A report launched by the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) and the UN Conference on Trade and Development (UNCTAD) finds that global value chains (GVCs) have become “a dominant feature of the world economy,” with between 30 and 60 percent of G20 countries’ exports comprised of imported inputs or used as inputs by others, and offer new prospects for sustainable growth, development and jobs.
The report, entitled Implications of Global Value Chains for Trade, Investment, Development and Jobs, concludes that both the cost of trade and investment protectionism and the benefits of multilateral opening are much higher than previously thought, and highlights the urgent necessity of comprehensive policy reforms that enhance trade and investment openness.
These conclusions, which were presented to the G20 Summit in St. Petersburg in response to the G20 leaders’ request at the 2012 Summit to analyze the functioning of GVCs and their relationship with international trade and development, parallel those of a study by Dartmouth’s Matthew Slaughter, American Companies and Global Supply Networks, published earlier this year by USCIB and the Business Roundtable, which found that the operations of globally engaged U.S. companies benefit American economic growth and job creation.
In our highly interconnected world, participation in GVCs can produce considerable gains: developing economies with the fastest growing GVC participation have per-capita GDP growth rates two percent above the average, according to the report. Likewise, countries that attract more foreign direct investment tend to have higher GVC participation levels and to generate more value added from trade. Thus, the report states that practical trade facilitation reforms are crucial in reducing trade costs and increasing GVC participation, and that policies conducive to open markets will help ensure that development and growth potential is realized and widely inclusive. Sustainable GVC growth also relies on multilateral cooperation so that policies are coordinated between exporters and importers, and host countries and home countries.
“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,” said OECD Secretary General Angel Gurría. “Reducing global trade costs by just one percent would increase worldwide income by more than $40 billion, 65 percent of which would accrue to developing countries.”
One of the key challenges remaining is to understand and address the obstacles to such access that developing economies experience – access that would help build productive capacity where local firms can capture a significant share of the value added. Significant investment, though, would be required to aid technology dissemination, skill building, education and infrastructure upgrading.