Globalization of Industrial Production: The Case of the Electronics Industry and Its Environmental Impact

1. Globalization of Industrial Production : The case of the Electronics Industry and Its Environmental Impact Thanpuying Suthawan Sathirathai, Ph.D. Good Governance for Social Development and the Environment Institute (GSEI)

2. Major factors which have impact on industrial environmental management in Thailand:-  External Factors Globalization  Internal Factors Domestic policy and governance

3. Major factors which have impact on industrial environmental management in Thailand :- External Factors :-  Unilateral investment liberatization  International Trade and Investment Agreements - Multilateral Agreements (WTO) - Bilateral and Regional Agreements (such as FTAs) • Foreign Direct Investment (FDI), increased by 34% in 2005

4. Major factors which have impact on industrial environmental management in Thailand:- External Factors :-  International environmental agreements :-  Multilateral Environmental Agreement (MEAs) (Basel convention, Kyoto Protocol and CBD etc.)  EU Directives (WEEE, ROH, REACH etc.)

5. Current trends in Developed Countries(EU, Japan, US etc.)  Developed countries relocate production by outsourcing the manufacturing process (deindustrialization) to developing countries and LDCs, while moving towards high-income knowledge-based service industries.  After the East Asian crisis, the inflow FDI service industries (power generation and distribution, telecoms etc.) rose to 44% in 2001. At the same time their manufacturing FDI declined from 40% to 35%.

6. Current Trends in Developing Countries:-  The inflow of manufacturing FDI among developing countries in South, East and Southeast Asia increased by 54% in 2005  Large sector inflows are in electronics and automobiles Motives for Developed countries outflow of FDI:-  Low-cost manufacturing base - Outsource manufacturing process involving semi- skilled and un-skilled labour - Lower environmental costs leading to the “Pollution havens” problem (The study : “Impact on the Environment of Thailand’s Trade with OECD Countries, Asia-Pacific Trade and Investment Review”, Vol.2, No.1 by Kakali Mukhopadhyay,in May2006)  Open up domestic markets in developing countries

7. Important Conditions :-  FDI takes place in the proviso that technology transfer can not be a requirement. At the same time Intellectual Property Rights are strictly protected (through Performance Requirement and IP of the international trade and investment agreements.)

8. Major factors which have impacts on industrial environmental management in Thailand Internal Factors • Development Policy / Approach - Not in line with sustainable development by focusing on short-term economic objectives, while ignoring environmental and social impacts. 1. Promote every kind of investment without considering long term benefits and costs. 2. Overlooking technology upgrading and human resources development which has led to the country becoming totally dependent on foreign capital and technology in industrial development. As a result less bargaining power attracting foot loose industry (detrimental to the environment and workers’ health)

9. Globalization of supply chain : The Case of Electronics Industry Highest value-added (US,Japan,EU,Korea etc.) Control of Technology ,R&D ,Brandname High/medium value-added (Japan,Singapore,Taiwan province of China, etc.) Contract Manufacturers (CM) Control of logistic and production plan Lowest value-added (Thailand, The Philippines, Vietnam, Indonesia etc.) Manufacturing process with labour intensive (Assembling)

10. Major factors which have impact on industrial environmental management in Thailand Internal Factors  Environmental governance - No checks and balances in the industrial environmental management system (problems of conflicting roles in the governmental agency. DIW has both the roles of promoting industries while regulating their environmental performances at the same time) - Wrong incentives (PPP never works) because law enforcement and monitoring system fails. - No transparency (Access to information is not possible) - No public participation (So far local communities have limited legal rights in protecting the environment.)

11. Important observation :- • Without “bargaining power” because of economic dependency (especially with no local technology and high quality human resources), good governance is even harder to achieve. The country cannot afford to haveand enforcestrict environmental regulations for fear of driving footloose industries away.

12. Concluding picture Through IP and Performance Requirement in Investment Chapters (harder for technology upgrading) External factors(esp. Trade and Investment Agreements) Low “bargaining power” (highly dependent on foreign technology/intermediate good/can offer only labour for local inputs) Low value-added products Internal factors :-- Development approach- Environmental governance Short-term economic objectives Attracting low-quality FDI (foot-loose industries) Poor governance Environmental and Health problems in Electronic industry

13.  Sufficiency Economy (S.E.) Philosophy emphasizes a balanced way of development and strengthening the country’s immune system.  Appling S.E. Philosophy : focusing on how Thailand can leverage on the existing trend of globalization and the same time protect our people’s welfare and the environment. :- • Less dependency improve “bargaining power” by upgrading industries through technology competence, development of human resources, productivity improvement • Strengthening Thailand competitiveness by searching for our potential “niche market” (agritronics etc.)  Improve environmental governance