Global Value Chains in a Changing World
De FUNDACION ICBC | Biblioteca Virtual
Edited by Deborah K. Elms and Patrick Low, WTO, 2013
Any discussion today of international trade and investment policy that fails to acknowledge the centrality of global value chains (GVCs) would be considered outmoded and of questionable relevance. The idiom might vary – referring to trade in value-added, production sharing, supply chains, outsourcing, offshoring, vertical integration, or fragmented production instead of GVCs – but the core notion of internationally joined-up production is the same. Every international agency dealing with economic affairs as well as many governments are working on various aspects of GVCs in order to understand better their various dimensions. The central concern from this quarter, of course, is what GVCs mean for trade policy and for international cooperation in trade-related matters.
While the business, management, economics, and development literature on GVCs goes back at least two decades, attention from the international policy community is much more recent. It is interesting to consider the process through which GVCs became more mainstream in policy thinking. A major initial influence came from the arcane world of statistics and measurement. Certain international and national agencies and academic institutions started to worry that by measuring trade in terms of gross values we were distorting the picture of bilateral trade balances, double counting trade flows, attributing production to the wrong geographical locations, incorrectly specifying the technological content of exports at the national level, and misunderstanding the true relationship between imports and exports. In short, we were simply failing to capture the true nature of economic relations among countries and the resulting policy implications.
Why, the argument went, should we measure and report international trade any differently from the way we measure and report domestic production? By measuring trade in gross terms, we were effectively saying that the entire value of an export could be accounted for by the last country on the supply chain. We needed instead to attribute value correctly, ensuring that the factors of production and other inputs contributed by each national location were allocated accordingly. No doubt one reason why progress towards measuring trade in value-added has been so slow is that the Global value chains in a changing world data requirements of this approach are far greater than simply recording the gross value of trade flows.
Not surprisingly, considering the pattern of its economic growth experience over a number of decades in the second half of the twentieth century, Japan was a pioneer in this field. The Institute of Developing Economies-Japan External Trade Organization (IDE-JETRO) was one of the earliest agencies to develop international input-output matrices that reflected inter-industrial trade linkages. IDE-JETRO subsequently teamed up with the World Trade Organization (WTO) to develop this work further and measure value-added trade. The WTO launched its “Made-in-the-World” initiative aimed at raising public awareness and deepening analysis of the implications of GVCs. The OECD and WTO have also worked together to derive a comprehensive set of trade in value-added indicators from the OECD’s global input-output table. This cooperation led to the TiVA (Trade in Value-Added) initiative.
Another important initiative resulting in a matrix of international value-added trade comes from WIOD (World Input-Output Database), a grouping of European universities and other policy institutions, along with the Organisation for Economic Co-operation and Development (OECD), funded by European Union (EU) Commission. Other work contributing to international value-added measurement efforts has been undertaken by the United States International Trade Commission, the World Bank and the International Monetary Fund working with the Global Trade Analysis Project (GTAP) database. More recently, the United Nations Conference on Trade and Development (UNCTAD) derived trade in value-added indicators from EORA (another academic database initiative).
Much remains to be done on the statistical front, and this work will implicate a growing number of agencies, particularly at the national level. Further efforts and resource commitments are needed to refine the baseline for this kind of data analysis, improve and standardize measurement methodologies, and ensure regular updating. We have some way to go before trade can be routinely reported in value-added as well as in gross terms, but this should be the objective.
While statistics have been an important entry point for the international community to think about GVCs, the process of integrating these insights into policy is still at a fledgling stage. Some might argue that the GVC phenomenon is nothing more than turbo-charged international trade and that we have been concerned with trade and trade policy for centuries. But this “nothing really new” posture is Foreword reductionist and misses the point that as technology has pushed out the frontiers of trade and intensified the degree of global interdependency, we need to rethink the very nature of cooperation among nations and what this means for policy. The “them and us” of much old thinking about trade has increasingly been shunted aside by an “us” focus. The politics have yet to catch up as policy strives to master the implications of GVCs.
Several policy-related insights in need of further analysis that will increasingly be factored into the decision-making process are particularly worthy of mention.
First, intensified interdependency in international production relationships through GVCs inevitably implies greater mutual policy dependency. Because supply chains are integrated networks of production operations and not just a series of acrossthe-border transactions, they implicate multiple policy areas. These include the full spectrum of traditional trade policy concerns, investment policy, and a broad range of public policy-driven non-tariff measures affecting both goods and services. An adequate policy framework for cooperation must take an integrative view of policy and break down the compartments into which we still tend to separate different policy realms.
Second, the way supply chains are configured and supplied makes it less relevant than it ever was to think of individual markets as independent of one another. Markets are complementary and whatever affects supply and demand in one market will have ripple effects in other markets. Because trade and investment are increasingly interconnected, those relationships tend also to be of a long term nature, where stability and transparency are important attributes. This is another dimension of policy interdependency that must be taken into account. Third, the internationally joined-up nature of GVCs means that the impact of an upstream policy applied by one country on the supply chain will be multiplicative as goods and services cross successive jurisdictions downstream. This is an important dynamic implication of policy interdependency.
A fourth aspect of GVC-dominated production that has suffered from inadequate attention in a policy context is the role of services. Analysis of value-added trade has shown that services account for almost half of world trade – considerably more than traditionally estimated. The issue is not just quantitative. The nature of the contribution of services is also important. It goes beyond providing the glue that holds supply chains together. Services are often produced in conjunction with goods and represent crucial production components and potential sources of innovation and value-added.
