The First Round Table on. New Delhi

Transcription

1 India's Engagement with East Asia in Regional Value Chain: Some Emerging Issues S. K. Mohanty Senior Fellow, RIS The First Round Table on ASEAN-Indian Network of Think-Tanks (AINTT) Organised by RIS August 7-8, 2012 New Delhi

2 Context South East Asia is a fast growing region of the world Significant average growth rate since 2003 until 2008 Improved share in the global trade and FDI (RIS, 2008) Industrial competitiveness in diversified sectors Growing knowledge intensive manufacturing sector Manufacturing and services: vibrant sectors in the region Employment opportunities in knowledge based sectors South East Asian economy becoming resilient to recent episode of recession

3 Trade as Driver of Growth Trade growing faster than production sector globally There are certain globally dynamic sectors growing faster than others product composition also changing Parts and component sector has been the fastest growing sector globally for the last several decades Trade and production activities in P&C sector - dominated by lead firm 3

4 Parts and Component Sector Parts & component sector mostly machinery and automobile sector Production and trade activities in P&C sector by MNCs since 50s Coverage of MNC activities range from conception of a product to its delivery and post-sale sale services Trade in P&C was mostly with developed countries, and now tilting towards developing countries Regional value chain is predominantly emerging in different regions both horizontal and vertical value chain 4

5 RTAs, RVC and Surge of IRT Rising regional trade in RVC sectors localised in certain geographical space P&C Sector - Developed and developing countries Regional leaders in developing countries: ASEAN, Mercosur, SACU, etc, Fragmentation of production and international division of labour- finer level Spreading to other sectors: Sectoral coverage- from machinery, automotive to several other sectors- similar experiences Local firms benefit from their engagement with MNCs Far reaching consequences- employment, income generation, other linkage effects in the region Sectoral approach required- policy intervention in several areas- MNCs, FDI, technology transfer, trade facilitation, policies involving reduction of transaction cost, etc 5

6 RVC as Growth-Inducing Approach to RTAs FTAs drivers of growth Various schemes of liberalisation in Asia In the context of EAS, alternative group of countries Comprehensive Economic Cooperation Welfare effects could be up to 5% Fast growth can be achieved with regional value chain gain may be higher than various schemes of FTA initiatives Regional sectoral approach required Mercosur (Automotive sector), ASEAN (Several sectors) 6

7 Gains from Regional Value Chain Rapid economic growth in the region- reduction in the level of poverty- social sector development Despite of strong trade potential, the region has not been able to capitalize the existing synergies The RVC could be an appropriate model to foster intra-regional trade by deepening regional process Attract FDI to promote sectoral activities along with possible transfer of technology to local firms Local firms to achieve the status of a global player in the production of goods and services Demand more of foreign trained professionals- encourage reverse brain drain in the region Integration of regional knowledge economies

8 Source: Flow chart prepared by the author

9 Model Average cost structure of production fragmentation Type1= SL1+PB1+SL2=α1... (1a) Type2= SL1+PB1+SL2+PB2+SL3=α2 (1b) Type3= SL1+PB1+SL2+PB2+SL3+PB3+SL4=α3... (1c) Type4= SL1+PB1+SL2+PB2+SL3+PB3+SL4+PB4+SL5=α4.. (1d) Possibility of production fragmentation α1> α2> α3> α4 (2) Limits to this process α1> α2> α3< α4 (3a) α1> α2< α3< α4 (3b) α1< α2< α3< α4 (3c) Rising component of services (Σ SLi+1 / αi) 1 as Typei k (4)

10 Distribution of Parts & Components by HS Section HS Section Descriptions (Number of lines) Product lines 7 Plastics & leather articles thereof 33 8 Raw Hides & Skins, Leather, etc Textile & Textile Articles 8 15 Base Metals & Articles of Base Metal Machinery & Mechanical Appliances Vehicles, Aircraft and Vessels Optical, Photograph & Cinematography Miscellaneous Manufactured Articles 2 Note: Total number of sub-headings - 280

11 Trends in Global Exports: Exports (Trillion US) CAGR (%) Sh in World (%) Major Sectors / / World Total (1) Primary (2) Intermediate Semi-Finished P&C (3) Final goods Capital Goods Consumption goods Data Source: Comtrade, Online, World Bank, Washington D.C.

12 Trends in Global Exports of Parts and Components: Major Destinations Exports (Billion US) CAGR (%) Sh in World (%) / / World Ded Countries Ding Countries Transitional Countries LDCs Africa Asia Europe Central America South America Latin America & Carib Data Source: Comtrade, Online, World Bank, Washington D.C.

13 Regional Experiences in Value Chain Fast growing regions, the fast movers advantage from the GVC Regional and sectoral polices of ASEAN and Mercosur: take advantage from the production network ASEAN Signed series of regional agreements ASEAN Industrial Cooperation (AIC) scheme in 1981, Brand-to-Brand Complementation (BBC) scheme in 1988 and ASEAN Industrial cooperation organization (AICO) scheme in 1996 for the auto industry Humphrey and Memedovic (2003) These agreements, promoted their national auto industries China as the production hub for the East and South-East regions Increase in production sharing as a result of vertical specialization Intra-regional export of old ASEAN countries- electrical machinery, transport equipments and precision equipments Mercosur Brazil and Argentina have agreed to cooperate in the auto sector and signed an Agreement in 1990 Bilateral flow of vehicle trade increased from US$ 18 million to more than on US$ 1 billion- six years - automotive production system developed in the region

14 Parts and Components Exports of Major RTAs: RTAs Exports (Billion US) CAGR (%) Sh in World (%) / / SACU SADC ASEAN EAS SAARC CIS EU Andean MERCOSUR NAFTA PARTA Data Source: Comtrade, Online, World Bank, Washington D.C.

15 China and India in Global Value Chain Gains from GVC approach- much higher than trade liberalisation (Moran, 2002) Important sector in China: Imports were 23.5% of total imports and sectoral exports formed 12.5% of exports in $467.3 billion sectoral trade of China The US is the largest trading partner of China for both imports and exports of parts and components than any single country in the EU Chinese exports of P&C to these markets grew more rapidly than its overall trade 31.1% of sectoral export and 15.6% imports sourced from the EU and the US- large component is sourced from other destinations India s low level trade with China India is more competitive than ASEAN countries in this sector

16 China s Parts and Component Trade with the US and the European Union Destination Units CAGR Growth Rate China s Imports from US US$ Billion EU US$ Billion US Share (%) EU Share (%) China s Exports to US US$ Billion EU US$ Billion USA Share (%) EU Share (%) Data Source: PCTAS 2011, ITC, Geneva. Note: Share refers to proportion of bilateral trade (exports/imports) in parts and components to total bilateral trade (exports/imports).

17 India s sectoral export potential in China: Parts and Components (Mill US $) Sector Share (%) CAGR (%) Chemical products Fibber and Cloths Metal Products Mechanical Machinery Electrical Machinery Motor Vehicles Precision instruments Total Data Source: PCTAS, 2011, ITC, Geneva. Note: The sector classification is based on Lemoine and Ünal-Kesenci (2002). Estimation is made at 6-digit HS with bilateral time series data.

18 India s export more competitive than ASEAN in China: Parts and component in 2009, Million US $ Sector IDN MMR MYS PHL SGP THA VNM Chemical products Fibber and Cloths Metal Products Mechanical Machinery Electrical Machinery Precision instruments Country Total Data Source: PCTAS, 2011, ITC, Geneva. Note: The sector classification is based on Lemoine and Ünal-Kesenci (2002). Estimation is made at 6-digit HS with bilateral time series data.

19 Role of Government Private initiatives may not be sufficient to drive RVC Strategies aiming at reduction of transaction cost Creation of favourable business environment required to spur MNC activities in the region Congenial policy environment to facilitate FDI flows Domestic policy restructuring to support RVC operationslabour laws, trade facilitation, business facilitating services, infrastructure, etc. More initiative for JVs in the region to promote RVC 19

20 Thank you 20