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The Impact of Export Promotion strategies trade sector on in Economy of Myanmar Chapter I. Introduction II. Literature Review III. Changes in Trade Policy and export promotion strategies IV. Analysis on Export Structure changes V Conclusion The Impact of Export Promotion strategies on Trade Sector in Economy of Myanmar Ms Kyi Kyi Hlaing (Myanmar) Abstract Trade was regarded as an engine of growth .In early postwar years the trade policy in developing countries focused on inward looking policy to emerge the industrialized country in line with their macroeconomic policy. In the late 1980s, however, the world economy had trade to benefit the economic growth of the nation. There is a two-way link between trade witnessed for phases of changes along with the globalization process. Most of the developing countries opened up their economies and liberalized in trade. Their trade policy shifted from (inward-oriented) import substitution industrialization to export promotion policy (outward oriented). Once, Myanmar practiced the import substitution industrialization policy during central planned economy . In line with the changes of world economy, Myanmar also initiated the series of economic reform in various sectors in general and particular in trade sector. Since Myanmar has adopted market oriented economic policy in 1988, the government liberalized in trade sector and adopted the export promotion policy to develop as an industrialized country and encouraged the private participation in international trade to promote the export expansion. In additions, the trade sector had emphasized to implement the export promotion strategies rather than the policy of import substitution. As a result, Myanmar got in a favor of balance of trade since 2004-05. The total value of export grew significantly in term of value and volume. Total value of export increased from US$ 5071.28 million in 2000-01 to US$ 7930 million in 2006-07. The share of private sector estimated about 54 percent and the rest of the share is for the State. Keywords: Export promotion strategy, Trade policy, 2 The Impact of Export Promotion strategies on Trade Sector in Myanmar Ms Kyi Kyi Hlaing (Myanmar) Background Due to the First World War and the Great Depression, world commodity market collapsed and almost countries faced macroeconomic imbalance and contentious deficits in balance of trade. For that reason, the government of every country attempted to interfere in international trade due to the market failure. When the markets do not function perfectly like inefficient allocation of resource, government should use the trade restriction to offset the impact of already existing distortions. Most of the developing countries opened up their economies and liberalized in trade and Their trade policy shifted from (inward-oriented) import substitution industrialization to export promotion policy (outward oriented).The choice between these two strategies is based on both the nature of international economic environment and the particular characteristics of individual economies. Export promotion strategy is defined as a development strategy that promotes industrialization and economic growth through encouraging exports. Economists tend to defined export promotion as providing similar incentives for firms to produce for domestic and foreign markets. Often identified with outward-oriented strategy, it sought to link the domestic economy to the world economy in order to foster industrialization. In theory, this strategy encourages free trade including free movement of factor of production and foreign direct to the investment and free flow of information. Export-oriented industrialization or export promotion strategy also has advantages and disadvantages. 1 Advantages include the following: (1) it overcomes the smallness of the domestic market and allows a developing nation to take advantage of economies of scale. 1 Dominick Salvatore, International Economics 8th Edition, John Wiley & Sons, INC 3 (2) Production of manufactured goods for export requires and stimulates efficiency throughout the economy. On the other hand, these are two serious disadvantages2: (1) it may very difficult for the developing nations to set up export industries because of the competition from the more establish and more efficient industries in developed nations. (2) Developed nations often provide a high level of established and efficient industries in developed nations. (3) Developed nations also provide a high level of effective protection for their industries producing single labor-intensive commodities in which developing nations already have or can soon acquire a comparative advantage. This study is categorized into five chapters which consists of introduction, literature review, review on Myanmar trade policy, Existing Export promotion measures and attempts and conclusion. First of all, the study presents the rationale for the study and its objective, scope and method relating to the topic in first chapter. Then it studies and analyses on the literature review of international trade and patterns of trade based on various issues in second chapter. After that, it is briefly reviewed on Myanmar international trade performance and patterns of trade according to the changes in trade policies and strategies after adopting market oriented economy since 1988 and it reveals the changes in structures and patterns of Myanmar trade in chapter 3. The fourth chapter discusses the country's existing export promotion measures and attempts, and the trade facilitating measures implemented by Trade Council (TC) and analyses on the changes in export patterns. The last chapter is the conclusion of the study and in this chapter, the paper will expose the weakness to compete in international market and the put forward the suggestions how to promote Myanmar export in international market, overcome trade barriers, encourage trading sector, attract Foreign Direct Investment (FDI) in trading sector, and implement new measures and strategy to increase the trade volume of country. 2 Dominick Salvatore, International Economics 8th Edition, John Wiley & Sons, INC 4 Literature Review Trade was regarded as an engine of growth .In early postwar years the trade policy in developing countries focused on inward looking policy to emerge the industrialized country in line with their macroeconomic policy. In the late 1980s, however, the world economy had trade to benefit the economic growth of the nation. Most of the developing countries opened up their economies and liberalized in trade. Their trade policy shifted from (inward-oriented) import substitution industrialization to export promotion policy (outward oriented). Once, Myanmar practiced the import substitution industrialization policy during central planned economy . In line with the changes of world economy, Myanmar also initiated the series of economic reform in various sectors in general and particular in trade sector. Since Myanmar has adopted market oriented economic policy in 1988, the government liberalized in trade sector and adopted the export promotion policy to develop as an industrialized country and encouraged the private participation in international trade to promote the export expansion. In additions, the trade sector had emphasized to implement the export promotion strategies rather than the policy of import substitution. In Myanmar, Ministry of Commerce (MOC) formed Export-Promotion Information Centre (EPIC) in 1st March of 2005, that essentially concerned with the promotion of export activities such as broad education on export promotion, arrangement of export promotion workshop, issues of trade news through mass media; providing services for export promotion etc. As far as trade policy for a 30-year long-term plan period is concerned, the government has set out the objectives3 as follows: 1. To increase the trade volume of the country in terms of Export first Import second – to raise export promotion first and control the imports when it comes to implementation of trade policies for development of the country. 2. To reach a balance of trade effective from the first five years of third short-term plan period and to enjoy a trade surplus in the fourth short-term plan period. 3 Ministry of Commerce 5 3. To reduce the ratio of the State's involvement and increase the participation of private sectors in dealing with international trade 4. To cooperate with other foreign countries in addition to neighboring and ASEAN member countries for the self-interest of the country 5. To promote not only normal trade but also border trade for the development of trade 6. To increase the volume of export to earn more foreign exchange 7. To raise the productivity by utilizing modern manufacturing machinery Rapid growth of foreign trade under market oriented system is mainly due to active private participation of the state and private sector just like a competitive pattern. The ministry of commerce gives continuous effort for the export promotion measures by the coordination and cooperation of concerned ministries. During the market oriented economic system, Myanmar enjoy consecutive trade surplus significantly since 2002-03. Prior to 2001-02, Myanmar was facing the deficit in international trade consecutively due to the “import first export later” measures. To reduce the persistent trade deficit, “export first import later” measure was replaced and Trade council established to control the import. Moreover, the Ministry of Commerce (MOC) continuously attempts to promote the export by the coordination and cooperation of concerned ministries. Therefore, trade deficit gradually decreased. By figure Myanmar has gained trade surplus of $954 million in 2004-05 financial year, U$1575 million in 2005-06 financial year and $2087 million in 2006-07 year which was the highest record of trade surplus throughout the period since market oriented economy has been adopted. 6000 5000 4000 3000 2000 6 1000 Export Import 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 0 1989-90 US$ million Changes in value of export & import (1988-2007) Year Hence the trade volume of the country has risen about 21 times from US$ 391 million in 1988-89 to US$8169.41 million in 2006-07 under the export promotion strategy. Thus, Myanmar got in a favorable situation in 2006-07. In fact, massive export of natural gas caused the positive effects on terms of trade and balance of trade of Myanmar international trade. Myanmar enjoyed trade surplus of US$ 2295. 95 million in 2006-07 which is up from $1573.37 million in 2005-06 financial year and it was the highest record of the trade surplus throughout the period since market oriented economy has been adopted. Ministry of Commerce (MOC) is making efforts to promote export by setting up the objectives: - to export all exportable surpluses and diversify foreign markets by using natural and human resources - to increase and diversify exports and improve the quality of products. By comparing the export structure , the share of natural gas in total export value was 44.5% in 2006-07. The second was beans and pulses which caused dramatic increase in agricultural export. Apparently the structure of Myanmar export was dominated by natural resource products rather than the primary products such as agriculture products. Due to huge export of natural gas, the economic growth of Myanmar significantly increased. Major export commodities (2006-07) No 1 2 3 4 5 6 7 8 9 10 Commodity Value (million in US$) Natural gas 2039.1 Beans and Pulses 608.6 Timber in log 460.7 Jade 355.6 Garment 279.1 Fishery 116.0 Minerals and Ores 111.9 Shrimp 105.8 Timber 50.7 Gems and Jewellary 30.3 - Source: Source: Ministry of Commerce, Myanmar US$ in million Percentage 44.5% 13.3% 10.0% 7.8% 6.1% 2.5% 2.4% 2.3% 1.1% 0.7% 7 Moreover, MOC encouraged the private participation in foreign trade as well as in border trade by eliminating some trade restrictions. Border Trade is most important for Myanmar. Border Trade Department of Trade Ministry was officially founded in 28 August, 1996 as first priority institution. Under this institution, trade offices are opened. Border Trade with China, India, Thailand, and Bangladesh are officially signed with respective countries. India and Bangladesh are becoming more and more important for Myanmar’s border exports and China is increasingly important for Myanmar’s border imports. Top 10 exports through normal and border trade (2005-06) Normal Trade No Commodities 1 2 3 4 5 6 7 8 9 10 Natural gas Garment Teak Log Jade Hard Wood Log Metal & Ore Shrimp Fish Green Gram US$ million 1079.59 272.55 240.29 205.47 169.73 102.4 99.4 87.83 76.3 Border trade in Commodities Fisheries Green Gram Crab Shrimp Other Marine Products Cashew nut Eel Beans and Pulses Isinglass Fish Powder US$ million 130.55 29.91 21.85 17.68 14.88 11.43 11.17 10.48 8.56 7.07 in Source: Ministry of Commerce The potential for the development of Myanmar’s export in border trade may be examined by using the “Export Intensity Index”. This indices measure the extent to which a partner country’s share in a country’s exports (imports) is larger or smaller in relation to the former country’s share in world trade. It is defined as: Export Intensity Index x ij = X ij X i M j M w Mi x ij = Export intensity index of trade of country i with j X ij = Total export of country i to country j X i = Total export of country i 8 M j = Total import of country j, M w = Total world imports, and M i = Total imports of country i If export intensity index is more (or less) than 1.0, it means that Myanmar is exporting more (or less) to a particular country than might be expected from the country’s share in world trade. Likewise, the intensity of Myanmar’s import index indicates the extent to which Myanmar imports more (or less) from a particular country in border trade than might be expected from that country’s share in total world trade. Problem Statement Competitiveness issue is one of the challenges faced by exporters in Myanmar in order to facilitate trade. The critical one that we are facing is supply side constraints problem. Most of the exporters are entirely depend only upon a few exportable products. Although efforts are being made to identify new products and trying to get market access, it could not be appeared due to the following weaknesses :- Limited capacity to produce for export - Lack of exports diversification into high value-added, processed and manufactured products - Stringent quality and standard requirements - Production of export products not matched by market demand - Inadequate foreign market information - Lack of skilled manpower and institutional capacities - Lack of technological capacity and technical know-how - Lack of financial and marketing capability Research Questions 1) How much extent the export volume could be promoted by changing export strategy ? 9 2) Are there development of private involvement in Myanmar’s export share? Objective of Study The paper mainly aims to study the changes in export structure by adopting the export promotion strategy and its impacts on Myanmar economy after Myanmar launched economic reforms in line with market oriented economic system. The paper will reveal the prospect of development of trade in general and particular in the changes of export volume and structure in line with Myanmar Export Promotion Strategy. Conceptual Framework Reduce state involvement Changes of export strategies Export promotion Increase private involvement Cooperation with other countries Surplus balance of trade Normal trade Border trade Export volume Exporters increase and diversify exports Increase export quality 10 Scope and Limitation of study The study focus on the changes in export patterns of Myanmar experienced after initiating the economic reform in line with the changes of trade policies period after 1988. Methodology The study of this paper is also based on the descriptive methods using secondary data obtained by trade bodies such as the Ministry of Commerce, Trade Council (TC) ,the Union of Myanmar Federation of Chambers of Commerce and Industries (UMFCCI), World Trade Organization (WTO), ASEAN, Customs Department and other international trade organizations. Expected outcome and dissemination The study is expected to identify what are the constraints to increase exports of Myanmar . The research findings will be disseminated in workshops, particularly the Mekong Institute Round Table Meeting, government officials and other relevant stakeholders interested in Trade sector. In addition, the report will be published as a research working paper of the Mekong Institute (MI). It is also intended to publish in review of development and cooperation of MI. 11 References: 1. ASEAN: Statistical Year book 2008 2. CSO: Statistical Year book 2007 (Yangon: Central Statistical Organization) . 3. Cho Cho Thein,(2004) Trade and Economic Development of Myanmar Ph.D Thesis submitted to Centre for Economic Study and Planning of Jawaharlal Nehru University, New Delhi, India 4. UMFCCI, Export Promotion and Diversification in Myanmar, Yangon, ESRI 2, 2005, 5. Ministry of Commerce : “ Trade Relations between Myanmar and other countries” (Ministry of Commerce: Department of Trade, February.2005) 6. Mya Than ., Myanmar’s External Trade: An overview in the Southeast Asian Context ( Singapore: ISEAS, 1992 ) 7. Mya Than & Tan , Joseph L. H., (eds) Myanmar Dilemmas and Options : The Challenge of Economic Transition in the 1990s (Singapore, ISEAS,1990,) 8. Mya Than “ASEAN, Indo-China and Myanmar Towards Economic Cooperation” ASEAN economic Bulletin, vol. 8, no.2. November, 1991. 9. -----------, “Myanmar’s Cross-Border Economic Relations and Cooperation with the People’s Republic of China and Thailand in the Greater Mekong Subregion” 10. MYANMAR: Facts and Figures, 2000&2002 (Yangon: Ministry of Information) 11. Myat Thein, 2004, Economic Development of Myanmar, ISEAS. 12. --------------, 2001, Trade and Industrial Policy, Mimeographed, Yangon. 13. Website- : http:// www. commerce.gov.mm/ 14. Todaro Michael, P & Stephen C. 2003, Smith, Economic Development, 15. Pearson Educational Limited. The Myanmar Times, Weekly Business Journal (Myanmar and English 12 13 TIMETABLE Jun-10 No. Activities 1 Advocacy 2 Data collection 3 Data entry and cleaning 4 Mid-term review 5 6 Data analysis Report writing - First draft 7 Report finalization Jul-10 W1 W2 W3 W4 W1 W2 X X X X X X X X X X Aug-10 Sep-10 W3 W4 W1 W2 W3 W4 W1 W2 X X X X X X X X X X X X W3 X Oct-10 W4 Nov-10 Dec-10 W1 W2 W3 W4 W1 W2 W3 W4 X X X X X X X X X X X X X X X X Jan-10 W1 W2 W3 W4 W1 W2 W X X X X X X X X X X X ESTIMATED BUDGET No. Description Contribution of Fund Remarks Myanmar 1 Total MI Recepient Direct Costs 1.1 Advocacy 200.00 200.00 1.2 Local Transportation 500.00 500.00 bus, train, taxi, airfare 1.3 Accommodations/Food 500.00 500.00 during data collection for three months 1.4 Books and literature purchase 100.00 100.00 1.5 100.00 100.0 0 1.6 Software purchase/rent Field activities expenses (tea/ snacks, others) 200.00 200.00 1.7 Team leader/members allowances 300.00 300.00 2000.00 2000.00 Sub-total during data collection not more than 10% of the total fund - 2 Support Services 2.1 Printing/Copying 200.00 200.00 2.2 Tel, fax, internet,Mail 500.00 500.00 2.3 Computer accessories 200.0 200.00 2.4 Stationary/purchase 100.00 100.00 1000.00 1000.00 for report and other documents Notebook, folders, pencils Sub-total Dissemination - 3.1 National workshop - 3.2 Publication on local language - 3 Sub-total 4 - - Recipient Contribution for ten months 4.1 Computer uses 100.0 100.00 4.2 Office room uses 300.0 300.00 4.3 Contribution on cash 4.4 Others (please specify) 400.0 400.00 3400.0 3400.00 for ten months Sub-total Grand Total US$ 16