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ABSTRACT
This paper investigates the policy space open to developing countries under the WTO regime. It is apparent that industrial policy options in developing countries are limited by the TRIPs, GATS, TRIMs and SCMs agreements under the WTO. However, policy options are not fully closed, and a narrower range of policies is still available. Focusing particularly on TRIMs, this paper examines the contrasting development of the automotive industries in Thailand and Malaysia, showing the different ways these countries have carved out new industrial policies within the now available policy space.
ACKNOWLEDGEMENTS
We should like to thank three anonymous referees for very searching and helpful comments, and Ritsumeikan Asia Pacific University and the Japan Society for the Promotion of Science (KAKENHI 22730153) for research finance. Of course, the usual disclaimers apply.
Notes
1 National producers such as Proton have much higher local content ratios in comparison with foreign producers such as Toyota (see later section).
2 Alavi (Citation2005: 3) notes that Malaysia has complied with high standard of intellectual property protection since the nineteenth century, so complying with TRIPs within the stipulated five year period up to 2000 caused few problems. She is of the opinion, though, that in the automotive industry TRIPs may limit future policy actions.
3 Least developed countries had a further two years beyond 2000.
4 Least developed countries and developing countries with per capita income below US$1000 are exempt from this prohibition.
5 However, in their fair-minded and comprehensive study of work on industrial policies in South Korea, Taiwan and Japan, Noland and Pack (Citation2003: ch.5) tend towards the view that other factors such as stable macroeconomic and real exchange rate policy, technology transfer policies, infrastructural and education policies were of more importance. This was particularly so in the period from the 1970s onwards, while they concede more importance to industrial policy in those countries in their earlier post-war development.
6 Rodrik, in an innovative paper written for the United Nations Industrial Development Organization, UNIDO, proposes considerable updating of industrial policy too. He stresses the need for a policy architecture which ‘embeds private initiative in a framework of public action that encourages restructuring, diversification, and technological dynamism beyond what market forces on their own would generate’ (Rodrik, Citation2004: 1). He stresses the need not so much to ‘pick winners’ as to identify losers quickly among the range of activities selected for help and to withdraw support. He notes, engagingly, that during the Washington consensus years of the 1980s and 1990s, actually a lot of industrial policy was conducted, mainly to encourage exports and inward FDI.
7 According to the latest (2011) WTO Trade Policy Review (TPR) for Thailand (p.41, see www.wto.org), Thailand had been involved in 16 disputes going back to 1995 but only in three of these as a respondent, and none of the disputes was related to the automotive industry. In the case of Malaysia, successive TPRs (1997, 2001, 2006, 2010) indicate that Malaysia had not been involved in any trade disputes in the preceding five years where solution has been sought within the WTO framework.
8 However, note that a WTO ruling did require Thailand to eliminate various foreign investment incentives by 2004 as violating SCM subsidy restrictions (Brooks et al., Citation2003: 14).
9 See also Alavi (Citation2005: 15), who notes they were used in the Philippines.
10 These policy interactions are meticulously chronicled by Doner (Citation2009: especially chs. 4 and 7), on which we draw heavily. Also useful are Hill and Fujita Citation(2012) and Lauridsen Citation(2009).
11 We discuss the bumiputera policy in relation to affirmative action in the Malaysian political economy in a companion paper, Segawa et al., Citation2014 forthcoming. On the bumiputera policy and Malaysian politics more generally, see Segawa (Citation2013a and Citation2013b).
12 Actually not implemented until 1975.
13 That is, particular components would be required to be deleted from CKD kits.
14 Perusahaan Otomobil National – National Automobile Enterprise, in Malay.
15 Perusahaan Otomobil Kedua -- Second Automobile Enterprise, in Malay.
16 Nearly $7 million at the late 2013 exchange rate of the Ringgit for the US dollar (<www.xe.com>, accessed 22 October 2013).
17 Doner (Citation2009: 241) seems to suggest that the idea of pick-up trucks as a product champion dates back to the 1980s, but we have not seen evidence of this.
18 Single-cab pick-up truck retained the lowest rate of 3 per cent.
19 Incentives included exemption of the import tariff on machinery and three years corporate tax including parts suppliers in the case of over 10 billion baht projects (Fourin, Citation2002: 214–15).
20 According to Doner (Citation2009: 228) the use of the term ‘Detroit of Asia’ originally dates back to 1995. Hill and Fujita (2012: 273) use ‘Detroit of the East’ specifically to refer to the Eastern Seaboard Industrial Estate, home to over 100 automotive firms and a centre of auto exports.
21 Interview with the President of TAIA on 23 August 2011. Indeed, Thailand successfully became the ninth top producer in the world in 2012.
22 Another feature of Thaksin's policies was the encouraging of clustering in the automotive and other industries. Clustering, though, in practice antedates Thaksin's encouragement, there being significant automotive clusters both in the Bangkok area and in the Eastern Seaboard development (Natsuda and Thoburn, Citation2013).
23 Interview with Vice President of MACPMA on 21 February 2012.
24 A total of 11 mandatory deletion items were removed in 2002 and 19 items were abolished in 2004.
25 For example, the tariff on CBU PVs with less than an 1800 cc engine decreased from 140 per cent to 80 per cent in 2004 and 30 per cent in 2006; and to 70 per cent in 2004, 5 per cent in 2006 and zero per cent in 2011 under the CEPT scheme. The excise tax on the same category of CBUs and CKDs was imposed at 90 per cent in 2004 and 75 per cent in 2006.
26 To be eligible for the scheme, the vendor had to be a member of either the Proton Vendor Association, the Perodua Vendor Association, or MACPMA, and were entitled to access a maximum of RM 10 million.
27 Local added value = ex factory value – input material value (= local procurement costs + labour costs + direct expenditure + profit). The scheme requires over 30 per cent of LAV for less than 2500 cc engine cars and 25 per cent for over 2500 cc (METI, Citation2011).
28 Further consideration is provided to firms that promote sustainable and competitive bumiputera participation.
29 To be precise, extra consideration is based on ‘race’ (indigenous background), not nationality.
30 Dealer prices include vehicle price, excise tax and sales tax.
31 Note, though, that this figure would exclude indirect import content, as when a component is assembled locally using imported sub-components.
32 Perodua's Myvi is estimated at 60–70 per cent. Interview with Malaysian Automotive Association on 2 March 2012.
33 The Japanese government argues that the AP system is a trade barrier and may violate the WTO's GATT Article 11 (METI, Citation2011: 90), although the Malaysian government has not accepted this argument (interview with Embassy of Japan, Kuala Lumpur on 23 February 2012).
34 Malaysia is an original WTO member. During the trade review with WTO, the Malaysian government explained the special circumstance of the Malaysian automotive sector, including the bumiputera policy, and the WTO understood the situation (interview with the Deputy Secretary-General in MITI, Malaysia, on 28 February 2012).
35 Interview with Embassy of Japan, Kuala Lumpur, on 23 February 2012.
36 As of the moment, there are some signs that commitment to the bumiputera policy may have been weakened following some weakening of the UMNO-dominated ruling coalition in Malaysia after the 2008 election (Segawa et al., Citation2014 forthcoming; Segawa Citation2013a and Citation2013b).
37 1 US$ = 86.8 yen (the average exchange rate in 2010).
38 Assemblers (50,000) and auto parts (350,000). Interview with TAIA on 3 March 2010.
39 The total number of manufacturers of motor vehicles (24,513), bodies for vehicles (909), and parts and accessories for motor vehicles (22,525).
40 Interview with Z Corporation on 5 March 2010 and MACPMA on 21 February 2012.
41 See http://www.autoblog.com/2012/11/04/honda-to-share-platforms-facilities-with-proton/ (accessed on 21 December 2012).
42 Interview, 21 February 2012.
Additional information
Notes on contributors
Kaoru Natsuda
Kaoru Natsuda is Associate Professor of Development Economics at the College of International Management, Ritsumeikan Asia Pacific University, Japan. He obtained his PhD in Economics from the University of Sydney, Australia, and his MA in International Development Studies from the University of Bradford, UK. His research interests include industrial development, rural development, political economy and foreign economic relations in Asia. His major publications include papers in the European Journal of Development Research, Global Networks, Journal of the Asia Pacific Economy, Canadian Journal of Development Studies, Global Economic Review, ASEAN Economic Bulletin and The Japanese Economy. He serves on the editorial board of the Aziya Kenkyu (Japan Association of Asian Studies).
John Thoburn
John Thoburn holds a PhD degree from the University of Alberta in Canada, and is Emeritus Reader in Economics in the School of International Development, University of East Anglia, UK. After retiring from East Anglia he became Professor of Development Economics at Ritsumeikan Asia Pacific University, Japan, where he is now Visiting Professor. He is the author of five first-authored research books on development, including Primary Commodity Exports and Economic Development (Wiley 1977, Japanese-language edition Taga Shuppan 1984). He has also published papers in many journals including Oxford Economic Papers, Oxford Bulletin of Economics and Statistics, Journal of Development Studies, Journal of International Development, Global Networks, European Journal of Development Research, Canadian Journal of Development Studies and the Journal of the Asia Pacific Economy (on whose editorial board he serves). He has been a consultant for various agencies including the Organization for Economic Cooperation and Development, the United Nations Industrial Development Organization, the United Nations Development Programme, the UN Economic and Social Commission for Asia and the Pacific, the Association of South East Asian Nations, the UK Department for International Development, and with the Harvard Institute of International Development.
