Pacific Asian Countries in International Trade Young Jo Lee Graduate School of Pan-Pacific International Studies May 13, 2004

Contents Avid traders Shift toward manufactured exports Open domestic markets Upgrading of products Region-wide sequential catch-up No regional PTA Mushrooming bilateral FTAs May 13, 2004 Young Jo Lee

Feature 1 Avid Traders May 13, 2004 Young Jo Lee

Trade Ratios of Asian & LA Countries May 13, 2004 Young Jo Lee

ELI & Trade ELI  High trade dependence Not only exports but also imports Two Factors that favored ELI strategy Poor natural endowments Small domestic markets May 13, 2004 Young Jo Lee

Feature 2 Shift toward Manufactured Exports May 13, 2004 Young Jo Lee

Manufactured Exports as % of Total Exports May 13, 2004 Young Jo Lee

RCA of Asian Countries, 1995 Country Manufactured Primary Korea 1.2 0.5 Taiwan 0.4 Hong Kong 1.1 0.6 Singapore 0.7 Malaysia 1.0 Thailand Indonesia 2.3 China May 13, 2004 Young Jo Lee

Feature 3 Open Domestic Markets May 13, 2004 Young Jo Lee

ELI, No Modern Mercantilism Tariffs and NTBs shrinking rapidly May 13, 2004 Young Jo Lee

Feature 4 Upgrading of Products Moving into new growing markets Shift toward more technology intensive industries May 13, 2004 Young Jo Lee

Growth Intensity Index (GI) Weighted average of a country’s export growth rates relative to world demands (=exports=imports=markets) in different industries GI larger than 1 indicates a county’s exports are concentrated in industries with a rapid growth in world demand May 13, 2004 Young Jo Lee

GI for 1st Tier Asian NICs May 13, 2004 Young Jo Lee

GI for 2nd Tier Asian NICs May 13, 2004 Young Jo Lee

GI for Indonesia & China May 13, 2004 Young Jo Lee

Demand Growth & Knowledge Intensity Growth in world import demand correlates strongly with product innovation and knowledge intensity The more knowledge intensive an industry is, the more rapidly it grows (Exception: aerospace industry) Asian countries’ penetration into rapidly growing market means that they succeeded in industrial upgrading May 13, 2004 Young Jo Lee

Cases: Korea & Singapore ELI chosen around 1963 after a decade of ISI Heavy-chemical industrialization in the 70s Electronics in the 1980s Singapore Gave up ISI for ELI when unification w Malaysia failed “2nd Industrial Revolution” (1979) in favor of capital-intensive industries New Economic Policy (1986), Strategic Economic Plan (1991), and Singapore 2000 (1996) May 13, 2004 Young Jo Lee

Feature 5 Region-Wide Sequential Catch-up May 13, 2004 Young Jo Lee

Flying Geese Pattern of Dev May 13, 2004 Young Jo Lee

Source: Intra-Regional FDI Intra-regional FDI  regional production networks Japan as a model & source of capital & technology for 1st tier NICs Japan & 1st tier NICs as models & sources of capital & technology for 2nd tier NICs Plaza Accord of 1985 May 13, 2004 Young Jo Lee

Private Capital Flows (% of GDP) May 13, 2004 Young Jo Lee

Feature 6 No Regional PTA May 13, 2004 Young Jo Lee

No Region-Wide PTA Dense invisible linkages But no regional PTA Regional production networks Ethnic Chinese networks Subregional economic zones But no regional PTA Even bilateral PTA is rare in the region At end of 2001, China, Hong Kong, Japan, Korea, Taiwan & Mongolia were the only countries that were not parties to any PTA May 13, 2004 Young Jo Lee

Why No Region-Wide PTA? Wide divergence among Asian economies Lack of leadership Japan: burden of history China: Not ready yet, Japan wary External opposition USA against any PTA that includes Japan but excludes USA APEC in place of EAEC May 13, 2004 Young Jo Lee

Feature 7 Mushrooming Bilateral FTAs May 13, 2004 Young Jo Lee

Bilateral FTAs in Pacific Asia 30+ bilateral FTAs in the last 4 years Why? Increasing awareness of weakness of existing arrangements (APEC, ASEAN, ASEM), esp. after Asian crisis Demonstration effects from regional blocs elsewhere Changing configuration of domestic eco interests Uneven distribution Led by more developed countries More inter-regional than intra-regional May 13, 2004 Young Jo Lee

Pacific Asian Countries in PTA May 13, 2004 Young Jo Lee

Economic Effects? Most are politically safe FTAs That is why partners outside the region are preferred Economic effects will not be large FTAs with relatively insignificant partners (Exception: USA-Singapore FTA) Mostly between complimentary, not competing, economies Sensitive industries are excluded May 13, 2004 Young Jo Lee

Share of FTA Partners in Countries’ Total Exports (2000) May 13, 2004 Young Jo Lee

Will the pattern continue? Challenges Technological catch-up in face of narrowing technological gap China’s rise & scattering geese Tasks Technological capabilities (skills, education, R&D) Channels of technology transfer Incentive structures More authentic FTAs Greater insertion into & utilization of WTO regime May 13, 2004 Young Jo Lee