`
How might regional
production networks be
shaped by regional
agreements on standards?
John Humphrey
Caris Conference, Sussex, May 2008
Two meanings of deep integration
Process:
 Reducing barriers, harmonisation, etc.
 Regional trade agreements one route
Outcome(deep market integration):
 Regional production systems
 Enhanced division of labour
 Productivity increases
2
Share of parts and components in
machinery trade (%)
80
1990
2000
Per Cent
70
60
50
40
30
ina nesia
h
C
o
Ind
nd
rea aysia pines
a
o
l
i
K
l
Ma Philip
Tha
Source: Ng and Yeats, 2003, pp. 34-35.
an
p
a
J
China Processing Trade, 1999
Imports
Other
S. Korea
Singapore
Taiwan
US &
EU
Japan
Source: Lemoine and Ünal-Kesenci, 2004, p. 833
Exports
Other
Japan
US &
EU
Source: Gourevitch et al. 1997
Source: Gourevitch et al. 1997
If we find vertical trade and regional production systems
without the harmonisation of standards associated with
deep integration, what difference would standards
harmonisation make?
a) Given that standards are heterogeneous, what might
be the impact of different types of standards on “real
market integration”?
b) Under what circumstances do we expect “global”
standards, whether public or private, to make regional
harmonisation redundant?
Standards and transnational
company regional networks
Regional product standards largely
superfluous
 Product standards often defined globally:
IEEE, colour descriptors in textiles etc.
 Regional offshoring based on company standards
Service standards more important :
 Banking standards and regulatory environment
 Transport standards and regulations
 Migration and mobility arrangements:
Visas, recognition of qualifications, etc.
.
Harmonisation of prior national
standards consumption markets
To create regional consumption patterns
 Harmonise national product standards in
region
 Eliminate standards as barriers
Reduce transactions costs
 Services standardisation
New regional product standards to facilitate
vertical trade
Standards change regional value
chains
Increase vertical trade:
 Currently, intra-firm or direct firm-to-firm
dealings – processing trade
 More outsourcing, including to local
companies
Increase production concentration
 Centralised production, decentralised
consumption
11
Harmonised standards and regional
trade
Facilitates trade and supply chains linking smaller
companies, who have higher transactions costs.
Reduces costs of localisation of supply chains for
foreign-invested companies – standard products
Allows companies easier access to regional market
Harmonisation of “services” helps all manufacturing
firms
Reduces costs of customisation by codifying
information
Pre-Trade
Vertical Trade
Country A
Country A
Stage 3
Country B
Country B
Stage 2
Country C
Country C
Stage 1
13
Pre-Trade
Country Specialisation
Country A
Country B
Country C
Country
A
Country
B
14
Country
C
Conclusion
Harmonised standards will make a difference even in
the presence of deep market integration
 TNCs with regional production networks benefit
from service standard harmonisation
 Standards will facilitate outsourcing
 Standards will facilitate centralised production for
regional market
 Standards will enable more outsourcing between
firms previously producing within national
boundaries