Global Value Chains: Challenges, Opportunities, and Implications for Policy

FOREWORD Meeting at the Saint Petersburg Summit in September 2013, the assembled leaders of the Group of Twenty noted " the importance of better understanding the rapid expansion of global value chains (GVCs) and impacts of participation in GVCs for growth, industrial structure, development and job creation. " Leaders welcomed the work done in 2013 by the OECD, the WTO, and the UNCTAD, and asked them " to seek the views of governments and continue their research on the impact of GVCs, particularly in relation to the influence of GVCs on trade, economic growth, development, job creation and distribution of value-added along GVCs. " Leaders also called on " the OECD in cooperation with the WTO and UNCTAD to deliver a report in the first half of 2014. " Subsequently, the OECD invited the World Bank Group to participate in this exercise. The present document, drawing upon the latest research, is submitted in fulfilment of that mandate. The rise of GVCs has produced a new " trade-investment-services-know-how nexus, " or the intertwining of trade in intermediates, the movement of capital and ideas, and demand for services to coordinate the dispersed production and distribution of goods and services. As such, GVCs are becoming increasingly influential in determining future trade and FDI patterns, as well as growth opportunities. Policy needs to respond to this new reality and promote a business environment that not only makes a country attractive for location of GVCs, but also facilitates upgrading opportunities over time. The analysis stresses that GVCs do not respond to piecemeal approaches to policy change. A " whole-of the-supply-chain " approach is needed. Some of these policies are horizontal in nature: good infrastructure and connectivity, a business-friendly environment, flexible labour markets, access to credit, innovation and macroeconomic stability. Other policies are more targeted, such as tariffs and other trade restrictions, subsidies, local-content or export-performance requirements, and restrictions on foreign exchange. This report, together with discussions during the G20 Australian Presidency-OECD Stocktaking Seminar on GVCs that was held in Paris on 5 May 2014, highlights the following priority actions for G20 governments:  Implement and ratify the WTO Trade Facilitation Agreement as quickly as possible. G20 governments should consider implementing TF measures – such as streamlining customs procedures – even before the ratification process is finalised at the WTO. Developed countries should provide support, where possible, to developing countries as they make trade facilitation commitments …