Possible Impacts of Regional Integration Initiatives on the Electronics Industry in the Asia-Pacific Region

CHIOU Yi-hung
Visiting Scholar, RIETI


Against the backdrop of the 2008 global financial crisis and the failure to reach conclusion in the World Trade Organization (WTO) Doha round in 2011, the dynamics of regional trade agreements (RTAs) have regained their momentum in recent years. Since 2008, after the United States publicly expressed its intention to participate in an ongoing multilateral free trade agreement (FTA) negotiation, the Trans-Pacific Partnership (TPP) suddenly became one of the most eye-catching RTA initiatives in the Asia-Pacific region. Other RTA initiatives were also stimulated by the TPP and have speeded up their paces of negotiations.

On the other hand, one noticeable phenomenon is the rapid development of electronics supply chains in the Asia-Pacific region, which has not only accounted for a significant share of the value of exports for many countries in this region, but also contributed to the continuous growth of intra-regional trade and intensified the regional supply chains' connectivity. Given the importance of the electronics industry in many states' economies, governments participating in regional electronics supply chains have adopted various policy measures to facilitate their electronics sectors to grow, while devoting their efforts on RTAs.

Nevertheless, one intriguing question that has not been explored is how different RTAs can affect a state's electronics sector and its position in the electronics supply chains. While many studies mostly focus on expected overall economic welfare and gross domestic product (GDP) growth generated by the outcome of RTAs, few research investigate the feasible impacts of different RTA initiatives on specific sectors. The goal of this article is to bridge the gap by taking the first step to explore what are the feasible impacts of RTAs on the electronics sectors in the Asia-Pacific region. Despite its various limitations, this article hopes to stimulate more discussions on the connections between RTAs, electronics sectors, and industrial policies in the increasingly intensive and complicated development of global supply chains.

Booming RTA initiatives

Currently, in addition to the TPP, there remain other ongoing RTA initiatives. In comparison with the TPP which is led by the United States, the Regional Comprehensive Economic Partnership (RCEP), driven by the Association of Southeast Asian Nations (ASEAN), is composed of 16 members and aims to be concluded by 2015. Its second ministerial meeting on tariff issues was just held in late August 2014.

On the other hand, the three largest economies in East Asia--China, Japan, and South Korea--also launched the "China-Japan-Korea (CJK) FTA" negotiations after years of joint research. Recently, it just held the fifth round of negotiations in early September 2014 in Beijing, hoping to narrow the differences and accelerate the negotiation process. Meanwhile, on the other side of the Pacific, Peru, Chile, Columbia, and Mexico also announced to establish the Pacific Alliance in 2011 and intend to further free trade with Asian countries. Needless to say, as one of the most robust proponent of free trade, the Asia-Pacific Economic Cooperation (APEC) had set its vision of regional integration, so-called the Free Trade Area of the Asia-Pacific (FTAAP), in 2006, which covers 21 economies. In 2010, the APEC leaders also identified ASEAN-plus-three, ASEAN-plus-six, and the TPP as pathways to the FTAAP, anticipating the achievement of the FTAAP to be realized through the above pathways.

Importance of the electronics industry in the Asia-Pacific region

While RTA movements have become a prevalent phenomenon in the region, the electronics industry with complex supply chains networks across countries has played a critical role in many Asia-Pacific countries. As Table 1 shows, the top seven economies in electronics trade in the Asia-Pacific region accounted for more than 60% of global electronics exports in 2011, while their total imports in electronics trade was more than half of global electronics imports in the same year. Table 2 indicates the amounts of electronics exports and imports for these seven economies.

Table 1. Electronics Trade in the Top Seven Asia-Pacific Countries
EconomyShare of Global Electronics Exports in 2011 (%)Share of Global Electronics Imports in 2011 (%)
Hong Kong, China8.68.5
United States 7.613.9

Source: Wood, Christopher and James Tetlow, 2013, "Global Supply Chain Operation in the APEC Region: Case Study of the Electrical and Electronics Industry," Singapore: APEC Support Unit, p. 7.

Table 2. Electronics Trade Value in the Top Seven Asia-Pacific Countries
EconomyValue of Electronics Exports in 2011 (USD billions)Value of Electronics Imports in 2011 (USD billions)
Hong Kong, China211.00223.56
United States186.24364.48

Source: Wood, Christopher and James Tetlow, 2013, "Global Supply Chain Operation in the APEC Region: Case Study of the Electrical and Electronics Industry," Singapore: APEC Support Unit, p. 8.

The above tables suggest that the Asia-Pacific region has become the most dynamic powerhouse on the map of the global electronics industry. Nevertheless, it is uncertain whether this strength can be maintained after the consequences of regional integration initiatives, since the International Monetary Fund (2011) suggests that an increasing number of electronics firms have relocated lower-end labor-intensive assembly processes to developing economies with cheap labor costs. Given that RTAs are likely to intensify trade and investment flows across members in the RTA region, the networks of regional electronics supply chains may be re-drawn accordingly. Hence, it is worthwhile to investigate the impacts of RTAs at the electronics level.

GTAP simulation

To understand the effects of RTAs on the electronics sector, this article adopts the computable general equilibrium (CGE) model by using the Global Trade Analysis Project (GTAP) model to conduct analysis. The latest version of the GTAP 8.1 database covers 134 countries/regions and 57 sectors. The focus is placed on No. 40 Electronics Equipment, since this sector covers the majority of electronics products.

This article focuses on three RTA scenarios, including (1) TPP, (2) RCEP, and (3) FTAAP, while analyzing the feasible impacts of these scenarios on electronics sector in the Asia-Pacific countries. This article assumes that, in each scenario, all tariffs are reduced to zero and there is no exclusive item. Given the constraints of GTAP, the analysis merely focuses on trade in goods and does not account for the effects of non-tariff barriers (NTBs), services, and foreign direct investment. It is critical to highlight that the importance of GTAP's outcomes does not lie in its number, but rather in the trend it suggests.

Results of GTAP analysis

Although many indicators can be utilized to analyze the effects of RTAs on the electronics sector, this article mainly focuses on the RTA impacts on the change (percent) of industrial output in the electronics sector. The results of the three scenarios are illustrated in the following tables. These tables list some selected economies, in which their outputs in the electronics sector benefit or suffer from joining or not being included in specific RTA initiatives.

(1) TPP Scenario:

Table 3. Impacts of the TPP on the Electronics Sector in Selected Economies
Economy BenefitsChange of Output (%)Economy SuffersChange of Output (%)
TPP members
1. Vietnam12.781. Peru-4.24
2. Mexico0.832. New Zealand-2.51
3. Canada0.813. Singapore-1.44
4. Malaysia0.674. Chile-1.3
Non-TPP members

(2) RCEP Scenario:

Table 4. Impacts of the RCEP on the Electronics Sector in Selected Economies
Economy BenefitsChange of Output (%)Economy SuffersChange of Output (%)
RCEP members
1. Laos70.871. Australia-7.03
2. Vietnam20.242. Singapore-3.24
3. Indonesia7.343. New Zealand-2.01
4. Thailand5.614. Japan-0.89
Non-RCEP members
Taiwan1.41Hong Kong-2.9
United States0.48Mexico-0.31

(3) FTAAP Scenario:

Table 5. Impacts of the FTAAP on the Electronics Sector in Selected Economies
Economy BenefitsChange of Output (%)Economy SuffersChange of Output (%)
FTAAP members
1. Laos68.111. New Zealand-5.66
2. Vietnam17.822. Mexico-5.26
3. Indonesia12.163. Australia-3.94
4. Thailand9.794. Russia-3.74
5. Malaysia5.265. Taiwan-3.51

Analysis and implications

The above results reveal some important implications. First, a state's total increased economic welfare due to participation in an RTA does not mean that each of its sectors will equally benefit from the outcomes of an RTA. In terms of the outputs of the electronics sector, some states may further suffer due to its RTA membership.

Second, the results suggest that developing economies are more likely to gain significant growth of outputs in the electronics sector than developed economies. Some ASEAN states, such as Laos, Vietnam, and Indonesia, are prone to perform sufficiently well than the existing electronics stronghold of developed countries and newly industrialized countries (NICs). Nonetheless, it remains to be further explored with regard to whether the impacts of RTAs may facilitate a shift in electronics supply chains moving toward developing countries.

Third, since an RTA is likely to induce both positive and negative effects on different sectors and generate both winners and losers, it is crucial for each state to consider whether its RTA winners are desirable and fit its national strategy of economic development, and whether it has fully prepared for the political and economic consequences of likely RTA losers.

Fourth, the selection of RTA routes and the timing of joining them may be essential for a state's FTA strategic consideration. A prudent assessment of RTA effects at a state's sectoral level can effectively assist the state to boost its advantageous industries while buying time for its vulnerable sectors to undertake necessary domestic reforms and policy adjustments. Hence, given its strategic and economic assessment, the state may prefer one route of an RTA over the others.


In essence, the prevalence of RTA phenomena and booming networks of electronics supply chains are not completely due to market forces, but, to some extent, the results of policy choices. Hence, it is important for governments to prudently analyze the impacts of RTAs at the sectoral level before recklessly jumping into the game of RTA competitions.

Although the growth or decline of output in the electronics sector does not entirely represent a state's competitiveness in the electronics industry, it does convey some meaningful implications that deserve further investigation. While many states devote sufficient policy efforts to actively striving for RTA memberships and to promoting electronics industry at the same time, it remains dubious whether these policies are actually complementary or self-conflicting. More profound and sophisticated research would shed light on better RTA decision-making as well as more prudent and foresighted industrial policy.

September 22, 2014
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September 22, 2014