OECD Study on Developing Countries Participation in Global Value Chains Implications for Trade and Trade-related Policies

Transcription

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2 CLIMATE Przemyslaw AND KOWALSKI, NERGY OECD OECD Study on Developing Countries Participation in Global Value Chains Implications for Trade and Trade-related Policies Przemek Kowalski, Javier Lopez-Gonzalez, Alexandros Ragoussis and Cristian Ugarte OECD Trade and Agriculture Directorate ICTSD-OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

3 Why firms participate in GVCs? What are the effects at the country level? Selling intermediates for exports by others the forward linkages directly contribute to domestic value added Sourcing foreign intermediates the backward linkages: Increases domestic per capita value added derived from exports Increases product sophistication of export bundle Increases diversification of export bundle

4 It is about productivity in general, including scale % Billion USD

5 Developing countries already participate in GVCs % Forward Backward Eastern and Southern Africa (ESA) Middle East & North Africa (MENA) South Asia (SAS) Southeast Asia (SEA) West and Central Africa (WCA) Angola South Africa Uganda Zambia Burundi Rwanda Madagascar Kenya Mozambique Mauritius Djibouti Egypt Saudi Arabia United Arab Emirates Morocco Turkey Lebanon Tunisia Israel Jordan Pakistan Bangladesh India Sri Lanka Nepal Maldives Bhutan Japan Indonesia Brunei Darussalam China (People s Republic of) Thailand Cambodia Mongolia Viet Nam Philippines Malaysia Hong Kong, China Singapore Chad Cameroon Nigeria Gabon Burkina Faso Mali Congo Senegal Benin Côte d Ivoire Niger Guinea Central African Republic Togo

6 What are the likely and measurable drivers of GVC participation? Structure and geography: Market size Level of development Degree of industrialisation Distance to main manufacturing hubs in Europe, North America and Asia Trade and FDI policies: Import tariffs, tariffs faced in export markets, engagement in RTAs Openness to inward FDI Other policies: Logistics, IPR protection, infrastructure, institutions, electricity supply, R&D spending, access to loans, education and training, etc.

7 Structural factors are important but policies can also play a significant role

8 Some trade-related policies are more important than others High income Developing Total Logistics Performance Index (customs) Intellectual property protection (index) Infrastructure, availability and quality Broadband subscription (per '000) Tax rate (total) Quality of Electricity supply (index) FDI restrictiveness Index (net) R&D expenditure Institutional quality Tertiary graduates (share of workforce) Access to loans (index) Technical occupations (share) Product Market Regulation Services Trade Restrictiveness Index

9 Reform options depend on performance and political economy of reforms Standardized scores South Africa Namibia Rwanda Botswana Mauritius Malawi Zambia Ethiopia Tanzania Swaziland Zimbabwe Lesotho Kenya Uganda Angola Mozambique Madagascar Burundi

10 Regional approaches may help but should not come at a cost of global sourcing Backw ard Forw ard Regional Non-regional Regional Non-regional ESA MEN SAS SEA WCA ESA MEN SAS SEA WCA

11 Conclusions and recommendations Developing countries already participate in GVCs and RVCs Both the buying and the selling activities in value chains can bring about economic benefits Structural drivers are important but policy can play a significant role Trade and investment policies, trade facilitation and, logistics performance, intellectual property protection, and the quality of infrastructure and institutions Countries and regions are quite different; this study can be a useful reference in considering countryspecific policy options

12 Conclusions and recommendations (2) Southeast Asia Completion of the ASEAN internal market and further improvements in logistics performance, infrastructure, and institutions to reduce intraregional disparities (CLMV) and allow the more advanced countries to upgrade. South Asia Deeper regional integration by lowering tariffs, co-ordination of trade facilitation and physical and institutional initiatives drawing on the ASEAN experience.

13 Conclusions and recommendations (3) African regions: Fundamental problems of scale, productivity, infrastructure and institutions. Generally performing poorly in policy areas important for GVCs (i.e. WCA). Corruption, political stability, the credibility of reforms and policy initiatives seem to be priorities. Future work: Latin America, the role of RTAs (rules of origin and NTBs, services), SMEs

14 For more information about OECD work on trade Visit our website: For details of this study contact: Follow us on

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16 CLIMATE Robert Koopman, AND NERGY WTO OECD Study on Developing Countries Participation in Global Value Chains Implications for Trade and Trade-related Policies Robert Koopman Chief Economist, WTO ICTSD-OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

17 Comments on OECD Study on Developing Countries Participation in GVCs Implications for Trade and Trade-related Policies Much needed focus on developing countries and use of OECD-WTO TiVA database. Breadth and depth of insights very helpful To reiterate main findings Structural characteristics matter a lot and these are often long-term and can be more challenging to change Size, geographical location, and manufacturing share in GDP matter Policy is important and these policies often can be changed more quickly and have more immediate effects than structural changes Trade facilitation, services liberalization, competition policy, investment openness, IPR, and dispute settlement. It is important to recognize the intersection of structure and policy elements It is also important to recognize that these factors apply to both developing and developed economies all countries face a dynamic global environment where structure and policy contexts need to change and evolve.

18 Some suggestions Keep driving deeper in TiVA analysis, but ensure complementary work to Further improve TiVA data improve quality of underlying developing country data. How best to ensure? How sensitive to the data quality are these findings? Recognize importance of regular monitoring and updating of analysis and findings. Use as ongoing diagnostic. What is the plan for ongoing development? How to build in monitoring and diagnostic reporting?

19 Some suggestions continued More fundamentally How much does this matter? Start to extend analysis to ask what if and extend to implications for growth, employment composition and sectoral development? What do GVCs mean for DVCs, and vice versa? GVCs are largely extensions of DVCs, offshored vs. just outsourced But what are the lessons for developing countries? Beneficial to think of DVCs in the context of GVCs, and develop domestic policy environment that shapes structural and trade policy development in a way that docks well with global economy. Role for global principals to help inform domestic policy development. Implications for DVCs is that entire economy is affected, not just externally exposed.

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21 CLIMATE Sherry Stephenson, AND NERGYICTSD, OECD Trade Policies and Sustainable Development in the Context of Global Value Chains Dr. Sherry Stephenson Senior Fellow, ICTSD ICTSD OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

22 Some Stylized Facts About Trade in a GVC Context Growing trade in intermediate products Investment decisions are leading trade flows Services are playing greater role in economic activities, including trade Nexus between trade-servicesinvestment-know how in all decisions

23 Trade Policy in a GVC context Trade policy instruments are the same, but their impact can be magnified Use of trade policy must be understood differently effects may not be as projected

24 Factors determining the ability to participate in value chains are numerous and varied ONLY POINT IN COMMON: All of these factors can be directly influenced and shaped by government policy i) Logistics performance ii) Quality of infrastructure: connectivity to the global market iii) Trade and investment policies iv) Human resource skills v) Strength of institutions (enforceability of contract and IP laws, among others, predictability, etc.)

25 Policies affecting GVCs can be thought of as falling into 3 categories Domestic policies contribute to enabling environment Trade policies - influence competitiveness of domestic markets & ability of firms to participate in global production networks Trade-related policies compliment and support trade policies and enhance the enabling environment

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27 Presentation and Policy Brief focuses on five areas that trade policy must take into account in a GVC context - Of note TRADE POLICIES THEMSELVES ARE NOT DIFFERENT IN A GVC CONTEXT BUT THE WAY THEY AFFECT TRADE CAN BE DIFFERENT THUS, THE WAY TRADE POLICIES ARE UNDERSTOOD MUST BE DIFFERENT TRADE POLICIES ARE IMPORTANT BECAUSE THEY CAN INFLUENCE BOTH THE COMPETITIVENESS OF THE DOMESTIC MARKET AS WELL AS THE ABILITY OF FIRMS TO BE PARTICIPANTS IN GLOBAL PRODUCTION NETWORKS

28 Five areas of concern for trade policy in a GVC context Tariffs Non-tariff measures Logistics / customs procedures Services Investment regime

29 Reflections on Tariffs and GVCs Tariff = a tax on imports = effectively also a tax on exports IN A WORLD OF GVCs, TARIFFS DO NOT PROTECT - As part of global production chains, products at different stages of value added may be imported & reexported multiple times, increasing the size of reported exports & imports relative to global & national value added. Input tariffs actually result in negative protection for downstream industries when they raise the production cost of the users of imported inputs, thus resulting in higher rates of effective protection than of nominal protection. Cost of protection generally higher than understood, especially for smaller economies with a large share of intermediate imports in exports Studies show large productivity gains for several developing countries when tariffs on intermediate inputs are lowered or removed

30 Reflections on Non-tariff Measures & GVCs NTMs can be quantified into their tariff equivalents, with a similar negative impact on the ability of firms to integrate into supply chains NTMs cover a vast potential array of impediments to trade & consist of any policies that influence trade flows. NTMs show higher levels of restrictiveness on trade than tariffs When NTMs adversely affect intermediate products, then they can also create high rates of effective protection & handicap domestic producers trying to participate competitively in global markets.

31 Average level of restrictiveness imposed on imports by NTMs

32 Reflections on Logistics, Customs Procedures & GVCs In a world of GVCs, inefficiency in logistics can also be viewed as a type of trade barrier. Logistics costs can have a large impact on the ability of countries firms to participate in GVCs. High costs of trade delays in trading affect GVC and other trade operations often for intermediate imports of manufactures that have high time value because they depreciate quickly or have high inventory cost. Improvements in logistics performance, including customs procedures, can bring about much higher gains to world GDP and trade than removing tariffs (WEF-World Bank study)

33 Potential Increase in Trade and GDP to be derived from Improvement in Logistics Source: WEF-World Bank-Bain Report (2012) Enabling Trade: Valuing Growth Opportunities

34 Reflections on Services & GVCs Services act as the glue or the links between the various elements of production networks. Services are increasingly embodied in all economic activity, including trade process of servicification now 50% of world trade on VA basis Services used in GVCs have grown the fastest in world services trade, namely other commercial services, (such as communications, insurance, finance, computer and information services, and other business services) Tariffs on goods also negatively impact on services, through taxing the services that provide VA into the manufacturing process in each industry. (Impact depends upon number of services used in the production process & location upstream or downstream) Restrictions on services trade can also negatively impact ability of services to play their intermediary facilitating role in GVCs

35 The Services Sector is driving Global GDP Growth Source: Saez, S. (2011), World Bank

36 Reflections on Investment & GVCs Global investment & trade inextricably intertwined through the networks of firm carrying out FDI worldwide & patterning their trade around these. Investment policy is a key trade determinant in a GVC world. Investment regime (openness & quality) : one of the important factors determining the quantity & the type of foreign direct investment a country receives. Countries able to attract larger shares of FDI are able to gain access and participate more intensively in GVCs. Shown by the positive statistical relationship between FDI stock & GVC participation rates, for both developed and developing countries.

37 Correlation between levels of foreign direct investment and GVC participation

38 Participation in GVCs is a Choice : depends upon National Objectives GVC participation can help to stimulate and increase economic growth and can bring about more efficient domestic production patterns and resource allocation : evidence has been provided on this by the UNCTAD But can it achieve sustainable development goals? May depend in large part on national objectives: Industrial policy objectives are now often cited for active policy intervention to try and dictate specific outcomes for national manufacturing / services firms. There is an active debate ongoing in this area.

39 Relationship between growth in GVC participation and higher GDP/ capita growth for Developed countries (on left) and Developing countries (on right) Source: UNCTAD (2013) Global Value Chains and Development

40 Development Doubts around GVC Participation Who gets the value in the GVC? Answer to this will vary, depending upon where the task / input provided by the developing country firm will fall along the chain upstream or downstream and what type of value chain it is (natural resource vs. manufacturing or services) Is upgrading possible along the GVC? Answer to this will again depend upon the type of value chain in question and the quality of skills and technology the supplier can bring to the process Will participating in GVCs increase employment? Answer to this will depend upon the sector in which the value chain operates and how embedded it is in the domestic economy. Many value chains will be gender-positive (for women) but not necessarily in higherskilled tasks.

41 Development Doubts around GVC Participation Will there be a transfer of skills to the local economy? Answer to this will depend upon how embedded the GVC is in the domestic economy and on the behavior of the lead firm. Will the value chain activity be sustainable in time? There is no guarantee in a globalized world that countries will be able to retain tasks supplied to GVCs without maintaining competitiveness. Will the value chain participation be environmentally friendly? Answer to this will depend upon the behavior of the lead firm and domestic regulatory standards.

42 There are no absolute answers to these numerous questions Answers to the sustainable development questions must be placed in specific national contexts and examined with empirical studies not many of those have been carried out so far from this perspective. Trade policy alone will neither provide nor guarantee sustainable development outcomes, but it can and will impact on GVC participation, either positively or not.

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44 CLIMATE Kent Wilska, AND Ministry NERGYfor Foreign Affairs of Finland, OECD Aid for Trade and Global Value Chains: Addressing Supply Side Capacity Constraints in the GVC context Kent Wilska Ministry for Foreign Affairs of Finland ICTSD OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

45 Set requirements and options for national policies International and regional agreements AFT support for negotiations and implementation National legislative and institutional framework AFT support for reforms and increasing efficiency of public entities (customs, export promotion, etc.) AFT support for upgrading infrastructure: transport, energy and communications value chain (process categories of value adding activities) buyers/end -customers Customs Customs Country A Country B Explanation Flow of goods AFT support AFT support for capacity building and technical assistance AFT support for technological upgrading AFT facilitating access to finance Border

46 Country A: components Country D: end market Country C: assembly / manufacturing Country B: raw materials

47 Workers Farmers Traders Exporter End market

48

49 CLIMATE Bernard HOEKMAN, AND NERGYEuropean University Institute Development Perspective on GVCs Bernard Hoekman European University Institute ICTSD OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

50

51 CLIMATE Przemyslaw AND KOWALSKI, NERGY OECD OECD Study on Developing Countries Participation in Global Value Chains Implications for Trade and Trade-related Policies Przemek Kowalski, Javier Lopez-Gonzalez, Alexandros Ragoussis and Cristian Ugarte OECD Trade and Agriculture Directorate ICTSD-OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

52 Why firms participate in GVCs? What are the effects at the country level? Selling intermediates for exports by others the forward linkages directly contribute to domestic value added Sourcing foreign intermediates the backward linkages: Increases domestic per capita value added derived from exports Increases product sophistication of export bundle Increases diversification of export bundle

53 It is about productivity in general, including scale % Billion USD

54 Developing countries already participate in GVCs % Forward Backward Eastern and Southern Africa (ESA) Middle East & North Africa (MENA) South Asia (SAS) Southeast Asia (SEA) West and Central Africa (WCA) Angola South Africa Uganda Zambia Burundi Rwanda Madagascar Kenya Mozambique Mauritius Djibouti Egypt Saudi Arabia United Arab Emirates Morocco Turkey Lebanon Tunisia Israel Jordan Pakistan Bangladesh India Sri Lanka Nepal Maldives Bhutan Japan Indonesia Brunei Darussalam China (People s Republic of) Thailand Cambodia Mongolia Viet Nam Philippines Malaysia Hong Kong, China Singapore Chad Cameroon Nigeria Gabon Burkina Faso Mali Congo Senegal Benin Côte d Ivoire Niger Guinea Central African Republic Togo

55 What are the likely and measurable drivers of GVC participation? Structure and geography: Market size Level of development Degree of industrialisation Distance to main manufacturing hubs in Europe, North America and Asia Trade and FDI policies: Import tariffs, tariffs faced in export markets, engagement in RTAs Openness to inward FDI Other policies: Logistics, IPR protection, infrastructure, institutions, electricity supply, R&D spending, access to loans, education and training, etc.

56 Structural factors are important but policies can also play a significant role

57 Some trade-related policies are more important than others High income Developing Total Logistics Performance Index (customs) Intellectual property protection (index) Infrastructure, availability and quality Broadband subscription (per '000) Tax rate (total) Quality of Electricity supply (index) FDI restrictiveness Index (net) R&D expenditure Institutional quality Tertiary graduates (share of workforce) Access to loans (index) Technical occupations (share) Product Market Regulation Services Trade Restrictiveness Index

58 Reform options depend on performance and political economy of reforms Standardized scores South Africa Namibia Rwanda Botswana Mauritius Malawi Zambia Ethiopia Tanzania Swaziland Zimbabwe Lesotho Kenya Uganda Angola Mozambique Madagascar Burundi

59 Regional approaches may help but should not come at a cost of global sourcing Backw ard Forw ard Regional Non-regional Regional Non-regional ESA MEN SAS SEA WCA ESA MEN SAS SEA WCA

60 Conclusions and recommendations Developing countries already participate in GVCs and RVCs Both the buying and the selling activities in value chains can bring about economic benefits Structural drivers are important but policy can play a significant role Trade and investment policies, trade facilitation and, logistics performance, intellectual property protection, and the quality of infrastructure and institutions Countries and regions are quite different; this study can be a useful reference in considering countryspecific policy options

61 Conclusions and recommendations (2) Southeast Asia Completion of the ASEAN internal market and further improvements in logistics performance, infrastructure, and institutions to reduce intraregional disparities (CLMV) and allow the more advanced countries to upgrade. South Asia Deeper regional integration by lowering tariffs, co-ordination of trade facilitation and physical and institutional initiatives drawing on the ASEAN experience.

62 Conclusions and recommendations (3) African regions: Fundamental problems of scale, productivity, infrastructure and institutions. Generally performing poorly in policy areas important for GVCs (i.e. WCA). Corruption, political stability, the credibility of reforms and policy initiatives seem to be priorities. Future work: Latin America, the role of RTAs (rules of origin and NTBs, services), SMEs

63 For more information about OECD work on trade Visit our website: For details of this study contact: Follow us on

64

65 CLIMATE Robert Koopman, AND NERGY WTO OECD Study on Developing Countries Participation in Global Value Chains Implications for Trade and Trade-related Policies Robert Koopman Chief Economist, WTO ICTSD-OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

66 Comments on OECD Study on Developing Countries Participation in GVCs Implications for Trade and Trade-related Policies Much needed focus on developing countries and use of OECD-WTO TiVA database. Breadth and depth of insights very helpful To reiterate main findings Structural characteristics matter a lot and these are often long-term and can be more challenging to change Size, geographical location, and manufacturing share in GDP matter Policy is important and these policies often can be changed more quickly and have more immediate effects than structural changes Trade facilitation, services liberalization, competition policy, investment openness, IPR, and dispute settlement. It is important to recognize the intersection of structure and policy elements It is also important to recognize that these factors apply to both developing and developed economies all countries face a dynamic global environment where structure and policy contexts need to change and evolve.

67 Some suggestions Keep driving deeper in TiVA analysis, but ensure complementary work to Further improve TiVA data improve quality of underlying developing country data. How best to ensure? How sensitive to the data quality are these findings? Recognize importance of regular monitoring and updating of analysis and findings. Use as ongoing diagnostic. What is the plan for ongoing development? How to build in monitoring and diagnostic reporting?

68 Some suggestions continued More fundamentally How much does this matter? Start to extend analysis to ask what if and extend to implications for growth, employment composition and sectoral development? What do GVCs mean for DVCs, and vice versa? GVCs are largely extensions of DVCs, offshored vs. just outsourced But what are the lessons for developing countries? Beneficial to think of DVCs in the context of GVCs, and develop domestic policy environment that shapes structural and trade policy development in a way that docks well with global economy. Role for global principals to help inform domestic policy development. Implications for DVCs is that entire economy is affected, not just externally exposed.

69

70 CLIMATE Sherry Stephenson, AND NERGYICTSD, OECD Trade Policies and Sustainable Development in the Context of Global Value Chains Dr. Sherry Stephenson Senior Fellow, ICTSD ICTSD OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

71 Some Stylized Facts About Trade in a GVC Context Growing trade in intermediate products Investment decisions are leading trade flows Services are playing greater role in economic activities, including trade Nexus exists between trade-servicesinvestment-know how in all economic decisions

72 Factors determining the ability to participate in value chains are numerous and varied ONLY POINT IN COMMON: All of these factors can be directly influenced and shaped by government policy i) Logistics performance ii) Quality of infrastructure: connectivity to the global market iii) Trade and investment policies iv) Human resource skills v) Strength of institutions (enforceability of contract and IP laws, among others, predictability, etc.)

73 Policies affecting GVCs can be thought of as falling into 3 categories Domestic policies contribute to enabling environment Trade policies - influence competitiveness of domestic markets & ability of firms to participate in global production networks Trade-related policies compliment and support trade policies and enhance the enabling environment

74

75 Presentation and Policy Brief focus on five areas that trade policy must take into account in a GVC context - of note Trade Policies themselves are not different in a GVC context but the way they affect trade can be different. Thus, the way trade policies are understood must be different. Trade policies are important because they can influence both the competitiveness of the domestic market as well as the ability of firms to be participants in global production networks.

76 Five areas of concern for trade policy (as understood in a broad sense) in a GVC context Tariffs Non-tariff measures Logistics / border procedures Services Investment regime

77 Reflections on Tariffs and GVCs Tariff = a tax on imports = effectively also a tax on exports IN A WORLD OF GVCs, TARIFFS DO NOT PROTECT - As part of global production chains, products at different stages of value added may be imported & re-exported multiple times Input tariffs actually result in negative protection for downstream industries when they raise the production cost of the users of imported inputs, thus resulting in higher rates of effective protection than of nominal protection. Cost of protection generally higher than understood, especially for smaller economies with a large share of intermediate imports in exports Studies show large productivity gains for several developing countries when tariffs on intermediate inputs are lowered or removed

78 Reflections on Non-tariff Measures & GVCs NTMs can be quantified into their tariff equivalents, with a similar negative impact on the ability of firms to integrate into supply chains NTMs cover a vast potential array of impediments to trade & consist of any policies that influence trade flows. NTMs show higher levels of restrictiveness on trade than tariffs When NTMs adversely affect intermediate products, then they can also create high rates of effective protection & handicap domestic producers trying to participate competitively in global markets.

79 Average level of restrictiveness imposed on imports by NTMs

80 Reflections on Logistics, Border Procedures & GVCs In a world of GVCs, inefficiency in logistics can also be viewed as a type of trade barrier. Logistics costs can have a large impact on the ability of countries firms to participate in GVCs. High costs of trade delays in trading affect GVC and other trade operations, especially for intermediate imports of manufactures that have high time value because they depreciate quickly or have high inventory cost. Improvements in logistics performance, including customs procedures, can bring about much higher gains to world GDP and trade than removing tariffs (WEF-World Bank study)

81 Potential Increase in Trade and GDP to be derived from Improvement in Logistics Source: WEF-World Bank-Bain Report (2012) Enabling Trade: Valuing Growth Opportunities

82 Reflections on Services & GVCs Services act as the glue or the links between the various elements of production networks. Services are increasingly embodied in all economic activity, including trade process of servicification and now account for at least 50% of world trade on a value-added basis Services used in GVCs have grown the fastest in world services trade, namely other commercial services, (such as communications, insurance, finance, computer and information services, and other business services) Tariffs on intermediate goods also negatively impact on services, through taxing the services that provide VA into the manufacturing process in each industry. (Impact depends upon number of services used in the production process & location upstream or downstream) Restrictions on services trade can also negatively impact ability of services to play their intermediary facilitating role in GVCs

83 The Services Sector is driving Global GDP Growth Source: Saez, S. (2011), World Bank

84 Reflections on Investment & GVCs Global investment & trade inextricably intertwined through the networks of firm carrying out FDI worldwide & patterning their trade around these. Investment policy is a key trade determinant in a GVC world. Investment regime (openness & quality) : one of the important factors determining the quantity & the type of foreign direct investment a country receives. Countries able to attract larger shares of FDI are able to gain access and participate more intensively in GVCs. Shown by the positive statistical relationship between FDI stock & GVC participation rates, for both developed and developing countries.

85 Correlation between levels of foreign direct investment and GVC participation

86 Participation in GVCs is a Choice : depends upon National Objectives GVC participation can help to stimulate and increase economic growth and can bring about more efficient domestic production patterns and resource allocation : evidence has been provided on this by the UNCTAD But can it achieve sustainable development goals? This may on how these goals are defined and priorities at the national level: Industrial policy objectives are now often cited for active policy intervention to try and dictate specific outcomes for national manufacturing / services firms. There is an active debate ongoing in this area.

87 Relationship between growth in GVC participation and higher GDP/ capita growth for Developed countries (on left) and Developing countries (on right) Source: UNCTAD (2013) Global Value Chains and Development

88 Development Doubts around GVC Participation Who gets the value in the GVC? Answer to this will vary, depending upon where the task / input provided by the developing country firm will fall along the chain upstream or downstream and what type of value chain it is (natural resource vs. manufacturing or services) Is upgrading possible along the GVC? Answer to this will again depend upon the type of value chain in question and the quality of skills and technology the supplier can bring to the process Will participating in GVCs increase employment? Answer to this will depend upon the sector in which the value chain operates and how embedded it is in the domestic economy. Many value chains will be gender-positive (for women) but not necessarily in higher-skilled tasks.

89 Development Doubts around GVC Participation Will there be a transfer of skills to the local economy? Answer to this will depend upon how embedded the GVC is in the domestic economy and on the behavior of the lead firm. Will the value chain activity be sustainable in time? There is no guarantee in a globalized world that countries will be able to retain tasks supplied to GVCs without maintaining competitiveness. Will the value chain participation be environmentally friendly? Answer to this will depend upon the behavior of the lead firm and domestic regulatory standards.

90 There are no absolute answers to these numerous questions Answers to the sustainable development questions must be placed in specific national contexts and examined with empirical studies not many of those have been carried out so far from this perspective. Trade policy alone will neither provide nor guarantee sustainable development outcomes, but it can and will impact on GVC participation, either positively or not.

91 Conclusion Visit our webpage on ICTSD website Follow us on Twitter For details contact : Sstephenson@ictsd.ch

92

93 CLIMATE Kent Wilska, AND Ministry NERGYfor Foreign Affairs of Finland, OECD Aid for Trade and Global Value Chains: Addressing Supply Side Capacity Constraints in the GVC context Kent Wilska Ministry for Foreign Affairs of Finland ICTSD OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva

94 Set requirements and options for national policies International and regional agreements AFT support for negotiations and implementation National legislative and institutional framework AFT support for reforms and increasing efficiency of public entities (customs, export promotion, etc.) AFT support for upgrading infrastructure: transport, energy and communications value chain (process categories of value adding activities) buyers/end -customers Customs Customs Country A Country B Explanation Flow of goods AFT support AFT support for capacity building and technical assistance AFT support for technological upgrading AFT facilitating access to finance Border

95 Country A: components Country D: end market Country C: assembly / manufacturing Country B: raw materials

96 Workers Farmers Traders Exporter End market

97

98 CLIMATE Bernard HOEKMAN, AND NERGYEuropean University Institute Development Perspective on GVCs Bernard Hoekman European University Institute ICTSD OECD / Trade Policies, Value Chains and Development, 23 April 2015, Geneva