Trade in Developing East Asia: How It Has Changed and Why It Matters

Cristina Constantinescu,Aaditya Mattoo,Michele Ruta

doi:10.11644/kiep.eaer.2018.22.4.350

Abstract

East Asia, for long the epitome of successful engagement in trade, faces serious challenges: technological change that may threaten the very model of labor intensive industrialization and a backlash against globalization that may reduce access to important markets. A detailed analysis of the evolution of East Asia's trade and trade policy in goods and services leads to the conclusion that how East Asia copes with these global challenges will depend on how it addresses three more proximate national and regional challenges. The first is the emergence of one East Asian country, China, as a global trade giant—accounting for nearly one-seventh of global exports and one-tenth of global imports -- which is fundamentally altering the trading patterns and opportunities of its neighbors. The second is the asymmetric implementation of national reform -- remarkable openness to goods trade and investment coexists with relative restrictiveness of services policies -- which is affecting the evolution of comparative advantage and productivity in each country. The third is the divergence between the relatively shallow and fragmented agreements that regulate the region’s trade and investment and the growing importance of regional and global value chains as crucial drivers of productivity growth.

Highlights

East Asia has for long been a paragon of successful engagement in trade
The first is the emergence of one East Asian country, China, as a global trade giant ‐ accounting for nearly one‐seventh of global exports and one‐tenth of global imports ‐ which is fundamentally altering the trading patterns and opportunities of its neighbors
We apply that framework to data on value‐added, output and trade from the OECD ICIO and Trade in value added (TiVA) and on employment and capital from OECD STAN, WIOD (Release 2013) and UNIDO INDSTAT2.20 We estimate the impact of global value chains (GVCs)‐related trade and non‐GVC‐related trade on labor productivity for the average country in the world, and use interaction terms to investigate whether a differential effect exists for the developing East Asian group

Summary

INTRODUCTION

East Asia has for long been a paragon of successful engagement in trade. Dramatic growth in exports, stimulated by openness to foreign investment, has rapidly expanded incomes and shrunk poverty. Today the increasing backward participation in global value chains by countries like Vietnam is in part the result of China’s growing exports of sophisticated intermediate inputs The rise of both global and regional value chains has been an important driver of productivity growth for developing East Asian countries. ASEAN ‐ the Association of East Asia Nations ‐ which includes all East Asian developing countries except for Mongolia and China ‐ has progressively widened its scope and signed new agreements with third countries such as Australia, New Zealand, India and the Republic of Korea in the 2000s These agreements are still relatively shallow and efforts are underway to negotiate deeper trade rules on investment, services, competition, intellectual property rights protection, and government procurement, as in the context of the Comprehensive and Progressive Trans‐Pacific Partnership (CPTPP).

THE EVOLUTION OF DEVELOPING EAST ASIA’S TRADE

THE IMPLICATIONS OF AND THE POLICY RESPONSE TO THE CHANGING TRADE PATTERN

Findings

CONCLUSION