Remarks by Angel Gurría, Secretary-General, delivered at the Workshop on Global Value Chains
Beijing, 19th September 2012
(As prepared for delivery)
Dear Vice-Premier, Dear Pascal, Dear Supachai,
It is a great pleasure to be with you today to open this workshop on a critical topic for our economies: Global Value Chains (GVC). As highlighted earlier by Vice-Premier Wang, it is also very relevant to discuss this topic here in Beijing. China’s emergence as an economic power owes indeed a great deal to its integration in global value chains.
But China is not alone. Global Value chains have become a dominant feature of today’s global economy. Production processes have become global and markets more integrated as trade costs have fallen on the back of technological progress and trade and investment policy reforms. Intermediate inputs today represent almost 60 percent of the global goods trade and more than 70 percent of the global services trade.
A paradigm shift
This growing process of international fragmentation challenges our conventional wisdom on how we look at and interpret foreign trade and investment. And it challenges, in particular, the views we have on the effect of trade and foreign investment on the economy and the policies that we develop around them.
We can no longer base policy decisions on conventional trade statistics that report the gross value of products and services each time they cross borders. Instead, we need to measure how much and where value is added. This is a fundamental shift in culture.
It is clear that assessing economic performance solely on the basis of traditional measures of export performance can be highly misleading.
Measuring trade in value added is about getting the facts right: it gives us a different perspective on trade and investment issues, painting a clearer picture of economic performance and allowing better decisions by firms and governments.
The policy implications
The policy implications are enormous. On the one hand, imports are essential to enable domestic firms to access world-class inputs, improve their productivity, and compete successfully. On the other hand, many domestic inputs have gone into the production of imported “foreign” products. We also need to understand how these flows could be enhanced to have higher impact in their host economy.
So let’s be clear: productivity and success in international markets now depend as much on the capacity to import efficient inputs as on the capacity to export. This illustrates again the self-defeating force of protectionism. Export performance suffers when access to imports becomes more difficult and costlier. And trade negotiations should catch up with this reality.
But there is actually more to it: Minister, Colleagues, measuring trade in value added is only the beginning of what the OECD is doing in this area. We are doing more, much more. It's about competitiveness, industrial policy, skills, access to markets, technology diffusion, environmental issues, the role of capital, intellectual property, and “trade in income.” We are also looking at the integration of SMEs in global supply chains. And we are trying to identify the levers that could maximize the impact in host economies, while at the same time enabling firms, particularly SMEs, and individuals to take advantage of it.
Consider, for example, the implications of this work for investment. Firms participating in Global Value Chains capitalise not only on specialisation in tasks, they also capitalise on accessing global markets. In China, for example, 70% of exports are generated by foreign affiliates; some of the value added in China is returned elsewhere as royalty payments or repatriated profits. Measuring this “trade in income” is also important to understand where the benefits from trade and access to markets ultimately reside.
Trade in Value Added also changes our understanding of the drivers of competitiveness: we need to think less in terms of sectors or industries but more at the level of the production stage. When a production stage is relocated abroad, the domestic industry becomes competitive precisely because that stage is located where it is the most efficient.
Last but not least, the reorganisation of international trade along value-chains is creating new opportunities. Off-shoring in services, for example, has provided developing country firms with opportunities to build the skills and competencies needed to enter global markets. This requires, however, putting in place the right policy frameworks, in order to promote trade and investment in services sectors, as well as to implement smart skills strategy.
Let me focus now on one the critical issue of the impact of trade on job creation. As a matter of fact, trade and market openness has become a very potent tool for generating better quality jobs. And this includes the more novel facets of trade, such as global services outsourcing and production off-shoring. Once again, this requires adequate supporting policies, inter alia in terms of education, skills training and safety nets to ensure that all segments of the population benefit from this increased openness. This is highlighted in our recent publication: Policy Priorities for International Trade and Jobs. The conclusions are clear: more open markets, not protectionist policies, are essential to create jobs. This was one of my key messages in Puerto Vallarta last April – and it is worth repeating.
But, of course, one should not forget the downsides of such trade fragmentation related to the risk of disruptions in case of catastrophic events. We saw this recently with the Great Eastern Japan earthquake or the floods in Thailand. We are also working on this to develop policy recommendations which would allow mitigating these risks and better responding to emergency situations.
Better data for better analysis… and better policies.
The challenge for us today is thus, first, to get the facts right. This requires the creation of a new statistics information system capable of capturing these global linkages. To do so, we have launched a major initiative, together with the WTO, and we intend to launch a dataset of these estimates by the end of this year.
The OECD is indeed committed to playing a leading role in this respect, based on its long-standing experience and unique access to a considerable network of official statistics institutes. This includes the National Bureau of Statistics in China, with which we have cooperated since the 1990s.
Even at this early stage, the results point to far-reaching policy implications. They should encourage us to have a more ambitious trade and investment agenda. We have made good progress, but we have much more to do.
Be assured that the OECD will continue to contribute, and we look forward to working with all of you. The complexity of these issues requires us all to collaborate more effectively than ever before.