Institution Driven Regionalization

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<ul><li> 1. A Shift from Market-driven to Institution-driven Regionalization in East Asia June 2, 2006 Shujiro URATA Waseda University</li></ul> <p> 2. I.Introduction </p> <ul><li>* Recent developments in the World Economy: Globalization and Regionalization </li></ul> <ul><li>* Two drivers of regionalization: </li></ul> <ul><li>Market mechanism </li></ul> <ul><li>Regional institution (Free trade agreements) </li></ul> <ul><li>* 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 </li></ul> <p> 3. II. Changing Pattern of Foreign Trade in East Asia </p> <ul><li>1. Expansion of intra-regional trade(Table 1) </li></ul> <ul><li>* The importance of China for other East Asian countries increased in foreign trade</li></ul> <ul><li>(Table 2) </li></ul> <ul><li>* The importance of East Asia for East Asian countries except China increased in trade </li></ul> <ul><li>* South Asia accounts for a small part of East Asias trade </li></ul> <p> 4. Intra-regional Trade (%) 68.667.267.266.827.329.9EU25 39.635.055.941.48.16.7NAFTA 59.546.949.639.012.98.2East Asia 2004 1990 2004 1990 2004 1990 Imports Exports trade in world trade Share of intra-regional trade in region's trade Share of intra-regional 5. </p> <ul><li>2. Rapid expansion of Machinery trade </li></ul> <ul><li>* Especially, electrical and electronic products</li></ul> <ul><li>(Table 3) </li></ul> <ul><li>* Commodity composition of trade became</li></ul> <ul><li>similar among East Asian countries and for </li></ul> <ul><li>exports and imports(Table 4) </li></ul> <p> 6. Changing Composition of East Asias Trade (%) 100 100 100 100 Total 5.47.39.112.7Textiles &amp; garment 2.33.77.79.0Autos 18.19.716.811.1Electrical 11.67.519.415.9Office &amp; telecom equipment 41.834.353.646.6Machinery 4.05.34.34.6Metal 1.72.12.02.3Wood, paper, &amp; furniture 1.92.32.94.0Leather, rubber, footwear, etc 9.08.86.55.0Chemicals 72.768.888.786.1Total manufacture 16.815.45.15.4Mining &amp; fuels 8.912.94.17.0Agriculture 2000-04 1990-94 2000-04 1990-94 Imports Exports 7. </p> <ul><li>3.Expansion of intra-industry trade </li></ul> <ul><li>*For the machinery sector(Table 7) </li></ul> <ul><li>*Vertical intra-industry trade(Table 8) </li></ul> <ul><li>4. Large share of parts trade in intra-regional trade in East Asia </li></ul> <ul><li>(Table 9) </li></ul> <ul><li>* East Asia is a factory of the world </li></ul> <ul><li>* Inter-process division of labor</li></ul> <ul><li>(fragmentation of production process) </li></ul> <p> 8. Intra-industry trade index -0.020.230.250.240.500.26Japan 0.030.110.080.060.560.50China 0.060.160.100.090.880.79NIES 0.290.470.180.200.860.66ASEAN Change 00-04 90-94 Change 00-04 90-94 India East Asia 9. Types of Intra-industry trade inEast Asia (%) 63.5 15.1 21.3 2004 56.5 16.1 27.4 2000 54.2 14.1 31.8 1995 54.2 3.3 42.5 1990 Vertical intra-industry trade Horizontal intra-industry trade Inter-industry trade Year 10. Share of Parts in Overall Trade (%) 16.697.018.556.0East Asia Textiles and Apparel 19.590.992.753.9East Asia Road vehicles 69.773.183.185.4East Asia Electrical &amp; Apparatus: 43.868.645.866.7East Asia Office and telecommunications equipment US India Japan East Asia Exporter Importers 11. III. Foreign Direct Investment </p> <ul><li>* Rapid expansion of FDI inflows to East Asia since the mid-1980s: major recipients, NIEs -&gt; </li></ul> <ul><li>ASEAN4 -&gt; China, Vietnam -&gt;India (?) </li></ul> <ul><li>* Intra-regional FDI, not notable compared to foreign trade(Table 10) </li></ul> <ul><li>* Concentration in electric and electronics</li></ul> <ul><li>(Table 11)</li></ul> <p> 12. 13. FDI Inflows as a Proportion toDomestic Capital Formation (%) 14. Sectoral Distribution of FDI Inflows (%) share of total 35.036.453.5na Manufacturing 4.012.6na 6.5Transport machinery 61.935.911.943.1Electric machinery 5.313.232.21.7General machinery 10.018.510.217.1Chemicals 6.95.113.69.6Metals 100 100 100 100 Manufacturing Taiwan Korea Thailand Malaysia 15. IV. Foreign Trade by Multinational Corporations (MNCs) : The Case of Japanese MNCs </p> <ul><li>1. Geographical Orientation </li></ul> <ul><li>* Strong export orientation by MNCs in East Asia </li></ul> <ul><li>* Strong reliance on East Asia in both exports and imports(Table 12) </li></ul> <ul><li>2. High share of intra-firm trade(Table 13) </li></ul> <ul><li>3. Creation of Regional Production Network by </li></ul> <ul><li>Japanese MNCs </li></ul> <p> 16. Geographical Allocation of Trade byJapanese MNCs in East Asia 0.40.843.354.397.7 Electric and Electronics Machinery 1.22.131.164.495.5 Manufacturing Total Imports 4.010.631.950.582.4 Electric and Electronics Machinery 5.18.935.147.282.4 Manufacturing Total America Asia Asia Europe North Other Japan Total Exports 17. Share of Intra-firm trade in overall trade (%): 2001 94.9100.072.644.3Electronics Machinery 56.667.129.827.7Electric Machinery 93.998.965.946.7Manufacturing Total Imports from 84.8 80.3 80.8 95.5 Electronics Machinery 81.5 51.7 75.8 98.3 Electric Machinery 80.9 73.8 70.2 96.0 Manufacturing Total Exports to America Asia Europe North Other Japan 18. V. The Factors Behind Rapid Expansion of Intra-Regional Trade, Creation of Regional Production Networks </p> <ul><li>* Trade and FDI Liberalization </li></ul> <ul><li>Unilateral </li></ul> <ul><li>Multilateral </li></ul> <ul><li>* Technical progress in communication and transportation services -&gt; Reduce the cost of conducting trade and FDI </li></ul> <p> 19. Tariff Rates (unweighted, %) 27.930.028.32004 79.969.879.01990 India 13.516.414.02003 39.030.038.51989 Thailand 4.25.74.52003 27.929.928.31988 Philippines 7.84.57.32003 14.910.914.51988 Malaysia 6.18.06.42003 19.218.219.21989 Indonesia 9.710.09.82004 40.636.140.41992 China Manufactures Primary All 20. VI. Institution-driven Regionalization </p> <ul><li>1.Frameworks </li></ul> <ul><li>* Regional and Bilateral FTAs(Table 15) </li></ul> <ul><li>#East Asia FTA (under study) </li></ul> <ul><li>#Special characteristic: Comprehensiveness (trade/FDI</li></ul> <ul><li>liberalization and facilitation, economic assistance) </li></ul> <ul><li>* Monetary cooperation (Chaing Mai Initiative, Asian Bond market)</li></ul> <ul><li>2. Reasons </li></ul> <ul><li>* Asian currency crisis </li></ul> <ul><li>* Expansion of FTAs in other parts of the world </li></ul> <ul><li>* Little progress in Doha Round under the WTO </li></ul> <ul><li>* WTO+ (new areas such as movement of natural persons, FDI, economic assistance, etc)</li></ul> <ul><li>* Rivalry (Japan, China, ASEAN, Korea) </li></ul> <p> 21. FTAs in Action and Negotiation in East Asia Singapore-India* India-Sri Lanka Singapore-Mexico India-ASEAN(2005) Singapore-Canada China-ASEAN(2005) India-Egypt Malaysia-New Zealand Thailand-New Zealand (2005) India-Chile Malaysia-Australia Thailand-Australia (2005) India-Mauritius Korea-Singapore* Japan-Mexico (2005) Hong Kong-New Zealand Korea-ASEAN Taiwan-Panama(2004) Thailand-EFTA Japan-Philippines China-Macau (2004) Thailand-Peru* Japan-Thailand China-Hong Kong (2004) Thailand-US Japan-Malaysia* Korea-Chile (2004) Thailand-India* Japan-Korea Singapore-US (2004) Singapore-Brunei-Chile-NZ Japan-Indonesia Singapore-EFTA (2003) Singapore-Kuwait Japan-ASEAN Singapore-Australia (2003) Singapore-Panama China-Chile Japan-Singapore (2002) Singapore-Peru China-New Zealand Singapore-New Zealand (2001) Singapore-Qatar* China-Australia AFTA(1992) Singapore-Sri Lanka China-Thailand* Bangkok Treaty (1976) In Negotiation In Negotiation In Action 22. </p> <ul><li>3. Expected Impacts </li></ul> <ul><li>* Positive impacts for FTA members </li></ul> <ul><li>+Increase in intra-regional trade(Table 16) </li></ul> <ul><li>+ Promote economic growth(Table 17) </li></ul> <ul><li>+ Increase mutual understanding </li></ul> <ul><li>* Negative impacts </li></ul> <ul><li>+ Low quality FTAs discourage trade: complicated </li></ul> <ul><li>rules of origin </li></ul> <ul><li>+ Spaghetti bowl </li></ul> <ul><li>+ Distract resources away from WTO </li></ul> <ul><li>negotiations</li></ul> <ul><li>+ Negative impacts on non-members </li></ul> <p> 23. VII. Concluding Comments </p> <ul><li>* Rapid economic growth of East Asia: FDI played an crucial role by creating regional production networks </li></ul> <ul><li>* India has not been successful in attracting FDI </li></ul> <ul><li>+ Problems (Survey by Japan Bank for International Cooperation, 2005) </li></ul> <ul><li># Underdeveloped infrastructure </li></ul> <ul><li># Lack of transparency in rules and regulations </li></ul> <ul><li># Lack of information </li></ul> <ul><li>* For East Asia, to maintain growth momentum, avoid closed regionalism: High-quality FTAs (WTO consistency, broad coverage, simple ROOs, etc) </li></ul>