The Economic Community of ASEAN - Observatorio · The Economic Community of ASEAN ... Progress of the ASEAN Economic Community ... •SME Development •Initiative for ASEAN

(ERIA: Economic Research Institute for ASEAN and East Asia)

The Economic Community of ASEAN Impacts for Business with Latin America

Yasushi Ueki, Economist

Latin America – Asia Pacific Business Forum 24-25 November 2015

Lima, Peru

1

What is ERIA?

• An international organization established in 2008 in Jakarta, Indonesia by a formal agreement among 16 (ASEAN+6) Heads of Government at the 3rd East Asia Summit in 2007.

• Address – HQ Office in the ASEAN Secretariat – Annex Office at Sentral Senayan II, Senayan, Jakarta

• Activities – Policy-oriented research under three pillars:

• Deepening Economic Integration • Narrowing Development Gaps • Achieving Sustainable Development

– Dissemination of research results • Seminar, symposia • Research project report, discussion paper, policy brief, etc.

– Capacity Building • Focusing on policy makers from CLMV countries.

– Policy Recommendation to the Leaders and Ministers

2

What is ERIA? • Organization

• Website: www.eria.org

3

Contents

1. Progress of the ASEAN Economic Community (AEC)

2. The Comprehensive Asia Development Plan 2.0 (CADP 2.0)

3. The Case of the Mekong Subregion

4. Technology Transfer and Upgrading in Production Networks

4

The 27th ASEAN Summit on 22 November 2015

• welcomed the formal establishment of the ASEAN Community 2015 on 31 December 2015.

• adopted ASEAN 2025: Forging Ahead Together, comprising the Kuala Lumpur Declaration on ASEAN 2025: Forging Ahead Together, ASEAN Community Vision 2025, the ASEAN Political-Security Blueprint Community 2025, the ASEAN Economic Community Blueprint 2025 and the ASEAN Socio-Cultural Community Blueprint 2025.

5

Progress of the ASEAN Economic Community

6

The Association of South East Asian Nations (ASEAN)

ASEAN Member States 1967 Indonesia, Malaysia, Philippines, Singapore, Thailand 1984 Brunei 1995 Vietnam 1997 Lao PDR, Myanmar 1999 Cambodia

Source: http://aseanup.com/free-maps-asean-countries/southeast_asia_pol_2003/

1997 ASEAN+3 (China, Japan, Korea)

2005 ASEAN+6 (EAS) (AU, India, NZ)

7

http://aseanup.com/free-maps-asean-countries/southeast_asia_ref_2007/

ASEAN Presence in the World

Economy

– 7th Largest in the World in 2014 • GDP: USD 2.57 trillion

Population: 3rd largest in the World

– 3rd largest in the World in 2014 • China (1,367 million), India (1,259 million), ASEAN(6.22 million),

EU (504 million), US (319)

– More than 50% of ASEAN’s population is under 30 years old • 39% of East Asia’s and 34% of Europe’s

– Note: some countries will face aging issue

Source: ASEAN Secretariat (2015) ASEAN Economic Community 2015 Progress and Key Achievements. 8

ASEAN Economic Dynamics during the AEC 2015 (2007-2014)

2007 2014

GDP USD 1.33 trillion USD 2.57 trillion Almost doubled

GDP per capita USD 2,343 USD 4,135 76% increase

Total Trade USD 1.6 trillion USD 2.5 trillion 56% increase

Total FDI Inflows USD 85 billion (5% of the World)

USD 136 billion (11%)

60% increase

Source: ASEAN Secretariat (2015) ASEAN Economic Community 2015 Progress and Key Achievements. 9

ASEAN Economic Community (AEC) 2015

• In 2003, The ASEAN Leaders agreed to establish the AEC by 2020.

• In 2007, the Leaders agreed to accelerate the establishment of the AEC from 2020 to 2015

• In 2007, the Leaders adopted the AEC Blueprint that guides the establishment of the AEC by 2015.

• In 2015, the Leaders declared the formal establishment of the ASEAN Economic community.

• The AEC will have the following characteristics. (1) a single market and production base,

(2) a highly competitive economic region,

(3) a region of equitable economic development,

(4) a region fully integrated into the global economy

10

ASEAN Economic Community (AEC) 2015 AEC Components by 4 Pillar

ASEAN Economic Community 2015

Pillar 1 Pillar 2 Pillar 3 Pillar 4

Single Market and Production Base

Competitive Economic Region

Equitable Economic Development

Integration into the Global Economy

• Free Flow of Goods • Free Flow of Services • Free Flow of Investment • Freer Flow of Capital • Free Flow of Skilled

Labor • Priority Integration

Sectors • Food, Agriculture, And

Forestry

• Competition Policy • Consumer Protection • Intellectual Property

Rights (IPR) • Infrastructure

Development • Taxation • E-commerce

• SME Development • Initiative for ASEAN

Integration (IAI)

• Coherent Approach towards External Economic Relations

• Enhanced Participation in Global Supply Networks

Regional Economic Integration

Economic Development External Relations ASEAN+α

11

Progress of AEC 2015

Overall Implementation Rate 92.7%

(469 of 506 measures)

Pillar 1 Pillar 2 Pillar 3 Pillar 4

Single Market and Production

Base


Equitable Economic

Development

Integration into the Global Economy

Implementation Rate

92.4% (256 of 277 measures)

90.5% (154 of 170 measures)

100% 100%

Source: ASEAN Secretariat (2015) ASEAN Integration Report 2015.

12

Progress of AEC 2015 ASEAN Economic Ministers’ (AEM) Meeting Joint Media Statement

• The 47th AEM Meeting Joint Media Statement (22 August 2015, Kuala Lumpur, Malaysia) – 7. The Ministers noted that 91.5 per cent or 463 out of the 506

prioritized AEC Blueprint measures have been implemented.

• The 46th AEM Meeting Joint Media Statement (25 August 2014, Nay Pyi Taw, Myanmar) – 9. The Ministers considered the latest update which showed that ASEAN

has implemented 82.1% of the 229 AEC key deliverables targeted for completion by 2013.

• The 45th AEM Meeting Joint Media Statement (19 August 2013, Bandar Seri Begawan, Brunei Darussalam) – 8. The Ministers noted the small improvement in the overall

implementation rate of the ASEAN Economic Community (AEC) Blueprint, which is at 79.4% as of July 2013.

13

Progress of AEC 2015 Tariff Reduction (as of January 2015)

Country No of Items Zero Tariff Zero Tariff (%)

ASEAN6 61,202 60,712 99.2

Brunei 9,916 9,844 99.3

Indonesia 10,012 9,899 98.9

Malaysia 12,337 12,182 98.7

Philippines 9,821 9,685 98.6

Singapore 9,558 9,558 100.0

Thailand 9,558 9,544 99.9

CLMV 38,232 34,732 90.8

Cambodia 9,558 8,744 91.5

Lao PDR 9,558 8,537 89.3

Myanmar 9,558 8,847 92.6

Vietnam 9,558 8,604 90.0

Note: as of January 2015. CLMV reduce tariffs by 2018. Source: Mizuho Research Institute (2015). 14

http://www.mizuho-ri.co.jp/publication/research/pdf/insight/as151008.pdf

Progress of AEC 2015 Legal Instruments (as of 6 October 2015)

• 154 of 173 legal instruments (89%) such as agreement, MOU, and protocols signed by the Leaders have entered into force.

• 19 legal instruments not entered into force contain: – Protocol to Amend the ASEAN Comprehensive Investment Agreement

– ASEAN Mutual Recognition Arrangement on Tourism Professionals

– 3 Protocols under ASEAN Framework Agreement on the Facilitation of Goods in Transit (AFAFGIT)

• Railways border and interchange stations

• Customs Transit System

• Dangerous goods

– ASEAN Agreement on the Movement of Natural Persons

– Protocol to Implement the Eight Package of Commitments of Air Transport Services under the ASEAN Framework Agreements on Services

15

Progress of AEC 2015 Subjective Assessment of Implementation (as of August 2015)

Pillar 1. Single Market and Production Base

Core Elements of Pillar Issues Actions Scheduled in AEC Blueprint Assessment

Free flow of goods Tariffs Elimination of tariffs ◎

Non-Tariff Barriers Full elimination of NTBs ×

Rules of Origin Continuous reform ○

Trade facilitation/ Customs Integration

Modernization , simplification, standardization, and harmonization of trade customs procedures ○

ASEAN Single Window ASEAN6 and CLMV operationalize their NSWs by 2008 and no later than 2012 respectively. △

Standard and Conformity, Technical Barriers to Trade

Develop/ implement sectoral Mutual Recognition Arrangements (MRAs) ○

Note: ◎ Progressed as AEC Blueprint scheduled, ○ Almost on schedule △ Behind the schedule, × significant delays Source: based on Institute for International Trade and Investment (ITI) (2015), AEC Blueprint and other ASEAN documents.

16

http://www.iti.or.jp/flash249.htm


Pillar 1. Single Market and Production Base

Core Elements of Pillar Issues Actions Scheduled Assessment

Free flow of services Liberalization of 128 sectors

Remove substantial ly restrictions for Mode 1 (cross-border supply) and 2 (consumption abroad) Mode 3 (commercial presence) At least 70% foreign equity participation Mode 4 (movement of natural person) Set and schedule liberalization

○

Financial service Substantial removal of restrictions for the insurance, banking and capital market by 2015. Substantial removal of restrictions for all remaining sectors by 2020.

○

Free flow of investment Free, open investment regime with minimal investment restrictions

ASEAN Comprehensive Investment Agreement Complete the progressive liberalization by 2015 ○

Freer flow of capital Capital market integration

Facilitation of current account transactions Removal /relaxation of restrictions on capital flows

○

Free flow of skilled labor MRA for major professional services

Develop core competencies for job skilled required in all services sectors by 2015

×


17



Pillar 2. Competitive Economic Region


Competition Policy Competition law/policy Regional guideline

Develop a regional guideline by 2010 Introduce competition policy in all AMSs by 2015

○

Consumer Protection Strengthen consumer protection

Establish coordinating committee on CP, Establish a network of CP agencies

◎

Intellectual Property Rights

IPR action plan Capacity building

Full implementation of IPR Action Plan 2004-2010 Implementation of the ASEAN filing system for design and the Madrid Protocol

△

Infrastructure Development

Transport facilitation Implementation of AFAMT (Multimodal Transport), AFAFGIT (Facilitation on Good s in Transit), AFAFIST (Facilitation of Inter-State Transport)

△

Land transport Completion of the Singapore-Kunming rail Link and the ASEAN Highway Network (AHN) projects

△

Sea transport Adopt the general principles and framework for an ASEAN Single Shipping Market

△


18



Pillar 2. Competitive Economic Region


Air transport Implement the ASEAN Open Sky Policy and the ASEAN Single Aviation Market

○

Energy ASEAN power grid, Trans-ASEAN gas pipeline △

Taxation Avoidance of double taxation

Complete the network of bilateral agreements on avoidance of double taxation by 2010

×

Pillar 3. Equitable Economic Development

SME Development Access to information, market, HRD and skills

Implementation of the ASEAN Blue Blueprint for SME Development 2004-2014

△

Initiative for ASEAN Integration (IAI)

Narrow the development gap

Implementation of the Second IAI Work Plan (2009-2015)

○

Pillar 4. Integration into the Global Economy

Coherent Approach towards External Economic Relations

Maintain ASEAN Centrality in its External economic relations

Common approaches in ASEAN’s external economic relations and in regional and multilateral fora (ASEAN+1 FTAs, RCEP)

◎


19


Progress of AEC 2015 Unfinished Agenda

• Integration SMEs into Regional Production Networks and Global Supply Chain

• Enhancement and Development of Existing/New Infrastructure to Support Sustainable Growth

• Narrowing Development Gaps within and between ASEAN Member States

• Conclusion of On-going FTA Negotiations to Serve as a Building Block to Region-wide FTA

(Mr. Lim Hong Hin, Deputy Secretary General, on 21 November 2015)

20

Progress of AEC 2015 Key Policy Issues for Industrial Development and Upgrading

• Trade and Transport Facilitation – Behind the schedule and problems in implementation

– Elimination of Non Tariff Barriers (NTBs)

• Free Flow of Skilled Labor

– Very limited liberalization • MRAs under the AFAS limit 8 professionals (engineers, architects,

nurses, doctors, accountants, surveyors, tourism professionals)

• ASEAN Agreement of the Movement of Natural Persons (MNP) does not cover non-services sectors

– The agreement may not decrease obstacles for firms to send engineers between factories in ASEAN for technology transfer.

21

Transport and Trade Facilitation Implementation of National and ASEAN Single Window

62

28

43

87 94

14 18 14 27

77 82 89 97

22

65

90 100

0

20

40

60

80

100

20

11

20

14

20

11

20

14

20

11

20

14

20

11

20

14

20

11

20

14

20

11

20

14

20

11

20

14

20

11

20

14

20

11

20

11

Brunei Cambodia Indonesia Lao PDR MyanmarPhilippines Thailand Viet Nam MY SG

No

Dat

a

• Singapore and Malaysia could develop the NSW based on their own information systems. • Cambodia and Lao PDR started using UNCTAD’s Automated System for Customs Data

(ASYCUDA, SIDUNEA in Spanish) in 2008 and 2011 respectively. • Viet Nam developed its own NSW, Vietnamese Automated Cargo and port Consolidated

System (VNACCS), based on Japan’s NACCS in 2014. • Myanmar plans to leapfrog on the NACCS-based modern NSW, Myanmar Automated

Cargo and port Consolidated System (MACCS), in 2016.

MY = Myanmar, SG = Singapore. Source: CADP 2.0, originally Intal (2015).

22

Transport and Trade Facilitation Implementation of ASEAN Single Window

• ASEAN Trade Repository (ATR)

• ASEAN Customs Transit System

(EU ARISE Porgram)

23


Pillar ASEAN Economic Community 2025 ASEAN Economic Community 2015

1 A Highly Integrated and Cohesive Economy Single Market and Production Base

2 A Competitive, Innovative and Dynamic ASEAN


3 Enhanced Connectivity and Sectoral Cooperation

(Pillar 1: Priority Integration Sector) (Pillar 2: Infrastructure Development) (Pillar 2: E-commerce)

4 Resilient, Inclusive, People-Oriented and People-Centred ASEAN

Equitable Economic Development

5 Global ASEAN Integration into the Global Economy

Our ASEAN Economic Community by 2025 shall be highly integrated and cohesive; competitive, innovative and dynamic; with enhanced connectivity and sectoral cooperation; and a more resilient, inclusive, and people-oriented, people-centred community integrated with the global economy.

Source: based on Mission of Japan to ASEAN, etc..

24

ASEAN Economic Community 2025 5 Pillars and Elements


Pillar 1 Pillar 2 Pillar 3 Pillar 4 Pillar 5

A Highly Integrated and Cohesive

Economy

A Competitive, Innovative and

Dynamic ASEAN

Enhanced Connectivity and Sectoral Cooperation

A Resilient, Inclusive, People-Oriented and

People-Centred ASEAN

A Global ASEAN

• Trade in Goods • Trade in Services • Investment

Environment • Financial Integration,

Financial Inclusion, and Financial Stability

• Facilitating Movement of Skilled Labor and Business Visitors

• Enhancing Participation in Global Value Chains

• Effective Competition Policy

• Consumer Protection • Strengthening

Intellectual Property Rights Cooperation

• Productivity-Driven Growth, Innovation, Research and Development, and Technology Commercialization

• Taxation Cooperation • Good Governance • Effective, Efficient,

Coherent and Responsive Regulations, and Good Regulatory Practice

• Sustainable Economic Development

• Global Megatrends and Emerging Trade-Related Issues

• Transport • Information and

Communications Technology

• E-Commerce • Energy • Food, Agriculture and

Forestry • Tourism • Healthcare • Minerals • Science and Technology

• Strengthening the Role of Micro, Small, and Medium Enterprises

• Strengthening the Role of the Private Sector

• Public-Private Partnership • Narrowing the Development

Gap • Contribution of Stakeholders

on Regional Integration Efforts

• Coherent Approach towards External Economic Relations

• Enhanced Participation in Global Supply Networks

25

The Comprehensive Asia Development Plan 2.0 (CADP 2.0)

–– Infrastructure for Connectivity and Innovation––

26

The Comprehensive Asia Development Plan (CADP)

Joint Press Statement of the East Asia Summit on the Global Economic and Financial Crisis on 3rd June 2009 in Bangkok

11. In order to promote sub-regional development, they encouraged the Economic Research Institute for ASEAN and East Asia ( ERIA ), ADB and ASEAN Secretariat to work together to prepare as soon as possible a coherent master plan, which would contribute to coordinating, expediting, upgrading and expanding sub-regional initiatives and promoting private sector participation.

Chairman’s Statement of the 5th East Asia Summit on 30 October 2010 in Hanoi

13. We appreciated the completion of the Comprehensive Asia Development Plan (CADP) by ERIA in collaboration with the ADB and the ASEAN Secretariat.

Submitted to the 5th East Asia Summit in 2010.

Presented a grand spatial design of economic infrastructure and industrial placement in ASEAN and East Asia and claimed to pursue both deepening economic integration and narrowing development gaps.

Provided a conceptual framework (Physical Connectivity, Institutional Connectivity, People-to-People Connectivity, and Resource Mobilisation) for the Master Plan on ASEAN Connectivity/ MPAC (2010) and ERIA drafted Chapter 2&3 of MPAC.

27

Master Plan on ASEAN Connectivity (MPAC, 2010)

Three Key Elements of Connectivity

Physical Connectivity Institutional Connectivity People-to-People Connectivity

• Transport • ICT • Energy

• Trade liberalization and facilitation

• Investment and services liberalization and facilitation

• MRAs • Regional transport

agreements • Cross-border procedures • Capability building

programs

• Education and culture • Tourism

Connectivity in ASEAN refers to the physical, institutional and people-to-people linkages that comprise the foundational support and facilitative means to achieve the economic, political-security and sociocultural pillars towards realising the vision of an integrated ASEAN Community.

ASEAN Secretariat is renewing the MPAC to publish in 2016. 28

Substantial Progress of Infrastructure Development

268165 137 102

240

266252

242

132150 176

161

63122 138

198

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014

CADP Project Implementation Status

Operation Stage

Construction Stage

Feasibility Study Stage

Conceptual Stage

• The projects under the operation stage increased their shares from 9 percent in 2011 to 28 percent in 2014, while the projects under the construction stage expanded from 19 percent to 23 percent during the same period.

Source: CADP 2.0.

29

GDP per capita in ASEAN Member States (in US dollar; nominal prices)

2009 2010 2011 2012 2013 2014

Singapore 38,577 46,570 53,117 54,578 55,980 56,287

Brunei 28,454 32,063 42,431 42,445 44,560 41,424

Malaysia 7,216 8,515 9,962 10,346 10,420 10,784

Thailand 3,947 4,743 5,116 5,391 5,679 5,436

Indonesia 2,359 2,988 3,498 3,564 3,461 3,901

Philippines 1,829 2,127 2,339 2,568 2,707 2,816

Viet Nam 1,232 1,338 1,543 1,755 1,909 2,055

Lao PDR 913 1,079 1,262 1,443 1,613 1,730

Cambodia 735 785 882 952 1,018 1,105

Myanmar 456 686 1,127 1,190 1,209 1,278

Source: ASEAN Secretariat webpage (http://www.asean.org/component/zoo/item/macroeconomic-indicators).

Substantial Progress of Economic Development

30

Upper middle Income country USD 4K-12K

Lower middle Income country USD 1K-4K

High income country USD 12,000-

The Comprehensive Asia Development Plan 2.0 (CADP 2.0)

Joint Media Statement of the 3rd EAS Economic Ministers Meeting on 24 August 2015 in Kuala Lumpur

9. The Ministers welcomed the updates on the activities and research undertaken by ERIA, including the Comprehensive Asia Development Plan (CADP) 2.0: Infrastructure for Connectivity and Innovation…... The Ministers underscored the importance of quality infrastructure and expected CADP 2.0 to contribute to better quality infrastructure in the region.

Joint Ministerial Statement of the 9th EAS Energy Ministers Meeting on 8 Oct 2015 in Kuala Lumpur

2. The Ministers emphasised the need for EAS participating countries to step up efforts towards improving energy efficiency, promoting alternative/renewable energy and clean technologies, and developing high quality energy structure.

Reformulate the conceptual framework for “connectivity and innovation.”

Discuss “the quality of infrastructure” and “the quality of infrastructure projects”

Assess the progress of industrialization and soft & hard infrastructure development in 2011-2015.

Propose a renewed infrastructure development plan for 2016-2025/2030.

Presented to the 3rd EAS Economic Ministers Meeting in Aug 2015 and the 9th EAS Energy Ministers Meeting in Oct 2015.

To be submitted to 10th East Asia Summit on 22 Nov 2015.

31

Theoretical Backgrounds of the CADP / CADP 2.0

• 2nd Unbundling

• Fragmentation Theory

• New Economic Geography

• Technology Transfer and Innovation

32

1st and 2nd Unbundling Different Industrial Policy Focus

Period Policy Containerization ICT Revolution Production Unbundling

1950s Import substitution

1960s Export promotion Transatlantic container service 1st unbundling

1970s (Trade costs for goods)

1980s Container ship (5,000TEU) VAN UN/EDIFACT (Standardization of EDI)

2nd unbundling (Trade costs for tasks, ideas)

1990s WTO (1995) Commercial Internet Services

2000s FTAs, AEC Container ship (10,000TEU)

• 1960s-: The decrease in transportation costs, or trade costs for goods (1st Unbundling)

Industrial policy for building a domestic supply chain

• 1980s-: The decrease in coordination and knowledge transfer costs, in addition to transportation costs (2nd Unbundling)

Industrial policy for joining a supply chain

Source: based on Baldwin (2007, 2011) 33

The Fragmentation Theory

• Fragmentation enables to • exploit differences in location advantages between countries/regions at different

development stages. • narrow development gaps

• Two conditions to realize fragmentation of production works 1. The savings in production costs in a fragmented production block should be large

enough. 2. Costs of the service link that connects remotely located production blocks must

not be too high.

Source: CADP 2.0, originally Kimura..

34

New Economic Geography Agglomeration Forces and Dispersion Forces

• Reduction in trade cost between the Core and the Periphery generates both agglomeration forces and dispersion forces. – Positive and negative agglomeration effects – Differences in resource endowments

• Mobility in production blocks and labor. • Need to control agglomeration and dispersion forces.

– Core: efficient industrial agglomeration – Periphery: improvement of location advantages to utilize dispersion

forces 35


Technology Transfer and Innovation

• Three sources of technological information for local firms (i) Domestic leading multinational and local buyers and suppliers (ii) Domestic knowledge stocks with universities and research institutes (iii) Foreign buyers and suppliers

• Process innovation may occur mainly with (i) in industrial agglomeration. – Form a critical mass of inter-firm transactions in a sizeable industrial agglomerations.

• Product innovation will need (ii). – Build up R&D capabilities. – Urban amenity for human resource development.

36

Source: CADP 2.0, based on Kimura (2015)

Four Layer of Transactions in Production Networks

Layer 1 within Agglomeration

Layer 2 Within subregion (ASEAN)

Layer 3 Within region (East Asia)

Layer 4 Between region (Global)

Lead time Within 2.5 hours 1 to 7 days 1 to 2 weeks 2 weeks to 2 months

Typical Transaction Frequency

More than once in a day

More than once a week

Once a week Less than once a week

Major Transportation Mode

Truck Truck/Ship/Air Ship/Air Ship/Air

Trip Length Within 100 km 100-1,500 km 1,500-6,000 km More than 6,000 km

Source: CADP 2.0, Originally in Kimura (2009), modified.

• Layers 1 and 2 are time-sensitive. • Weights of four layers depends on various elements such

as economic and policy environments, 37

Three Tiers of the CADP (2010) The Degree of Involvement in Production Networks

• Tier 1 – Countries/regions that are already in production networks

and where industrial agglomerations have started to form.

• Tier 2 – Countries/regions that are not yet fully integrated into

quick and high-frequency production networks.

• Tier 3 – Countries/regions that are not likely to come into quick

and high-frequency production networks in the short run but would like to provide a new framework for industrial development with the development of logistics infrastructure as a trigger.

38

A New Development Strategy and the Quality of Infrastructure

Connectivity

Medium grades High grades Turnpike connectivity

Innovation

Process innov. Product innov.

Under-developed economy before industrialization

Hock up with global value chains (the 1st unbundling): resource-based/labor-intensive industries

Participate in production networks (the 2nd unbundling: Jump-start industrialization with machinery industries

Form industrial agglomeration:

Accelerate technology transfer/spillover

Create innovation hub:

Urban amenities

Attract/nurture human resources

[Cambodia, Laos, Myanmar]

[Vietnam, Philippines, Indonesia]

[Thailand, Malaysia, Singapore]


39

Infrastructure for Connectivity and Innovation: The Conceptual Framework

Tier 3: Rural development for creating

business

Tier 2: Coming into production networks

Tier 1: Forming industrial

agglomeration/urban amenities

Infrastructure for connectivity

Medium-grade connectivity for various economic activities - Agriculture/food processing,

mining, labor-intensive industries, tourism, and others

High-grade connectivity to participate in production networks - Dual-modal (cargo, passenger) - Capital city, border area,

connectivity grid - Mitigate border effects - Institutional connectivity / soft

infrastructure for trade facilitation

Turnpike connectivity with other industrial agglomerations - Full-scale port with container

yard/airport for regular carriers and LCC

- Multi-modal (cargo, passenger) - Institutional connectivity for

reducing transaction costs

Infrastructure for innovation

Discovery and development of historical/cultural/natural heritage - Premium tourism - Cultural studies

Urban/suburban development for medium-scale industrial agglomeration - Urban/suburban development plan

for a critical mass of industrial agglomeration

- Economic infrastructure services (special economic zones, electricity, water, and others)

Metropolitan development for full-scale industrial agglomeration and urban amenities - Highway system, urban transport

(LRT, subway, airport access) - Mass economic infrastructure

services (industrial estates, electricity, energy, water, and others)

- Urban amenities to nurture/attract intellectual people

Source: CADP 2.0.

40

Appropriate grades for hard and soft infrastructure in Tier 3, Tier 2, and Tier 1

Positive effects/externalities: e.g., technology transfer, human resource development Negative effects/externalities: e.g., environmental/social Impacts, disaster prevention

Quality Infrastructure and Infrastructure Project

41

Source: CADP 2.0.

The Logistics Performance Index and GDP Per Capita

1.5

2.0

2.5

3.0

3.5

4.0

4.5

300 3,000 30,000

LPI 2012 ASEAN 2012 CLMV 2007 Fitted line (LPI 2012)

Singapore

Malaysia

Thailand

Indonesia

Philippines

Viet Nam

Cambodia

Lao PDR

GDP per capita (2012, Nominal USD)

LPI 2012

Myanmar

Hong Kong

Korea

China

India

LPI = logistics performance index. Source: CADP 2.0, originally ERIA (2010), updated. LPI is from the World Bank Website. 42

Cluster Development and Skilled Employment

Italy

GermanyUnited States

Netherlands

MalaysiaJapan

Singapore

Finland

Austria

Luxembourg

Ireland

Canada

Sweden

Belgium

Brazil

China

Indonesia

India

Korea

FranceDenmark

Lao PDR

Costa Rica

Thailand

Portugal

Australia

Mexico

Czech Republic

Cyprus

Malta

Philippines

New Zealand

Spain

Chile

Cambodia

Slovak Republic

Romania

Viet Nam

Estonia

Colombia

Latvia

Lithuania

HungaryPoland

Uruguay

Bolivia

Slovenia

Peru

Croatia

Argentina

Paraguay

GreeceBulgaria

Myanmar

Venezuela

0

10

20

30

40

50

60

70

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State of Cluster Development (1 = non-existent, 7 = widespread in many fields )

Source: CADP 2.0. Depicted from World Economic Forum (2015). 43

City Size with Night-time Light from Satellite

Source: CADP 2.0. 44

ASEAN Urban Agglomerations with 500,000 Inhabitants or More in 2030

Source: CADP 2.0, Data from World Urbanization Prospects, the 2014 revision, United Nations. 45

CADP 2.0 Prospective Projects by Subregion and by Country

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Chi

na, M

yanm

ar

Chi

na, T

haila

nd

Chi

na, V

iet N

am

Total 761 517 170 72 2 4 68 116 61 25 87 77 115 152 7 20 1 2 4 2 2 3 1 1 1 2 1 1 3 1 4

Tier 1 222 146 54 21 1 1 28 20 25 47 81 15 2 1 2

Tier 2 432 319 75 37 1 4 65 44 29 1 84 46 64 65 6 4 1 1 4 1 1 1 1 1 1 1 2 1 4

Tier 3 107 52 41 14 2 44 32 4 3 6 4 6 1 1 1 2 1

Road/Bridge 222 163 49 10 3 31 20 20 3 19 30 20 58 2 6 1 2 2 1 2 2

Railway 120 85 22 13 10 15 4 3 8 11 39 21 3 2 1 2 1

Port/Maritime 73 33 26 14 1 5 28 3 2 9 6 13 5 1

Other Transportation 7 5 2 4 2 1

Airport 52 22 22 8 13 5 4 4 12 6 7 1

Industrial Estate/SEZ 45 41 1 3 2 4 9 1 11 12 1 4 1

Energy/Power 169 113 33 21 2 15 30 20 10 24 10 15 28 5 1 1 1 2 1 1 1 1 1 1 1

Telecommunication 10 10 3 3 2 1 1

Urban Development 9 6 2 1 1 2 1 2 3

Water Supply/Sanitation 36 22 12 2 7 1 2 5 5 5 10 1

Others 18 17 1 1 1 4 2 2 7 1


Selected Representative Infrastructure Projects in the Mekong Subregion


Selected Representative Infrastructure Projects in Mekong India Economic Corridor (MIEC) and East India


Selected Representative Infrastructure Projects in the IMT+ Subregion

IMT+ = Indonesia-Malaysia-Thailand Growth Triangle and surrounding regions. Source: CADP 2.0. 49

Selected Representative Infrastructure Projects in the BIMP+ Subregion

BIMP+ = Brunei Darussalam-Indonesia-Malaysia-Philippines and surrounding regions. Source: CADP 2.0. 50

0.854

0.856

0.858

0.860

0.862

ASEAN EAS 16

Economic Impacts of All -All Improvements (2030, Impact Density)

Economic Impacts on GINI (2030)

• Economic impacts of All-All improvements (infrastructure development, NTB reduction, and SEZ development) will be huge.

• Regional disparity will be reduced.

51

Note: Not available for North Korea and Timor-Leste due to data availability. Not available for Jammu and Kashmir due to data availability. Source: IDE/ERIA-GSM simulation result.

Quantitative Assessment on Hard/Soft Infrastructure Development The Geographical Simulation Analysis for CADP 2.0

52

Economic Impacts in Ten Years Cumulation (2021-2030, %)

Economy MIEC EWEC NSEC IMT IMT+ BIMP-EAGA

BIMP-EAGA+

BIMSTEC All Infra. NTB SEZ All-All

Australia 0.52 0.00 0.02 0.08 0.15 0.22 0.33 0.65 1.28 0.84 -0.04 2.10

Bangladesh 0.48 0.00 -0.01 -0.04 -0.05 -0.05 -0.07 11.45 11.51 8.48 0.02 20.56 Bhutan 5.84 0.00 -0.03 0.06 0.07 0.02 0.07 3.91 104.90 4.75 -0.01 109.81 Brunei Darussalam 1.95 0.01 -0.29 0.39 0.61 1.00 1.41 1.93 5.32 82.07 -0.12 88.33 Cambodia 144.45 0.00 -0.58 -0.02 -0.02 -0.03 -0.06 -0.26 24.86 8.44 125.39 160.30 China 0.15 0.00 0.00 0.00 -0.01 -0.01 -0.02 0.06 0.10 7.74 0.02 7.99 India 0.56 0.00 0.00 0.02 0.03 0.02 0.03 6.61 6.59 12.21 -0.01 19.28 Indonesia 0.07 0.00 0.00 2.20 35.01 27.30 57.88 0.07 91.87 25.86 0.03 118.50 Japan 0.52 0.00 0.02 0.10 0.12 0.18 0.22 0.57 1.39 1.29 -0.03 2.67 Korea 0.71 0.03 0.03 0.11 0.15 0.33 0.36 0.55 1.74 2.44 -0.03 4.17 Lao PDR -1.58 25.55 2.69 -0.03 -0.04 -0.03 -0.04 -0.09 61.85 12.85 79.06 156.58 Malaysia 1.64 0.04 0.02 0.54 0.75 0.25 0.69 1.47 3.46 54.36 -0.01 58.55 Myanmar 9.80 44.27 5.54 -0.05 -0.06 -0.07 -0.09 76.70 89.19 25.35 70.54 193.82 Nepal 0.13 0.00 0.00 0.00 0.00 0.00 0.00 1.25 6.10 8.33 0.00 14.69 New Zealand 0.56 -0.01 0.03 0.09 0.13 0.17 0.24 0.71 1.29 0.28 -0.06 1.52 Philippines 0.19 0.00 -0.01 -0.04 0.46 0.97 13.08 0.07 13.76 25.10 0.03 39.82 Singapore 3.74 0.15 0.04 1.25 1.50 0.67 1.36 4.86 7.86 6.06 -0.11 13.92 Sri Lanka 6.43 0.00 0.01 0.00 0.01 -0.01 0.03 6.15 8.20 29.30 0.02 40.82 Taiwan 0.75 0.04 0.06 0.12 0.16 0.34 0.40 0.64 1.80 1.79 -0.04 3.57 Thailand 4.64 0.02 0.51 0.11 0.22 0.05 0.18 0.44 7.86 41.68 0.02 51.58 Viet Nam 57.57 1.05 -0.20 -0.01 -0.02 -0.03 -0.03 0.20 17.14 47.47 56.86 124.81 United States 0.27 0.00 0.00 0.02 0.04 0.04 0.04 0.19 0.52 0.88 -0.01 1.39 Russia -0.05 0.00 0.00 0.00 0.00 0.00 0.01 -0.03 -0.03 0.56 0.00 0.54 European Union -0.15 0.00 0.01 0.07 0.09 0.09 0.15 0.01 0.86 0.88 -0.03 1.72 ASEAN10 6.11 1.34 0.23 1.06 13.37 10.37 23.16 2.92 42.08 31.19 6.33 80.87 EAS16 1.02 0.15 0.04 0.16 1.52 1.23 2.65 1.25 5.93 7.87 0.68 14.73 World 0.34 0.04 0.01 0.08 0.49 0.40 0.84 0.46 2.20 2.94 0.19 5.41

• Both physical infrastructure and reducing institutional and regulatory barriers have large impact on GDP in ASEAN.

(a) (b) (c)

Industrial Development in the Mekong Subregion

53

Business Strategies in CLMV

• Resource seeking

• Market seeking

• Export base (Generalized System of Preferences (GSP), Everything but Arms)

• Thailand plus One

Border

Capital/Knowledge-intensive Process

Labor-intensive Process

Materials, Parts

Intermediate Goods Final Goods

Thailand CLM

54

Yangon

Mawlamyaing

Dawei

Myawadi Khon Kaen

Vientiane

Savannakhet

Bangkok

Phnom Penh

Sihanoukville

Mekong-India Economic Corridor (MIEC)

East West Economic Corridor (EWEC)

Ho Chi Minh

Economic Corridors in the Mekong sub-region

Southern Economic Corridor

SEZ SEZ

SEZ SEZ

SEZ

SEZ

SEZ

55

Special Economic Zones (SEZs) along the Economic Corridors in the Mekong sub-region

Thilawa Savan-Seno

Dawei Poi Pet

Koh Kong

Sihanoukville

Phnom Penh

Industrial Estates 27 km2 + 8 km2

56

Debottlenecking of Connectivity along the Economic Corridors in the Mekong Subregion

Neak Loeung Bridge

2014 2015

2014

2015

©JETRO

2015

57

FDI Trend in CLMV

58

Inward FDI Stock in CLMV

Source: UNCTAD

Cambodia, 3.2

Lao PDR, 3.2

Myanmar, 2.7

Vietnam, 3.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

20062007200820092010201120122013

Bill

ion

USD

Inward FDI Stock in CLMV (2006=1)

Cambodia

Lao PDR

Myanmar

Vietnam

Cambodia 9%

Lao PDR 2%

Myanmar 13%

Vietnam 76%

Inward FDI Stock in CLMV, 2013

Source: UNCTAD

59

Thailand’ Outward FDI Stock in CLMV

Source: UNCTAD

Cambodia 10%

Lao PDR 4%

Myanmar 60%

Vietnam 26%

2006

Cambodia 9%

Lao PDR 21%

Myanmar 32%

Vietnam 38%

2012

60

Cambodia, 452

Lao PDR, 1 009

Myanmar, 1 527

Vietnam, 1 850

-

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

2006 2007 2008 2009 2010 2011 2012

Mill

ion

USD

FDI stock by destination

2. FDI from Thailand to CLMV

61

Examples of Thai Firms in Labor-intensive Sectors Invested in CLMV

Source:: Rattanakhamfu & Tangkitvanich (2015) (Depicted by authors, from interviews with industry associations and firms)

62

Investment Climate Survey in CLMV Profile of the Respondents

Number of respondents

Year of establishment

Before 1990 0 0.0% 0 0.0% 4 13.3% 0 0.0% 4 3.2%

1990s 3 10.0% 4 13.3% 5 16.7% 8 22.2% 20 15.9%

2000s 6 20.0% 10 33.3% 1 3.3% 10 27.8% 27 21.4%

2010s 20 66.7% 16 53.3% 18 60.0% 14 38.9% 68 54.0%

Unknown 1 3.3% 0 0.0% 2 6.7% 4 11.1% 7 5.6%

Capital structure

100% Local 0 0.0% 1 3.3% 0 0.0% 5 13.9% 6 4.8%

Joint Venture 4 13.3% 9 30.0% 6 20.0% 12 33.3% 31 24.6%

Local & Thai 0 0.0% 5 16.7% 4 13.3% 8 22.2% 17 13.5%

Local, Thai & Other 0 0.0% 0 0.0% 1 3.3% 1 2.8% 2 1.6%

Thai & Other 2 6.7% 4 13.3% 0 0.0% 3 8.3% 9 7.1%

Foreign 2 6.7% 0 0.0% 1 3.3% 0 0.0% 3 2.4%

100% Foreign 26 86.7% 20 66.7% 24 80.0% 19 52.8% 89 70.6%

Thai 8 26.7% 8 26.7% 8 26.7% 19 52.8% 43 34.1%

Japan 10 33.3% 12 40.0% 9 30.0% 0 0.0% 31 24.6%

Other 8 26.7% 0 0.0% 7 23.3% 0 0.0% 15 11.9%

TOTALCAMBODIA LAO PDR MYANMAR VIETNAM

30 30 30 36 126

Source: Umezaki, et al (2014) (Originally, ERIA Survey 2014).

63

Investment Climate Survey in CLMV Motivation for FDI and the Choice of Destination

Source: Umezaki, et al (2014) (Originally, ERIA Survey 2014).

Number of respondents

Reasons for establishing the subsidiary abroad (multiple answers)

300 Bt. Minimum wage hike in Thailand 3 10.0% 5 16.7% 0 0.0% 1 2.8% 9 7.1%

Lower wages 25 83.3% 22 73.3% 2 6.7% 8 22.2% 57 45.2%

New market opportunity 2 6.7% 9 30.0% 26 86.7% 33 91.7% 70 55.6%

Access to raw materials 0 0.0% 4 13.3% 0 0.0% 2 5.6% 6 4.8%

Environmental issues 2 6.7% 11 36.7% 0 0.0% 0 0.0% 13 10.3%

Others 0 0.0% 1 3.3% 4 13.3% 0 0.0% 5 4.0%

Unknown 1 3.3% 0 0.0% 2 6.7% 1 2.8% 4 3.2%

Reasons for choosing the host country (multiple answers)

Lower wages 25 83.3% 19 63.3% 3 10.0% 47 52.2%

New market opportunity 4 13.3% 8 26.7% 26 86.7% 38 42.2%

Access to raw materials 2 6.7% 3 10.0% 1 3.3% 6 6.7%

Environmental issues 0 0.0% 10 33.3% 1 3.3% 11 12.2%

Others 17 56.7% 5 16.7% 2 6.7% 24 26.7%

Unknown 1 3.3% 0 0.0% 1 3.3% 2 2.2%

Gains realized after the establishment: 1) very poor; 2) poor; 3) fair; 4) good; and 5) very good.

Lower wages 4.10 10 3.79 29 3.08 13 3.47 19 3.62 84

New market opportunity 2.40 5 3.28 29 4.11 18 4.05 19 3.61 76

Access to raw materials 2.33 6 2.85 27 2.63 8 3.19 16 2.75 63

Environmental issues 5.00 1 3.70 27 3.20 10 3.29 14 3.50 54

Others 1.00 1 3.75 4 1.50 2 n.a. 0 3.25 16

n.a.

TOTAL

30 30 30 36 126

n.a.

n.a.

n.a.

n.a.

n.a.

CAMBODIA LAO PDR MYANMAR VIETNAM

• CL: Resource Seeking (low-wage workers) • MV: Market Seeking • C: GSP • L: Environmental Issues

64

A Case of A Thai Food Processing Firm Production Network Linking HQ in Thailand, its Subsidiary in CLMV, and Local Farmers

Source: Derived from Jeenanunta and SIIT Team (2015) 65

Feed/Farming in CLMV Food Processing

Headquarters in Thailand

Border

Technical and Managerial Supports from Thailand

Technical Supports to Farmers

Product Development

Inter-firm relationship Intra-firm relationship

Subsidiary in CLMV

Knowledge Transfer Process by A Thai Food Processing Firm in CLMV Feed/Farming Food Management

Objectives of FDI Resource Seeking (Land, HR, Raw Materials)

Market Expansion (Saturated Thai Market)

Knowledge Fertilizer, Chemicals, Scheduling, SPS Standards, New Design of Farm House, etc.

Food Processing Technologies Products (Local Taste & Preference: Reverse Knowledge Transfer)

Factory Operation (Logistics and Retail)

Set-up of foreign affiliate

Support Team from TH Support Team from TH Factory Staff from TH (for short period)

Operation & Accounting Managers from TH Installation of standardized Accounting & HRM system (Outsourcing of Logistics)

Training in Thailand

Training of Trainers Training Center in TH Training of Trainers

Training Center in TH TH Univ. (& CP All’s univ. in the future) for employees after working for 10+ years. Internship from CLMV

Training in CLMV Sending Thai Trainers to train local farmers Technical Advice to Farmers MOU with MM on Chicken Farming Training in MM by TH

R&D R&D on Local Race in KH & VN Learning Techniques for Egg Incubation from KH

Product Development for Local Markets in KH & MM


Implications from A Case of Thai Food Processing Firm

• Key Factors Promoting Thailand-CLMV Production Networks • CLMV’s FDI promotion policy: 100% foreign ownership was allowed.

• Stable political condition

• Infrastructure (electricity, energy, road)

• Learning capacity of employees to receive knowledge transfer

• Language, religion, and other cultural similarities

• Border connection and logistic advantage

• Movement of people, knowledge, and technology

• Economic, Social, and Environment Impacts • Education of employees and farmers through technology transfer process & spillover

effects

• Introduction of more environmental friendly and sustainable measures and standards

• Changing consumer behavior (safety, hygienic requirements)


Technology Transfer and Local Firm Capacity Building in Production Networks

68

Production Networks as Knowledge Transfer Channel

• Local firms, even if they are domestic-oriented, can have more opportunities to learn new knowledge from MNCs/large firms by entering into any part of international production networks.

Buyer (MNC, large)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

Buyer (Supplier)

69

Present Circumstances

• Buyer-driven technology transfer and collaboration are beneficial especially to local suppliers in developing countries because their internally available resources are very scarce.

• Local firms in developing countries want technical supports from leading buyers, but these firms have difficulties in entering into collaborative relationships with buyers. – Before entering into collaborative relationships with their buyers, local

suppliers need technology transfer or the learning process from the experience of their buyers (Molina, Lloréns-Montes, and Ruiz-Moreno, 2007).

• Most of the local suppliers have difficulties in meeting the minimum requirements for quality, cost and delivery (QCD) control that leading buyer firms specify.

Technical Supports from Leading Buyers

Local Suppliers (Lack of Capability) X

70

Associations between Production Networks, Managerial Practice, and Firm Performance

Firm Performance

Production Networks Managerial Practice

Technological and Managerial Upgrading

Technology transfer Quality Control

71

Practical Focus: Quality Control Activities

Japanese TQM or KAIZEN (Continuous Improvement) – 5S: seiri (sort), seiton (set), seiso (shine), seiketsu (standardize), and shitsuke

(sustain). • A method for instilling workplace discipline into employees.

– QCC (QC Circle): A small group activity for quality improvement • A tool for not only shop-floor management but also employee training on problem solving

– Yokotenkai or Yokoten: Horizontal deployment of better practices or sharing lessons from QCC activities and copying successful practices from place to place.

Buyer’s minimum requirements for QCD and private/public assistance Q: Quality → Technical assistance, HRD C: Cost (An advantage of firms in developing countries) D: Delivery → Infrastructure development

72

Technology Transfer to Local Firms and Upgrading

73

Product & Process Upgrading

Tech Transfer

Kaizen Activities

Tech Support from Buyer

5S, Quality Control Circle

Sort (整理) Straighten (整頓) Shine (清掃) Standardize (清潔) sustain the discipline (しつけ)

Tech Support from Supplier

Focal Firm

Tech Transfer Buyer Supplier

Source: ERIA 2014 Survey

Knowledge Transfer within and between Firms

• Suppliers active in Kaizen are more likely to receive knowledge transfer from their buyers.

• Buyers active in Kaizen are more likely to transfer knowledge to their suppliers.

• Firms receiving knowledge from their buyers are more likely to provide knowledge to their suppliers.

• Firms assimilating external knowledge within the firms (Yokoten) are more likely to provide knowledge to their suppliers

Buyer Supplier Group

Group

Group

QCC Yokoten

5S

Kaizen activities

Focal Firm

74

Reference

• ERIA www.eria.org

Thee Comprehensive Asia Development Plan 2.0 (CADP 2.0)

Comprehensive Asia Development Plan

ASEAN Rising: ASEAN and AEC beyond 2015

• ASEAN Secretariat http://www.asean.org/

ASEAN Integration Report 2015

ASEAN Economic Community 2015 Progress and Key Achievements

ASEAN Economic Community Blueprint

75

http://www.eria.org/

http://www.asean.org/

http://www.asean.org/

Thank you very much for your attention

Comments are welcomed. [email protected]

Please visit ERIA website

www.eria.org

76

Documents

The Economic Community of ASEAN - Observatorio · The Economic Community of ASEAN ... Progress of the ASEAN Economic Community ... •SME Development •Initiative for ASEAN