Global Value Chains: Quo Vadis?

July 5, 2013, (Friday)
National Graduate Institute for Policy Studies (GRIPS) Soukairou Hall

>>>>Event Guide/Program

Organizers: IDE-JETRO, WTO

Keynote speech 1  |  Reports  |  Keynote speech 2  |  Panel Discussion

Panel Discussion

Panellist:
Robert Koopman (Director of Operations,
The United States International Trade Commission (USITC))   Handouts
Tomohiro Kaneko (Principal Director,
Multilateral Trade System Department, Trade Policy Bureau,
Ministry of Economy, Trade and Industry, Japan (METI))   Handouts
Patrick Low (Chief Economist, World Trade Organization (WTO))
Francisco Monge (Deputy Director General of Foreign Trade, Ministry of Foreign Trade,
Costa Rica (COMEX))   Handouts
Andrew Wyckoff (Director, Directorate for Science, Technology and Industry,
Organisation for Economic Co-operation and Development (OECD))   Handouts

Moderator:
Michitaka Nakatomi (Special advisor to JETRO, Consulting fellow of RIETI)   Handouts

Panel Discussion 1

THEME 1 "The future prospect for GVCs analysis: its policy applicability, limitations, and issues to be tackled."

  1. Can trade in value-added an alternative to traditional ways of measuring trade? Or how can they supplement them?
  2. Can you specify new or additional ways of utilizing trade in value-added?
  3. How can the issue of data availability be practically resolved in the future?

Andrew Wyckoff

I will explain the current status of the world input-output tables in the OECD, which released the OECD-WTO TiVA Database in January and May this year. The database currently covers 57 countries (including all G20 countries) and is the most frequently downloaded database of the OECD. However, this database is not complete, in that there are some issues to be improved regarding the measurement of service trade and others. The OECD is also conducting various analyses. In the field of GVC analysis, it released a book, Interconnected Economies , in May 2013. GVCs can be examined from various perspectives including not only trade but also investment, development issues, risk analysis, and innovation, etc. For the future, we are considering expanding the countries and periods to be covered by the data in cooperation with the IMF, adding more tables for employment, capital flow, and income flow in each country, and conducting an analysis using micro-data at the firm level taking firm heterogeneity into account.

Francisco Monge

In Costa Rica, the preparation of input-output tables is now underway with the support of the Institute of Developing Economies. We intend to integrate these tables into IDE’s Asian International Input-Output Table and the TiVA database. This process is considered extremely important in grasping the real state of GVCs. In addition, we are considering integrating the input-output tables of Latin American countries into regional input-output tables. Moreover, micro-data linkage projects are being carried out. This is useful for the evaluation of firm performance in GVCs. A challenge for the future is the collection of firm-level micro-data.

Patrick Low

GVCs are referred to in various ways but all relate to the same phenomenon, and I think it is extremely important to understand this. I am most interested in how GVC analysis can be utilized in policies. In addition, it is important to understand service transactions in GVCs. Recent studies show that the service industry is a source of value and productivity. In considering how know-how and technology are traded internationally, it is important to look at service transactions in GVCs. Finally, I would like to point out that further study should be conducted on the impact on financial markets through participation in supply chains and the management of the supply chains.

Tomohiro Kaneko

I would like to comment on three points concerning trade in value-added and GVCs from the standpoint of the Japanese government. First, the relationship between traditional trade statistics and the TiVA database is similar to the one between sales and profits in corporate accounting, and therefore they are not alternatives but complement each other. Both statistics are necessary and important to grasp the real state of international trade. Secondly, TiVA has great potential for application in economic analysis. If the TiVA database was incorporated into the CGE model, we could obtain new insights from a policy perspective. Thirdly, each country has been seeking only to increase their trade surplus. This attitude is based on the notion that “imports are evil, exports are good.” However, the use of the TiVA database could change our way of understanding trade and change the dynamics of trade policy. Finally, I will suggest two directions for the further development of trade policy. The first is to expand the countries and industries covered. The second is to analyze income flow in GVCs. As for the latter, in view of the fact that GVCs are supported by foreign direct investment by multinational enterprises, identifying international income flow is extremely important in terms of both policy and academic development.

Robert Koopman

Expectations are high for GVC studies. There is a great demand for insights from GVC analysis in various aspects such as currency issues, international trade, and income flow issues. In particular, bilateral trade analysis by sector is widely known as an example of application. The integration of micro-data is also important. Recently, it has been discovered that small- and medium-sized enterprises (SMEs) are playing an important role in GVCs. According to an analysis conducted for U.S. trade policy, the SME share in U.S. exports was 28%, while the result of an analysis using a method similar to GVC analysis showed that SMEs contributed to 41% of exports. Here, we need to fully understand that multinational enterprises have fragmented their tasks over national borders. GVC analysis is also necessary to understand the rules of origin. However, the database for that purpose is not complete, and the data for analysis is available only in a limited number of sectors. Finally, I would like to point out the importance of human capital development in this field. Partly because these topics are not very often covered by universities, there is no sufficient number of people who can understand and analyze GVCs. Human capital development is an important issue also for academic circles.

Panel Discussion 2

THEME 2 "GVCs analysis and trade policies: what are the main policy implications? Where should they be headed to?"

  1. What are the main implications of GVCs analysis to trade policies?
  2. Can you specify necessary changes to trade policies and practices based on GVCs analysis?
  3. What does GVCs analysis tell on the roles of Mega FTAs / the WTO and the issue of global governance of trade?
  4. Can you specify measures and conditions for developing countries to enter GVCs?

Robert Koopman

One of the main policy implications of GVCs is that, in a production network with production process fragmented across national borders, the clarity, quality, and stability of institutions and policies for economic activity are critical. Another implication is that we need to look at behind-the-border issues as well as trade costs. For a 21st-century trade policy, policymakers are required to flexibly respond to new needs and situations, preferably with a broad set of policies in sight. We can no longer ignore the increase in “effective” labor and the increased mobility of capital and technology. The implications for multilateral or regional agreements not only involve tariff issues but also are closely connected with behind-the-border issues.

Tomohiro Kaneko

The emergence of GVCs may question the notion that “imports are evil, exports are good.” In the electronics industry, for example, where the most advanced production network has been constructed, it became important to import high-quality parts at low cost in order to gain export competitiveness. The signatory countries to the WTO Information Technology Agreement (ITA) that was launched in 1996 (China, the EU, the U.S., South Korea, Japan, and ASEAN, etc.) decided to eliminate tariffs on information technology-related products and to strengthen the global production network. This move is considered quite natural. The movement of trying to protect domestic industries by raising tariffs would rather make the country less competitive. By using insights gained from GVC analysis, this kind of message could be delivered more strongly. I would also like to emphasis the importance of services in GVCs. It is said that about 30% of value-added trade is generated by service-related industries (business support, logistics, and finance).

Next, when considering the issue of mega-FTAs, the TPP, and the T-TIP, we need to effectively address behind-the-border issues (investment, intellectual property, and non-tariff barriers, etc.). In addition, Japan plays a huge role in contributing to 21st-century international trade agreements. We should consider how the multilateral trade system can be strengthened without causing any hindrance to these efforts. Finally, in addressing the development issue, Costa Rica will present a very good example. Participating in GVCs through the improvement of the domestic business environment and attracting more foreign direct investment would certainly help deepen involvement in GVCs.

Patrick Low

I think it is important to participate in GVCs and consider how to utilize them to promote economic growth. The entire production process does not need to be conducted in a single country. Undertaking only part of the process would encourage the concentration of production activity, and expanding the network would lead to an opportunity to participate in GVCs. In addition, participation in GVCs would help reduce liquidity risk. With respect to the development policy issue, the government is expected to play an extremely important role in encouraging participation in GVCs. For example, the improvement of social infrastructure and investment in human capital are costly but important issues. Finally, how should we view international cooperation based on global supply chains? The EU is the most successful case. The movement of capital, movement of goods, and movement of people are three central factors for integration. It should be considered which factor integration or cooperation is necessary. Moreover, when GVC analysis has been conducted, the way in which the results are used needs to be considered, in order to address anti-dumping and other issues.

Francisco Monge

20th-century trade policy was quite simple, with focus only on the trade of final goods; it was enough to think about a single flow in which raw materials are imported and final goods are exported. Trade negotiation was also one-dimensional. In the 21st century, however, trade involves multiple flows. Intermediate inputs, outsourced services, knowledge, capital, labor, and final goods flows are not in one direction but are traded through various routes. These complicated international transactions also complicate and diversify trade policy. In addition to trade policy, it is important to encourage firms to participate in GVCs, attract foreign direct investment, and facilitate the internationalization of domestic firms. Costa Rica aims to deeply integrate its economy into GVCs through an open policy (trade liberalization, the establishment of an export platform, and the attraction of foreign direct investment), investment in human capital, and a social and economic stabilization policy. GVCs provide a new opportunity of growth even for small developing countries such as Costa Rica. Participation in GVCs is expected to foster participation in more sophisticated manufacturing activities. Even countries with poor resources have a potential for industrialization through the utilization of GVCs. Policies should focus primarily on trade liberalization (for both goods and services), the attraction of foreign direct investment, and trade facilitation.

Andrew Wyckoff

In the world of GVCs, it is important to conclude more comprehensive trade agreements. If any barrier exists in one region, it would widely affect other regions, and therefore trade agreement should be considered from a comprehensive perspective. Next, considering from the service side, value-added in the service industry accounts for about half of the total exports. Looking at the data of Japan, the share of value-added is particularly high for business service among various services. The smile curve shows that the value is high in the service industry, which provides services before and after the fabrication process. These services are included in knowledge-based capital (KBC), and I consider them very important. Taking the iPad as an example, the value of this product lies in its applications and user interface, i.e., software, which is a type of KBC. According to the data for 2010, investment in KBC exceeded that in tangible assets. However, the actual state of the international transactions involving KBC, which is an intangible asset, has not been fully grasped. The OECD is considering measuring KBC and integrating KBC into GVC analysis.

Summary: Michitaka Nakatomi

The panelists have stated, through GVC analysis, that protectionism no longer makes any sense and that access to global markets is important. The necessity to address not only the tariff issue but also behind-the-border issues (non-tariff barriers) was emphasized. In addition, there were some comments on the importance of services and human capital. Regarding the question, “What does GVC analysis suggest for the roles of mega-FTAs/the WTO and the issue of the global governance of trade?” the panelists were of the opinion that multilateral frameworks should be upgraded, though no mention was made of how to upgrade. Deeper discussion will be necessary on this issue, including solutions to WTO problems. GVC analysis also suggests the importance of mega-FTAs and advanced FTAs. It was also pointed out that it is also important to predict the various problems that mega-FTAs may cause. In addition, the importance of the WTO itself was pointed out as well. The view that open economic policy is an important means for developing countries to be integrated into GVCs is shared. Finally, a consensus was made that GVC analysis is useful to consider the challenges and policies for global economy. Hence, there is no doubt that it is important to further deepen understanding of GVCs.

Keynote speech 1  |  Reports  |  Keynote speech 2  |  Panel Discussion