On the second and final day, yesterday, of the conference on "Global Value Chains in the 21st Century: Policy Implications on Trade, Investment, Statistics and Developing Countries" co-organised by China's Ministry of Commerce, UNCTAD, WTO and OECD in Bejing, a panel discussion was held on "Global value chains (GVCs) and international investment."
In opening the panel discussion, Mr. James Zhan, Director of UNCTAD's Investment and Enterprise Division, pointed out that in order to understand value-added trade from an international production perspective, it is essential to recognise that trade is generated through investment; and, moreover, investment and trans-national corporation (TNC) behaviour determines the distribution of value added.
He referred to UNCTAD estimates that show that TNCs are directly involved in up to 80% of global trade, i.e. around $16 trillion of the $19 trillion of global exports of goods and services in 2010. A little over a half of this - $8.7 trillion - was TNC-governed trade in GVCs. In other words, “in a world of GVCs it is difficult to debate trade policies in general, and value-added trade policies in particular, without also considering investment policies and policies governing the behaviour of TNCs”.
In her analysis, Ms. Signe Ratso, Director, DG Trade at the European Commission, highlighted key aspects of GVCs and investment relationships between the EU and China, cautioning that in order to establish high-tech segments of GVCs, it was paramount that countries adopt or maintain investment liberalisation, as well as IPR enforcement.
Mr. Herbert Oberhansli, Vice President, Head of Economics & International Relations Nestle SA, analysed GVCs from a business practice perspective, mentioning that local value chains (especially for “multi-domestic TNCs”, such as Nestle) had to work in harmony with global ones. Moreover, from the perspective of economic and social upgrading, TNCs had to take the position of shared value –- looking to the interests of all stakeholders in poor countries, including local communities, not just those of shareholders.
Prof. Christos Pitelis, Director, Centre for International Business and Management, University of Cambridge, emphasised the importance of a co-creation of “ecosystems”, clusters and regulations by governments and TNCs as the basis through which GVC segments could be effectively moved to developing countries, and how the benefits arising could be transmitted into the local economy.
Mr. Koen de Backer, Senior Economist, OECD, reminded the audience of trends and changes in the investment behaviour of TNCs in the context of GVCs, and re-emphasised Mr Zhan’s points about the importance of integrating investment policy with trade and industrial policy.
Mr. Xiao Geng, Director of Research, Fung Global Institute, demonstrated how GVCs are continuously evolving, by discussing the development of China's four supply chains in the area of manufacturing, infrastructure, finance, and government services and their implications for international investment.
Taking these remarks, as well as comments from the floor into account, Mr. Hafiz Mirza, Chief of Investment Issues, DIAE, UNCTAD, stressed the importance of three aspects from the point of view of GVCs, investment and development. First, GVCs are about value creation in specific locations internationally and the dispersal of this value; an increasing part of this value creation is in developing countries; and it is therefore important that as much as possible be retained in these economies to further the process of development; Secondly, sharing value is key; responsible investment including the dispersal of benefits by TNCS is key; and the role of governments in both maximising the benefits associated with GVCs, as well as minimising the costs is crucial. Finally, coming full circle, governments and TNCs are locked together in creating capabilities, resources and comparative advantage; this is part and parcel of the processes intensifying the rise, expansion and intensification of GVCs internationally, as well as the basis for sharing value; and overall this is a win-win, rather than a lose-lose paradigm.
After two days of detailed analyses and debate, speakers in the closing session remarked especially on the excellent collaboration between sister agencies – the WTO, UNCTAD and the OECD – as well as with China's Ministry of Commerce which allowed the coming together of a great deal of newly generated knowledge of GVCs in the 21st century and their implications for development.
There was a tangible commitment to redoubling these collaborative efforts to establish a new conceptual and statistical basis for dealing with the issues, especially from a policy perspective.
In his closing remarks, Mr. James Zhan, emphasised a number of points. First, investment and trade are irrevocably intertwined, the investment-trade nexus is with us, and it is important to fully comprehend the patterns of trade from an investment perspective. Secondly, this has immense implications for policy, including for development; and industrial policy is very much back, and past pitfalls need to be avoided in the new generation of such policy. Thirdly, it is important to go beyond input-output data, although these have taken us a long way in understanding the contours of value-added trade. This is because we now need to connect with firm-level data, especially to see what is now happening vis-à-vis sub-segments of value chains – the trends in R&D segments in some industries, for instance, suggest a further fine-slicing of activities with their dispersal to contract research companies in both developed and developing countries. Finally, a number of other issues will have to be covered in the future, ranging from green GVCs, through transfer pricing in GVCs to regional value chains and how they interact with global value chains.
