THE UNITED STATES, THE EUROPEAN UNION-15 AND JAPAN AS MERCHANDISE EXPORT MARKETS FOR ASEAN, CHINA AND INDIA 1. Highlights

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1 Secretariat Studies unit brief Studies Unit Paper No December 26 THE UNITED STATES, THE ROPEAN UNION-1 AND JAPAN AS MERCHANDISE EXPORT MARKETS FOR, CHINA AND INDIA 1 Highlights The principal forces in world trade: the -1, the and with a one-half share of both global exports and global imports in 2. Trilateral trade patterns: lower share of world exports, higher import demand and, in the case, substantial trade deficits. s and s exports: modest expansion and declining shares in the, and between 199 and 2. : fast rising share of exports in, and multi-fold expansion of export earnings from, the trilateral markets. The and the : more dominant as markets for s exports and the two top (but declining) markets for s and s. : lower demand growth for ACI exports with gaining a larger market share in the last decade. s competitive performance crowding out and n producers of considerable space in the trilateral markets. s share in total ACI exports to the and contracting from 63 to 34 per cent, and s from 9 to less than 8 per cent. s corresponding share expanding from 28 per cent in 199 to 37 per cent five years later and to 9 per cent in 2. The trends and patterns of overall merchandise exports, imports and trade balances of ACI economies during were reviewed in two earlier briefs. 2 The following discussion focuses on ACI exports to the, the -1 and, commonly known as the trilateral trade partners. 3 A. Overview of trilateral shares in world trade Global merchandise trade doubled between 199 ($ 1.2 trillion) and 2 ($ 21.9 trillion). Meanwhile, world exports were 14 per cent higher (to $ 1 The views expressed in this brief do not necessarily reflect those of the Secretariat. The cut-off date for data collection for this brief is 7 November Studies Unit Paper No and Studies Unit Paper No , both of December s and s geographical trade flows were extracted from UNCOMTRADE data to ensure comparability when product-specific trade transactions are discussed in future briefs. s geographical trade flows were based on the trade database at the Secretariat as UNCOMTRADE does not have a complete coverage of countries trade.

2 2 1.3 trillion in 2) and world imports increased by 19 per cent (to $ 1.73 trillion). The -1, the and (until overtaken by in 24) 4 were the largest global traders with collectively 6.7 per cent of world exports in 199 and 49.7 per cent in 2 (Figure 1 at the end of text). As suppliers, however, their combined market share was maintained at respectively.9 and 4.3 per cent of world imports. The enlarging deficits in trilateral trade originated mostly from the whose deficit of $.83 trillion was equivalent to 48 per cent of import value in 2. However, the deficits were as much as $ 3. trillion (or 43 per cent of import value) for the period 2-2. Notably, intra-industry trade or trade under supply-chain subcontracts with corporations accounted for a large proportion of imports. and, to a lesser extent, the have generally recorded a trade surplus which, in the case of, totaled $ 11 billion (or 17 per cent of export earnings) during 2-2. The corresponding figures for the were $ 182 billion and 1.1 per cent. B. Trilateral markets for exports The, the and are the three largest trade partners of (Figure 2 and Table 1). However, their markets for exports were shrinking by around one-fifth in each case in the last decade. That reflected the intensified competition faced by the region s suppliers in world trade and s less favorable economic conditions in the last decade. In 199, for example, the trilateral partners took in 48 per cent (or $ 142 billion) of s exports but this share decreased to 38 per cent (or $ billion) in 2. In absolute value, those proportions represented an increase of some 7 per cent in export earnings. This was, however, much slower than the expansion in world exports (1 per cent) or in s and s during the same decade. 4 Long being more important than as a trader, experienced considerable setbacks to external trade in the early 2s. As a result, s trade became larger than s in 22 and in However, overtook both and in terms of trade value in 24. If itself is counted as a single trade partner, then is the largest export market and, from the 2s, the largest import supplier of the region s own exports and imports respectively. The -1 is regarded as a single trader because its members belong to a single market and monetary union.

3 3 C. Trilateral markets for n exports The trilateral share of s exports also decreased by about one-fifth, from 2 per cent in 199 to 41 per cent in 2 (Figure 3) but n export earnings, respectively at $ 16.4 and $ 42. billion, were 1.6 times higher. Such growth was considerably faster than that of world exports and of exports to the trilateral trade partners. Comparatively, however, s share of n exports went down more steeply, from 7 to 2 per cent between 199 and 2. This decline was offset, however, by a slower fall of 14 per cent in s much larger export share in the plus the, from 4 and 39 per cent respectively. Consequently, n earnings from those two markets were up by 1.8 times (from $ 14.2 billion in 199 to $ 4 billion in 2). D. Trilateral markets for s exports The, the and became a larger market with 48.6 per cent (equivalent $ 72.3 billion) of s exports in 199 and one-half ($ billion) in 2 (Figure 4). This is a sharp contrast to the case of s and s. s export surge yielded a fourfold increase in earnings, several times faster than the growth in global exports, or in both and n exports to the same three markets. Even more significant, however, is s gain of one third in export market shares in the plus the : 29. per cent (or $ 43.9 billion) in 199 and 39.1 per cent (or $ billion) in 2. As a result, s exports to those two markets were higher by.8 times. This more than offset a steep fall in s share of s exports, from 19 to just 11 per cent between 199 and 2 (Figure 4). E. as an ACI export market In absolute terms, ese demand for ACI exports went up by about 117 per cent between 199 ($ 73.4 billion) and 2 ($ 19.2 billion). This rate was one-half as fast as that of the or the, each being 2.2 times higher. That modest expansion accounted for s declining share: from 32 to 24 per cent of ACI exports to the trilateral markets between 199 and 2. Notably, still gained more space than and in the slowergrowing ese market. The country s exports to had in fact been onethird less than s in 199 but s share of ACI exports to almost doubled from 39 per cent in 199 to 3 per cent in 2. Those proportions represented a twofold increase in earnings, from $ 28. to $ 84 billion respectively.

4 4 Meanwhile, s share in ACI exports to fell from 8 to 46 per cent, a gain of only 7 per cent in export value, and s from 3 to 2 per cent, a onetenth increase. F. Non-trilateral markets for ACI exports Non-trilateral markets accounted for 2 per cent of exports in 199, and 62 per cent a decade later. The corresponding ratios for were 48 and 9 per cent respectively. In contrast, those markets are slightly less important with a respective share of 1.4 and 49.9 per cent per cent of s exports. was the most dynamic market for exports while, a fast expanding market but from a low starting base. s demand for the region s own exports was slower growing, however. Australia and the Republic of Korea are larger than as a market for goods but with a more moderate expansion (than ) as a demand source in the last decade. The non-trilateral export markets for the ACI economies will be examined in a separate brief. G. Issues and implications Crowding out. Exports from had accelerated in the early 199s although from a low initial base. Another structural shift took place in the early 2s when exports displayed an even higher growth trend. had joined the WTO in December 21. Much less dynamic in their export performance, and were crowded out by of considerable market space in the, the and in the decade past (Table 1 and Figures 2, 3 and 4). In other words, s and n export earnings from the trilateral markets would have been more substantial and their export shares in these markets, sustained or fallen less steeply with a more moderate export surge from in the same markets. Scale and the magnitudes: lost market shares. 6 From a trilateral market angle, gained some1 percentage points in export earnings from the and the between 199 (29 per cent of s total exports) and 2 (39 per cent). Meanwhile, lost 7 percentage points (to 26 per cent of the region s total exports in 2) and, 6 points (to 39 per cent of n exports in 2). 6 A lower market share, denoted by Lall and Albaladejo as complete competitive threat (CT), does not necessarily mean a decline in the absolute amount of export earnings. A slower gain in market share (relative to the competitor s) is termed as partial competitive threat (PT). PT does not necessarily mean an absolute loss of market share, especially when the markets concerned are growing fast enough. But if continued, a rising CT will eventually lead to absolute falls in export earnings as the export markets concerned are not unlimited. Likewise, a higher PT will eventually become a CT if continued over time.

5 s share in the total ACI exports to was, likewise, moving positively and in an opposite direction to s and s, as noted earlier. From an ACI angle, s share in total ACI exports to the and contracted from 63 to 34 per cent between 199 and 2, and s from 9 to 8 per cent. That of, meanwhile, was expanding from 28 per cent in 199 to 37 per cent five years later and to 9 per cent in 2. Scale and the magnitudes: slower export expansion. ACI exports to the, the and were higher by $ billion (or almost one-half) between 199 and 2, and by $ billion (or doubling) between 2 and 2. Percentage-wise, s exports to the trilateral markets grew by almost 4.3 times between 199 and 2, compared to 72 per cent for and 1.6 times for (from a low staring base). In addition, the increase in export earnings from the same three markets achieved by was also substantially much faster than that of or for periods and especially 2-2. In terms of relative contributions, s and s exports accounted for per cent of the expansion in ACI exports to the and, and for virtually 1 per cent in the case of, between 199 and 2 (Figure ). Between 2 and 2, however, s share in the additional ACI exports to the and the fell steeply while that of reached fourth-fifths (and two-thirds in s case). had a higher share of 1 per cent of the expanding ACI exports to the while registered proportionately the most serious setback in this market (Figure ). Substantial opportunity costs. is a smaller exporter so s gains have taken place largely at the expense of. Other things being equal and as an approximation, each percentage point of (lost or gained) relative contribution was equivalent to $.4-. billion in (lost or gained) earnings from the and the, and to $.2 billion in the case of, as of 2. The corresponding figures for 2 were $ billion in (lost or gained) earnings from the and the, and $.7 billion in s case. The higher values of 2 reflected stronger trilateral demand for and higher growth of ACI exports in the 2s. s proven competitiveness. There is now considerable evidence in the literature of s multi-sided competitive strength. That applies to resources-

6 6 based manufacturing exports, and to the export of low-tech, medium-tech and, increasingly, high-tech manufactures. 7 Studies Unit Paper 6-2 (March 2) overviews s competitiveness and market shares in many specific industries and sectors of direct and major export interest to producers. Those export activities include textiles and clothing, footwear, furniture, engineering products, motor vehicles and automotive products, and ICT goods. The next brief will look into the other side of the coin, namely the trilateral trade partners as suppliers of ACI imports and the associated bilateral trade deficits which have become a contentious issue. Other briefs to follow will focus on the gained or lost competitiveness of the top ten products traded internationally by ACI economies and the prospects for greater complementation and higher local value-added in their production among these economies. Thitapha Wattanapruttipaisan and Sri Wardhani Bakri Studies Unit, BEIF Secretariat 7 For details, see Sanjaya Lall and Manuel Albaladejo, 24, s Competitive Performance: A Threat to East Asian Manufactured Exports?, World Development, vol. 32, no. 9, September, pp

7 7 Table 1. Percentage shares of the, the -1 and in ACI merchandise exports during Total Sources: Secretariat trade database, UNCOMTRADE, and IMF, Direction of Trade. Figure 1. Percentage shares of the -1, the and in world trade in 199 and 2 Share in world exports Share in world imports

8 8 Figure 2. Percentage shares of the, the -1, and in exports during Figure 3. Percentage shares of the, the -1, and in 's exports during Figure 4. Percentage shares of the, the -1, and in n exports during

9 9 Figure. Percentage shares of individual ACI economies' contributions to total ACI export expansion in the, the -1 and during Between 199 and 2 Between 2 and 2 : $.2 billion : $ billion : $ 4.8 billion : $ billion : $ 2.7 billion : $ 6.2 billion