Introduction

The “decoupling” thesis, the notion that the East Asian region has become a self-contained economic entity with potential to maintain its own growth dynamism independent of the economic outlook for the traditional developed market economies, was a popular theme in the Asian policy circles in the first decade of the new millennium until the onset of the recent financial crisis.¹

The empirical basis for the decoupling thesis was provided by studies of trade patterns based on the readily available trade data which revealed a continuous increase in trade among the countries in the region (intra-regional trade) since the late 1980s, a process which received added impetus from the subsequent emergence of the PRC as a world export powerhouse. A few studies questioned the validity of this thesis in a context where international production fragmentation and the related network trade had been rapidly expanding with East Asia as its center of gravity (Athukorala 2005, Garnaut 2003, Bergsten et al. 2006). However the decoupling thesis continued to dominate the policy scene, presumably because it fitted well with the East Asian growth euphoria of the day.

The onset of the global financial crisis in late 2007 and its global spread has served to reveal the fragility of the decoupling thesis: All major East Asian countries, including The People's Republic of China (PRC) which was expected to cushion the rest of East Asia against a global economic collapse, have experienced precipitous trade contraction from about the last quarter of 2007. Consequently, the policy debate in East Asia has made a U-turn from the decoupling complacency to rebalancing of East Asian growth promoting domestic demand with a view to reducing excessive reliance on exports as the engine of growth (Asian Development Bank [ADB] 2009).

What has gone wrong with the decoupling thesis? Was the trade integration story that underpinned the decoupling thesis simply a statistical artifact, resulting from a failure to incorporate realities in an era of network trade? Alternatively, was the massive export contraction caused by an overreaction of traders to the global economic crisis and/or by the drying up of trade credit, which overpowered the cushion provided by intra-regional trade? What are the new policy challenges faced by the East Asian economies? Is there room for an integrated policy response that marks a clear departure from the precrisis policy stance favoring export-oriented growth? This paper aims to probe these and related issues through a comparative analysis of the export experience of East Asian economies in the aftermaths of the crisis against the backdrop of a systematic analysis of precrisis trade patterns.

For the purpose of this study East Asia is defined to include Japan, and developing East Asia, which covers the newly industrialized economies (NIEs) of North Asia (the Republic of Korea (hereafter Korea); Taipei,China; and Hong Kong, China), the PRC and members of the Association of Southeast Asian Nations (ASEAN). Among the ASEAN countries, Myanmar is not covered because of a lack of data and Brunei Darussalam, Cambodia and the Lao People's Democratic Republic (Lao PDR) are treated as a residual group because of data gaps. The East Asian experience is examined in the wider global context, focusing specifically on the comparative experiences of the North American Free Trade Agreement (NAFTA) and the European Union (EU).

In a context where trade within global production networks is growing rapidly, a meaningful analysis of trade patterns requires systematic separation of parts and components from final (assembled) products in reported trade data. We do this through a careful disaggregation of trade data based on the Revision 3 of the Standard International Trade Classification (SITC Rev 3) extracted from the United Nations (UN) trade data reporting system (UN Comtrade database). It is important to note that the UN Comtrade database does not provide for the construction of data series covering the entire range of fragmentation-based trade. Data on trade in components are separately listed under the commodity classes of machinery and transport equipment (SITC 7) and miscellaneous manufacturing (SITC 8). Even for these two commodity classes, the database does not provide a comprehensive coverage of trade in parts and components. For instance, production of some products within SITC 7 requires tailor-made inputs belonging to other product categories such as wafer fabrication (SITC 5) and high-precision metallic parts (SITC 6). The problem of under coverage of components is perhaps even greater for some products belonging to SITC 8, such as clothing, furniture and leather products. Some components used in the production of these goods are (for example, designer/tailor-made fabrics, parts of furniture, parts of leather soles) presumably recorded under SITC 6. Moreover, there is evidence that production fragmentation has been spreading beyond SITC 7 and 8 to other product categories such as pharmaceutical and chemical products (falling under SITC 5) and machine tools and various metal products (SITC 6). Assembly activities in computer software industry, too, have recorded impressive expansion in recent years. These are lumped together with “special transactions” under SITC 9. As a result, our estimation of the magnitude of components trade is downward biased.

The paper is structured as follows. Section 2 examines trade patterns in East Asia in the global context, paying attention to the nature and extent of production sharing and networkbased trade, East Asia's role in this new form of international exchange and its implications for regional versus global economic integration. In Section 3 the latest available data are pieced together to examine the impact of the global crisis on export performance of East Asian economies. Section 3 deals with postcrisis policy challenges, focusing on the emerging debate on rebalancing (or, reshaping) development strategy. The final section summarizes the key findings and draws out some general inferences.

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