Remarks by Angel Gurría, OECD Secretary-General, delivered at a workshop on Global Value Chains, Development and Competitiveness
Paris, 19 March 2013
(As prepared for delivery)
Ministers, Ambassadors, Ladies and Gentlemen,
It is a great pleasure to welcome you to this Workshop on Global Value Chains, Development and Competitiveness, organised in cooperation with the Korea Development Institute. This meeting is one of the many steps towards designing policies that enable emerging and developing countries to reap the benefits of Global Value Chains.
During the past few years, both the global economy and world trade have slowed down considerably. The WTO Doha Development Agenda is at an impasse, and many governments are shifting attention from the multilateral trading system to regional trade arrangements. In this environment of slow, hesitant growth, it is hard to resist creeping protectionism, yet it is more important than ever to keep markets open.
The increasing importance of Global Value Chains
Open markets are a sine qua non for global growth and prosperity. In a highly integrated and interdependent global economy, trade liberalisation is essential to foster competition, innovation and development. The rising importance of Global Value Chains (GVCs) is clear proof of how many countries can benefit from the creation, production and export of a given product.
GVCs, driven by technological progress, cost efficiencies, access to resources and markets, and trade policy reform, have become a dominant feature of the global economy. Today, a good produced in the European Union and exported to the United States may include intermediate inputs from China, Japan, or Malaysia, and it may use raw materials and services from Australia, Brazil, Russia or India.
Today, we have to think about goods and services as multinational composites: goods and services today are being “made in the world”.
The proliferation of GVCs also challenges our conventional wisdom on how we look at - and interpret - trade statistics and, in particular, the policies that we develop around them. The OECD-WTO Database on Trade in Value Added (TIVA), which we launched in January, has begun to revolutionise our understanding of what is happening in global trade, investment and production.
For example, services account for less than one-quarter of total trade when measured in gross terms. But when the value added by services in the production of goods is accounted for, then the service sector contributes over 50% of total exports in countries like France, Germany, Italy, the United Kingdom and the United States. Another impressive outcome is that bilateral trade balance positions can change significantly when measured in value added terms. For instance, China's bilateral trade surplus with the United States was over 40 billion dollars smaller (25%) in value added terms in 2009.
The TIVA database focuses on 40 countries (all OECD countries plus Brazil, Russia, India, Indonesia, China and South Africa, the so-called BRIICS), but we will soon also present results for several other non-OECD economies, such as Malaysia, Thailand, Vietnam and others. Our aim now is to improve the database for more intelligent policy design. By better understanding the source of employment and income in GVCs, we can develop better policy advice to ensure countries can more effectively seize these opportunities.
The rise of GVCs creates promising new prospects for developing countries
By reducing the cost of imports as well as exports, and by deepening connectivity with the global market, developing countries can tap into GVCs to accelerate their trade and income growth. In Africa, for example, reducing inland transit time by one day would increase exports by 7%. And reducing global trade costs by 1% would increase world-wide income by more than USD 40 billion, 65% of which would accrue to developing countries.
Many countries have already drawn significant benefits from their involvement in GVCs. China is the best known example, as well as countries like Costa Rica, Mexico, Thailand and Vietnam. Central European countries like the Czech Republic, Hungary, and Poland have also benefitted significantly from their integration in GVCs. GVCs have brought growing exports and a large number of jobs and have been an important driver of economic growth during the past decade.
However, harnessing the power of trade has been particularly challenging for the least developed economies. Many low-income countries still remain excluded from GVCs. They are constrained due to their geographic distance from trade networks, scare natural resources, dearth of necessary infrastructure or skills, or a discouraging investment environment.
How can these countries tap into GVCs?
To overcome existing constraints and integrate into GVCs, developing countries can open up to foreign trade and investment, improve infrastructure, strengthen trade facilitating measures, and improve the business environment. They can provide access to networks, global markets, capital, knowledge and technology. With such key actions, integration in an existing GVC can provide a first step to the economic development of developing countries that is often easier than building a complete value chain.
But integration in GVCs is indeed only a first step. To strengthen the benefits that developing countries draw from their engagement in GVCs, governments should strengthen the business environment and support investment in knowledge assets, such as R&D and design, that enable firms to differentiate their products. They should also strengthen the services sector and foster the development of key economic competencies, notably skills. Such domestic policies can help countries climb the global value chain ladder and prevent them from getting stuck in low-value activities.
These measures may be difficult for the poorest developing economies. Therefore, "aid for trade" initiatives could be of significant value. This kind of support from the donor community can enable least developing countries to build their supply-side capacity and trade-related infrastructure so they too can further reap the benefits of trade. Aid for trade initiatives have become an integral part of the development agenda and now include countries, such as Brazil, China, and India, which are active providers of South-South co-operation.
Ladies and Gentlemen,
Pursuing an inclusive globalisation ─ one that can combine economic dynamism with sustainable social equity in all countries ─ must remain our main objective.
Today’s workshop is an important opportunity to exchange views on better policies to enhance development and competitiveness through integration into GVCs. We hope that it helps to foster the exchange of experiences and peer-learning among countries integrated into GVCs, on how best to design and implement policies to attract and retain investment and promote upgrading of skills and technology.
I wish you an excellent event and a fruitful debate, thank you.
G20: Understanding Global Value Chains