Friday, September 6, 2013

Global Value Chains Report Launched for G-20 Meeting

On August 6, 2013 the OECD, the WTO and UNCTAD launched their joint report entitled Implications of Global Value Chains for Trade, Investment, Development and Jobs.

The report was prepared for this week's G-20 Leaders summit in Saint Petersburg at the request of G-20 leaders at their Los Cabos Summit in June 2012.

Value chains have become a dominant feature of the world economy, involving countries at all levels of development, from the poorest to the most advanced. The production of goods and services is increasingly carried out wherever the necessary skills and materials are available at competitive cost and quality. This growing fragmentation of production across borders has important implications for trade and investment patterns and policies and offers new prospects for growth, development and jobs. 

Highlights of the report:

  • The growth of global value chains (GVCs) has increased our interdependence: between 30% and 60% of G20 countries’ exports are comprised of imported inputs or are used as inputs by others. 
  • The income from trade flows within GVCs has doubled between 1995 and 2009: for China it has increased 6-fold, India 5-fold and Brazil 3-fold. 
  • Income growth means more job growth: in Germany jobs associated with GVCs have doubled to about 10 million jobs between 1995 and 2008.
  • Trade facilitating measures are vital to successful participation in GVCs; trade cost reductions from practical and relatively inexpensive actions could be as high as 16% for some developing countries.
  • The role of efficient and competitive services sectors is also crucial: services account for 42% of exports (in value added terms) from G20 economies and more than 50% for some countries.
  • GVCs strengthen the case for multilateral market opening, as barriers between third countries, including various non-tariff measures, upstream or downstream can matter as much as barriers put in place by direct trade partners.
  • Open, transparent and predictable trade and investment policies need a range of flanking policies to ensure benefits from GVCs are inclusive and widespread. In some less developed economies there remains much work to be done to address specific obstacles to effective participation in GVCs.
  • Overcoming obstacles to GVC participation can pay big dividends; developing economies with the fastest growing GVC participation have GDP per capita growth rates 2% above average.
  • Multinational Enterprise (MNE) coordinated GVCs account for 80% of global trade. But it is also estimated that the contribution of local firms is very significant (in the range of 40-50% of export value added).
  • GVCs can be an important avenue for developing countries to build productive capacity where local firms can capture a significant share of the value added: but technology dissemination, skill building and upgrading are not automatic and require significant investment.
  • Individual countries will want to carefully weigh the costs and benefits of proactive policies, carefully tailored to the country’s specific situation and coherent with its overall development strategy.
  • A structured approach would include embedding GVCs in industrial development policies, in particular creating an environment conducive to trade and investment and building productive capacities in local firms and skills in the local workforce.
  • Environmental, social and governance frameworks are needed, with strengthened regulation, enforcement, and capacity-building support to local firms for compliance. Well-designed and enforced competition policy has an important role to play.
  • The OECD’s Policy Framework for Investment and UNCTAD’s Investment Policy Framework for Sustainable Development provide broad guidance on improving the investment environment.
  • Multilateral co-operation can contribute much to ensuring an overall trade and investment policy climate conducive to sustainable GVC growth, avoiding “beggar thy neighbour” policies, and addressing specific development policy concerns in today’s more interconnected world.
The complete report can be downloaded here.

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