Abstract
The volume titled Integrating South and East Asia: Economics of Regional Cooperation and Development, comprising 10 chapters and authored by several experts, is the outcome of an Asian Development Bank (ADB) project jointly with Indian Council for Research in International Economic Relations (ICRIER) and the Korea Institute for International Economic Policy (KIEP), to study the relevance of domestic and regional policy or increasing trade and investment between South Asia and Southeast Asia and also challenges faced by South Asia and other small economies to catch up with other emerging countries in the region.
This volume begins with three chapters which provide an overview of the general trends in inter-regional trade and investment between South Asia and East Asia, and examine the potential role of free trade agreements (FTAs) in advancing further integration. Moving from this general exploration of trade and investment integration, the next three chapters examine the potential role of integration in spurring economic development and making trade more inclusive for small economies. The last four chapters, prepared by ICRIER, deal primarily with India and its integration with East Asia. This focus on India is warranted, given the size of India’s economy relative to its neighbours, and its role as the biggest driver of integration in the subregion.
The first chapter by Ganeshan Wignaraja emphasized the role of FTAs in promoting greater regional cooperation between South Asia and East Asian countries. He found that economic integration has greatly benefitted South Asia itself. However, Regional Comprehensive Economic Partnership (RCEP) being a pan-FTA has the potential to facilitate greater integration between South Asia and East Asian countries. The second chapter by Choongjae Cho investigated the causal relationship between trade and FDI flows between India and four East Asian countries, namely, Japan, the Republic of Korea, Singapore and the People’s Republic of China (PRC). He found no causal relations between trade and FDI between India and East Asian countries, whereas, he found the evidence of causal relations between India and Western countries such as the United States of America, the United Kingdom, Germany and the Netherlands. However, he argued that FTAs would contribute to enhanced trade and FDI relationship between India and East Asia and call for further strengthening bilateral efforts to promote value chain linkages between them.
In the third chapter, Jayant Menon explored the possible policy instruments that can facilitate product fragmentation among South Asia and East Asian countries. He extensively reviewed the role of FTAs, rules of origin (ROO), International Technology Agreement (ITA) and trade facilitation measures in promoting production networks. He claimed that FTAs may not be the right policy instruments to spread the production process due to low utilization rate of FTAs in parts and components goods trade. Besides, he also emphasized the challenges in meeting the ROO due to the nature of production process at value added state in each destination. Whereas, trade facilitation and trade related behind-the-border reforms would greatly benefit the value chain activities. Menon recommended that national-level liberalization and regulatory reforms in services and investment would address market access issues and barriers to entry to promote production network among the regions.
DiCaprio and Suvannaphakdy in their forth chapter investigated the scope of least developed countries (LDCs) of South Asia and East Asian countries involvement in global value chains (GVCs) participation and its benefits of regional integration. They explored two sets of LDC countries; one with exporting to value chain sectors which have comparative advantages, and other set of countries are exporting to value chain sectors but facing obstacles and lack in competitiveness. They gave different set of policy recommendations for two groups of LDCs and suggested the need for promotion of trade capacity, FDI, infrastructure, trade finance, and legal framework and regulations, engaging the private sector, and public–private dialogues. They also emphasized that RCEP has a better potential to offer opportunities for LDCs and also emphasized the need for FTAs to directly address issues associated with the incorporation of LDCs. The fifth chapter by Paudel and Wagle looked at the potential bilateral trade between Nepal and its trade partners. They argued that compared to other landlocked country, Nepal enjoys relatively high export sophistication without strong manufacturing-led export or natural resource-oriented export. They argued that it is the supply-side bottlenecks and logistic challenges that distort the trade rather than domestic and foreign trade policy.
The sixth chapter examined the impact of Multi-Fibre Arrangement (MFA) on structural adjustment in the clothing industry in Sri Lanka by Athukorala and Ekanayake. They also examined how the complexities of country- and product-specific system of MFA quotas have shaped global trade patterns and export performance of exporting countries. They argued that ‘due to growth and structural adjustment over three decades through engagement in apparel value change helped the Sri Lankan apparel industry to face competitive market conditions following the termination of MFA’ (p. 185). In addition, having strong image of corporate social responsibility (CSR), improved environment and social standards and other non-price factors such as the human capital base, foreign trade and investment regimes, etc., improved the overall business environment for apparel industry in Sri Lanka.
In the seventh chapter, Kathuria, Kedia and Balakrishnan made a significant contribution to define and investigate high value manufacturing (HVM) in India. The authors argued that promoting HVM in India is a serious challenge and proposed a two-pronged strategy. The first addresses the poor condition of infrastructure and labour market reforms that focus on flexibility, whereas the second is to promote selected HVM industries in clusters. They also emphasized that moving up the value chain and upgrading within the value chain is a long drawn-out process and requires a combination of policy measures.
The eighth chapter reviews the relevant theoretical and empirical literature on regional integration as well as an analysis of trends and patterns of trade between India and East Asia by Tewari, Veeramani and Singh. They used both primary and secondary information for their analysis. They found that several of the determinants of vertical specialization and production sharing in GVCs as identified in the literature are missing in Indian manufacturing. Levels of export-oriented FDI are low in India, and so are levels of local value addition. They also interviewed some of the firms and raised some of the issues like how these deterrents affect their decisions and how they respond to them. They also presented a hopeful picture of a manufacturing sector that is trying to upgrade its technology and is making headway in this regard. They also argued that FTAs do not bring FDI inflows rather promote export to India’s large market from their home bases. They claimed that it is because of India’s long history of hot-house industrialization under heavy tariff protection, an FTA with India enables the advanced country to export to India at little or no tariff without having to engage in costlier tariff-jumping FDI.
Anwarul Hoda and Durgesh Kumar Rai in the ninth chapter seek to investigate the main factors responsible for India’s poor performance in the global economic arena, and its low participation in international production sharing agreements in comparison with PRC, Malaysia and Thailand. They highlighted several major factors that are needed to stimulate international production sharing such as taxation incentive, tariff barriers, inverted tariff structure, infrastructure development, custom procedure, labour laws regulations, issues in exit and entry barriers and so on. They argued that these measures would ‘stimulate FDI inflows into manufacturing in India and also improve the environment for domestic investment in manufacturing, besides, strengthening MSMEs in India’ (p. 335). In the last chapter, Arpita Mukherjee and Tanu M. Goyal used both primary data from a survey of a purposive sample of stakeholders in India and Thailand and secondary data from various official domestic and international sources on various trade and regional cooperation agreements. They found that services sector contributes significantly to the GDP and employment in East and South East Asian countries, including India. They investigated how services can be traded within the region and how it can lead to improved efficiency, market integration and creation of value chains. They primarily focused on bilateral trade between India and Thailand in the context of the CECA. They found commonalities as well as differences between the two countries in their approach to services trade. Both have restrictive FDI regimes and are selective about the movement of people under Mode 4 of the GATS.
To summarize, this volume embarks on an extensive analysis to address the issues and challenges in integrating South Asia and South East Asian countries. It also addresses a series of policy intervention in terms of promoting regional value chains between and within the region. The analysis based on both primary- and secondary-level data add significant value to the policies. The volume has also given future directions through which both South Asia and South East Asian countries can drive regional integration, and what are the priority policies that need to be addressed both at industry and country level to facilitate the regional integration. This volume leaves further scope to extend and think beyond the text, and stimulates the appetite for further research. This book will be a valuable resource to students, scholars, researchers, industry stakeholders and policy makers having an interest in regional integration, value chain linkages, and general South Asia and South East Asian economies in enhancing the knowledge of the subject.