Fighting Irrelevance: The Role of Regional Trade Agreements in International Production Networks in Asia

This chapter contains the sectoral case study on the Thai hard disk drive (HDD) industry. The HDD industry in Thailand was first established during the early 1980s. By 2008, Thailand had become the second-largest HDD exporter in the world, accounting for about 17.4 per cent of world exports. Four out of six major HDD producers have affiliates in Thailand, including Seagate (since 1983), Hitachi GST (since 1991), Western Digital (since 2002) and Toshiba (since 2008). Thus, sufficient time has passed for an assessment to be made of the development of Thailand’s HDD industry.trade liberalization, international production networks, regional trade agreements, value chain, Asia, hard disk drive, East Asia, Thailand

Industrial Upgrading and Global Recession: Evidence of Hard Disk Drive and Automotive Industries in Thailand

This paper illustrates the upgrading experiences of the automotive and hard disk drive (HDD) industries in Thailand, chosen because of their outstanding export performance in the developing world. An understanding of their upgrading experiences can shed some light on the ongoing debate regarding the relative importance of international production networks (IPNs) and industrial clusters (ICs) and their implications for prudential industrial policy. The impact of the recent global recession is also discussed in this paper. There is evidence of industrial upgrading in both the automotive and HDD industries. Yet one primary policy challenge still remains, that is, the limited role of indigenous suppliers in the multinational enterprise (MNE) production networks. This limited role is, to a certain extent, related to the overall incentive structure. Where these two industries differ is in their mode of networking, that is, whether they are part of an IPN or an IC. In the case of the automotive industry, industrial clustering has been observed and has reached a level where the local content of a locally manufactured vehicle is approaching 100%. In the case of the HDD industry, industrial clustering has naturally occurred and reached a certain level.industrial upgrading; international production networks; industrial clusters; automotive industry; hard disk drive industry; thai manufacturing

The International Allocation of R&D Activity by US Multinationals: The East Asian Experience in Comparative Perspective

This paper examines patterns and determinants of overseas R&D expenditure of MNEs, with emphasis on the East Asian experience, using a new panel dataset relating to US-based manufacturing MNEs over the period 1990-2001. It is found that inter-country differences in R&D intensity of operation of US MNE affiliates are fundamentally determined by the domestic market size, overall R&D capability and cost of hiring R&D personnel. The impact of domestic market orientation of affiliates on R&D propensity varies among countries depending on their stage of global economic integration. Intellectual property protection seems to matter largely for mature economies with complementary endowments. There is no evidence to suggest that financial incentives have a significant impact on inter-country differences in R&D intensity when controlled for other relevant variables. Nor is there a statistically significant relationship between the size of the capital stock of MNEs and R&D intensity of their operation across countries. Overall, our findings serve as a caution against paying too much attention by host country governments on turning MNEs affiliates into technology creators as part of their foreign direct investment policy.

East Asia in World Trade: The Decoupling Fallacy, Crisis, and Policy Challenges

This paper examines the export experience of China and other East Asian economies in the aftermaths of the global financial crisis against the backdrop of pre-crisis trade patterns. The analysis is motivated by the ‘decoupling’ thesis, which was a popular theme in the Asian policy circles in the lead-up to the onset of the recent financial crisis, and aims to probe three key issues: Was the East Asian trade integration story that underpinned the decoupling thesis simply a statistical artifact or the massive export contraction caused by an overreaction of traders to the global economic crisis and/or by the drying up of trade credit, which overpowered the cushion provided by intra-regional trade? What are the new policy challenges faced by the East Asian economies? Is there room for an integrated policy response that marks a clear departure from the pre-crisis policy stance favoring export-oriented growth? The findings caution against a possible policy backlash against openness to foreign trade arising from the new-found enthusiasm for rebalancing growth, and make a strong case for a long-term commitment to non-discriminatory multilateral and unilateral trade liberalization.global financial crisis, global production sharing, production networks, China

Distortions to Agricultural Incentives in Thailand

Distorted incentives, agricultural and trade policy reforms, national agricultural development, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17, Q18,

Exporters' Response to FTA Tariff Preferences: Evidence from Thailand

This paper examines how the private sector responds to export opportunities induced by FTAs, using evidence from the Thai manufacturing sector during the period 2003-08. The core methodology is to undertake an inter-product panel-data econometric analysis to gain a better understanding of FTA utilization across products. Different from previous studies, it makes an explicit distinction between actual and preferential trade in which the latter is measured by the administrative records of FTA implementation. Our findings suggest that the product coverage is limited. Products that have benefited from FTA tariff preferences so far are highly concentrated. Our key finding from the econometric analysis is that as rules of origin (ROO) constraints are binding empirically, the ability to comply with ROO as well as tariff margin does matter in firms' decisions to use FTAs. The estimated cost in compiling ROO is equivalent to a tariff in the range of 2% to 10%. Besides, the FTA impact on exports is conditioned by trade volume during the pre-signing FTA period. The key policy inference is that it is unlikely to be able to promote exports by maximizing the number of FTAs, while ignoring the nature of FTA partners. The nature of the FTA partner does matter in establishing whether the signed FTA would be useful. In addition, for Japan and countries which are enthusiastic about FTAs as a mode for further liberalization, FTA negotiation on tariff cuts schedules must be undertaken in a more comprehensive way in which ROO and trade facilitation issues must be incorporated in the negotiation.

Vertical and Horizontal FDI Technology Spillovers: Evidence from Thai Manufacturing

This paper examines Foreign Direct Investment (FDI) spillover, using an unbalanced panel data set of the manufacturing survey of Thailand during the period 2001-03. In this paper, not only are both horizontal and vertical FDI technology spillovers examined, but the former is also assumed to vary across industries. The key hypothesis is that horizontal FDI spillovers depend on the trade policy regime as well as the absorptive capability of locally owned plants. Our panel data econometric analysis highlights the important role of the trade policy regime as a conditional gain of horizontal FDI spillovers. In particular, positive horizontal FDI spillovers are found only in an industry operating in a relatively liberal environment. Interestingly, imposing an assumption of identical horizontal FDI spillovers across industry could result in biased estimates of vertical FDI spillovers. The key policy inference highlights the relative importance of the trade policy regime in harnessing the gain from foreign presence. Liberalizing the foreign investment regime thus has to go hand in hand with liberalizing the trade policy to gain FDI technology spillovers. Our finding here gives a warning not to overemphasize the role of linkages. It is the quality rather than magnitude of linkages that should be used a proxy of the magnitude of vertical FDI spillovers.

The Effects of the ASEAN Economic Community 2015 on Industries in Kitakyushu and Shimonoseki

This paper asks how the formation of the Association of Southeast Asian Nations\u27(ASEAN\u27s) Economic Community (AEC) in 2015 (AEC2015) will affect industries in Kitakyushu and Shimonoseki. First, ASEAN\u27s rapid economic during the past five decades has made ASEAN a large market for Japanese goods, services, and firms. ASEAN has supported this growth by facilitating important economic and political dialogue in Southeast Asia and AEC2015 will likely reinforce this important role. Second, although ASEAN has made efforts to promote economic integration among member economies and AEC2015 is another step in this direction, substantial barriers to intra-ASEAN transactions remain and will persist after AEC2015. The ASEAN Free Trade Area (AFTA) was initiated in 1992 and facilitated elimination of tariffs on most intra-ASEAN trade by 2010, but the share of intra-ASEAN trade remains relatively low at about one-quarter of all ASEAN trade and has not changed much since 2005. Most importantly, like AFTA, AEC2015 is not likely to increase preferential margins for intra-ASEAN trade, largely because ASEAN retains strong comparative advantages with respect to major external trading partners and firms in ASEAN are deeply involved in region- or world-wide production networks. Third, despite proclamations that AEC2015 marks the advent of a "single" ASEAN market, progress toward achieving most of AEC2015\u27s specific goals is likely to be slow, especially with respect to key non-tariff barriers and restrictions on trade in services. Fourth, Japan\u27s multinational enterprises (MNEs) in ASEAN are likely to be the largest conduit through which AEC2015 affects Japan, Kitakyushu, and Shimonoseki. To the extent that AEC2015 affects Japan, Kitakyushu, and Shimonoseki, AEC2015 is likely to affect Japan\u27s services\u27 industries such as trading, logistics (trade, transportation, and communication), and business services, more than commonly appreciated. The proliferation of production networks in machinery industries, which are the source of most of Japan\u27s gross exports, is a major reason for this

The trade effect of non-tariff measures in a high-quality trade agreement

The aim of this study is to quantify the trade effects of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is considered to be a high-quality trade agreeme nt. To this end, we estimate the gravity equation for worldwide trade and introduce applied tariffs i nto this equation to differentiate between the trade effects of tariff reduction and non-tariff measur e (NTM) changes. Our gravity equation results indicate that the trade effect of NTM changes under t he CPTPP is insignificant on average and negative for most products. We also estimate the gravity equatio n for foreign direct investment (FDI) and find some evidence that the CPTPP increased FDI by a statistic ally significant amount. Thus, the NTM changes in the CPTPP may increase FDI, rather than trade, a mong member countries