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# **Box 1:** FDI **and motor vehicles networks**

FDI by major manufactures of cars has restructured automotive industry in 5-CEECs (van Tulder and Ruigrock 1998). Most automakers came from the EU including such US subsidiaries there as GM's Opel or Ford. The EU companies with highest investment and sales in the region are Germany's VW (Volkswagen) and Italy's Fiat followed by Germany's GM Opel and France's Renault. VW's biggest investment is in the Czech Republic. Skoda Auto, part of the Volkswagen Group, is already the largest firm in the Czech Republic and the largest exporter accounting for 7 percent of Czech exports to the EU in 1997. Among top 100 Czech Republic companies there are also other foreign-owned firms including the Karosa bus-maker (Renault), ranked 97, and Daewoo at Avia, ranked 59 in 1997. ("Top 100 Czech Republic Companies," in _The Wall Street Journal Europe's Central European Economic Review,_ vol. VI, no. 6, July and August 1998.) Exports of Karosa buses in which Renault invested US $18 million, increased more than seven times between 1995 and 1996. Exports of lorries and trucks, which also attracted FDI, grew over this period by 173 percent to US $98 million.

VW also assembles models in Poland and Slovakia. It produces parts (gearboxes) in Slovakia and manufactures engines in Hungary. VW opened a new plant in Poland in 1999 (August) that will manufacture Diesel engines with the projected value of annual exports above US $1 billion. Fiat's largest operation is in Poland-Polish Fiat became the largest Polish exporter to the EU already in 1993.

However, not all major investors are from the EU, as prospects of future unfettered access to EU markets have offered an extra incentive to move in. Japan's Suzuki has established an assembly plant in Hungary, which started producing mid-size cars in 1992 (Tutak 1999). Isuzu Motors (Japan) began recently producing diesel engines in Poland. Korean automakersDaewoo, Huyndai and Kia-have also rushed in with Daewoo becoming the major player. Daewoo has bought state-owned auto plants-four in Poland, one in the Czech Republic and one in Romania.

Hence, an interesting question is whether production links emerged between CEEC and recipients of non-EU FDI in auto industry. The problem in answering this question is that the Korean 'blitzkrieg' into the region's automotive industry occurred only a few years ago. Integration into production and marketing usually has longer lead times.

Nonetheless, the analysis of trade in motor vehicle parts of Hungary with Japan (Suzuki has been in operation there since 1992) and Poland's trade with Korea (Daewoo began its Polish operations in 1996) provides some relevant information. One feature seems to stand out. So far this has been a one-way operation-FDI have not triggered exports to a home country. Hungary's imports of parts (SITC 784) grew from US $3 million in 1992 to US$ 30 million in 1996 and US$ 80 million in 1997. The value of Hungary's exports was below US $1 million in 1997. So was the value of Hungarian exports of motor vehicles (US $0.6 million in 1997). Polish imports of vehicle parts jumped from US $2 million in 1995 to US $201 million in 1997. Its exports amounted to US $50,000 in 1997. On the other hand, probably because of restrictions in access to Hungarian and Polish markets, exports of motor vehicles were relatively low-Japan exported to the tune of US $85 million to Hungary and Korea's exports were US $62 million in 1997.

Thus, in contrast to the bulk of investment from the EU car manufacturers, the Asian involvement in CEEC does not seem to be driven by the logic of production fragmentation. It appears to have been so far a classic example of tariff jumping type of investment. Their impact may however go beyond that. The Polish press recently reported that Daewoo's plant would provide its Polish operation with crankshafts. When it happens, intra-CEEC trade will grow. Asian multinationals may accomplish something that had eluded CMEA planners for forty years of its existence-the development of horizontal links among plants in CEEC.