Productive Integration in ASEAN: Thailand Perspective

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Productive Integration in ASEAN Thailand
Perspective

• Lessons from Asia and Europe for MERCOSUR

2
Organization

• Introduction
• Trade integration
• Thailand Historical development of productive
  integration
• Case studies Automotive
• Conclusion and policy implications

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Significance of Intra-industry trade

• Growing of international trade among developing
  countries (South-South trade)
• East Asia experience in regional integration
• Freer trade ? economic growth ? reduces poverty
  (Bhagwati 2004)
• Industrialization requires government
  intervention
• Market-led (neo-liberal approach)
• Government-led (Keynesian approach)
• Policy frameworks designed to direct scarce
  resource to expand productive capacity and
  upgrade industrial sector.
• FDI and MNEs can facilitate industrialization and
  productive integration

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Objectives

• Draw some policy implications from Thailand
  industrialization and productive integration
  experience
• Examine intra-regional trade between Thailand and
  ASEAN
• Data UN Comtrade Database
• 3 periods 1996, 2002, 2007
• manufacturing products (SITC 78)
• Automotive and components (selected 3-digit from
  SITC 78)

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Exports and Imports of manufacturing product
products (SITC 78)
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Intra-regional Trade(SITC 78)
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Factors behind trade and FDI integration in East
Asian economies

• More outward-oriented liberalization policy, in
  trade and investment (GATT/WTO)
• Global MNEs have formed their production networks
  in this region
• Location remains a crucial factor and firms have
  to decide the optimal place for efficient
  coordination
• Advancement in ICT (reduce service link costs)
• Rapid growth of emerging market economies has
  brought Asia to become the factory of the world

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Why Thailand?

• Thailand
• is a developing country, short experience in
  industrialization, and had virtually no
  manufacturing background.
• becomes a part of global production network of
  some key products, such as automobile and
  electronic device.
• relied very much on FDI to upgrade local
  supporting industries.
• is one of the leading countries that established
  Association of South East Asian Nation (ASEAN) in
  1967
• recently, concluded several FTAs with other
  countries as bilateral basis and regional basis,
  such as ASEAN3, ASEAN6
• evolution of Thailands trade policy and
  industrial development resulted in productive
  integration with East Asia

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GDP share
Thailands Structural Changes
Export share
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Economic and Manufacturing Growth, GDP per Capita
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Structure of Manufacturing FDI
12
Importance of FDI in Capital Formation
13
Main Export Sectors
14
Thailands Inflation rate
15
Movement of Exchange rate index (per 1 USD)
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Thailand Trade and Industrial Policies

• Import substitution strategy (1960-1980s)
• Export oriented (1980s onwards)
• Committed to liberalize the economy trade and
  financial liberalization (1990s)
• Thailand began to negotiate FTAs with many
  countries in order to improve competitive
  advantage
• Private (stakeholders) and public sectors were
  active in the negotiation process of FTA

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Summary of Thailands policies
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Reasons for regional integration of Thailands
Automotive Industry

• Government Policies
• Local content requirement (LCR) regulation
• Industrial Estate (from 1972)
• BOI promotion scheme
• Infrastructure development, e.g., Eastern
  Seaboard Development Project
• Government budget
• Japanese ODAs
• World Bank Loan
• Sound macroeconomics policies (outward-oriented
  policies, and trade liberalization)
• Commitment to liberalization abolishment of LCR
• Large market (pickup trucks)
• Economic crisis aftermath

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Automotive Clusters in Thailand
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Process of Global Supply Chain Integration

• Integration in Thailand (agglomeration) since
  1980s
• Integration with ASEAN 3 (vehicles and parts)
  (late 1990s onwards)
• Final products for the rest of the world (2000
  onwards)

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Production and International Trade Network in
Southeast Asia
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Toyotas Production and Supply Network An
example of product fragmentation
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Surplus in vehicle trade
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Deficit in component trade
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Lessons from Thailand

• The integration process was induced by the
  rationalized industrial policy in 1980s
• Roles of technocrats in designing industrial
  policies (strategic, feasible, fair,
  nondiscrimination)
• FDI and MNEs are important players in the process
  
• Roles of institutions and public-private
  cooperation committee (PPCC) in 1980s
• Macroeconomics stability
• Infrastructure and regional development Road
  network, Seaport (Japanese ODA was important),
  and HRD

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Lessons from Thailand

• Investment incentive to promote regional
  development and human resource development
• Problems in the development process
• Only large business firms or associations could
  lobby the government in the negotiation process
  of FTAs or EPAs
• Small firms tend to face difficulty in improving
  their competitiveness
• Supports should be provided to the group that
  received adverse effect from the FTA and
  globalization

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Conclusion and Implications

• Trade integration in manufacturing expanded
  rapidly in the past decade.
• Regional integration among East Asian countries
  has been enhanced due to
• industrial collaboration (intra-industry trade)
• the proliferation of free trade agreements
  (FTAs).
• Implications from Thailand experience
• early stage policy-led approach
• promote key industries, stabilize economic
  condition, develop infrastructure
• rely mainly on FDI to develop local supporting
  industries
• gradually liberalize and turn to supportive policy

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Thank you