
27Source: OECD (2016).
Overall Services Trade Restrictiveness Index in ASEAN, 2008-11
28Source: OECD (2016).
Innovation output and ease of doing business
IndonesiaPhilippines
Viet Nam
y = 0.0013x2 - 0.4091x + 51.842R² = 0.6087
0
10
20
30
40
50
60
70
80
0 20 40 60 80 100 120 140 160 180 200
Inn
ova
tio
n o
utp
ut
ind
ex 2
01
5
Ease of doing business ranking 2016
Source: The authors based on the data of WIPO (2015); World Bank (2016).
R&D expenditure by funding source in Asia
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Not specified
Abroad
Government
Business
Source: UNESCO (2015).
Innovation vs. branding
Source: The author’s based on WDI (2016).
Y=0.402X+4.934R2=0.330
Key policy issues
• Business environment
• Access to finance
• Infrastructure
• Trade and logistics facilitation
• Technology, innovation and branding
• SME policies vs. general business policies
• Developing countries’ SME provisions under RTAs
– Protection?
– Nurturing?
– Cooperation with foreign investors?