The Extent of Intra Industry Trade Between Thailand and ASEAN Economic Community ( AEC )

At present, the Asian region has an increasingly important role in the global economy. Economic indicators show that region’s GDP proportion (not including Japan) has increased from 9.7 per cent of world GDP in 1998 to 16.3 per cent in 2009. Therefore, the Asian region can be seen as the new engine to drive the new global economy. Many countries pay attention to increase investment and trading with Asian countries. Even though the ASEAN Economic Community (AEC) derived from the ASEAN leaders, the vision will still focus on transforming ASEAN into a single market and production base that is highly competitive and fully integrated into the global community by 2015. The economic integration goals will include, among others, the elimination of tariffs, free movement of professionals, freer movement of capital, and a streamlined customs clearance procedure [1]. The proportion of international trade between Thailand and the AEC shows that Thailand increased her exports to AEC countries from 19.34 percent in 2001 to 22.70 per cent in 2010. Imports from AEC to Thailand increased from 17.84 percent to 17.88 percent in the same period [2].


Introduction
At present, the Asian region has an increasingly important role in the global economy.Economic indicators show that region's GDP proportion (not including Japan) has increased from 9.7 per cent of world GDP in 1998 to 16.3 per cent in 2009.Therefore, the Asian region can be seen as the new engine to drive the new global economy.Many countries pay attention to increase investment and trading with Asian countries.Even though the ASEAN Economic Community (AEC) derived from the ASEAN leaders, the vision will still focus on transforming ASEAN into a single market and production base that is highly competitive and fully integrated into the global community by 2015.The economic integration goals will include, among others, the elimination of tariffs, free movement of professionals, freer movement of capital, and a streamlined customs clearance procedure [1].The proportion of international trade between Thailand and the AEC shows that Thailand increased her exports to AEC countries from 19.34 percent in 2001 to 22.70 per cent in 2010.Imports from AEC to Thailand increased from 17.84 percent to 17.88 percent in the same period [2].
Intra-industry trade (IIT) involves the import and export of similar goods.While taking account of measurement limitations, it would appear that the IIT share of manufacture trade has increased significantly since the late 1980s across many AEC countries.This follows trend increases in IIT for all the major AEC countries between 1993 and 2010.Although various origins can be traced, the phenomenon of IIT as such first received attention in the 1960s in studies by Verdoon, P.J., [3] and Balassa, B., [4]; [5]; [6], on the increased trade flows among European countries.Grubel and Lloyd [7] provided the definitive empirical study on the importance of IIT and how to measure it.Concrete theoretical foundations for explaining IIT came later in the 1980s and 1990s with the new trade literature to a large extent based on a monopolistic competition framework.
Since that time numerous theoretical and empirical studies e.g.Globerman, S. and Dean, J. W. [8]; Duc, N. H. [9]; Glejser, H. [10]; Guell, R. C. and Richards, D. G. [11], have been conducted to measure the size and importance of IIT, and also to explore its determinants.In addition to the desirable welfare effects mentioned before, trade analysts also noted another positive aspect of IIT from the investigation of the ASEAN experience after the formation of the ASEAN, namely, the adjustment costs of economic integration.It was shown from the actual experience of ASEAN in the late 1970s that IIT reduced the adjustment costs of an economy opening up to foreign trade as domestic industries could remain intact while moving to specialize only in a limited range of products.Intra-Industry Trade (IIT) is now widely accepted.The proposition of increasing IIT in developed nation's economies has found general support.Accordingly, the mass of empirical studies have focus on IIT of developed countries e.g. in Australia [12]; [13]; in EEC [14]; in UK [15]; in EU [16] in Switzerland [17], etc.However, an increasing number of studies have also been done on developing countries e.g. in Turkey [18]; in Korea [19]; in APEC [20]; in ASEAN [21]; [22]; [23]; etc.Some of the studies in attempting to identify the determinants of IIT have focused on country-specific determinants while others have concentrated on industry-specific ones.However, there are some studies which focus on both types of determinants.IIT studies in recent times have also estimated the extent of horizontal and vertical IIT and identified their determinants.
Only a few studies have focused on Thailand's intra-industry trade, and on Thailand and the AEC in particular.This study tries to make a modest contribution to the relatively small stock of research on Thailand's IIT.Given that nearly half of Thailand's foreign trade is with the AEC and that a FTA between these two sides was introduced in 1993, this study pays particular attention to estimate the extent of Thailand's IIT, to identify the determinant's of its intra-industry pattern and test a number of country specific hypotheses concerning the determinants of intra industry trade between Thailand and the AEC.
The rest of the paper is organized as follows: Section II presents a brief discussion of the general performance of Thailand's foreign trade over the past three decades.Measurement alternatives of IIT are discussed in section III.The extent of intra-industry trade in Thailand's foreign trade is provided in section IV, and section V stresses the extent of intra-industry trade between Thailand and the AEC.The main findings are summarized in section VI.

General performance of international trade in Thailand
Thailand had trade deficits between 1970 and -1997 due to a dependency on raw material such as crude oil, machinery, raw material etc. Table 1 indicated that Thailand's total foreign merchandise trade (exports + imports) increased significantly from 0.40 billion baht in 1970 to 3.4 billion baht in 2000 and 5.5 billion in 2010, an increase of nearly 200 percent during this period.Owing to the far greater external orientation of the economy since the beginning of the 1980s, when Thailand embarked on a trade liberalization program, foreign trade has represented a much higher proportion of the national income in comparison to the pre-1980s period.As a percentage of GDP, total trade increased from 27.50 percent in 1970 to 121.55 percent in 2010.The increase in this ratio resulted from the increase in both export and import shares: the exports/GDP share rose from 9.62 percent in 1970 to 68.98 percent in 2010 while the corresponding imports/GDP share increased from 17.88 percent to 52.57percent, respectively (Figure 1 and Table 1   The share of Thailand's exports and imports with other groups namely EU (27 countries), NAFTA and the Middle East countries have been decreasing over time.As well, Thailand's share of exports and imports with countries such as the USA and Japan have been important, although they have diminished since 1995.However, the share of Thailand imports with the ASEAN has been striking over the last a couple of years.After becoming an AEC member, Thailand's exports increased with all member countries except Singapore.

Measurement of Intra-Industry Trade
Intra-industry trade (IIT) flows are conventionally defined as the two-way exchange of goods within standard industrial classifications.The extent of intra-industry trade is commonly measured by Grubel-Lloyd (G-L) indexes based on commodity group transactions.Thus, for any particular product class i, an index of the extent of intra-industry trade in the product class i between countries A and B is given by the following ratio: , () *100 () The Extent of Intra Industry Trade Between Thailand and ASEAN Economic Community (AEC) 47 This index takes the minimum value of zero when there are no products in the same class that are both imported (represent by Mi) and exported (represent by Xi), and the maximum value of 100 when all trade is intra-industry (in this case Xi is equal to Mi).The indices reported in this section have been computed according to [1] for each pair of trading partners and for each two digit SITC revision 3 product class.Bilateral indices of intraindustry trade in the product class i between country A and all its trading partners are obtained as a weighted average of the bilateral indices [1] for each partner country B, using as weights the share of total trade of A accounted for by trade with B. Bilateral indices of intra industry trade between country A and country B for total manufacturing are the weighted average of the indexes in [1] for all product classes i, with weights given by the share of total trade of i over total manufacturing trade: A degree of caution must be used when comparing and interpreting intra-industry indices because their measurement crucially depends on the level of disaggregation chosen for the analysis.In the current context of assessing the importance of the division of the production process across countries, it should be recognized that, as well as measuring trade in intermediate goods at various stages of production, much intra-industry trade is trade in similar, but often highly differentiated, finished products.

The extent of Intra-Industry Trade in Thailand's foreign trade
As pointed out in section 3, this study centers on the G-L index measured by the ratio of difference between total trade and net trade expressed in terms of percentages.The estimated G-L indexes, IIT, are reported in Table 7.The G-L indexes, IIT, are calculated by aggregation across all products for Thailand with all AEC member nations and for Thailand with the rest of the world, hereafter referred to as non-AEC member nations.The estimation time span is 1991-2010.
About one-fourth of world trade consists of IIT, that is, two-way exchange of goods within standard industrial trade classification (SITC).For advanced industrial nations, IIT plays a large role in trade in manufactured goods which accounts for most of world trade.Industrial countries have become increasingly similar in their levels of technology and in the availability of capital and skilled labor.Since the major trading nations have become similar in technology and resources, there is often no clear comparative advantage within an industry, and much of international trade therefore takes the form of two-way exchanges within industries, probably driven by comparative advantage.
Apart from the quantitative increase in foreign trade, the most striking change that has occurred is in the sector share of Thailand exports since 1980.There has been a shift towards industrial goods, in contrast to the situation before 1980 when Thailand's agricultural exports typically accounted for about two-thirds of total exports.The share of manufactured products in total exports rose from 31.0 percent 1982 to 44.9 percent in 1986, while the share of exports of agricultural products fell from 70.3 percent in 1970 to 43.6 percent in 1985.
Source: data from Table A4

Country analysis
In this section we turn our attention to the decomposition of bilateral trade by products.For each significant AEC nation with which Thailand has a trading relationship, the top ten products (ranked according to average IIT) are discussed.Of particular interest when considering intra-industry trade and the internationalization of production are those countries where exports and imports account for a very high percentage of GDP.There are currently ten AEC economies (Thailand; Malaysia; Singapore; Indonesia; Viet Nam; Philippines; Cambodia; Lao People's Democratic Republic; Myanmar; Brunei Darussalam) where both imports and exports account for more than half of GDP.Although there is far from a perfect correspondence, these countries all tend to have relatively high intra-industry trade (Malaysia; Singapore; Myanmar); all but two (Vietnam and Cambodia) having measures of intra-industry trade that are below the average across all AEC countries and five of them (Malaysia, Singapore, Indonesia, Philippines and Brunei Darussalam) being in the top ten countries for the period 2007-2010.Malaysia and Thailand have enjoyed a strong trade relationship with an increasing proportion of IIT.Of all the countries under review, Malaysia has the largest number of products common to both periods.Three of the four existing products from the top ten were drawn from the medium to high skill/technology manufactures, being Articles of iron or steel (73), stone, plaster, cement, asbestos, mica, etc articles (68), other made textile articles, sets, worn clothing, etc (63), machinery, nuclear reactors, boilers, etc (84).Thus, the striking feature of the industrial composition of the Malaysian basket is the relatively high proportion that falls into the medium to high skill products in both periods (five of the top ten in both time frames) (see Table 10).The pattern of IIT in manufactures between Thailand and the Philippines displays sizable variability over the period.Only four products are common and of these are in the medium skill/technology area.Four of the existing products come from the medium to high skill end of the spectrum, being electrical, electronic equipment (85), miscellaneous articles of base metal (83), machinery, nuclear reactors, boilers, etc (84), vehicles other than railway, tramway (87) and iron and steel (72).Similar to Malaysia, the overall Philippines industrial composition has a relatively high proportion that falls into the medium to high skill products in both periods (six and eight of the top ten pre-and post-AEC, respectively ( Singapore, like Malaysia, has a high level of IIT with Thailand, though there is an indication of moderate decline in the late 1990s.Two products, both are at the medium skill/technology level, persist from the 1980s to the 1990s (85 and 96).Four of the products that are no longer in the top ten after 1990 are from the low skill/technology manufactures-A Ceramic products (69), manmade filaments (54), residues, wastes of food industry, animal fodder (23), come from the resources based labor intensive sector.However, four of new products on the list in the 1990s are also from these sectors-electrical, electronic equipment (85), optical, photo, technical, medical, etc apparatus (90), articles of iron or steel (73) and pharmaceutical products (30).Overall, one cannot deduce a shift in the industrial composition of IIT between Thailand and Singapore (Table 12).

Industry analysis
International trade can be investigated in terms of bilateral trade relationships between countries, in terms of product composition or in terms of bilateral trade decomposed by products.This section is concentrates on analysis by product composition.

Conclusion
Since Verdoon, P.J., [25], Grubel and Lloyd [26] many studies stressed that there is strong empirical support for the hypothesis that countries that have common borders and have eliminated or lowered barriers on trade with each other will have relatively high levels of intra-industry trade.Moreover, the extent of intra-industry trade will be positively correlated with trade intensity.That is, as the trade volume with trade partners increases, there will be more opportunity for more differentiated products to be traded.
The results show that, Thailand's external trade with the AEC is significantly composed of the intra-industry type trading, especially so after the significant of the AFTA (ASEAN Free Trade Area) agreement with the ASEAN in 1993.The level of intra-industry trade is higher between Malaysia, Singapore and Indonesia compared to these countries and the rest of the world.However, the average level of intra-industry trade for AEC decreased from 93 percent in 2001 to 84 percent in 2010 as opposed to OECD countries over the same period: 36 percent and 48 percent, respectively.This result is, at the same time, parallel to Thailand's trade with the rest of the world.On the other hand, even though the AEC is Thailand's main trading partner, Thailand's share of IIT in total trade is lower with the AEC than with the rest of the world for the entire period.However, economic integration (AEC) with ASEAN countries has changed the production structure of Thailand toward the ASEAN industrial base.As stated by Lohrmann, A-M.[27], the production structure adjustment is an outcome of free trade.That is, the free trade between Thailand and the AEC led to adjustment of the production structure in the Thailand's economy.As a result of this, Thailand's IIT is increasingly changing from low-technology product to high-technology industries.

Figure 3 .
Figure 3.The IIT indexes for Thailand trading with AEC and Non-AEC member nations, 2000-2010

Table 1 .
). Thailand's ExternalTrade, 1970Trade,  -2010Thailand's foreign trade gained momentum in the 1990s: in particular, since Thailand joined ASEAN to collaborate in trade integration.The key trade enhancing agreements, the ASEAN Trade in Goods Agreement (ATIGA) has been signed to consolidate and synergies various provisions on trade in goods into a single reference document.The ATIGA will supersede the 1993 Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area (CEPTAFTA).In 2010, nine ASEAN Member States (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore and Viet Nam) have ratified the ATIGA.ASEAN continues to implement various trade facilitating measures such as the ASEAN Customs Declaration Document and the ASEAN Cargo Processing Model that relates to air freight services.Efforts are underway to activate the ASEAN Customs Transit System.Therefore, Thailand's exports increased from $56.72 billion in 1995 to $110.93 in 2005 and $195.31 billion in 2010.Imports rose from $70.71 billion in 1995 to $118.17 billion in 2005 and $182.41 billion in 2010, respectively.
Source: data from TableA1

Table 2
indicates that Thailand's international trade has been dominated by the United States and Japan for many decades.However trade with these countries has fallen from nearly 34.6 per cent of Thailand's trade in 1995 to 10 per cent in 2010.The trade with ASEAN countries has been relatively stable, increasing from 21.73 per cent in 1995 and 22.7 per cent in 2010.Trade within the AEC has constituted nearly 22 percent of both Thailand exports and imports.Among the country groups, therefore, the AEC with its geographical proximity and the level of economic development has been the most important group.
The Extent of Intra Industry Trade Between Thailand and ASEAN Economic Community (AEC) 43

Table 3
decreased over time, as was the case with the USA and Japan, but the share of imports from China increased from 2.96 per cent to 13.29 per cent.

Table 4 .
Thailand Trade with AEC and its share in Thailand Trade (Million US Dollar)

Table 5 .
The IIT indexes for Thailand trading with AEC and Non-AEC member nations, 2000-2010

609.08 40,615.76 80,039.98 75,033.98 152,052.36 133,795.97
Table 6shows that Malaysia Singapore and Indonesia are the top ranked countries for Thailand's exports and Brunei Darussalam takes the lowest rank.Malaysia, Singapore and Indonesia are the AEC member countries that comprise Thailand's highest import shares.
Note: * 60% of inclusion list tax reduction = 0 Source: 1. Information and Communication Technology Center, Office of the Permanent Secretary Ministry of Commerce with the Co-Operation of the Customs Department, 2. Bank of Thailand

Table 6 .
Thailand export to ASEAN and import from ASEAN

Table 7
points out that the top three products namely manmade filaments (54), articles of iron or steel (73), organic chemicals (29) have a highest level of IIT.Five from ten products are in SITC 5-9 and transform from low-technology products to high-technology industries.The results of the highest average values of the IIT index during 2000-2010 show that within manufactures, certain resource-based labor intensive manufacturers and low technology manufactures occupy large shares of total trade.Common to both periods are the resourcebased labor intensive manufactures.Post-AEC, the medium and high skill/technology intensive manufactures are footwear, gaiters and the like, parts thereof (Source: Calculated by author from the United Nations, COMTRADE database

Table 7 .
Top 10 products ranked according to average IIT between Thailand and AEC, 2000-2010 The IIT index between Thailand and Malaysia, Singapore, Cambodia, Lao, Myanmar and Brunei Darussalam increased over time.The IIT indexes of Malaysia, Singapore, Myanmar are high and increasing IIT which means Thailand international trade structure with those countries are complementary rather than competitive.The IIT indexes of Indonesia and Philippines are high and decreasing IIT.In contrast the Lao People's Democratic Republic and Brunei Darussalam have low and increasing IIT.Viet Nam is low and decreasing IIT (see Table8).Source: author calculations, based on International Trade Statistics.

Table 9
shows that Thailand's IIT with Indonesia increases from 1995 through to 2009.The basket of products in the top ten completely changes with no products in common in the top ten pre-and post-AEC.Despite this dramatic change, the overall industrial composition does not shift markedly with roughly 50 percent of products pre-and post-AEC being in the resource based labor intensive and low skill/technology manufactures (Table9).Calculated by author from the United Nations, COMTRADE database Source:

Table 9 .
Top 10 products ranked according to average IIT between Thailand and Indonesia, 2000-10 The Extent of Intra Industry Trade Between Thailand and ASEAN Economic Community (AEC) 51 Source: Calculated by author from the United Nations, COMTRADE database

Table 10 .
Top 10 products ranked according to average IIT between Thailand and Malaysia, 2000-2010

Table 11
Calculated by author from the United Nations, COMTRADE database ).Source:

Table 11 .
Top 10 products ranked according to average IIT between Thailand and the Philippines, 2000-2010

Table 13 .
Top 10 products ranked according to average IIT between Thailand and Myanmar, 2000-2010Vietnam, like Myanmar has a low level of IIT with Thailand.All of the top ten products are above 50 percent of IIT level.A high proportion fell into the medium skill/technology area (see Table14).
Source: Calculated by author from the United Nations, COMTRADE database Table 12.Top 10 products ranked according to average IIT between Thailand and Singapore, 2000-2010Myanmar has a low level of IIT with Thailand (below 50).Only two products, furniture, lighting, signs, prefabricated buildings (94) and manufactures of plaiting material, basketwork, etc. (46) have a high level.Many products still come from resources based labor intensive sector (see Table13).Source: Calculated by author from the United Nations, COMTRADE database

Table 14 .
Top 10 products ranked according to average IIT between Thailand and Vietnam, 2000-2010 Lao PDR, like Vietnam has a low level of IIT with Thailand.Five of the products are above 50 percent of IIT level.A high proportion fell into the resource based or low skill/technology area (see Table15).

Table 15 .
Top 10 products ranked according to average IIT between Thailand and Lao People's Democratic Republic, 2000-2010Brunei Darussalam is the only AEC member country that has a low level of IIT (below 50) all products which means Thailand has no longer trade in terms of Intra-industry trade but Thailand will trade in term of international trade with other countries.
Source: Calculated by author from the United Nations, COMTRADE database,UN (2010)

Table 16 .
Top 10 products ranked according to average IIT between Thailand and Brunei Darussalam, 2000-2010 Cambodia, like Lao PDR has a low level of IIT with Thailand.Only three of the products are above 50 percents of IIT level.A high proportion fell into the resource based or low skill/technology area (see Table 17).The Extent of Intra Industry Trade Between Thailand and ASEAN Economic Community (AEC) 55 Source: Calculated by author from the United Nations, COMTRADE database

Table 17 .
Top 10 products ranked according to average IIT between Thailand and Cambodia, 2000-2010

Table 18
calculates the average annual IIT for all commodities within each specific product group and thus summarizes significant detail in its construction.The G-L indexes are calculated by aggregation a cross all classifications (SITC) at 1-digit level for Thailand with AEC member nations during 2001-2010.The results in Table19show that the share of IIT in SITC 3 is the highest IIT index while the share of IIT at SITC 5 and 6 have been increasing 2 times from 2001 to 2010.The share of IIT of SITC 3-9 is higher than 50 and SITC 0-2 is below 50.Source: Calculated by author from the United Nations, COMTRADE database

Table 19
indicates that from 2001 to 2010, the proportion of commodities with an IIT index of less than 30 fell from 36.45 to 24.98 percent, while the proportion with and IIT index greater than 50 percent rose from 42.70 to 57.10 percent.Calculated by author from the United Nations, COMTRADE database Note: a weighted by the trade share. Source:

Table 21
Source: Calculated by author from the United Nations, COMTRADE database,UN (2010)

Table 22
Calculated by author from the United Nations, COMTRADE database,UN (2010) Source:

Table 23 .
Distribution of IIT index at 3 digits SITC 3, 2001-2010 Calculated by author from the United Nations, COMTRADE database, UN (2010) Source:
Source: Calculated by author from the United Nations, COMTRADE database,UN (2010)

Table 26 .
Distribution of IIT index at 3 digits SITC 6, 2001-2010 Calculated by author from the United Nations, COMTRADE database, UN (2010) Source:
Source: Calculated by author from the United Nations, COMTRADE database,