Economic Corridor as Part of Global Value Chains and Production Networks
Prabir De RIS, New Delhi
Singapore
26 August 2015 What we are going to discuss?
1. Why and What is called economic corridor? 2. Stages of development of economic corridor 3. Economic corridor – value chain linkages illustration 4. Key factors and determinants of greater integration in Asia and role of economic corridor A mobile myriad of concepts • Global Value Chains – focus on value-added, across countries (trade in tasks, capabilities) • Vertically-Integrated Supply Chains – focus on ensuring supply of inputs from one step to the next (trade in goods, availability of low-cost suppliers, infrastructure) • Production Networks – focus on coordination of disparate but interconnected activities (service links, logistics) • Outsourcing – theory of the firm; ownership; costs and externalities • Offshoring – rapid recent growth; location; employment concerns/benefits Trade in P&C has been increasing in importance worldwide
World Manufacturing Trade: Total Volume, Trade in Parts & Components (P&C), and the share of P&C in the Total Trade
Source: Authukorala (2011) Trade in parts and components in Asia
In developing Asia…
• Roughly 50% of developing Asia’s exports are intraregional
• Most intraregional trade appears to be intra-industry as well (esp. electronics, auto parts)
• Tripolar expansion of PRC, India and ASEAN expected to boost intraregional trade further
• East Asian countries as a group are more strongly dependent on fragmentation-based trade than any other region in the world
The last decade has seen the intensification of parts and components trade in Asia
Source: Aziz (2012), ADB Rising production networks in South Asia and between South and Southeast Asia Case: Southeast Asia Case: South Asia India’s Import of ACE from Thailand India’s Export of Yarn to Bangladesh
A B
Source: De and Saha (2013) based on Kimura (2011) Production networks: Three distinctly prominent views on service link costs • The costs of fragmentation depend on the associated service link costs (Jones and Kierzkowski, 2005), where service link costs are the costs arising from country’s infrastructure and regulations. • Production processes and tasks in production are increasingly fragmented across boundaries, time-sensitive logistics infrastructure along with improved information and communication technology and trade facilitation have become prerequisites in building production networks across borders (Kimura, 2009). • East Asia has recorded high intra-regional trade shares owing in particular to rapidly expanding intra-regional trade in parts and components and development of regional connectivity. In ASEAN, production network exports witnessed over 60% of total manufacturing exports in the last decade (Athukorala, 2010). Case studies Manufacturing of Boeing Airplane Manufacturing Apple Products in China Value chain of Apple iPhone Thailand-centred hard disk drive network Asian automobile networks Standard supply chain: IBM Type of supply chains Dell’s Value Web Model
Logistics System CMs/OEMs companies Integrators
Component Customer suppliers DELL
Third party HW Repair and and SW Distributors support suppliers companies
Physical flows, including products and services Information flows What is an economic corridor?
Transport corridor SEZ/Industrial Parks Value chains Institutional infrastructure Smart Cities
Trade corridor Human infrastructure
Communication infrastructure GMS EWEC Stages of development of economic corridor •According to Banomyong (2007), there are four types of corridors: (i) transport, (ii) multimodal (2+ modes combinations); (iii) logistics (institutional framework), and (iv) Transport economic (investment in less corridor developed areas). •An EC an be national (e.g. Tokyo- Osaka corridor), subregional (e.g. GMS corridors), regional (e.g. TEN-T Catalysts: Trade Logistics corridors), or international (e.g. facilitation, logistics corridor submarine telecom cables). services, a.o. •Trade facilitation and logistics services are the main catalysts in its development. •EC helps strengthen industrial (or, Economic services) agglomeration over time corridor through industrial zones (or, SEZ). •EC facilitate cluster-type development of enterprises. Source: Srivastava (2011) Functional specification of EC
• As noted in Srivastava (2011), an EC contains following facilities and assets: (i) links or develops SEZs or both, (ii) links to minimum on sea port handling international cargo, (iii) connects at least one neighbour, (iv) allows transit of goods or passengers or both, (v) accepts electronic customs, and (vi) monitors through a special institutional arrangement. Production networks and service Links
Source: Kimura and Kobayashi (2011) Economic corridor and agglomeration
Agglomeration and dispersion in new economic geography The fragmentation theory Large integrated factory
PB: production blocks Fragmentation SL SL: service links PB PB SL SL PB PB SL SL PB
Sub-regions (e.g. GMS, IMT+, BIMP+), which include multiple industrial corridors connecting countries/regions at different development stages in order to effectively utilize economic dynamism. Three tiers of development strategies. • Tier 1: middle-income countries/subregions Innovative and value-added cluster (Less congestion and better business environment.) • Tier 2: countries/regions close to industrial agglomerations Push out the frontier of production networks (Creation of new development center) • Tier 3: remote countries/regions yet to start development process Employ logistics infrastructure as a trigger for a new perspective of industrial development. (Create critical mass of economic activity)
Source: Adapted from Umezaki (2013) Stages of economic corridor development
Economic corridor
Trade corridor
Transport corridor
SASEC CAREC GMS Economic corridor development policy
Stage Corridor Policy Measure Role 1 Transport Trade Integrated trade Government corridor facilitation facilitation Private Customs cooperation 2 Trade Trade Border policies Government corridor liberalization Behind-the-border policies 3 Economic Economic Corridor value Government corridor development chains Private Corridor township development Cross-border investments Trade facilitation – paperbased to paperless trade
e-Single Window & paperless trade National data harmonization
Process simplification and harmonization Cross-border data harmonization & Document exchange simplification and alignment
Business Process Analysis Intuitional arrangement for economic corridor development in CAREC
Ministerial Conference
Senior National Multilateral Official's Institutions Focal Points Meeting
Transport Customs Coordination Coordinating Committee committee
Energy Sector Trade Policy Coordinating Coordinating Committee Committee Caveat: Scale economy vs. Trade cost 1. When trade costs decrease from economic corridor, MNEs may concentrate their activities on one country and develop trade flows rather than open a plant in a foreign member country. 2. Apparently, as MNEs derive more benefits from economies of scale than tariff jumping, strategies after conclusion of FTAs, the production network might fall. Case studies GMS economic corridors CAREC transport corridors
Source: http://www.carecprogram.org/index.php?page=carec-corridors SAARC Corridors
• 10 regional road corridors/gateways • 5 regional rail corridors/gateways • 10 maritime gateways • 7 aviation gateways • Policy measures to improve transport & trade facilitation
Source: ADB MIEC – Connecting industrial space
Tamil Nadu Tidel Park coimbatore ASCENDAS IT Park Andhra Pradesh Nanguneri SEZ Biotech SEZ Ennore SEZ IT/ITES SEZ Dawei Perambalur - SEZ Pharmaceutical SEZ Apparel Park SEZ Auto City SEZ Textile and Apparel Bio - Pharmaceuticals SEZ Semiconduct SEZ
MIEC Karnataka HCM Agglomerated Bio Tech SEZ IT & ITES SEZ Area TEXTILES SEZ Phnom Food Processing SEZ Penh SEZ Sricity Bangkok Agglomerated Area Connectivity between South, Southeast Asia and Central Asia
Source: ADB Some key factors to facilitate deeper Asian integration with economic corridor • High NTBs / NTMs • Inadequate infrastructure – national and regional (inadequate and poor stock and link of infrastructure) • Lack of trade facilitation and absence of Asia-wide transit trade • Poor border infrastructure – Positive list for border trade • Inconsistent and difficult border crossing formalities and procedures • Restrictive visa regime • Different standards on vehicles and drivers across countries • Restrictions on entry of motor vehicles Fostering economic corridor: basic enabling environment 1. Facilitate private sector investments 2. Accession to the International conventions 3. Promote intermodal transport and transit 4. Strengthening and harmonizing rules, regulations, and standards (trade facilitation) 5. Development of value chains 6. Financing cross-border projects, particularly transport 7. Human resource development, skill development, a.o 8. Strengthening coordination among countries and Stakeholders 9. Closer cooperation on security 10.Promote regional cooperation 11.Strengthen capacity of existing institutions 12.Work with international and regional development partners, bilateral organizations, etc. Thanaleng (Lao PDR) and Nonkhai (Thailand) Thank you [email protected] Home work
• Converting road corridor into economic corridor needs cost control, proper management and improved performance of border control authorities. In your opinion, should countries mange the border customs jointly? If yes, why? And If No, why?