International Trade of Secondhand Goods: Flow of Secondhand Goods, Actors and Environmental Impact (IDE-JETRO Series) 303055578X, 9783030555788

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IDE-JETRO SERIES

International Trade of Secondhand Goods Flow of Secondhand Goods, Actors and Environmental Impact

Edited by Michikazu Kojima · Shozo Sakata

IDE-JETRO Series

The Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) series explores the economic issues faced in developing regions globally, providing new research and analysis of these economies, with the aim of creating a more comprehensive understanding of the issues and conditions they are experiencing. With a wide range of volumes covering key economic issues in developing economies, as well as examining the challenges faced as East Asia continues to integrate, the titles in this series are essential companions for academics and ­policymakers interested in cutting-edge research and analysis of developing economies. More information about this series at http://www.palgrave.com/gp/series/14861

Michikazu Kojima  •  Shozo Sakata Editors

International Trade of Secondhand Goods Flow of Secondhand Goods, Actors and Environmental Impact

Editors Michikazu Kojima Inter-Disciplinary Studies Center Institute of Developing Economies Chiba, Japan

Shozo Sakata Area Studies Center Institute of Developing Economies Chiba, Japan

ISSN 2662-6314     ISSN 2662-6322 (electronic) IDE-JETRO Series ISBN 978-3-030-55578-8    ISBN 978-3-030-55579-5 (eBook) https://doi.org/10.1007/978-3-030-55579-5 © IDE-JETRO 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the ­publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and ­institutional affiliations. Cover illustration: ZUMA Press, Inc. / Alamy Stock Photo This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Preface

This book examines the international trade of secondhand goods such as automobiles, agricultural equipment, trains, tires, and electrical appliances—particularly those that come from Japan. At present, the volume of secondhand goods traded internationally is increasing, leading to the development of new forms of trading businesses and the emergence of new academic discussions. This book aims to characterize these new developments and analyze factors affecting the international trade of secondhand goods from the perspective of both exporting and importing countries. In addition, this book examines how the international trade of secondhand goods impacts the environment and appropriate control measures thereof. Other discussions include the mechanisms behind the clustering of businesses dealing in secondhand goods, the impacts of recent trends in international immigration, and the effects of information and communication technologies on the business environment of secondhand goods traders. Although the circular economy is gaining worldwide attention, few studies have been conducted on the concept of international reuse, which includes remanufacturing. We hope this book provides useful information for both understanding the reasons behind such trades as well as considering appropriate trade policies on secondhand goods. This book is based on the results of a research project entitled “International Trade of Secondhand Goods,” which was conducted from 2017 to 2019 and supported by the Institute of Developing Economies of the Japan External Trade Organization. The contributors to this book come from the social sciences, including economics, economic geography, v

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anthropology, and sociology. In the process of researching this topic, we conducted many interviews with secondhand goods dealers, government officers, researchers, and more. Through these interviews, we were able to acquire a great deal of valuable information and discover important phenomena related to the export, import, and usage of secondhand goods around the world. We would like to thank all the individuals, businesses, and organizations who kindly cooperated with our research. We hope this book contributes to the further study of the international trade of secondhand goods. Chiba, Japan Chiba, Japan 

Michikazu Kojima Shozao Sakata

Contents

1 Issues and New Business Trends in the International Trade of Secondhand Goods  1 Michikazu Kojima and Shozo Sakata 2 Economic Impact of Imported Secondhand Agricultural Machinery in Rural Vietnam 13 Shozo Sakata 3 International Trade of Used Trains: The Case of Japanese Used Rolling Stock in Indonesia 31 Koichi Kawamura 4 The Location Problem of International Trade in Used Auto Parts 63 Yutaka Asazuma 5 Used Vehicles and Auto Parts Trade in New Zealand and Pacific Island Countries 91 Tomoko Fukuda

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6 An Informal Used-Car Trading System Between Hong Kong and East African Countries Using ICT131 Sayaka Ogawa 7 International Trade of Used and Retread Tires153 Michikazu Kojima 8 Controlling an Invisible Flow of Product Reuse: The Current State of International Reuse of Used Household Appliances in Thailand and Japan173 So Sasaki Index195

Notes on Contributors

Yutaka  Asazuama is a professor in Hokkai-Gakuen University at Sapporo. He got Master of Economics from Hitotsubashi University in 1999. He arrived at his post at Hokkai-Gakuen University in 2002. He presented “Current Status and Problems of Japanese Automobile Recycling System” at Gerpisa colloquium in 2019 (http://gerpisa.org/ en/user/10781/biblio). Tomoko  Fukuda  is an associate professor in the Graduate School of Global and Transdisciplinary Studies, Chiba University. Her specialty is global/transnational sociology and migration studies, especially in South Asian and Muslim migrants. Her research topics are ethnic minority entrepreneurs in Japan, including reuse and recycling businesses. She published a book titled Social World of Transnational Pakistani Migrants: From Migrant Workers to Migrant Entrepreneurs (in Japanese, 2012). Koichi  Kawamura is a senior research fellow in the Institute of Developing Economies (IDE), JETRO.  His research interests lie in the fields of constitutional politics, political institutions, and elections in Indonesia. His publications include “The Origins of the 1945 Indonesian Constitution,” in Kevin YL Tan and Ngọc Sơ n Bùi (eds.), Constitutional Foundings in Southeast Asia (2019, pp. 49–75), and “President Restrained: Effects of Parliamentary Rule and Coalition Government on Indonesia’s Presidentialism,” in Yuko Kasuya (ed.), Presidents, Assemblies and PolicyMaking in Asia (Basingstoke: Palgrave Macmillan, 2013, pp. 156–93).

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NOTES ON CONTRIBUTORS

Michikazu Kojima  is an executive senior research fellow in the Institute of Developing Economies, Japan External Trade Organization (IDE-­ JETRO). He was seconded to Economic Research Institute for ASEAN and East Asia from March 2018 to September 2020. He has studied environmental issues, such as international trade of recyclable waste, waste management, recycling, and marine plastic debris in Asian countries. He is co-editor of International Trade in Recyclable and Hazardous Waste in Asia (2013). He also published a book titled Recycling and World Economy (in Japanese, 2018), which won the 35th Masayoshi Ohira Memorial Prizes. Sayaka Ogawa  is a professor in the Graduate School of Core Ethics and Frontier Sciences, Ritsumeikan University. She has specialized in African area studies and cultural anthropology. One of her main publications titled The Art of Surviving in the City: Ethnography of Urban Petty Traders ‘Machinga’ in Tanzania (in Japanese, 2011) won the 33rd Suntory Prize for Social Science and Humanities. Another of her publications titled The Boss of Chungking Mansions Knows (in Japanese, 2019) that explored the unique informal trading system between Hong Kong and Tanzania won the 8th Kawai Hayao Academic Prize and the 55th Oya Soichi Nonfiction Prize. Shozo Sakata  is a senior research fellow in the Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO). He has worked on broad issues relating to socio-economic development in Vietnam. His research topics range from rural development, environment, labor, to development of local enterprises in Vietnam. He is the editor of Vietnam’s Economic Entities in Transition (Palgrave Macmillan, 2013). So Sasaki  is a professor in Faculty of Economics, Chuo University. He has studied waste management and recycling policy in Thailand and environmental business in the Asian region. He is the co-author of CCET Guideline Series on Intermediate Municipal Solid Waste Treatment Technologies Waste-to-Energy Incineration (United Nations Environment Programme, 2020).

List of Figures

Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 3.1 Fig. 3.2

Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 4.4 Fig. 4.5 Fig. 4.6 Fig. 4.7 Fig. 4.8

Exports of agricultural tractors from Japan to Thailand and Vietnam. (Note: HS870190 from 1994 to 2016, HS870191–870195 in 2017. Source: Global Trade Atlas) 17 Map of the Mekong delta region. (Source: Compiled by the author)20 Locally developed paddy carrier (An Giang Province). (Source: Taken by the author) 25 Flows of agricultural machines and parts. (Source: Prepared by the author) 27 Suppliers of used rolling stock to Indonesia. (Source: Estimates by the author, based on various media reports and railway magazines) 40 Exports of rolling stock and estimated exports of used rolling stock. (Source: Ministry of Finance, Trade Statistics; and Ministry of Land, Infrastructure, and Transport, Vital Statistic Survey on Rolling Stock Production) 59 The transition of used car exports from Japan (number). (Source: Japan trade statistics) 67 The flow of used auto parts exports 73 Location of Tatekawa, Shinozaki market, and the Hokuso area 74 Location of Sharjah, UAE, in the Middle East 80 Map of the Sharjah Industrial Area 81 Used parts distribution in Sharjah Market 82 The location of Colombo, Sri Lanka, and its two used auto parts markets 84 Dealer locations of used parts markets 85

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List of Figures

Fig. 5.1

Fig. 5.2

Fig. 5.3

Fig. 5.4 Fig. 5.5 Fig. 5.6 Fig. 5.7 Fig. 5.8 Fig. 5.9

Fig. 5.10 Fig. 5.11

Annual registration of new and used passenger cars by main countries of origin in New Zealand. (Note: The Land Transport New Zealand fiscal year is from July 1 to June 30. Source: Land Transport Agency New Zealand, “New Zealand Motor Vehicle Registration Statistics,” Land Transport New Zealand from 2005 to 2013) 95 Number of vehicles exported from Japan to New Zealand. (Note: The division of new/used in “Trade Statistics of Japan” started in April 2001. Before then, only the total number was shown. Source: Compiled by the author based on Fukuda and Togawa (2017: 211); calculated by Asazuma based on data from “Trade Statistics of Japan” [Ministry of Finance])96 Number of used car exports from Japan to New Zealand by category. (Source: Compiled by the author based on Fukuda and Togawa (2017: 212); calculated by Asazuma based on data from “Trade Statistics of Japan” [Ministry of Finance]) 97 Change in imported and exported vehicles in New Zealand. (Source: Based on the data from UN Comtrade) 100 Change in proportion of vehicles imported (new and used) from Japan to New Zealand. (Source: Compiled by the author based on data from UN Comtrade) 101 Importing and exporting countries of New Zealand on passenger cars (8703) in 2018. (Source: Compiled by the author based on data from UN Comtrade) 102 Importing and exporting countries of New Zealand on Vehicles (8702, 8703, 8704) in 2018. (Source: Compiled by the author based on data from UN Comtrade) 103 Number of used vehicles exported from Japan to the South Pacific. (Source: Compiled by the author based on data from “Trade Statistics of Japan” [Ministry of Finance]) 110 Used vehicles exported from Japan to the South Pacific (excluding New Zealand). (Source: Compiled by the author based on data from “Trade Statistics of Japan” [Ministry of Finance])111 Transition of imported and exported vehicles (8702, 8703, 8704) in Fiji. (Source: Compiled by the author based on data from UN Comtrade) 113 Transition of proportion of vehicles (new and used) imported from Japan to Fiji. (Source: Compiled by the author based on data from UN Comtrade) 114

  List of Figures 

Fig. 5.12 Fig. 5.13 Fig. 5.14 Fig. 5.15 Fig. 5.16 Fig. 5.17 Fig. 6.1 Fig. 6.2 Fig. 7.1 Fig. 7.2 Fig. 8.1

Fig. 8.2

Fig. 8.3

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Importing and exporting countries of Fiji on vehicle (8702, 8703, 8704) in 2018. (Source: Compiled by the author based on data from UN Comtrade) 114 Diagram of used cars and auto parts trade relationship. (Source: Compiled by the author based on Cassells (2004) and Fukuda and Togawa (2017)) 119 Change in imports and exports of iron scrap (7402) in New Zealand. (Source: Compiled by the author based on data from UN Comtrade) 120 Change of import and export iron scrap (7402) in Fiji. (Source: Compiled by the author based on data from UN Comtrade)121 Proportion of countries exporting iron scrap to New Zealand in 2018. (Source: Compiled by the author based on data from UN Comtrade) 122 Proportion of countries exporting iron scrap to Fiji in 2018. (Source: Compiled by the author based on data from UN Comtrade) 122 African immigrants to Hong Kong (1993–2016). (Source: A statistical review of Hong Kong tourism 2002–2016)136 System of informal remittance 147 Exports of used and retread tires (values and volume). (Source: Compiled by the author based on data from UN Comtrade)156 Imports of new, used and retread tires by Brazil. (Source: Compiled by the author based on data from UN Comtrade)167 Value of border trade exports via Mae Sot Customs and the average number of trucks passing through customs border trade export value (billions of baht) Average number of customs tracks (units/day). Source: Compiled by the author from documents provided by Mae Sot Customs 180 Temporary permitted trade by boat on the Moei River. Left: used household appliances from Japan. Right: used vehicles from Japan. Images taken by the author on February 28, 2018 181 Used LCD televisions imported from Japan and stored at a distributor in Yangon. Left: packaged LCD televisions. Right: LCD televisions ready for distribution. Images taken by the author on March 1, 2018 183

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List of Figures

Fig. 8.4

Used LCD television export destinations in 2017 (unit: number of televisions exported). Source: Compiled by the author based on Trade Statistics of Japan by the Ministry of Finance (HS Code 8528.72-190)

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List of Tables

Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 4.1 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 6.1 Table 6.2 Table 6.3 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6 Table 7.7 Table 7.8

Exports of used Japanese passenger railcars from secondary sources35 Export of Japanese rolling stock to Indonesia 36 Exports of Japanese railroad rolling stock (by region) 54 Exports of Japanese railroad rolling stock (by HS code) 55 Statistics of rolling stock exports and production 58 Exports of Japanese rolling stock to Argentina 60 Total volume of used cars exported from Japan from 2001 to 2018 68 Public policies in New Zealand from 1984 to 2010 98 Used vehicles exported from Japan to the South Pacific 112 Fijian public policies from 2000 to 2017 115 List of left- and right-driving countries 123 Exports of automobiles from Hong Kong and Japan to Tanzania138 Commodities exported by a broker (November 11, 2016) 143 Items purchased by a trader on March 20, 2018 143 Top five exporting countries of used tire by volume (2015) 157 Top five importing country of used tires by volume (2015) 157 Net importer and net exporter countries of used tires 158 Exports of retread tire for passenger cars (Value) 159 Imports of retread tire for passenger car 160 Net importing and exporting countries of retread tires for passenger cars in 2015 161 Net importing and exporting countries of retread tires for buses and trucks in 2015 162 Top five countries in export value of retread tires for aircraft 162 xv

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Table 7.9 Top five countries in import of retread tire for aircraft 163 Table 7.10 Countries not importing used tires and/or retread tires for passenger cars, buses, and trucks 165 Table 8.1 Export and import permission records (in tons) under the restrictions on the importation of used household appliances 176 Table 8.2 E-waste import licensed company inspection results in Thailand177 Table 8.3 Thailand’s border trade value in 2017 (unit: millions of baht) 179 Table 8.4 Examples of guidelines for each product’s year of manufacture based on reuse/recycle sorting guidelines 185 Table 8.5 Changes in the flow of materials under reuse/recycle sorting guidelines186 Table 8.6 Changes in the amount of exports of used household electronic appliances subject to the home appliance recycling law 189

CHAPTER 1

Issues and New Business Trends in the International Trade of Secondhand Goods Michikazu Kojima and Shozo Sakata

1.1   Introduction The circular economy, which contributes to improved resource efficiency and reduced environmental burden, is attracting increasing attention worldwide. One aspect of the circular economy is reuse, which includes remanufacturing. Reuse contributes to lower production costs and helps to avoid resource constraints (International Resource Panel 2018). Reuse has also been observed on the international level. Many developing countries import a substantial quantity of secondhand goods, including home appliances, automobiles, construction equipment, agricultural equipment, and clothing, from developed countries. Some of these secondhand goods eventually become core components of remanufactured goods. International reuse has the potential to conserve natural resources and reduce the burden on the global environment. International reuse may

M. Kojima • S. Sakata (*) Inter-Disciplinary Studies Center, Institute of Developing Economies, Chiba, Japan e-mail: [email protected]; [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_1

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also contribute to the economy and well-being in developing countries. However, there is a possibility that the import of secondhand goods may affect industrial development, increase the burden on the environment, and impact public health in developing countries. Preventive measures such as prohibiting the import of secondhand goods have also been implemented. This book examines various aspects of the international trade of secondhand goods, including its impact on the economy of developing countries, the agglomeration and decentralization of reuse business, the actors supporting reuse businesses, the impact of the digital economy on international used goods transactions, and appropriate trade restrictions to protect the environment. This chapter reviews a number of arguments on the international trade of secondhand goods, based on a review of the literature. Section 1.2.1 focuses on the socio-economic impacts of, and factors affecting, the international trade of secondhand goods. Section 1.2.2 discusses new institutional settings and business trends, including the application of improved communication technologies. Section 1.2.3 discusses the importance of international reuse in the circular economy. The end section of this chapter describes the structure of the remainder of this book, taking into consideration elements mentioned in the following section.

1.2   Socio-economic Impacts of, and Factors Involved in, International Trade of Secondhand Goods 1.2.1  Conventional Arguments on Secondhand Goods Trade and Economic Development The advantages and disadvantages of the trade of secondhand products, particularly production machinery and automobiles, on economic development have long been discussed in the literature of economics. Proponents of the trade of secondhand products maintain that imported secondhand products are available at lower cost and flexible in their use, are suitable for labor-intensive firms, and facilitate technical progress (Sen 1962; Schwartz 1973; Smith 1974; Grubel 1980). Other proponents also argue that the rate of depreciation of secondhand goods is relatively longer in developing countries than in developed countries; therefore,

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increasing the trade of secondhand products between developed and developing countries can lead to more effective use of goods and consequently improved global welfare (Thomas 2003). The trade of secondhand products might even be beneficial for enterprises in developed countries that produce and export advanced industrial products because an increase in the presence of secondhand products in markets of importing countries may help promote brand recognition (Grubel 1980). On the other hand, opponents of the trade of secondhand products, including policymakers in many developing countries, claim that secondhand products hamper efforts to nurture nascent manufacturing sectors in developing countries. In fact, many developing countries maintain strict restrictions on the import of secondhand goods in an attempt to protect domestic industries (e.g., see Pelletiere and Reinert 2002 for a description of the automobile industry in Latin America). In the literature on environmental assessment, there is some disagreement regarding the benefits of the reuse and trade of secondhand products. A potentially viable claim is that the reuse of the secondhand goods itself is assumed to be environmentally beneficial because it constitutes “an environmentally sound, socially beneficial, and economical means for managing surplus and discarded materials.”1 In fact, secondhand markets are generally mature in developed countries.2 It has also been mentioned that the use of secondhand goods, including remanufactured goods, can contribute to improvements in resource efficiency (International Resource Panel 2018). However, the trade of secondhand products can be regarded as environmentally detrimental because they are often inefficient, can be obsolete, incur high operating and repair costs, and are likely to be near the end of their product lifecycles. Moreover, problems related to issues involving environmental justice, such as global recycling and global landfilling, have also been mentioned. These issues involve the use of imported secondhand products for material recycling or landfills in importing countries (Hicks et al. 2005; Yokoo 2014).

1  ReUse Development Organization (ReDo) (US-based non-profit international organization) (2019 January). Retrieved from http://loadingdock.org/redo/ 2   Studies on various secondhand markets in the United States are reviewed in Thomas (2003).

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1.2.2  New Institutional Settings, New Business Trends, and New Concepts As a number of economic analyses have assumed, consumer preferences in choosing between new and secondhand goods depend, theoretically, not only on price but also on product lifecycles and transaction costs (Anderson and Ginsburgh 1994; Thomas 2003). Prolonged lifecycles help to maintain the re-sale values of products, and lower transaction costs expand secondhand markets. In recent years, product lifecycles and transaction costs in the trade of secondhand goods (which are interrelated in many cases) have been affected by changes in the global economy as discussed below. The product lifecycles of industrial products, determined by quality and durability, are becoming increasingly prolonged due to improvements in the quality of materials as well as production technologies (even in developing countries). Improved accessibility to spare parts has also prolonged the product lifecycles (especially for machinery and automobiles). Moreover, the lifecycle of a product can be prolonged if the product can be repaired and/or remanufactured. In fact, one reason for the emergence of secondhand markets in developed countries is the presence of a strong remanufacturing industry (especially in the United States). Remanufacturing is beneficial to both remanufacturers and customers, not only in terms of environmental protection,3 but also economically. Various types of products (e.g., automobile parts, jet engines, and machine tools) have been remanufactured in developed countries (Haynsworth and Lyonds 1987; Guide 2000),4 and the international trade of remanufactured products has been increasing (Kojima 2017). There is some evidence that remanufacturing industries are starting to proliferate in developing countries, including automotive component remanufacturing in China (Zhang et al. 2011). This aspect may affect the trade of secondhand products in the future.

3  According to an OECD report (OECD 2018), remanufacturing practices can reduce extraction, processing, and transport of natural resources, which can translate into a greater than 50% conservation of energy and an 80% reduction in waste generation. 4  There are even cases in which manufacturers of certain specific products actively participate in secondhand markets in order to secure their own products in good condition, through buy-backs or trade-ins, for remanufacture. Examples include photocopiers in Australia (Kerr and Ryan 2001) and hospital beds in the United States (Heese et al. 2005).

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In addition, the lifecycle of a product can be determined relative to the availability of alternative products. For example, there has been an increased presence of pirated products manufactured in China in informal sectors of the market (Neuwirth 2011), which might reduce demands for the secondhand products and as a result shorten the lifecycles of certain products. Transaction costs in the trade of secondhand products have been fallen dramatically since the 1990s. This fall has been primarily caused by trends in the globalization of free trade, namely reductions in tariffs and the removal of quotas and other non-tariff barriers. Many developing countries face pressure to allow free trade and have been signing multilateral and bilateral free trade agreements since the 1990s. Furthermore, institutional and regulatory developments in environmental protections relating to international trade have also lowered transaction costs in the trade of secondhand products. For example, the Basel Convention established guidelines for distinguishing between “e-waste” and “secondhand electronics” to prevent e-waste from being traded under the guise of secondhand goods. Transaction costs have also been lowered by the reduction in communication costs resulting from increased use of the Internet. The Internet has reduced the cost and time requirements of communication compared with the past, when many people had to rely on telephones, fax machines, or conventional social networks. Moreover, the Internet has also lowered transaction costs by reducing buyers’ searching costs. In transactions involving secondhand products, the availability of information on the price and quality of a product is asymmetrically endowed among buyers and sellers; accordingly, buyers tend to make so-called adverse selections in a “market for lemons” (Akerlof 1970). Traditional efforts to avoid adverse selections include effective collection and sharing of information by formulating economic agglomerations or by taking advantage of social or ethnic business networks that transcend geographic boundaries. However, along with the development of Internet-based information and communication technologies (ICT), new types of business dealing in secondhand products have emerged. For example, with the emergence of online auction sites, auctions of used automobiles, which had existed long before, became open to anyone willing to buy, although buyers still usually need to rely on professional dealers. Moreover, the development of ICT has enabled an increasing number of ordinary consumers to participate in the trade of secondhand products, including automobiles, as sellers

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via consumer-to-consumer e-commerce platforms such as Amazon, Alibaba, and eBay (literature reviewed in Rauniar et al. 2009). The development of ICT has also affected product lifecycles, product values, and even the concept of secondhand goods, given that many goods (and services) have come to be “shared.” Sharing platforms such as Uber, Grab, and Airbnb have “unlocked the values of idle assets” (Botsman 2017). “Idle assets” can be considered secondhand goods in the sense that they were once owned by someone but are not currently available on the secondhand market. By sharing ownership as opposed to transferring it, the effectiveness of using secondhand goods can increase, and as a result, the burden on the environment can be lowered if the excessive production of goods is avoided. The action plan of the EU on dealing with circular economies briefly mentions sharing as an innovative form of consumption (European Commission 2015). The proliferation of sharing-based businesses in one country may affect secondhand markets in other countries. Similarly, changes in secondhand markets may affect recycling industries in importing countries. As such, energy consumption, material recycling, use of secondhand products, and sharing are all interrelated and affect one another, even across borders. Such innovative new businesses have had an enormous impact on the domestic and cross-border flows of secondhand products, which have in turn affected improvements in material recycling and sharing businesses, and vice-versa. Given that potentials to create value arising out of different setups in a circular economy (e.g., reuse, remanufacturing, and recycling) should differ (Ellen MacArthur Foundation 2013: 30), mutual links and influences among such businesses should also be of great interest. 1.2.3  Trade of Secondhand Goods as Missing Link in Circular Economies Recognizing the importance of reuse and the sharing economy accords with the recent re-valuation of the concept of a circular economy. Although the concept is rooted in Bouldings’ idea from the 1960s, the notion of a circular economy has recently gained popularity among scholars, business communities, and policymakers as a potential means for achieving “sustainable development” (Geissdoerfer et  al. 2016; Millar et  al. 2019).5 5  Bouldings proposed the idea that the global environment is a closed circular system with no exchanges of matter from the outside (Bouldings 1966). The concept of the circular

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Contemporary circular economy-based arguments, represented by influential policy papers such as the European Commission’s Circular Economy Action Plan (European Commission 2015) and the OECD’s “re-circle” project papers (for example, OECD 2018), adapt a more holistic approach. The European Commission’s action plan “proposed actions [to] support [a] circular economy in each step of the value chain—from production to consumption, repair and remanufacturing, waste management, and secondary raw materials that are fed back into the economy” (European Commission 2015: 3). The OECD’s paper incorporates the status of material loops at different parts in value chains, such as recycling and remanufacturing of end-of-use products, repairing and reuse of end-of-­ use products or products still being used, and sharing of the use of products (OECD 2018: 5). Although these papers primarily praise the innovativeness of new ICT-­ based businesses that reuse secondhand goods, including online auction and sharing platform businesses, not enough attention has been paid to the socio-economic impact of the international trade of secondhand goods. Therefore, it is important to consider how to “close the loop” (European Commission 2015) in economies, considering the presence of cross-border trade in secondhand goods. For example, secondhand goods, generated in the economic loop of one country, can be transferred to the loop of another country to be reused for its economic activities, which then create new goods to be exported to still other countries. Given that the markets for secondhand goods and the institutional settings of international trade as well as recycling capacities (final residue generated from the trade of secondhand goods) differ from country to country, the contribution of trade in secondhand goods to the developing circular economy may also differ. Therefore, it is imperative in these new circumstances to attempt a subtle re-assessment of the socio-economic and environmental impacts of the trade of secondhand goods.

economy was said to have been primarily introduced by Pearce and Turner (1990) based upon Bouldings’ idea (Ghisellini et al. 2016; Millar et al. 2019). The circular economy concept, along with similar new concepts that emerged in the late 1990s and early 2000s, such as “industrial ecosystem” (Frosch and Gallopoulos 1989; Korhonen 2001) and “cleaner production” (Stevenson and Evans 2004), proposes to shift a “linear” economy toward a “circular” or “looped” one by recycling and reusing energy and materials within certain local geographic spheres.

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1.3   Structure of This Book The following seven chapters deal with various secondhand goods and/or actors. First, Chaps. 2 and 3 focus on the usage of imported secondhand agricultural machines and trains in Vietnam and Indonesia, respectively. Both chapters discuss the contribution of secondhand goods to agricultural production (Chap. 2) and public transportation in urban areas (Chap. 3) of the importing countries. They also discuss the factors responsible for pushing exports from Japan. Chapters 4, 5, and 6 discuss the international trade of used automobiles and automobile parts. Chapter 4 discusses the trade flow of used automobiles and their parts, particularly the reasons behind geographical aggregations of used automobile industries and used-­ parts dealers. It emphasizes the agglomeration of used cars and used-parts industry occurred in Japan, a major exporting country. Chapter 5 highlights traders of used automobiles and automobile parts in Japan and the South Pacific region. Chapter 6 discusses changes in business models used by African traders of used automobiles based in Hong Kong resulting from advancements in communication technologies, including social networking services. Chapters 7 and 8 discuss trade restrictions on secondhand goods. Chapter 7 reviews the trade statistics of used and retread tires and discusses factors that affect their import and export. Chapter 8 examines problems associated with the international trade of secondhand goods including approaches to regulating the international trade of e-waste disguised as secondhand goods. Both Chaps. 7 and 8 discuss appropriate policies for reducing the negative impact of secondhand trade on developing countries. The socio-economic impacts of, and factors involved in, the international trade of secondhand goods, discussed in Sect. 1.2.1 in this chapter, are further addressed in subsequent chapters. Chapters 2 and 3 in particular discuss the positive impact on agricultural production and public urban transportation, respectively. Chapters 7 and 8 point out the negative impacts on safety and environmental pollution, respectively. The notions of new institutional settings, new business trends, and the new concepts discussed in Sect. 1.2.2 are further discussed in Chaps. 2, 4, and 6. Chapter 2 describes an innovative machine that was developed locally by modifying imported secondhand equipment. Chapter 4 also suggests the potential of ICT to change the agglomeration of the used auto parts industry. Chapter 6 focuses on how the business models of traders are changing through the use of social media.

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Subsequent chapters touch on certain implications of the circular economy discussed in Sect. 1.2.3 of this chapter, from various points of view, including factors affecting the import and export of secondhand goods (all chapters), agglomeration of industries supplying secondhand parts by dismantling (Chap. 4), traders of secondhand goods (Chaps. 2, 3, 4, 5, and 6), the positive impact on production in importing countries (Chap. 2), the positive impact on public transportation and welfare (Chaps. 3, 4, 5, 6, 7, and 8), and the negative health and environmental impacts (Chaps. 7 and 8). Although some of the negative impacts of international trade are pointed out in several chapters, positive contributions to imported countries are also mentioned, including increases in efficiency through the use of secondhand agricultural equipment and improvements in public transportation services by secondhand trains and others. Taking into account the negative impact of the import of secondhand goods, appropriate trade policies should be considered, including setting standards for importing secondhand goods and establishing appropriate recycling systems.

References Akerlof, A.  George. 1970. “Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics. Vol. 84. No. 3: 488–500. Anderson, P.  Simon and Victor A.  Ginsburgh. 1994. “Price Discrimination via Secondhand Markets.” European Economic Review. Vol. 38. Issue 1: 23–44. Botsman, Rachel. 2017. Who Can you Trust?: How Technology Brought us Together and Why It Might Drive Us Apart. London: Portfolio Penguin. Boulding, E. Kenneth. 1966. “The Economics of the Coming Spaceship Earth.” Paper presented at the Sixth Resource for the Future (RFF) Forum on Environmental Quality in a Growing Economy in Washington, D.C. on March 8, 1966. Ellen MacArthur Foundation. 2013. Towards the Circular Economy: Economic and Business Rationale for an Accelerated Transition. https://www.ellenmacarthurfoundation.org/assets/downloads/publications/Ellen-­M acArthur-­ Foundation-­Towards-­the-­Circular-­Economy-­vol.1.pdf European Commission. 2015. Closing the Loop: An EU Action Plan for the Circular Economy.https://eur-­lex.europa.eu/resource.html?uri=cellar:8a8ef5e8-­99a0-­11e5-­ b3b7-­01aa75ed71a1.0012.02/DOC_1&format=PDF Frosch, A.  Robert, and Nicholas E.  Gallopoulos. 1989. “Strategies for Manufacturing.” Scientific American. Vol. 261. No. 3: 144–153.

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Geissdoerfer, Martin, Paulo Savaget, Nancy M. P. Bocken, and Erik J. Hultink. 2016. “The Circular Economy: A New Sustainability Paradigm?.” Journal of Cleaner Production. Vol. 143: 757–768. Ghisellini, Patrizia, Catia Cialani, and Sergio Ulgiati. 2016. “A Review on Circular Economy: The Expected Transition to a Balanced Interplay of Environmental and Economy Systems.” Journal of Cleaner Production Vol. 114: 11–32. Grubel, G. Herbert. 1980. “International Trade in Used Cars and Problems of Economic Development.” World Development. Vol. 8. No. 10: 781–788. Guide, V. Daniel R. 2000. “Production Planning and Control for Remanufacturing: Industry Practice and Research Needs.” Journal of Operations Management. Vol. 18: 467–483. Haynsworth, H. C., and Tim Lyonds 1987. “Remanufacturing by Design: The Missing Link.” Production and Inventory Management Journal. Vol.28. No.2: 24–29. Heese, S. Hans, Kyle Cattani, Geraldo Ferrer, Wendel Gilland, and Aleda V. Roth. 2005. “Competitive Advantage through Take-back of Used Products.” European Journal of Operational Research. Vol. 164. Issue 1: 143–157. Hicks, Charlotte, Rolf Dietmar, and Martin Euguster. 2005. “The Recycling and Disposal of Electrical and Electronic Waste in China—Legislative and Market Responses.” Environmental Impact Assessment Review. Vol. 25: 459–471. International Resource Panel. 2018. Re-defining Value—The Manufacturing Revolution. Remanufacturing, Refurbishment, Repair and Direct Reuse in the Circular Economy. Kerr, Wendy, and Chris Ryan. 2001. “Eco-efficiency Gains from Manufacturing: A Case Study of Photocopier Remanufacturing at Fuji Xerox Australia.” Journal of Cleaner Production. Vol. 9. Issue 1: 75–81. Kojima, Michikazu. 2017. “Remanufacturing and Trade Regulation.” Procedia CIRP. Vol. 61: 641–644. Korhonen, Jouni. 2001. “Four Ecosystem Principles for an Industrial Ecosystem.” Journal of Cleaner Production. Vol. 9. Issue 3: 253–259. Millar, Neal, Eoin McLaughlin, and Tobias Borger. 2019. “The Circular Economy: Swings and Roundabouts?.” Ecological Economics. Vol. 158: 11–19. Neuwirth, Robert. 2011. Stealth of Nations: The Global Rise of the Informal Economy. New York: Pantheon. OECD. 2018. Business Models for the Circular Economy: Opportunities and Challenges from a Policy Perspective. Paris: OECD. Pearce, W. David, and R. Kerry Turner. 1990. Economics of Natural Resources and the Environment. New York: Harvester Wheatsheaf. Pelletiere, Danilo, and Kenneth A.  Reinert. 2002. “The Political Economy of Used Automobile Protection in Latin America.” The World Economy. Vol. 25. Issue 7: 1019–1037.

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Rauniar, Rupak, Greg Rawski, Jack Crumbly, and Jack Simms. 2009. “C2C Online Auction Website Performance: Buyer’s Perspective.” Journal of Electric Commerce Research. Vol. 10. No. 2: 56–75. Schwartz, L. Sandra. 1973. “Secondhand Machinery in Development, or How to Recognize a Bargain.” Journal of Development Studies. Vol. 9. No. 4: 544–555. Sen, K. Amartya. 1962. “On the Usefulness of Used Machines.” The Review of Economics and Statistics. Vol. 44. Issue 3: 346–348. Smith, M. A. M. 1974. “International Trade in Secondhand Machines.” Journal of Development Economics. Vol. 1. Issue 3: 261–278. Stevenson, S. Richard, and J Warren Evans. 2004. “Editorial to: Cutting across Interests: Cleaner Production, the Unified Force of Sustainable Development.” Journal of Cleaner Production. Vol. 12. Issue 3. 185–187. Thomas, M. Valerie. 2003. “Demand and Dematerialization Impact of Secondhand Market: Reuse or More Use?” Journal of Industrial Ecology. Vol. 7. No. 2: 65–78. Yokoo, Hide-Fumi. 2014. “International Aspects of Waste Management: The Waste Haven Effect on Global Reuse.” in Handbook on Waste Management, edited by Kinnaman, C.  Thomas and Kenji Takeuchi. Cheltenham: Edward Elgar. Zhang, Tongzhu, Jiangwei Chu, Xueping Wang, Xianghai Liu, and Pengfei Cui. 2011. “Development pattern and enhancing system of automotive components remanufacturing industry in China.” Resources, Conservation and Recycling. Vol. 55. Issue 6: 613–622.

CHAPTER 2

Economic Impact of Imported Secondhand Agricultural Machinery in Rural Vietnam Shozo Sakata

2.1   Introduction The gasoline tractor, invented in the early twentieth century in the United States, spread quickly throughout the United States and Europe starting in the 1910s, followed by the introduction of other machines such as harvesters and planters after World War II.1 These machines helped to convert land previously used to feed animals into croplands that produced food for human consumption (Olmstead and Rhode 2001). However, developing countries have lagged in the use of machines for agricultural production, often because they are too expensive for ordinary farmers to purchase. In densely populated rice-growing Asian countries, purchasing agricultural machinery such as tractors and combine harvesters is an 1  Henry Ford & Sons Ltd. started to produce the Fordson model, the first mass-production tractor, in 1917. The International Harvester’s Farmall, first produced in 1924, was the first general-purpose tractor with a power-takeoff that transferred power to towed implements (Olmstead and Rhode 2001: 668–669).

S. Sakata (*) Institute of Developing Economies, Japan External Trade Organization, Chiba, Japan e-mail: [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_2

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inefficient investment because these countries have an abundant labor force in rural areas and a tradition of labor exchange in agriculture. Moreover, maintaining agricultural equipment is costlier than raising draft animals. However, in the course of economic development, and in particular since the 1990s as many Asian developing countries have industrialized, laborers and draft animals have gradually been replaced by agricultural machines. Increasing demand for agricultural machinery in poor Asian countries, where machinery industries are also poorly developed, has largely been met by importing inexpensive secondhand machines. This chapter illustrates how imported secondhand agricultural machines contribute to the development of rural economies in developing countries. The causality seems simple. Given that imported secondhand agricultural machines are inexpensive, demand for them is high, and this leads to faster diffusion of machinery. This diffusion of agricultural machines to rural areas accelerated the shift of the labor force from the agricultural sector to the industrial sector. However, the processes and the determinants of diffusion are not quite that simple. At the household level, increased opportunities to work in a non-agricultural sector and increase in one’s income do not automatically correspond to the decision to purchase agricultural machinery. The decision depends also on the availability of machines on the market, knowledge of their use, and additional costs such as fuel and maintenance. We should also explore what changes imported secondhand machines have brought to farm households and rural economies. As a case study, this chapter focuses on how agricultural machines are transferred to and used in rural Vietnam. Vietnam is a unique country in that agriculture there has developed in tandem with the industrial manufacturing sector since the economic liberalization of the late 1980s. Before liberalization, Vietnam suffered from low agricultural productivity and relied on the former Soviet Union for food security. Vietnam is a good case to study the processes of diffusion of agricultural machines because this process has occurred within a relatively short period of time. Although Vietnam has become one of the largest food producers in Southeast Asia only a decade after the start of its economic liberalization,2 the mechanization of agricultural production had fallen behind. Indeed, the use of 2

 Vietnam became the world’s second largest rice exporter in 1997.

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machines came to be popular only as late as the beginning of the 2000s, although it is yet to be seen on a nation-wide scale. For example, the number of tractors increased by more than fivefold from 98,000 units in 1995 to 533,000 units in 2011 (Nguyen Sinh Cuc 2003; GSO 2012). This indicates that the diffusion of agricultural machines is attributable to, rather than the cause of, improvements in productivity and increases in farmers’ income.3 In this chapter, this introductory section is followed by Sect. 2.2, which highlights the status of trade and the export of secondhand machines by its largest source of secondhand agricultural machines, Japan. Section 2.3 exposes how imported secondhand machines are sold and used in An Giang Province, one of the largest rice-producing provinces in Vietnam. This section suggests that the practices of machine use are quite different from those of Japan, and therefore, new businesses, such as commissioning agricultural work and customizing machines, arose in order to adapt foreign machines to local needs. Given the difficulty of obtaining reliable quantitative data on the number of machines in use and the market size of secondhand machines, Sects. 2.2 and 2.3 rely on qualitative information obtained from the literature and a limited number of interviews with various stakeholders in Japan and Vietnam. Section 2.4 discusses how the inflow of secondhand agricultural machines has impacted the local economy not only through the shift in agricultural production mode but also because local small-scale businesses have created an “ecosystem” for the mechanization of agricultural production. This section also argues that the diffusion of secondhand agricultural machinery in the Mekong Delta region of Vietnam can be attributed to not only the specific local environment but also factors such as the technical characteristics of Japanese machines, the development of ethnicity-based Vietnamese family business supply chains, and the development of after-sales service businesses.

3  The improvement of productivity in Vietnamese agriculture in the 1990s was due largely to the application of chemical fertilizers and pesticides after farmers were released from the yoke of planning production. According to FAO STATS data, the amount of fertilizers applied (“synthetic fertilizers” for agricultural use) increased threefold, about 400 thousand to 1.2 million tons, between 1990 and 2000.

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2.2   Export of Agricultural Machines from Japan to Vietnam 2.2.1  Japan as the Top Exporter of Agricultural Machines to Vietnam The available reliable trade data reveal that the biggest source of Vietnam’s imported agricultural machines is Japan.4 Taking tractors as an example, according to the data retrieved from the Global Trade Atlas (GTA), Japan is the only country among the major tractor exporters that exports a large number of tractors to Vietnam.5 Among Asian countries, Japan exported about 56 million USD worth of tractors to Vietnam in 2017, more than double the export from Thailand (21 million USD), the second biggest exporter of tractors. Vietnam is a relatively new market for Japanese tractors. Until 2010, Thailand was the main importer of Japanese tractors in Asia, but Thailand has recently increased its domestic production of tractors. Figure  2.1 shows Japanese exports of tractors for agricultural use to Vietnam and Thailand. The total number of tractors exported to Vietnam started to increase rapidly at the beginning of the 2000s.6 Vietnam replaced Thailand as the top importer in Asia, importing 26,644 units in 2017.7 The total numbers of secondhand tractors exported in 2015 and 2016 were 27,392 and 26,246 units, respectively, accounting for as much as 93.9% and 94.8% of the total tractor exports to Vietnam (data on 4  Vietnam’s import data does not appear to be reliable. According to the UN Comtrade data (data for Vietnamese imports are not available in the Global Trade Atlas database), the value of Vietnamese imports of tractors for agricultural use from Japan was 26 million USD in 2016 (no data on quantity are available), while data for Japanese exports to Vietnam was more than double, at 58 million USD. Trade data between Thailand and Japan do not show such a large gap (106 million USD for Japanese exports vs. 115 million USD for Thai imports). 5  https://www.gtis.com/gta/. There are only six countries in which the export value of tractors (HS870191-870195) exceeded one billion USD in 2017: Germany, United States, Italy, France, Japan, and UK. Japan was the fifth largest exporting country in the world in terms of exporting value in 2017 and was the top exporter of small-sized tractors (not exceeding to 37 kW [49.6 HP]) (retrieved in December 2018). 6  HS code of the tractors for agricultural use was HS870190 until 2016. In the GTA database, it is not indicated whether these are two-wheel or four-wheel tractors. 7  In the global market, the United States has been the top importer of Japanese tractors, importing 50,917 units in 2017.

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60,000 Vietnam

50,000

Thailand

40,000 30,000 20,000 10,000 0

1995

2000

2005

2010

2015

Fig. 2.1  Exports of agricultural tractors from Japan to Thailand and Vietnam. (Note: HS870190 from 1994 to 2016, HS870191–870195  in 2017. Source: Global Trade Atlas)

secondhand tractor exports in official Japanese statistics are available only starting in 2015). Vietnam is the biggest importer of Japanese secondhand tractors for agricultural use, making up 44.8% of the total exports of secondhand tractors to the world in 2017. 2.2.2  Supply Channels of Secondhand Machines from Japan to Vietnam In Japan, the main distribution channels of secondhand machines are also distributors of new agricultural machines, mainly the nation-wide cooperatives association JA (Japan Agricultural Cooperatives) and four major manufacturers.8 These distributors often purchase secondhand machines from farmers as trade-ins when farmers purchase new machines.9  Kubota, Yanmar, ISEKI, and Mitsubishi are the four major distributors.  The “Survey on distributions of secondhand agricultural machines” carried out in 2010 by the Japan Agricultural Machinery Association found that the trade-in rate of four-wheel tractors, that is, the number of trade-in tractors bought by distributors per 100 new sales, was 58 and that of combine harvesters was 68. 8 9

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Such trade-ins have contributed to securing the quality and condition of secondhand machines because farmers know they can sell their machines at a high price as long as they keep them in good condition.10 Although many of the distributors selling secondhand machines for the domestic market are affiliated with JA or major manufacturers, the majority of exporters of secondhand machines are individual small-scale traders. In the specific case of secondhand machines exported to Vietnam, ethnic Vietnamese traders, including former Indochinese refugees settled in Japan since the early 1980s, are the main players. Some Japanese anthropologists report that in the 1980s, former Indochinese refugees, mostly from Vietnam, started businesses selling secondhand electric appliances and bicycles to sailors from Vietnamese vessels that called at Japanese ports (Kawakami 2001; Toda 2001). After Vietnamese regulations on trade with Japan were eased following the start of economic liberalization, those former refugees shifted their businesses to the direct export of secondhand agricultural machines. Many of them established trading companies in both Japan and Vietnam, with relatives managing the companies on the Vietnamese side and importing secondhand agricultural machines. The increase in the export of Japanese secondhand agricultural machines to Vietnam has been in many cases realized through such family networks. The Vietnamese traders living in Japan interviewed by the author stated that a number of Vietnamese expatriates began exporting secondhand agricultural machinery at the beginning of the 2000s.11 Some have since started dealing in a wider variety of items, including secondhand construction machines, machine tools, forklifts, and iron scrap. Moreover, there are traders who expanded their sales channels by re-exporting to Thailand, Cambodia, and Australia. They enjoy relaxed export procedures because the Vietnamese import tariffs for most agricultural machinery are 0%. The best-selling tractors are those produced before the 1990s because their prices are low, they have sufficient basic functions, and their performance has not degraded much even after several decades of use. 10  There are individual dealers who purchase secondhand agricultural machines from farmers, including some who run websites for purchasing and selling machines. These individual dealers do not usually engage in the trade-in business. 11  The author conducted interviews with Vietnamese traders in Isesaki, Gunma Prefecture, in 2013 and 2018; and Yao, Osaka Prefecture, in 2018. Many ethnic Vietnamese, including former refugees, reside and operate trading businesses in these cities.

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Importers of secondhand agricultural machinery in Vietnam are clustered in and around Ho Chi Minh City, Vietnam’s largest commercial city. In particular, numerous small-scale traders opened their workshops along 35-km strip of National Highway No. 1, between the Binh Chanh District of Ho Chi Minh City and Tan An Town in Long An Province. Most of the agricultural machines shipped to the ports in Ho Chi Minh City are sold in provinces of the Mekong Delta region. Although the import tariffs on agricultural machines, both new and secondhand, are in many cases 0%, tariffs on parts for agricultural machinery are relatively high in Vietnam.12 Furthermore, tariffs on parts from Japan are higher than those on parts from other countries. Vietnam has concluded many bilateral free trade agreements (FTA) and belongs to the Association of Southeast Asian Nations (ASEAN), through which it has signed FTAs with many member countries. Tariff rates differ for each FTA agreement. For example, according to the 2013 rate, the import tariff rate for a tractor transmission (HS87084025) is 22.5% when imported from countries that do not have an FTA with Vietnam. The tariff rate for the same tractor transmission under the Japan–Vietnam Economic Partnership Agreement (EPA) is 16%. China can export a tractor transmission at the 5% tariff rate set in the ASEAN–China FTA.13

2.3   Diffusion of Agricultural Machines in the Mekong Delta Region 2.3.1  Mechanization of Agriculture in the Mekong Delta Region In Vietnam, the demand for agricultural machines is particularly high in the three provinces located in the upper Mekong Delta region, namely An Giang, Kien Giang, and Dong Thap Provinces (Fig. 2.2). Compared with provinces in the lower Mekong Delta region, these three provinces have many large-scale paddy fields with high yields. In this region, it is common for rice to be cultivated two to three times a year. These three provinces alone account over 25% of the total rice production in Vietnam. An Giang 12  One possible reason for the high tariff rates is protectionist policies for the automobile industry. The same industrial production codes are often applied to parts for automobile and agricultural machines. 13  Tariff rates are taken from Bo Tai Chinh (2013).

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Dong Thap Province Ho Chi Minh City

An Giang Province Kien Giang Province

Mekong Delta

Fig. 2.2  Map of the Mekong delta region. (Source: Compiled by the author)

Province, the focus of the case study in this section, is regarded as the center of rice production in Vietnam, given that agriculture-related businesses such as rice warehousing, rice milling, and food processing have also flourished there.

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According to the provincial authorities of the Department of Agriculture and Rural Development (DARD), the use of machines for rice cultivation in An Giang Province has been widely observed since the early 2000s. In the Mekong Delta region, the agricultural labor market has been developed for some time because the agricultural land area per household is large and family labor was never sufficient. In the early 2000s, the motive power for plowing gradually shifted first from cattle and buffalo to twowheel tractors with rotary tillers and then to four-wheel tractors. The majority of tractors in rice fields are secondhand Japanese models, except for some made in China, the United States, and Belarus. Around 2010, wealthier farmers began to purchase new Japanese-brand tractors and combine harvesters, most of which were assembled locally or nearby in Thailand or China. Before that, in 2005, the government began a subsidy program to support the purchase of agricultural machinery. However, because the subsidies were applied only to the purchase of machines manufactured by Vietnamese state-owned enterprises, few could enjoy the benefits of this policy. Meanwhile, in 2008, inexpensive imported Chinese-made combine harvesters became popular until Japanese manufacturers started to assemble combine harvesters locally in 2009. Within a relatively short period of time, Japanese machines occupied a majority of the combine harvester market, even though the prices were double that of the Chinese models. By the beginning of the 2010s, some farmers owned multiple machines. Moreover, since the government issued a policy in 2013 to support interest payment on loans for purchasing agricultural machines (Prime Minister’s Decision 68: 68/2013/QD-TTg),14 the diffusion of agricultural machines has accelerated. According to the official statistics of the Department of Agriculture and Rural Development of An Giang Province, at the end of 2018 there were 2042 combine harvesters and 5764 tractors, including both two-wheel and four-wheel models, in the province. However, rice transplanting machines had not gained popularity even by the end of 2010s (there were only eight machines in the province at the end of 2018) because the direct sowing of rice seeds, rather than transplanting, is the common practice in southern Vietnam.

14  According to this Decision, 100% of the interest payment is supported for the first two years and 50% in the third year.

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2.3.2  Ownership and Distribution of Agricultural Machines The diffusion of agricultural machinery progressed rapidly in the latter half of the 2000s. According to the local authorities of the provincial DARD, by the beginning of the 2010s, most land preparation and harvesting work in the provinces was mechanized. Despite the rapid increase in the number of agricultural machines owned by farmers in An Giang Province, the total number of machines was far smaller than the number of farming households, which was over 200,000. The mechanization of agricultural work with a relatively small number of machines was achieved because many farmers started to outsource land preparation and harvesting work to the small number of tractor owners. Owners of tractors and combine harvesters, who are relatively wealthy farmers and can invest in agricultural machinery, started this new business for other farmers. In 2018, the author conducted a survey of machine use among farmers who owned agricultural machines in the Tay Son District of An Giang Province (N = 50). The mean annual working acreage of their tractors in paddy fields was 107 (ranging from 45 to 300) hectares in 2017. This figure includes land preparation work commissioned by other farmers. Meanwhile, the mean annual harvesting acreage of combine harvesters was 331 (75–750) hectares. While it is primarily relatives and neighboring acquaintances who outsource land preparation work, combine harvesters can work even in distant areas, such as the neighboring provinces of Kien Giang and Dong Thap. Owners of combine harvesters often transport them by boat and sometimes do not return home for about a month during the harvesting season. In unfamiliar places, they find farmers who seek harvesters through a local intermediary (“co” in the local language).15 Accordingly, the working acreages of agricultural machines are much larger in Vietnam than in the country that produced the machines. 15  There are two reasons why the area for commissioned combine harvester work is larger than that of tractors. First, because the price of tractors is lower than that of combine harvesters, many imported secondhand tractors are sold in this area, and thus the number of tractors has become higher than that of combine harvesters. Second, and more importantly for farmers, is the payment mode. Many farmers do not have sufficient cash to pay for land preparation, and so they pay for the work of land preparation when they receive cash after harvest. Therefore, tractor owners may limit their customers within such ranges where payment can be reliably collected. In contrast, the farmers can pay harvesters immediately after harvest. Therefore, the owners of combine harvesters can work even for farmers they are unacquainted with in unfamiliar places.

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Although accurate data are not available, it would be difficult to find farmers in Japan who use tractors and combine harvesters on more than ten hectares of land per year.16 Agricultural land size is small, rice is usually cultivated only once per year, and farmers rarely outsource their agricultural work to others. Consequently, the machines depreciate more quickly in Vietnam than in Japan. According to the author’s survey, Vietnamese farmers replace their tractors every 8.4 years and combine harvesters every 4.4 years on average. For these farmers, it is more economically efficient to purchase cheap but older (more than ten years old) secondhand machines, which they use intensively for a relatively short period. 2.3.3  Repairing and Customizing Agricultural Machines The practices of purchasing and using agricultural machines have necessitated the development of repair and customization businesses at the local level. In An Giang Province, various entities dealing with agricultural machinery have participated in the repair and customization businesses. First, since the late 2000s, Japanese manufacturers such as Kubota and Yanmar have opened authorized distributers in and around Long Xuyen, the provincial capital. There are also some distributors who sell localbrand machines, including VEAM and An Giang Machinery Company. These distributors sell new machines with warranties for a certain period of working time (usually 12 months), often going to the paddy fields to repair their customers’ machines even after the warrantee period ends, although these services are not provided for free. Moreover, they function as suppliers of parts and components to the small repair and customization workshops mentioned below. Second, many workshops dealing with secondhand machines can be seen along the roads between the center of Long Xuyen and district or commune centers. These small workshops are the main actors in the repair and customization businesses. Although they specialize in selling and repairing a limited range of machines, such as only two-wheel or four-­ wheel tractors, they handle many brands. It is difficult to denote the number of these workshops in the official statistics because most of them are small-scale individual business entities, categorized in the “informal 16  The average size of agricultural fields in Japan is two hectares. The exception is Hokkaido, where many full-time farmers work on agricultural land with greater acreage compared with farmers in other areas.

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sector.” These workshop owners purchase secondhand machines from importers in Ho Chi Minh City and sell them to farmers. They sometimes deal with old machines, such as four-wheel tractors, that are over 30 years old and were produced by Japanese manufacturers that do not exist anymore, such as Shibaura and Sato. These workshops usually sell machines with no warranties. They sometimes provide repair services for machines sold by other shops as well, and often customize some functions of the machines before selling them. Imported secondhand agricultural machines often cannot be used as is because the field conditions, climate, and agricultural work practices differ from the countries that manufactured the machines and in many cases require modification for proper operation. For example, the blades of the rotary tillers attached to four-wheel tractors are often replaced with longer blades with narrower pitch angles. Saddles and small wheels are attached to walking two-wheel tractors to convert them into riding three-wheel tractors that reduce the farmer’s burden when working in large-scale agricultural fields in hot climates. The rubber tires of four-wheel tractors are replaced with iron wheels for use in leveling wet paddy fields. This kind of customization for local conditions is quite common in the Mekong Delta region. Workshop owners and their workers accumulate considerable knowledge and skill in the repair of various types of machinery. However, few of them acquired such skills at official training institutions. Some started their careers as motorbike mechanics and converted their business to work on agricultural machines because the skills required are similar. The knowledge and skills necessary to work on motorbikes, construction equipment, and production machine tools can be diverted to work with agricultural machines and vice versa. As a result, many importers of agricultural machines in Ho Chi Minh City and Long An Province also deal in construction machines and production machine tools. In Long Xuyen and other rural districts in Ag Giang Province, motorbike mechanics transitioned to trading in agricultural machines and offering repair and customization services. Parts suppliers in Long Xuyen handle the parts and expendables of various types of machines and vehicles in one shop. Third, grassroots-level local manufacturers of agricultural machines emerged in villages. For example, two-wheel tractors can be manufactured by assembling imported key components such as engines and gearboxes with hand-made frames and other parts dismantled from other old machines. Other examples include various machines that use secondhand tractor engines. Engines taken from two-wheel tractors can be used to power water irrigation pumps, rice dryers, and outboard engines.

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Fig. 2.3  Locally developed paddy carrier (An Giang Province). (Source: Taken by the author)

One product invented locally (although no one knows precisely who invented it) and used widely in the region is the paddy carrier customized from old combine harvesters (Fig. 2.3). All parts of the combine harvester except the engine, gearbox, and crawlers are removed, and a flat panel is attached to enable a harvested paddy to be placed in a bag. This type of paddy carrier with crawlers is suited to the wet rice fields of the Mekong Delta region, where rice is harvested even in the rainy season, because paddies can be harvested three times a year in many places.

2.4   Roles of Secondhand Agricultural Machines in Economic Development 2.4.1  Impact on Local Economies Although it is difficult to verify quantitatively, the author tries to discuss the impacts of the inflow of secondhand agricultural machines on the local economy of villages in the Mekong Delta region. The first impact is on

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labor force structure. The use of machines was accelerated by the growth of new businesses that replaced agricultural work for some farmers. On the one hand, relatively richer farmers expanded their livelihoods in the agricultural sector by receiving commissioned work from other farmers. On the other hand, many small-scale or relatively poor farmers opted to become part-time farmers, although many of them seem to have maintained their status as farmers in the official statistics. Second, the inflow of secondhand tractors has encouraged the expansion of new machine markets, which resulted in the expansion of secondhand machinery-related markets. Wealthier farmers endowed with large-scale farmland started to purchase secondhand tractors for commission business. They then expanded their businesses by adding new domestically assembled combine harvesters and tractors. After some years of use, these new machines also joined the secondhand machine market. The market for spare parts and products such as customized machines as well as repair services also expanded because the increase in new and secondhand machines also led to an increase in the stock of secondhand parts dismantled from them. Third, the local economy at the village level turned out to be well developed and resilient. The number and variety of actors participating in agricultural machine-related businesses increased, leading to the creation of new jobs. Furthermore, these diverse businesses are inter-connected directly and indirectly in rural areas. These local businesses are also connected with businesses in different sectors (e.g., importers of construction machines and motorbike mechanics) or in different geographic areas such as Long Xuyen, Ho Chi Minh City, and even Japan (Fig. 2.4). These various actors have created a “business ecosystem” (Rothschild 1990), i.e., a web of business networks in which goods (machines and parts), capital, and human resources are circulated, and as a result, technology and related knowledge are transferred.17 These positive externalities in economic and social terms are brought about by secondhand products (Grubel 1980). 17  The metaphor of the “eco-system” in economic activities was first proposed by Rothschild (1990) and further developed by Moor (1993) and several other scholars as the “business ecosystem” during discussions on business strategy analysis. In their analogy, as an industry grows in a country or in a local society, diversified (in terms of their activities, scales, capacities, etc.) economic entities emerge, forming a web of networks among them for the division of labor, information exchange, and business collaboration. For them, economic entities are embedded as an inter-connected part of the larger environment and bear important roles in retaining the collective competitiveness of industries, or as they put it, the

2  ECONOMIC IMPACT OF IMPORTED SECONDHAND AGRICULTURAL… 

Farmer

Service provision market

Farmer

Farmer

Farmer

Intermediary

Farmer

Intermediary

Farmer

Agri-machine manufacturer Parts importer

Farmer

Intermediary

Farmer

Dealers/repairer of second-hand agricultural machines

Official distributer

Farmer

Importer of second-hand agricultural machines

Exporter

(An Giang Prov.)

Repairing/ customizing workshop

Parts manufacturer

Exporter of parts (Japan, China, Korea, Taiwan, etc.)

27

Trader

(HCMC, Long An Prov.) Importer of construction machines

(Japan) Farmer

Fig. 2.4  Flows of agricultural machines and parts. (Source: Prepared by the author)

2.4.2  Factors of Diffusion of Agricultural Machines As we have seen, in the Mekong Delta region of Vietnam, secondhand tractors, imported mainly from Japan, have played important roles in improving agricultural production and local economic development. This chapter argues that there are three main factors that have enabled the diffusion of agricultural machines in the Mekong Delta region. The first factor is the technical characteristics of secondhand machines. Given that a small number of agricultural machines are commissioned to work for many farmers, the machines are heavily used in the field. Therefore, these machines require frequent replacement of expendable parts. Secondhand Japanese agricultural machines exported to Vietnam are generally equipped with sturdy core components (engines, gearboxes, and chassis) with no “health” of such business ecosystems (Iansiti and Levien 2004). The competitiveness of economic entities and industries depends to a large extent on their ability to manage the inter-organizational relationships surrounding them (Ritter and Gemunden 2003a, b).

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electronic parts and can therefore withstand long-term use with frequent replacement of expendable parts and mechanical repair when broken. In addition, other parts of the machines as well as implements such as rotary tillers and plows can easily be modified to adapt to local conditions as long as the workers have basic welding skills. Imported secondhand machines, tailored to local conditions by local workshops, are sold with adequate functions at prices affordable for Vietnamese farmers. Moreover, for Vietnamese farmers, secondhand machines imported from Japan are not very different from new machines in terms of quality and function. Working acreages of tractors used for over ten years in Japan are as little as those used for one year in Vietnam, although the prices of the imported machines are much lower. Such characteristics of imported machines contribute to the expansion of the agricultural machine market. The second factor contributing to the diffusion of agricultural machines is the development of supply chains for machines and parts. In Japan, which is the main supplier of secondhand machines to Vietnam, machines are collected and exported to Vietnam by Vietnamese traders who have also opened businesses on the Vietnamese side. These ethnicity-based Vietnamese family business channels help to secure the volume and quality of machines exported to Vietnam. In Vietnam, various actors in secondhand agricultural machine businesses have formulated economic agglomerations; importers and traders in and around Ho Chi Minh City and those who purchase, repair, and sell the imported machines to the farmers in Long Xuyen and surrounding districts. The third factor is the development of the after-sales service market. Failure or malfunction of machines affects the incomes of the owners and the farmers who outsource their agricultural work. It is therefore imperative that these farmers keep their machines in good condition and become acquainted with reliable repair shops who can work quickly, especially during the peak seasons of machine use, namely the land preparation and harvesting seasons. To meet the demand for such services, workshops need to establish a supply network of various actors, including parts suppliers and other repair workshops, in order to secure the supply of parts as well as workers with the necessary skills.

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2.5   Conclusion This chapter attempted to illustrate the status of the diffusion of agricultural machinery in the Mekong Delta region of Vietnam since the early 2000s and discussed the role of secondhand machines in the expansion of machine use and local economic development. In the future, as economic development continues and the labor force continues to shift from the agricultural to the industrial sector, the demand for agricultural machinery is expected to increase further. It could be envisaged that demand for new machines may increase along with farmers’ income. However, at least in the short run, it is unlikely that the demand for imported secondhand machines will decrease. In fact, the number of secondhand tractors exported from Japan to Vietnam has not fallen dramatically even in the more than ten years since Japanese manufacturers began to produce tractors in Vietnam. Farmers may see little difference between new machines and secondhand machines imported from Japan in terms of quality, functionality, and expected lifecycle. Furthermore, secondhand machines can be customized, remanufactured, or even reborn to become locally invented innovative agricultural machines. Secondhand machines are also precious sources of spare parts. Therefore, demand will instead diversify as the market for new and secondhand machines as well as customized products (or perhaps pirated copy products) expands. For the further expansion of machine use in agriculture, which would increase labor productivity and improve the quality of agricultural produce, supportive government policies are imperative to stimulate the “ecosystem” of agricultural machinery businesses. This support should not be confined to the subsidy programs for purchasing machines already implemented in Vietnam but should also include indirect supports such as reduced import tariffs on machine parts, rural infrastructure development, and land market reform. Lastly, however, continuous import of secondhand agricultural machines for reuse may raise concerns about the negative impacts on the environment. Maintenance and repair as well as repeated reuse of machines inevitably generate residual waste. The capacity for solid waste management in Vietnam remains insufficient, and recyclable wastes such as metal parts are in many cases treated inappropriately by informal recyclers because informal recycling clusters have been developed widely in rural Vietnam (Sakata 2013). To create a sound “circular economy” (OECD 2018) in Vietnam, policy measures are necessary to encourage reuse practices and businesses in parallel with the capacity building of recycling businesses.

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References Bo Tai Chinh (Ministry of Finance). 2013. The List of Import-export Tax 2013. Ha Noi: Nha Xuat Ban Tai Chinh. Grubel, G. Herbert. 1980. “International Trade in Used Cars and Problems of Economic Development.” World Development. Vol. 8 No. 10: 781–788. GSO (General Statistics Office). 2012. Results of the 2011 Rural, Agricultural and Fishery Census. Hanoi: Statistical Publishing House. Iansiti, Marco, and Roy Levien. 2004. “Strategy as Ecology.” Harvard Business Review. Vol. 82. No. 3: 68–78. Kawakami, Ikuo. 2001. Ekkyo Suru Kazoku [Families Crossing Border: Sphere of Life of Vietnamese residents in Japan]. [in Japanese.] Tokyo: Akashi Shoten. Moor, F.  James. 1993. “Predators and Prey: A New Ecology of Competition.” Harvard Business Review. Vol. 71. Issue 3: 75–86. Nguyen Sinh Cuc. 2003. Vietnam Agriculture and Rural Area in the Renovation Period (1986–2002). Hanoi: Statistical Publishing House. Olmstead, L. Alan, and Paul W. Rhode. 2001. “Reshaping the Land Scape: The Impact and Diffusion of the Tractor in American Agriculture, 1910–1960.” Journal of Economic History. Vol. 61. No. 3: 663–698. OECD 2018. Business Models for the Circular Economy: Opportunities and Challenges from a Policy Perspective. Paris: OECD. Ritter, Thomas and Hans G. Gemunden. 2003. “Interorganizational Relationships and Networks: An Overview.” Journal of Business Research. Vol. 56. Issue 9: 691–697. ———. 2003. “Network Competence: Its Impact on Innovation Success and its Antecedents.” Journal of Business Research. Vol. 56. Issue 9: 745–755. Rothschild, L.  Michael. 1990. Bionomics: The Inevitability of Capitalism. New York: Henry Holt & Company. Sakata, Shozo. 2013. “Rural Industries in Northern Vietnam: Strategies of Small-­ scale Business Establishments in the Formation of Craft Villages.” in Vietnam’s Economic Entities in Transition, edited by Sakata, Shozo. 204–226. London: Palgrave Macmillan. Toda, Keiko. 2001. Nihon no Betonamu-jin Komyuniti: Issei no Jidai Soshite Ima [Vietnamese Communities in Japan: First Generation and Now.] [in Japanese.] Tokyo: Gyoin Shokan.

CHAPTER 3

International Trade of Used Trains: The Case of Japanese Used Rolling Stock in Indonesia Koichi Kawamura

3.1   Introduction This research analyzes exports of Japanese used rolling stock from the perspective of the international trade of used goods. The rolling stock of the major railway companies in Japan, such as that belonging to the Japan Railways (JR) Group or major private railways in metropolitan areas, is typically replaced by the next generation of trains 20–30 years after manufacture. Some cars are scrapped and others are sold to small private railway companies in other regions. Although reuse of rolling stock is still practiced within Japan, since the mid-1990s used rolling stock has also been transferred to railway companies overseas. As the economy grew and rapid urbanization gave rise to serious transportation problems in many of Southeast Asian countries, Japanese used railroad rolling stock was watched with keen interest as a way to improve the low level of transportation services in quick and economic ways. At the same time, Japanese railway companies found that transferring their used railway cars to Southeast Asian countries was a convenient way to reduce K. Kawamura (*) Institute of Developing Economies, Japan External Trade Organization, Chiba, Japan e-mail: [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_3

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the cost of scrapping in times of strict environmental regulations as well as to reuse still-operational rolling stock. As such, Japan, a country with advanced railway systems and similar railway specifications, emerged as the largest supplier of used rolling stock to the region. Given that the need to improve railway services, especially in urban areas of Southeast Asian countries, will increase further, demand for Japanese used rolling stock is also expected to increase. Thus, used rolling stock will have a substantial impact on Asian countries in terms of international trade and the environment. However, there are few studies on the reuse of railroad rolling stock. There are also limited data and statistics on used rolling stock available to aid the study of used rolling stock from the perspective of the international trade of used goods. The author has not found any integrated data on how much rolling stock is replaced, scrapped, and transferred to domestic or overseas railway companies. Japan is not the only country to transfer used rolling stock to railway companies overseas. The German railway company Deutsche Bahn has a website with information on used rolling stock available for sale, indicating that there are international transactions of used German rolling stock. News on international transfers of used rolling stock is sometimes provided by the media as well. However, the author has not found comprehensive information on the international transfer of rolling stock or academic works on the topic in the context of the international trade of used goods. This chapter analyzes the international reuse of used railroad rolling stock by examining the case of Indonesia, where a large amount of Japanese used rolling stock has been transferred. The aim of this analysis is to clarify how and why such a large amount of used rolling stock was transferred there, what problems have arisen during the use of this equipment, and how the Indonesian railway service has tackled these issues. This chapter is arranged as follows: Section 3.2 clarifies the facts and data on the export of Japanese used railroad rolling stock with official statistics and information from secondary sources. Section 3.3 discusses how Japanese used rolling stock has been transferred to Indonesia. Section 3.4 analyzes the reasons why such a large amount of Japanese used rolling stock has been transferred to Indonesia. Section 3.5 focuses on issues that have arisen in the use of Japanese used rolling stock after being transferred to Indonesia. Section 3.6 discusses the characteristics of the international trade of used rolling stock through a comparison with the trade of used motor vehicles.

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The final section, while concluding the argument of this chapter, touches upon issues to be tackled by future research.

3.2   Facts and Data on Japanese Used Railroad Rolling Stock in Southeast Asia The earliest exports of Japanese-made railroad rolling stock were of coach and freight cars to the Chinese Qing dynasty and Taiwan during the Meiji period. During World War II, various kinds of rolling stock were exported to parts of Asia under the control of Imperial Japan. After the end of the war, Japan resumed exports of rolling stock to the rest of Asia, beginning with steam locomotives, coaches, and freight cars, eventually transitioning to diesel and electric locomotives and electric multiple units (EMUs) since the essential role of railways as public transportation in major cities was recognized again in the mid-1970s. Because other high- and middleincome countries began to produce railroad rolling stock domestically, Japanese railway exports shifted to that of machines and parts (Aoki 2001, 15–19; Kurasawa 2001, 21–25). On average, around 500–600 railway cars were exported from Japan each year from the 1980s to the 2010s (see Appendix 1 for details).1 The main export destinations were Korea, Taiwan, and Southeast Asian countries.2 Yet, the amount of used rolling stock among exported railway cars is not known. As shown in Appendix 1, the available data do not differentiate between newly produced and used rolling stock. There are also no official statistics on used rolling stock exports. Although we can estimate exports of Japanese used railroad rolling stock by combining several government statistics (see Appendix 2), we must acquire concrete information about used rolling stock transfers in a particular country for a more precise, detailed understanding. Thus, the author collected information from secondary sources to estimate exports of Japanese used rolling stock. Japanese railway magazines tend to be highly interested in the reuse of Japanese railroad rolling stock 1  However, European and North American companies are much stronger in the global railway market. The big three—Siemens of Germany, Alstom of France, and Bombardier of Canada—account for more than half of the global market share (Tamura 2010). In contrast, the Japanese share of the market is small. 2  There are also many exports of rolling stock for subways and light rail transit to be used as public transportation in large cities in the United States.

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and regularly publish articles on the transfer of cars to other countries. The general news media often reports on the subject as well, and the general public has shown a high degree of interest in the sale of Japanese used rolling stock. Japanese railway companies also announce the retirement of old rolling stock before it is transferred to other countries. Consequently, the author was able to collect information on the export of Japanese used rolling stock from media reports, articles in railway magazines and internet sources; a summary is shown in Table 3.1. The first case that attracted public interest in Japan was the transfer of rolling stock used on the Marunouchi Line of the Teito Rapid Transit Authority (now Tokyo Metro) to the subway of Buenos Aires, the capital of Argentina (Kurasawa 2001, 27). This used rolling stock from Tokyo acquired a high reputation in Buenos Aires, resulting in the transfer of additional used rolling stock from Japan, this time from the Higashiyama Line and Meijo Line of the Transportation Bureau of the City of Nagoya. The media coverage of this news promoted the idea that Japanese used railroad rolling stock performed well in foreign countries (see Appendix 3). The second case that attracted public interest in Japan was the transfer of used rolling stock to the commuter lines of Jakarta, the capital of Indonesia. Beginning with the transfer of rolling stock used on the Toei Subway Mita Line of the Transportation Bureau of the Tokyo Metropolitan Government in 1999 due to the sister city relationship between the two capitals, Japanese used railroad rolling stock has often been transferred to Jakarta to strengthen the transportation capacities of its commuter lines. Over a thousand used railcar units have been transferred to Jakarta as of 2017,3 resulting in more than 90% of commuter trains running in Jakarta using Japanese rolling stock. Table 3.2 shows the data on the export of Japanese used rolling stock to Indonesia from the Trade Statistics published by the Ministry of Finance. These data were compared with the author’s estimate based on secondary sources. This comparison reveals problems with acquiring data on the export of Japanese used rolling stock from official statistics. First, the initial case of the transfer of used rolling stock from the Transportation Bureau of the Tokyo Metropolitan Government does not appear in the Trade Statistics. This is because the transfer was a grant from the Tokyo

3  This figure includes used railcars that had already been scrapped after the transfer to Jakarta.

0 0 0 0 0 0 0 0 72 0 0 0 16 16 84 24 8 16 120 140 40 180 170 102 78 60 1126

0 0 0 0 0 0 0 0 0 0 0 2 9 19 18 30 33 4 17 11 31 0 15 68 11 0 268

Myanmar 0 0 0 0 0 54 0 20 0 0 0 0 20 0 0 0 32 0 0 0 0 0 0 0 10 17 153

Thailand 0 0 0 0 0 0 0 21 0 10 0 15 0 0 0 0 0 0 10 50 0 0 0 6 0 0 112

Philippines 0 0 0 0 0 0 0 0 0 0 0 0 4 0 0 0 0 0 14 0 0 0 0 1 0 0 19

Malaysia

Sources: Calculations by the author, based on various media reports and railway magazines

1977 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total

Indonesia

Table 3.1  Exports of used Japanese passenger railcars from secondary sources

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

Vietnam 0 0 0 131 0 0 0 78 0 0 0 0 0 0 0 0 0 0 0 0 0 0 30 0 0 0 239

Argentina 0 29 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 29

Russia

3  INTERNATIONAL TRADE OF USED TRAINS: THE CASE OF JAPANESE USED… 

35

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

HS code

0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 1 0 0 0 0 0 0

8601

2 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0

8602

5 0 5 4 1 2 5 4 0 3 6 0 6 3 0 0 8 4 11 14 11 2 66 96

8603 8 4 1 0 2 2 0 0 0 2 0 0 1 0 0 0 0 2 0 4 5 0 0 0

8604 0 0 0 0 0 0 0 1 1 0 0 0 0 0 0 0 8 12 34 50 6 6 24 24

8605

Trade statistics

15 1 26 265 7 40 268 17 1 75 3 0 0 1 0 5 0 21 25 0 0 0 0 0

8606 30 5 32 272 10 44 273 22 2 82 9 0 7 4 0 5 16 41 71 68 22 8 90 120

Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0

8602 5 0 1 4 1 2 0 4 0 1 6 0 0 3 0 0 8 4 0 14 11 2 66 96

8603 8 4 1 0 2 0 0 0 0 2 0 0 1 0 0 0 0 2 0 0 5 0 0 0

8604 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 8 12 34 50 6 6 24 24

8605 15 1 26 265 7 40 0 17 1 73 3 0 0 1 0 5 0 21 25 0 0 0 0 0

8606 28 5 28 269 10 42 0 22 1 76 9 0 1 4 0 5 16 41 60 64 22 8 90 120

Total

Trade statistics (less than 10 million yen per unit) 8601

Table 3.2  Export of Japanese rolling stock to Indonesia

– – – – – 0 0 0 0 0 0 0 72 0 0 0 16 16 84 24 8 16 120 140

Secondary sources

Estimated

36  K. KAWAMURA

30 0 0 4 0 0 37

0 0 0 0 0 0 7

60 131 226 123 60 60 916

0 0 0 0 0 8 39

0 0 0 0 0 0 166

9 99 175 306 48 274 10 137 8 68 35 103 1055 2220

30 0 0 0 0 0 31

0 0 0 0 0 0 2

60 131 226 123 60 60 888

0 0 0 0 0 8 33

0 0 0 0 0 0 165

9 175 48 10 8 35 785

99 306 274 133 68 103 1904

Source: Ministry of Finance, Trade Statistics. Estimates are from secondary sources, based on various media reports and railway magazines

2012 2013 2014 2015 2016 2017 合計

40 180 170 102 78 60 1126

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Metropolitan Government to the Indonesian railway operator PT Kereta Api Indonesia (PT KAI). Second, there are differences in transferred units between the estimates based on exported railcars at prices of below ten million yen per unit in the Trade Statistics and those based on secondary sources. Here, the author assumes ten million yen as a threshold to distinguish between newly built and used railcars. This assumption is based on data showing that the transfer of Japanese used EMUs to Indonesia costs around eight to nine million yen per unit.4 It is possible that the per-unit price of used rolling stock might exceed ten million yen, depending on railcar type or other costs, but the Trade Statistics show the export value of a newly built railcar to range from tens of millions to hundreds of millions of yen, and so a threshold set at ten million yen should be a reasonable standard. These differences may be attributable to a difference in timing between the dispatch from Japan and arrival in Jakarta, but there also are differences in the number of transferred units. A total of 1020 units have been transferred to Indonesia with a unit value of less than ten million yen per unit (HS codes 8603 and 8605) since 1999, when the first Japanese used rolling stock began to be dispatched, which is about 100 less than the estimate of 1123 units based on secondary sources. However, in the 2006 Trade Statistics, there were 11 units on the classification of HS code 8603 with a value of just over ten million yen per unit. Adding these 11 units and the 72 units in the grant transfer of 1999 with the above 1020 units yields 1103 units, which is closer to the estimate based on secondary sources. Finally, there are exports of passenger railcars with a value of less than ten million yen per unit before 1999. This probably reflects exports of newly built Japanese EMUs or diesel railcars that had been intermittently transferred to Indonesia since 1976. As discussed above, it is difficult to determine both accurately and comprehensively the exports of Japanese used rolling stock, whether using the Trade Statistics, the Vital Statistic Survey on Railroad Rolling Stock Production, or secondary sources. However, it is possible to approximate 4  For information on the prices of Japanese used EMUs transferred to Indonesia, see, for example, “Cuma Indonesia yang Beli Kereta Bekas Jepang” [Only Indonesia bought Japanese used railcars], Republika Online 14 December 2004 (http://www.republika.co.id/ berita/koran/halaman-1/14/12/04/ng1nc99-cuma-indonesia-yang-belikereta-bekas-jepang).

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the actual state of used railcar exports by combining several statistics and information sources. To analyze the overseas exports of Japanese used rolling stock, it is necessary to thoroughly survey data and information.

3.3   How Was Japanese Used Railroad Rolling Stock Transferred? The Case of Indonesia Indonesia became the recipient of Japanese used railroad rolling stock in the middle of the 2010s. More than 1000 used railcars have been transferred to Indonesia, acquiring good reputations from both the railway company and its passengers. Although the Indonesian government intends to produce national railcars in domestic factories in the future, it must now depend on Japanese used rolling stock to respond to increasing demand from commuters by building up the required transport capacities. On 28 February 2018, the East Japan Railway Company (JR East) announced a plan to transfer 336 units of EMU Series 205 previously used on the Musashino Line to Jakarta’s commuter railway company, PT Kereta Commuter Indonesia (PT KCI), concomitantly between March 2018 and 2020.5 The Series 205 EMUs were transferred to Indonesia after being used on commuter lines in the Tokyo Metropolitan Area such as the Saikyo Line, Yokohama Line, and Nambu Line. The total number of transferred Series 205 EMUs was 476 units as of early 2018. The used rolling stock transferred to Indonesia has been primarily commuter EMUs used on lines in the Tokyo Metropolitan Area, given that the purpose of transferring used rolling stock is to respond to increasing commuter demand in the Jakarta Metropolitan Area. On the supply side, there are currently five Japanese railway companies, namely JR East, Tokyo Metro, Tokyu Corporation, the Transportation Bureau of the Tokyo Metropolitan Government, and Toyo Rapid Railway, with only two, JR East and Tokyo Metro, existing after 2010 (Fig. 3.1). How was the used railroad rolling stock of these companies transferred to Indonesia? This section analyzes the process by which the used rolling stock was transferred to Indonesia. 5  The East Japan Railway Company, “Indonesia no Tetsudo Jigyosya eno Syaryo Joto ni tsuite” [About the transfer of rolling stock to an Indonesian railway company] Press Release, 28 February 2018. See also Satoshi Takagi, “JR Higashi Nihon ga ‘Chuko Syaryo’ o kaigai ni jotosuru nerai” [Aims of JR East in transferring ‘used rolling stock’ to overseas] Toyo Keizai Online, 7 March 2018 (http://toyokeizai.net/articles/print/211051).

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Fig. 3.1  Suppliers of used rolling stock to Indonesia. (Source: Estimates by the author, based on various media reports and railway magazines)

3.3.1  Increasing Needs of Urban Railway Services in Jakarta Since the 1980s, Southeast Asian countries have realized high economic growth, resulting in rapid urbanization. However, in the age of worldwide motorization, the emphasis of urban transportation policies in these developing countries has been on the development of road infrastructure and the growth of automobile manufacturers. Public investment in railways has generally been a low priority. Accordingly, the railway sector, positioned in the center of many governments’ transportation policies from the colonial to post-independence periods, gradually lost political clout and financial support from governments. As a result, and due to aging infrastructure and deteriorating services, commuters chose automobiles, mopeds, or other motor vehicles rather than railways. Accordingly, railway companies could not effectively function as urban public transportation service providers. Meanwhile, urban population growth outpaced the development of road infrastructure. As traffic jams became more and more serious in various cities, the government came to recognize the large economic losses resulting from traffic congestion. Furthermore, as the negative impacts of exhaust gas on the environment and the health of urban residents increased, some Southeast Asian countries began to reconsider their

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motor-centric urban transportation policies. Accordingly, big cities in Southeast Asia have been constructing railway infrastructure such as subways, suburban railways, and light rail transit since the 2000s. The urban population in Indonesia’s capital city of Jakarta has increased rapidly since the 1970s. As the government developed suburban areas as a buffer zone to ease rapid urbanization (Arai 2005, 6), traffic networks connecting the city center with suburbs have been built with highways. Additionally, Jakarta’s suburban development, as carried out by private developers, was advanced without regard to government transportation policies (Hanaoka and Acharya 2008). However, serious traffic jams became frequent because motorization progressed much faster than road infrastructure could be expanded. Although the Indonesian government began modernizing railway systems in central Jakarta using official Japanese loans in the 1980s,6 the main policy response to traffic congestion until the 1990s was to improve road and motor-based public transportation. As long as the number of automobiles and motorcycles continued to increase, the development of road infrastructure was not an appropriate policy response. Population inflow to the Jakarta Metropolitan Area never stopped, and as a result, its population surpassed 20 million in 2000. The urban transport policy based on roads and automobiles reached an impasse. PT KAI attempted to respond to the increasing commuter demand in Jakarta and the suburban areas by establishing a new organization, the Jabodetabek Urban Transportation Division, in April 1999.7 However, the Indonesian government as well as PT KAI had contended with serious financial problems since the Asian financial crisis in 1997–1998. Even electrified sections of the Jakarta Metropolitan Area faced serious financial losses of 18–20 billion rupiah every year despite substantial demand. This 6  Japanese cooperation in modernizing railways in Jakarta started in 1976 as the Plan to Develop Railway Networks in the Jakarta Metropolitan Area. Because Japanese-built EMUs had been operated since 1967, Japan was actively involved in the early stages of developing the plan. Responding to the Indonesian government’s request to make a master plan for city transport measures, the Japanese aid agency Japan International Cooperation Agency (JICA) completed a survey on the railway transportation plan of the Jakarta Metropolitan Area in 1981. This survey suggested an ambitious target of 20% railway transportation share in the Jakarta Metropolitan Area, compared with only 1.6% at that time (Kurasawa 2008, 67–68). The construction of an elevated double track for the 10-km section of central Jakarta was completed in 1993 with Japanese loans and technical assistance. 7  Jabodetabek refers to the Jakarta Metropolitan Area, also called Greater Jakarta, which consists of Jakarta, Bogor, Depok, Tangerang, and Bekasi.

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was partly because train fares were kept intentionally low for political considerations and partly because there were a large number of free riders due to poor maintenance of station facilities (Damardono 2017, 13–14). Although PT KAI responded to increased demand by introducing new rolling stock with the financial support of the Japanese government in the 1970s and 1980s, this becomes unaffordable in the period after the Asian financial crisis. At that time, a grant offer of used rolling stock came to Jakarta from Japan. 3.3.2  Transfer of Japanese Used Railroad Rolling Stock Seventy-two units of EMU Series 6000 used on the Toei Mita Line were sent to Indonesia in 1999 and 2000. These railcars were replaced by new EMUs after a change in operational services, namely the sharing of tracks between the Toei Mita Line and the Tokyu Meguro Line, and the introduction of conductor-­less trains. The Transportation Bureau of the Tokyo Metropolitan Government sought to transfer old EMUs, partly because these railcars built in 1968–1973 could still run and partly because they wanted to save on scrapping costs. The Tokyo Metropolitan Government, in consideration of its sister city relationship with the Special Province of Capital Jakarta, offered a grant transfer of rolling stock to PT KAI. Opposing this offer, the state-owned enterprise railcar industry PT Industri Kereta Api (INKA) and Indonesian NGOs argued that the maintenance costs of the used rolling stock would be high if the production of replacement parts stopped and that the government should prioritize the development of domestic railcar industries. However, the president of PT KAI at that time showed a positive attitude toward Tokyo’s offer, emphasizing the introduction of Japanese used rolling stock that were one-tenth the price of new railcars built by INKA (Saito 2007, 72). PT KAI finally accepted the offer because of the pressing need to acquire enough railcars to meet increasing commuter demand. However, Japanese aid agencies such as the Overseas Economic Cooperation Fund (OECF) showed a passive attitude toward the idea of a grant transfer of Tokyo’s used rolling stock. They argued that there was no precedent of supplying used transportation equipment as official development aid and that the problem of liability would arise if the used rolling stock were to break down (Koga 2014, 56–57). However, considering the urgent need for additional rolling stock in Indonesia, Japanese aid officials agreed to utilize official loans to pay for the transportation costs of used

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rolling stock from Tokyo to Jakarta. Seventy-two units of EMUs were sent by ship from the port at Kawasaki to the port of Tanjung Priok in Jakarta and put into operation after renovation at a factory in Manggarai. The EMU Series 6000, the grant transfer from Tokyo’s Toei subway, received a warm welcome by PT KAI due to its good condition despite many years of use. Passengers also welcomed the introduction of air-conditioned railcars. At that time, Jakarta’s commuter trains were heavily crowded during rush hours due to the limited service. Moreover, many commuter trains ran without air-conditioning because of poor maintenance. These conditions caused many passengers to ride on the roofs of the cars. Although PT KAI was satisfied with the quality of the Japanese rolling stock, they required more cars to solve these various problems. PT KAI therefore decided to add more Japanese used railcars in 2003 to fulfill the continued need for rolling stock. PT KAI then wished to buy rolling stock owned by JR East. JR East offered to transfer EMU Series 103 cars, built from 1967 to 1980 and last used on the Musashino Line. PT KAI paid for the transfer costs, including transportation fees, without Japanese aid (Saito 2006, 109–110). The negotiations were mediated by Itochu, a major Japanese trading company. PT KAI hoped to acquire more used rolling stock from JR East, but JR East had no immediate plans to decommission a large number of EMUs. Accordingly, rolling stock from the Tokyo Metro became the next target. In this case, the Directorate General of Railways from the Ministry of Transportation took the initiative on the Indonesian side (Koga 2014, 62), while on the Japanese side, the Japan Railway Technical Service (JARTS) assisted in finding appropriate used rolling stock, and a major trading company, Sumitomo Corporation, acted as mediator. The negotiations concluded with the transfer of 60 units, including Series 5000 railcars from the Tozai Line and Series 1000 railcars from the Toyo Rapid Railway, between 2004 and 2006 (Takagi 2018, 119).8 This led to a large number of used rolling stock being transferred from the Tokyo Metro. 8  In the decision-making process on the transfer of these two series of EMUs, a corruption case was uncovered and a railway director of the Indonesian Ministry of Transportation was arrested by Indonesia’s Corruption Eradication Committee (KPK) in March 2011. He was suspected of being bribed by the Japanese trading company. In return, he was instructed to transfer used rolling stock at the prices proposed by the trading company, higher than a tender, resulting in a loss of 20.5 billion rupiah to the state treasury. After prosecution, he was found guilty of corruption and given a sentence of three years in prison and a 100-millionrupiah fine. See “Bekas Bawahan Hatta Rajasa Divonis Tiga Tahun,” Tempo, 28 November 2011 (https://m.tempo.co/read/news/2011/11/28/063368841/bekas-bawahanhatta-rajasa-divonis-tiga-tahun).

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Between 2010 and 2013, a total of 250 units of used EMUs—Series 7000 railcars from the Yurakucho Line, Series 05 railcars from the Tozai Line, and Series 6000 railcars from the Chiyoda Line—were transferred to Indonesia. At a time when JR East could not supply used rolling stock, Tokyo Metro fulfilled Indonesia’s needs. In 2005, PT KAI requested that Tokyu Corporation transfer used rolling stock. The negotiation began when Tokyu received a tip through a personal connection between an attaché from the Ministry of Land, Infrastructure and Transport at the Japanese Embassy in Jakarta and an employee at Tokyu Corporation that PT KAI sought to acquire used rolling stock. The deal was concluded by the agency of an affiliated group company, Tokyu Construction’s Jakarta Office.9 As a result, PT KAI bought a total of 88 units of EMUs, including Series 8000 and 8500 railcars, between 2005 and 2009. 3.3.3   Reorganization of Jakarta’s Railway Service and Japanese Used Railroad Rolling Stock In 2008, PT KAI Commuter Jabodetabek (KCJ), a subsidiary of the Indonesian railway operator PT KAI, was newly established as an operator of commuter lines around the Jakarta Metropolitan Area. The aim of the new organization was to improve operations and services efficiently and independently, making the railways of the Jakarta Metropolitan Area function as city commuter railways. Furthermore, in 2009, Ignasius Jonan, the newly appointed president of PT KAI, began to push for a total reform of railway services. In 2010, at a meeting held at Vice President Boediono’s office to discuss the problem of Jakarta’s traffic congestion, the government proposed a complete review of railway services in the Jakarta Metropolitan Area. In 2011, Jonan drew up a roadmap for railway reform, setting a target of up to 1.2 million passengers per day in the Jakarta Metropolitan Area by 2019. Jonan also decided to retire the old, non-airconditioned railcars, called Kereta Rail Listrik Ekonomi, to improve passenger services. To replace the older rolling stock, it was necessary to add 160 units of EMUs, bringing the total to 1100 units by 2019. Because the state-owned INKA did not have the capacity to produce such a large number of EMUs, KCJ concluded that the only possible and rational way to reach the target was to acquire used rolling stock from Japan. 9

 Interview at the Tokyu Corporation office in Tokyo on 2 July 2018.

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When Jonan visited Japan, he requested the cooperation of JR East and reached an agreement to transfer 476 units of EMU Series 205 railcars between 2013 and 2016.10 With this large transfer, KCJ could increase its operational capacity and replace its old Japanese used rolling stock, the Toei Series 6000 and JR Series 103 railcars (Inoue 2016, 70).

3.4   Why Were Japanese Used Trains Preferred This section examines in more detail the reasons for the transfer of large amounts of used railroad rolling stock to Indonesia. We discuss four factors: specification fitting, a history of railway development cooperation, economic reasons, and personal relationships. 3.4.1  Specification Fitting The most important factor in the transfer of used rolling stock is whether the railcars fit the specifications of the recipient railway company. Railroad rolling stock is basically an order-made industrial product. Because railroad gauge, overhead wire voltage, clearance limits, and other standards differ between railway companies, rolling stock from one company cannot run on the track of another company if those specifications do not match. Even when these specifications match, it is often necessary to renovate transferred rolling stock before operation in order to adjust to other standards. When many such upgrades are necessary, it can cost as much as buying newly built rolling stock. In terms of railway specifications, there are similarities between many Japanese railways and the Indonesian railways; the most important specifications, namely railroad gauge and overhead wire voltage, are the same between the two. The railroad gauge employed in Indonesia is not the world standard of 1435 mm, but the narrower 1067 mm.11 The Japanese  Interview at the KCJ office, Jakarta, 31 July 2018.  When railways were first developed in Indonesia (at the time the Dutch East Indies), the government decided that the distance between the two rail tracks, that is, the railroad gauge, should be set to 1435 mm. A gauge measurement of 1435 mm had previously been used for the Semarang-Surakarta-Yogyakarta route. However, in 1869, the Minister of Colonial Affairs of the Netherlands decided that the gauge should be narrowed to 1067 mm because it was more economical (Damardono 2017, 9). During the Japanese military rule, the remaining 1435 mm gauge routes were narrowed to 1067 mm to enable Japanese-made steam locomotives and vehicles to run, resulting in the standardization of the railroad gauge in major routes of Java. 10 11

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national railway, first constructed in 1872, employed a gauge of 1067 mm, which was later adopted by many other private railway companies. For overhead wire voltage, DC 1500 voltage is used by many Japanese railway companies as well as commuter lines in the Jakarta Metropolitan Area, which was a single electricized area in the Indonesian railways until 2021. The use of DC 1500 voltage spread in Japan after the electrification of the major Tokaido Line in 1925, exactly the same year that the electricized line in Indonesia between Tanjung Priok and Jatinegara began to use DC 1500 voltage. Because there are many specifications in common between the two countries’ railways, Japanese used railroad rolling stock can run on Indonesian rails with few modifications. The low cost of modifications also makes used rolling stock from Japan attractive to PT KAI, which has often faced financial difficulties. 3.4.2  History of Railway Development Cooperation It was a coincidence that Indonesia and Japan employed similar railway specifications at the time of construction. However, since the 1970s, the Japanese government has cooperated to supply new EMUs, build an elevated track in the central area of Jakarta, introduce a reliable signaling system, and construct a depot, resulting in the introduction of similar specifications and systems with Japan’s city commuter railways in Indonesia. The history of railway development cooperation between the two countries has created relationships in both infrastructure and human resources, making it easy to transfer Japanese used rolling stock to Jakarta (Koga 2014, 55). The importance of a past history of international cooperation in the railway sector can be observed in the case of the transfer of used rolling stock from the Teito Rapid Transit Authority’s Marunouchi Line to the subway of Buenos Aires. Prior to this transfer, the transfer of used rolling stock was realized only with grants for the purpose of friendship. The success of the Argentine case opened the door for subsequent transfers of used rolling stock (Kurasawa 2008, 73–74). However, before the transfer of used rolling stock, Japan implemented a modernization project for the Argentine national railway in the 1970s. Personal relationships built

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during this period helped to connect the Buenos Aires subway and the Tokyo subway.12 3.4.3  Economic Reasons for Transferring Used Railroad Rolling Stock Railway companies, whether in Japan or Indonesia, may wish to acquire used railroad rolling stock because it is more affordable than buying new rolling stock, even as they face the need to replace old railcars due to end-­ of-­service life or the non-availability of replacement parts (as in the case of small Japanese regional railway companies) or the need to add rolling stock (as in the case of the Indonesian metropolitan railway). In either case, there is a growing need to acquire additional rolling stock, but companies still prefer cheaper railcars. The prices of railcars in Japan are generally not made public, but we can estimate from various secondary sources that a newly built railcar costs a major railway company about 100–200 million yen, taking into account volume discounts for ordering a large number of units, and possibly 300 million yen per unit for a small regional railway company (Miura 2018). In contrast, used railcars cost around ten million yen per unit if only minor modifications are necessary. Umehara (2018, 128–130) also reported that the Tokyu Technosystem Company, a subsidiary of Tokyu Corporation, offers renovated railcars to other railway companies at ten million yen per unit. In the case of Indonesia, we can also estimate from various news sources the approximate prices of new and used rolling stock. For example, a newspaper article stated that newly built railcars cost 10–12 billion rupiah, whereas used railcars cost only 800 million to 1 billion rupiah.13 Even the state-owned railcar producer PT INKA charges nine billion rupiah for a newly built railcar unit, ten times the price of a Japanese used railcar, according to an Indonesian Railway official.14 Meanwhile, it has been reported that prices for used railcars, including transportation fees, are 12   Interview at the Marubeni Transport Engineering Company, Tokyo, on 19 December 2017. 13  “Cuma Indonesia yang Beli Kereta Bekas Jepang” [Only Indonesia Bought Japanese Used Railcars] Republika Online, 14 December 2014 (http://www.republika.co.id/berita/ koran/halaman-­1/14/12/04/ng1nc99-cuma-indonesia-yang-beli-kereta-bekas-jepang). 14  “Kereta Listrik Bekas Jepang Rp 900 Juta, PT INKA Rp 9 Miliar,” [Japanese Used Railcars Rp 900 Million, PT INKA Rp 9 Billion] Kompas, 10 October 2013.

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about 8 million yen for a JR East Series 103 or a Tokyu Series 8000 railcar,15 and 9.9 million yen for a Tokyo Metro Series 5000 or a Toyo Rapid Series 1000 railcar.16 Inexpensive Japanese used rolling stock that is still in good condition is an attractive option for the KCJ, which faces a pressing need to add operational capacities under financial constraints. Transferring used rolling stock is also beneficial for major railway companies. If no buyer can be found, old rolling stock must be scrapped. However, scrapping one railcar costs several million yen (Umehara 2018, 128–130). To properly dispose of the asbestos used in the building materials, the cost of scrapping railcars tends to be high. Major railway companies can save on the cost of scrapping even though there is almost no profit from selling used rolling stock. 3.4.4  Personal Relationships Finally, as analysis in Sect. 3.3 on the process of transferring Japanese used railroad rolling stock shows, what is important in the transfers between railway companies is not the relationship between railway companies, but rather personal relationships.17 In the first case of transferring Toei subway rolling stock, the Tokyo Metropolitan Government and government aid agencies were involved in negotiations, but there was no government involvement in any rolling stock transfers after that. In some cases where trading companies and related companies acted as mediators between railway companies, the negotiations began with a personal connection. The importance of personal relationships in transfer negotiations can be observed in the case of Myanmar, the second largest recipient of used railroad rolling stock from Japan. A large-scale transfer of used rolling stock from Japan to Myanmar began with a former employee of the Japan 15  “Kasus Hibah KRL Perlahan Terungkap,” [EMU Grant Case Revealed] Kompasiana (http://www.kompasiana.com/rickysebastian/kasus-hibah-krl-perlahan-terungkap_5500d 6fd813311a119fa7d8c), 2 June 2011. 16  The price for Tokyo Metro and Toyo Rapid was intentionally set high due to corruption between an Indonesian official and the Japanese trading company. Initially, the Ministry of Transportation of Indonesia estimated its price at 5.8 million yen per unit. “Kokan Settai shi Fusei Rieki ka: Sumitomo Syoji, Indonesia Tetsudo Meguri,” Asahi Shinbun, 28 November 2011. 17  In cases of transfers of used rolling stock from major railway companies to small regional railway companies in Japan, it is often pointed out that there is no institution or formal system for exchanges of information and transactions. For example, see Miura (2018, 56).

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National Railway who had experience in training employees of the Myanmar national railway. He had strong relationships with top officials in the Ministry of Transportation and the Myanmar national railway, and these relationships proved to be useful in the transfer negotiations after he was assigned as an executive of the Japan Myanmar Association (Umehara 2018, 43–44).

3.5   How Are Japanese Used Railroad Rolling Stock Utilized in Indonesia? Although Japanese used railroad rolling stock can run in Indonesia without major modifications, it is not an easy task to operate “order-made” railcars in a different environment, not to mention a different country. Although Japanese used rolling stock is well maintained and in good condition, there is an inherent risk of breakdown given that most of them were produced more than 20 years ago. This section discusses the issues that Jakarta’s railway company, KCJ, has faced in running Japanese used rolling stock and how it has responded to them. 3.5.1  Repair and Stock of Repair Parts In employing used rolling stock, the biggest problem is the procurement of spare parts. Many small regional railway companies in Japan have difficulty finding parts because the older the rolling stock, the smaller the supply of spare parts. This situation is even more challenging in Indonesia because there are no producers of replacement parts within the country. After Japanese used rolling stock was first transferred to Indonesia, many of the railcars were scrapped with the occurrence of even minor problems such as broken air conditioners because there was no supply of replacement parts and original Japanese parts were too expensive. It was also difficult to import used parts from Japan due to government regulations. Thus, spare parts were taken from scrapped railcars or made by the maintenance department itself whenever possible. The railway company sometimes asked small-scale factories to make repair parts, but these parts were not always reliable (Shirakawa 2012, 122–123). Japanese railway companies were initially reluctant to cooperate in supplying repair parts. They cooperated by providing education about maintenance and operation and dispatched technicians when transferring used

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rolling stock. Their basic views were that the transfer of used rolling stock was not selling railcars but exports of used equipment, and as such they did not want to take any responsibility after its export. To avoid any risks, they did not want to send either staff or parts. This uncooperative attitude on the Japanese side changed when JR East sent an employee to KCJ in March of 2015. This employee went to Jakarta with the mission of establishing a maintenance cycle and teaching repair techniques, as well as ways to deal with supply chains for repair parts. Before he came to Indonesia, there was no notion of preventive maintenance in KAI and KCJ, so railcars were repaired only after breakdowns. When broken-down railcars could not be repaired due to a lack of replacement parts or other reasons, they were scrapped or kept as a source of replacement parts. This employee taught Indonesian railway company officials about the need to check and maintain railcar conditions before a breakdown, and taught maintenance and repair techniques to employees. In April 2017, JR East Technology, a subsidiary of JR East, opened a Jakarta office to efficiently supply spare parts from Japan as well as to quickly collect necessary information. As technological capability increased and awareness of maintenance rose due to cooperation with JR East, cancellation of train services was drastically decreased, and the scrapping of used railcars was also reduced. 3.5.2  Timing of Rolling Stock Replacement The second problem in the transfer of used railroad rolling stock is the difficulty in planning rolling stock replacement on the recipient side. It is often pointed out that the transfer of used rolling stock is possible only because of a coincidence in the timing of supply and demand (Tsuchiya 2018, 43). Major railway companies such as JR Group companies and private urban railway companies usually publicize their plans to replace rolling stock several years ahead of time. Given that there is no formal system for buying and selling rolling stock and exchanging information, small regional railway companies acquire such information only through private relationships with other companies. Therefore, they cannot draw up long-term plans to replace old rolling stock. They can acquire used rolling stock in only a haphazard way. As a result, they must deal with some inconvenience when acquiring various kinds of used rolling stock (Tsuru 2018, 17).

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The same problem applies to the case of Indonesia. KCJ has acquired various kinds of used EMUs from various Japanese railway companies. This was because Indonesia bought the used rolling stock that was available at the time. Although acquiring used rolling stock is cheap, maintenance costs can be high because it is necessary to procure various kinds of spare parts. 3.5.3  Disagreement Within the Government on Rolling Stock Procurement The third problem is disagreement inside the government over the future procurement of railroad rolling stock. The Indonesian railway operator PT KAI fully supports the use of Japanese used rolling stock due to the need to acquire more EMUs to meet increasing demand from commuter passengers. PT KAI also wants to operate Japanese used rolling stock for as long as possible, given that passengers are highly satisfied with its quality and condition. However, the Indonesian Ministry of Industry and the state-owned PT INKA aspire to nationalize railcar production as soon as possible. It has been reported that Indonesia will prohibit imports of used rolling stock in a few years. However, because PT INKA is not capable of producing EMUs of sufficient quantity or quality, the government cannot immediately ban the import of used rolling stock. Whether Indonesia continues to import used railroad rolling stock from Japan will greatly depend on government policy.

3.6   Characteristics of Used Railroad Rolling Stock Exports In the final analysis, we compare the trade of used rolling stock and used motor vehicles. Comparisons of these two different kinds of transportation equipment reveal the characteristics of international transfers of used rolling stock. The first difference is transferability. Whereas motor vehicles can fundamentally run any place in the world without major repairs, railcars can run in only places where specifications between supplying and purchasing countries match. This is the result of differences in basic production methods, namely mass production for the former or order-made production for the latter. The second difference is availability. Although

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the supply of used motor vehicles is abundant in volume and always available worldwide, that of used railcars is scarce and unpredictable. The third difference is price. Motor vehicles offer a wide range of prices but are much cheaper than railcars. These differences lead to the final difference, the actors involved and the markets in transactions. Because motor vehicles are transferable anywhere, available anytime, and relatively inexpensive in price, the barrier to entry to the used car business is so low that small companies, even individuals, in developing countries can participate in the market. This makes it possible for market mechanisms to work. In contrast, because both the transferability and the availability of used railroad rolling stock are limited and expensive, both suppliers and purchasers must be large-scale enterprises, even if they are relatively smaller regional railway companies that are financially sound. This makes the market for used rolling stock private, closed, and sporadic. This chapter’s analysis also reveals that the characteristic of the used rolling stock trade leads to the transfer of environmental problems from supplying countries to purchasing countries. Because railcars are basically order-made, so are the replacement parts, meaning that the availability of those parts is scarce and the prices are high. Thus, it is highly possible that used rolling stock will break down in a short period after the transfer, even with only minor trouble. In many developing countries, regulations on scrapping contain very few environmental considerations, and thus, the transfer of used railcars can easily end up becoming the transfer of industrial waste.

3.7   Conclusion This chapter has analyzed issues in the international trade of used railroad rolling stock through a case study of Indonesia, where a large number of Japanese used rolling stock has been transferred. EMUs made in Japan have been running on Jakarta’s commuter lines since 1967. Furthermore, Jakarta has a long history of cooperation with Japan. In the late 1970s, Japan participated in drafting a plan to improve the railway network of the Jakarta Metropolitan Area. In the 1980s, Jakarta’s railway infrastructure was built with Japanese loans and technology. Accordingly, Jakarta had a built-in reason to introduce Japanese rolling stock in terms of capital and human resources.

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At that time, the Indonesian government needed to increase the transportation capability in the Jakarta Metropolitan Area in a rapid and economical way. Additionally, the Tokyo Metropolitan Government wanted to save on the cost of scrapping old railcars. The needs of the two sides matched, resulting in the transfer of Japanese used rolling stock. The introduction of high-quality and air-conditioned EMUs was welcomed by Jakarta’s commuters, and a large number of Japanese used rolling stock transfers soon followed. Although the transfer of Japanese used rolling stock has been welcomed by the Jakarta commuter line company as well as Jakarta’s populace, the characteristics of used rolling stock can lead to issues such as lack of transparency, continuity, and environmental considerations. This may in turn explain why Indonesia is the only country where the Japanese used rolling stock has continued to operate for a long time. To understand what factors are critical to the successful trade of used rolling stock, further research will be needed in other Southeast Asian countries where used rolling stock transferred from Japan has not been as fully utilized.

Appendix 1 To understand exports of Japanese rolling stock, the author uses the Trade Statistics published by the Ministry of Finance to analyze Japanese exports of assembled railroad rolling stock since the late 1980s. HS codes 8601–8606 represent railroad rolling stock. HS code 8601 is for electric locomotives, HS code 8602 is for other locomotives (diesel and steam locomotives), HS code 8603 is for self-propelled coach or freight cars (electric-powered railcars and diesel railcars), HS code 8604 is for maintenance or operation cars, HS code 8605 is for coach cars and trailers, and HS code 8606 is for freight cars. These statistics show the amounts, weights, and values of exported rolling stock by HS code but do not distinguish between newly produced and used rolling stock. See Table  3.3 for the classification of rolling stock exports by region and Table  3.4 for the classification of rolling stock exports by type. It is clear that the main commodities in Japanese rolling stock exports are electric and diesel railcars (HS code 8603). Because HS code 8605 includes control trailers and trailers, we can estimate that over half of rolling stock exports are electric and diesel railcars. It is also noteworthy that there are many exports of freight cars.

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Table 3.3  Exports of Japanese railroad rolling stock (by region) Year

East Asia

SE South West Europe N/C South Africa Oceania Asia Asia Asia/ America America ME

1988 61 223 1989 136 96 1990 365 70 1991 270 285 1992 614 78 1993 204 74 1994 141 322 1995 361 112 1996 111 37 1997 92 158 1998 297 19 1999 188 114 2000 247 136 2001 360 125 2002 603 17 2003 1190 45 2004 1149 92 2005 534 88 2006 445 217 2007 248 129 2008 260 62 2009 133 36 2010 190 145 2011 67 190 2012 87 171 2013 209 392 2014 135 419 2015 132 413 2016 106 151 2017 153 123 Total 9088 4539

16 0 76 6 0 5 0 3 61 4 117 7 0 0 0 0 0 0 0 0 2 0 6 0 0 0 0 0 0 0 303

0 0 0 0 0 0 0 1 0 0 0 0 1 0 0 0 0 0 1 5 293 234 1 1 1 0 0 0 46 76 660

9 2 14 12 10 46 3 0 23 0 1 18 54 57 10 1 44 38 92 81 67 139 6 3 5 6 11 46 323 333 1454

188 56 52 59 15 13 52 99 56 2 61 129 5 41 67 166 159 117 50 150 149 84 127 14 3 1 32 54 73 87 2161

7 7 2 0 8 2 45 70 18 45 56 30 12 20 24 0 0 0 25 0 0 0 0 0 0 0 40 46 0 0 457

14 6 0 6 0 23 21 60 39 48 3 70 82 32 0 10 45 0 0 1 10 12 16 41 48 36 0 0 1 0 624

0 0 2 0 2 0 0 0 0 4 0 0 4 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1 14

Total

518 303 581 638 727 367 584 706 345 353 554 556 541 635 721 1412 1489 777 830 614 843 639 491 316 315 644 637 691 700 773 19,300

(Note) These figures include railcars defined by HS codes 8601–8606 (which include maintenance and operation cars, freight cars, etc.) Source: Ministry of Finance, Trade Statistics

8601

Electronic locomotives

18 46 41 29 19 21 36 9 14 3 69 32 24 11 17 24 55 42 46 11 14 13

HS code

Year

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

38 35 55 46 74 50 0 40 4 4 12 6 25 8 4 27 11 15 24 15 15 5

Other locomotives (diesel locomotives, etc.)

8602

286 117 177 154 52 73 110 244 158 122 260 408 381 459 518 237 521 448 458 360 475 493

EMUs, diesel cars

8603

Table 3.4  Exports of Japanese railroad rolling stock (by HS code)

25 7 23 23 16 28 59 17 15 14 19 3 11 61 51 370 182 44 82 39 69 15

Maintenance/ operation cars

8604

12 12 59 10 63 19 33 42 74 86 147 202 165 164 114 144 103

80 26 27 17

Coaches/ trailers

8605

71 72 258 369 566 183 367 337 144 147 175 74 58 22 45 607 518 63 56 75 126 10

Freight cars

8606

55

518 303 581 638 727 367 584 706 345 353 554 556 541 635 721 1412 1489 777 830 614 843 639 (continued)

Total

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Electronic locomotives

5 3 30 0 5 9 3 4 653

Year

2010 2011 2012 2013 2014 2015 2016 2017 Total

8602

2 4 15 7 21 36 31 0 629

Other locomotives (diesel locomotives, etc.)

Source: Ministry of Finance, Trade Statistics

8601

HS code

Table 3.4  (continued)

320 240 179 266 383 433 374 348 9054

EMUs, diesel cars

8603

51 7 26 14 75 24 31 83 1484

Maintenance/ operation cars

8604

103 60 33 81 16 62 226 222 2402

Coaches/ trailers

8605

10 2 32 276 137 127 35 116 5078

Freight cars

8606

491 316 315 644 637 691 700 773 19,300

Total

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Appendix 2 To supplement the analysis of exports of Japanese used rolling stock, the author also uses data from the Vital Statistic Survey on Railroad Rolling Stock Production published by the Japanese Ministry of Land, Infrastructure and Transport. Asazuma (2011), the only article written in Japanese on Japanese used rolling stock, estimates exports of used rolling stock based on these statistics. It shows the amount and value of newly produced railcars in Japan, distinguishing those produced for domestic users such as JR and other private railway companies and those built for export. The amounts of used railcars exported can be estimated by subtracting exports of newly produced railcars found in the Vital Statistic Survey from the total export of railcars in the export statistics, that is, the total for HS codes 8601–8606. The result of this estimation is shown in Table 3.5. Because the Vital Statistic Survey on Railroad Rolling Stock Production does not include the amounts of maintenance and operation railcars produced, the author calculates exports of rolling stock by subtracting the number of maintenance and operation railcars (HS code 8604) from the total exports in the Trade Statistics, as shown in the second row. The author also calculates the exports of passenger railcars by subtracting both the number of maintenance and operation railcars and the number of freight cars (HS code 8606), as shown in the third row. This table shows that exports of used rolling stock might account for about 60% of the total rolling stock exports from Japan and more than half of passenger railcar exports. However, as Asazuma (2011) points out, we should be careful when using these statistics because they are collected under different standards. We therefore continue to analyze the exports of used railroad rolling stock using a different method. The author also uses the Trade Statistics released by the Ministry of Finance to estimate the exports of Japanese used rolling stock. The Trade Statistics show the amount and value of exported railroad rolling stock by HS code. With this, we can estimate the export value of a single-unit railcar. A newly built car will necessarily have a higher export value, whereas the value of a used car will be lower. Figure 3.2 shows estimates based on the second method. The figure includes the estimate based on the differences between the Vital Statistic Survey on Railroad Rolling Stock Production and export amounts of rolling stock in the Trade Statistics and the export amounts of newly

345 353 554 556 541 635 721 1412 1489 777 830 614 843 639 491 316 315 644 637 691 700 773 14,876

330 339 535 553 530 574 670 1042 1307 733 748 575 774 624 440 309 289 630 562 667 669 690 13,590

Total export (excl. maintenance/ operation cars)

Total export 186 192 360 479 472 552 625 435 789 670 692 500 648 614 430 307 257 354 425 540 634 574 10,735

Total export (excl. maintenance/operation, freight cars)

(3)

127 64 48 120 241 197 198 253 470 469 393 478 464 438 125 92 101 184 62 158 112 185 4979

Total export (newly built railcars)

(4)

(2)–(4)

218 289 506 436 300 438 523 1159 1019 308 437 136 379 201 366 224 214 460 575 533 588 588 9897

203 275 487 433 289 377 472 789 837 264 355 97 310 186 315 217 188 446 500 509 557 505 8611

Estimated export Estimated export of used rolling of used rolling stock (a) stock (b)

(1)–(4)

59 128 312 359 231 355 427 182 319 201 299 22 184 176 305 215 156 170 363 382 522 389 5756

Estimated export of used rolling stock (C)

(3)–(4)

Sources: Rows (1)–(3): Ministry of Finance, Trade Statistics, Row (4): Ministry of Land, Infrastructure, and Transport, Vital Statistic Survey on Rolling Stock Production

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total

(2)

(1)

Table 3.5  Statistics of rolling stock exports and production

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Fig. 3.2  Exports of rolling stock and estimated exports of used rolling stock. (Source: Ministry of Finance, Trade Statistics; and Ministry of Land, Infrastructure, and Transport, Vital Statistic Survey on Rolling Stock Production)

produced railcars in the Vital Statistic Survey on Railroad Rolling Stock, as shown in Table  3.5. As the figure shows, the estimate based on export values in the Trade Statistics survey is very close to the estimate. This can be observed when using export amounts of newly produced railcars excluding maintenance and operation railcars in the Vital Statistic Survey on Railroad Rolling Stock Production. Although it is difficult to find an accurate number for exported used rolling stock, it is possible to estimate the overall picture and trends.

Appendix 3 This transfer can be confirmed in the Trade Statistics (Table  3.6). The initial transfer of rolling stock from the Marunouchi Line corresponds to 131 units of railcars (HS codes 8603 and 8605) between 1994 and 1996. The transfer from the Transportation Bureau of the City of Nagoya corresponds to 78 units between 1998 and 2002 and 30 units between 2014 and 2015. These statistics correspond to the information collected from secondary sources. It should be noted, however, that these railcars are not included in the estimate of used rolling stock exports shown in Fig. 3.2 because the export values in the Trade Statistics were 10–11 million yen per unit.

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Table 3.6  Exports of Japanese rolling stock to Argentina Country HS code 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total

Argentina 8601

8602

8603

8604

8605

8606

Total

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 40 33 16 0 12 30 12 0 24 0 0 0 0 0 0 0 0 0 0 0 18 12 0 0 197

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 5 35 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 42

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 45 68 18 0 12 30 12 0 24 0 0 0 0 0 0 0 0 0 0 0 18 12 0 0 239

Source: Ministry of Finance, Trade Statistics

References Aoki, Eiichi. 2001. “Nihon no Tetsudo Syaryo: Sono Gijutsu no Yunyu to Yusyutsu” [Japanese Rolling Stock: Exports and Imports of the Technology], Tetsudo Pictorial No.696: 10–20. Arai, Kenichiro. 2005. “Kasenteki Kogaika: Suharto Taisei ka no Indonesia Syutoken Kaihatsu” [The Oligopolistic Suburbnization: the Indonesia’s

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Metropolitan Development under the Suharto Regime], Asia Keizai Vol.46, No.2: 2–34. Asazuma, Hiroshi. 2011. “Tetsudo Syaryo no Risaikuru” [Recycling of the Railroad Rolling Stock], Gekkan Jidosya Risaikuru No.4. Damardono, Haryo. 2017. The Untold Story of E-Ticketing: The Story Behind the Modernization of Jabodetabek KRL. Jakarta: Kompas Book Publisher. Hanaoka, Shinya, and S.R.  Acharya. 2008. “Higashi Ajia no Daitoshi niokeru Kotsu Seisaku no Tokutyo to Kadai” [Characteristics and Issues of Transportation Policies in Major Cities of East Asia], Unyu to Keizai Vol.68, No.11: 14–20. Inoue, Yukihiko. 2016. “Jakarta de Katsuyakusuru 205 Kei” [Series 205 Running in Jakarta], Tetsudo Pictorial No.921: 70–81. Koga, Toshiyuki. 2014. Indonesia Tetsudo no Tabi: Miwakuno Train World [Railway Travel in Indonesia: The Fascinating Train World]. Ushio Syobo Kojinsya. Kurasawa, Yasuki. 2001. “Tetsudo Syaryo Yusyutu no Doko” [Report on the Export of Rolling Stock], Tetsudo Pictorial No.696: 21–30. ———. 2008. “Tetsudo Syaryo Yusyutu no Doko: Zenpen” [Report on the Export of Rolling Stock: The First Part], Unyu to Keizai Vol.68, No.3: 59–68. Miura, Akihiro. 2018. “Joto Syaryo no Shirarezaru Genjitsu: Fukushima Kotsu Iizaka-­sen 1000 Kei Donyu Hiwa” [Untold Reality of Rolling Stock Transfer: A Secret Story of the Introduction of Series 1000 at the Fukushima Transportation Iizaka Line], Tetsudo Journal No.626: 54–61. Saito, Mikio. 2006. “Indonesia e Itta Nihon no Densya” [Japanese EMUs Transferred to Indonesia], Tetsudo Pictorial No.783: 107–112. ———. 2007. “Indonesia de Katsuyakusuru Nihon no Densya 2007” [Japanese EMUs in Indonesia, 2007], Tetsudo Pictorial No.794: 65–72. Shirakawa, Jun. 2012. “Jakarta no Tetsudo o Sasaeru Tetsudo man: Tsuukin Yuso ni Nihonsei Densya ga Katsuyaku” [Railway Engineers Supporting Indonesia’s Railroad: The Role of Japanese EMUs in the Commuter’s Transportation], Tetsudo Pictorial No.864: 120–128. Takagi, Satoshi. 2018. “Jakarta Tokyo Chikatetsu Kanren no Syaryo” [Jakarta’s Rolling Stock from Tokyo Metro], Tetsudo Fan No.681: 118–127. Tamura, Akihiko. 2010. “Waga Kuni Tetsudo Sangyo no Kaigai Tenkai to Seisaku no Hokosei” [Overseas Expansions of Japanese Railway Industries and Policy Orientations], Unyu Seisaku Kenkyu Vol.13, No.3: 58–64. Tsuchiya, Takeyuki. 2018. “Mizushima Rinkai Tetsudo no ‘Suketto’” [‘Outside Help’ in the Mizushima Rinkai Raillway], Tetsudo Journal No.626: 38–45. Tsuru, Michitaka. 2018. “Kotoden Joto Syaryo Jijo” [Details of Rolling Stock Transfer at the Takamatsu Kotohira Railway], Tetsudo Journal No.626: 11–21. Umehara, Jun. 2018. Densyatachi no ‘Daini no Jinsei’: Katsuyaku shituzukeru Syarayo to Sono Jijo [‘Second Life’ of EMUs: Living Railcars and Its Background]. Tokyo: Kotsu Shinbunsya.

CHAPTER 4

The Location Problem of International Trade in Used Auto Parts Yutaka Asazuma

4.1   Introduction Trade in used cars and trade in used auto parts are niche industries but constitute integral components of the circular economy. The volume of used cars exported from Japan is significant, at over one million vehicles annually (compared with the three million vehicles that are scrapped in Japan each year), and the export volume of used auto parts is also large. The competing companies involved in these exports are each embedded in the developing circular economy. The circular economy is an economic system that maximizes value creation by utilizing existing products and idle assets without relying on raw materials. Used cars and auto parts are distributed across borders, depending basically on differences in the depreciation rate between developed and developing countries, and the worldwide flow of these goods forms a part of the circular economy. Trade in used cars and auto parts brings positive externalities for the whole economy. It encourages the development of the automobile maintenance industry through the production of repair

Y. Asazuma (*) Hokkai-Gakuen University, Sapporo, Japan e-mail: [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_4

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parts and skill acquisition (Grubel 1980). In addition, used trucks in particular make production more efficient in various industries. There are also positive environmental effects, such as reductions in air pollution (Davis and Kahn 2010). However, negative externalities such as vehicle disposal problems and traffic congestion have also been pointed out (Grubel 1980). In this chapter, we focus on geographical agglomeration as an important aspect of this embedded trade. This topic was selected in consideration of the economic attributes of secondhand goods and the reuse industry. This consideration will be explained in Section 4.2. Of particular importance, here are the differences between new and secondhand goods. In Sect. 4.3, the used car export situation will be introduced as a starting point for discussing the used parts trade and industrial agglomeration. The location of the used parts industry is based on the structure of the flow of used parts. Therefore, in Sect. 4.4, this structure in the domestic and overseas areas will be examined. In this chapter, we examine what kind of agglomeration features are observed on the export and import sides. In Japan, due to the long-term progress in networking between dismantlers, the trend in  location has changed, becoming gradually decentralized. However, the progress of globalization improves the advantages of agglomeration, so centralization in specific areas is now observed (Sect. 4.5). Regarding the import side, the case of two cities makes it clear that the importance of an area’s sorting function increases with the amount of trade, which is the advantage of agglomeration (Sect. 4.6).

4.2   Characteristics of Used Auto Parts, Related Industries, and Agglomeration The reuse industry is a niche industry with very small enterprises. For example, the used car export market consists of numerous medium-sized enterprises that engage in fierce competition. Also, many of the automobile dismantlers that produce used auto parts from end-of-life vehicles (ELVs) are businesses that started with only one car. Generally, secondhand goods are less expensive than new ones, so it is reasonable to think that reuse businesses do not need much start-up capital and that barriers to entry are relatively low. In addition, internal economies of scale do not play a large role in the production of secondhand goods. Given that large-­ scale equipment is unnecessary, the fixed costs required for production are relatively low.

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Despite the widespread demand for secondhand goods, their supply is always unstable. In general, there is a greater variety of reused products than new ones. In the case of new cars and new auto parts, the market is naturally centered on the latest product lineups. Compared with dealers in secondhand goods, dealers in new goods do not need to handle as diverse an array of goods. In contrast, auto parts dealers must supply goods stretching back across several generations of products. Nevertheless, there is demand for a wide range of quality in the secondhand goods market, spanning extremes from almost new to junk. Dealers in used goods therefore need to have large inventories. Furthermore, the timing of product availability for reuse is unknown, so procurement is inherently difficult, making the size of inventory even more important. For automotive parts, even if a car can be procured to obtain used parts, it is impossible to produce specific parts commensurate with market demand, and demand-­ matching is similarly difficult. In essence, the supply chain management of the secondhand goods industry is completely different from that of the manufacturing industry. In this chapter, we call this a “supply constraint.” Another difficulty is matching information about the nature and contents of secondhand goods between the seller and the buyer. This is much easier for new goods, whose quality and performance metrics are indicated in catalogs and the like. Pricing functions suit the new goods market. However, it is relatively difficult to obtain information on secondhand goods, including production year, quality, and accident history, even if the seller has this information. Furthermore, it cannot be fully ascertained whether the seller actually has the goods the buyer is looking for. In extreme cases, there is a possibility of fraud, such as odometer tampering. For pricing in secondhand markets, there is an “information asymmetry” regarding quality, which can lead to problems such as adverse selection (Akerlof 1970). Despite the small sizes of enterprises dealing in secondhand goods, they must stably supply and stock abundant goods in order to acquire customers, and pricing can be difficult. These characteristics are inherent to secondhand goods and the secondhand goods industry. Accordingly, geographical agglomeration is critical for the pursuit of profit. Next, I explain the benefits of agglomeration from the perspectives of the seller and the buyer. First, sellers can reduce marketing costs. To meet the various demands for used parts, inventory is very important in terms of both quality and quantity. Each company can stock only a limited

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amount, but through agglomeration, the whole market can stock goods quantitatively and qualitatively. In short, agglomeration reduces inventory costs. This situation is a form of “dependency” in that it presupposes the existence of other companies specializing in other products. Furthermore, to handle used parts, appropriate expert knowledge is necessary. Therefore, specializing in specific parts reduces the costs of managing goods. To realize these benefits, “sorting” is conducted in the market by each company that specializes in specific parts, and geographical proximity makes such transactions easier. Search costs incurred by buyers are reduced by geographical agglomeration. Buyers can easily determine which store has the parts they want. Also, because of information asymmetry between the seller and buyer in the secondhand market, opportunistic behavior on the part of the seller is assumed, but such behavior is suppressed in markets located within a limited geographical area. This is because of the high risk of sellers harming their reputation through such behavior. Also, the problem of information asymmetry is mitigated because agglomeration facilitates shop-around behavior by buyers, thus enabling procurement at appropriate prices that reflect the true value of goods. Here, I would like to emphasize that the functions of agglomeration are more important for global trade than for domestic trade. This is because the worldwide market generates a larger and broader demand for goods. In sum, because of the high cost of matching the supply and demand for secondhand goods, and despite the small size of the enterprises involved, the benefits of agglomeration are, in essence, easily realized. However, the development of information and communication technology has dramatically lowered the cost of matching supply and demand. As mentioned above, companies involved in the automobile dismantling industry in Japan transitioned from a tendency toward agglomeration to a tendency toward decentralization. For dismantlers, the used parts sales network decreased the profit from agglomeration. Improving the reliability of transactions through the network played an important role, too. In consideration of the above, the aim of this chapter is to describe the allocation pattern, with a focus on agglomeration, of the automobile reuse industry—particularly the used auto parts industry in Japan and abroad— as international reuse of used auto parts progresses. The ultimate purpose is to clarify whether used auto parts dealers are embedded in the global circular economy through their pursuit of the benefits of agglomeration.

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In this chapter, we focus mainly on the used auto parts industry. However, used parts are generated as a result of used car distribution, so the used car trading industry is also briefly described.

4.3   Progress of International Reuse of Automobiles from Japan

Thousand

When we discuss the used parts trade, we also have to take into account the used car trade. This is because the demand for used parts occurs as a result of used car stocks in each country. This chapter explains the used car trade as a foundation for discussing the used parts trade. Recently, many used vehicles and auto parts have been exported from Japan to other countries. In 2018, used cars were exported from Japan to 178 countries. Many studies have investigated the development of these exports and their background. It has been possible to quantify used car exports from Japan since April 2001. In that year, the used car trade code was set in the form of official statistics. Trends in used car exports to regions around the world since 2001 are shown in Fig.  4.1. Although 1,600

North America

1,400

South Asia

1,200

South East Asia

1,000

East Asia

800

Central and South America

600

Middle East

400

Central Asia Oceania

200

Europe 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

Year

Russia Africa

Fig. 4.1  The transition of used car exports from Japan (number). (Source: Japan trade statistics)

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there are some exceptions, the volume of used car exports has tended to increase. Exports to Russia have fluctuated widely and affected the total trade volume. Also, used car exports to Africa have been steadily increasing. However, because the number of used car exports to Africa fell drastically in 2016, the impact of the China shock appears to have been substantial. It is also interesting to note that exports to Europe were active until the end of the 2000s. Table 4.1 shows the total export volume by country during this period. Togawa et  al. (2010) define the top three countries as the “big three.” Trends have changed in recent years, with countries such as Myanmar and Sri Lanka ranking in higher positions. The Table 4.1  Total volume of used cars exported from Japan from 2001 to 2018

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Country

Number

Share of trucks

Russia United Arab Emirates New Zealand Chili

2,927,058 1,947,415

9.7% 27.8%

Russia New Zealand

1622 802

1,830,023 1,120,772

5.3% 13.7%

747 588

901,090 852,004

37.4% 20.1%

Malaysia United Arab Emirates Sri Lanka Myanmar

767,142 518,570 485,809 463,824 408,312 391,977 352,854 341,148

16.3% 11.8% 74.3% 22.6% 6.5% 14.2% 16.5% 7.3%

437 415 377 335 319 275 207 201

318,886 303,477 274,467 250,290 215,923 193,711 3,274,417 18,139,169

27.9% 1.2% 29.3% 13.1% 30.4% 7.4% 14.7% 17.5%

Kenya Pakistan Singapore Bangladesh Philippine Chili Thailand Republic of South Africa Hong Kong Indonesia Jamaica United Kingdom Mongol Tanzania Others Total

Myanmar Republic of South Africa Kenya Pakistan Philippine Sri Lanka Mongol Tanzania Bangladesh Malaysia Uganda United Kingdom Peru Jamaica Singapore Surinam Others Total

Source: Japan trade statistics

Country

Value (1 billion Yen)

545 475

198 174 164 150 150 141 1577 9899

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trade figures for Chile, the United Arab Emirates (UAE), South Africa, and Kenya warrant special attention. These countries are transit trade markets for automobile reuse, and the figures for these countries do not reflect their final demand. The large supply of used cars in these countries brings about a large demand for used parts for repairs. Generally speaking, used parts are also exported to the countries and regions where many used cars are exported. The export volume of used parts cannot actually be determined from official statistics, but Asazuma et al. (2017) estimate the volume of used auto parts. For example, in 2015, the export volume of used parts corresponded to 600,000 automobiles, with most of these exports going to Asia (especially Malaysia). Setting aside the specifics, this chapter assumes that used parts are being exported in conjunction with used cars. In this chapter, it is shown that a huge volume of trade in these used goods is embedded into the global circular economy through geographical agglomeration.

4.4   Flow of Used Parts in Japan1 In this chapter, we discuss the flow of used parts. The reason for considering this is that the location of the used parts industry is based on the structure of the flow of used parts. Used auto parts for export are produced by the automobile dismantling industry. As in the case of used cars, procurement of ELVs from auctions is mainstream. ELVs are disassembled to produce used parts. The distribution process thereafter can be roughly divided into the following two patterns. 4.4.1  First Pattern The first pattern is one in which automobile dismantlers are engaged mainly in exporting. Vehicle dismantlers perform vanning (i.e., packing used auto parts into containers) in their own yards and export the parts to overseas trading partners. The flow of this process is as follows. First, it is necessary to take orders from overseas trading partners, either in response to inquiries from overseas customers or after displaying the inventory to foreign customers. Because of the large number of used cars exported 1

 This section is based primarily on Asazuma et al. (2017).

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from Japan, the demand for parts overseas is very strong. As a result, it is not uncommon for dismantlers to receive an e-mail out of the blue from an unknown overseas dealer inquiring about used parts or about the dismantler’s inventory of ELVs for a particular make, model, and year, or requesting that the dismantler acquire such ELVs. For such requests, depending on the conditions specified by the overseas customer, including the price they are willing to pay, the dismantler tries to bid on ELVs at auction to procure them. Then, the actual transactions will begin once the dismantler and the importer agree on terms such as price and transportation. Methods for producing parts can be roughly divided into two cases. As described above, in the first case, where ELVs are ordered before dismantling, the used parts are produced according to the order placed overseas. In this case, after the parties have agreed on the terms of the transaction, production begins. In the second case, stocked used auto parts are exported. After the Automobile Recycling Law came into effect in Japan, the number of automobile dismantlers with large stock yards or warehouses has increased. This is not unusual now, with some companies having tens of thousands of items in inventory. If there are many items in a dismantler’s inventory, there is a high likelihood of being able to respond to requests from overseas customers. Parts whose export is confirmed are then vanned. When vanning is finished, the container is handed over to the land transport/shipping company. This is the general case of exporting by dismantlers. However, there are many examples that do not conform to this. Currently, many dismantling companies are operated by foreigners. In many cases, they are included as part of the corporation as a foreign importer, and so the transactions are internalized. As described later, there are cases where major Japanese dismantling companies have expanded overseas into developing counties and diversified into imports. In these cases, too, transactions are internalized. Currently, sales are also made via the Internet. As a concrete example, overseas customers select parts from a website for used parts sales and make remittance via telegraphic transfer. Then, after payment is confirmed, the dismantling agent uses a transport company to dispatch the parts, and the transaction is completed.

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4.4.2  Second Pattern In the second pattern, used auto parts are exported by a foreign buyer. These buyers reside in Japanese dismantlers, select parts, and perform vanning and shipping. For example, in Yawata, Kyoto Prefecture, an area famous for the agglomeration of automobile dismantlers in Japan, it is said that almost all dismantlers use buyers. I regard this as the standard form of international trade in used auto parts and I refer to it as the “resident style.” Next, I explain why the resident style has become widespread. First is the quality problem particular to secondhand goods. Every used part is different in terms of factors such as vehicle type and model and degree of use. It is advantageous for buyers to purchase parts from Japanese dismantlers directly, in the sense that the buyers can check and purchase the items themselves. Moreover, easy settlement is important. The buyer prepares money for purchase by bringing cash from overseas, using a letter of credit, and so forth. Through such direct purchases, the buyer can reliably purchase goods, and the seller can be sure to collect the payment. This was an important method in the history of used parts exports from Japan. So how do foreign buyers come to reside in specific dismantlers? First, there are cases where dismantlers have contacts with foreign buyers via trading companies. When a trading company with a connection abroad receives an inquiry about used parts, the company inquires as to whether the buyers can become resident in a domestic car dismantler. For domestic dismantlers, if they place foreign buyers in their companies, they have the benefit of securing sales channels for the used parts they produced. Yet, at the same time, this necessitates more reliable purchasing of ELVs. Taking these circumstances into consideration, they decide whether to accept the offer from the trading company. Next, there are cases where dismantlers accept foreign buyers who happen to visit a dismantler by chance; in other words, the buyer himself participates in the development of the resident style. A buyer from overseas visits a place where the automobile dismantling industry has agglomerated, as described in Sect. 4.5, and directly purchases used auto parts from dismantlers. The export of used parts began in the middle of the 1960s; buyers made one-time purchases and then exported the goods. However, since the mid-1980s, buyers began to reside in dismantlers for longer periods of time. In addition, there may be cases where a buyer stays at a specific dismantling company following an introduction from an affiliated company.

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In this resident style, staff of a specific overseas company are typically sent from the home country in three-month shifts. The same buyer cannot stay in Japan for more than three months, because foreigners working in this field can usually only obtain a valid visa for business or tourism for this length of time. Often, the arrangements for the buyer’s residence (apartment) are made by the dismantler or trading company, and the rent is paid by the overseas dealer or company. In some cases, the dismantler may lend the buyer a car in order for him to purchase and collect used parts from other dismantlers. In addition, even now, some buyers come to purchase used parts from dismantlers managed by Japanese or immigrants on a spot basis. Some buyers act as loyal customers and regularly go around to specific Japanese dismantlers. There are various cases for this too, but it is not easy to completely fill containers within a fixed period at the resident dismantler, so it may be necessary to purchase used parts from other dismantlers. Also, if the buyer must procure large quantities of specific parts that are in high demand at the export destination, spot purchasing becomes indispensable. In such a case, the buyer must visit multiple dismantlers by truck and buy the used parts. In this case in particular, agglomeration, as described in Sect. 4.5, is an important factor. This method is not necessarily done only by resident-style buyers. A buyer who does not reside in a specific dismantler and owns a yard for stock or vanning may take such an approach to purchasing used parts. Such buyers do not depend on a specific dismantler and can be considered independent from Japanese dismantlers. It bears mentioning that the production of used parts cannot be performed by buyers. According to the Japanese Automobile Recycling Law, a license is required to operate a car dismantling business. Buyers who are not employed by the dismantler generally perform tasks such as selecting and loading goods. Prior to the enforcement of the Automobile Recycling Law, buyers themselves performed the work of dismantling ELVs and producing used parts. Briefly, patterns one and two are used mainly in the domestic distribution of used parts for trade. However, considerable diversity is observed in the details. The right side of Fig. 4.2 shows a diagram of the distribution of used parts in Japan, but the actual situation is quite complicated. The flow of used parts plays an important role in determining the location, as described in the following section. The flow of used parts after export differs for each country. Broadly speaking, export destinations can be divided into final demand areas and

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Manufacturer/used car importer

Consumer

Secondhand dealer: importer

Consumer

Car dealer, garage Export

Repair shop

Re-export Dismantler reuse & recycle

73

Other areas

(Used car auction)

Dismantler Second-hand dealer: exporter End-of-life vehicles

Fig. 4.2  The flow of used auto parts exports

relay trade areas. Final demand areas include Sri Lanka, Myanmar, and Russia because the parts are often used for repairs, and repair shops are customers for importers. Diversion to agricultural and home use is also seen. Sharjah in the UAE and Malaysia are typical examples of relay trade areas. From these locations, used parts are re-exported to markets in Africa and Asia. The geographical agglomeration of businesses specialized in used parts is seen in all distribution forms, as will be introduced later.

4.5   Location of Dismantlers and Used Auto Parts Dealers in Japan In this section, the feature of agglomeration in the used auto parts industry in Japan will be explained. This agglomeration is based on the long history of development of this industry. Therefore, we begin by exploring its background.

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4.5.1  History and Location of Automobile Dismantlers Until the 1990s, there were agglomerations of automobile dismantlers in metropolitan areas because many scrapped vehicles were generated in these locations and there was demand for used parts. In Togawa (2001), Tatekawa, Shinozaki, and Yuunagi are introduced as areas where most such Japanese car dismantlers were located (Fig.  4.3). Also, used cars flowed from metropolitan to rural areas, and scrapped cars were generated in various regions. Of course, there was demand for used auto parts in various regions, but dealers in larger metropolitan areas, where the demand for parts was greater, sometimes went to rural areas to purchase used parts from local dismantlers and transported them back by truck. Information was limited before the spread of the Internet, so when dealers in metropolitan areas went to purchase used parts in rural areas, the telephone directory was very important. In this way, markets in metropolitan areas became hubs for used parts generated across the entire country, thereby matching the diversity of demand. This was an advantage of agglomeration.

Fig. 4.3  Location of Tatekawa, Shinozaki market, and the Hokuso area

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Starting in the latter half of the 1960s, foreign buyers from Taiwan and Thailand came to visit these hubs, making the one-time purchases of the “second pattern” described in Sect. 4.4. In the late 1970s, a network of used automobile parts sales originating in Oita Prefecture spread, and the location pattern of dismantlers changed from that of agglomeration to decentralization. The network created a situation where multiple vehicle dismantlers could share inventory nationwide or within a specific area. Because transactions were concentrated within the network, there was an increased likelihood of finding particular used parts. Due to the development of this network, the relative importance of geographical agglomeration in satisfying various needs decreased. At the same time, since the end of the 1970s, agglomeration in industrial parks advanced because of pollution and environmental measures. In the latter half of the 1990s, the Nakajima industrial parks in Osaka and Kitakyushu Eco Town were representative of this agglomeration. Also, after the end of Japan’s period of high economic growth, automobile dismantlers in Tokyo moved to the surrounding suburbs due to noise and smoke problems, and this trend continued for many years (Asazuma 2013). For dismantlers, one of the main places for relocation from Tokyo was the Hokuso area of Chiba Prefecture, which has low land prices and good transportation access (Fig. 4.3). Therefore, Thai and Taiwanese buyers also moved to this area. Before the start of the 1980s, Thai and Taiwanese buyers, who were previously seen in the central part of the city, started to do business in the Hokuso area, establishing it as one of their bases of operations. They had to move because they had to buy used parts from the Japanese dealers located in the Hokuso area. After the mid-1980s, buyers did not visit Japan often, but started to transition toward the resident-style arrangements described in Sect. 4.4. Also, due to their long-term relationships with Japanese dismantlers, some buyers developed expertise in the work of dismantling and started their own disassembly businesses. Against this background, the export of used parts expanded both quantitatively and geographically (Asazuma et  al. 2015). In the Hokuso area, this tendency was first seen in the first half of the 1990s, and a background factor in the relocation of dismantlers was soaring land prices in urban areas. A turning point occurred in the 2000s, with the enactment of the 2005 Automobile Recycling Law. Japanese dismantlers, which had tended toward decentralization, as described above, increased their preference for larger-scale operations. In particular, entry into the automobile

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dismantling industry from the iron scrap industry progressed, creating a trend toward large-scale industry in the automobile dismantling business. The export of used cars and the resulting export of used parts increased significantly in the 2000s, especially from 2005 onward, exceeding one million units per year. Exports to Africa saw especially large gains, which grew continuously. This situation created a vigorous demand for used parts. Japanese dismantlers increased their expansion overseas (Abe and Hiraiwa 2014). Of course, this is indicative of the “first pattern” described in Sect. 4.4. Meanwhile, immigrant dismantlers, who had been quietly active since the 1970s and began to show a trend toward independence starting in the 1990s, increased their presence in the dismantling industry in the latter half of the 1990s. This is indicative of the “first pattern” described in Sect. 4.4. This situation was caused by increased immigration from Malaysia and Afghanistan. The 2005 Automobile Recycling Law changed the distribution of ELVs through auctions and encouraged foreign dismantlers to enter the Japanese used parts market. For foreign dismantlers who did not have strong business relationships with Japanese automobile dealers and maintenance companies, the auctions, described in Sect. 4.4, were an important way of procuring ELVs. 4.5.2  Present Condition of Agglomeration and Its Function (Case Study of the Hokuso Area) Currently, small Japanese dismantlers are going out of business while dismantlers owned and operated by immigrants have continued to grow. These immigrant dismantlers do not sell used parts for domestic consumption, so they prefer locations that have good access to both an export harbor and used car auction sites. In addition, transactions between peers are also actively carried out in the process of parts production (by dismantlers) for export. Therefore, the agglomeration of dismantlers has been seen in areas surrounding metropolitan areas. A typical case is agglomeration in the Hokuso area. In the five years between 2013 and 2018, 81 new dismantlers opened there. From the company names, it can be judged that most of them are immigrant companies. As mentioned above, the Japanese dismantlers who originally moved from the center of Tokyo are located in the Hokuso area. However, given the situation with the progression of global reuse, access to auction sites and ports for export became important because of the flow of used auto parts, such as that shown in Fig.  4.2.

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Consequently, many immigrant dismantlers started to gather there. In recent years, the location has further spread to the northern part of the Hokuso area. In Ibaraki Prefecture, the number of dismantlers increased from 203 in 2016 to 233 in 2018. From the company names, we can also judge that many of these dismantlers are immigrant operations. What are the benefits of agglomeration in such a place? I consider this question on the basis of an interview survey of dismantlers in the Hokuso area. Company A is managed by an Afghan (a member of the Hazara ethnic group), and this ethnic group is said to be the largest in the area. The manager disassembles trucks that he buys from the major auction in Oyama and exports two containers of used parts each month. He also sells used parts to other immigrant dealers. Therefore, his business follows the “first pattern.” Simultaneously, his business expanded to include domestic transactions. The manager came to Japan in the mid-2000s, but initially collected used parts from dismantlers managed by Japanese and Africans because he could not get a license for dismantling and therefore could not participate in the auctions. Proximity is important in buying and selling with one’s peers. In addition, it is said that the concentration of Afghans there allows them to enjoy their shared culture. It is interesting to assume that there are non-economic advantages of agglomeration in regard to food, culture, and religion.2 Similar to company A, Iranian dealer B obtained a dismantling business license. He dismantles trucks that he purchases at auction and then exports the used parts to Malaysia and other countries.3 Furthermore, dealer B accepts orders for dismantling work from about ten dealers in the area. In this case, because ELVs and used parts are actually transported, the benefits of close proximity are substantial. One of the reasons for this kind of business is that the requirements for dismantling business licenses in Japan are strict. To receive a license, companies must meet certain equipment requirements. Immigrant entrepreneurs who cannot prepare the necessary facilities in accordance with the law adopt a business style that performs distribution only. In anticipation of the demand for such facilities, Iranian dealer C opened a dismantling complex in 2017 at the site of a former golf course. Currently, about 30 companies are engaged in dismantling work there. 2 3

 The interview with dealer A was conducted on November 18th, 2013 in Chiba Prefecture.  The interview with dealer B was conducted on September 8th, 2017 in Chiba Prefecture.

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Taiwanese dealer D started a business in this area about 20 years ago but does not perform disassembly himself.4 He purchases used parts from Thai and Taiwanese dismantlers and dealers, which they produced or bought. Such transactions are important for used parts that are not suitable for export (sales) by the dismantlers and dealers themselves. Company D exports about 80% of the used parts that it purchases to Taiwan; the remaining 20% of the used parts are stored in the yard and sold to other dealers. Company D has customers from various countries, including African countries (Ghana, Nigeria, etc.), Thailand, and Afghanistan. Businesses similar to company D are common in this area. Furthermore, in the Hokuso area, there is a special market where many used parts dealers from various areas gather. Dealers, including Thai, Taiwanese, Afghans, and Africans, buy and sell used parts that they have purchased in rural areas. Based on the current situation of the transactions as described above, the accumulated benefits in the Japanese market are summarized as follows. The first is ease of sorting. Although buyers need to collect goods that match the demand of their export destination during their period of stay, there is a supply constraint in that only a single engine can be produced from a single used car. Because of the large volume of used parts produced in this region, it is possible to increase the likelihood of procuring the used parts they need through mutual trading of used parts. Another important benefit is the large amount of used spare parts that can be secured. Buyers have a responsibility to deliver a certain number of containers during their limited three-month period of stay. Therefore, it is very important for them to do business in this type of area, where large quantities of used parts are produced and traded. Third, certain advantages of agglomeration arise from the Automobile Recycling Law: (1) ease of outsourcing to other dealers who have a license for a dismantling business and (2) establishment and use of a dismantling complex based on the difficulty of obtaining a license. However, it is necessary to point out that there are some problems, such as illegal dismantling without a license and dismantling of stolen cars, in this area. Given the advantages of agglomeration, the Hokuso area has become a major hub for the distribution of used parts.

4

 The interview with dealer D was conducted on August 21st, 2013 in Chiba Prefecture.

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In addition, the advantages of agglomeration seem to be smaller for used parts for domestic trade because the online sales network has already developed and there is no need to fill containers. The advantages of agglomeration are therefore limited to exports. In addition, this kind of agglomeration is seen along National Road No. 23 between Aichi Prefecture and Mie Prefecture, in Izumi City in Osaka Prefecture, in Miki City in Hyogo Prefecture, and in Yawata City in Kyoto Prefecture. 4.5.3  Impact of International Reuse on Agglomeration The trends in the location of dismantlers have changed dramatically against the backdrop of increasing international reuse. Originally, there was a tendency toward agglomeration where scrapped cars originated, but since the latter half of the 1970s, the incentive for decentralization has increased due to progress in networking, although in some cases agglomeration was promoted due to environmental policy. However, with the growth in the international reuse of used parts since the 1990s, immigrant dismantlers have been actively adopting the resident style or independence, preferring locations with easy access to harbors and auction sites. Then, large-scale agglomeration developed in order to match the supply of used parts produced by domestic dismantlers to the large diverse demand from overseas. Meanwhile, major Japanese dismantlers began pursuing a global location strategy, while they continued to use foreign buyers with the resident style in order to secure sales channels. Thus, the structure of “competition and cooperation” between Japanese and immigrant dismantlers/dealers is seen in the international reuse market of used parts.

4.6   Geographical Agglomeration in Overseas Markets In this section, the feature of agglomeration in this industry in two countries will be introduced. In these areas, large volumes of used auto parts are imported from Japan. I would like to consider what economic reasons lead to agglomeration on the import side from two countries’ points of view.

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4.6.1  Sharjah Market 5 Sharjah is one of the emirates that constitute the UAE. Sharjah is adjacent to Dubai, which is considered the hub of logistics in the Middle East and its financial center. The Sharjah Industrial Area is a distribution base for used auto parts and is located about 20 km from the center of Dubai. Many dealers are located in the industrial area, where a number of functions are carried out. These functions include the import of auto parts from overseas, exports to overseas, sales to overseas buyers who come to procure used parts themselves, and sales to domestic repair shops and car dealers. Many businesses have these multiple functions. The market is divided into four areas, commonly called Behind the College (261 stores), Alhan (224 stores), J&P and Caterpillar (536 stores between the latter two). In the whole market, there are 1021 stores, of which 178 are large stores with stockyards (according to a survey from 2012 to 2014; Figs. 4.4 and 4.5). In the Sharjah market, used

Fig. 4.4  Location of Sharjah, UAE, in the Middle East

5

 This section relies mainly on Asazuma et al. (2017).

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Fig. 4.5  Map of the Sharjah Industrial Area

parts from around the world are gathered and re-exported. The rough distribution structure is shown in Fig.  4.6. Devanning is performed in the industrial area. After used parts are redistributed in the market, vanning is performed, and the parts are re-exported to various countries. In the case of less than a container load, used parts are vanned with used cars outside the industrial area called Umm Ramool. A characteristic of the Sharjah market is that there are differences in ethnic composition and the kinds of used parts in each area. In the Behind the College and Alhan areas, the Hazara people are the main players. They have been relocating to Sharjah since the Soviet invasion of Afghanistan in 1978 and established the used parts market there. The products they deal in are functional parts; they do not usually deal in small parts. In addition, they usually deal in used parts for trucks and truck cabins. In contrast, in the J&P and Caterpillar areas, the main players are the Pashtun people. They are said to be latecomers to this market. They deal mainly in used autobody parts.

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Export by truck (mainly Middle East)

Company without yard

Used cars (DUCAMZ)

Broker, buyer

LCL vanning (Umm Ramool)

Local repair shop, etc.

Company with yard vanning

Export by ship (Jebel Ali Port, Port Rashid, Port Khalid)

Hazara area Pashtun area

Large Company with yard devanning

Port Khalid (Sharjah)

Transship

Jebel Ali(Dubai)

Export countries(Japan, Malaysia, etc.)

Industrial area

Fig. 4.6  Used parts distribution in Sharjah Market

The reason why the market is divided in this way is that each ethnic network is established with the countries where used parts are produced, such as Japan, and is used to procure used parts. The different ethnic groups primarily handle different types of used parts, and it is assumed that the difference is reflected in procurement in Japan. Through distribution inside the market, the specialization of each dealer can be seen. However, there are also many transactions within ethnic groups. Of course, there are many exceptions, but in our field survey, these trends were evident. There are multiple reasons for agglomeration in Sharjah. By “sorting” within the market, each store specializes in particular goods (e.g., engines). This reduces sales costs and management costs, and also reduces search costs for customers. As a result, the likelihood of being able to find particular used parts increases across the whole market. The fact that Sharjah is a re-export market is also important. Many buyers from abroad purchase goods at Sharjah and re-export them using containers. However, it is difficult to procure enough parts to fill a container from a particular store. Therefore, the buyer goes around various shops in the market (there is a kind of “taxi” service for distributing used parts from the shop to the vanning site), purchases sorted parts, and exports them in full containers.

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Being able to procure parts in this way attracts many buyers from African and Middle Eastern countries to the Sharjah market. From this perspective as well, geographical agglomeration is important. In addition, the industrial area is adjacent to the city center of Sharjah, where high-rise buildings stand, and there is also commuting demand to Dubai, which is a major city. Accordingly, the government has planned to convert some land use from industrial to residential, and this plan has gradually been implemented since 2016. As of February 2018, all the used parts dealers have left the Alhan market. The destination of the relocation is a newly constructed industrial park called Sajaa, which is located about an hour from the inland area. The new site is far from the harbor, making it difficult for overseas buyers to visit. However, there seems to be a car dismantling business targeting ELVs generated locally, and ELVs are generated at DUCAMZ, Dubai’s giant used car relay market. 4.6.2  Colombo, Sri Lanka Colombo, Sri Lanka, has two used auto parts markets: Panchkawatta, which is located in the city center, and Nugegoda, which is located in the suburbs (Figs. 4.7 and 4.8). Each of these markets plays a role in distribution. In the Panchkawatta market, three-story buildings line the main street, and auto parts shops line the alley leading to the main street. The shops there have narrow frontage and only a few employees at most. These stores are specialized, for example, focusing on brake parts, mirrors, or instrument panels. According to local dealers, the number of stores is between 500 and 1000, with about one-fifth dealing in used parts.6 Apart from this, dealers of used parts in “huts” are lined up almost every 10 m on the sidewalk of the market. Thus, this area is the heart of Sri Lanka’s automobile repair parts market. However, such companies cannot import full containers of parts by themselves. It is difficult for them to purchase two or three million yen worth of parts per container, and of course, it is not easy to sell such a large volume of used parts. Therefore, they procure parts from importers (i.e., distributors) in Colombo. In addition, each store is specialized and tends to have a large inventory of a specific part. The Nugegoda market is located in the suburbs and is the market where distributors are located. There are more than 40 shops, and stores with large warehouses are notable. These stores have affiliated companies in 6

 The interview was carried on December 16th of 2018 at Colombo City.

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Fig. 4.7  The location of Colombo, Sri Lanka, and its two used auto parts markets

Japan that export used parts produced in Japan by using 40-foot containers. They sell their stocks to repair shops or to other stores. In recent years, imports of new cars from Japan have been increasing in Sri Lanka, but the used parts that are stocked are mainly from the 1980s to 1990s, which reflects the current trend of car ownership in Sri Lanka. The reason for the location and agglomeration in this area is that customers have gathered there. The stores also conduct sales via the Internet, but customers are still able to buy goods after seeing the real thing, and ease of access (closeness to other companies) is important for consumers. Thus, Colombo has two large used parts markets. Panchkawatta has shops that specialize in particular parts, increasing the size of the inventory of the whole market and individual stores. The Nugegoda market is able to maintain a large inventory by placing warehouses in the suburbs, which makes it easier for customers to visit. These are all advantages of agglomeration. The role of the Bangkok market lies somewhere between that of the two markets above. A large used parts market is developing in five parts of the city. Bangkok is basically a market that responds to the final demand of

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Fig. 4.8  Dealer locations of used parts markets

domestic maintenance companies and diversion to other uses, but it also has a relay trade function to Southeast Asian countries. The Bangkok market was described in detail by Asazuma (2014). Bangkok differs from other markets in that its location corresponds to the final demand, and the detailed sorting and rebuilding corresponding to the final demand are actively carried out. 4.6.3  Advantages of Agglomeration in These Markets The two markets in Colombo and the market in Bangkok feature geographical agglomeration against the backdrop of the economic attributes of used parts and the used parts industry. Due to the supply constraints on used parts, it is difficult for import dealers to procure parts from the exporting country that meet the demand of their customers. Through agglomeration, the stock becomes abundant in terms of both quality and quantity. Also, by sorting until products are displayed in shopfronts, it is possible to easily match the supply with various types of demand. Within

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the market, the expertise of each dealer is increasing, leading to lower selling costs and reduced search costs for customers. In addition, it is likely that used parts cannot be judged unless the actual product can be seen to assess its quality and specifications. For buyers, a great advantage is being able to visit markets with abundant goods in terms of both quality and quantity and to conduct face-to-­ face transactions. Despite standardization of used parts and the growth in transactions via the Internet, these face-to-face transactions are still the main method. From these points of view, the economic benefits of agglomeration are great. However, it is also necessary to point out that the nature of agglomeration differs depending on the position of the markets in the distribution process. There are major differences among them in terms of whether they serve as a local market, a market targeted for re-export, or a market positioned somewhere in between. The markets of Colombo and Bangkok, which serve as local markets, have a long history of specialization that responds to the demand of local maintenance companies and others. It is reasonable to assume that used parts stores agglomerate in city centers, as in Japan, and that there is a historical background to such agglomeration. In addition, although the stores are small, the dealers are specialized in specific parts through sorting, and the need to carry a large inventory is relatively low. These markets therefore continue to exist due to the ease of matching supply and demand. In contrast, the shops in the Sharjah market are very large. The businesses target vast areas such as Africa, the Middle East, and Central Asia, but the Sharjah market can sort large quantities of parts according to each country’s demand. It is a market where the merits of sorting are fully demonstrated. Without such a market, it would be difficult for buyers from abroad, such as those from Africa and Central Asia, to procure parts that fill 40-foot containers. The Sharjah market has the major advantage of being able to supply parts that buyers want in large quantities.

4.7   Conclusion This chapter discussed international reuse and industrial location by focusing on used auto parts. Both in Japan and overseas, it can be judged that geographical agglomeration arises due to the economic attributes of used parts (supply constraints and information asymmetry). In the case of Japan, an economic advantage of agglomeration is collecting goods to be

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exported and entrusting dismantling work to licensed dealers. Even in overseas markets, supply constraints are lessened by the centralization of transactions. As a result, desired goods are more likely to be found. Also, from the viewpoint of information asymmetry, a major advantage is being able to conduct face-to-face transactions. In trade using containers, buyers need to procure a large amount of used parts, and in this regard, too, the advantage of agglomeration is substantial. Market location differs according to factors such as type, for example, local or re-export. Thus, although the number of cases in this chapter is limited, I discussed the location trends and their background in the international used parts market. A global circular economy has been established, but geographical agglomeration plays a major role. Nevertheless, this theme should be discussed using a more generalized theory. At the same time, there are issues that remain to be addressed. In particular, the development of information technology will have a big impact on international reuse. Cross-border e-commerce platform businesses like eBay continue to spread. These platforms have dramatically simplified business-to-consumer transactions. It seems that such platforms will greatly change the trade in used cars and used auto parts. A concrete example is Be Forward, a major Japanese used car and auto parts exporter. Their cross-border e-commerce site (beforward.jp) has been set up so that overseas customers can purchase products online. In addition to bank remittance and credit card payment, the site accepts a wide range of payment methods such as PayPal and Bitcoin. Cash advance payment transactions are also possible because of the credibility of the company’s brand in the developing countries. Be Forward has also opened a shop on eBay, becoming a standard-bearer for building new distribution channels in this industry. To increase its brand power, the company has established a system of “supporters” and even owns a football team overseas.7 Given that the large secondhand goods market basically involves business-to-business transactions, if this distribution form is expanded, the advantages of agglomeration may be lost. In relation to the above, stocking a large amount of parts is unavoidable because inventory management is insufficient in these overseas markets. When inventory management can be done efficiently, as in Japan, further sharing of inventory, quality assurance, and the like will be possible via a 7  This information is from an interview with Mr. Hironori Yamakawa, the president of Be Forward Co., Ltd, conducted on July 27th, 2017.

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network. Then, trading can be carried out entirely via the network. In such a case, the advantages of agglomeration in the large used parts market as described here may be lost. In the economic geography literature, discussions on industrial agglomeration, industrial ecosystems, and symbiosis between industries have progressed in recent years (Crang et al. 2011). One example is a discussion dealing with geographical agglomeration found in ecosystems of the ship recycling industry in Chittagong, Bangladesh. This chapter seems to be closely related to such discussions. Further consideration of this possible relationship with discussions in the literature is a topic for the future.

References Abe, Arata, and Hiraiwa, Yukihiro. 2014. “A study on overseas development of automobile recycling industry.” [In Japanese.] Bulletin of the Faculty of Education. Yamaguchi University, Vol.63, Issue.1: 11–18. Akerlof, G. A. 1970. “Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics. Vol. 84, No. 3: 488–500. Asazuma, Yutaka. 2014. “International Reuse of Used Auto Parts and Local Agglomeration: A Case Study on Used Auto Parts Markets in Bangkok.” In International Reuse and Developing Countries: Transboundary Transaction of Used Goods. [In Japanese.] edited by KOJIMA Michikazu ed, 173–198. JETRO. Asazuma, Yutaka. 2013. “Local Agglomeration of foreign dealers in Yotsukaido.” [In Japanese.] Monthly Automobile Recycling 32: 56–60. Asazuma, Yutaka, Fukuda, Tomoko, Togawa, Kenichi, and Okamoto, Katsunori. 2017. “Automobile Reuse and Global Market: International Dealing about Used Vehicle and Used Auto Parts.” [In Japanese.] Seizando. Asazuma, Yutaka, Okamoto, Katsunori, Togawa, Kenichi, and Fukuda, Tomoko. 2015. “The Role of Immigrant Entrepreneurs in the History of Automobile Dismantlers.” [In Japanese.] The Journal of Economics. Hokkai-Gakuen University. Vol.63, Issue.1: 41–60. Herbert G.  Grubel, 1980. “International Trade in Used Cars and Problems of Economic Development.” World Development 8: 781–788. Lucas W.  Davis and Matthew E.  Kahn. 2010. “International Trade in Used Vehicles: The Environmental Consequences of NAFTA.” American Economic Journal: Economic Policy. Vol.2, No.4: 58–82. Mike Crang, Farid Uddin Ahamed, Nasreen Akter, Raihana Ferdous and Sadat Foisal. 2011. “Territorial Agglomeration and Industrial Symbiosis: Sitakunda-­ Bhatiary, Bangladesh, as a Secondary Processing Complex.” Economic Geography. No.88, Issue.1: 37–58.

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Togawa, Kenichi. 2001. “Automobile and Recycle: Research of Economic Geography about Automobile Venous Industry.” [In Japanese.] Nikkan Jidousha Shinbunsha. Togawa, Kenichi, Asazuma, Yutaka, and Abe, Arata. 2010. “The Development of Used Vehicle Exports from Japan as ‘Potential Waste’.” [In Japanese.] Journal of Economic Geography 56: 262–279.

CHAPTER 5

Used Vehicles and Auto Parts Trade in New Zealand and Pacific Island Countries Tomoko Fukuda

5.1   Introduction New Zealand and Pacific Island countries are major destinations for used automobiles from Japan. New Zealand is a former British territory, similar to other Oceania and Pacific Island countries such as Australia, Fiji, Papua New Guinea, the Solomon Islands, and Tonga. These countries have adopted the same left-hand traffic and right-hand steering wheel vehicles as in the United Kingdom. Japan was not a colony of the United Kingdom but also adopted left-hand traffic and right-hand steering wheel vehicles in 1920. This is one of the reasons that New Zealand and other Pacific Island countries import so many used cars from Japan. However, there are other factors affecting the export of used vehicles and auto parts from Japan to these countries, including trade policies and migrant entrepreneurs engaging in international trade. The purpose of this chapter is to clarify the situation surrounding the used car and auto parts trade and the actors involved in New Zealand and

T. Fukuda (*) Graduate School of Global and Transdisciplinary Studies, Chiba University, Chiba, Japan e-mail: [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_5

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the connected markets of Pacific Island countries, primarily Fiji. New Zealand and Pacific Island countries have a connected system of reuse and recycling. This system in the South Pacific Islands including New Zealand has been developed for over three decades, with all the countries influencing one another. As a supplier of secondhand goods, Japan is also a part of this system. Related to the idea of “circular economy,” which is addressed in Chap. 1, this system is a good example of the stigmatization of secondhand goods trade as exports of waste. Controversy surrounds the trade of secondhand goods, particularly in regard to whether the reuse or transfer of waste to developing countries is effective from an environmental perspective. The disposal of waste on the islands is relatively difficult and costly, thus making the controversy more acute. This chapter focuses on public policies related to the trade of secondhand goods and their dealers. Public policies on immigration have impacted the flow of migrants, who are major actors in the import of secondhand goods, and policies on trade have affected the flow of trade. Actors respond to frequent changes in market conditions flexibly and strategically. Many migrant entrepreneurs are engaged in the trade of used vehicle and auto parts. South Asians, including Pakistanis, are representative actors in these industries in Japan. The reach of their markets includes not only Japan but many other countries worldwide. Pakistani used car dealers are known throughout Middle Eastern, East and South African, South American, and Oceanian markets (Fukuda 2014). Why are there so many Pakistani and South Asian entrepreneurs in this field? The reason is not simple. Multiple factors overlap, including historical circumstances, political changes, economic trends, the change in legal systems, and the development of immigration networks (Fukuda 2014). In this chapter, these factors are explained through changes in public policy. “Ethnic businesses” (or “ethnic entrepreneurships”) is the key term in this chapter and is defined as businesses operated by ethnic minorities of a certain society. In Japan, ethnic minorities have actively dealt in secondhand commodities. The reuse and recycling industries (called “venous industries”) can be regarded as a typical example of ethnic businesses. Considering the history of reuse and recycling in Japan, the scrap iron wholesale business (metal recycling industry) represents an important example. The metal recycling industry was known as one of the major and niche industries of Korean residents in Japan after World War II (Han

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2010). These residents are the descendants of immigrants who came to Japan after the colonization of the Korean Peninsula by Japan in 1910 and are referred to as “old-timers.” Since the late 1970s, the structures of ethnic businesses in the reuse and recycling industries have changed slightly. New immigrants (“newcomers”) began to enter the market. Typical examples of newcomers during this period are Pakistanis who entered the used car and auto parts trading industry. Other South Asians, including Bangladeshis, Sri Lankans, and Afghans, entered later, as did Africans, including Nigerians, Ghanaians, and Cameroonians. Newcomers have a different business model. Their market includes not only Japan, but also other countries. Korean residents of Japan, the old-­ timers, dealt used commodities with their compatriots domestically due to the constraints of the era (Han 2010), including revocation of Japanese nationality, the Korean War, and the intractable north–south division of Korea. Meanwhile, newcomers’ businesses were based on exports to their compatriots abroad. Connections with overseas colleagues were indispensable. In other words, “global reuse” emerged at that time (Fukuda 2014). Thus, the Japanese reuse and recycling industries and ethnic businesses have historical relationships. However, European and North American research on ethnic businesses has paid little attention to the reuse and recycling industries. Small industries such as small-scale retail grocery stores, restaurants, and textile manufacturing have been studied as representative industries for migrants. Meanwhile, in Europe and North America, migrants own enterprises in the reuse and recycling industries. For example, used car sales businesses are dominated by South Asian migrants in Vancouver and Calgary, Canada.1 Nonetheless, research related to this topic has been scarce in Europe and North America. Attention to the relation between the global reuse and recycling industries and ethnic businesses is a unique viewpoint of the present study. This chapter begins with an overview of the used car markets in New Zealand, with a focus on changes in public policies toward migrants and the importation of used automobiles (Sect. 5.2). The focus then shifts to the actors in the markets, namely, migrant entrepreneurs who utilize changes in trade policy as a business opportunity (Sect. 5.3). Next, we discuss the used car market in Fiji, where the public policies affecting the 1

 Interview data collected by the author in August 2011 and August 2014 in Canada.

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movement of actors and businesses in the secondhand goods trade shows similarities to the case in New Zealand (Sect. 5.4). Finally, we examine the circulation of resources that links Japan, New Zealand, and Pacific Island countries2 (Sect. 5.5).

5.2   The Used Car Market in New Zealand New Zealand is a former British territory, like other countries in Oceania. It uses the same left-hand traffic and right-hand steering wheel vehicles as the United Kingdom and Japan. As such, New Zealand has dominated among destinations for exporting Japanese used cars. Because of their reputation for performance, imports of Japanese used cars in New Zealand sharply increased beginning in 1989 (Cassells 2004; Russell 2014). Figure 5.1 shows an overview of annual registrations of new and used passenger cars in New Zealand from 2000 to 2013. In 1999–2000 (New Zealand financial year), Japan’s share of imported used passenger cars reached 98% (Land Transport New Zealand 2005). The proportion decreased gradually, but it was still 94% in 2012–2013 (Land Transport New Zealand 2005 (–2013)). In contrast, Japan’s share of imported new cars was 37% in 1999–2000 and 28% in 2012–2013. From the Japanese side, the export volume for New Zealand has not shown an increasing trend compared with other countries. Looking at the number of automobiles exported to New Zealand from Japan, including new cars (Fig.  5.2), the trend has fluctuated, with the export volume increasing sharply from 1989 to 1990, and subsequently increasing and decreasing. The points of decline in the early 1990s and after the 2008 global financial crisis are noticeable. There was a marked increase in the number of used cars exported in the early 2000s, with a peak in 2003. Beginning in 2013, the trend has been increasing again. Looking at exports by category (Fig. 5.3), the export volume of gasoline vehicles with a displacement of 1501 to 2000 cc was larger compared 2  The author has engaged in research on Pakistani and South Asian migrant communities since 1998, focusing on entrepreneur networks, mainly used car and auto parts dealers in Japan, the UAE, Pakistan, and New Zealand. This work is based on sociological research, including fieldwork, interviews, participant observations, and demographic and trade statistical data in New Zealand and the Pacific Islands. The fieldwork data were collected in July– August 2013, December 2016, and from July 2017 to July 2018 in New Zealand, March 2018 in Tonga, and November 2018 in Fiji. A part of this chapter is based on Fukuda and Togawa (2017).

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250000

200000

150000

100000

50000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Australia used

Australia new

Japan used

Japan new

UK used

UK new

Others used

Others new

Fig. 5.1  Annual registration of new and used passenger cars by main countries of origin in New Zealand. (Note: The Land Transport New Zealand fiscal year is from July 1 to June 30. Source: Land Transport Agency New Zealand, “New Zealand Motor Vehicle Registration Statistics,” Land Transport New Zealand from 2005 to 2013)

with other engine types from 2001 to 2010. After 2010, gasoline cars with smaller displacement (1001 to 1500  cc) became more preferred. From around 2009, the popularity of medium displacement vehicles dropped, and differences between emissions have almost entirely disappeared. Public policy has been an important factor affecting and shaping the changes in the secondhand vehicle market in New Zealand (Nishikawa 2006; Abe 2011; Russell 2014). There have been two phases. Phase 1 (1984–2000) involved deregulation of trade and immigration policies, and phase 2 (2000–present) involved tightening of regulations on transport security, environment, and immigration policies (Table 5.1).

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200,000

New New cars cars

180,000

Used Used cars cars

160,000

Used Used ++ new new cars cars

140,000

120,000 100,000 80,000 60,000 40,000 20,000 0

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Year

Fig. 5.2  Number of vehicles exported from Japan to New Zealand. (Note: The division of new/used in “Trade Statistics of Japan” started in April 2001. Before then, only the total number was shown. Source: Compiled by the author based on Fukuda and Togawa (2017: 211); calculated by Asazuma based on data from “Trade Statistics of Japan” [Ministry of Finance])

The history of the automobile industry in New Zealand began with the establishment of a General Motors (GM) assembly plant in 1926 (McCrystal 2003; Wright 2005). Economic policies based on protecting domestic industries and ensuring employment were adopted after World War II. After the 1960s, the economy declined. By the 1970s, there were 16 assembly plants in total. The Lange Labour Party government (1984–1989) launched a bold deregulation policy, and the protection policy on the automobile industries was gradually abolished. These economic reforms were nicknamed “Rogernomics” after Roger Douglas, the Minister of Finance at that time (McCrystal 2003; Wright 2005; Russell 2014). In December 1984, the New Zealand government announced the Automobile Industry Plan, which included the (1) abolition of the import licensing regime, (2) reduction of tariffs, and (3) permission to import auto parts. According to Abe (2011), the import of used cars from Japan

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70,000 60,000 50,000

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Passenger cars (under 1000 cc) Passenger cars (1001-1500 cc) Passenger cars (1501-2000 cc) Passenger cars (2001 cc-) Passenger cars (diesel) Truck

Unit

40,000 30,000 20,000 10,000 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year

Fig. 5.3  Number of used car exports from Japan to New Zealand by category. (Source: Compiled by the author based on Fukuda and Togawa (2017: 212); calculated by Asazuma based on data from “Trade Statistics of Japan” [Ministry of Finance])

started around the end of 1986. The reason for this was the systematic reform of the New Zealand side in October 1986. It enabled the import of one used car per person per year (Nihon Keizai Shimbun October 12, 1987). By the end of 1986, the purchase of used cars by New Zealander tourists in Urayasu,3 Chiba Prefecture, began to appear as an informal trade business behind tourism (Abe 2011; Russell 2014). The Nissan Auto Auction Tokyo venue and headquarters were built in Urayasu in 1985, and the Subaru Used Auto Auction was held there once a month.4 When trying to examine used car exports to New Zealand at this time, we find that the actual figures in Japan’s trade and pre-export inspection statistics are unavailable. Nonetheless, this business style continued for two to three years. After the New Zealand government announced the abolition of import restrictions on automobiles and auto parts and a phased 3  Urayasu is the location of Tokyo Disneyland. The city became a tourist destination after the amusement park opened in 1983. 4  Based on interviews with Pakistani entrepreneur Farhan (pseudonym) in Auckland on August 8, 2013. https://www.nuc.co.jp/company (Retrieved Aug 21, 2018).

98 

T. FUKUDA

Table 5.1  Public policies in New Zealand from 1984 to 2010 Phase 1 Deregulation of trade and immigration policies 1984 Deregulation policy “Rogernomics” Automobile Industry Plan 1986 New rule permitting importation of one used car per person per year 1987 Immigration Act 1987 (i.e., acceptance of immigrants with skills and qualifications) Importation of motorcycle parts business permitted 1988 Parallel importation of all commodities permitted Independent Motor Vehicle Dealers Association (IMVDA) established 1989 Abolition of import restrictions on automobiles and auto parts 1991 Point system of immigration policy 1998 Policy of eliminating tariffs on imported vehicles Phase 2 Regulation of transport security, environment, and immigration policies 2001 Land Transport Rules: Frontal Impact 2001 2002 Tightening immigration policy (higher English ability required) 2003 Land Transport Management Act 2003 (strengthening of safety regulations) Motor Vehicle Sales Act 2003 (new rule to register motor traders, from Licensed Motor Vehicle Dealers [LMVD] to Registered Motor Vehicle Traders [RMVT]) Tightening immigration policy (revision and tightening of point system) IMVDA changed their membership 2006 IMVDA changed their name to Independent Motor Vehicle Industry Association (IMVIA) 2007 Vehicle Exhaust Emissions 2007 (environmental regulations) Immigration Advisers Licensing Act 2007 2010 Consumption tax rose from 12.5% to 15% Source: Nishikawa (2006), Abe (2011), Russell (2014), and interview data collected by the author

reduction plan for import duties in January 1989, imports of used cars increased rapidly (Abe et al. 2007b). In addition, a dealers’ association, the Independent Motor Vehicle Dealers Association (IMVDA, later renamed the Independent Motor Vehicle Industry Association, IMVIA in 2006, and renamed the Imported Motor Vehicle Industry Association in 2011, IMVIA; its abbreviation was changed to VIA in 2017), was established in 1988 (Russell 2014), and the receiving side conditions were set.5 The customs duty of a completed car was originally 55% but was decreased to 45% on January 1, 1989 and to 35% in January 1990, and gradually reduced further from January 1993 (Abe 2011). After two recessions, first in 1991 and then in 1997 (interview with VIA in 2019), the New Zealand government announced its policy of eliminating tariffs on imported vehicles in 1998. By the end of the same year, 5

 Based on an interview with Chief Executive of VIA in Auckland in August 2019.

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the local assembling plants disappeared completely (McCrystal 2003; Wright 2005). New Zealand had become an entire-car import market under a nearly free trade arrangement6 (Abe et al. 2007a). Used car imports from Japan to New Zealand increased further since 1998 but began to trend downward beginning in 2004 (Fig. 5.2). The Motor Trade Association in New Zealand attributed this reduction to the following: (1) the rise in crude oil prices, (2) the worsening economy, (3) a shrinking youth population, (4) a shrinking immigrant population, and (5) the stagnation of the tourism industry (from an interview by the Togawa team on November 2, 2006). Meanwhile, other migrant dealers pointed out that the strengthening of safety regulations in 2003 had reduced imports (from interviews by Fukuda, August 2013). Since 2003, safety regulations for used cars imported to New Zealand have been gradually tightened by the Land Transport Management Act 2003 (Fukuda and Togawa 2017). For example, in 2006, used cars were checked for safety by Vehicle Compliance Certifiers per the provisions of the Land Transport Act (Abe et al. 2007a, b). This measure was in response to consistent issues of rewinding of mileage meters and illegal importation of used cars falsely declared as accident-free cars. Apart from emphasizing the need for safety inspections, environmental compliance on emissions became an issue in 2006. In 2007, environmental regulations were implemented,7 and Euro 4 emissions standards began to be observed. The Euro 4 and three-digit code in Japan are similar standards. The three-digit code was adopted as part of the 2005 emission standards in Japan. Therefore, only cars with three-digit model codes manufactured after 2005 could be imported to New Zealand after 2007. By 2008, the market approached saturation, and owing to the recession after the global financial crisis, the number of used cars imported from Japan decreased sharply (Togawa 2009). New Zealand trade statistics (Fig. 5.4) show that the amount (in USD) of new and used vehicle imports worldwide continues to increase. The amount of imports was nearly 70 times that of exports in 2018 according to value-based data. Since 1989, the proportion of new and used vehicles that New Zealand imported from Japan (Fig.  5.5) has gradually decreased.  For most-favored-nation countries such as Japan, the tariff of buses (8702) is 5%, passenger cars (8703) was 0% or 10% (depending on the code), and trucks (8704) is 0% or 5% (depending on the code) on November 2, 2018 (Fedex World Tariff). 7  https://www.nzta.govt.nz/resources/rules/vehicle-exhaust-emissions-2007-qa.html (Retrieved May 27, 2018). 6

100 

T. FUKUDA

Imported Vehicles (new and used) Million USD

4500 4000 3500 3000 2500 2000 1500 1000

0

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

500

8702 Bus Imports

8703 Car Imports

8704 Truck Imports

Exported vehicles (mostly used) Million USD

70 60 50 40 30 20 10 0

8702 Bus Exports

8703 Car Exports

8704 Truck Exports

Fig. 5.4  Change in imported and exported vehicles in New Zealand. (Source: Based on the data from UN Comtrade)

101

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

8703 Cars 90

90

80

80

80

70

70

70

60

60

60

50

50

50

%

90

%

100

40

40

30

30

30

20

20

20

10

10

10

0

0

0

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

40

Year USD %

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

8704 Trucks

100

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

%

8702 Buses 100

Year

Year Unit %

USD %

Unit %

USD %

Unit %

Fig. 5.5  Change in proportion of vehicles imported (new and used) from Japan to New Zealand. (Source: Compiled by the author based on data from UN Comtrade)

Considering the proportion of countries from which passenger cars (8703) were imported by New Zealand in 2018 (Fig. 5.6), Japan is the top country both in terms of value and in terms of number of units. However, imports from Japan are characterized by a lower price per unit compared with those from other countries. As already shown in Figs. 5.1 and 5.2, this indicates that the percentage of used cars is high relative to all vehicle imports from Japan. However, considering New Zealand’s importation of new and used buses and trucks (Fig. 5.7), Japan is not the top exporting country. As a reference, the proportion of countries to which New Zealand exported passenger cars in 2018 is shown in Fig. 5.6. The figure shows that Australia is the top country in terms of both value and number of units. Exports to Australia are characterized by a higher price per unit compared with those to other countries. This means that the passenger cars exported to Australia are of relatively high quality. However, lower-­priced passenger cars are imported by Tonga, the United Arab Emirates (UAE), Samoa, Malaysia, Norfolk Island, and Niue. When looking at New Zealand’s export of buses and trucks (Fig. 5.7), we see that Australia is the top destination.8 8  This article does not discuss the situation of Australia in detail because it is quite different from that of New Zealand. In Australia, the importation of used vehicles has been regulated in a complex manner over the years. The complete withdrawal of automakers’ production plants in 2017 was expected to help ease restrictions on used car imports. The special tax of 12,000 AUD per used car was eliminated in January 2018. However, import restrictions are still ongoing. The economic impact of Australia inside the Oceania region is significant. A more detailed analysis will be required in the future.

102 

T. FUKUDA

Year 2018 - 8703 Car Imports (USD)

Japan USA Mexico Italy

Germany Thailand Spain Others

Rep. of Korea United Kingdom Czechia

Year 2018 - 8703 Car Exports (USD)

Australia USA Singapore Fiji Japan Others

United Kingdom Cook Islands United Arab Emirates Samoa Tonga

Year 2018 - 8703 Car Imports (Unit)

Japan Thailand Mexico Spain

Germany USA China Others

Rep. of Korea United Kingdom Czechia

Year 2018 - 8703 Car Exports (Unit)

Australia United Arab Emirates United Kingdom Malaysia Norfolk Islands Others

Tonga Cook Islands Samoa USA Niue

Fig. 5.6  Importing and exporting countries of New Zealand on passenger cars (8703) in 2018. (Source: Compiled by the author based on data from UN Comtrade)

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

Year 2018-8702 Bus imports (USD)

China

United Kingdom

Japan

Portugal

Australia

Turkey

Germany

USA

Singapore

Year 2018-8702 Bus exports (USD)

Australia Norfolk Islands United Kingdom Samoa Cook Islands Tonga United Arab Emirates

Year 2018-8703 Car imports (USD)

Japan Rep. of Korea Thailand Mexico Czechia Others

Germany USA United Kingdom Spain Italy

Year 2018-8703 Car exports (USD)

Australia United Kingdom USA Cook Islands Singapore United Arab Emirates

Fiji Samoa Japan Tonga Others

103

Year 2018-8704 Truck imports (USD)

Thailand Australia Netherlands Sweden Turkey Others

Japan Germany United Kingdom China USA

Year 2018-8704 Truck exports (USD)

Australia United Arab Emirates Papua New Guinea Tonga Fiji Samoa Cook Islands

Nigeria Kiribati Sri Lanka Others

Fig. 5.7  Importing and exporting countries of New Zealand on Vehicles (8702, 8703, 8704) in 2018. (Source: Compiled by the author based on data from UN Comtrade)

104 

T. FUKUDA

There is a unique reason that New Zealand became a major importer of used cars from Japan. As noted at the beginning of this chapter, New Zealand has left-hand traffic and right-hand steering wheels, the same as Japan. Australia also has a right-hand steering wheel policy but its import volume of used cars from Japan is limited due to regulations. Meanwhile, New Zealand has pursued radical deregulation since the 1980s. As a result, import barriers for automobiles and auto parts have been removed, and many used cars have been imported from Japan since the 1990s (Cassells 2004; Abe 2011; Russell 2014). New Zealand has accepted “nearly” free trade. Most used car imports in the country are designated for domestic use. Therefore, if the domestic car ownership rate becomes saturated, the only plausible reaction is to depend on the balance of market supply and demand. Accordingly, the remaining means of adjustment will be diverted to other systems such as safety and environmental regulations. New Zealand authorities implemented these regulations in 2003 and 2007 and succeeded in controlling the supply-and-demand balance without raising duties.

5.3   Migrant Entrepreneurs and Their Transition During fieldwork we conducted in 2019, two migrant dealers indicated that, at the time, there were 1000–2000 used car dealerships in Auckland, of which 20% were New Zealanders and 80% were migrant entrepreneurs. In the same year, in an interview with VIA, an estimated 3300 registered motor vehicle traders (RMVT) were dealing used cars and motorcycles in New Zealand, with immigrant entrepreneurs accounting for a much lower percentage than New Zealanders. Farhan (pseudonym) is a Pakistani entrepreneur who has been a used car dealer in Otahuhu, New Zealand, since 2000. He said during an interview in 2019 that there were 2500 to 2800 RMVT in New Zealand, with 650 RMVT in Auckland, according to information obtained from a magazine. He estimated that 70% of RMVT were New Zealanders and 30% were migrant entrepreneurs. However, registered dealers accounted for 60% of the total, with unregistered accounting for the remaining 40%. For example, even New Zealander employees of well-known companies were involved in importing and selling used cars as a side job. Fieldwork conducted in 2019 indicated that it

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was difficult to determine the exact numbers and nationality of the unregistered traders. In recent years, internet sales have become mainstream in New Zealand’s used car deals. However, many stores still maintain their showrooms. The majority of these seem like New Zealander-owned showrooms, but migrant entrepreneurs, including Japanese car dealers, are also powerful actors in these industries, especially in urban areas such as Auckland. New Zealander-owned stores aim to increase their credit ratings with advertisements such as “100% Kiwi owned” (Fieldwork data in 2017). In this section, we focus on the migrant entrepreneurs. For 30 years, many used vehicles have been imported, mainly through Auckland Port.9 Auckland is New Zealand’s largest city and is located on the North Island. The city faces Waitemata Bay to the north and Manukau Bay to the south and is home to both New Zealand’s most significant trading port and international airport. Many immigrants live within the Auckland metropolitan area. Similar to Japan, used car dealerships are located along suburban main roads in New Zealand. Dealerships are scattered, but there are several agglomerations of used car dealers in Auckland, including Penrose, Greenlane, North Shore, New Lynn, and Otahuhu. Turners, a used car auction house and dealer founded in 1967, is one of the leading companies in New Zealand, with 31 branches throughout the country.10 Its head office and auction sites are located in Penrose, near Otahuhu. In New Zealand, the buying of used cars at auction gained popularity in the 1980s (McCrystal 2003: 169). Our fieldwork research in 2013 revealed that Turners has nearly monopolized the used car auction market in Auckland.11 The auction schedule in this city is classified according to vehicle type. In 2013, used passenger cars imported from Japan were auctioned on Tuesdays, domestic used cars on Wednesdays, and used commercial vehicles (e.g., buses, trucks, vans, four-wheel drive vehicles) on Thursdays. In 2016, Turners closed their auctions that targeted dealers and began specializing in auctions targeted toward individual consumers.

 http://www.poal.co.nz/ (Retrieved March 9, 2018).  https://www.turners.co.nz/Company/About-Us/Overview/ (Retrieved August 10, 2019). 11  Based on interviews with Pakistani entrepreneur Farhan in Auckland on August 6, 2013. We visited Turners on August 7. 9

10

106 

T. FUKUDA

Otahuhu is also known for its large number of Pacific Islander and Indian residents. Pacific Islanders enter the country to visit relatives or come for longer-term stays (Nishikawa 2006). Immigrants from India are primarily Indian Fijians (Indo-Fijians) and include Hindus, Sikhs, and Muslims. There are several halal food shops (called “halal pasifica”) and takeaway halal restaurants for Muslims in the Otahuhu district. The owners of these shops are not only Muslims but also Sikhs. South Asian migrant entrepreneurs such as Pakistanis prefer the Otahuhu area because of its Muslim-friendly shops. Farhan, mentioned above, is a Pakistani used car dealer in Otahuhu. He chose Otahuhu as his base because (1) one of the New Zealander customers of Japanese used car imports had a warehouse there, (2) Pakistani dealers he was acquainted with had shops there, (3) the Turners auction in Penrose had been closed, (4) the Islamic school where he dropped off and picked up his children by car was nearby, and (5) many Pacific Islander customers seeking used cars live around the area. According to Farhan, when he started a business with New Zealanders in 1997 in Japan, many old, junked cars, mainly Australian cars and Mazdas assembled in New Zealand, were used in New Zealand. Farhan began exporting used cars from Japan to New Zealand in 1997. He shipped 50–100 vehicles a month to ten white New Zealander (called Pakeha, or descendants of European immigrants) customers in Auckland and Wellington. Business was good at that time, but collection of accounts receivable became gradually delayed. In 2000, sales reached nearly 10 million JPY (93,000 USD; at the time, 1 USD = 108 JPY) so Farhan decided to go to New Zealand. Farhan obtained a “business multi visa” for six months. Although he successfully collected 5 million JPY (46,000 USD); the other half of his receivables could not be collected. The main reason for this was that the customer in Wellington had been arrested for fraud related to odometer rollback. Farhan was forced to give up on collecting 5 million JPY (46,000 USD). Although he was unable to collect what he was owed, he was impressed by the quality of life in New Zealand. In particular, its educational system had a good reputation worldwide and he started preparations to move there with his family. Such migrants are called “lifestyle migrants.” First, he acquired an Investor Visa. He prepared 10 million JPY (83,000 USD, 1 USD = 120 JPY in 2001) with his brother, who jointly managed the used car trading business, and together they obtained three-year Investor Visas in 2001. At that time, Investor Visa holders could apply for a

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

107

permanent residence in a year and a half, so in 2003 they applied for and received permanent residency. They were also able to obtain New Zealand citizenship in 2004. Because they were importing 100 used cars per month from Japan, the business was economically stable, and their citizenship applications proceeded smoothly. Among the Pakistani entrepreneurs who first entered New Zealand, the most famous is Parvez (pseudonym). Parvez was one of the prominent early entry entrepreneurs who had been engaged in used car trading in Japan since the 1980s. Parvez entered the New Zealand market in 1991. The importation of passenger cars was not allowed at the time, so he began by selling commercial vehicles, including vans, diesel trucks, and buses. After he obtained New Zealand citizenship, he sold his store to another Pakistani entrepreneur and returned to Japan in 1995. There were several other well-known Pakistani companies, but in 2013, half of them had closed and their owners had returned to Japan. When Farhan entered the used car market in Auckland in 2000, there were about 100 Pakistani entrepreneurs. However, beginning in 2004, their numbers gradually dwindled. The reason was that the New Zealand licensing system on used car sales had changed. The Motor Vehicle Sale Act was enacted in 2003 and required car dealers to register.12 Before 2003, there was a Licensed Motor Vehicle Dealers system, and it was necessary to prepare a deposit fee of 100,000 NZD (7 million JPY, 65,000 USD; 1 USD = 108 JPY in 2004) to engage in used car sales. As such, new entry to the market was challenging. However, in 2003, this system was abolished and changed to the Registered Motor Vehicle Traders (RMVT) system. It became possible to obtain and renew one’s registration at 500 NZD (35,000 JPY, 324 USD), encouraging many other foreigners to enter the market. The highest number of new entrepreneurs was Fijian, in terms of nationality, followed by Chinese, Indian, Arab, Afghan, Sri Lankan, and Pakistani. Among the new entrants, the strongest rivals to the Pakistani old-­timers were the Chinese entrepreneurs. They trained at Pakistani entrepreneurs’ showrooms before opening their own independent shops. They ran their companies with others’ names and often returned home after one year. In some cases, they did not collect and pay the 12.5% (later 15%)

12  http://prd-lgnz-nlb.prd.pco.net.nz/act/public/2003/0012/latest/whole.html (Retrieved May 27, 2018).

108 

T. FUKUDA

consumption tax.13 The selling price of used cars dropped at that time, indicating their significant impact on the market. Fijians also entered New Zealand to visit relatives and tended to return home after working for one year as well. Some foreigners who were new players in the used car market after 2003 included those who came to New Zealand as refugees. Sri Lankans comprised the largest share, followed by Afghan and Somali refugees. New Zealand has a quota system that accepts a certain number of refugees annually.14 After staying in the refugee center for six weeks, they can acquire permanent residence15 and run their own businesses. Some Pakistani entrepreneurs left New Zealand after 2004. They moved to another country after acquiring New Zealand citizenship. As competition intensified and profits declined, they moved to African countries, which seemed to be relatively profitable. For example, two major Pakistani entrepreneurs moved to African countries. Others left New Zealand because of the high cost of living. Changes in New Zealand’s immigration policy are another important factor to consider. After the Immigration Act 1987, regulations were tightened many times. The introduction of a point system in 1991 was the beginning of these restrictions. However, the decisive factors were the introduction of stricter language requirements and standards in 2002 and 2003 (Nishikawa 2006). These requirements and conditions were further tightened by the Immigration Advisers Licensing Act 2007 (Michitani 2008). Corporate regulations may also be an important factor.16 By 2013, establishing a company in New Zealand had become difficult for migrants. This was due to some cases such as foreigners with tourist visas starting companies and returning home without paying taxes. They closed their companies and left before the tax office inspection, noting that it was difficult to meet the requirement to show seven years of receipts to tax office inspectors. Such cases were not limited to specific nationalities. New 13  New Zealand’s consumption tax rose from 12.5% to 15% in 2010. (Interview of JETRO Auckland, August 2013). 14  Interview of Ms. Naoe Hashimoto, the representative chairperson of the Japanese Society of Auckland Incorporated, in June 2018. 15  https://www.immigration.govt.nz/about-us/what-we-do/our-strategies-and-projects/suppor ting-r efugees-and-asylum-seekers/r efugee-and-pr otection-unit/ new-zealand-refugee-quota-programme. 16  https://www.jetro.go.jp/world/oceania/nz/invest_09.html.

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

109

Zealand authorities imposed strict management on these cases, even forcibly removing people who were involved in illegal activities. For example, a Pakistani entrepreneur who migrated to New Zealand with his Japanese wife and children initially ran a good business, but he neither correctly processed the company’s accounts nor declared taxes. As a result, he and his family were removed from the country. Inquiries by the tax office are considerably stricter than those in Japan, which leads to activities such as foreign entrepreneurs registering their companies using the names of New Zealander Pakeha to increase their line of credit. However, these people are quickly caught. In terms of auto parts, New Zealanders account for the majority of dealers as well. According to Farhan, 70% are New Zealanders (Pakeha), 15% are Chinese, and 15% are Fijians.17 Although many Japanese enter this market, they have business partnerships with New Zealanders. The ratio of Japanese dealers is included in that of the New Zealanders. Pakistani dealers have not entered the auto parts market, although there are a few Afghan Hazara dealers. In Japan and the UAE, Pakistani and Afghan dealers are extremely active in this market, but not in New Zealand. Policy controls, such as regulatory strengthening and deregulation, affect not only the conditions of the secondhand goods markets but also the entrepreneurs’ mindset. In the case of New Zealand, immigrant entrepreneurs, including Pakistanis, entered the used car dealership business after deregulation. However, they had to compete with those born in New Zealand as well as immigrants from other countries. Therefore, Pakistani entrepreneurs who had entered the used car trade industry gradually left the market in the 2000s. The situation changed with the revision of the traders’ registration in 2003 (deregulation), strengthened safety regulations in 2003, and reinforcement of environmental regulations in 2007. After the used car trade volume decreased, Pakistani entrepreneurs gradually went to other countries where they could expect better profits. This gap in immigrant entrepreneurs in New Zealand was filled by the arrival of Chinese, Fijian, and Sri Lankan migrants. Accordingly, the effect of this process was the formation of a multinational industry. The Chinese and Fijian dealers entered the secondhand auto parts market that Pakistani entrepreneurs were not involved in.

17  Based on interviews with Pakistani entrepreneur Farhan in Auckland on August 10, 2013.

110 

T. FUKUDA

5.4   Used Car Markets in Fiji

Thousand units

Using Japanese trade statistics data (Fig. 5.8), we see that New Zealand is the biggest market in the Oceania region, although Pacific island countries have a relatively small presence. From the number of used vehicles exported from Japan to the South Pacific Ocean excluding New Zealand (Fig. 5.9), Australia and Fiji stand out. In this section, we focus on Fiji. The number of imports in Fiji was high from 2002 to 2006, but small from 2007 to 2011, and then increased again from 2012 (Table 5.2). Fijian trade statistics (Fig. 5.10) reveal almost the same movement as in New Zealand. New and used vehicle imports were almost 80 times that of exports in 2018 according to value-based data. The proportion of vehicles both new and used imported from Japan to Fiji (Fig. 5.11) changed such that Japan’s share moved up and down. As shown in Fig. 5.12, Japan had the largest share of imports to Fiji in 2018. For reference, the figure also shows the share of vehicle exports from Fiji to South Pacific countries in 2018, including Kiribati, Tuvalu, Nauru, Australia, Papua New Guinea, and New Zealand.

160 140 120 100 80

New Zealand

60

Others

40

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

20

Year

Fig. 5.8  Number of used vehicles exported from Japan to the South Pacific. (Source: Compiled by the author based on data from “Trade Statistics of Japan” [Ministry of Finance])

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

111

16000 14000

Fiji Australia

12000

Papua New Gunia Samoa

units

10000

Solomon

8000

Micronesia

6000

Tonga

4000

Palau Kiriba

2000

Others 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

Year

Fig. 5.9  Used vehicles exported from Japan to the South Pacific (excluding New Zealand). (Source: Compiled by the author based on data from “Trade Statistics of Japan” [Ministry of Finance])

Public policies are also important factors affecting and shaping the changes in the secondhand commodity market in Fiji. The following are examples (Table 5.3). The history of the used car market in Fiji begins in the 1970s with the import of “reconditioned” Japanese cars as a side business for auto parts shops. In the 1980s, some vendors imported half-cut used parts from Japan but not used cars. In the 1990s, two dealers started importing used cars from Japan. Gasoline cars were sold to individuals, and diesel cars were sold as taxis. Beginning in 1997, the government permitted the import of LPG-run vehicles and they became popular. In 2000, duty on LPG vehicles became free, and used car dealers imported many Japanese LPG buses and taxis. The current major players entered the market in the

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Total

1163 317 629 669 11 239 267

736 174 419 595 6 50 216

719 171 655 585 13 182 248

8074 4091 950

10,792 13,792 896 2437 487 815

1305 477 890 672 1 337 135

11,036 3044 1392

986 522 1033 595 0 268 107

14,157 2798 1586 872 677 763 578 0 215 95

9157 2991 2000 798 620 984 523 1 219 194

9766 962 2705 766 504 654 432 85 217 128

8561 68 2567 972 404 397 362 356 60 122

5635 645 2491 1022 535 120 346 967 128 142

5879 766 2938 675 760 168 598 449 179 196

5534 786 3680 593 1001 325 795 479 297 209

5554 1366 4245 484 927 437 784 832 445 539

6027 4023 2859 517 973 557 824 1106 229 689

6099 6023 2239 819 1106 973 1143 1617 370 404

6688 8612 2574

812 1050 1142 976 1807 555 564

5674 11,962 1737

952 1162 1164 799 1076 536 622

5769 4479 2495

1007 1186 860 817 1647 705 484

4869 7245 2167

15,198 12,566 12,170 12,093 10,453 5231 5361

143,063 63,194 39,927

86,373 125,112 144,349 135,006 132,600 96,219 101,236 59,088 57,420 68,950 68,088 61,462 91,315 110,329 118,424 122,324 135,475 116,253 1,830,023

2002

Source: Compiled by the author based on data from “Trade Statistics of Japan” (Ministry of Finance)

New Zealand Australia Fiji Papua New Guinea Micronesia Solomon Tonga Palau Samoa Kiribati Others

2001

Table 5.2  Used vehicles exported from Japan to the South Pacific

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

113

Imported vehicles (new and used) Million USD

120 100 80 60 40 20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

8702 Bus imports

8703 Car imports

8704 Truck imports

Exported vehicles (mostly used) Million USD

25 20 15 10 5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

8702 Bus exports

8703 Car exports

8704 Truck exports

Fig. 5.10  Transition of imported and exported vehicles (8702, 8703, 8704) in Fiji. (Source: Compiled by the author based on data from UN Comtrade)

114 

T. FUKUDA

8702 Buses Import (%)

8703 Passenger Cars Import (%)

8704 Trucks Import (%) 100

80

80

80

60

60

60

40

40

40

20

20

20

0

0

0 2000 2003 2006 2009 2012 2015 2018

2000 2003 2006 2009 2012 2015 2018

100

2000 2003 2006 2009 2012 2015 2018

100

Fig. 5.11  Transition of proportion of vehicles (new and used) imported from Japan to Fiji. (Source: Compiled by the author based on data from UN Comtrade) Import (new and used) 8702 Bus imports (USD)

8703 Car imports (USD)

Japan

China China, Hong Kong SAR Indonesia

Japan

Rep. of Korea

Japan

Rep. of Korea

China

Thailand

China

Thailand

India

Australia

India

Australia

New Zealand

Indonesia

New Zealand

Indonesia

USA

United Kingdom

USA

United Kingdom

Rep. of Korea

8704 Truck imports (USD)

Others

Others

Export (Almost Used) 8702 Bus exports (USD)

8703 Car exports (USD)

8704 Truck exports (USD)

74009 Kiriba

Tuvalu

Australia

Tuvalu

Australia

Nauru

USA

Tonga

USA

Tonga

Papua New Guinea

New Zealand

Papua New Guinea

New Zealand

Solomon Islands

Morocco

Solomon Islands

Morocco

Kiriba

Japan

Kiriba

Japan

Papua New Guinea Tuvalu Tonga

Others

Others

Fig. 5.12  Importing and exporting countries of Fiji on vehicle (8702, 8703, 8704) in 2018. (Source: Compiled by the author based on data from UN Comtrade)

5  USED VEHICLES AND AUTO PARTS TRADE IN NEW ZEALAND… 

115

Table 5.3  Fijian public policies from 2000 to 2017 Year

Change in public policies

1997 2000 2010 2014 2017

Importation of LPG vehicles permitted by the government Duty on imported LPG vehicles waived Duties on imported electric and hybrid vehicles lowered Duty on hybrid vehicles lowered to zero Duty on hybrid vehicles raised from 0% to 20%

Note: LPG, liquefied petroleum gas Source: Interview data collected by the author in November 2018

2000s. There were no restrictions on production year until 2009, but at import duties of 200% or 300%, imports quickly stagnated. The Fijian government began reducing duties on imports of hybrid vehicles in 2010. First, electric vehicles were permitted, but there were only two compatible models, namely, the Nissan Leaf and Tesla Roadster. Later, hybrid cars were included. As import restrictions were eased, used car imports with emission standards of EURO 4 and higher were favored. New Zealand had adopted the same standards after 2007. Thus, used car dealers learned the appropriate EURO 4 models and started importing three-digit code models from Japan. In 2014, the government set the tariff for hybrid vehicles to zero. In 2017, the number of hybrid vehicles was thought to have increased too much, and their tariff was raised from 0% to 20%. The tariffs on gasoline and diesel vehicles was kept at 100%, and hybrid vehicles were still more popular. Manufacturing year regulations in 2018 on used cars allow the import of used cars made within five years for gasoline and diesel vehicles and eight years for hybrid vehicles. The automobile sales tax was 15% in 2014 but was reduced to 9% in 2018. Hybrid vehicle incentives were part of the Fijian government’s environment-­conscious policies. Pacific island countries take the climate crisis seriously and emphasize the guidelines of the Paris Convention. Fiji was also the presiding country of Conference of Parties 23 (COP23). However, used car dealers did not recognize environmental protection as the real reason for the import restrictions. They considered that the emission control standards were to protect the new car industry, as is the case in many other countries. Tariffs on non-hybrid used cars are 100%, whereas those on new cars are only 15%.

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The used car markets in Fiji are not concentrated in specific locations. There are several small- or medium-sized agglomeration areas. The number of used car dealers in Fiji’s capital, Suva, is around 10, and there are around 30 in the entire country (fieldwork data in Nov 2018). Used car dealerships must register with the Land Transport Authority. There are 4–5 major used car dealers and about 35 small- and medium-­ sized companies in Fiji. The two to three largest companies account for half of the market share. Some companies have new car sections in parallel. New car sections sell or lease to companies and government offices. After use, used car dealing sections sell these used products to individuals. There are new car dealers of Japanese makers, including Toyota, Nissan, and Mazda. There are dealers of new Korean and Chinese cars as well. However, as mentioned above, they sell or trade not only new cars but also used cars. Large suppliers import 80–200  units per month from Japan. They import only from Japan, not from New Zealand, because of the Fiji government’s strict emissions restrictions. They occasionally export to Tonga and Samoa. Their Japanese counterparts (used car exporters) are generally large well-known Japanese companies with the capacity to export large volumes at the same time. Some migrant entrepreneurs, including Pakistanis, are also trading partners, but not preferred because they have a limited scale and are reportedly sometimes difficult to deal with. The owners of all used car dealers are Indian Fijians (Indo-Fijians).18 Their religions include Hinduism and Islam (no Sikhs were found in fieldwork research conducted in Nov 2018). Indian Fijians are mainly third generation, so they are not foreigners. Indian Fijians make up about half of Fiji’s total population, and they are more successful in commerce compared with indigenous Fijians. Some used car exporters in Japan (e.g., Pakistanis) visit to observe the market in Fiji, but it is difficult for foreigners to make a full-scale entry into the country’s used car market. The majority of auto parts dealers are Indian Fijians as well. Many auto parts shops deal in both secondhand and new parts. The number of dealers is countless. The author visited several secondhand auto parts dealers, but we could find only two Pakistani entrepreneurs during fieldwork in Suva in November 2018. One of the Pakistani dealer shops’ headquarters 18  The current Indian Fijians are descendants of Indian sugar cane workers introduced after 1879 under British occupation. (Ministry of Foreign Affairs of Japan). https://www.mofa. go.jp/mofaj/area/fiji/gaiyo.html.

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is a big used car exporter in Tokyo. The company president’s nephew is the manager of the Fiji branch. They import and sell used auto parts to Fiji. There is also a branch for secondhand auto parts sales in Sharjah, UAE. The Fiji branch manager came to Fiji after gaining knowledge and experience in the UAE. The policy of hybrid vehicle incentives raises concerns about the problem of repair and recovery of old lithium batteries. Lithium is a dangerous substance to handle and is difficult to dispose. Recovery by manufacturers is generally recommended, but this is not well recognized in Fiji. Meanwhile, there is a perception that hybrid vehicles cannot be repaired if broken. However, auto repair shops in Fiji repair them by ordering parts from New Zealand, Australia, or Japan. The acquisition of suitable used parts is mainly through import from New Zealand. The parts market in New Zealand runs two years ahead of Fiji; thus, it is easy to obtain suitable used parts. Auto repair shops purchase the parts from local auto parts dealers as well. Local auto parts dealers import products from Japan or New Zealand. In terms of migration research, the outflow (emigration) of young people is a social problem in Fiji. It is common among Indian Fijian entrepreneurs to send their children, when they finish secondary education, to relatives living in New Zealand or Australia for their higher education (sometimes even secondary education). New Zealand has a quota system for Pacific Islanders (Nishikawa 2006), so it is easy to emigrate. Within this context, there are cases in which automobile maintenance and repair factories become understaffed and are forced to close. Even if they train auto mechanics in Fiji, young people will emigrate to New Zealand after gaining work experience. For young people, several years of work experience in Fiji is a requirement for a New Zealand visa application. Similar issues are present in other Pacific island countries (JARA ed. 2005). When examining the environmental economy, we see that Fiji has realized a traditional “shared economy” style. In Suva, a car rental shop is located next to a used car shop. The used car shop owner is a friend of the rental shop owner, and so they do not compete. In Fiji, low-income people tend to borrow cars when necessary because buying a car is too expensive. This traditional “shared economy” can also be seen in Tonga. According to fieldwork conducted in March 2018, after Cyclone Gita struck Tonga in February 2018, a car rental shop owned by a large used car importer and dealer was busy lending cars for repair work. In the case of Fiji, immigrant entrepreneurs, including Pakistanis, could not enter the used car market because used car dealers must register with

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the Land Transport Authority and Indian Fijians already dominated the used car market. Accordingly, Pakistani entrepreneurs could only participate in the used auto parts market. These phenomena occurred as a result of the country’s strict used car import regulations and stringent immigration system.

5.5   Disposal of End-of-Life Vehicles in New Zealand and Pacific Island Countries Environmental economists have written articles about used cars and auto parts in the New Zealand and Pacific Islands regions. Environmental economists consider the New Zealand and Pacific Islands region together because of the resource circulation. Used cars and auto parts in New Zealand are transported to the Pacific Islands region. In 2005, the number of registered automobiles in New Zealand was about 3 million units (Land Transport New Zealand 2005), whereas the number of end-of-life vehicles (ELVs) each year is estimated at around 150,000 units (Togawa 2009).19 This amount is only about 3% of the number in Japan in 2005. Auto parts are also re-exported to other countries, such as Fiji, Tonga, and Russia (Togawa 2009). According to Cassells (2004: 78), some dismantlers export auto parts to Samoa, Fiji, Papua New Guinea, and occasionally Nigeria and Jamaica. Meanwhile, scrapped cars and iron scraps in the Pacific Islands region are transported to New Zealand or Australia for processing (Fig.  5.13). This flow of automotive resources links Japan, New Zealand, and the Pacific Islands region. New Zealand iron scrap trade statistics (Fig. 5.14) show that although imports remain sluggish, exports have increased rapidly since 2000. However, starting in 2008, exports have fluctuated. Fijian statistics (Fig.  5.15) show almost the same movement. Imports remain low, but weight-based exports increased suddenly in 2007 and decreased in 2008. A peak was reached from 2010 to 2012 before another rapid decrease. The value-based and weight-based trends differ. This difference is likely due to there being a mixture of high-priced and low-priced scrap according to the needs of the destination countries. Examination of the proportion of countries to which New Zealand exported iron scrap in 2018 (Fig. 5.16) reveals that Australia is the major destination in terms of both value-based and weight-based proportions.  VIA estimated number of scraped vehicles around 250,000 units/year. (Interview 2019).

19

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Fig. 5.13  Diagram of used cars and auto parts trade relationship. (Source: Compiled by the author based on Cassells (2004) and Fukuda and Togawa (2017))

Indonesia and Pakistan import scrap at a lower price compared with other countries. Fijian trade statistics in 2018 (Fig.  5.17) show that the Republic of Korea (South Korea) and Australia are the top two destinations for iron scrap exports. From the perspective of weight-based data, the Republic of Korea is the major destination. A difference in destination is also clear between vehicles and iron scrap. Vehicles tend to move from New Zealand to other smaller Pacific Island countries. However, iron scrap tends to move from smaller Pacific Island countries to larger countries inside or outside of Oceania. Cassells (2004) and Togawa (2008, 2009) explain the history of the disposal of ELVs and the iron scrap market in New Zealand as follows. New Zealand banned the exportation of iron scrap from the 1960s to 1992. However, this policy did not entirely involve the recycling of scrapped automotive resources. At that time, iron scrap discharged in New Zealand was accepted only by a steelmaker. This policy was driven by

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Value-based (US$)

250

Million USD

200 150 100 50 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Iron scrap imports (USD)

Year

Iron scrap exports (USD)

Weight–based

Thousand Tons

700 600 500 400 300 200 100

0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Iron scrap imports (kg)

Year

Iron scrap exports (kg)

Fig. 5.14  Change in imports and exports of iron scrap (7402) in New Zealand. (Source: Compiled by the author based on data from UN Comtrade)

domestic industrial protection rather than environmental protection. The amount of iron scrap accepted by New Zealand was limited. One company received only high-quality iron scrap and was able to keep its buying price low. Under such circumstances, there was no market for iron scrap discharged from scrapped cars and home appliance waste that was of

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Value-based (USD) 8

Million USD

7 6 5 4 3 2 1 0 2000200120022003200420052006200720082009201020112012201320142015201620172018 Iron scrap imports

Iron scrap exports

Thousand Ton

Weight –based (Thousand tons) 45 40 35 30 25 20 15 10 5 0

2000200120022003200420052006200720082009201020112012201320142015201620172018 Iron scrap imports Iron scrap exports

Fig. 5.15  Change of import and export iron scrap (7402) in Fiji. (Source: Compiled by the author based on data from UN Comtrade)

relatively inferior quality. As a result, scrapped vehicles were disposed of in landfills and dumped in the valley. New Zealand began a period of deregulation and trade liberalization as part of “Rogernomics” from the 1980s to the 1990s. The trade of regulated iron scrap was also liberalized. In the 1990s, immediately after deregulation, the global market conditions for iron scrap were not good. However, because of the subsequent sudden expansion in global markets, several iron scrap companies emerged. New Zealand iron scrap was worth

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Iron scrap exports (USD)

Australia Rep. of Korea India Indonesia Singapore Pakistan

Vietnam United Kingdom United Arab Emirates Bangladesh Malaysia

Iron scrap exports (kg)

Australia Vietnam Indonesia India Singapore Malaysia

Rep. of Korea United Kingdom United Arab Emirates Bangladesh Pakistan Others

Fig. 5.16  Proportion of countries exporting iron scrap to New Zealand in 2018. (Source: Compiled by the author based on data from UN Comtrade) Iron Scrap Export (USD)

Iron Scrap Export (kg)

Australia

Rep. of Korea

Rep. of Korea

Australia

Bangladesh

Dem. People's Rep. of Korea

Bangladesh

Dem. People's Rep. of Korea

New Zealand

India

India

Indonesia

Indonesia

Singapore

New Zealand

Singapore

United Kingdom

United Kingdom

Fig. 5.17  Proportion of countries exporting iron scrap to Fiji in 2018. (Source: Compiled by the author based on data from UN Comtrade)

15–30 USD in 1995, after which its worth grew to 95–150 USD in 2005 (Togawa 2008). The global market conditions and domestic competition can be considered as reasons for the price increase. In the Pacific Island regions, motorization has progressed steadily since the 1990s. Because of the industrial structure and income level of the region, used cars from overseas are popular. This structure is similar to the islands of Okinawa Prefecture in Japan (Togawa 2009). However, the situations in the Pacific Islands region are more complicated because of

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Table 5.4  List of left- and right-driving countries Three regions of the Pacific Islands and Oceania

Left-driving countries with right-hand steering wheel vehicles: British area

Australia Polynesia

Australia New Zealand Samoa Cook Islands Niue Tuvalu Tonga Papua New Guinea Fiji Solomon Islands Kiribati Nauru

Melanesia

Micronesia

Right-driving countries with left-hand steering wheel vehicles: American/French area (American Samoa) (French Polynesia = Tahiti) (Hawaiian Islands)

Vanuatu (New Caledonia) Palau Federated States of Micronesia Marshall Islands (Marianas = Guam)

Source: Compiled by the author based on data from Ogawa (2017) and “List of left- and right-driving countries,” https://www.worldstandards.eu/cars/list-­of-­left-­driving-­countries/

their steering wheel regulations (Table  5.4). Generally, former colonial countries tend to use the same regulations as their past suzerains. In the Pacific Islands region, these rules are complicated because several countries, including the United Kingdom, France, and United States, occupied the region (Ogawa 2017). Some countries, such as Australia, New Zealand, Fiji, Tonga, and Samoa use right-hand steering wheels. Because of the differences in steering wheels regulations, each island has its own importing and exporting roots. Cassells (2004: 89) presented an overview of waste disposal processing in the Pacific Islands region, with a focus on Melanesia. Scrap metal, including scrapped cars, is regularly transported from Pacific countries to New Zealand or Australia for recycling. Many of them are disassembled manually on-site, and a substantial part is cut for reuse as used parts or recycled materials. Recycled materials are transported as metals from Fiji, Samoa, and New Caledonia (but rarely from Tahiti) to New Zealand (Togawa 2009).

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Previous studies have pointed out that ELVs and scrapped cars are often abandoned in Pacific Island countries. For example, Kawamura (2003) and her team investigated the situation in the Pacific Islands from 2002 to 2004. A related research group, the Japan Automotive Recyclers Association, showed the complexity of the ownership of “abandoned ELVs” in this region (JARA ed. 2005). Togawa (2008, 2009) and his research team (Abe et  al. 2007a, b; Abe 2011) analyzed the effect of changes in environment policies intended to solve these problems. They also clarified that economic factors such as changes in the global market for steel scrap also contribute to improving the situation. The recent research showed that recycling was becoming more common. For example, the JICA Global Environment Department (2004) published a research report about this topic. In 2003, at the Pacific Island Summit, the Japanese government announced cooperation in disposal and waste management as well as support for the South Pacific Regional Environment Program. JICA investigated the situation to clarify the issues, predict future trends, and propose a management model for the disposal of large-­ scale waste in 2004 report, which they followed up in 2013 (JICA et al. 2013). The purpose of this research was to collect information to examine the potential reverse logistic system. This research promotes the recycling of “resource waste” and the formation of a recycling-oriented society in the Pacific region. This is a part of JICA’s projects named J-PRISM (Japanese Technical Cooperation Project for Promotion of Regional Initiative on Solid Waste Management in Pacific Island Countries). Shioji (2018a, b) proposed a solution for the problem of abandoned ELVs in Pacific island countries, particularly in Fiji, by referring to research by JICA.  He recommends that the Japanese government provide financial support for waste disposal in Fiji.

5.6   Conclusion This chapter explored the trade of secondhand goods and the actors involved in New Zealand as well as the connected markets of Pacific Island countries, primarily Fiji. We found that public policy affects the trade flow of secondhand goods and the movement of actors and their businesses. It was also shown that public policy has changed frequently and that actors respond to the resulting changes in market conditions flexibly and strategically.

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The findings from the cases in New Zealand and the Pacific Islands region can be summarized as follows. New Zealand and Pacific Island countries are major destinations for used Japanese automobiles. These countries have left-hand traffic and use right-hand steering wheel vehicles, the same as in Japan. This allowed New Zealand and the Pacific Islands to import used cars from Japan. However, other factors affect Japan’s export of used vehicles and auto parts to these countries, including trade policies and migrant entrepreneurs engaging in international trade. Section 5.2 outlined the used car markets in New Zealand, especially changes in public policy related to immigration and the import of used automobiles. The country saw two phases of changes in public policy. Phase 1 (1984–2000) involved the deregulation of trade and immigration policies, and phase 2 (2000–present) involved the strengthening of regulations on transport security, environment, and immigration policies. The biggest change in phase 1 was the Automobile Industry Plan 1984. Since then, barriers to the import of vehicles and auto parts have been gradually removed, and many used cars have been imported from Japan since the 1990s. The effective change during phase 2 was the implementation of safety and environmental regulations by New Zealand authorities in 2003 and 2007. These rules succeeded in controlling the balance of supply and demand without raising duties. Section 5.3 focused on migrant entrepreneurs as market actors who utilize changes in trade policy as a business opportunity. The majority of used car dealerships look like New Zealander-owned showrooms, but migrant entrepreneurs are also powerful actors in this industry, especially in urban areas such as Auckland. In this city, used car dealerships are located along main roads in suburban areas. Dealerships are generally scattered, but there are several agglomerations of used car dealers in areas such as Otahuhu. Pakistani entrepreneurs preferred this area for many reasons, including its proximity to used car auctions and other used car dealers, a Muslim-friendly commercial environment, proximity to children’s Islamic education, and a large population of residents from Pacific Island countries. Migrant entrepreneurs considered that the quality of life, especially the educational system, in New Zealand was good and decided to invest in and enter the New Zealand market. Such migrants are called “lifestyle migrants.” However, some entrepreneurs moved to other countries because of changes in regulations. Some of the entrepreneurs moved to another country even after acquiring New Zealand citizenship. As

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competition intensified and profits declined, entrepreneurs moved to other areas on the promise of increased profitability. In addition, they loathed the high cost of living and many lost their savings. This gap in immigrant entrepreneurs in New Zealand was filled by the arrival of Chinese, Fijians, and Sri Lankan migrants. This process led to the formation of a multinational industry. Section 5.4 explained the used car market in Fiji, where public policies affected the trade flow of secondhand goods and the movement of actors and their businesses. The Fiji government implemented various environment-­conscious policies from 2000 to present. In 2000, the duty on LPG vehicles was lifted and used car dealers imported many Japanese LPG buses and taxis. Next, the Fiji government began to lower duties on hybrid vehicle imports from 2010. LPG and hybrid vehicle incentives were a part of environment-conscious policies. However, used car dealers recognized that the emission control standards were established to protect the new car industry. Meanwhile, the policy of hybrid vehicle incentives raised concerns about the problem of repair. Auto repair shops in Fiji addressed these concerns by ordering parts from New Zealand, Australia, and Japan, where it was easy to obtain suitable used parts. There are approximately 10 used car dealers in Suva, and approximately 30 in the entire country. The two to three largest companies hold half of the market share. The owners of these firms are Indian Fijians (Indo-­ Fijians). Most Indian Fijians are third generation, so they are not foreigners. This group comprises about half of Fiji’s total population and are more successful in commerce when compared with indigenous Fijians. Foreigners face challenges in making a full-scale entry into the used car market in Fiji. The majority of auto parts dealers are also Indian Fijian. These phenomena occurred against the background of strict import regulations of used cars and stringent immigration system. Section 5.5 focused on resource circulation linking Japan, New Zealand, and the Pacific Islands region. Used cars and auto parts in New Zealand are transported to Pacific Island countries, such as Fiji and Tonga. Some dismantlers export auto parts to Samoa, Fiji, and Papua New Guinea. Meanwhile, scrapped cars and iron scraps in the Pacific Islands are transported to New Zealand or Australia for processing. Used vehicles tend to move from New Zealand and Fiji to other smaller Pacific Island countries. Iron scrap tends to move from New Zealand and Fiji to larger countries inside or outside of Oceania.

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New Zealand banned the export of iron scrap from the 1960s to 1992. As a result, scrapped vehicles were disposed of in landfills and dumped into valleys. The trade of regulated iron scrap was liberalized in 1992. After the subsequent expansion of global markets, several iron scrap companies emerged, and the value of iron scrap in New Zealand grew. Previous studies have criticized how ELVs and scrapped cars were often abandoned in Pacific Island countries. However, recent research has shown increased recycling. There are various destinations for secondhand vehicles in New Zealand, which are not in high demand locally. The first destination is disassembling facilities in New Zealand for the production of secondhand parts, some of which could be re-exported to the global markets in Malaysia and the UAE. Others are recycled into iron scrap after disassembling. Still others are re-exported as used cars to the Pacific Islands region. In the Pacific Islands region, secondhand vehicles used for a specified period have been crushed and scrapped. Some of these vehicles then return to New Zealand and Australia as iron scrap. This is an example of the resource circulation that links Japan, New Zealand, and the Pacific Islands region. Acknowledgments  In New Zealand (August 2013, December 2016, from July 2017 to July 2018), I would like to thank the University of Auckland, JETRO Auckland, dealers, and many other people who cooperated with this research. In Tonga in March 2018 and in Fiji in November 2018, I would like to thank the JICA offices and dealers who cooperated with this research. This work was supported by MEXT KAKENHI (grant numbers JP 15K03837 and JP 24730412) and IDE-JETRO research project.

References Abe, Arata, 2011, ‘Formation and Development of Used Car Export Markets for New Zealand,’ “Yamaguchi Daigaku Kyoiku Gakubu Kenkyu Ronso” 60(1): 7–16 (in Japanese). Abe, Arata, Kimura, Mami, Togawa, Kenichi, 2007a, ‘Automobile Recycling Circumstances in New Zealand,’ “Environment and Pollution” 36(4): 45–48 (in Japanese). Abe, Arata, Kimura, Mami, Togawa, Kenichi, 2007b, ‘New Zealand,’ Teranishi Toshikazu ed., “Actual Situation of Automobile Recycling in Asia and Policy Research on International Institutional Design,” Toyota Foundation 2005 Research Grant Report (in Japanese).

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Cassells, Susan Mary, 2004, “Toward Sound Management of End-of-Life Vehicles in New Zealand,” A thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics, Massey University, Palmerston North, New Zealand. Fukuda, Tomoko, 2014, “Ethnic Businesses in Global Reuse System: Used Car and Parts Trading Businesses among South Asian Migrants’ Entrepreneurs,” Kojima Michikazu ed., “International Reuse and Developing Countries: Transboundary Transaction of Used Goods,” IDE Research Series 613: 133–171 (in Japanese). Fukuda, Tomoko and Togawa, Kenichi, 2017, ‘New Zealand and Pacific Island Region,’ Asazuma Yutaka et al., “Reuse of Automobiles and Global Markets: International Trade of Used Cars and Auto Parts,” Seizando Shoten (in Japanese). Han, Jaehyang, 2010, “Industrial Economic History of ‘Korean Companies’ in Japan,” Nagoya University Press (in Japanese). JARA ed., 2005, “Research Report of ELVs in Palau and Micronesia,” JARA (Japan Automotive Recyclers Association) (in Japanese). JICA Global Environment Department, 2004, “Basic Research Report on Large-­ scale Waste Disposal in the Oceania region,” JICA (in Japanese). JICA et  al., 2013, “Research Report on Collection and Confirmation of Information on Vein Logistics in the Oceania Region,” JICA (in Japanese). Kawamura, Chizuko, 2003, ‘Japanese Reconditioned Vehicles in Tonga and the Assessment for a Feasible Environment Friendly Approach from a Global Technoscape Point of View,’ “Daito Bunka University, School for Social-­ Human Envimnmentology,” 1(4): 75–98 (in Japanese). Land Transport New Zealand, 2005 (−2013), “New Zealand Motor Vehicle Registration Statistics 2005 (−2013),” Land Transport New Zealand. McCrystal, John, 2003, “100 Years of Motoring in New Zealand,” Auckland: Hodder Moa Beckett. Michitani, Takashi, 2008, ‘Immigration Policy,’ Aoyagi Machiko ed., “To know New Zealand,” Akashi Shoten: 328–331 (in Japanese). Nishikawa, Keisuke, 2006, ‘New Zealand’s Immigration Policy and the Economic Impact of Immigrants: Contribution and Utilisation of Immigrant Workers in the Auckland Economy,’ “Journal of Australian Studies,” 32: 127–146 (in Japanese). Ogawa, Kazumi, 2017, “Characteristics of Social Economy of Pacific Island Countries,” Handout of Asian Used Vehicle Distribution Research (May 27, 2017) and Asian Automobile Symposium 2017 (November 4–6, 2017), Center for East Asian Economic Studies, Graduate School of Economics, Kyoto University (in Japanese). Russell, Jackie, 2014, “From the Rising Sun to the Long White Cloud: the History of Used Car Importing to New Zealand,” Auckland: 4Media.

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Shioji, Hiroshi, 2018a, “To solve the problem of leaving vehicles in the Pacific Island countries: Focusing on elucidating the causes of leaving vehicles,” Annual Report of the Institute of Industrial Research, 33: 55–73. (in Japanese). Shioji, Hiroshi, 2018b, “To solve the problem of leaving a vehicle in the Pacific Island countries: Focusing on improving the profitability of dismantling business,” “Asian Management Research” 24: 75–93. (in Japanese). Togawa, Kenichi, 2008, “Comparative analysis of automobile recycling systems in advanced regions in Asia and the Pacific: Targeting Japan, Korea, Taiwan, and New Zealand, Kojima Michikazu ed., “Recycle in Asia,” IDE Research 570: 255–298. (in Japanese). Togawa, Kenichi, 2009, ‘International Comparison of Waste Disposal Systems in Islands: Preliminary Consideration on Case Studies of Taiwan and Pacific Island Countries’ “Kumamoto Hogaku” (in Japanese). Wright, Matthew, 2005, “Cars around New Zealand,” Auckland: Whitcoulls.

CHAPTER 6

An Informal Used-Car Trading System Between Hong Kong and East African Countries Using ICT Sayaka Ogawa

6.1   Introduction Recent years have seen an increasing number of anthropological studies focusing on the rise of the informal trade based in Hong Kong and China (e.g., Kurita 2011, 2016; Mathews et al. 2012, 2017; Neuwirth 2011). Traders and workers have flocked to Hong Kong and China from all over the world, although mainly from developing countries, and created their own informal trading systems in conflict with intellectual property rights, commercial laws, and trade agreements (Ogawa 2016). The informal economy is generally defined as the remainder after accounting for the formal economy in the employment statistics of each country. Researchers of informal trade between China and other countries have pointed out that this definition cannot explain the informal trade that is expanding transnationally and have proposed alternative terms accordingly. Some researchers refer to the transnational informal economy

S. Ogawa (*) Graduate School of Core Ethics and Frontier Sciences, Ritsumeikan University, Kyoto, Japan © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_6

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between China and developing countries such as African countries as “globalization from below,” and discuss its complementary relationship with the “globalization from above” led by multinational companies and lawyers (Mathews et al. 2012). Although “globalization from below” is obviously different from “globalization from above” in that it is an economy that includes legally gray activities by a multitude of entrepreneurs, the economic practices themselves share some characteristics with those of “globalization from above.” The previous studies mentioned above focused on the new globalization dynamics created by the traders, but analysis of the business practices and transactional relationships of each informal trader is relatively insufficient. Rather, it seems that the basic characteristics of transnational informal business practices better fit the key concepts of the “sharing economy” that has received increasing attention in developed countries with the development of information and communication technologies (ICT). Recently, in the field of reuse in developed countries, various internet platforms that enable consumers (internet users) to buy and sell or exchange disposable goods directly has been discussed as a new form of the “sharing economy,” which is expected to become a solution to the problem of idle resource utilization and the environmental issues created by the mass-disposal culture (e.g., Botsman and Rogers 2010). Many of these platforms are built by large-scale companies, but the “consumer to consumer” or “individual internet user to individual internet user” distribution systems of used commodities are expected to expand and diversify in the future. In the transnational informal trade based in Hong Kong and China, there are also various distribution systems using ICT in which individual micro-scale traders (brokers) and individual consumers in their countries of origin trade directly. The informal trading system for used cars created by Tanzanians and other East African traders in Hong Kong discussed in this chapter is one example. These informal trading systems using ICT provide new perspectives for considering not only the contemporary dynamism of the informal economy but also the diversity of the sharing economy, although the distribution volume of the used products itself is not large. The logic of the sharing economy of informal trade differs from the sharing economy in developed countries that focuses on the efficient resource utilization and creation of a sustainable environment. In this chapter, we use the ICT system of the informal used-car trade created by traders from Tanzania and other East African countries in Hong

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Kong to discuss the new dynamism in informal used-car trading and the logic of a sharing economy of informal economy. In the next section, we organize the theoretical arguments of the sharing economy and discuss the characteristics it shares with the transnational informal economy.

6.2   The Connection Between the “Sharing Economy” and “Informal Economy” The development of ICT, the internet of things (IoT), electronic and virtual money, blockchains, artificial intelligence, and other new information technologies is introducing radical changes to our social economy. Especially since the beginning of the 2010s, certain concepts around the formation of the future social economy such as “sharing,” “free,” and “commons” have attracted attention (e.g., Botsman and Rogers 2010; Matsushima 2016; Rifkin 2014; Sundararajan 2016). For example, Jeremy Rifkin (2014) explained these changes in his book “The Zero Marginal Cost Society” as follows. With the development of ICT and IoT, we begin to see a breakdown of the old paradigm of owners and workers, producers and sellers, and sellers and consumers. Internet users have become “prosumers” (producers = consumers) who play a role in both production (supplying) and consumption (buying). The zero marginal cost society is a social economy where prosumers first create a collaborative commons that are opened to unspecified numbers of people who provide and share their knowledge, skills, labors, and goods. Through the collaborative commons, they construct ties and networks, mobilizing them to realize an ideal or ethical value. A global network that connects all human beings with tangible and intangible resources is formed, and if productivity rises to its limit, people will be able to produce and consume goods and services free of charge. However, to realize a truly free economy, it is necessary for people to appreciate the value of sharing knowledge, goods, and services. Here, the values of community, connection and association, or reciprocity have been reconsidered. However, as Sundararajan (2016) points out, contrary to the connotations of the word “share,” the sharing economy is not a gift economy but based rather on businesses aiming to make money. Uber and Airbnb, which are platforms for peer-to-peer buying and selling of services and unused assets, are often discussed in relation to the sharing economy.

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However, these platforms are driven by capitalist economic logic of the effective utilization of idle assets, unnecessary items, and idle time. Of course, there are platforms that intend to realize social value rather than monetary gains, but the number of pure gift-economy platforms remains limited. The rise of sharing and free economies is also linked to arguments around cognitive capitalism (e.g., Moulier-Boutang 2011; Yamamoto ed. 2016). In capitalism, capital is accumulated and the self-multiplication of capital itself becomes its mobilizing power. In contrast, in cognitive capitalism, it is the intangible, immaterial things, such as knowledge, images, and networks, that are accumulated. Knowledge includes not only professional knowledge but also ordinary knowledge, including the opinions of customers, contact addresses of people interested in certain things, manners and social norms in a community, methods of transportation, and recipes. The value of such knowledge is increased by being shared. For example, users of a recipe website can browse these recipes freely in exchange for posting their recipes or commenting on the recipes of others. The knowledge of the users is rated by numbers of users that access and share the content or by star ratings posted by other users. Thus, cognitive capitalism mobilizes the cognitive activities of each user. That is, the cognitive activities of the users are mobilized to exchange and share knowledge, and cognitive capitalism is developed through the knowledge accumulated as websites become “general intelligence” (e.g., Yamamoto ed. 2016). Sundrarajan pointed out that instead of the sharing behavior itself, the innovative features of the sharing economy are as follows: (1) The economic community expands far beyond the boundaries of family and neighborhoods to digitally identified people worldwide (“stranger sharing”). (2) The source of commercial value is shifted from the company to the individual entrepreneurs in the digitalized market (“crowd-based capitalism”) (Sundararajan 2016, p. 15). However, the main characteristics of stranger sharing and crowd-based capitalism identified by Sundararajan seem to fit the characteristics originally attributed to the informal economy, especially the transnational informal economy, as argued in this chapter. For example, Sundararajan gives the following five features of crowd-based capitalism: (1) it is market-­ based; (2) it is strongly influenced by capital; (3) the crowd network has power, supplying the labor force via decentralized individuals, rather than by a company or government; (4) the boundary between the personal and

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professional is ambiguous; and (5) the boundaries between full-time and temporary labor, self-employed and regular employees, and work and leisure are ambiguous (Sundararajan 2016, pp. 51–52). In general, informal economies have all of these characteristics. Previous studies on transnational informal trade have suggested that the transnational informal economy is an “out-neoliberalizing” economy in which people ignore the authority of laws and regulations, and that the economy is created by forming a horizontal network in which individuals share small niches in the market and collaborate based on reciprocity (e.g., Mathews et  al. 2012; Ogawa 2016). In addition, informal economies tend to flourish in interstitial industries, such as used commodities and counterfeits. Thus, the values of sharing have been discussed critically as rhetoric that covers the unbalanced relationship between developed countries and developing countries and between the rich and the poor, or as the value of piracy against intellectual property monopoly (cf. Mathews et  al. 2017; Ogawa 2016). This chapter describes the ordinary business practices of Tanzanian used-car brokers in Hong Kong, the difficulties they face in their businesses, and the new trading systems created through the social media platform that they use to overcome these difficulties. We discuss the logic of the sharing economy in the informal sector or the underground economy.

6.3   Tanzanians in Hong Kong The number of Tanzanians living in Hong Kong increased from 2000 to 2007 and has been decreasing ever since. Figure 6.1 shows the change in the number of immigrants in Hong Kong from South Africa and other African countries. Although there are no official figures for the number of Tanzanians, Kurita estimated that the number of Tanzanians entering Hong Kong in 2007 was 14,988 (Kurita 2016, p. 7). Kurita pointed out that the reason for the decrease in the number of entrants to Hong Kong and China after 2007 is the strengthening of immigration control regulations after the Beijing Olympics in August 2008 (Kurita 2016, p. 8). Tanzanians in Hong Kong can be broadly classified into short- and long-term residents. Most Tanzanians who visit Hong Kong are short-­ term residents who purchase various commodities such as mobile phones, clothing, home appliances, furniture, building materials, used cars, and used auto parts in Hong Kong and Guangzhou, China. They export these commodities to African countries via container. These traders tend to stay

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180000 160000 140000 120000 100000 80000 60000 40000 20000 0

South Africa

Fig. 6.1  African immigrants to Hong Kong (1993–2016). (Source: A statistical review of Hong Kong tourism 2002–2016)

in Hong Kong for one to several weeks and are sometimes called commercial travelers (Müller and Wehrhahn 2013) or frequent travelers (Kurita 2016, 2018, pp. 25–26). Long-term Tanzanian residents can be categorized as follows: (1) semi-­ permanent residents, such as those who have married Hong Kong citizens; (2) stable residents, such as employees of Hong Kong companies, international university students in Hong Kong, and foreign company owners; and (3) various types of unstable resident. Most of the informal brokers dealing in used cars discussed in this chapter are unstable residents. Tanzanians can stay in Hong Kong for three months without a visa, but some of them continue to stay in Hong Kong by traveling to Shenzhen or Macao prior to their visa expiration date and re-entering Hong Kong. However, since 2008, immigration regulations in China and Hong Kong have become stricter (Kurita 2016. pp.  6–8), and the strategy of re-­ entering from neighboring regions is no longer viable. Some Tanzanians staying in Hong Kong have asylum seeker certification. Asylum seekers in Hong Kong are not allowed to work and are provided with a minimum living allowance by the Hong Kong government; thus, their informal businesses as brokers are illegal. Most Tanzanians stay in inexpensive guest houses in Chungking Mansions on Hong Kong’s main street, Nathan Road (cf. Mathews 2011). Others live in the Kam Tin district, where there are many used-car shops,

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scrap yards, and secondhand electronics shops. Based in these residential areas, Tanzanians have formed their own unions, including the Tanzania Hong Kong Union and the Union of the East African Community of Hong Kong, to help each other when they face difficulties such as hospitalization, shipping of bodies of deceased members home, and resolving conflicts with the host society.

6.4   Business Practices of Tanzanian Used-Car Brokers in Hong Kong 6.4.1  Export Volume of Used Cars in Hong Kong The export volume of used cars from Hong Kong to foreign countries is small. Table 6.1 shows the number of vehicles exported from Hong Kong to the rest of the world and to Tanzania and the number of vehicles exported from Japan to Tanzania. The used-car market in Tanzania is overwhelmingly dominated by Japanese cars. The UN Comtrade database makes no distinction between new and used cars, so it is not possible to know the import volume (net weight) of used cars only. However, about 88% of all passenger vehicles in Tanzania in 2016 were imported from Japan and the remaining 12% were imported from other countries. Compared with Japan, the export volume from Hong Kong to Tanzania is very small. According to the UN Comtrade database, the largest number was 1321 vehicles used for public transportation such as passenger cars and buses exported in 2008. However, Tanzanian used-car brokers often export to Tanzania via ports in neighboring countries, such as Mombasa in Kenya. Moreover, their customers are also in other African countries, especially in East Africa. In addition, Tanzanian used-car brokers deal in used trucks and excavators used at construction sites as well as large amounts of used parts for various types of vehicles. For the purposes of this chapter, the important thing to remember is that because the Hong Kong used-car market is small and large companies have not entered into the market, the informal Tanzanian brokers can occupy this business niche.

473 367 424 395 216 174 92 130 89 Unknown 144 201 103

127 318 577 825 1293 1002 865 540 401 52 77 100 13

3 6 21 52 28 17 21 18 7 Unkown 28 34 15

Buses

Unkown Unkown Unkown 33 9 3 6 2 Unkown Unkown 2 Unkown Unkown

Unkown Unkown 21 44 167 181 73 107 59 Unkown 26 18 6

Tractors*** Transportating vehicles**** 4787 6132 6892 12,190 14,768 15,208 18,279 15,919 19,710 26,019 31,592 35,645 31,807

Passenger vehicles

Tanzania

Japan

4022 5167 5604 10,913 13,699 14,273 17,270 15,302 19,070 25,259 30,671 35,167 31,647

Used passenger vehicles#

493 644 779 681 1128 1585 1300 1169 777 1182 1281 1558 1621

107 120 205 276 466 780 1055 900 662 987 1178 1457 1588

Buses Used buses##

##HS code = 870210901,870220100,870230100,870240100,870290910

#HS code  =  870321915, 870321925,870322910,870323915,870323925,870324910,870332915,870332925,870333910,870340100,87035010 0,870360100,870370100,870380100

UN Comtrade *HS code = 8703. **HS code = 8702. ***HS code = 8701. ****HS code = 8704

Note: UN Comtrade makes distinction between new and used cars. Because there are no exports of new cars from Hong Kong to Tanzania, I referred the trade statistics data of the Japanese Ministry of Finance

34,616 33,916 26,717 29,246 36,661 38,577 34,396 31,839 30,551 35,940 21,554 18,324 Unkown

Passenger vehicles*

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Passenger vehicles

World

Importing country

Buses**

Tanzania

Hong Kong

Exporting country

Table 6.1  Exports of automobiles from Hong Kong and Japan to Tanzania

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6.4.2  Process by Which Tanzanian Brokers Export Used Cars Used-car shops and dismantlers are concentrated in the Kam Tin district of Hong Kong. Used-car shop owners and dismantlers in this area consist of Hong Kong Chinese, Chinese immigrants from mainland China, and Pakistani immigrants. They run two types of businesses: (1) importing used cars from Japan and reselling them to brokers and importers from all over the world, and (2) purchasing used cars, including scrap cars and discarded cars from mainland China, and reselling them to brokers and importers from developing countries. For example, Ismael (pseudonym), a Pakistani used-car seller involved in business type (1), had previously lived in Japan before opening a company in Hong Kong in 2016 to sell used cars imported from Japan to importers from various countries. He imports used vehicles purchased in Kitakyushu in Japan. His used cars are in good condition but expensive, so most African brokers prefer not to purchase vehicles from him. In contrast, Hassam (pseudonym), a Pakistani used-car seller involved in business type (2), purchases inexpensive used vehicles in mainland China and Hong Kong, including cars that have been involved in accidents or older cars that are ready to be scrapped. Used cars handled by this type of seller are popular among African used-car brokers. Tanzanian brokers export used cars using the following process. The capital of Tanzanian used-car brokers is the list of customers that is created individually. These customer lists include general consumers, owners of transportation companies and bus companies, as well as brokers in their home country and other African countries. Because the purchase costs of used cars are paid after receiving remittance from customers in African countries, Tanzanian brokers in Hong Kong can conduct their business without any monetary capital. Tanzanian brokers have multiple mobile phones and they fill the address books of each with customers’ information. In addition, they also interact with their customers through social media platforms, such as WhatsApp, Instagram, and Facebook. Their list of customers is not limited to their home country. Some veteran used-car brokers have customers in more than 15 countries in Africa. The business practices of these Tanzanian brokers can be categorized as follows.  ssisting Traders Coming from Africa to Hong Kong A Tanzanian brokers earn commission fees by assisting traders (importers) who come to Hong Kong to buy commodities. When they receive a

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request from a specific customer, they arrange a commercial trip for the customer. The brokers’ services include booking a flight ticket and guest house; picking the customer up at Hong Kong airport; taking the customer to used-car sellers’ shops and dismantlers’ yards; negotiating prices with sellers and dismantlers and assisting the drafting of the contracts; offering various consulting services; and transporting the cars to customer’s country. They earn a commission fee for every used car (e.g., 3% of the profit or 400 USD per used car), per transportation procedure, or per day of purchasing from customers.  perating Activities for Used-Car Sellers and Dismantlers O Some Tanzanian brokers have fixed trading relationships with Hong Kong Chinese and Pakistani used-car sellers. They are entrusted with the task of matching African customers buying specific types of vehicles with sellers in Hong Kong. In this case, Tanzanian brokers earn a profit by selling used cars at a higher price than the wholesale price of the Hong Kong sellers. Without orders from specific sellers, brokers may visit the used-car shops and dismantlers’ yards in the Kam Tin district by taxi or foot to search for specific models and types of used cars that are popular in African countries. When they find suitable used cars that can be sold, they take photos of the outsides and interiors of the cars from different angles with a smartphone and send the photos with their desired sale prices to their customers in Africa through social media platform such as WhatsApp or Facebook. When they find a buyer, they negotiate the sale prices and transportation deadline. After the negotiation is complete, they receive the deposit from the customer and pay it to the used-car sellers to secure the car for a certain period. The size of the deposit is negotiated with the sellers and is normally 5%–10% of the sale. Although the period that the car is secured by the deposit is also negotiated with the sellers, one week is typical for popular models and one month is typical for less-popular vehicles. If the customer does not pay the balance by the deadline, the Hong Kong seller keeps the deposit and is free to sell the car to another broker. After paying for the used car, the Tanzanian broker arranges the export and transport of the used car via container to ports in Africa, including Dar es Salaam Port in Tanzania and Mombasa Port in Kenya. The work of the broker is complete after sending the photos of the export documents via social media platform.

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 xport of Used Cars Ordered by Customers in Africa E Tanzanian brokers are sometimes asked by customers in Africa who they have dealt with previously to search for specific types or models of used cars within a budget and export them. When the brokers obtain an order, they go to Kam Tin district to look for the requested car. The process after they find the ordered car is same as that described in Sect. 6.4.2.2. In the next section, we describe the business difficulties that Tanzanian brokers face, and in Sect. 6.6, we explain how the new social media platform trading system overcomes the various problems.

6.5   Difficulties Encountered by Used-Car Brokers Used-car dealers and consumers in Africa import used vehicles from Tanzanian brokers in Hong Kong rather than buying from domestic shops because the cost is lower. For example, the Toyota Coaster, widely used in Tanzania as a city bus (dala dala), is sold for 36,365 USD at used-car shops in Dar es Salaam in Tanzania. If the customer hires a Tanzanian broker in Hong Kong to search for the same model of Toyota Coaster and export it, they can obtain it for a total of 24,250 USD, which includes transportation (2000 USD), repairs (1050 USD), tax (8200 USD), and broker fees (1000 USD). In Tanzania, since 2012, used cars that are eight or more years old have had a 20% excise duty imposed on them (Asazuma 2014, p. 124). Both brokers and customers are concerned about the model and manufacturing date, but they do not care about the mileage and condition of used cars. In Hong Kong, brokers purchase used cars with price as their priority, so they prefer used cars with scratches and dents or those that have broken down because repairs are inexpensive in their home country. The Tanzanian brokers I interviewed stated that the business of brokers was good until around 2009. Previously, they made a minimum profit of 3000 USD per month and a maximum of 10,000 USD. However, in the 2010s, as the number of African used-car brokers increased and customers in African countries started to import cars directly from the Hong Kong used-car sellers without using brokers, their business began to decline. The difficulties that Tanzanian brokers in Hong Kong have can be categorized as follows: (1) problems arising from increased competition with other brokers; (2) potential conflicts of interest between brokers and Hong Kong used-car sellers; and (3) problems arising from a lack of trust with customers in African countries.

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The following problems are caused by competition with other brokers. The biggest problem is the difficulty of finding the specific models and types of used cars or parts ordered by the customer and finding customers to buy the specific model and types of used cars available from the Hong Kong sellers. It is also difficult for brokers to obtain a constant flow of regular orders from customers. According to veteran used-car brokers who have stayed in Hong Kong since 2004, this problem has arisen because the number of African brokers staying long term in Hong Kong as asylum seekers has been increasing since the late 2000s. Brokers from East African countries have formed a union in Hong Kong and assist each other in difficult situations, such as illness and death. However, they remain independent self-employed brokers and they do not share customer information, which is regarded as the brokers’ capital. Following a loose social norm, they tend to avoid poaching customers from fellow brokers; however, in practice, some brokers poach customers by offering cheaper commission fees. In addition, the brokers say that finding popular models of used cars has become difficult as a result of competition with other brokers, and the prices have been raised by Hong Kong sellers who realize that the competition among brokers is high. During the Lunar New Year (Chinese New Year), it is particularly difficult to find the ordered types and models of car because many used-car sellers are closed for nearly a month. Consequently, most used-car brokers cannot rely on used cars alone as their business. They also deal in used tires and spare parts, used home appliances, televisions, and furniture. In Kam Tin district, there are shops dealing in various used products, and some used-car shops and dismantlers also sell used home appliances. Containers transported by Tanzanian brokers are usually packed with various items to avoid wasting space (Tables 6.2 and 6.3). The second problem is that the payment deadline set by Hong Kong sellers is strict, so the Tanzanian brokers often cannot collect the outstanding balance for the car from customers in Africa by the deadline. Tanzanian brokers receive their commission fees from the customer when they complete the transaction, and thus if the customers do not meet the deadline, the brokers do not get their commission fee and have wasted their time and effort searching for the specific model and type of used car. Used-car sellers and dismantlers in Hong Kong used to allow brokers to reserve a car for several months, but they have shortened the payment deadline because of the increase in the number of brokers.

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Table 6.2  Commodities exported by a broker (November 11, 2016) Items 1

Number

Used vehicle (Toyota Coaster·2001 model·white/blue) Used vehicle (Toyota RAV4·1995 model·blue) Used sofa Used refrigerator Used washing machine Used office chair Used wheel chair Used front bumper(Toyota) Used front head light and grill, shock(Toyota) Used exercise bicycles

2 3 4 5 6 7 8 9 10

1 1 2 2 1 4 4 1 2 2

Note: Data were obtained from the broker’s export procedure documents

Table 6.3  Items purchased by a trader on March 20, 2018 Items 1 2 3 4 5 6 7 8 9 10 11

Used truck (Mitsubishi Fuso Canter) Spare parts of used bus (Scania) Used oven Used microwave oven Used large juicer Used food incubator Used toy cars Used steel vase Used side table Car accessories Secondhand electric pot

Number

Price (USD)

2 1 1 1 1 1 2 1 1 1 1

7000 3480 26 19 26 102 13 13 26 19 8

Note: Data were collected by observation of a trader’s purchasing activity

There are potential conflicts of interest between Tanzanian brokers and the Hong Kong Chinese and Pakistani used-car sellers and dismantlers in Hong Kong. Used-car sellers and dismantlers in Hong Kong usually regard African brokers as important business partners who do their marketing and attract customers. In fact, African brokers provide useful information to their suppliers, including what models and types of cars are popular and information on import restrictions in African countries. When

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Tanzanian brokers visit the offices of sellers and dismantlers, they are often shown hospitality with tea and food. However, there are many points where the interests of the brokers and sellers do not match, as demonstrated by the following cases. 6.5.1  Case 1 Ismael, a Pakistani used-car seller, frequently urges Tanzanian brokers to establish an exclusive contractual relationship with him. This is because some brokers may sell to their customers at a much higher price than Ismael. For example, a broker to whom Ismael sold a used car at 15,000 USD earned a profit by purchasing the same model of used car at 5000 USD from a dismantler and sold it to the customer by claiming that the car was imported directly from Japan by Ismael. This behavior by the broker damages the reputation of Ismael, who tries to import used cars in good condition. 6.5.2  Case 2 A used-car broker K in Hong Kong received an order for a total of eight used vehicles, comprising six Toyota Coasters and two trucks, from Mr. S, an owner of a city bus company in Tanzania. At this time, broker K decided to purchase six Toyota Coasters from Pakistani sellers by paying a deposit and selling them as his own commodities directly to his customer, Mr. S. If broker K pays the deposit to the Pakistani sellers and then acquires the six vehicles, he can set the sale price to Mr. S freely. Broker K could then earn a profit for each vehicle in addition to the commission per vehicle. However, the reason that broker K tried to sell the used cars directly to Mr. S was not only to obtain the extra profits but also to line up a continuous flow of regular orders from Mr. S. Unlike general consumers, in his capacity as an owner of a city bus company, Mr. S is more likely to order vehicles on a regular basis. If broker K took Mr. S to the offices of the Pakistani sellers and let them negotiate directly, they might establish a relationship, and Mr. S would not need broker K again and could save on commission fees. Broker K complained that Pakistani suppliers have seized 70% of the African customers that he introduced. As shown in the above cases, Hong Kong used-car sellers and dismantlers want to expand their networks with African customers without using brokers. Some Pakistani sellers who have established trusting relationships

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with African customers through broker mediation have opened branches in African cities, including Dar es Salaam, Kampala, and Nairobi. The last problem is the lack of trust between brokers in Hong Kong and customers in Africa. Most Tanzanian brokers in Hong Kong are in the informal sector; that is, they are illegal workers within the Hong Kong legal system. Furthermore, some African immigrants in Hong Kong are involved in the trade of illegal commodities such as drugs and counterfeit goods. Tanzanian brokers are always at risk of arrest and imprisonment or forced repatriation. Therefore, it is potentially risky for customers in Africa to order used cars from brokers in Hong Kong. If the broker is arrested before completing the export, there is no way for the customers in Africa to recoup their money. In addition, some Tanzanian brokers exploit the information asymmetry with customers to commit fraud. It is hard to determine the quality of secondhand products in general until after purchase, and there is considerable information asymmetry between brokers and consumers. In fact, frequent problems occur, such as being sold a used car at a much higher price than market price, receiving a used car with a different manufacturing year from the ordered car or a car lacking parts, and the car not being transported on the promised date. However, it is difficult for the customer in Africa to obtain information on the market price and condition of the used car or about trustworthy brokers without traveling to Hong Kong themselves. It is also difficult to get brokers to exchange the item or refund the money. The Tanzanian brokers also face various problems, such as the customer not remitting deposits or the remaining balance and being asked for a refund for spurious reasons such as small scratches on the car.

6.6   Development of a Used-Car Trading System Through Social Media Platform 6.6.1  TRUST Business Platform Tanzanian brokers began to focus on trading through social media platforms to solve these problems and improve their business. They routinely communicate with family and friends in their home country through social media platforms, and they use services such as WhatsApp and Instagram to perform transactions with their customers and create group pages on for union activities. Brokers have also started to use these group pages for their own businesses.

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At the end of 2016, the brokers launched a platform called TRUST using Instagram and Facebook. East African brokers in Hong Kong and their customers (e.g., owners of transportation companies in East African countries that speak Swahili), use this platform to provide information. East African brokers in Hong Kong post pictures and the minimum selling price of vehicles that they have found in sellers’ shops or dismantlers’ yards in Hong Kong on their Facebook and Instagram accounts, which are linked together. Brokers who have found buyers and regular customers in Africa post the purchase price on these accounts. When there are two or more purchasers, the brokers in Hong Kong sell the item to the broker or customer who posted the highest price. When the sales channels are decided but the customer in Africa cannot pay the purchase cost immediately, the broker in Hong Kong calls on a kind of crowdfunding from the platform’s users. For example, a Tanzanian broker in Hong Kong posts a Toyota Coaster with a minimum price of 4000 USD. Broker A in Tanzania then bids 5000 USD before broker B in Uganda bids 6000 USD. The broker in Hong Kong decides to sell the item to broker B. If broker B cannot pay the purchase cost by the supplier’s deadline, the broker tries to collect the purchase cost through crowdfunding. Four users participating in the platform send 1000 USD each to the mobile money account of the broker in Hong Kong, who then purchases the Toyota Coaster in one payment. The broker in Hong Kong collects the money from broker B in Uganda and then distributes a portion of the profits to the crowdfunding investors. In this case, the profit of the Tanzanian broker is 2000 USD, of which half (1000 USD) goes to the Tanzanian broker in Hong Kong and the broker in Uganda, and the other half of the profit is split between the four investors, who get 250 USD each. Brokers and regular customers in East African countries also post pictures of cars that they wish to buy on social media platform, with a maximum purchase price and an export deadline. In this case, brokers in Hong Kong try to find the car at a cheaper price than the purchase price. If there are several brokers in Hong Kong who find the model and type of car, the broker in East Africa decides to buy the item from the broker who offers the lowest price.

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6.6.2  Construction of an Informal Cash Remittance System The TRUST system is backed by an informal remittance system. Brokers in Hong Kong used to use international money transfer companies such as Western Union and MoneyGram to collect the purchase costs from their customers in Africa. However, because the commission fees of these formal money transfer companies are high, the brokers have built their own remittance system. In Chungking Mansions, there is an informal remittance agent known by the nickname Baganda. He has business partners in Uganda, Tanzania, and Kenya. When broker C in Hong Kong collects the purchase cost of a used car from broker D in Tanzania, the remittance procedure is as follows. Tanzanian broker D sends electronic money to a business partner of Baganda in Tanzania through the remittance service by using a mobile account provided by a local communication company in Tanzania such as M-Pesa or Tigo-Pesa. Baganda’s business partner then sends a short message to Baganda that he has received the fees from broker D.  Baganda immediately gives the purchase price in Hong Kong dollars to broker C. The money that Baganda paid to Hong Kong broker C is the same as what he is given by the African gemstone company in Hong Kong. The money sent from Tanzanian broker D to his business partner is remitted to the Tanzanian branch of a Hong Kong gemstone company and is used to purchase gemstones in Tanzania (Fig. 6.2). Tanzania

Hong Kong

E-money (Tanzania shillings)

Partner of Baganda

Used-car broker

Baganda

E-money (TZS)

Cash(TZS)

Cash (HKD)

Informaon

Cash (HKD)

Informaon

Buying gemstones in Tanzania shillings Gemstone company branch office

Fig. 6.2  System of informal remittance

E-money (HKD)

Profit from selling Gemstones(HKD) Gemstone company in Hong Kong

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This informal remittance system is made possible by cooperation between the two parties with supply and distribution routes in opposite directions. The gemstone company in Hong Kong purchases gemstones in shillings in East African countries and obtains the profit in Hong Kong dollars. In contrast, the used-car brokers in Hong Kong purchase used cars in Hong Kong dollars and obtain the profit in shillings. The Hong Kong gemstone company has to change some of the profit earned in Hong Kong dollars to shillings and transfer it to African countries, but if they use the money transferred from used-car buyers to Baganda’s business partner to purchase gemstones in East African countries, they can avoid exchange and remittance fees. Therefore, the gemstone company entrusts a certain amount of their profits to Baganda to be used to pay for the used-car brokers in Hong Kong. Baganda sets a low commission fee because he does not transfer the money between Hong Kong and East African countries. Through this informal remittance system, the used-car brokers in Hong Kong collect purchase money and money raised through crowdfunding quickly and inexpensively. 6.6.3  Characteristics and Advantages of Using TRUST TRUST is a social media platform that provides connections between brokers who want to sell commodities and brokers and customers who want to buy commodities. The brokers in Hong Kong can find used-car buyers regularly from the brokers’ personal networks. The brokers and consumers in Africa can choose used cars according to their own preferences and budgets from among the cars handled by almost all East African brokers in Hong Kong. This is the first advantage of using TRUST. Second, TRUST is a platform that enables individual-based crowdfunding through its informal remittance system. All users of this platform can be both investors and fundraisers. Because brokers in Hong Kong can make lump-sum payments through crowdfunding, they can collect the purchase costs from their customers in Africa without worrying about the payment deadline set by the used-car sellers and dismantlers in Hong Kong. In addition, the brokers can decide to sell the car to the customer who posts the second-highest bid if the first customer does not pay on time, thereby avoiding a lot of wasted effort. Furthermore, brokers who do not find used cars or buyers can earn dividends by investing in crowdfunding, allowing them to stabilize their lives in Hong Kong and Africa.

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Third, by participating in TRUST, Hong Kong brokers can understand the requirements of consumers in African countries and reduce the labor cost of finding good items. The brokers and customers in African countries understand the condition and market prices of used cars sold in Hong Kong and can avoid being deceived. Fourth, TRUST is a platform intended to reduce transaction costs, especially those related to trust between dealers in Hong Kong and their customers in East African countries. The whole transaction process of TRUST is open to an unspecified number of users. Unlike the closed transaction between a seller and a buyer, the details of a transaction and the money transfer can be traced in the event of defaults or other problems. However, the method of gauging the trustworthiness of potential business partners on TRUST differs from similar free market or auction site business platforms. These professional business platforms usually have a system for evaluating the merchants through user comments and star ratings. In contrast, TRUST uses social media platform such as Instagram and Facebook, and all brokers using the site are regarded as “friends” in a broad sense. TRUST does not have an evaluation economy (cf. Okada 2011) because rating friends according to their trading performance is regarded as incompatible with friendship. In addition, the past trading performance of specific brokers does not ensure good results in the future because the brokerage business is unstable due to the speculative nature of the market in both Hong Kong and Africa, and their social status in Hong Kong is also highly unstable. Therefore, users of the platform value the tentative trust and the personal preferences of brokers gained from tweets and photos about the everyday lives of the brokers that are posted on Instagram and Facebook. The brokers in Hong Kong document their daily activities, including generous acts such as helping unknown commercial travelers, contributing to the activities of their union, and donating to fellow brokers who have lost capital. These posts create a personal reputation and tentative trust in certain brokers, characterized by statements such as “We see him in lots of photos of parties in Hong Kong, so he seems to be well liked” and “Many people have posted their appreciation of her. She seems to be rich enough to help her friends” so that “she would not betray me.” In other words, the brokers in Hong Kong have to do good deeds in Hong Kong East African society to gain trust and obtain orders from customers on TRUST.  In this sense, TRUST is not only a platform for trading used cars between Hong Kong and African countries but also a safety net for Hong Kong brokers living unstable lives.

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6.7   Conclusion In this chapter, we describe the ordinary business practices of Tanzanian used-car brokers in Hong Kong, the difficulties they face, and the new trading system they created using social media platforms in order to overcome these difficulties. We consider the similarities between informal used-car trading and the sharing economy that has recently attracted attention due to the development of new technologies. TRUST is a type of collaborative commons or sharing economy platform through which East African brokers in Hong Kong and their customers in Africa share information on available products and sales channels and collaborate to stabilize their businesses and lives. Social media platform, which TRUST is based on, was used by families and friends to communicate in their home countries, to create a personal customer network via social capital, or for union activities in Hong Kong. ICT, in this case social media platform and electronic money, are convenient tools for businesses enmeshed in a horizontal network of self-employed entrepreneurs rather than for organizational businesses or fixed-transaction partnerships connecting Asian and African business people. In other words, social media platforms have great potential for sellers and buyers who are located in geographically distant places and have difficulties building strong trusting relationships for developing used-commodity businesses that have features such as information asymmetry between buyers and sellers. Rather, ICT and the electronic money remittance services will be essential tools for the informal sector around the world as people pursue their own niche businesses in the global market. These tools can also be used to pursue somewhat dubious, gray market businesses, such as dealing in used cars in poor condition and various counterfeit and knock-off goods. These businesses have sprung up in response to the demands of poor residents in African countries and other developing countries, the need for survival, and the desires of ambitious immigrants to better themselves. These values are also the driving force of their sharing economy, which differs from the sharing economy platforms that have focused on the effective use of unused items or idle spaces and time. Stabilizing individual business by creating a platform or collaborative commons is a means for living with others. This is a characteristic that informal economies all over the world share, where individuals coexist and are interdependent by sharing small niches in markets and creating horizontal networks.

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References Asazuma, Yutaka. 2014. “Chukosha, chukobuhin no kokusai ryutsū” [International Circulation of Used-car and Car-parts]. In Kokusai ryutsū to hatsutentojoukoku [International Reuse and Developing Countries]. Edited by Michikazu Kojima. Chiba: Institute of Developing Economies. Botsman, Rachel, and Roo Rogers. 2010. What’s Mine Is Yours: The Rise of Collaborative Consumption. New York: Harper Collins Publishers. Kurita, Kazuaki. 2011. Ajia de deatsuta afurikajin: Tanzaniajin kouekinin no idou to komyunitī̄ [Africans Met in Asia: Migration of Tanzanian Traders and Community]. Kyoto: Showado. Kurita, Kazuaki. 2016. “Idousurumono kara mita imin komyunitī: Koushū no tanzaniajin wo jireini” [Immigrant Community from a Viewpoint of Immigrants: A case Study on the Tanzanian Traders in Gaungzhou]. In Ryudousuru imin shakai: Kantaiheiyouchiiki wo meguru hitobito [Flowing Immigrant Society: Traveling the Asia Pacific Basin], edited by Kazuaki Kurita. Kyoto: Showado. Kurita, Kazuaki. 2018. “Hito no idou no fuhensei: Teijūsha no shiten wo hanarete” [Universality of Migration: Beyond the Perspective of Settler]. In Idou to imin: Fukusū shakai wo musubu hitobito no doutai [Immigration and Immigrants: The Dynamism of the People Connecting Multiple Area], edited by Kazuaki Kurita. Kyoto: Showado. Mathews, Gordon. 2011. Ghetto at the Center of the World: Chungking Mansions, Hong Kong. Chicago: University of Chicago Press. Mathews, Gordon., Gustavo L.  Ribeiro., and Carlos A.  Vega. eds. 2012. Globalization from Below: The World’s Other Economy. London: Routledge. Mathews, Gordon., Linessa D.  Lin., and Yang Yang. 2017. The World in Guangzhou: Africans and Other Foreigners in South China’s Global Marketplace. Chicago: University of Chicago. Matsushima, Satoshi. 2016. UX no jidai: IoT to shearingu wa sangyō wo dou kaerunoka [The Era of UX: How IoT and Sharing Change the Industries]. Tokyo: Eiji Shutsupan. Moulier-Boutang, Yann. 2011. Cognitive Capitalism. Cambridge: Polity Press. Müller, Angelo, and Rainer Wehrhahn 2013. “Transnational Business Networks of African Intermediaries in China: Practices of Networking and the Role of Experimental Knowledge.” Journal of Geographical Society of Berlin 144 (3):82–97. Neuwirth, Robert. 2011. Stealth of Nations: The Global Rise of the Informal Economy. New York: Random House Inc. Okada, Toshio. 2011. Hyoukakeizaishakai: Bokutachi wa sekai no kawarime ni tachiatsuteru [Evaluation Economic Society: We are Present at the Turn of the World]. Tokyo: Diamond-sha.

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Ogawa, Sayaka. 2016. Sonohigurashi no jinruigaku: Mouhitotu no shihonshugikeizai [Anthropology of Living for Today: Another Capitalist Economy]. Tokyo: Koubunsha-shinsho. Rifkin, Jeremy. 2014. The Zero Marginal Cost Society: The Internet of Things and the Rise of the Sharing Economy. New York: Palgrave Macmillan Sundararajan, Arun. 2016. The Sharing Economy: The End of Employment and the Rise of Crowd-based Capitalism. Translated by Hironori Kadowaki. Tokyo: Nikkei-BP sha. Yamamoto, Taizo. ed. 2016. Ninchi shihonshugi: 21seiki no poritikaru ekonomı ̄ [Cognitive Capitalism: The Political Economy of 21st Century]. Kyoto: Nakanishiya Shutsupan.

CHAPTER 7

International Trade of Used and Retread Tires Michikazu Kojima

7.1   Introduction Used tires are internationally traded, with some subject to direct reuse and others used as cores for retread tires. Retread tires are tires manufactured from used tires by replacing the old tread with new tread, and these tires are also internationally traded. Such international trades contribute to improving resource efficiency and decreasing transportation costs in importing countries. However, importation of worn-out used tires may pose safety problems. For example, if an importing country’s car inspection system does not function well, then worn-out used tires could be imported, thereby leading to accidents in the importing country. The international trade of used tires can also cause transfer of mosquitos and could lead to the introduction and eventual spread of vector-borne diseases in importing countries, such as dengue fever. Reiter and Sprenger (1987) reviewed the history of the used tires trade and pointed out that the international trade

M. Kojima (*) Inter-Disciplinary Studies Center, Institute of Developing Economies, Chiba, Japan e-mail: [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_7

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of used tires is a mechanism for the worldwide dispersal of mosquitoes as a vector for disease. They noted that imports of mosquito larvae in tires had been reported as early as the mid-1940s. Problems such as these caused by used tires are the reason behind the prohibition of used tires imports. Various used goods are traded internationally but most have not been recorded separately from new products in trade statistics, including most remanufactured goods. However, tires are an exception to this practice. In trade statistics, the volumes and values of used and retread tires have been recorded separately from those of new tires in trade statistics, but the cores of retread tires have not been distinguished from the cores of retread tires that have been manufactured from used tires. This chapter reviews trade statistics for used and retread tires since 1990 and identifies factors affecting the trade flows. The key factors are income level, trade restrictions, car inspection systems, and road conditions. The impacts of these factors differ according to tire type. This chapter also discusses the effectiveness, justification, and impact of trade restrictions. Also discussed is appropriate trade policy on used and retread tires from the viewpoints of global resource efficiency and safety. This chapter is structured as follows. Section 7.2 explains data on trade statistics and trends in the international trade of used and retread tires between 1990 and 2015. Section 7.3 addresses trade restrictions of used tires and retread tires in developing countries. Section 7.4 discusses factors affecting export and import of used and retread tires, including measures other than trade restrictions. Section 7.5 discusses appropriate policies on trade restrictions for used and retread tires.

7.2   International Trade of Used and Retread Tires 7.2.1  International Trade Statistics of Used and Retread Tires The code of trade statistics for used and retread tires has been revised several times, according to contemporary changes in trade items and interests.1 This chapter uses trade statistics extracted from UN Comtrade,2  Yamamoto (1995) explains the developments of commodity classification.  UN Comtrade covers three trade statistics codes: Harmonized Commodity Description Coding System (HS), Standard International Trade Classification (SITC), and Broad 1 2

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a database of global trade statistics, and discusses how trade of used and retread tires has changed since 1990. In the 2002 edition of the UN Comtrade’s Harmonized Commodity Description Coding System (i.e., the Harmonized System: HS), retread tires were classified into four types: passenger cars, buses or trucks, aircraft, and others. Each country has gradually started to adopt at different timings the latest version of the Standard International Trade Classification (SITC) or HS. The trends of international trade in used and retread tires since 1990 are described in this section. In addition, among the 2002 HS classifications, the “others” category includes retread tires used in agricultural, forestry, and construction machinery. Trade statistics of different types of retread tires after 2005 are described in the following sub-section. The creation of specific SITC and HS tires indicates that the international trade of used and retread tires has been increasing in popularity over the past 30 years. The following sub-sections examine import and export of retread tires for passenger cars, buses, trucks, and aircraft from 1990 to 2015. 7.2.2  Trends in International Trade of Used and Retread Tires Worldwide trade volume can be viewed in either of two ways: imports and exports. Developing countries, which are net importers of used and retread tires, do not tend to submit trade statistics to the UN. Instead, total volumes can be captured by examining export data because most developed countries are exporters of used and retread tires, as will be shown later. The export volumes of both used and retread tires have increased approximately two-fold between 1990 and 2015 (Fig. 7.1). Also, the volume of exported used tires exceeds that of exported retread tires by approximately two-thirds. However, export values of used and retread tires remained at almost the same level until 2000, when the export value

Economic Category (BEC). SITC and HS have been revised a number of times. Among these codes, HS has separately recorded used and retread tires from its first (accepted in 1985) to fourth (accepted in 2006) revised editions. SITC classified used and retread tires under categories such as “tires, not elsewhere specified,” together with “tires of agricultural machines,” and “vehicles of construction machinery” until its second revised edition (accepted in 1975). Also, BEC classifies used and retread tires using the same code, which cover parts of transportation equipment and accessories.

M. KOJIMA

700

700

600

600

500

500

400

400

300

300

200

200

100

100

0

1990

1995

2000

2005

2010

2015

Retread tires(USD: left axis)

Used tires(USD left axis)

Retread tires(tons: right axis)

Used tires(tons: right axis)

Thousand tons

Million USD

156 

0

Fig. 7.1  Exports of used and retread tires (values and volume). (Source: Compiled by the author based on data from UN Comtrade)

of retread tires exceeded that of used tires. Thus, the export value of retread tires has increased more rapidly than that of used tires. 7.2.3  Exporting and Importing Countries of Used Tires Japan is the top exporting country of used tires, reaching 107,000 tons in 2015. Of world exports, Japan comprises about 18.5%. The Netherlands, Germany, France, and the United States comprise the next largest exporters (Table  7.1), followed by developed countries, including Spain, Belgium, Switzerland, South Korea, and Italy. Among middle-income countries, China (11th), Malaysia (13th), and Indonesia (17th) rank relatively high among exporting countries. This ranking is based on the volume of exports excluding re-exports. If re-exports are included, then the United Arab Emirates (UAE) is the third largest exporting country of used tires, having exported 60,000 tons of used tires worth 190 million USD. Its volume of re-exports and exports are almost same. The UAE’s export destinations in 2015 included Iran, Kazakhstan, Afghanistan, India, and Pakistan. The UAE is the transshipment hub for used tires trade to the Middle East, Central Asia, and South Asia; its generation of used tires is limited. In 2015, the export volume of

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Table 7.1  Top five exporting countries of used tire by volume (2015) Rank Country

Units of exported used tires

Volume of exported used tires (tons)

Total value of exported used tires (thousand USD)

1 2

n.a. 386,120

107,975 67,752

n.a. n.a. 216,534 n.a.

42,237 31,688 27,515 584,567

3 4 5

Japan The Netherlands Germany France USA Total

Per unit value (USD/ unit)

Average weight (kg)

91,997 67,753

n.a. 17.5

n.a. 14.9

42,238 31,689 37,593 432,920

n.a. 12.7 n.a 9.4

n.a. 17.4 n.a. 12.3

Note: Average weight is calculated from the data of countries that record both number and volume Source: Compiled by the author based on data from UN Comtrade

Table 7.2  Top five importing country of used tires by volume (2015) Rank Country

1 2 3 4 5

USA Germany The Netherland Thailand France Total

Units of imported used tires

Volume of imported used tires (tons)

Total value of imported used tires (thousand USD)

Per unit value (USD/ unit)

Average weight (kg)

3,122,208 954,529 1,699,456

54,859 49,344 25,281

55,023 47,388 46,525

17.6 49.6 27.4

17.6 51.7 14.9

152,075 796,058 19,548,152

44,295 32,094 518,008

44,428 39,520 511,002

292.1 49.6 26.1

291.3 40.3 26.4

Note: Average weight is calculated from the data of countries that record both number and volume Source: Compiled by the author based on data from UN Comtrade

used tires from Japan to the UAE reached 18,000 tons, whereas the UAE imported only 60 tons of used tires from Japan. This indicates that most of the used tires exported from Japan to the UAE were likely re-exported to the above-mentioned surrounding countries. The top importing countries are developed countries such as the United States, Germany, and the Netherlands (Table 7.2). Thailand is the fourth highest importing country, but the average weight and price of its imports differ substantially from those of other countries. The average price of

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Table 7.3  Net importer and net exporter countries of used tires

Net importers Net exporters

Low-income countries

Lower middle-­ income countries

Upper middle-­ income countries

High-income countries

18

31

26

23

0

5

6

35

Note: In total, data of 148 countries are available from the data source. However, four countries did not export or import used tires, and are therefore excluded from this table Source: Compiled by the author based on data from UN Comtrade

used tires imported by Thailand is approximately ten times that of other countries, and the average weight per tire is 291 kilograms, which is heavier than the average of approximately 17–52 kilograms of other importing countries. This difference is due to the large quantity of used aircraft tires. Thailand has become a manufacturing base for retread aircraft tires. Imported used tires are used as cores for retread tires. As a result, the average weight of used tires imported by Thailand is higher than that imported by other countries (see also Sub-sect. 7.2.5). Lower income countries tend to be net importers of used tires. All low-­ income countries are net importers of used tires and 31 of 36 lower middle-­income countries are net importers of used tires (Table 7.3). On the other hand, 35 of 58 high-income countries are net exporters of used tires. Per capita income, which indicates affordability to buy new tire, can explain why lower income countries tend to be net importers. There are other factors to consider concerning the import and export of used tires. Net import and export of used tires are affected by import restrictions, road conditions, car inspection systems, and the presence of retread tire producers, as discussed in Sects. 7.3 and 7.4. 7.2.4  Importing and Exporting Countries of Retread Tires for Passenger Cars Retread tire exports for passenger cars have traditionally flourished in Europe. The top exporting countries in 2005 included Italy, Spain, the United Kingdom, France, Germany, and other Western European countries (Table 7.4).

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Table 7.4  Exports of retread tire for passenger cars (Value) 2005 Country

2010

2015

Thousand USD

Country

Thousand USD

Country

Thousand USD

1 Italia 2 Spain 3 UK

16,991 7638 6357

UK Spain Italia

11,101 9568 5712

12,780 10,864 10,265

4 France 5 Germany World Total

3767 3029 57,453

China Portugal World Total

5418 5369 64,188

Indonesia Spain The Netherlands UK China World Total

7599 3963 55,077

Note: Used data on exports extracting re-export Source: Compiled by the author based on data from UN Comtrade

Since 2005 through 2010, European countries remained the top exporting countries, but China was the fourth highest exporting country in 2010 and the fifth in 2015. Also, Indonesia was the top exporting country in 2015. The increase in retread tire exports in Indonesia in 2015 was rather sudden. In 2014, only 2055 units of retread tires for passenger cars were exported, worth 70,000 USD.  However, 2015 saw an increase to 356,250 units, worth 1.278 million USD. This sudden increase in retread tire exports was due to the Land Transport Bureau of the Department of Transportation in Indonesia promulgating a new regulation prohibiting the use of retread tires on public roads due to safety problems. As a result, Indonesia began exporting retread tires manufactured there. The Indonesian Tire Association announced its opposition to this domestic ban on the use of retread tires and requested that Indonesian Industrial Standards be applied to retread tires instead of having a total ban on their use. In March 2017, the National Planning Agency of Indonesia enacted a policy that called for expanding the scope of domestic standards for retread tires from commercial vehicles to passenger cars (NNA Asia, March 29). However, exports sharply declined to 2604 units in 2016, which was almost at the same level as in 2014. It can be said that Indonesia’s ranking as the top exporting country of retread tires in 2015 was only temporary.

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Let us now examine importing countries of retread tires for passenger cars. in 2005. Brazil was the fourth highest importing country after European countries, but by 2015, Afghanistan was the top importing country and Ethiopia ranked fifth (Table 7.5). However, examination of statistics from exporting countries on retread tires reveals that the export volume to Afghanistan was small. Therefore, it is a high likelihood that used tires were being imported into Afghanistan under the guise of retread tires. Similar to France and Germany in 2005 and the Netherlands and Spain in 2015, several countries were ranked highly as both importing and exporting countries. Many countries export and import retread tires for passenger cars. The background for this is that there are various types of tires, even for passenger cars. The location of retread factories may vary depending on passenger car type. Furthermore, gaps in supply and demand may exist in different places and for different tire types. Therefore, it is believed that trade likely occurs in such contexts.

Table 7.5  Imports of retread tire for passenger car 2005

2015

Rank

Country

Imports (ton)

Imports (thousand USD)

Country

1 2 3 4 5

France Germany Austria Brazil Ireland World total

2863 2234 2204 1666 1430 27,993

6626 5476 6223 1737 4878 56,179

Afghanistan The Netherlands France Spain Ethiopia World total

Imports (ton)

4607 1330 1101 520 19,457

Imports (thousand USD) 44,713 15,614 4465 3713 2917 96,114

Note: According to the UN Comtrade database, Afghanistan was the country with the highest value of tire imports in 2015. The data for exporting countries show that South Korea was the only country exporting retread tires to Afghanistan in that year. The quantity of exports from South Korea was only 455 units, worth 16,330 USD. However, a search for used tires reveals exports from several countries, such as those from the UAE to Afghanistan worth 124.9 million USD. An examination of unit prices reveals the possibility that used tires are being traded under the guise of retread tires, even though used tires are not extremely inexpensive in other countries Source: Compiled by the author based on data from UN Comtrade

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Table 7.6  Net importing and exporting countries of retread tires for passenger cars in 2015

Net importers Net exporters

Low-income countries

Lower middle-­ income countries

Upper middle-­ income countries

High-income countries

19 0

28 5

23 8

26 26

Note: In total, data on 148 countries are available from the data source. However, eight countries did not export or import used tires, and are therefore excluded from this table Source: Compiled by the author based on data from UN Comtrade

In addition, in the case of re-exported goods, imports and exports are sometimes recorded. Trading hubs include Hong Kong, Belgium, and the Netherlands. Re-exported goods may be another reason why some countries are ranked highly as both importing and exporting countries. Similar to the case of used tires, all low-income countries were net importers of retread tires in 2015. (Table  7.6). Of 31 lower middle-­ income countries, 23 were net importers of retread tires for passenger cars. Of 52 high-income countries, 26 were net exporters of retread tires. 7.2.5  Imports and Exports of Retread Tires for Buses and Trucks The total value of international trade of retread tires for buses and trucks is larger than that for passenger cars. Retread tire exports in 2015 reached 310,000 USD, whereas that of passenger cars reached only 55,000 USD. Users of retread tires are uncertain of their quality and buyers find it difficult to evaluate their quality. However, bus and truck companies use retread tires and have long-term contracts with retread tire suppliers. Therefore, these suppliers have an incentive to ensure that the quality of retread tires is high in order to maintain the long-term contracts. The top importing and exporting countries of retread tires for buses and trucks were mainly European countries. Germany was the top importing and exporting country, followed by France in 2005, 2010, and 2015. Germany accounts for more than a third of world exports of retread tires, with an export value more than double that of France. South Korea was the only Asian country ranked in the top five exporting countries of retread tires, coming fourth in 2005 and fifth in 2015.

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European counties occupied all top five spots for importing and exporting countries of retread tires for buses and trucks in 2005 and 2015. It can thus be said that production and consumption of retread tires for buses and trucks flourished in Europe. Most developing countries were net importers of retread tires for buses and trucks in 2015 (Table 7.7). Approximately one-third of upper middleand high-income countries were net exporters of retread tires. 7.2.6  Imports and Exports of Retread Tires for Aircraft European countries have also exported retread tires for aircraft, with. Belgium ranked as the top exporting country in 2005, 2010, and 2015 (Table 7.8). However, exports in Belgium decreased in 2015 compared with 2010, whereas exports in Thailand and France substantially increased, with the difference between those countries and Belgium shrinking. Table 7.7  Net importing and exporting countries of retread tires for buses and trucks in 2015 Low-income countries

Lower middle-­ income Countries

Upper middle-­ income countries

High-income countries

20 0

26 5

19 10

34 18

Net importers Net exporters

Source: Compiled by the author based on data from UN Comtrade

Table 7.8  Top five countries in export value of retread tires for aircraft 2005

1 2 3 4 5

2010

2015

Country

Thousand USD

Country

Thousand USD

Country

Thousand USD

Belgium Thailand France UK USA World total

26,412 9048 8743 4592 4494 64,428

Belgium France Thailand UK The Netherlands World total

41,771 14,442 13,606 8344 2741 90,154

Belgium Thailand France The Netherlands UK World total

40,922 23,084 21,680 21,339 17,413 169,445

Note: Used data on export to extract re-exports Source: Compiled by the author based on data from UN Comtrade

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Table 7.9  Top five countries in import of retread tire for aircraft 2005

2015

Rank Country Volume of import of retread tires (tons)

Value of import of retread tires (thousand USD)

Country

Volume of import of retread tires (tons)

Value of import of retread tires (thousand USD)

1 2 3

455 1489 589

7625 3876 3087

China UK Turkey

3952 2578 977

43,034 11,213 10,118

593 523 7889

3022 2747 41,488

Australia 635 Canada 445 World 16,339 Total

4 5

UAE France Hong Kong Spain Canada World Total

4949 4329 129,000

Note: In 2005, Malaysia was 6th, Macao was 7th, and India was 8th. In 2015, the UAE was 6th, the Netherlands was 7th, and India was 8th Source: Compiled by the author based on data from UN Comtrade

The value of exports from Thailand has increased remarkably, reaching 23.1 million USD in 2015, which was 2.5 times that in 2005. The fact that the origin import is Thailand means that import from bonded area in Thailand. However, the UAE was the top importer of retread aircraft tires in 2005, and China was the top in 2015, with several more countries outside Europe ranking within the top ten (Table 7.9). 7.2.7  Overview of Trend in International Trade of Used and Retread Tires This sub-section reviews the international trade of used and retread tires from 1990 to 2015. International trade of used and retread tires has grown in both value and volume, with developing countries basically importing both types of tires. More than half of developed countries are net exporters of used tires, whereas only a limited number export retread tires. Some middle-income countries have become net exporters of retread tires, such as China, Thailand, and Brazil. One of the reasons behind the increase in international trade of used and retread tires might be the increase in the number of vehicles in use in

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developing countries. The more vehicles in use, the greater the demand for used and retread tires, which are used for replacing worn-out tires. For example, from 1995 to 2015, the annual growth of vehicles in use was 16.0% in China, 10.0% in Bangladesh, 9.9% in India, and 9.0% in Indonesia. There are other factors that also affect the import and export of used and retread tires, which are discussed in Sects. 7.3 and 7.4.

7.3   Reasons Behind Import Restrictions on Used and Retread Tires As mentioned in the Sect. 7.2, lower income countries are likely to be net importers of used tires because of income constraints. However, some countries have prohibited used tire imports. Table 7.10 lists the countries that did not import used or retread tires for passenger cars, buses, or trucks in 2015. Some countries, such as Argentina and Brazil, prohibit imports of used and retread tires. Cambodia, Chile, Morocco, and Vietnam prohibit used tire imports. In other countries, although the prohibition of imports could not be confirmed, the possibility of such a ban nevertheless exists. Trade statistics indicate that Afghanistan allows retread tire imports. But most imported items declared as retread tires could be used tires, according to trade statistics of exporting countries. Import regulations are applied to used tires from the viewpoints of safety and health impact. The reasons behind the import restrictions on retread tires might be different from those in the case of used tires. Some counties may impose trade restrictions to protect domestic tire industries. Indonesia banned the use of retread tires on public roads in 2015 when the Indonesian government wanted to downstream its rubber industry.3 This meant that retread tire imports were effectively banned. This regulation was subsequently relaxed in 2016 but it was recommended that retread tires meet domestic industry standards. The objective of such prohibition was to decrease traffic accidents (Tandoko 2015). However, appropriate measures to decrease traffic accidents due to tires might be institutionalizing the car inspection system and developing an industrial standard for retread tires. An industrial standard for retread tires has been 3  Linda Yulisman 2015 “Govt Aims High in Boosting Domestic Use” Jakarta Post May 13, 2015. https://media.neliti.com/media/publications/36461-ID-strategi-pengembanganbisnis-­pada-pt-grand-prix-indoagung.pdf.

Argentina Brazil Costa Rica Ecuador Saudi Arabia Bahrain Kuwait Oman

Albania

Sri Lanka

No imports of used tires or imports of retread tires for passenger cars Afghanistan

Chile Cyprus Malta New Caledonia Seychelles Uruguay

Armenia Cambodia Palestine Morocco Viet Nam China Maldives

No imports of No imports of used or retread used tires tires for buses and trucks

Source: Compiled by the author based on data from UN Comtrade

High-­oncome countries (>12,736 USD)

Upper middle-­ income country (4126–12,735 USD)

Low-­income countries(−1045 USD) Lower middle-­ Yemen income countries (1046–4125 USD)

No imports of used tires and retread tires for passenger cars, and buses and trucks.

Sierra Leone

Mauritius

Greenland Hungary

Lao

Central Africa

No imports of No imports of retread tires for retread tires for passenger cars, passenger cars buses, and trucks

Table 7.10  Countries not importing used tires and/or retread tires for passenger cars, buses, and trucks

Israel

Azerbaijan Turkey

No imports of retread tires for buses and trucks 7  INTERNATIONAL TRADE OF USED AND RETREAD TIRES 

165

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prepared by the Ministry of Industry and will be enforced as a compulsory measure.4 Safety issues combined with the lack of appropriate standards for retread tires prevent Indonesia from using and importing retread tires. Brazil prohibited used tire imports in 2010, ten years after the country’s ban of retread tire imports in 2000. However, Uruguay filed a lawsuit against Brazil for violating an agreement with MERCOSUR (officially, the “Southern Common Market”) concerning retread tire imports in January 2002. MERCOSUR decided that Brazil was in breach of the agreement. Of contention was that Brazil allowed retread tires imports from MERCOSUR member countries but continued its prohibition of retread tire imports from other countries. The European Union filed for a World Trade Organization dispute settlement for this case in 2005. Brazil claimed that retread tires could not be repeatedly retreaded, arguing that the abandoned tires could become hotbeds for mosquitoes, which could spread malaria. The World Trade Organization decided that Brazilian import restrictions violated the General Agreement on Tariffs and Trade on the grounds that used tire imports were not regulated. However, Brazil has continued to prohibit used tire imports even after the ruling (Kojima 2017). Data on tire imports show that after retread imports were banned, used tire imports increased from 2002 to 2005 (Fig. 7.2). Imported used tires were not only reused, but also used as cores of retread tires. In addition, as used tire imports decreased after 2007, new tire imports increased. After the ban on used tire imports, the retread tire industry procured the core of retread tires from used tires generated in Brazil. The retread tire industry has also grown during these periods. The size of the retread tire market in Brazil is the second largest in the world, after the United States. The use of retread tires has saved 2.34 billion USD. Two thirds of tires for buses and trucks are retread tires (Fernandes and Santos 2013). Although Malaysia is not listed in Table  7.10, it restricted used tire imports from January 1, 2010. The objective was to secure the safety of road users in Malaysia and to prevent Malaysia from becoming a dumping ground for waste tires. However, the Malaysian government still allows credible retreading factories to import used tires.

4  CNN Indonesia “Ban Bulkanisir Wajib SNI, untuk Apaa?” August 1, 2019. https:// www.cnnindonesia.com/teknologi/20190730094821-384-416654/pemerintah-ingin-­ ban-vulkanisir-wajib-sni, viewed on August 6, 2019.

Thosand tons

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400 350 300 250 200 150 100 50 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

New tires

Used tires

Retread tires

Fig. 7.2  Imports of new, used and retread tires by Brazil. (Source: Compiled by the author based on data from UN Comtrade)

7.4   Factors Affecting Imports and Exports of Used and Retread Tires As mentioned in Sect. 7.3, trade restrictions impact the international trade of used and retread tires. However, some other factors affect international trade of used and retread tires. Before addressing these other factors, we define the condition of used tires for further explanation. Used tires are classified into three categories: less worn-out tires can be used as is and are referred to as “good-quality used tires”; moderately worn-out tires can be used as cores of retread tires and are referred to as “moderate-quality used tires”; and worn-out tires cannot be retreaded but should be recycled as raw material for other products or utilized as fuel and are referred to as “waste tires.” The first factor affecting supply and demand of used tires is road condition. If road conditions are not good, such as those with a low percentage of pavement, tires become easily damaged before their tread is worn out. This indicates the limited supply of good- and moderate-quality used tires. Most used tires are waste tires. Japan Automobile Transport Technology Association (ed.) (1976) points out that in the early 1970s in Japan road conditions improved, which contributed to the supply of good- and

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moderate-­quality used tires. Such road improvements make developed countries major exporters of used and retread tires for passenger cars, buses, and trucks, whereas the poor road conditions in developing countries lower their supply of good- and moderate-quality used tires. Tire replacement demands may be met by used tire imports because consumers may not want to use retread or new tires. Consumers may be aware of the high likelihood of damage to tires due to bad road conditions. Road conditions are likely not good in developing countries because their budget for road construction and maintenance is limited. In addition to car owners’ income constraints, road conditions may influence consumer choice for using new, used, or retread tires. Second, car inspection systems, including inspection of tires in use, impact supply and demand of used and retread tires. If periodical car inspections were not mandatory or not strictly enforced, then car owners would care less about tire condition. Most tires are used as much as possible and supply of good- and moderate-quality used tires is limited. Periodical car inspection systems generate the supply of good- and moderate-­quality used tires. Increase in supply of moderate-quality used tires may stimulate the retreading tire industry, which utilizes moderate-­ quality used tires as retread tire cores. Car inspection systems also create demand for new, used, and retread tires. Before tires are worn out or in the case where tires in use fail car inspections, car owners replace old tires with new, used, or retread tires. There is information asymmetry in retread tires. When we consider used tires, their quality is indicated by surface condition and tread depth; that is, their quality is observable. However, the quality of retread tires is not observable from the surface. Such information asymmetry decreases the demand for retread tires as a result of risk avoidance. Good retread tire manufacturers own inspection equipment that can check not only the surface of tires but also damage beneath the tire surface. If damage is found before the retreading process, such used tires are disposed of or recycled. Consumers are not usually able to evaluate the quality of retread tires. One of the ways to ensure the quality of retread tires and stimulate the use of retread tires is the creation of industrial standards for retread tires, including the use of inspection equipment. Japan Industrial Standards for retread tires were formulated in 1954. Supply of high-quality core tires was increased as road conditions were improved. As a result, demand for retread tires also increased (Oomoto Shoten Kikaku, 2016).

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Another way to cope with market failure caused by information asymmetry is the implementation of service contracts. Recent years have seen a slight increase in the production of retread tires for buses and trucks due to service contracts between tire manufacturers and bus and logistics industries in Japan. Service contracts transfer the burden of risk of substandard retread tires from tire users (the bus and logistics industry) to tire providers. Providers, as retread tire manufacturers, have no incentive to supply substandard retread tires in the case of service contracts. Both the bus and logistic industry and aircraft tires are supplied under such service contracts. Service contracts solve the problem of information asymmetry and stimulate use and international trade of retread tires. Therefore, the spread of service contracts is third factor that affects the import and export of retread tires.

7.5   Toward Appropriate Policy on Used and Retread Tires Used tires are traded internationally for reuse and for manufacturing retread tires. Retread tires are also traded. There are concerns about safety due to the use of worn-out tires and health impacts because of transfer of mosquitos as a vector for disease. Some countries impose trade restrictions on used and retread tires and justify import restrictions by referring to these issues. However, there are alternatives to prohibiting the import of used and retread tires. To address safety concerns, owners of automobiles should be required to have their car inspected, including the condition of the car’s tires. Some standards should be set to define the criteria of car inspections. Governments should also have retread tire standards, which can prevent the use of substandard retread tires. To ensure the quality of retread tires, industrial standards can be used. In developing countries, there is a need for the development of such standards and an increase in the number of inspections to improve transportation safety, instead of a ban on imports of used and retread tires. To address transfer of mosquitoes, fumigation could be required before shipment. Such measures are imposed on used clothes imports. It is not necessary to prohibit the import of used and retread tires. As mentioned in the previous section, the quality of used and retread tires depends on the condition of roads and the car inspection system.

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Improving road condition can contribute to the reuse of used tires and the production of retread tire. In 2015, Indonesia became the top exporting country of retread tires for passenger cars worldwide. Ironically, this increase was due to a ban on the use of retread tires in the country. In response to losing the country’s market, retread tire companies in Indonesia suddenly and dramatically increased retread tire exports. Appropriate policy might be to set standards that must be satisfied by retread tires. To promote the retread tire industry in developing countries, it may be good to allow imports of core tires for retread tires. For example, Thailand has become an international base of retread tires for aircraft, for which it imports a significant portion of core tires.

7.6   Conclusion This chapter showed the flow of the used and retread tire trade, and presented factors affecting international trade. Section 7.2 presented an overview of changing trends in the international trade of used and retread tires based on trade statistics. In particular, trade volumes increased between 1990 and 2015. Volumes of trade for used tires were higher than those for retread tires, whereas values of used and retread tires were almost the same. This section also examined exporting and importing counties of used and retread tires. Section 7.3 discussed the factors affecting imports of used and retread tires. Trade restrictions on used and retread tires were also discussed. Section 7.4 covered factors affecting supply, demand, export and import of used and retread tires. Road conditions and car inspection systems were discussed as impacting supply of good-quality used tires and export and import of used and retread tires. Also discussed was how information asymmetry may decrease demand for retread tires, whereas service contracts may stimulate the use of retread tires. Section 7.5 addressed appropriate policy for used and retread tires from the viewpoints of safety and health impact, and considered product reuse. To mitigate impacts on the environment and conserve natural resources for future generations, resources should be used more efficiently. Use of secondhand goods and remanufactured products should be promoted worldwide (Kojima, 2014). International trade of used and retread tires could contribute to improving resource efficiency. However, substandard used and retread tires may cause car accidents. The international trade of used tires can also carry health risks, such as the

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possible spread infectious diseases like dengue fever. Instead of prohibiting imports of used and retread tires, quality control of used and retread tires, including those that are exported and imported, should be strengthened worldwide.

References Fernandes, Monica R. and S.  Santos. 2013. “Rubbers for More Sustainable Retreading” Rubber World Vol. 246, No. 6. Kojima, Michikazu. 2014. “Remanufacturing and International Trade” in Michikazu Kojima(ed.) International Reused and Developing Countries: Transboundary Transaction of Used Goods [In Japanese], Institute of Developing Economies. Kojima, Michikazu. 2017. “Remanufacturing and Trade Regulation” Procedia CIRP Vol. 61, pp. 641–644. Oomoto Shoten Kikaku. 2016. Annual Book on Tire, [in Japanese] RK Tsushin Sha. Reiter P, and Sprenger D. 1987. “The used tire trade: a mechanism for the worldwide dispersal of container breeding mosquitoes” Journal of American Mosquito Control Association, Vol. 3, No. 3, 494–501. NNA Asia. 2017. “Domestic standards for retreading tires will be applied to passenger cars,” [in Japanese] March 29, 2017. Tandoko, Cynthia. 2015. “Strategi Pengembangan Bisinis Pada PT Grand Prix Indoagung” AGORA Vol. 3, No. 2, pp. 631–638. Japan Automobile Transport Technology Association (ed.). 1976. Handbook of Automobile Tire [in Japanese], Kokumin Kagaku sha. Yamamoto, Yasuko. 1995. “Commodity Classifications in Trade Statistics,” Soshichi Kinoshita and Yosuke Noda (ed.) World Trade Data System: Arrangement and its Application, I.D.E. Statistical Data Series No. 67, Institute of Developing Economies.

CHAPTER 8

Controlling an Invisible Flow of Product Reuse: The Current State of International Reuse of Used Household Appliances in Thailand and Japan So Sasaki

8.1   Introduction The 3Rs (reduce, reuse, and recycle) have been used around the world to describe the hierarchy of approaches to waste management. It is easy to understand that “reduce” simply means creating less waste. However, although “reuse” means using products again and “recycle” means using waste to make new products from old ones, it is necessary to consider the boundary between products that should be reused and those that should be recycled based on their condition. International product reuse in particular involves complicated factors because products can become either used items or waste, depending on the context. Accordingly, improper exports can be considered an “invisible flow” consisting of waste

S. Sasaki (*) Faculty of Economics, Chuo University, Hachioji, Japan e-mail: [email protected] © IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5_8

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mislabeled as used items. Used products for reuse and waste products for recycling have one thing in common—they have been used previously— and therefore these products are actually two sides of the same coin. This chapter focuses on household appliances, first examining the boundary between products that should be reused and those that should be recycled, and then clarifying challenges based on the current state of the cross-border movement of used products. We review case studies involving Thailand and Japan. Thailand started controlling international product reuse in 2003 and recycling prior to the Home Appliance Recycling Law being passed due to the effect of China's related regulations. In Japan, the Home Appliance Recycling Law (officially called the “Law for Recycling of Specified Kinds of Home Appliances”) came into effect in April 2001. Immediately thereafter, the handling of reuse became problems both domestically and internationally, and so Japan instituted controls on domestic product reuse starting in 2008 and international product reuse in 2009 to ensure proper recycling. Although the backgrounds may differ between Thailand, an importing country, and Japan, an exporting country, product reuse controls are linked via cross-border product reuse and are needed for border control measures. Section 8.2.1 provides an overview of the current state of import restrictions on used household appliances in Thailand by examining the impact of China’s restrictions on the importation of waste intended to be used as raw materials, which came into effect at the beginning of 2018. Import restrictions do not work, especially in the case of smuggling, and enforcement has been a serious problem. Additionally, current enforcement of the cross-border movement of products for reuse is examined in Sect. 8.2.2, based on field research on international product reuse involving Japan, Thailand, and Myanmar, and the border trade between Mae Sot, Thailand and Myawaddy, Myanmar. The most important point here is that the enforcement of border control measures on both imports and exports in Thailand is expected to lead to the implementation of a government-­regulated recycling system in the near future. Japan's experience should therefore be useful for them. Section 8.3 reviews domestic and international reuse control measures that have been implemented since the enactment of the Home Appliance Recycling Law in Japan and the impact of these measures. In Sect. 8.3.1, we discuss how domestic reuse control measures have been effective, and in Sect. 8.3.2 we examine international reuse control measures and their relative lack of success. Based on these case studies, this chapter shows the need to enforce border control measures in Japan and refers to international guidelines for appropriate product reuse control measures in the conclusion.

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8.2   Current State of the Invisible Flow of Product Reuse in Thailand 8.2.1  Impact of China’s Restrictions on the Importation of Waste for Use as Raw Materials Proper international product reuse enables developing and emerging countries to improve their social welfare because it leads to the distribution of inexpensive used products rather than new products. However, social welfare may be diminished due to externalities such as environmental pollution if used products that should be disposed of or recycled flow into their markets because of improper reuse. Therefore, imposing some type of non-tariff barriers is rational if we wish to maintain proper international product reuse. This section reviews a case study from Thailand, which started controlling international product reuse and recycling prior to the passage of the Home Appliance Recycling Law. China tightened restrictions on the importation of household appliances in 2002, and Thailand’s Ministry of Industry (MOI) and Department of Industrial Works (DIW) followed suit by announcing restrictions on the importation of used household appliances in September 2003 due to fears that waste household appliances would start flowing into the country from developed countries. Similar to the restrictions implemented by China, the Thai restrictions targets 29 items, including household products, personal computers, and televisions as well as the parts used in these products. However, Thailand bans the importation of used electric and electronic appliances more than three years old (five for copy machines) for sale and reuse purposes. The importation of these appliances is allowed for sorting and recycling if they have economic value, can be processed at DIW-registered recycling facilities, and are imported from parties to the Basel Convention on the Control of Trans-boundary Movements of Hazardous Wastes and their Disposal. These restrictions consider the used goods market and development of recycling industries, and are different from China’s restrictions, which essentially ban the importation of such products. Export and import permission records under the used household appliance import restrictions show that less than 2000  tons of e-waste and e-scrap were permitted for importation until 2015, but this amount started to increase in 2016 and then rapidly grew to 53,291 tons in 2017, 5.7 times the amount in the previous year. In 2017, 30,745  tons of used

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Table 8.1  Export and import permission records (in tons) under the restrictions on the importation of used household appliances Hazardous substance code

2012

2013

2014

E-waste / e-scraps (3241)

1214 1739 −525 0 6455 −6455 0 2595 −2595

1016 1692 −676 0 3023 −3023 0 1482 −1482

1855 1856 −1 0 6813 −6813 0 2742 −2742

Used EEE (3322)

Used EEE for reusing parts (3323)

Export Import Net Export Import Net Export Import Net

2015

2016

2017

3820 7840 7582 1778 9312 53,291 2042 −1472 −45,708 0 0 0 11,716 21,784 30,745 −11,716 −21,784 −30,745 0 0 0 4161 2361 1508 −4161 −2361 −1508

Note: EEE, electrical and electronic equipment Source: Department of Industrial Works

electrical and electronic equipment was imported and the amount has been increasing year-on-year (Table 8.1). The factors underlying the rapid increase in the amount of e-waste and e-scrap imports include the effects of China’s restrictions on the importation of waste for use as raw materials. In July 2017, the Chinese government announced that the importation of four kinds of recyclable waste used as raw materials, comprising 24 items such as household waste plastics, would be banned by the end of 2017. China’s decision to change its policy had substantial impacts on countries around the world because China had been considered the “Factory of the World” and served as a major hub for recycling imported waste and scrap. The impacts of the policy change are still being felt (Brooks et al. 2018). Thailand faces similar problems involving the improper processing of e-waste flowing into the country from Hong Kong and China (Nation 2018). These problems first surfaced when neighborhood residents complained to a local DIW office about foul odors coming from Wai Mei Dat Thai Recycling Co., Ltd. in Chachoengsao Province in May 2018. The DIW eventually exposed the company’s improper processing. The company had hired illegal labor from Laos and Myanmar, paying workers 9000  baht per month, which is below the legal minimum wage, and dumped wastewater generated from the dismantling of e-waste and the recovery of precious metals using acid (Bangkok Post 2018). Moreover, when the relevant authorities inspected unloaded containers, improper

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importation of numerous waste plastics and e-waste was discovered. The DIW, which had jurisdiction over seven companies with e-waste import permits, subsequently conducted inspections. The results revealed that Fuji Xerox Eco Manufacturing Co., Ltd. (FXEM) was the only company that had operated legally (Table 8.2). Only one licensed e-waste import company submitted a permit application requesting an amount that exceeded the amount of exports and imports permitted under the restrictions on the importation of used household appliances in 2017 (Tables 8.1 and 8.2). This suggests that the used household appliance import regulations have already become ineffectual. Responding to these facts, the MOI announced the following measures on June 22, 2018 to resolve issues involving e-waste and waste plastics: (1) a ban on the importation of electronic waste and used parts, (2) a ban on the importation of waste plastics, (3) a ban on the importation of used products (e.g., synthetic scrap metals, wires, motors, voltage transformers, generators, batteries), and (4) import restrictions on repaired, modified, or improved appliances that have been used for export and domestic sales. Importing these products has been banned since July 2018 (MOI 2018).

Table 8.2  E-waste import licensed company inspection results in Thailand Company name

Investor countries

Permission application Judgment by DIW volume in 2018 (tons)

Yong Tang Thai Co., Ltd JPS Metal Group International Co., Ltd Viro Green (Thailand) Co., Ltd. Mhing Engineering (Thailand) Co., Ltd

China China

30,000 60,000

Illegal (smuggling) Illegal (smuggling)

China

13,000

Illegal (smuggling)

Malaysia

150

15,000 2000

Corrective recommendation (license expiration) Illegal (smuggling) Illegal (smuggling)

1440

Legal

OGI Co., Ltd. Korea SS Import Export International China Co., Ltd. Fuji Xerox Eco Manufacturing Japan Co., Ltd. Note: DIW, Department of Industrial Works

Source: Compiled by the author based on various reports and Department of Industrial Works hearings

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In particular, the effect of the ban on the import of electronic waste and used parts on FXEM, which had operated legally, has been enormous. The company has achieved a recycling rate of more than 99% and has been continuously awarded an excellent recycling business certification from the DIW. In addition, FXEM has also been focusing on reusing toner and re-conditioned copy machines, achieving in 2017 a 22% reuse rate based on weight. In other words, FXEM might serve as a model for the manufacturing industry in the international circular economy. However, the ban on the importation of electronic waste and used parts implemented by MOI has made it difficult to continue their business. The MOI has determined that companies engaged in smuggling or improper importation do not comply with the requirement to obtain an e-waste import permit in accordance with the restrictions on the importation of used household appliances, despite an attempt to ban the importation of recyclable resources completely, including used items and e-waste. Therefore, it is likely that imposing a total import ban would be ineffective. Additionally, a total ban would remove business opportunities for companies that obtain waste plastic and e-waste import permits properly, leading to the creation of markets where bad money drives out good. It is essential to control proper international resource circulation by establishing designated ports that can inspect all imported products by using X-ray inspection methods as well as formulating import quality standards coupled with measures to create proper domestic recycling markets in Thailand. 8.2.2  Current State of Border Exporting to Neighboring Countries Thailand, which intends to enact legislation on household appliance recycling, must consider not only used product and e-waste importation issues—which have been shown in Sect. 8.2.1 to be resistant to import restrictions, especially for smuggling—but also issues related to the export of these products in order to collect and recycle them. In this section, we discuss trade with neighboring countries by focusing on border exporting from Thailand to Myanmar. We have several reasons for focusing on the border trade between Thailand and Myanmar. First, used household appliance exporters based in Thailand and Yangon in Myanmar have indicated that the border between Mae Sot in Thailand and Myawaddy in Myanmar is the main

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Table 8.3  Thailand’s border trade value in 2017 (unit: millions of baht) Customs office name Maesod Ranong Maesai Chiangsan Maehongson Warehouse-Ranong Warehouse-Maesot Prajuabkirikhun Maesareang Ban Numpuron Automatic service point-­ outside Maesot Sapanmittpap Thai Myanmar Automatic service point-­ inside Maesot Sungkhlaburi Total

Trade amount

Export amount

74,817.35 25,810.43 8248.93 3198.71 423.87 – 0.91 485.51 758.44 292.58 881.62

74,733.00 20,335.27 8076.72 3198.60 339.25 – – 197.32 297.46 – –

Import amount

Net export amount

84.35 5475.16 172.21 0.11 84.62 – 0.91 288.19 460.98 292.58 881.62

74,648.65 14,860.11 7904.51 3198.49 254.63 – −0.91 −90.87 −163.52 −292.58 −881.62

1638.43

–

1638.43

−1638.43

2325.79

–

2325.79

−2325.79

63,651.57 75,356.52

−63148.17 32,324.50

64,154.97 183,037.54

503.40 107,681.02

Source: Compiled by the author from Department of Foreign Trade data (2017)

trade route for these products. Moreover, the Mae Sot-Myawaddy border trade is used for liquid-crystal display (LCD) television trading from Japan to Myanmar, which is discussed in Sect. 8.3.2. Therefore, it is necessary to understand the current state of trading. Second, examining Thailand’s border trade shows that the Mae Sot–Myawaddy border trade yielded an export surplus of 74.6 billion baht, which is the highest amount in net exports (Table 8.3). According to interviews conducted with Mae Sot Customs, there are three different types of border trading: official border trading across the Thai–Myanmar Friendship Bridge; temporary permitted border trade1 using boats on the Moei River, which runs along the Thailand–Myanmar border; and transit trade via the Mae Sot–Myawaddy checkpoint from a third country.2 Figure  8.1 shows the value of exports from the official 1  This is referred to as “temporary permitted custom routes” or “pier trade.” There are 35 approved locations in areas adjacent to Mae Sot.S 2  The new Customs Act of 2017, which came into effect in Thailand on November 13, 2017, clarified the regulations on transit trade and shortened the period that imported goods

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80.0

350

70.0

300

60.0

250

50.0

200

40.0

150

30.0

100

20.0

50

10.0 0.0

0 2012

2013

2014

2015

2016

2017

Border trade export value (billions of baht) Average number of customs tracks (units / day)

Fig. 8.1  Value of border trade exports via Mae Sot Customs and the average number of trucks passing through customs border trade export value (billions of baht) Average number of customs tracks (units/day). Source: Compiled by the author from documents provided by Mae Sot Customs

border trade via Mae Sot Customs and temporary permitted border trade, in addition to the average number of trucks passing through customs. Since Myanmar transitioned from a military-backed regime to civilian rule in 2011, the value of exports from the Mae Sot–Myawaddy border trade has been increasing. The ratio of official border trade to temporary permitted border trade has remained at 7:3. Due to an increase in exports, the daily average number of trucks passing through customs increased from 58 in 2012 to 316 in 2017. This has created traffic congestion in the border area as trucks wait to cross, sometimes leading to traffic jams up to five kilometers long. The government has implemented short-term measures to alleviate this congestion by implementing pre-registration of trucks that plan to cross the border, introducing mobile X-ray vehicle remained in custody in Thailand from 90 to 30 days. The new act also requires international agreements for land transit by crossing the border. Although Thailand has bilateral trade agreements with Laos, the country has temporarily applied Article V of the GATT (Freedom of Transit) to respond to situations involving transit trade with countries without bilateral trade agreements, including other neighboring countries (JETRO 2018).

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Fig. 8.2  Temporary permitted trade by boat on the Moei River. Left: used household appliances from Japan. Right: used vehicles from Japan. Images taken by the author on February 28, 2018

scanners, and improving parking areas. However, to achieve fundamental improvement, the second Thai–Myanmar Friendship Bridge (construction completed), the upgrading of roads in the surrounding areas, and the introduction of one-stop customs processing by moving customs-related facilities are all vital.3 The value of exports from transit trade at Mae Sot Customs was 30.3 billion baht in 2017. Because transit trade has to pass through Thailand, customs clearances are necessary. However, this does not necessarily mean that taxes and fees are collected; therefore, the total value of exports is calculated separately from border trade.4 Used vehicles, household appliances, used furniture, and used bicycles from Japan account for the majority of items exported to Myawaddy via transit trade. Used products from Japan are also exported to the Myawaddy side by boat as temporary permitted trade (Fig. 8.2).

3  Construction of customs facilities on the Myawaddy side is underway as the Thai government is also financing the project. The construction is expected to be completed in 2019 because it took some time to relocate residents. 4  According to Thai Customs, Nong Khai Customs is the only entity that discloses transit trade statistics. http://www.dannongkhai.com/index.php?lay=show&ac=article &Id=539123896 (DEC 31, 2018 accessed).

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According to interviews conducted with freight forwarders in Mae Sot and Myawaddy, a permit is necessary to import used vehicles to Myanmar. Moreover, because used household appliances cannot be imported officially due to import restrictions, interviewees mentioned that these transactions, which were conducted as temporary permitted trade, may be illegal.5 Distributors in Yangon who import used LCD televisions from Japan purchase them from major Japanese used household appliance exporters via a Burmese intermediary living in Japan and import them by sharing containers with used product importers in the same business. The intermediary helps with the export of eight 20-ft. equivalent units of used LCD televisions a month (four 40-ft. containers) to Myanmar. There is a high demand for LCD televisions both in Yangon and in rural areas. Used LCD televisions from the major used household appliance exporters are imported as pairs of televisions of the same size packaged together with polystyrene foam placed on the screens. As a result, the packaging conditions are excellent, and almost no damage occurs (Fig. 8.3). However, the distributors mentioned that despite the low price, there was a great deal of damage to LCD televisions imported by Pakistani exporters living in Japan.6 Based on this information, the border trade between Mae Sot and Myawaddy serves as a hub for international product reuse for Japan, Thailand, and Myanmar. Because some of the used vehicle and household appliance trading violates the Thailand–Myanmar trade restrictions, it is likely that these transactions are illegal under temporary permitted trade. Thailand has been considering legislation on household appliance recycling and must consider not only used product and e-waste importation issues but also the issues related to the export of these products. The case of Japan, which is examined in the next section, will be useful for understanding these problems.

5  DIW licensing for household e-waste exports from Thailand to Myanmar has become strict and it became impossible to export e-waste around 2015. To import used household appliances from Thailand to Myanmar, Burmese people cross the border to purchase these products. 6  Damaged parts and defective products found during maintenance are exported by Chinese buyers. These parts are reused, or the metals are recovered in China. Reworked parts, such as capacitors, are imported back to Myanmar from China and used for the maintenance of used LCD televisions.

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Fig. 8.3  Used LCD televisions imported from Japan and stored at a distributor in Yangon. Left: packaged LCD televisions. Right: LCD televisions ready for distribution. Images taken by the author on March 1, 2018

8.3   Controlling Reuse in Japan under the Home Appliance Recycling Law 8.3.1  Controlling Domestic Reuse The Home Appliance Recycling Law in Japan, which came into effect in April 2001, requires manufacturers to recycle by increasing the standards for household air conditioners, televisions, refrigerators and freezers, and washing machines and dryers. Article 3 of the law stipulates that the government must “review the status of implementation of the law and implement necessary measures based on the findings.” A total of 37 joint meetings were held by the Ministry of Economy, Trade and Industry (METI) and the Ministry of the Environment (MOE) from June 2006 to December 2018. The following two items regarding product reuse were included in the report compiled in February 2008.

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• To improve the level of convenience for consumers to discard their household appliances, it is desirable that retailers actively accept not only recycled but also reused items. […] However, it is necessary to review the standards for accepting reused items by considering the suitability of reuse distribution and measures to counter global warming, such as energy-efficient household appliances. • It is also essential to strengthen the verification system for product acceptance and delivery by retailers and to create reuse/recycle sorting guidelines. Based on these suggestions, a METI and MOE special committee prepared the “Report on Guidelines for Creating Criteria for Specified Household Appliance Reuse/Recycle Sorting by Retailers (Reuse/Recycle Sorting Guidelines)” in September 2008 (Central Environment Council 2008). The contents of the report can be divided into guidelines for product performance and guidelines for traceability of used household appliances. The guidelines for product performance adopted a two-step system, which includes “Guidelines for achieving compliance with the Home Appliance Recycling Law” (Guideline A) and “Guidelines for promoting appropriate product reuse” (Guideline B). Both of these guidelines state that the year of manufacture (including global warming prevention and energy efficient performance, which takes the year of manufacture into consideration), verification of operability, appearance, and performance should be reviewed. Guidelines for the year of manufacture for each type of product are shown in Table 8.4. It is important to analyze how the Reuse/Recycle Sorting Guidelines have changed the flow of processing for used household appliances accepted by retailers. Based on the number of household appliances accepted by retailers and the delivery rate from retailers to routes outside the system, 8.7% ([17.2–10.55 million units]/17.2 million units) of the delivery transactions were conducted using channels outside the scope of the law in FY2005, the year that the need for the Reuse/Recycle Sorting Guidelines became most apparent. This means that approximately 40% of deliveries from retailers were conducted using channels outside of the Home Appliance Recycling Law. This percentage decreased substantially to 1.9% immediately after the Reuse/Recycle Sorting Guidelines were issued in FY2009. The estimate for FY2017, the most recent information available, shows that the percentage was 3.3% (Table 8.5).

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Table 8.4  Examples of guidelines for each product’s year of manufacture based on reuse/recycle sorting guidelines Product

Guideline A

Guideline B

Air conditioners

For a product that is nearly 15 years old, return to the manufacturer for recycling (in principle).

Televisions Refrigerators and freezers

As above For a product that is nearly ten years old, return it to the manufacturer for recycling (in principle). As above

For a product that is within seven years of the date of manufacture and is equipped with a certain degree of high energy-efficient performance, consider distributing it as a reused product contingent upon ensuring the product traceability and as long as there is demand for it. As above As above

Washing machines and dyers

As above

Source: Compiled by the author based on guidelines from the MOE (2009)

When the top 20 retailers that delivered used household appliances to manufacturers in FY2017 were asked whether they had created their own reuse/recycle sorting criteria, nine retailers that had indicated they had already created their own criteria stated that they referred to the Reuse/ Recycle Sorting Guidelines when doing so. Additionally, five retailers responded that they work with secondhand goods dealers and apply criteria created by the dealers. A total of 11 retailers that indicated they have not created criteria stated that they do not handle items for reuse and do not plan to do so in the future. The findings suggest that the number of household appliances delivered from retailers using channels that are not within the scope of the Home Appliance Recycling Law has been in decline due to the creation of Reuse/Recycle Sorting Guidelines. Additionally, it appears that the guidelines are still being considered for used household appliances delivered to secondhand goods dealers from retailers. Therefore, the guidelines have, at least to some extent, been effective as a measure to control domestic product reuse.

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Table 8.5  Changes in the flow of materials under reuse/recycle sorting guidelines Fiscal year

Number of retailers accepted (10 thousand units)

Amount delivered from retailers to Designated Take-Back Sites (10 thousand units)

Amount delivered from retailers to routes outside the system (10 thousand units) 指定引取場所への 引取台数(万台)

Delivery rate from retailers to routes outside the system

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1720 n.a n.a 1311 1659 2270 1752 979 1074 779 943 964 1023

1055 n.a n.a 1079 1627 2237 1726 953 1025 761 909 930 989

665 n.a n.a 66 32 33 26 26 49 18 34 34 34

38.7% n.a n.a 5.0% 1.9% 1.5% 1.5% 2.7% 4.6% 2.3% 3.6% 3.5% 3.3%

Note: The statistics for FY2014 show the sum of three items, excluding air conditioners Source: Created by the author based on “Estimated Flow of Used Household Appliances” issued each year by the joint meeting

8.3.2  Controlling Overseas Reuse After the Reuse/Recycle Sorting Guidelines described measures to control household appliance reuse in Japan in 2008, two criteria for the export of used household appliance were issued. This section gives overviews of these criteria and examines their effects. First, MOE issued “Regarding Criteria for Used Products Involving Used Cathode-Ray Tube (CRT) Televisions upon Exporting (Exporting Criteria for CRT)” in 2009. These criteria were created because the number of used CRT televisions being discarded was expected to increase. This increase was caused by domestic factors such as the transition to digital terrestrial television broadcasting in 2011 as well as non-domestic factors such as concerns over possible cases in which used CRT televisions exported without approval under the Basal Convention could be considered unsuitable for reuse by customs at export destinations and

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consequently shipped back to Japan. This is in addition to potential environmental pollution due to environmentally inappropriate handling of electric or electronic appliance waste (e-waste) in developing countries. In response to these concerns, the following criteria were issued. CRT televisions more than 15 years old should not be considered for reuse. The criteria for appearance state that CRT televisions cannot be exported if they clearly need to be recovered for product safety reasons, have damage to the CRT screen or case, show deep scratches on the screen or screen burn, or are subject to recall. Additionally, verification of operability requires performing conductivity testing to verify that the products work properly.7 The packaging and loading criteria require that the screens be protected from damage and that damage must also be prevented during transportation and loading and unloading. The criteria also require that the distributor provide the name, address, and contact information of the secondhand product seller in addition to images of the store. Second, MOE issued “Regarding Criteria for Used Products Involving Used Electric and Electronic Appliances upon Exporting (Exporting Criteria for UEEE)” in 2013, which came into effect in April 2014. These criteria were developed for non-domestic reasons. If used electric and electronic appliances unsuitable for reuse are exported, the destination country would be expected to perform the processing tasks listed in Annex IV of the Basel Convention (final disposal or recycling). Depending on the amount of hazardous material contained in these appliances, the Basel Convention could be applied to these materials. If these materials were exported without obtaining export approval, it would not only be considered a violation of the convention but also lead to international problems, including illegal exports. A total of 96 products are subject to these criteria, including 73 household electric and electronic appliances, seven home-use medical devices, four mechanical gaming machines containing electric and electronic devices, and 12 removal vehicle electric and electronic devices. 7  CRT televisions used in Japan were designed to operate on 100 V; thus, it is necessary to adjust the voltage for reuse overseas. Therefore, it has been suggested that conductivity testing is not necessary because CRT televisions are exported with power cord cables severed. However, conductivity testing was included in the criteria to ensure that the televisions work (images can be displayed on the monitor), and that CRT televisions work properly without screen color issues, abnormal noises, or foul odors. Currently, LCD and plasma televisions exported meet specifications to be used overseas. Consequently, it is not necessary to adjust the voltage, and the televisions can be used overseas.

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The specific criteria mostly follow the “Exporting Criteria for CRT” and require compliance with the same year of manufacture and lack of damage requirements. The year of manufacture requirement in Guideline A of the Reuse/Recycling Sorting Guidelines applies to four types of household electronic appliance. For proper operability, conductivity testing is performed to check that each component works properly. For the packaging and loading conditions, products need to be packaged properly, and it is necessary to demonstrate that a used product transaction is legitimate by presenting documents, such as an agreement. For verification of used goods markets, it must be demonstrated that products will be sold for reuse in the importing country. Furthermore, if the imported products have been approved for re-export upon obtaining permission from the importing country, the permission granted by the government must be verified. Examples are also provided to show how exporters can demonstrate that they meet these criteria. Exceptions have been made for several exporters, allowing them to export products upon completion of review by specialists from the Review Committee on Alternatives to Proper Operability Testing under Exporting Criteria for UEEE. Table 8.6 shows changes in the amount of used household electronic appliance exports using channels that are not within the scope of the Home Appliance Recycling Law. The highest export quantity of used household electronic appliances subject to the Home Appliance Recycling Law was 3.37 million units in FY2005 for four types of items. However, it is important to note that the figure for FY2005 is an estimate calculated using the unit value of exports from Trade Statistics of Japan. Harmonized Commodity Description and Coding System codes were introduced in 2008 to distinguish new and used products and provide information on the actual state of used goods that are being exported. The Exporting Criteria for UEEE system was implemented in April 2014. The number of used electric and electronic appliances exported in FY2014 fell from 1.04 million units in the previous year to 610,000 units. However, the figure was calculated by combining three types of items, excluding air conditioners, because the method for determining the number of exported air conditioners was calculated was under review. The latest statistics show that about one million units of used household electric and electronic appliances were exported. Analyzing the statistics by item type shows that the number of LCD and plasma televisions exported was the highest at 530,000 units in

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Table 8.6  Changes in the amount of exports of used household electronic appliances subject to the home appliance recycling law Fiscal year

Air condition

CRT TV

LCD / plasma TV

Refrigerator / freezer

Washing machine Total / dryer

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

102 n.a. n.a. n.a. n.a. 2 3 3 8 n.a. 24 34 22

216 n.a. n.a. n.a. n.a. 257 272 104 65 28 27 23 10

n.a. n.a. n.a. n.a. n.a. 8 15 28 27 28 33 36 53

9 n.a. n.a. n.a. n.a. 5 4 3 4 3 5 5 5

11 n.a. n.a. n.a. n.a. 1 0 1 1 2 2 1 1

337 n.a. n.a. 245 250 273 294 138 104 61 91 99 91

Note: The statistics for FY2014 show the sum of three items, excluding air conditioners Source: Compiled by the author based on the Estimated Flow of Used Household Appliances issued each year by the Joint Meeting on Electronic and Electronic Appliance Recycling Working Group

FY2017, followed by air conditioners at 220,000 units. Used LCD television export destinations are summarized in Fig.  8.4, based on Trade Statistics of Japan by the Ministry of Finance. The top LCD television export destinations include those that have implemented import restrictions on used household appliances, such as Myanmar, Hong Kong, China, Cambodia, and Thailand. The Exporting Criteria for UEEE state that if imported products have been approved for re-export upon obtaining permission from the importing country, the permission granted by the government must be verified. This requirement is intended to verify the extent to which the criteria are enforced and to understand the actual state of export activity. As discussed in Sect. 8.2.2, some used household appliance exporters in Japan comply with criteria such as product standards and packaging condition up to verification by visual inspection, but are still in violation of the import restrictions implemented by Thailand and Myanmar. Therefore, it is essential that additional border control measures be implemented on the Japanese side. The number of used household appliances exported has been in decline due to the implementation of the Exporting Criteria for UEEE system.

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Thailand, 2,497 , 1%

USA, 2,212 , 0%

Korea, 1,146 , 0%

Cambodia, 11,525 , 3%

Others, 5,179 , 1%

Afghanistan, 16,657 , 4% Philippines, 18,437 , 4% China, 38,717 , 8%

Myanmar, 193,590 , 43%

Iran, 50,040 , 11%

Hong Kong, 115,484 , 25%

Fig. 8.4  Used LCD television export destinations in 2017 (unit: number of televisions exported). Source: Compiled by the author based on Trade Statistics of Japan by the Ministry of Finance (HS Code 8528.72-190)

However, around one million used household appliances have been exported in recent years, and given that several exporting countries have implemented import restrictions on these appliances, the future effectiveness of the Exporting Criteria for UEEE must be examined and additional border control measures must be implemented by working with authorities such as customs agencies.

8.4   Conclusion In this chapter, we focused on the boundary between products that should be reused and those that should be recycled, clarifying the current state of cross-border movement of used products and challenges by reviewing case

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studies involving Thailand and Japan. Thailand started controlling international product reuse and recycling prior to the Home Appliance Recycling Law, whereas Japan began controlling international product reuse and recycling after enacting the law. Although Thailand announced restrictions on the importation of used household appliances in September 2003, the amount of e-waste and e-scrap has increased rapidly because of China’s decision to restrict the importation of waste for use as raw materials, a policy that came into effect at the beginning of 2018. Thailand also faces issues involving the improper processing of e-waste that flows into the country from Hong Kong and China. In response to these challenges, the country is considering a complete ban on the importation of recyclable resources, including used items and e-waste. However, such a ban would likely be ineffective because business entities that are currently involved in the smuggling or improper importing of these wastes do not comply with the requirements to obtain permission to export e-waste. Moreover, a complete import ban would deprive companies that properly obtain used items and e-waste import permits of business opportunities. These factors may lead to the creation of markets where bad money drives out good. It is essential to control proper international resource circulation by establishing designated ports that can inspect all imported products by using X-ray inspection methods as well as formulating import quality standards, coupled with measures to create proper domestic recycling markets in Thailand. Field research on international product reuse was conducted in Japan, Thailand, and Myanmar. Although the border trade between Mae Sot and Myawaddy has been functioning as a hub for international product reuse, some of the used-car and household product trade violates the import regulations implemented by Thailand and Myanmar. Therefore, it is highly likely that these transactions, which are conducted as temporary permitted trade, are illegal. Thailand has been considering legislation on household appliance recycling and must consider issues related to the export of these products in order to ensure proper recycling in near future. We also examined domestic and international reuse control measures that have been implemented since the enactment of the Home Appliance Recycling Law in Japan and the effectiveness of these measures. The Reuse/Recycle Sorting Guidelines, which were introduced as a measure to control domestic product reuse, have been somewhat effective. However, the implementation of the Exporting Criteria for UEEE system has decreased the number of used household appliances that are exported.

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Because several exporting countries have implemented import restrictions on used household appliances, the effectiveness of the criteria as a measure for the control of product reuse overseas should be examined, and it is essential to implement additional border control measures by working with the relevant authorities. Despite controlling international product reuse, both Thailand and Japan have difficulty enforcing border control measures. Therefore, each country does not, in effect, set its own standards for controlling international product reuse, and thus setting international common standards might help to improve the effectiveness of border control measures at customs. The Secretariat of the Basel Convention will develop the technical guidelines on the transboundary movements of electrical and electronic waste and used electrical and electronic equipment, and in particular the distinction between waste and non-waste under the Basel Convention, per COP13 decision BC-13/5. In the 2018 Second Meeting of the expert working group on e-waste technical guidelines, it was agreed that an addition to the guidelines should be made to indicate that any party may wish to apply other criteria, such as the age or residual lifetime of the equipment (Secretariat of the Basel Convention 2018).8 The guidelines were tentatively adopted at COP 14 in May 2019, and so attention should be paid to future trends. Appropriate control measures on reuse, which have not been investigated so far, also allow the establishment of an effective recycling system, promote the 3Rs, and contribute to the construction of a circular economy. Acknowledgment  This report was supported in part by the Japan Society for the Promotion of Science (JSPS) (grant numbers 17H04722 and 19H01385).

References Bangkok Post. 2018. E-waste plant fight hits home. Bangkok Post. Jun 10, 2018. British Standards Institution. 2011. “PAS 141:2011 Reuse of used and waste electrical and electronic equipment (UEEE and WEEE). Process management. Specification.” https://shop.bsigroup.com/ProductDetail/? pid=000000000030245346 Accessed on Dec 31, 2018. 8  In addition, PAS 141 developed by the British Standards Institution, OVAM (2012), guidelines used by the Flemish government in Belgium, the European Committee of Domestic Equipment Manufacturers (2020) are helpful.

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Brooks, Amy L., Wang, Shunli, and Jambeck, Jenna R. 2018. “The Chinese import ban and its impact on global plastic waste trade.” Science Advances. 4:6. [Online]. Available at: https://doi.org/10.1126/sciadv.aat0131. Accessed on Dec 31, 2018. Central Environment Council. 2008. “Report on Guidelines for Creating Sorting Criteria Pertaining to Specified Household Appliances Reuse and Recycling by Retailers.” [In Japanese.] http://www.env.go.jp/recycle/kaden/conf/attach/ rep_200809.pdf Accessed on Dec 31, 2018. Department of Industrial Works. “List of Chemical Waste Hazardous Substances for Import-Export and to Consider Licensing (Conditions Passed).” [In Thai.] https://www.diw.go.th/hawk/content.php?mode=dataservice&tabid=3 Accessed on Mar 31, 2021. European Committee of Domestic Equipment Manufacturers (CECED). 2020. “Preparing for Re-use of WEEE.” https://www.interregeurope.eu/subtract/ news/news-­article/9218/preparing-­for-­re-­use-­of-­weee/ Accessed on Mar 31, 2021. Nation. 2018. Smuggling of hazardous waste comes to light. Nation. May 25, 2018. Japan External Trade Organization (JETRO). 2018. “World Business News (Trade Information) The Period of Transit Cargo Remained in Custody Has Been Shortened to 30 Days or Less: Important Points of the New Customs Act (2).)” [In Japanese.] https://www.jetro.go.jp/biznews/2018/02/4d6408 3e265e7912.html Accessed on Dec 31, 2018. Ministry of the Environment (MOE). 2009. “Used Product Evaluation Criteria Used upon Exporting Used Cathode-Ray Tube Televisions.” [In Japanese.] http://www.env.go.jp/press/11184.html Accessed on Dec 31, 2018. ———. 2013. “Used Product Evaluation Criteria Used upon Exporting Used Electric and Electronic Appliances.” [In Japanese.] http://www.env.go.jp/ press/17151.html Accessed on Dec 31, 2018. Ministry of Industry. 2018. “Ministry of Industry urges to not import waste electronic, Used plastic and Alloy scrap are absolutely ready, with the cabinet proposing to consider next week. Prohibit factories to use raw materials that are used from abroad.” [In Thai.] http://www.industry.go.th/industry/index. php/th/about/2017-­04-­20-­15-­23-­14/item/40259-­2018-­06-­27-­13-­08-­54 Accessed on Dec 31, 2018. Public Waste Agency of Flanders (OVAM). 2012. “Code of good practice for the re-use of (W)EEE.” OVAM, Mechelen, Belgium. Recycling Committee, Central Environment Council, Subcommittee on Household Appliance Recycling System Evaluation Review. Joint Meeting on Electronic and Electronic Appliance Recycling Working Group, Subcommittee on Recycling, Industrial Structure Council. (Various documents). [In Japanese.] http://www.env.go.jp/council/03recycle/yoshi03-­02.html Accessed on Dec 31, 2018.

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Secretariat of the Basel Convention. 2018. “Second Meeting of the expert working group on the e-waste technical guidelines.” http://www.basel.int/ I m p l e m e n t a t i o n / E w a s t e / Te c h n i c a l G u i d e l i n e s / M e e t i n g s / WorkshopGenevaApr2018/tabid/6288/Default.aspx Accessed on Dec 31, 2018. Trade and Investment Cooperation Division, Department of Foreign Trade. 2017. “Thailand Border Trafficking Statistics 2015–2017.” [In Thai.] http://www. dft.go.th/Portals/3/Book%20border%20Trad%20ธ.ค%202560%20new.pdf Accessed on Dec 31, 2018. Working Group on Electric and Electronic Appliance Recycling, Waste Prevention and Recycling Subcommittee, Environment Committee, Industrial Structure Council, Committee on Promotions of Proper Disposal Methods Involving Reuse Related to the Household Electronic Product Recycling System, and Special Committee on Proper Receiving and Delivering for Reusing and Recycling Household Appliances Specified by Recycling Subcommittee, Central Environment Council. 2008. “Report on Guidelines for Creating Sorting Criteria Pertaining to Specified Household Appliances Reuse and Recycling by Retailers.” [In Japanese.] http://www.env.go.jp/recycle/kaden/ conf/attach/rep_200809.pdf Accessed on Dec 31, 2018.

Index1

A Adverse selection, 5, 65 Afghanistan, 76, 78, 81, 156, 160, 164 Africa, 68, 69, 73, 76, 86, 139–142, 145–150 Agglomeration advantages of, 74, 77–79, 84–88 benefits of, 65, 66, 77, 86 geographical, 64–66, 69, 73, 75, 79–88 industrial, 64, 88 Agricultural equipment, 1, 9 Agricultural machine, 8, 14–29, 155n2 Agricultural machinery, 13–29 Aircraft, 155, 158, 162–163, 169, 170 An Giang Province, 15, 22, 23, 25 Auction, 5, 7, 69, 70, 76, 77, 79, 105, 106, 125, 149 Automobile, 1–5, 8, 19n12, 40, 41, 63, 64, 66–72, 74–76, 83, 91, 93, 94, 96, 98, 115, 117, 118, 125, 138, 169

Automobile dismantling industry, 66, 69, 71, 75–76 Automobile inspection system, 153, 154, 158, 164, 168–170 Automobile Recycling Law, 70, 72, 75, 76, 78 B The Basel Convention, 5, 175, 187, 192 Border trade, 174, 178–182, 191 Japan, 174, 182 Boundary, 5, 134, 135, 173, 174, 190 Brazil, 160, 163, 164, 166, 167 Business-to-business transactions, 87 C Centralization, 64, 87 Chiba Prefecture, 75, 97 Chile, 69, 164

 Note: Page numbers followed by ‘n’ refer to notes.

1

© IDE-JETRO 2021 M. Kojima, S. Sakata (eds.), International Trade of Secondhand Goods, IDE-JETRO Series, https://doi.org/10.1007/978-3-030-55579-5

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196 

INDEX

China, 4, 5, 19, 21, 68, 131, 132, 135, 136, 139, 156, 159, 163, 164, 174–178, 182n6, 189, 191 China shock, 68 Circular economy, 1, 2, 6, 6–7n5, 7, 9, 29, 63, 66, 69, 87, 92, 178, 192 Cloth, 169 Collaborative commons, 133, 150 Colonization, 93 Combine harvester, 13, 17n9, 21–23, 22n15, 25, 26 Competition and cooperation, 79 Construction equipment, 1 Cross-border movement, 174, 190 Customizing, 15, 23–25 D Decentralization, 2, 66, 75, 79 Demand-matching, 65 Deregulation, 95, 96, 104, 109, 121, 125 Diffusion, 14, 15, 19–25, 27–29 Digital economy, 2 DUCAMZ, 83 E East Africa, 146 E-commerce platform, 6, 87 Ecosystem, 15, 27n17, 29, 88 End-of-life vehicle (ELV), 64, 69–72, 76, 77, 83, 118–124, 127 Environmental policy, 79 Environmental protection, 4, 5, 115, 120 Ethnic businesses, 5, 92, 93 Ethnic entrepreneurship, 92 Ethnic minorities, 92 Ethnic network, 82 European Union (EU), 6, 166

E-waste, 5, 8, 175–178, 182n5, 191, 192 Externality, 26, 63, 64, 175 F Face-to-face transactions, 86, 87 Fiji(an), 106–110, 115–119, 116n18, 126 Free trade agreements (FTA), 5, 19 G Globalization from above, 132 Globalization from below, 132 Global location strategy, 79 Global Trade Atlas (GTA), 16, 16n4, 16n6 Guideline, 5, 115, 174, 184, 185, 188, 192, 192n8 H Harvesting, 22, 22n15, 28 Hazara, 77, 81, 109 Health impact, 164, 169 Ho Chi Minh City, 19, 24, 26, 28 Hokuso, 74–79 Home appliance, 1, 120, 174, 175, 183–191 Home Appliance Recycling law, 174, 175, 183–191 Hong Kong, 8, 131–150, 161, 189, 191 I Illegal dismantling, 78 Immigrant dismantler, 76, 77, 79 Import permission, 175, 176 Import restriction, 97, 101n8, 115, 143, 158, 164–166, 169, 174, 175, 177, 178, 182, 189, 190, 192 Indochinese refugee, 18

 INDEX 

197

Indonesia, 8, 31–53, 119, 156, 159, 164, 166, 170 Informal cash remittance system, 147–148 Informal economy, 131–135 Informal sector, 5, 23–24, 135, 145, 150 Informal trade, 97, 131, 132, 135 Information asymmetry, 65, 66, 86, 87, 145, 150, 168–170 Information and communications technology (ICT), 5, 6, 8, 66, 131–150 International reuse, 1, 2, 32, 66–69, 79, 86, 87, 173–192 Inventory cost, 66 Inventory management, 87 Iron scrap industry, 76

M Maintenance, 14, 29, 42, 43, 49–51, 53, 54, 57, 59, 63, 76, 85, 86, 117, 168, 182n6 Malaysia, 69, 73, 76, 77, 101, 127, 156, 163, 166 Market of lemons, 5 Mathews, Gordon, 131, 132, 135, 136 Mechanization, 14, 15, 19–22 Mekong Delta, 15, 19–25, 27, 29 MERCOSUR, 166 Metropolitan area, 31, 39, 41, 41n6, 41n7, 44, 46, 52, 53, 74, 76, 105 Migrant, 91–93, 99, 104–109, 116, 125, 126 Myanmar, 48, 49, 68, 73, 174, 176, 178–180, 182, 182n5, 182n6, 189, 191

J Japan, 8, 15–19, 23, 23n16, 26–29, 31–34, 38, 41n6, 42, 44–52, 48n17, 57, 63, 64, 66–79, 82, 84, 86, 87, 91–94, 94n2, 96, 99, 99n6, 101, 104–107, 109–112, 114–118, 122, 125–127, 137, 139, 144, 156, 157, 167, 173–192

N Networking between dismantlers, 64 New Zealand, 91–127 Niche, 63, 64, 92, 135, 137, 150

K Kurita, Kazuaki, 131, 135, 136 Korea(n), 92, 93, 116 L Land preparation, 22, 22n15, 28 License for a dismantling business, 77, 78 Long An Province, 19, 24 Long Xuyen, 23, 24, 26, 28

O Oceania, 91, 94, 110, 119, 126 One-time purchase, 71, 75 Opportunistic behavior, 66 P Pacific Island, 91–127 Pakistan(i), 92, 93, 94n2, 97n4, 104, 105n11, 106–109, 109n17, 116–119, 125, 139, 140, 143, 144, 156, 182 Pashtun, 81 Prolonged lifecycle, 4 Public policies, 92, 93, 95, 98, 111, 115, 124–126

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INDEX

R Recycling, 3, 6, 7, 7n5, 9, 29, 88, 92, 93, 119, 123, 124, 127, 174–176, 178, 182, 187, 191, 192 Home Appliance Recycling law Re-export, 82, 86, 87, 156, 189 Regulation, 18, 32, 49, 52, 95, 99, 104, 108, 109, 115, 118, 123, 125, 126, 135, 136, 159, 164, 174, 177, 179n2, 191 Remanufacturing, 1, 4, 4n3, 6, 7 Repair (repairing), 3, 7, 23–26, 28, 29, 49–51, 63, 69, 73, 83, 117, 126, 141 Repair shop, 28, 73, 80, 84, 117, 126 Resident style, 71, 72, 75, 79 Resource circulation, 94, 118, 126, 127, 178, 191 Resource efficiency, 1, 3, 153, 154, 170 Retread tire, 8, 153–171 Reuse, 1–3, 29, 31–33, 64–69, 76, 79, 86, 87, 92, 123, 132, 153, 169, 170, 173–192 Reuse industry, 64, 66, 92, 93 Rice, 14n2, 15, 19–21, 23–25 Rifkin, Jeremy, 133 Road condition, 154, 158, 167–170 Rotary tillers, 21, 24, 28 Rural rural development, 29 rural economies, 14 Russia, 68, 73, 118 S Safety, 8, 99, 104, 109, 125, 149, 153, 154, 159, 164, 166, 169, 170, 187

Scrap, 18, 76, 92, 118–124, 126, 127, 137, 139, 176, 177 Scrapped vehicle, 74, 121, 127 Search cost, 66, 82 Secondhand goods, 1–9, 64–66, 71, 87, 92, 94, 109, 124, 126, 170, 185 Sharing economy, 6, 132–135, 150 Sharjah, 73, 80–83, 86, 117 Sorting function, 64 Sri Lanka, 68, 73, 83–85 Supply chain management, 65 Supply constraint, 65, 78, 85–87 T Taiwan, 33, 75, 78 Tanzania, 137, 140, 141, 144, 146, 147 Telephone directory, 74 Thailand, 16–18, 16n4, 21, 75, 78, 157, 158, 162, 163, 170, 173–192 3Rs, 173, 192 Tire, 8, 24, 142, 153–171 Tonga, 91, 94n2, 101, 116–118, 123, 126 Tractor four-wheel tractor, 16n6, 17n9, 21, 23, 24 two-wheel tractor, 16n6, 21, 23, 24 Trade-in, 4n4, 17, 17n9, 18, 18n10 Trading companies, 43, 43n8, 48, 48n16, 71, 72 Traffic congestion, 40, 41, 64, 180 Transaction cost, 4, 5, 149 Transit trade market, 69 Transplanting machine, 21 TRUST, 141, 145–150

 INDEX 

U United Arab Emirates (UAE), 69, 73, 80, 94n2, 101, 109, 117, 127, 156, 157, 160, 163 Used automobile, 5, 8, 91, 93, 125 Used auto parts, 8, 63–88, 117, 118 Used car, 8, 52, 57, 63, 64, 67–69, 74, 76, 78, 81, 87, 91–119, 94n2, 101n8, 122, 125–127, 131–150 Used vehicle, 67, 91–127, 139, 144, 181, 182

V Vector for disease, 154, 169 Venous industries, 92 Vietnam, 8, 13–29, 164 W World Trade Organization (WTO), 166 Y Yawata City, 71, 79

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