Institution Driven Regionalization

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A Shift from Market- driven to Institution- driven Regionalization in East Asia June 2, 2006 Shujiro URATA Waseda University

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Transcript of Institution Driven Regionalization

Page 1: Institution Driven Regionalization

A Shift from Market-driven to Institution-driven Regionalization

in East Asia

June 2, 2006

Shujiro URATAWaseda University

Page 2: Institution Driven Regionalization

I. Introduction* Recent developments in the World Economy:

Globalization and Regionalization

* Two drivers of regionalization:

Market mechanism

Regional institution (Free trade agreements)

* The purpose of the paper: examine the changing characteristics of regionalization in East Asia (ASEAN+3) with a focus on international trade and foreign direct investment and derive the implications

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II. Changing Pattern of Foreign Trade in East Asia

1. Expansion of intra-regional trade (Table 1)

* The importance of China for other East Asian countries increased in foreign trade

(Table 2)

* The importance of East Asia for East Asian countries except China increased in trade

* South Asia accounts for a small part of East Asia’s trade

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Intra-regional Trade (%)

Share of intra-regional

Share of intra-regional trade in region's trade

trade in world trade Exports Imports

1990 2004 1990 2004 1990 2004

East Asia 8.2 12.9 39.0 49.6 46.9 59.5

NAFTA 6.7 8.1 41.4 55.9 35.0 39.6

EU25 29.9 27.3 66.8 67.2 67.2 68.6

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2. Rapid expansion of Machinery trade

* Especially, electrical and electronic products

(Table 3)

* Commodity composition of trade became

similar among East Asian countries and for

exports and imports (Table 4)

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Changing Composition of East Asia’s Trade (%)

Exports Imports

1990-94 2000-04 1990-94 2000-04

Agriculture 7.0 4.1 12.9 8.9

Mining & fuels 5.4 5.1 15.4 16.8

Total manufacture 86.1 88.7 68.8 72.7

Chemicals 5.0 6.5 8.8 9.0

Leather, rubber, footwear, etc 4.0 2.9 2.3 1.9

Wood, paper, & furniture 2.3 2.0 2.1 1.7

Metal 4.6 4.3 5.3 4.0

Machinery 46.6 53.6 34.3 41.8

Office & telecom equipment 15.9 19.4 7.5 11.6

Electrical 11.1 16.8 9.7 18.1

Autos 9.0 7.7 3.7 2.3

Textiles & garment 12.7 9.1 7.3 5.4

Total 100 100 100 100

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3. Expansion of intra-industry trade * For the machinery sector (Table 7) * Vertical intra-industry trade (Table 8)

4. Large share of parts trade in intra-regional trade in East Asia

(Table 9) * East Asia is a factory of the world * Inter-process division of labor (fragmentation of production process)

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Intra-industry trade index

East Asia India

90-94 00-04 Change 90-94 00-04 Change

ASEAN 0.66 0.86 0.20 0.18 0.47 0.29

NIES 0.79 0.88 0.09 0.10 0.16 0.06

China 0.50 0.56 0.06 0.08 0.11 0.03

Japan 0.26 0.50 0.24 0.25 0.23 -0.02

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Types of Intra-industry trade in East Asia (%)

Year

Inter-industry

trade

Horizontal intra-

industry trade

Vertical intra-

industry trade

1990 42.5 3.3 54.2

1995 31.8 14.1 54.2

2000 27.4 16.1 56.5

2004 21.3 15.1 63.5

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Share of Parts in Overall Trade (%)

Importers

ExporterEast Asia Japan India US

Office and telecommunications equipment

East Asia 66.7 45.8 68.6 43.8

Electrical & Apparatus:

East Asia 85.4 83.1 73.1 69.7

Road vehicles

East Asia 53.9 92.7 90.9 19.5

Textiles and Apparel

East Asia 56.0 18.5 97.0 16.6

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III. Foreign Direct Investment

* Rapid expansion of FDI inflows to East Asia since the mid-1980s: major recipients, NIEs →

ASEAN4 → China, Vietnam →India (?)

* Intra-regional FDI, not notable compared to foreign trade (Table 10)

* Concentration in electric and electronics

(Table 11)

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Figure 2 FDI Inflows to Developing Asia

0

10

20

30

40

50

60

70

80

90

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$ billion

NIES4

ASEAN5

China

India

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FDI Inflows as a Proportion to Domestic Capital Formation (%)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Cambodia -- -- 17.0 18.8 15.5 23.5 36.1 28.7 56.4 48.2 31.1 32.1 --China 3.5 3.9 7.4 12.2 17.3 14.8 14.3 14.6 13.1 11.3 10.4 10.5 --Hong Kong 16.3 4.4 13.8 21.5 19.8 14.4 21.4 19.5 29.4 58.6 138.9 54.2 35.2Macao 0.1 1.0 -1.2 -0.2 0.2 0.1 0.4 0.2 -1.5 0.9 -0.1 20.8 21.5Taiwan 3.7 3.2 1.8 1.6 2.3 2.4 3.0 3.4 0.4 4.4 6.8 7.8 2.9India 0.3 0.1 0.4 0.9 1.4 2.4 2.9 4.0 2.9 2.2 2.3 3.2 --Indonesia 3.4 4.1 4.7 4.8 4.3 7.6 9.2 7.7 -1.5 -9.7 -14.3 -10.8 --Korea 0.8 1.0 0.6 0.5 0.6 1.0 1.2 1.7 5.7 8.3 7.1 3.1 1.6Lao PDR -- -- -- -- -- 19.3 23.6 18.2 14.4 15.7 9.8 7.2 --Malaysia 18.0 22.6 23.7 22.1 15.3 15.0 17.0 14.7 14.0 22.2 16.5 2.5 --Myanmar 4.6 5.4 3.4 1.7 1.4 2.2 2.9 3.7 2.1 0.8 0.7 0.6 --Philippines 5.4 6.1 7.0 9.6 10.5 9.6 8.3 6.3 12.5 11.9 9.7 8.0 8.7Singapore 46.8 33.6 12.5 23.1 36.1 40.8 26.6 37.0 24.7 47.6 45.6 43.8 --Thailand 7.5 5.0 4.9 3.7 2.4 3.0 3.1 7.6 29.9 23.8 12.4 14.4 3.7Viet Nam 21.2 35.9 28.0 32.2 49.3 34.7 29.5 37.3 23.9 20.1 15.0 13.7 --

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Sectoral Distribution of FDI Inflows (%)

Malaysia Thailand Korea Taiwan

Manufacturing 100 100 100 100

Metals 9.6 13.6 5.1 6.9

Chemicals 17.1 10.2 18.5 10.0

General machinery 1.7 32.2 13.2 5.3

Electric machinery 43.1 11.9 35.9 61.9

Transport machinery 6.5 na 12.6 4.0

Manufacturing na 53.5 36.4 35.0

share of total

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IV. Foreign Trade by Multinational Corporations (MNCs) : The Case of Japanese MNCs

1. Geographical Orientation

* Strong export orientation by MNCs in East Asia

* Strong reliance on East Asia in both exports and imports (Table 12)

2. High share of intra-firm trade (Table 13)

3. Creation of Regional Production Network by

Japanese MNCs

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Geographical Allocation of Trade by Japanese MNCs in East Asia

Exports

Total Japan Other North Europe

Asia Asia America

Manufacturing Total 82.4 47.2 35.1 8.9 5.1

Electric and Electronics Machinery 82.4 50.5 31.9 10.6 4.0

Imports

Manufacturing Total 95.5 64.4 31.1 2.1 1.2

Electric and Electronics Machinery 97.7 54.3 43.3 0.8 0.4

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Share of Intra-firm trade in overall trade (%): 2001

Japan Other North Europe

Asia America

Exports to

Manufacturing Total 96.0 70.2 73.8 80.9

Electric Machinery 98.3 75.8 51.7 81.5

Electronics Machinery 95.5 80.8 80.3 84.8

Imports from

Manufacturing Total 46.7 65.9 98.9 93.9

Electric Machinery 27.7 29.8 67.1 56.6

Electronics Machinery 44.3 72.6 100.0 94.9

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V. The Factors Behind Rapid Expansion of Intra-Regional Trade, Creation of Regional

Production Networks

* Trade and FDI Liberalization

Unilateral

Multilateral

* Technical progress in communication and transportation services →  Reduce the cost of conducting trade and FDI

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Tariff Rates (unweighted, %) All Primary Manufactures

China 1992 40.4 36.1 40.6

2004 9.8 10.0 9.7

Indonesia 1989 19.2 18.2 19.2

2003 6.4 8.0 6.1

Malaysia 1988 14.5 10.9 14.9

2003 7.3 4.5 7.8

Philippines 1988 28.3 29.9 27.9

2003 4.5 5.7 4.2

Thailand 1989 38.5 30.0 39.0

2003 14.0 16.4 13.5

India 1990 79.0 69.8 79.9

2004 28.3 30.0 27.9

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VI. Institution-driven Regionalization1. Frameworks * Regional and Bilateral FTAs (Table 15) #East Asia FTA (under study) #Special characteristic: Comprehensiveness (trade/FDI liberalization and facilitation, economic assistance) * Monetary cooperation (Chaing Mai Initiative, Asian Bond mark

et) 2. Reasons * Asian currency crisis * Expansion of FTAs in other parts of the world * Little progress in Doha Round under the WTO * WTO+α (new areas such as movement of natural persons, FDI,

economic assistance, etc) * Rivalry (Japan, China, ASEAN, Korea)

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FTAs in Action and Negotiation in East AsiaIn Action In Negotiation In Negotiation

Bangkok Treaty (1976) China-Thailand* Singapore-Sri Lanka

AFTA(1992) China-Australia Singapore-Qatar*

Singapore-New Zealand (2001) China-New Zealand Singapore-Peru

Japan-Singapore (2002) China-Chile Singapore-Panama

Singapore-Australia (2003) Japan-ASEAN Singapore-Kuwait

Singapore-EFTA (2003) Japan-Indonesia Singapore-Brunei-Chile-NZ

Singapore-US (2004) Japan-Korea Thailand-India*

Korea-Chile (2004) Japan-Malaysia* Thailand-US

China-Hong Kong (2004) Japan-Thailand Thailand-Peru*

China-Macau (2004) Japan-Philippines Thailand-EFTA

Taiwan-Panama(2004) Korea-ASEAN Hong Kong-New Zealand

Japan-Mexico (2005) Korea-Singapore* India-Mauritius

Thailand-Australia (2005) Malaysia-Australia India-Chile

Thailand-New Zealand (2005) Malaysia-New Zealand India-Egypt

China-ASEAN(2005) Singapore-Canada

India-ASEAN(2005) Singapore-Mexico

India-Sri Lanka Singapore-India*

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3. Expected Impacts * Positive impacts for FTA members +Increase in intra-regional trade (Table 16) + Promote economic growth (Table 17) + Increase mutual understanding * Negative impacts + Low quality FTAs discourage trade: complicated rules of origin + Spaghetti bowl + Distract resources away from WTO negotiations + Negative impacts on non-members

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VII. Concluding Comments* Rapid economic growth of East Asia: FDI played an c

rucial role by creating regional production networks* India has not been successful in attracting FDI + Problems (Survey by Japan Bank for International C

ooperation, 2005) # Underdeveloped infrastructure # Lack of transparency in rules and regulations # Lack of information* For East Asia, to maintain growth momentum, avoid c

losed regionalism: High-quality FTAs (WTO consistency, broad coverage, simple ROOs, etc)