Alessia Amighini. From Global to Regional Telecom Production. Sharing: Asia vs. America

C E S P R I Centro Studi sui Processi di Internazionalizzazione Università Commerciale "Luigi Bocconi" via R. Sarfatti 25-20136 Milano tel. 02 5836.3397 - fax 02 5836.3399 http://www.cespri.uni-bocconi.it/ Alessia Amighini From Global to Regional Telecom Production Sharing: Asia vs. America WP n. 132 luglio 2002

2 From Global to Regional Telecom Production Sharing: Asia vs. America Alessia Amighini Università del Piemonte Orientale, ISESAO-Bocconi amighini@eco.unipmn.it This Draft: July 22 2002 ABSTRACT This paper investigates the size and scope of global production sharing in the telecom sector by analysing the international pattern of trade in telecom parts and components using bilateral trade statistics over the period 1978-2000. The results show that since 1995 the US have taken over the role of major exporter of parts of telecom equipment to Japan who had dominated world exports of this category since 1978. The US are nowadays driving fragmentation of telecom production on a global scale, with Asia playing the role of most favoured production base for intermediate goods in the sector. However, there is evidence of: a decreasing share of total trade in parts between the US and Asia; of an increasing share of total trade in parts between the US and Mexico; of an increasing trade intensity within Asia. These findings suggest that the emergence of regional groupings both in the Americas and in Asia are likely to reverse the pattern of international fragmentation of production in the telecom sector from global to intra-block vertical division of labour. KEYWORDS: Fragmentation, Global Production Sharing, Telecom Sector, United States, Southeast Asia JEL: F14, L63, N60, O50

3 CONTENTS 1. INTRODUCTION. 2. EVIDENCE ON GLOBAL PRODUCTION SHARING IN THE TELECOM SECTOR. 3. GLOBAL VS. REGIONAL PRODUCTION SHARING. 4. INTRA-REGIONAL PRODUCTION SHARING IN SOUTHEAST ASIA. 4.1 Country Trends. 4.2 Intra-Regional Trends. 5. CONCLUDING REMARKS. REFERENCES APPENDIX TABLES

4 1. INTRODUCTION. One of the most striking aspects of globalisation is the so-called production sharing, i.e. the fragmentation of a production process in different stages of the manufacture of a specific good. The sharing of different stages of a manufacturing process usually occurs between countries at different levels of industrial development. Since its earliest manifestation, this process saw developing countries playing a role of production base for industrial nations: originally as exporters of primary commodities and later since the mid 1960s as producers of labourintensive production activities, namely assembling. Among the consequences of this production sharing across national borders is an increase in foreign trade flows in parts and components being shipped from the manufacturing country to another country for assembling (that is, the disintegration of production in the global economy results in integration of countries through international trade in parts and components (Feenstra, 1998)). Empirical results on global production sharing show that trade in industrial parts is the most rapidly growing components of global trade, growing faster over the last decade than trade in finished manufactures. It has been estimated that global trade in parts and components amounted to around US$800billion annually for around 30% of world trade in manufactures (Yeats, 1998). These results also show that a key feature of components trade is that imports and exports are concentrated in the same few sectors: using foreign trade statistics based on SITC Rev. 2, Yeats (1998) finds that 4 of the 44 SITC products account jointly for over 70 percent of total trade in components. These product groups are parts of motor vehicles (SITC 784), parts of office machinery (SITC 759), parts of telecommunications equipment (SITC 764) and parts of switch gear (SITC 773). Developing countries are strongly participating in global production sharing, by producing and exporting a relevant and growing share of parts and components: 100 billion US$ in 1995, with respect to 440 billion US$ exported by industrialised countries (Yeats, 1998). Among the many industries where parts of a production process has increasingly been transferred to developing countries include television and radio receivers, sewing machines, calculators and other office equipment, electrical machinery, power, tools, machine tools and parts, typewriters, cameras, optical equipment, watches, brass valves, aircraft parts, telecommunications equipment, chemicals and synthetic fibers, and musical equipment (Yeats, 1998).

5 In this paper we provide an assessment of global production sharing in the telecom sector in the last two decades, by measuring bilateral trade in parts and components for telecom equipment. We provide empirical evidence on the actual location where components and parts have been produced, the direction of trade flows, and the magnitude of this trade over the period 1978-2000. We use data from foreign trade statistics based on SITC Rev. 2. This classification distinguishes among around 60 individual three, four and five digits product groups consisting solely of parts and components for the manufacturing sector. The telecom sector is classified as SITC 76 (Telecommunications and Sound Recording and Reproducing Apparatus and Equipment), which is further distinguished into four 3 digit product groups: SITC 761 (TV Receivers), SITC 762 (Radio Broadcast Receivers), SITC 763 (Sound Recorders), and SITC 764 (Parts of Telecom Equipment) (see Table A1 in the Appendix for a detailed list of product groups in SITC 76). The main aim of the paper is to assess the position of developing countries in the fragmentation of production in one of the most crucial sector of the information revolution. In particular, we are interested in the degree of integration of these countries in the global economy through trade flows in parts in that sector. Our findings suggest that emerging Asia has been strongly decreasing her role as a production base for telecom parts with the relevant exception of China whereas she has been gaining importance as a major direction for US exports of telecom parts, which is prima facie evidence of an increase in her role in assembly activities. As for the only non-asian emerging economy involved in global fragmentation in the telecom sector Mexico there is evidence of a strong increase in the country serving as a production base for parts, and a modest increase in her position as a target for US exports of the same product group. A further aim of the paper is to assess whether production sharing in the telecom sector has been occuring mainly through global or regional production networks, i.e. within regional groupings of countries integrated through formal trade agreements. Although empirical evidence on total trade in parts and components does not indicate that there are important differences in the share of components in trade within or outside the regional blocks (Yeats, 1998), there has been no attempt to provide evidence on ongoing trends towards increasing intra-block production sharing in specific sectors. Our findings suggest that there is indeed evidence of a regionalisation of production sharing in telecom production, with the major world exporter of telecom parts the United States creating preferred trade relationships with members of the North American Free

6 Trade Agreement (NAFTA) notably Mexico to the possible detriment of long-lasting intense trade relationships with the traditional production base for telecom equipment Southeast Asia (as found by Ng and Yeats, 1999). The paper is organised as follows. Section 2 provides empirical evidence on trade in components in the telecom sector worldwide. We measure the size of production sharing (i.e. the extent to which telecom production is fragmented in the global economy) with the share and its growth rate over time of trade in parts over total trade in telecom equipment. We also measure the scope of production sharing (i.e. the extent to which individual country or country groupings integrate in telecom production), through an analysis of the international pattern of trade in telecom parts based on bilateral statistics on foreign trade. Section 3 provides empirical evidence on the pattern of international trade in telecom parts for the world major trading country in this product group the United States since 1980. We compute the shares of exports on total US exports going to each of the major directions of telecom parts, as well as shares of imports on total US imports coming from each of the major source countries for the same product group. By doing so, we can assess on the one hand, the role of the US as major country driving the fragmentation of production in the telecom sector, both as an exporter of parts (to be assembled overseas) and as an importer of parts (for assembly at home). On the other hand, the analysis of international trade patterns in telecom parts also shows which countries are more integrated in production fragmentation world-wide and which trends are emerging, i.e. towards global or regional sharing. Section 4 performs a trade intensity analysis within Asia in order to understand how has production sharing evolved within the region in the 1990s. We compute trade intensity indices on exports of telecom parts for ten major economies. We also propose a further measure of trade intensity which is computed by dividing countries into two groups: the industrialised economies of Japan and the so-called Four Tigers (Hong Kong, Singapore, South Korea and Taiwan); and the emerging economies of China and the NIEs (Indonesia, Malaysia, Philippines and Thailand). This measure allows to describe the intensity of intra-block trade relationship between groups at different level of development.

7 Section 5 concludes with some remarks on the possible evolution of production fragmentation in the telecom sector as suggested by trends in international flows of parts. We suggest that the emergence of regional groupings in the Americas and in Asia can challenge the traditional role of Asia as a production base in this sector. 2. EVIDENCE ON GLOBAL PRODUCTION SHARING IN THE TELECOM SECTOR. The telecom sector has been one of the few sectors where production sharing has been gaining more and more importance over the last two decades. The main driver of this global disintegration of telecom production has been the United States with increasing outsourcing activities on the part of their transnational corporations (TNCs). Asia has historically emerged as a preferred production base for US overseas manufacturing activities, mainly for labour-intensive stages of production, i.e. assembly of parts of telecom equipment. This section provides an assessment of global production sharing in the telecom sector, i.e. the size and scope of global division of labour over the last two decades. We measure the size of production sharing (i.e. the extent to which telecom production is fragmented in the global economy) with the share and its growth rate over time of trade in parts over total trade in telecom equipment. We measure the scope of production sharing (i.e. the extent to which individual countries or country groupings participate in telecom production world-wide) with the international pattern of trade in telecom parts. Evidence on the size and evolution of trade in telecom parts and components from 1978 until 2000 is reported in Table 1. The Unites States are the major import and export country for telecom parts, with exports over 25 billion US$ and imports over 45 billion of US$ in 2000 and with annual growths rates of exports and imports of 12 and 14 percent respectively over the period 1978-2000. Other major exporting countries in 2000 are the United Kingdom (16 billion US$), Japan (16 billion US$), Germany (14 billion US$), France (12 billion US$), Sweden (12 billion US$), Canada (11 billion US$), South Korea (10 billion US$) and Finland (9 billion US$) among industrialised economies; China (12 billion US$) and Mexico (11 billion US$) among the emerging economies. Malaysia, who has traditionally been an important assembler of parts and components, does not rank so much high with respect to China and Mexico (6 billion US$). As regards the growth rate of exports over time, the countries showing the highest annual growth

8 rate are Finland (30%), Malaysia (29%), followed by South Korea (20%) and Canada (17%). The United Kingdom, France and Sweden all had a growth rate of 13% per annun since 1978. As regards major importer of telecom parts, the ranking includes most of the countries who also ranks as major exporters, which suggests that intra-industry trade in telecom parts may be relevant. Among the exceptions, Hong Kong is the second world importer (15 billion US$) but does not rank among major exporting countries. China and Mexico rank high (12 and 8 billion US$ respectively). Malaysia does not rank among the major importers, which may suggest that the country does not reach other emerging economies role of assemblers of telecom parts. As regards the growth rate of imports for major importing countries, the highest annual growth rate is recorded by Hong Kong (20%), followed by the United Kingdom, Japan and Spain (17%). South Korea had an annual growth rate of 15% and the United States only 14%. Evidence on the importance of fragmentation of production in the telecom sector in reported in Table 2, which tabulates the value of imports in telecom parts and their share in total imports of telecom equipment in 2000. Parts and components account for the vast majority of total trade in telecom equipment: shares for major importing countries range from 63% of the United States (the major importer) to 99% of China. The other major importers rank in between with most of the countries recording a share below 80% (Hong Kong 74%, United Kingdom 79%, Germany 68%, Japan 66%, France 70%, Canada 73%, Netherlands 71%, Italy 76%, Spain 75%, Singapore 70%), and three countries recording a share (Mexico 80%, South Korea 88% and Taiwan 90%). These results show that telecom production is extremely fragmented on a global scale. Table 3 reports major world exporters of parts for telecom equipment since 1978. On the one hand, high income/industrialised countries who export a relevant share of telecom parts overseas are the United States (12.41%), the United Kingdom (7.85%), Japan (7.83%), Germany (6.78%), France (5.75%), Sweden (5.69%) and Canada (5.59%). Some of these economies (mainly US and UK) show a relatively stable share in world exports over 1978-2000. Canada and Finland have both been recording an increasing share in world exports of telecom parts (respectively from 2.43% in 1978 to 5.59% in 2000 and from 0.21% in 1978 to 4.70% in 2000). Some other industrialised countries show a strongly decreasing share in world exports, namely Japan from 20.68% in 1978 to 7.83% in 2000) and Germany (from 12.92% in 1978 to 6.78% in 2000). Taiwan reports a decreasing share in world exports (from 8.80% in 1978 to 2.63% in 2000).

9 Finally, it is also worth noticing that in 1996 the US took over the role of major exporter of parts for telecom equipment to Japan who dominated world exports of this category since 1978. Among lower income/industrialising countries who export a relevant share of telecom parts, China ranked first in 2000, and 5th major world exporter with a share of 6.01% (compared to a nul share as early as 1984). Her share in world exports is higher than Mexico s (notably an important producer and exporter of this category) since 1987. Mexico shows increasing shares both in imports (3.61% in 2000) and exports (5.50% in 2000), although the country has relatively low shares compared on a global level. Table 4 reports major world importers of parts for telecom equipment since 1978. Among the industrialised economies, the United States has a relatively stable share in world imports (23.86% in 1978 vs. 20.83% in 2000). Hong Kong ranks second among major world importers of telecom parts (7.06% in 2000). Japan and the United Kingdom both show slightly increasing shares in world imports, whereas Canada, France (Monaco) and Germany show decreasing shares in world imports. Among the emerging countries ranking among major importers are the following: China ranked as the 4 th major world importer in 2000 (5.65%) and first major importer among emerging economies, which suggests that the country is specialising more and more in assembling activities. Among the latter, Mexico ranked second (3.61%) and show an increasing share in world imports. The analysis above shows that total trade flows (imports and exports) of parts and components for the telecom sector are dominated by a small set of countries who are among the major world exporters and importers at the same time. The solely relevant exception to this phenomenon of countries being among the major exporters and importers at the same time is Hong Kong, who ranked as the second largest importer of telecom parts in 2000 with a share of 7.06%, but did not rank among the major world exporters. Not surprisingly, Finland and Sweden ranked among major exporters, but not among importers, being among the main world producers of telecom equipment and components. Together, major trading countries accounted for 81.61% of total world exports in telecom parts in 2000 and for 80.44% of total world exports in the same product group in 1978. This provides strong evidence of a relatively stable country composition of international trade pattern in

10 telecom parts, i.e. of countries participating in global fragmentation of production in the telecom sector. The solely exception to this stability is China who emerged both as first exporter and importer within emerging economies. Despite this stability, evidence from trade analysis suggests that the pattern of international fragmentation is undergoing some changes. The US as the largest exporter of telecom parts since 1996 is also the major importer of that product group, which seem to be prima facie evidence of an outsourcing of both assembly and production activities. On the contrary, Japan the largest exporter until 1995 and since then the second largest has been only slightly increasing her share in world imports and therefore is reducing outsourcing of assembly while only slightly increasing outsourcing of manufacture. Also Germany has been strongly decreasing her share in world exports, and slightly decreasing her share in world imports, which shows a decreasing degree of integration in global production sharing in the sector. The United Kingdom show a modest increase in her share on world imports, but stability in her share on world exports. Taiwan used to be a strong exporter of telecom parts until the mid 1980s, but now has a much lower share of exports and a very modest share in world imports. 3. GLOBAL VS. REGIONAL PRODUCTION SHARING. This section provides empirical evidence on the pattern of US trade in Telecom parts and components since 1980. The main research question is an assessment of the position of Asia as a production base for US production in the telecom sector with respect to other countries in regional blockings in the Americas, i.e. Nafta. For our purposes we will consider only the major Asian trading countries in telecom parts, i.e. China, Hong Kong, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand. Our findings are reported in Tables 5 and 6. Table 5 shows the major directions for US exports of telecom parts over the period 1992-2000 compared to 1980. The US were the second world exporter until 1995, now they rank first, although their share of exports in world exports is a bit lower. As regards the major destinations of US telecom parts and components, the major target coutries are Asia 10 who accounted 26% of total US exports in that category. The second largest target country for US exports of telecom parts and components is Mexico, with 13%. Canada is

11 the third largest target country with 11%. Within Asia 10, it is interesting noticing that only China and South Korea show increasing share of exports to the United States, while all the other countries in the group record an inverse trend. Table 6 shows the major source countries for US imports of telecom parts over the period 1992-2000 compared to 1980. Asia 10 s share in US imports decreased from 77.06% in 1980 to 67.55% in 1992 and further down to 38.61% in 2000. Within Asia, both Japan and the rest of the group are recording decreasing exports to the US. Within Asia 10 (except Japan), almost all countries are recording decreasing shares in US imports again with the exception of China and South Korea, as well as Malaysia. US imports from Mexico and Canada are strongly increasing: respectively, from 11.01% in 1992 to 24.52% in 2000, and from 9.16% in 1992 to 22.22% in 2000. As regards the evolution of Asian export shares over time, Asia 10 increased until 1995 (37.97%) and then started to decrease down to 26.24% in 2000, while a reverse trend occured to Mexico: decreasing until 1995 (6.32%) and increasing after 1995 (up to 13.07% in 2000). This is clearly due to a trade diversion effect by Nafta, favouring relocation of some stages of the production process in the US to member countries (mainly Mexico), to the detriment of other target countries in Asia. The evidence therefore suggests a decreasing share of US exports to Asia in favour of Mexico. This could be prima facie evidence that production sharing in the telecom sector is becoming more and more intra-regional, i.e. that intra-block production sharing is gaining importance with respct to global production sharing, and that Mexico will possibly be a most favoured production base for the US telecom equipment in the future. In order to check if this is really the case, it is necessary to also analyse intra-block production sharing within Asia itself. This is what we turn to in the next section. 4. INTRA-REGIONAL PRODUCTION SHARING IN SOUTHEAST ASIA. In this section we analyse intra -regional trade patterns for telecom parts in Southeast Asia since 1992. We identify the major importers and exporters in the region and the intra-regional directions of trade flows. This will provide an assessment of the process of production sharing in the telecom sector within the region.

12 The section is organised as follows. Paragraph 1 discusses country trends in exports of telecom parts in Southeast Asia. For our purposes we consider the major ten Asian economies involved in trade of Telecom parts and components: China, Hong Kong, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand. We will compute bilateral trade intensity indices on exports within these countries based on bilateral trade statistics since 1992. The trade intensity index is computed as the ratio of the share of a country s export to another country to the share of that other country s imports in world imports (see Table A2 in the Appendix for details): if the index is greater than unity, it means that a country exports to another country at a greater level than the other is importing from the world, i.e. the countries show a relatively more intense bilateral trading relationship. The analysis of trade intensity indices on exports of parts for telecom equipment will provide evidence on the pattern of intra-regional trade and on the countries who are showing more intense trading relationship with other countries in the region, and therefore are playing an important role in regional telecom production fragmentation. Paragraph 2 discusses intra-regional trends in trade of telecom parts within Southeast Asia, by distinguishing between high income and industrialised economies (Japan and the Four Tigers of Hong Kong, Singapore, South Korea and Taiwan) and the emerging economies of China, Indonesia, Malaysia, Philippines and Thailand. We will compute intra-block trade intensity indices on exports between the two groups to assess whether any pattern is emerging in intra-regional trade flows in components (see Table A3 in the Appendix for details on how the intra-block intensity was computed). 4.1 Country Trends. The major finding from the analysis of country trends in trade intensity in telecom parts within Asia 10 is that the region is strongly integrating through trade, with most of the countries increasing intensity of exports both in terms of the number of partner countries and in terms of value of trade intensity index. Our findings show a very much intense bilateral trading relationship (on exports) during all the years considered between Hong Kong and China, between Singapore and Malaysia, between Malaysia and Indonesia. The major country as a source of telecom parts has been Singapore since 1993 with strong trade intensity especially with Malaysia and Thailand. Singapore was also the

13 major country as a target of telecom parts since 1992 until 1996, then Malaysia since 1998 and Indonesia in 2000. Therefore, the data suggest that Singapore might be an important hub for Asian trade in telecom parts. China China has been a target country solely for Hong Kong until 1995, then also Japan and Korea started developing an intense bilateral trade relationship with China as regards exports of parts and components for telecom equipment. China as a source country of telecom parts is increasing her scope (No. of target countries in the region): Hong Kong and Japan since 1992, Korea since 1993, Malaysia and Singapore since 1997, Indonesia since 1998. Hong Kong Hong Kong has been a source of telecom parts solely towards China until 1992, then also towards Indonesia (from 1993 until 1995) and also towards the Philippines (since 1994). However, China is the strongly preferred destination for telecom parts from Hong Kong, which suggests, not surprisingly, that China carries out the great majority of assembling activities on the part of Hong Kong. Hong Kong is also a major destinations for telecom parts produced in other countries in the region. Until 1997 she was a target for China, Singapore and Taiwan. Then also for South Korea (since 1997) and for the Philippines (since 1999). This suggests that Hong Kong has been diversifying her production base for telecom parts. Indonesia Indonesia has recorded intense export relationships with Japan and Singapore since 1992. Since 1994 she also has intense export relationships with Malaysia and Thailand, and since 1997 also with Malaysia, which suggests that the country has been increasing the destinations for her production of telecom parts. Indonesia has been a major destination for exports of telecom parts by South Korea and Taiwan since 1992, and by an increasing number of countries in the following years (Malaysia since 1993; Japan and Thailand since 1994) and nowadays is a major destination for almost all the other countries in the region, except Hong Kong, the Philippines and Singapore.

14 Japan Japan has been driving production sharing in the telecom sector by creating intense trade relationship with most of the other major economies. Japan as a source has been increasing trade intensity (on exports): strongly towards Indonesia since 1994; towards China since 1996; towards Malaysia, South Korea, Taiwan and Thailand since 1992; towards Hong Kong only until 1993 then the trade intensity has dropped below unity, which means that Japan is not exporting telecom parts to Hong Kong as intensively as in the past; towards Singapore, Japan has recorded high trade intensity since 1992. As regards Japan as a destination for telecom parts produced elsewhere in the region, it is interesting to notice that the country has been a major destination for all the others in the region since 1992, except Hong Kong. Malaysia Malaysia has been a source country for telecom parts to Japan and Singapore since 1992. In 2000 the countries in the region with whom Malaysia was having intense trade relationships had increased to include Indonesia, the Philippines, Taiwan and Thailand. The preferred target country for Malaysia until 1998 has been Singapore, then Indonesia. Malaysia has been a highly preferred target for exports of telecom parts and accessories by Singapore and Thailand since 1992, by Japan since 1993. Since 1997 Malaysia is also a preferred destination for exports of telecom parts from China and from Indonesia. Philippines The Philippines have had intense trade relationships with Japan since 1992 and until 1995 Japan was the only country to whom the Philippines exported telecom parts intensively. Since 1996 the destinations for telecom parts produced in the arcipelago increased to include Singapore and Taiwan, and Hong Kong since 1999. The Philippines as a major destination for telecom parts have been favoured by Singapore and Taiwan, by Japan and South Korea since 1992, by Malaysia since 1998, and by Hong Kong only since 1999.

15 Singapore Singapore as a souce country for telecom parts has recorded intense trade relationships mainly with Malaysia since 1992 (with increasing trade intensity from 7.22 in 1992 up to 17,94 in 2000). The country has also recorded intense trade in parts with Thailand over the years considered. Intense trade relationships have also been occurring with Hong Hong, Japan, the Philippines and Taiwan. As regards Singapore as a destinations for telecom parts, intense trade relationships have occured with Indonesia (14.77 in 2000) and Malaysia (6.27 in 2000) since 1992. Since 1997 Singapore is also a major destination for telecom parts produced in China. South Korea South Korea has been a major source country for exports of telecom parts with strong trade intensity with many of the countries in the region. Japan is the only country towards whom South Korea has been recording decreasing trade intensity in parts since 1992. South Korea shows increasing trade intensity with Indonesia, Philippines and Thailand since 1992; with China since 1996; with Hong Kong since 1998; with Taiwan since 1998; with Singapore only in 2000. As regards South Korea as a target for telecom parts produced in the region, the country has recorded intense trade relationships mainly with China (since 1993) and Japan (since 1992). Taiwan Taiwan has recorded intense trade relationship as a source with Hong Kong and Japan (since 1992), and with Taiwan only since 1999. Intense trade relationships also with Indonesia, Malaysia and Thailand over all the period considered. The more intense trade relationship in 2000 was with Indonesia (4.11). As regards Taiwan as a destinations, the major trading partner has been and still is Singapore (5.01 in 2000).

16 Thailand Thailand has recorded high trade intensity on exports of telecom parts with Japan and Singapore since 1992, lower intensity with Malaysia and Taiwan. Since 1999 trade intensity has extremely increased only with Indonesia, while remained stable with other countries in the region, except for South Korea, with whom Thailand has no more intense trade relationship in telecom parts since then. As for Thailand as a destination of telecom parts, the highest trade intensity has been recorded with Singapore over all the years considered (8.34 in 2000) and this pattern has been more and more evident over time. 4.2 Intra-Regional Trends. In Table 8 we present a trade intensity analysis within Asia 10 divided into two groups: Japan and the Four Tigers on the one side, China and the NIEs on the other side. We compute the density of intense trade relationships based on bilateral trade intensity indices computed in Table 7. That is, we start from trade intensity indices in Table 7 which show which countries have a relatively more intense bilateral trading relationship with whom (if the index is above unity) and we compute the frequency of intense trade relationship as the number of above unity cases over total possible cases (see more details in Table A3 in the Appendix). By so doing, we can see which is the density of intense trade relationships of one block versus the other and versus itself. The results of this exercise show that the overall density of intense trade relationships within Asia 10 has been increasing in the 1990s, from 0.41 in 1992 up to 0.64 in 2000 (i.e. 41% and 64% of all country matches within Asia 10 showed intense bilateral trade relationships in 1992 and 2000 respectively). This means that the frequency of intense trade relationships over all possible and relevant country matches (i.e. each country vs. each other except each country vs. herself) has increased, i.e. that a higher number of countries export intensively in telecom parts with other countries in the region, hence that production fragmentation in the telecom sector has increased. Turning to the density of intense trade relationships for different groups of countries, it is worth noticing that the highest density occurs between the block composed by Japan and the Four Tigers and the block composed of China and the NIEs (0.70 in 1992 and 0.90 in 2000),

17 suggesting that it has been increasingly true that more industrialised Asian economies are intensively exporting telecom parts to the emerging economies in the region (90% of export intensity indices between the former and the latter countries were above unity). A plausible reason for this trend is an increasing amount of assembling activities carried out by these latter economies for re-export. The data also show a rather high density of intense relationships within each group (0.75 and 0.80 in 2000 respectively for industrialised and emerging countries), which suggests that production fragmentation in the telecom sector is relevant in the region and that production sharing is occurring in two major ways: on the one hand, industrialised economies export telecom parts to emerging economies for assembly, and on the other hand, emerging economies serve as a more and more important production base for industrialised Asian countries. On the contrary, the density of intense trade relationships within the groups of emerging Asian countries considered is rather low, although somehow increasing during the second half of the decade. Overall, these results suggest that the Asian economies are becoming more and more integrated through international trade in parts for telecom equipment, and therefore regional production sharing in the telecom sector is increasing its importance. 5. CONCLUDING REMARKS. This paper has investigates the size and scope of global production sharing in the telecom sector by analysing the international pattern of trade in telecom parts and components using bilateral trade statistics over the period 1978-2000. We confirm evidence from previuos studies on global production sharing in total trade of parts and compoments showing a growing importance of trade in components over trade in final stage products (at least in the manifacturing sector) and suggesting that this constitutes a prima facie evidence of a growing interdependence of countries through international production networks. Within the telecom sector too, major importers of telecom parts do trade mainly in intermediate goods for telecom equipment rather than in final products. Overall, for major world importers imports in telecom parts, imports of this product category accounts for 72% of total imports of telecom equipment in 2000.

18 The results show that since 1995 the US have taken over the role of major exporter of parts of telecom equipment to Japan who had dominated world exports of this category since 1978. The US are nowadays driving fragmentation of telecom production on a global scale, with Asia playing the role of most favoured production base for intermediate goods in the sector. However, there is evidence of: a decreasing share of total trade in parts between the US and Asia and of an increasing share of total trade in parts between the US and Mexico. US outsourcing operations have been increasing towards Mexico and decreasing towards Asia since 1995; an increasing trade intensity within Asia. Outsourcing operations have been increasing within Asia from the more industrialised countries (4 Tigers and Japan) to the emerging economies of China, Indonesia, Malaysia, Philippines and Thailand; These findings suggest that the emergence of regional groupings both in the Americas and in Asia are likely to reverse the pattern of international fragmentation of production in the telecom sector from global to intra-block vertical division of labour.

19 REFERENCES Feenstra, R.C. (1998), Integration of Trade and Disintegration of Production in the Global Economy, Journal of Economic Perspectives, Vol. 12, No. 4: 31-50. Ng, F. and A. J. Yeats (1999), Production Sharing in East Asia: Who Does What for Whom and Why?, Policy Research Working Paper 2197, The World Bank, Development Research Group, Washington D.C. Yeats, A. J.(1998), Just How Big Is Global Production Sharing?, Policy Research Working Paper 1871, The World Bank, Development Research Group, Washington D.C.

20 APPENDIX TAB. A1 SITC-76 TELECOMMUNICATIONS AND SOUND RECORDING AND REPRODUCING APPARATUS AND EQUIPMENT SITC-761 TV Receivers (Including Video Monitors & Projectors) Wheth R Nt Incorp Radiobroadcast Receivers Or Sound Or Video Recording Or Reproducing Apparatus SITC-7611 TV Receivers, Color, Incl Video Monitors & Projectors), Whet Or Nt Incorp Radiobroadcast Receivers Or Sound Or Video Recordng Or Reproducing Apparatus SITC-76110 Television Receivers, Color, Including Monitors, Projectors And Receivers Combined With Radiobroadcast Receivers Or Sound And Video Recorders, Etc. SITC-7612 TV Receivrs, Black/White R Oth Monochrone (Incl Video Monitrs & Projctrs), Wheth Incorp Radio- Broadcast Receivrs Or Sound Or Video Record/Reproduc App SITC-76120 Television Receivers, Monochrome, Including Monitors, Projectors And Those Combined With Radiobroadcast Receivers Or Sound And Video Recorders, Etc. SITC-762 Radio-Broadcast Receivers, Whether Or Not Incorporating Sound Recording Or Reproducing Apparatus Or A Clock SITC-7621 Radiobroadcast Receivers, Using An External Power Source, As In Motor Vehicles (Including Apparatus Also Receiving Radiotelephony Or Radiotelegraphy) SITC-76211 Radiobroadcast Receivers, Combined With Sound Recording Or Reproducing Apparatus, Operating With An External Power Source As In Motor Vehicles SITC-76212 Radiobroadcast Receivers, Not Combined With Sound Recording Or Reproducing Apparatus, Operating With An External Power Source As In Motor Vehicles SITC-7622 Radiobroad cast Receivers, Operating Without An External Power Source (Including Apparatus Capable Of Also Receiving Radiotelephony Or Radiotelegraphy) SITC-76221 Radiobroadcast Receivers, Combined With Sound Recording Or Reproducing Apparatus, Operating Without An External Power Source SITC-76222 Radiobroadcast Receivers, Not Combined With Sound Recording Or Reproducing Apparatus, Operating Without An External Power Source SITC-7628 Radiobroadcast Receivers (Including Apparatus Capable Of Also Receiving Radiotelephony Or Radiotelegraphy), N.E.S. SITC-76281 Radiobroadcast Receivers, Combined With Sound Recording Or Reproducing Apparatus, Etc., N.E.S. SITC-76282 Radiobroadcast Receivers, Not Combined With Sound Recording Or Reproducing Apparatus, But Combined With A Clock, Etc. N.E.S. SITC-76289 Radiobroadcast Receivers, Not Combined With Sound Recording Or Reproducing Apparatus Nor With A Clock, Etc., N.E.S. SITC-763 Sound Recorders Or Reproducers; Television Image And Sound Recorders Or Reproducers SITC-7633 Turntables And Record Players, Not Incorporating A Sound Recording Device SITC-76331 Record Players, Coin- Or Disc-Operated, Not Incorporating A Sound Recording Device SITC-76333 Record Players, N.E.S. (Other Than Coin- Or Disc-Operated), Not Incorporating A Sound Recording Device SITC-76335 Turntables (Record-Decks), Not Incorporating A Sound Recording Device SITC-7638 Sound Recording And Other Sound Reproducing Apparatus; Video Recording Or Reproducing Apparatus, Whether Or Not Incorporating A Video Tuner SITC-76381 Video Recording Or Reproducing Apparatus, Whether Or Not Incorporating A Video Tuner SITC-76382 Transcribing Machines SITC-76383 Sound Reproducing Apparatus, N.E.S. SITC-76384 Sound Recording Apparatus, Whether Or Not Incorporating A Sound Reproducing Device

21 SITC 764 Telecom Equipment: parts and accessories. SITC-7641 Electrical Apparatus For Line Telephony Or Line Telegraphy (Including Such Apparatus For Carrier- Current Line Systems) SITC-76411 Telephone Sets SITC-76413 Teleprinters SITC-76415 Telephonic Or Telegraphic Switching Apparatus SITC-76417 Apparatus For Carrier-Current Line Systems, N.E.S. SITC-76419 Telephonic Or Telegraphic Apparatus, N.E.S. SITC-7642 Microphones And Stands Therefor; Loudspeakers, Headphones, Earphones And Combined Microphone/Speaker Sets; Audio-Frequency Electric Amplifiers, Etc. SITC-76421 Microphones And Stands Therefor SITC-76422 Loudspeakers, Mounted In Their Enclosures SITC-76423 Loudspeakers Not Mounted In Their Enclosures SITC-76424 Headphones, Earphones And Combined Microphone/Speaker Sets SITC-76425 Audio-Frequency Electric Amplifiers SITC-76426 Electric Sound Amplifier Sets SITC-7643 Transmission Apparatus For Radiotelephony, Telegraphy, Broadcasting Or Television, Whether Or Not Including Reception, Sound Recording, Etc. Apparatus SITC-76431 Transmission Apparatus For Radiotelephony, Radiotelegraphy, Radiobroadcasting Or Television, Not Incorporating Reception Apparatus SITC-76432 Transmission Apparatus For Radiotelephony, Radiotelegraphy, Radiobroadcasting Or Television, Incorporating Reception Apparatus SITC-7648 Telecommunications Equipment, N.E.S. SITC-76481 Reception Apparatus For Radiotelephony Or Radiotelegraphy, N.E.S. SITC-76482 Television Cameras SITC-76483 Radar Apparatus, Radio Navigational Aid Apparatus And Radio Remote Control Apparatus SITC-7649 Parts And Accessories Suitable For Use Solely Or Principally With The Apparatus Of Telecommunications And Sound Recording And Reproducing Equipment SITC-76491 Parts Of Electrical Apparatus For Line Telephony Or Line Telegraphy (Including Apparatus For Carrier-Current Line Systems) SITC-76492 Parts Of Microphones, Loudspeakers, Headphones, Earphones And Combined Microphone/Speaker Sets; Audio-Frequency Electric Amplifiers; Etc. SITC-76493 Parts Of Television Receivers, Radiobroadcast Receivers, Transmission Apparatus For Radio Telephony, Telegraphy, Broadcasting Or Television Etc. Pts Of Tv Rec, Radiobroad Rec, Sound Record, Etc. SITC-76499 Parts Of The Apparatus For Sound Recorders Or Reproducers And Parts Of Television Image And Sound Recorders Or Reproducers

22 TAB. A2 TRADE INTENSITY INDEX The trade intensity index is defined as the ratio of a country s export to another country to the share of that other country s imports in world imports: I(i,j) = [X(i,j)/X(i,w)/ M(j,w)/M(w,w)] Where i is the reporting (exporting) country and j is the partner (importing) country and w is the world. When the index is greater than unity, country i exports to another country j at a greater level than the other is importing from the world, i.e. country i holds a more intense bilateral trading relationship with country j than the rest of the world does. TAB. A3 INTRA-BLOCK TRADE INTENSITY INDEX The intra-block trade intensity index is computed from the bilateral trade intensity index (defined in Table A2). Values in Table 8 of the text are computed as follows. First of all the countries within Asia 10 have been rearranged into two groups: Japan and the so-called Four Tigers of Hong Kong, Singapore, South Korea and Taiwan on the one hand; China and the Newly Industrialised Economies of Indonesia, Malaysia, Philippines and Thailand on the other hand. In this way we obtained a 2x2 matrix with trade intensities within Japan and the Four Tigers in position (1,1); trade intensities of Japan and the Four Tigers towards China and the NIEs in position (1,2); trade intensities of China and the NIEs towards Japan and the Four Tigers in position (2,1); and trade intensities within China and the NIEs in position (2,2). The value of the bilateral trade intensity index in Table 7 of the text has been turned to unity when greater than one, and to zero when smaller than one. Then we computed density of intensity of trading relationship between the two groups as the frequenncy of unit values over all relevant cases (n*n-1, i.e. all matches but the diagonal).

23 TABLES Tab. 1 Evolution of trade of Telecom parts and components in major trading countries, 1978-2000 Major exporting countries Exports to the world (1000$) Annual growth rate* 1978-2000 1978 2000 United States 2139384 25532271 12% UK 1034234 16147514 13% Japan 2875636 16120042 8% Germany 1796542 13945740 10% China - 12368236 France (Monaco) 769140 11828679 13% Sweden 751024 11697759 13% Canada 337834 11497589 17% Mexico - 11323600 Korea, Rep 205492 10500364 20% Finland 29263 9677888 30% Malaysia 23612 5991125 29% Singapore - 5860656 Taiwan 1223196 5415584 7% total 13905242 167907047 Major importing countries Imports from the world (1000$) Annual growth rate** 1978-2000 1978 2000 United States 2326185 45062033 14% Hong Kong 254803 15273168 20% UK 487739 15176444 17% China - 12230763 Germany 898422 10669289 12% Japan 267713 8879946 17% Mexico - 7808325 France (Monaco) 531909 7597296 13% Canada 569636 7390387 12% Netherlands 501648 6826781 13% Italy 438080 6068763 13% Korea, Rep 236510 5110651 15% Spain 147162 5003326 17% Singapore - 4832430 Taiwan 341070 4146710 12% total 7000877 162076312 *Computed as [(X2000/X1978) 1/22 ]-1 ** Computed as [(M2000/M1978) 1/22 ]-1 Source: elaborated on data from UN Comtrade Database.

24 Tab. 2 Imports of Telecom parts and their share in total imports of Telecom equipment, 1978 and 2000 Major importing Value of parts (1000$) Share of parts in total imports countries 1978 2000 2000 United States 2326185 45062033 63% Hong Kong 254803 15273168 74% UK 487739 15176444 79% China - 12230763 99% Germany 898422 10669289 68% Japan 267713 8879946 66% Mexico - 7808325 80% France (Monaco) 531909 7597296 70% Canada 569636 7390387 73% Netherlands 501648 6826781 71% Italy 438080 6068763 76% Korea, Rep 236510 5110651 88% Spain 147162 5003326 75% Singapore - 4832430 70% Taiwan 341070 4146710 90% total 7000877 162076312 72% Source: elaborated on data from UN Comtrade Database.

Tab. 3 Major World Exporters of Telecom parts and components, 1978-2000 (% of exports on world exports) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 United States 15,39 14,70 13,81 14,69 15,92 14,84 13,94 14,89 12,44 11,39 12,33 13,73 13,97 13,98 na 15,40 15,00 15,12 14,88 15,87 15,00 13,93 12,41 UK 7,44 7,23 6,43 6,57 6,45 5,67 4,61 5,06 4,62 4,44 4,60 4,96 5,37 5,12 na 4,72 5,40 6,62 7,19 7,85 9,17 8,15 7,85 Japan 20,68 18,88 19,63 23,87 21,61 23,61 27,03 29,71 32,45 32,19 33,49 29,93 26,86 28,91 na 23,79 20,23 16,22 12,56 11,25 9,06 8,38 7,83 Germany 12,92 12,16 11,56 9,77 10,16 8,53 7,50 8,02 8,58 9,44 7,87 7,28 7,43 7,89 na 7,08 7,44 7,69 7,98 7,93 7,45 7,85 6,78 China na n.a. n.a n.a n.a n.a 0,00 0,00 0,00 0,45 0,54 0,71 0,92 1,13 na 2,35 3,16 3,60 3,94 4,18 4,46 5,02 6,01 FranceMonaco 5,53 6,22 6,00 4,89 5,24 5,49 4,88 5,69 5,16 5,33 4,40 4,35 4,90 4,51 na 3,60 3,58 4,09 4,27 4,69 5,93 5,64 5,75 Sweden 5,40 5,62 5,17 4,46 4,73 4,20 4,12 4,97 4,19 3,62 4,20 4,31 4,28 3,97 na 3,74 4,51 5,81 7,22 7,32 7,39 6,94 5,69 Canada 2,43 3,07 3,60 4,11 4,50 4,63 5,73 5,58 3,85 3,39 2,52 2,58 2,65 2,43 na 2,86 2,78 2,77 3,35 3,39 3,39 4,00 5,59 Mexico n.a. n.a n.a n.a n.a n.a n.a n.a 1,24 0,07 0,09 0,09 0,08 0,18 na 2,30 2,51 2,68 2,87 3,22 3,83 4,47 5,50 Korea, Rep 1,48 1,67 1,28 1,36 1,42 2,10 1,86 2,15 2,70 3,55 3,54 3,60 3,51 3,43 na 3,91 3,96 3,78 3,70 3,39 3,25 4,74 5,10 Finland 0,21 0,25 0,41 0,45 0,50 0,53 0,48 0,63 0,87 1,06 0,98 1,34 1,55 0,92 na 1,41 1,93 2,92 3,32 3,39 4,42 4,50 4,70 Malaysia 0,17 0,19 0,27 0,25 0,41 0,50 0,50 0,60 0,53 0,65 0,99 1,59 2,06 2,43 na 2,96 3,41 3,37 3,34 3,05 2,68 2,62 2,91 Singapore n.a. 1,41 1,88 1,62 1,43 1,76 1,94 1,87 1,55 2,49 3,52 3,88 4,14 4,21 na 5,27 6,54 6,12 5,18 4,45 3,34 3,17 2,85 Taiwan 8,80 9,13 9,70 10,33 9,20 10,50 10,84 3,87 4,33 5,18 4,97 5,90 5,00 4,61 na 4,37 3,79 3,52 3,37 2,93 2,72 2,38 2,63 Total 80,44 80,55 79,75 82,35 81,57 82,36 83,43 83,04 82,52 83,25 84,02 84,26 82,74 83,72 na 83,74 84,22 84,31 83,18 82,91 82,07 81,78 81,61 Source: elaborated on UN Comtrade Database Tab. 4 Major World Importers of Telecom parts and components, 1978-2000 (% of imports on world imports) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 United States 23,86 22,55 21,78 24,94 26,92 30,44 36,35 36,63 32,71 27,51 24,85 24,52 21,48 20,30 19,22 18,95 18,40 16,34 14,76 14,22 15,66 17,78 20,83 Hong Kong 2,61 2,82 2,72 2,99 2,46 2,32 2,94 3,07 3,04 3,78 4,14 4,63 4,90 5,40 6,22 8,14 8,23 9,05 8,63 9,57 8,15 6,61 7,06 UK 5,00 5,23 5,27 5,90 5,89 6,02 5,16 5,52 6,05 6,77 7,43 7,29 6,43 5,81 5,59 5,44 5,66 6,29 7,19 7,49 7,09 7,17 7,02 China na na na na na na 0,00 0,00 0,00 3,45 3,49 2,94 3,02 3,15 4,53 6,42 6,44 6,05 4,49 4,19 5,31 5,47 5,65 Germany 9,22 8,43 8,17 6,88 6,82 6,06 5,29 5,61 6,67 7,44 7,34 7,07 7,94 8,61 8,29 6,97 6,97 6,32 5,81 5,34 5,63 5,46 4,93 Japan 2,75 2,12 1,98 2,11 2,28 2,20 2,12 2,02 2,18 2,41 3,01 3,53 3,59 3,80 3,34 3,73 4,34 5,10 5,88 4,82 4,21 4,02 4,11 Mexico na na na na na na na na 1,90 0,76 0,93 1,05 1,60 1,62 2,77 2,60 2,64 1,69 1,99 2,59 2,97 3,17 3,61 France,Monaco 5,46 5,05 5,30 4,79 4,43 3,50 2,82 2,77 3,04 3,66 3,90 4,14 4,59 4,19 3,84 3,09 3,03 3,14 3,24 3,58 3,85 3,66 3,51 Canada 5,84 5,72 5,15 4,92 4,32 4,45 4,67 4,57 4,28 3,77 3,69 3,68 3,28 3,06 3,13 3,12 2,86 2,74 3,05 3,07 3,11 3,15 3,42 Korea, Rep 2,43 2,14 2,20 2,94 3,47 3,52 2,94 2,48 2,41 2,38 2,50 2,10 1,98 2,09 2,02 2,18 2,40 2,33 2,54 2,09 1,24 1,90 2,36 Singapore na 2,32 2,53 2,39 2,31 2,22 2,25 2,07 2,20 2,61 3,34 3,70 4,25 4,54 4,42 5,24 5,38 5,25 4,42 4,01 2,67 2,48 2,23 Taiwan 3,50 3,23 3,16 2,55 2,01 1,99 1,96 1,32 1,71 1,92 1,89 2,30 2,33 1,85 1,80 1,59 1,20 1,24 1,01 1,22 1,65 1,71 1,92 Malaysia 1,21 1,14 1,19 0,89 1,17 1,59 1,35 1,51 1,18 1,12 1,25 1,66 1,98 3,07 2,59 3,02 3,14 3,13 2,51 2,17 1,34 1,27 1,50 Philippines 0,32 0,57 0,78 0,85 0,57 0,46 0,27 0,19 0,15 0,12 0,25 0,43 0,47 0,61 0,60 0,76 0,89 1,06 1,59 1,62 0,83 0,66 0,85 Thailand 0,60 0,56 0,68 0,37 0,55 1,11 1,18 0,91 0,96 0,89 0,99 1,25 1,46 1,44 1,56 1,68 1,94 1,73 1,46 1,37 0,60 0,66 0,75 Total 62,80 61,88 60,90 62,53 63,20 65,87 69,30 68,66 68,47 68,58 69,00 70,29 69,31 69,53 69,92 72,93 73,54 71,45 68,57 67,32 64,31 65,17 69,76 Source: elaborated on UN Comtrade Database