Supporting the Growth and Spread of International Production Networks in Asia: How Can Trade Policy Help?
Menon, Jayant | May 2013
Abstract
Free trade agreements (FTAs) have been proliferating in Asia for more than a decade.
International fragmentation of production and the resultant cross-border production
networks have been growing for a much longer period. Although FTAs are not necessary
for the formation of production networks, can they support their further growth or
spread? Empirical studies of this issue have produced mixed results, presumably
because the causality can run either way. Therefore, this paper employs a qualitative
approach that carefully examines the characteristics of both product fragmentation trade
and FTAs in Asia to ascertain possible linkages. We find the relationship to be tenuous
for a number of reasons. First, most product fragmentation trade already takes place at
zero or low tariffs because of the International Technology Agreement, various dutydrawback
schemes, and the location of most multinationals in duty-exempt export
processing zones. Second, much of fragmentation trade is unlikely to benefit from FTA
tariff concessions given the inability to satisfy rules of origin (ROOs) because of limited
value-addition and/or classification problems relating to tariff-line shifting. Third, almost
all FTAs involving Asian countries are relatively shallow, limiting their ability to promote
production networks. Even if they were to deepen over time, it is difficult or costly to
remove the non-tariff barriers that affect this trade in a preferential manner. For these
reasons, it would be more useful if FTA preferences were multilateralized, and other
accords were offered to all on a most-favored nation basis. This, combined with national
liberalization actions that deal with incumbency issues irrespective of nationality, would
be the best way to support the growth of production networks involving current
participants and the spread to new ones.
Citation
Menon, Jayant. 2013. Supporting the Growth and Spread of International Production Networks in Asia: How Can Trade Policy Help?. © Asian Development Bank. http://hdl.handle.net/11540/2322. License: CC BY 3.0 IGO.Keywords
Trade Facilitation
Trade
Economic integration
Regional Economic Integration
Free Trade
Trade Agreements
Trade Policy
Economic Development
Economics
International Economics
Economic planning
Economic structure
Growth policy
Trade relations
Trade policy
Trade policy
Economic development
Regional economics
Economic forecasting
Economic development projects
Success in business
Business
Free trade
Business
Economics
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