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THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
2
Staff working paper
The Digital Economy as an Accelerator of Regional Integration in Asia-Pacific
Tiziana Bonapace, Jorge Martinez-Navarrete,
United Nations Economic and Social Commission
for Asia and the Pacific (UNESCAP)
Authors Note
The authors gratefully acknowledge the research assistance provided by Francesco Pacella and
comments received from Alberto Isgut and Emma Lovell from ESCAP, Torbjörn Fredriksson
and Rémi Lang from the United Nations Conference on Trade and Development, and John
Moon, consultant
The views expressed herein are those of the authors, and do not necessarily reflect the views of the United Nations. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This publication has been issued without formal editing and the designations employed and material presented do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities or concerning the delimitation of its frontiers or boundaries. Correspondence concerning this article should be addressed to e-mail: [email protected].
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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Abstract
This paper seeks to determine the effects of the digital economy in the regional integration
process underway in the Asia-Pacific region. Based on international trade and information and
communications technology (ICT) statistics, the digital economy is accelerating the process of
regional integration in a number of ways. First, the digital economy, by fostering intra-regional
growth in trade and employment, is inducing shifts in the regional development paradigm.
Second, ICT in the region has emerged as a source of dynamism and innovation that has enabled
virtually every other sector to increase productivity, which has changed the way businesses
integrate production processes across borders. Nevertheless, serious challenges remain, and these
need to be addressed before a truly borderless connectivity is achievable region-wide. This paper
suggests policy recommendations to address these challenges; these include the need for an
enabling policy environment that allows for the movement of enterprises up the value chain by
raising technological skills and promoting labour mobility. The paper underlines the need for a
region-wide ICT infrastructure expansion and puts forward proposals for strengthening
intergovernmental cooperation.
Keywords: connectivity, regional integration, ICT for development, digital divide, ICT
infrastructure, trade in ICT goods.
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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The Digital Economy as an Accelerator of Regional Integration in Asia-Pacific
The digital economy is an accelerator of the regional integration process already
underway. This is taking place in two ways:
First, because the digital economy is expanding significantly, it is contributing to shifts in
the regional development paradigm, with growth increasingly sourced from within the region.
An increasing percentage of the region’s employment and trade is in the information and
communications technology (ICT) sector. Over the period 2002-2009, intra-regional trade in ICT
goods increased at an annual average of 20.8 % as compared to 15.7% and 8.39% for the
region’s ICT goods destined for the European Union (EU) and United States (US) markets
respectively. The share of ICT parts and components destined for assembly within the region
itself increased from 66% in 2002 to 69.3% in 2009, and even more importantly, the region’s
consumption of end-products more than doubled from US$ 63.9 Billion (or 31.1%) to US$ 148.2
Billion (or 34.5%) as shown in Figure 1.
Figure 1: Share of intraregional trade of ICT goods in Asia-Pacific, 2002 and 2009 (percentage of world total)
Parts, 69.3%
End-products,
31.1%
End-products,
34.5%
Parts, 66.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2002 2009
Source: ESCAP. Based on UN Comtrade data of reported imports by Asia-Pacific economies of ICT goods
originating from Asia-Pacific economies. ICT goods are defined in the “Guide to Measuring the Information
Society”, annex 1A (2009 OECD).
Second, ICT in the region has emerged as a source of dynamism and innovation that has
enabled greater productivity in virtually every other sector and changed the way business is
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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done. High-speed communication networks today are having a transformative economic impact
similar to that of the development of transport networks and investment flows a few decades ago.
Through improved internet interoperability, demand for new services and content is growing,
which in turn is fuelling further connectivity and integration among economies and people across
the region. Furthermore, the fact that mobile phones are rapidly moving towards ubiquity in the
region - from 6 to 61 mobile phone subscriptions per 100 inhabitants on average, in less than a
decade (ESCAP, 2011) – there has been a radical improvement in the connectivity of economies
and empowering hitherto marginalized people. Small and medium enterprises (SMEs) now
benefit from improved access to affordable information systems, that enable them to obtain
information in a timely manner, and communicate and better manage their operations (e-mail,
calendars, document management, accounting, among others); this is at considerably lower costs
to those of large enterprises.
However, although a digital way of life is emerging for many people across the Asia-
Pacific region, serious challenges remain. Deep digital divides between and within countries in
the region persist which prevent digital technologies from reaching their true transformational
potential in connecting economies and empowering peoples. These challenges need to be
addressed before a truly borderless connectivity is achieved region-wide.
We examine these developments in more detail below and conclude with a set of policy
recommendations.
Methodology
This research study seeks to determine the effects of the digital economy in the regional
integration process underway in the Asia-pacific region. The study is based on a literature review
(see references section) and on statistical analysis of international trade data of ICT goods
obtained from the United Nations Commodity Trade Statistics Database (UN Comtrade). Annex
A provides details of the trade data used, which follows the methodology of the United Nations
Partnership on Measuring ICT for Development and the definition of “ICT goods” as contained
in the “Guide to Measuring the Information Society” published by the OECD. (OECD, 2009).
Annex A also describes discrepancies in data between the value of ICT goods reported by
exporting countries, and their mirror data namely the value of ICT goods reported by the
destination or importing country.
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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Findings
I. The ICT supply chain is a key driver of the market-driven regional integration process
The world imports more ICT goods from Asia-Pacific than from any other region in the
world. These imports have grown rapidly around the world, but since 2002, the fastest demand
has been seen in the intraregional market, which has seen a particularly rapid growth of over 20
% average annually (see Figure 2).
Figure 2: Where the World buys ICT Goods?
Origin of Imports of ICT Goods, 2009
Latin America and Carib.5%
North America7%
Europe19%
Asia and the Pacific68%
Other countries/areas1%
Africa0%
Average Annual Growth of Imports of ICT
Goods Originating from Asia and the
Pacific (2002 – 2009), Selected Economies
United
States,
8.39%
European
Union (15),
15.74%
Asia‐Pacific
Economies,
20.80%
0%
5%
10%
15%
20%
25%
30%
Importer of ICT Goods from Asia‐Pacific
Source: ESCAP. Based on UN Comtrade data of reported imports. ICT goods are defined in the “Guide to
Measuring the Information Society”, annex 1A (2009 OECD).
Reflecting the integrated production system in ICT manufacturing, trade in ICT goods is
dominated by intra-regional flows. For instance, in 2009, Asia-Pacific importers sourced more
than twice the value of ICT parts from within the region (US$ 286 Billion, 69.3%) as compared
to what they sourced from the rest of the world (US$ 126.9 Billion, 30.7 %). The top three
subregions in Asia-Pacific to import these ICT goods (which had been produced within the
region) were, in 2009, East and North-East Asia and South-East Asia, which together accounted
for US$ 388.3 billion, or 46.3%, of the region’s total exports (see Figure 3).
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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Figure 3: Top Regions Importing ICT Goods Originating from Asia and the Pacific, 2009
6.0
7.9
8.9
14.6
20.6
50.7
89.6
170.4
171.1
298.7
0 50 100 150 200 250 300
Other countries/areas
Africa
North and Central Asia
Pacific
South and South‐West Asia
Latin America and Carib.
South‐East Asia
North America
Europe
East and North‐East Asia
Billion US$ current
Source: ESCAP. Based on UN Comtrade data of the value of reported imports in ICT goods. ICT goods are defined
in the “Guide To Measuring The Information Society”, Annex 1A (2009 OECD).
The demand for ICT end-products (not parts) originating from Asia-Pacific is still mainly
from outside the region (65.5 %), but as mentioned above, the intraregional demand for end-
products is increasing (see Figure 4).
Figure 4: Destination of Asia-Pacific ICT end-products, 2002 and 2009
2002
To Asia‐Pacific,
31.1%
To rest of
World, 68.9%
2009
To Asia‐Pacific,
34.5%
To rest of
World, 65.5%
Source: ESCAP. Based on UN Comtrade data of reported imports. The definition of end-products is
detailed in Annex A. ICT goods are defined in the “Guide to Measuring the Information Society”, annex 1A (2009
OECD).
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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The thriving growth of the ICT sector in Asia-Pacific has been accompanied by a rise in
world class Asian manufacturers, operators and service providers. Using innovative business
models such as targeting low-income but large-volume consumer bases, enterprises in the region
have capitalized on this growing consumer base, leading to a vibrant digital regional market. The
ICT sector is particularly important as a source of export revenue for some economies in the
region, as can be seen in Table 1.
Table 1: Exports of ICT Goods as a Share of Total Exports. Selected Economies, 2009 (Percentage)
Hong Kong, China 43.1Malaysia 36.5Philippines 36.4Singapore 33.9Taiwan, Province of China 33.0China 29.7Republic of Korea 21.9Thailand 19.8Japan 12.1India 3.5
Source: ESCAP, based on data from UNCTAD available at UNCTADstat, Share of ICT goods in international trade, annual, 2009.
A virtuous circle has set in, whereby increased employment creation combined with more
affordable and more diffused ICT equipment and services has stimulated greater demand for
digital products and services. For example, in China’s telecommunication sector, employment
grew annually at an average of 3.7% from 2002 to 2008, while total employment growth on
average has consistently stayed below 1.2% annually since the mid nineties.1 Within the same
context, in 2011, China became the largest market of smartphones, surpassing the United States.2
A recent study measured the impact of the Internet on the Gross Domestic Product (GDP)
of selected economies, in 2009 (McKinsey, 2011). The study considered expenditures and
consumption, by public and private entities, in activities related to the Internet (e.g. e-commerce,
online advertising), telecommunications (e.g. internet service providers), software development
and ICT consulting, as well as hardware manufacturing and maintenance of equipment used for
the Internet. In the region’s four largest economies, internet consumption and expenditures were
1 ESCAP. Full-time telecommunication employees in China obtained from the ITU World Telecommunications/ICT Indicators database 2011. Employment % change per annum in China obtained from ESCAP Statistical Yearbook 2011, p. 220. 2 Reuters. China overtakes U.S. in smartphone sales-analyst, accessed on 25 – Nov – 2011 website: http://www.reuters.com/article/2011/11/23/china-usa-smartphones-idUSN1E7AL1KX20111123
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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found to contribute 4% of the GDP of Japan, 2.6% in China, 3.2% in India, and 4.6% in the
Republic of Korea. The growth in the internet economy was found to be largely market oriented,
driven either by private domestic consumption, or by exports. For example in the Republic of
Korea and Japan private consumption is responsible for 69% and 47% respectively of the above
mentioned consumption shares of GDP. For India and China this figure was 47% and 39%,
respectively, which can be explained by net foreign trade in Internet-related activities.
II. Gaps and Opportunities for Regional Integration
Technological innovations in recent years have lead to a second IT revolution, not seen
since the early 1990s. In Asia-Pacific, as in other regions of the world, mobile telephony and
broadband internet in particular are bringing unprecedented digital opportunities that are creating
new spaces for, and an acceleration of, regional integration. At the same time, a number of gaps,
particularly in infrastructure, need to be addressed, if the potential offered by digital
opportunities is not to be turned into a digital divide that accelerates regional inequities to the
detriment of greater regional integration. In this section we review the digital divides and other
gaps, assess them against new opportunities and propose regional policy actions.
While the region benefits from having the most advanced country in the world in terms
of ICT infrastructure and human capacity - the Republic of Korea (according to the ICT
Development Index (IDI) in 2011), closely followed by Hong Kong (China), Japan and
Singapore - it also has countries such as Papua New Guinea which rank among the lowest (ITU
2011: 29).
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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Bangladesh, $580Bhutan, $2,030
Fiji, $3,840
Hong Kong, China, $31,420
India, $1,180
Indonesia, $2,050
Japan, $38,080
Korea (Republic of), $19,830
Macao, China, $35,360
Malaysia, $7,350
Maldives, $3,970
Philippines, $2,050
Russian Federation, $9,340
Singapore, $37,220
Sri Lanka, $1,990
Thailand, $3,760
Viet Nam, $930
0
1
2
3
4
5
6
7
8
9
10
-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
ICT Price Basket (IPB)
ICT
Dev
elo
pm
ent
Ind
ex (
IDI)
The size of the bubble refers to GNI per capita, USD, 2009. Data source: ITU 2011
Sources: ESCAP based on data from International Telecommunications Union, Measuring the Information Society
2011. http://www.itu.int/ITU-D/ict/publications/idi/2011/;
Notes: The ICT Price Basket (IPB) is a composite basket based on the user prices for fixed-telephony, mobile-
telephony and fixed-broadband Internet services, computed as percentage of average income level.
The ICT Development Index (IDI) is a composite index combining 11 indicators related to the level of networked
infrastructure and access to ICT, the level of ICT usage in society, and the level of ICT skills.
Figure 5 shows the relationship between ICT connectivity, per capita income and ICT
usage prices, as calculated in ITU indices. First, as expected, there is a strong correlation
between ICT development and per capita income (correlation value of 0.885). Second, in
contrast, ICT prices and per capita income have an inverse relationship (correlation value of -
0.446) reflecting the regressive nature of the sector across the income spectrum. Third, as the
price index increases, the ICT development index falls sharply with a negative correlation value
of -0.597. In this regard, what is of even greater concern is that, in the very countries that already
have the lowest per capita income levels and the lowest ICT development indices, ICT prices
Figure 5: Relationships between connectivity, usage prices and income, selected economies,
2009
Nepal, $440
Papua New Guinea, $1,180
Cambodia, $610
Lao PDR, $880
0
0.5
1
1.5
2
2.5
20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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have increased exponentially four or five fold (see inset countries in Figure 5). This underlines
the close association between poverty, low ICT connectivity, as well as high user prices, that are
not only out of line with other countries in the region, but are also present in those very countries
where people are the least able to afford them. Disconnectedness in these countries can thus turn
into a vicious cycle that negates, particularly for the poorest, the benefits that wider integration
of the region can bring. We return to this in the policy recommendations.
Disconnectedness across the region takes on many forms that can be more problematic
over the long term than ICT indicators suggest. This is the case particularly for access to high-
speed broadband internet. On average, less than 20% of people in Asia-Pacific have access to the
Internet and a mere 3% to 4% have access to high-speed broadband, which is instrumental for
the exchange of content-rich materials. This level of internet access is not only much lower than
in North America (78%), Europe (62%) and even Latin America and the Caribbean (33%), but
the divide is widest in those technologies that are most closely associated with the reshaping of
the information economy and the transformation towards a knowledge-based society in the
region (ESCAP, 2011, p. 238).
These divides are not too surprising given the great inequalities that exist between
countries in the region in their capacity to carry communications traffic internationally
(International Bandwidth).3 The differences result in countries having to pay high prices (and
disproportionately high prices for some countries, as mentioned above) for slow connections,
low quality of communication, as well as low content delivery (e.g. simple email exchanges
rather than data intensive streaming).
International Bandwidth in turn depends on the physical connectivity infrastructure
available to a country which can be divided broadly into three types of technologies, namely
wired connectivity (primarily terrestrial and submarine fibreoptic cables), terrestrial wireless
connectivity, and satellite-based connectivity. Each type provides services that include
broadcasting, telephony, Internet and conferencing at different quality and cost. 3 International Internet bandwidth is the capacity which telecommunication operators have to carry internet traffic internationally. It is measured as the sum of capacity of all Internet exchanges. See ITU definition, unit of measure (Mega Bits Per Second (Mbit/s) at: http://www.itu.int/ITU-D/ict/material/TelecomICT%20Indicators%20Definition_March2010_for%20web.pdf
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Having developed a strong export-oriented economy, most of the region’s high capacity
data transmitting routes are with markets in Europe and North America. In fact, around four-
fifths of high capacity international routes with Asia continue to be the Trans-Pacific routes; with
Hong Kong (China), Tokyo, Singapore and Seoul having emerged as the core global hubs (where
international carriers have established points of presence) in Asia (see Figure 6). The rest are
mainly through the Indian Ocean/Mediterranean routes. This raises a number of issues, while at
the same time providing new opportunities for regional integration.
People-centred regional integration
Complex societal challenges emerge when access to high speed, continuous connectivity
is unequally distributed. On the one hand, many individuals find themselves empowered to
broadcast ideas and connect in ways that are pivotal to the power of group dynamics. An
engaged citizenry with IT-enabled shared values is emerging and often transcends traditional
national boundaries. It is influencing and accelerating the reorganization of all institutional
structures - both horizontally and vertically – combining the interests of multiple and varied
stakeholders. These emerging networks are rapidly centering regional integration processes
around knowledge systems that are flexibile, fluid and pragmatic, as the creativity of individuals
can always lead to further changes. On the other hand, as these lines of creative cooperation are
drawn and redrawn, the fundamental concern remains: it is the most IT-enabled and well-
resourced individuals and groups that benefit and gain the most from technological innovations.
In this process, demarcation lines are being drawn that may accentuate exclusive rather than
inclusive integration, magnifying socio-economic disparities and deepening inequalities between
the regionally connected knowledge society and the unconnected localized population.
Integrating regional ICT infrastructure
Asia’s landmass offers huge opportunities to provide affordable, reliable and secure
broadband access for a more inclusive and integrated regional knowledge society. By investing
in additional terrestrial fibreoptic cable routes, new transit routes for the transmission of data
could be created, while new “internet hub cities” along the routes could also be developed. This
would bring a number of development gains. For one, it would diversify revenue earning
opportunities for landlocked countries which carry telecommunication traffic. Second, to the
THE DIGITAL ECONOMY AS AN ACCELERATOR OF REGIONAL INTEGRATION IN ASIA-PACIFIC
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extent that it would reduce dependency on EU and US-centric connectivity, it would introduce
competition among networks and provide incumbent carriers with incentives to lower
connectivity prices across all networks. This is important because most of the international
bandwidth deployed around the world is concentrated in the hands of relatively few international
carriers. Not surprisingly therefore, at present, telecommunication costs in the region are higher
than in European and North American internet hub cities. For example, while Hong Kong
(China) is regarded as the most competitive Internet transit market in Asia, prices are still
approximately 2.5 to 3.5 times higher than in London (United Kingdom). Costs are even higher
in cities far from major Internet exchanges such as Bangkok (Thailand) and Manila (Philippines)
due, at least in part, to the cost of transport back to the primary exchange.4 Third, with regards to
forging new forms of regional integration, internet hubs unlike other forms of infrastructure
hubs, do not need to be located in physical proximity to Asia’s megalopolises. Asia’s congested
mega-cities with their high operation costs and increased exposure to disasters – be they
manmade or natural - increase the attractiveness of finding untapped physical connectivity in
remote expanses of land. In similar ways to the concept of dryports, such internet hubs would
offer new and cost-effective ways of decentralizing economic activities for a more inclusive and
geographically balanced development process in the region. Furthermore, the possibility of
developing cross-sectoral synergies between dryports and internet hub cities could further
enhance the commercial viability of both.
4 TeleGeography, Global Internet Geography Executive Summary, accessed on December 16 2011 at at: http://www.telegeography.com/page_attachments/products/website/research-services/global-internet-geography/0002/4221/telegeography-global-internet.pdf
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Figure 6: Submarine telecommunications cables landing in Asia-Pacific
Source: Adapted from the Submarine Cable Map, publicly available at www.submarinecablemap.com.
Significant increases in regional internet traffic volume
Internet traffic volumes in the region are expected to continue to increase exponentially.
This is due to the well-known dynamic growth processes in the region that will see more region-
centric trade, transportation, financial and energy flows. Furthermore, since digital content
delivery, including cloud-based services, has started to move physically closer,to the region’s
end-users, intra-regional traffic flows will continue to increase. This necessitates the
development of a land-based infrastructure that connects Asian-Pacific countries with each other
directly, and in an affordable, reliable and secure way.
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Momentum increasing in public and private investments
The urgency is supported by a number of subregional initiatives that have come into
existence. For example, in the Greater Mekong Subregion (GMS), progress continues in
completing and upgrading the national sections of the GMS Information Superhighway Network
(ISN)5, which is an ongoing US$ 65 million project funded by the Asian Development Bank
(ADB) to build and develop the backbone of telecommunication connectivity in that subregion
(ADB, 2011). Similarly, in South Asia, under the ADB funded South Asia Subregional
Economic Cooperation (SASEC) Information Highway initiative that aims to establish new and
enhance existing data connectivity capacity between Bangladesh, Bhutan, India, and Nepal,
around US$ 16 million in grants and loans have been approved.6 This initiative may serve as a
preliminary phase to the development of an extended South Asian Association for Regional
Cooperation (SAARC) information highway.
The third generation of the Trans-Eurasia Information Network (TEIN) provides high-
capacity connectivity between research institutions in China, India, Indonesia, Japan, Korea,
Laos, Malaysia, Nepal, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan Province of
China, Thailand, Vietnam and Australia.7 This network which was recognized at the 8th Asia-
Europe Meeting (ASEM) Summit of Heads of State and Government (Asia-Europe Meeting,
2010) is expanding to Bangladesh, Bhutan and Cambodia.
Similarly, in Central Asia, an initiative called the Central Asia Research and Education
(CAREN) project, amounting to around 6 million euros, came into operation in 2010 connecting
Kyrgyzstan, Tajikistan and Turkmenistan. This network is expected to be extended to
Kazakhstan and Uzbekistan.8
5 Joint Ministerial Statement, GMS in the Next Decade: New Frontiers of Cooperation, 16th Ministerial Meeting, 20 August 2010, Ha Noi, Viet Nam. 6 ADB, project information document, accessed on 29 November 2010 at: www.adb.org/Projects/project.asp?id=40054 7 www.tein3.net accessed on January 3 2012. 8 European Commission website, accessed at: http://ec.europa.eu/europeaid/where/asia/regional-cooperation-central-asia/education-and-research/caren_en.htm
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Cognizant of the need for such infrastructure to be built rapidly, private sector companies
have also stepped up their efforts (TeleGeography, 2011). For example, an underground high-
speed terrestrial network connecting Yadong in China with Siliguri in India was launched in
2010,9 whereas previously these two countries were connected only through submarine cable
routes via Hong-Kong or Singapore. Other private sector initiatives are also underway, for
instance, Russia’s national telecommunications operator Rostelecom and China Telecom
announced in 2011 an agreement to expand the bandwidth of the Transit Europe-Asia (TEA)
cable system – a terrestrial cable system which provides the shortest route between Europe and
Asia, running mainly over Chinese, and Russian territories, and which connects countries in
Central Asia such as Kazakhstan, Ukraine, Azerbaijan, and Georgia.10
By the end of 2009, nine out of the top 30 telecommunications service providers by
revenue in the world were from Asia-Pacific.
Box 1: Pacific connectivity
Some least developed countries (LDCs) in the Pacific, have made progress in getting
connected by submarine cable with the rest of the world. For instance Samoa and
American Samoa are connected through the American Samoa-Hawaii submarine
cable; and the Marshall Islands and the Federated States of Micronesia are connected
via Guam through the HANTRU-1 submarine cable.11 Other Pacific island developing
economies are also connected via submarine cables, such as French Polynesia through
the Honotua cable to Hawaii; New Caledonia through Australia using the Gondwana-
1 cable; and Fiji through the Southern Cross cable (Pacific Islands Forum Secretariat,
2010). Having connected their capitals and densely populated areas, the challenge
remains for these countries to provide connectivity to all of their population – even if
they inhabit remote areas.
Source: ESCAP, based on the Submarine Cable Network Map accessed on January 3,
9 Airtel, accessed on 3 January 2012 at: http://www.airtel.in/wps/wcm/connect/About%20Bharti%20Airtel/bharti+airtel/media+centre/bharti+airtel+news/enterprise/pg-bharti_airtel_launches_high_capacity_direct_terrestrial_link_between_India_and_China 10 Rostelecom website accessed 3 January 2010, available at http://rustele.com/news-and-events/rostelecom-china-telecom-agree-to-expand-europe-asia-bandwidth.html 11 Submarine Cable Map accessed on January 3 at http://submarinecablemap.com/
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publicly available at http://submarinecablemap.com/
Notwithstanding this collection of private and public sector driven initiatives, progress
lags behind the growing influence of the region and expected surges in internet traffic.
Consequently the last issue to consider, is the need for a more systematic form of
intergovernmental cooperation that would provide the organizing framework for the expansion
of ICT connectivity in the region.
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Discussion and Policy recommendations
The region’s integration process stands to gain from further regional policy coordination
that in turn will lead to enhanced productivity, efficiencies, economic well-being and increases in
regional aggregate demand. Several policy recommendations can be drawn from the research
conducted and these have been organized into the following issues: moving enterprises up the
value chain, raising technological skills, facilitating labour and enterprise mobility, and
strengthening regional intergovernmental cooperation in the expansion of ICT infrastructure.
Moving enterprises up the value chain
The region remains very competitive as a supplier of parts, and as a manufacturer of
finished products which have been designed by large multinational companies. Important
portions of the sales profits of such goods go to the companies which design and market these
products. For example, research by the Asian Development Institute found that iPhones (Xing,
Y., and N. Detert, 2011) are designed and marketed by a US company, and are produced with
parts from eight main suppliers, three of which are from Asia-Pacific, namely Toshiba and
Murata (Japan) and Samsung (Republic of Korea). The final assembly of the device is done by
Foxconn (China) and then exported to the US and the rest of the world. The estimated total cost
of producing this device, at the time of the study, including parts and manufacturing, was US$
179 and the retail value at the time of the study was approximately US$ 500.
In deepening regional integration, enterprises in the region must continue to move up the
value chain in order to obtain a larger share of the benefits; this is by not only excelling at
manufacturing and producing parts, but also by designing innovative products and marketing
them as final products. To achieve this, the region must facilitate the combination of skills and
technology from within the region, and strengthen research and development, innovation and
creativity.
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Box 2: Supercomputers: an example of high-tech innovation in Asia
Supercomputers are used to manipulate large amounts of data and simulate complex
scenarios such as weather forecasting, material designs, drug development and other
research activities. Four out of the five most powerful supercomputers in the world
are located in Asia at research institutions with strong government support.
The most powerful supercomputer is located in Japan at the RIKEN Advanced
Institute for Computational Science (AICS) and manufactured by Fujitsu. The AICS
is a result of a cabinet resolution adopted in 2006, the “Third Science and Technology
basic Plan” which designated next-generation supercomputing as a key technology of
national importance (http://www.kcomputer.jp).
The second most powerful supercomputer is located in China at the National
Supercomputing Center in Tianjin and manufactured by the National University of
Defense Technology (NUDT). The NUDT is under the dual supervision of the
Ministry of National Defense and the Ministry of Education
(http://www.nudt.edu.cn). The third most powerful supercomputer is located in the
United States; the fourth is located in China at the National Supercomputing Centre in
Shenzhen (NSCS) (http://nsccsz.gov.cn/) and the fifth is located in Japan at the Global
Scientific Information and Computing Center of the Tokyo Institute of Technology
(http://www.gsic.titech.ac.jp).
Continuing investment in this sector and making this computing power available to
the private sector presents an opportunity for the creation of innovative products and
services to respond to the needs of the region.
Source: TOP500 project accessed 23-Nov-2011 (http://www.top500.org/list/2011/11/100)
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Raising technological skills
As wages and skills continue to increase in some countries in the region (such as China
and India), government and enterprises need to generate employment opportunities,
corresponding to the expectations of this growing middle class, and capitalize on this trend to
develop higher-value-added products and services in the region. Failure to do so may tempt
talented individuals to migrate outside of the region, thus weakening the premises on which
deeper market driven integration should proceed.
Governments and the private sector should consider investing in developing the ICT
skills of individuals at all levels (government, enterprise, and civil society), so that there can be a
critical mass of diverse users, as well as people to maintain and operate the ICT infrastructure
and services.
In order to achieve this, they may wish to cooperate with other countries, in order to
facilitate exchange programmes for students and researchers, and for the reciprocal recognition
of academic degrees and certifications. Cooperation towards the establishment of centers of
excellence, which can bring together human, financial and other resources from the region,
would be beneficial as well, such as The University of the South Pacific (USP) and the Asian and
Pacific Training Centre for Information and Communication Technology for Development
(APCICT) of ESCAP.
Facilitating labour and enterprise mobility
947 million people live in extreme poverty in Asia-Pacific. Enterprises that maintain
mobility can retain competitiveness associated with low labour costs by relocating their
operations to areas with abundant labour and/or by recruiting migrant workers. An enabling
policy environment would be necessary to fully leverage these opportunities. Cooperation and
policy coordination between labour abundant and labour scarce countries would be needed, as
well as between capital receiving and capital supplying countries in order to simplify
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establishment and operation of foreign-owned ICT-related and other enterprises within the
region.
Figure 7: ICT readiness and cost by subregion in Asia-Pacific, 2009
Source: ESCA, based on data from the “Measuring the information society 2011” report published by
the International Telecommunications Union
Figure 7 shows that the East and North-East Asian subregions have the most developed
ICT infrastructure and skills within Asia-Pacific; and in relative terms offer affordable ICT to
individuals and businesses. The South and South-West Asian subregions have managed to keep
ICT at relatively affordable levels despite its lagging infrastructure.
Strengthening regional intergovernmental cooperation in the expansion of ICT infrastructure
As has been suggested above, strengthening a terrestrial telecommunication network in
Asia-Pacific is important to reduce the cost and increase the communication capacity within the
region. The development of robust terrestrial networks (operating in concert with satellite based
networks when costs related to terrestrial networks are prohibitively high) will reduce
vulnerabilities associated with disruptions of trans-oceanic cables and will help drive down
prices.
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As there is currently no formal mechanism for inter-governmental cooperation that builds
ICT connectivity infrastructure based on mutual interests and risk sharing, the feasibility of such
an agreement should be examined further. Barriers to cross-border provision of
telecommunication services should be identified, more concretely analyzed, and removed where
possible, with the objective of promoting competitiveness and improved services. Nevertheless,
possible constraints in promoting seamless cross border connectivity across the Asian continent
are of a socio-political nature, and in this regard, it is useful to recall that it took more than 45
years for the Asian Highway Agreement to be concluded and ratified. On the other hand, herein
lies an opportunity: ICT connectivity can ride on and benefit from already agreed regional
infrastructures, especially physical connectivity infrastructures such as transport systems. In this
capacity, the transport network ratified and under implementation by the 28 parties of the Asian
Highway Agreement could be ideal. It is instructive to note that in the region’s most digitally
advanced countries, notably the Republic of Korea among others, ICT fibreoptic cable
infrastructure is deployed along the highway backbone network. If governments could agree to
extend ICT cable conduits through the already agreed regional interconnections of the Asian
Highway, ICT connectivity routes in the region could be built in a rapid, cost-effective and
rationally coordinated manner. Time consuming and costly negotiations, between the private
sector and government, and/or among governments themselves, could be short-circuited, and
implementation of investment projects would be accelerated. Despite the inter-country
connectivity offered by the Asian Highway, further studies need to address the feasibility of
using regional interconnections, that exist among the cable systems of the railway network
agreed to under the Trans Asian Railway Agreement. In this regard, organizations such as the
Secretariat of ESCAP would be well positioned to conduct further studies on various options that
would increase ICT connectivity. Among the options would be the feasibility of adding an ICT
Regional Connectivity Protocol to existing intergovernmental agreements on transport agreed to
under ESCAP auspices.
Box 3: Intra-regional connectivity in other parts of the world
In other regions, such as in Europe, countries are cooperating towards improving their
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intra-regional ICT connectivity, even to the most remote areas, for instance through
the pan-European Mobile Satellite Services (MSS) programme. This programme
includes services such as internet access, television and radio, and emergency
communications via satellite. In this initiative, policies were established to encourage
private investment to deliver these services on a region wide basis. To this end, the
European Commission harmonized the use of radio spectrum in the 2 GHz frequency
bands and authorized two private companies to act as pan-European systems
providers. These measures were designed to encourage satellite operators to realize
economies of scale resulting from being able to operate in a European-wide market
that increasingly operates on the basis of technically seamless interoperability (Cf.
European Commission Decisions 2007/98/EC, L 265/25, and 2009/449/EC). Similar
mechanisms may be explored which may be suitable for this region.
Source: ESCAP
Leveraging existing intergovernmental agreements on transport would also offer new and
vast opportunities for cross-sectoral synergistic gains. This is because ICT physical connectivity
can be seen as a meta-infrastructure: an infrastructure that enables and integrates all other
services. In other words, by providing ICT infrastructure, the opportunities for providing
affordable and reliable access to a vast array of other services – be it health, education,
microfinance or electricity for example – improve. Companies operating in these sectors often
already operate private networks to fulfill their own needs, such as monitoring their operations
and connecting their nationwide locations (through electrical sub-stations, train stations, highway
toll booths, etc.). An example in India, where the Ministry of Railways leveraged its
infrastructure to extend the telecommunications network, is provided in Box 4. In this regard,
new infrastructure projects should be conceived and funded cross-sectorally from the outset, and
the scope for building on successful models of Public Private Partnerships (PPPs) for
infrastructure development are worthy of further examination and replication across the region.
India, in particular has a long history of PPPs with projects such as the Great Indian Peninsular
Railway Company and the Bombay Tramway Company in the 19th century, and the power
generation and distribution companies in Bombay and Kolkata in the early 20th century. More
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recently, since the opening of the Indian economy in the 1990’s there have been several PPPs for
water supply, housing, ports, airports, road and urban infrastructure and power generation,
among others.12 Notable projects include the Noida Toll Bridge Company in Delhi, and the
Bangalore International Airport (Comptroller and Auditor General of India, 2009, p.7), as well as
the National Highways Development Project.13
Box 4: Railway and Telecommunications Infrastructure Sharing in
India – a success case
The Indian Ministry of Railways created RailTel Corporation of India
Limited in 2000 to fulfill communication needs for administration, ticketing
and efficient railway operations. While fulfilling these responsibilities,
RailTel has laid down a network of over 34,000 km by leveraging its access
to railway lines, and thus becoming a leading telecommunications service
provider all over India. In addition to modernizing the Indian Railways’s
telecommunications network, RailTel is earning revenue by marketing
surplus bandwidth and other infrastructure to major service providers like
AirTel, Hutch, Tata, BSNL and financial entities like State Bank of India,
Dena Bank and Amar Ujala among others.
Source: Indian Railways Year Book (2008-09).
http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_eco
n/pdf/Year_Book_English2008-09.pdf and http://www.railtelindia.com/
Furthermore, as was argued above, the emergence of internet hub cities along new
terrestrial cable routes could further enhance the commercial viability of dryports. The ESCAP
Commission in its resolution 66/4 of 19 May 2010 requested the ESCAP secretariat to work on
an intergovernmental agreement on dry ports and a working draft of the Agreement is now under
12 See at: http://infrastructure.gov.in/ 13 National Highways Authority of India, website accessed on January 30 2012 at: http://www.nhai.org/balancelength.htm
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negotiation. Cross-sectoral synergies inherent to the development of dryports and internet hub
cities are worth further study.
In conclusion, this paper finds that the digital economy is contributing to the regional
integration process in the Asia-Pacific region and suggests that policymakers in the region
support enterprises so that they can move up the value chain and support individuals and
organizations in raising technological skills. The paper suggests that governments collaborate
with each other to facilitate labour and enterprise mobility, and to expand ICT infrastructure in
the region. Further research would be recommended to identify successful policies, in the areas
mentioned, which could serve as a model for future policy decisions. Lastly, we suggest that the
international community continues to enhance statistical standards to measure the evolving ICT
sector, in particular by supporting the UN Partnership on Measuring ICT for Development.
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Appendix A
Methodology and Discussion Relating to the Analysis of Trade Flows of ICT Goods
In order to analyze the trade flows of ICT goods internationally, the authors used data
from the UN Comtrade database. Large disparities exist between the value of exports, as reported
by exporting countries, and the value of mirror statistics reported by importing countries. The
outline of the methodology used for our estimations is provided below, as is the rationale for
selecting this methodology. We recommend that further work is needed to continue rectifying
these differences. At the international level, the Partnership on Measuring ICT for Development
may consider including this issue in its future work to ensure that trade, in this important sector,
is properly accounted for.
Data sources
Data was downloaded from the database section of Comtrade14. The countries included in
the study are the 53 ESCAP countries,15 which were taken as a whole or divided into subregions.
To study the flow of exports between ESCAP members and to the rest of the World, an
indirect methodology was used. This methodology used the value of the “imports” data reported
by importing countries, instead of the “exports” reported by exporting countries. This was done
with the objective of increasing the accuracy of the analysis inline with the assumption that the
data reported on imports are collected and reported in a more accurate manner than the data on
exports, due to a variety of reasons related to customs regulations, tariff revenues, etc.
During data processing, when a trade flow was found to have the same economy as
importer and exporter (e.g. from China to China), such record was excluded from the
calculations. This was done because the aim of the study was to analyze trade flows between
economies.
14 http://comtrade.un.org/ 15 “Statistical Yearbook for Asia and the Pacific 2011” http://www.unescap.org/stat/data/syb2011/
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Definition of ICT goods
In this study ICT goods are defined according to the OECD Guide to Measuring the
Information Society 2009. The table below shows the list of Harmonized System (HS) codes
which have been included. For the data observations in 2002, the research team used the HS02
list, and for the year 2009 the HS07 was used.
The OECD paper mentioned above16 was also used as a reference for the following
details: (a) the description of the HS codes used, as well as (b) the conversion methodology from
HS02 to HS07. The distinction between “final products” and “components” was also based on
the same reference paper. For this purpose the research team used the HS codes listed under
section “D. Electronic components” of “Table 2.A1.3. Correspondence between CPC Rev. 2, HS
2007, HS 2002 and HS 1996 classification for ICT goods” and other HS codes which have a
description starting with the word “Part”, are shown under other sections of the same table.
Harmonized System (HS) codes considered ICT Goods
16 “OECD Guide to Measuring the Information Society 2009” http://browse.oecdbookshop.org/oecd/pdfs/free/9311021e.pdf
HS 02 HS 02 HS 07 HS 07 Final Products Components Final Products Components
847050
847290
847220
847130
847141
847149
847110
847150
847160
847180
847190
844351
851722
851721
900911
900912
847170
853110
847330
847350
851790
851890
852290
854011
854012
854020
854040
854050
854060
854071
854072
854079
854081
854089
854110
854121
847050
847290
847130
847141
847149
847150
847160
847180
847190
852841
852851
852861
844331
844332
847170
853110
852560
852550
847330 847350 851770 851890 852290 854011 854012 854020 854040 854050 854060 854071 854072 854079 854081 854089 854110 854121
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852520
852510
851750
851730
851719
851780
852790
851711
852712
852713
852719
852731
852732
852739
852721
852729
852812
852813
852821
852822
852830
851931
851939
852020
851940
851992
851993
851999
852010
852032
852033
852039
852090
851921
851929
851910
852110
852190
851810
851821
851822
851829
851830
854129
854130
854140
854150
854160
854221
854229
854260
854890
854091
854099
854190
854290
854210
852330
852460
853400
852990
851712
851761
851762
851718
851769
851711
852712
852713
852719
852791
852792
852799
852721
852729
852871
852872
852873
852849
852859
852869
851930
851950
851981
851989
851920
852110
852190
851810
851821
851822
851829
851830
851840
851850
852210
950410
852580
852351
852359
852380
852910
901320
854129 854130 854140 854150 854160 854231 854232 854233 854239 854091 854099 854190 854290 852352 852321 853400 852990
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Discrepancies
The table below shows how the use of import values and export values which
theoretically should be statistics that mirror each other (exports of country A to country B,
should be the same as imports of country B from country A) results in different values for trade
flows. In UN Comtrade, in 2009, China reports having exported $US 356 billion of ICT goods,
while the sum of the imports from China reported by the rest of the countries in the world, adds
up to $US 408 billion; a difference of approximately $US 52 billion. The case of Hong Kong
(China) raises even higher the rationale for further research into these flows, because the
discrepancy is as high as $US 128 billion.
Selected Exporters of ICT Goods, Using Export and Import Data from the UN Comtrade
Exporter (A) Using Imports (B) Using Exports Difference (A‐B)
CHN $408,500,000,000 $356,000,000,000 $52,500,000,000
HKG (China) $13,730,000,000 $142,000,000,000 ‐$128,270,000,000
USA $81,670,000,000 $114,000,000,000 ‐$32,330,000,000
SGP $48,880,000,000 $91,000,000,000 ‐$42,120,000,000
KOR $105,900,000,000 $80,000,000,000 $25,900,000,000
JPN $85,650,000,000 $70,000,000,000 $15,650,000,000
MYS $83,140,000,000 $57,000,000,000 $26,140,000,000
Internationally accepted standards
851840
851850
852210
950410
852530
852540
852390
852410
852491
852499
854381
852910
901320
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The Partnership on Measuring ICT for Development is an international, multi-
stakeholder initiative to improve the availability and quality of ICT data and indicators,
particularly in developing countries. This Partnership was launched in 2004, with the objective
of:
Defining a core list of ICT indicators and methodologies to collect these
indicators;
Helping developing countries collect ICT statistics, particularly through capacity-
building and hands-on training for national statistical offices;
Collecting and disseminating information society statistics in a number of
formats, including a global report and database.
Members of the Partnership include the International Telecommunication Union (ITU),
the UN Economic Commission for Africa (ECA), the Organization for Economic Co-Operation
and Development (OECD), the UN Economic Commission for Latin America and the Caribbean
(ECLAC), the United Nations Conference on Trade and Development (UNCTAD), the UN
Economic and Social Commission for Asia and the Pacific (ESCAP), the United Nations
Educational, Scientific and Cultural Organization (UNESCO) Institute for Statistics, the UN
Economic and Social Commission for Western Asia (ESCWA), the United Nations Department
of Economic and Social Affairs (UNDESA), and the EUROSTAT.
These partners have established a set of indicators and methodologies to measure the ICT
sector and meet periodically to continue to enhance methodologies. The currently accepted
methodology is to refer to data aggregated by the United Nations Statistics Division in the
United Nations Commodity Trade Statistics Database - UN Comtrade (United Nations, 2008, p.
66). Partners such as UNCTAD widely disseminate these statistics through publications such as
the Information Economy Report (UNCTAD, 2011) and online through the UNCTAD statistical
portal (http://unctadstat.unctad.org/), using the reported exports appearing in UN Comtrade.
Given the discrepancies identified above between reported exports and reported imports,
the authors suggest that further research is undertaken to find the origin of the discrepancies and
to evaluate whether any changes to the accepted methodologies should be made.