Global value chains (GVCs) have become a dominant feature of world trade and investment, offering new prospects for growth, development and jobs, according to a new joint report by the Organisation for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Effective participation in GVCs will require significant further investment in technology dissemination, skill building and upgrading, the report says.
Implication of Global Value Chains for Trade, Investment, Development and Jobs, presented to Leaders at the G20 Summit in Saint Petersburg on 5-6 September 2013, argues that success in international markets depends as much on the capacity to import high-quality inputs as on the capacity to export: intermediate inputs account for over two-thirds of the goods and 70% of the services traded worldwide. The report says action is needed now to implement an effective framework for strong, sustainable, balanced and inclusive growth, in which all countries could reap benefits.
The new report outlines how both the costs of trade and investment protectionism and the benefits of multilateral opening in agriculture, manufacturing and services are much higher in today’s highly interconnected world than previously thought. Practical trade facilitation reforms, such as those being negotiated at the WTO today, offer significant potential to reduce trade costs and improve countries’ ability to participate in GVCs. Trade facilitation is about easing access to the global marketplace and doing away with the complicated border crossing procedures and excess red tape that raise costs, which ultimately fall on businesses, consumers and our economies. “GVCs can magnify the benefits of open markets for trade and investment; but in order to reap the benefits for all countries we need to advance structural, innovation and skills policies,” said OECD Secretary-General Angel Gurría. “A 1% reduction in the cost of global trade alone would boost income by over USD 40 billion, mainly to the benefit of developing countries,” Mr. Gurria said (Read the full speech).
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 developing economies, particularly the less developed, there remains much work to be done to address specific obstacles to effective participation in GVCs. Aid for trade initiatives and trade facilitation can play an important role in supporting the efforts of those economies. "This report helps policymakers to examine with greater clarity the opportunities and challenges associated with the phenomenon of Global Value Chains. Global Value Chains are undeniably an important component of the globalization process of today," said WTO Director-General Roberto Azevedo.
Overcoming obstacles to GVC participation will pay big dividends: developing economies with the fastest growing GVC participation have GDP per capita growth rates 2% above average, according to the report. "Global production chains are a common feature in many industries involving an increasing number of developing countries. A key challenge is how to generate employment, and upgrade technology and productive capacity in order to maximize development benefits", said UNCTAD Secretary-General Mukhisa Kituyi.
The new OECD-WTO-UNCTAD report was requested by G20 leaders at their Los Cabos Summit in June 2012, as part of wider efforts to analyse the functioning of GVCs and their relationship with trade and investment flows, development and jobs. The OECD hosted a G20 stock-taking seminar on GVCs on 29 May 2013 in Paris.