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Chiefs of UNCTAD, WTO say dynamically expanding 'value chains' changing nature of trade and impact on development

25 September 2012

Finished goods are now produced in part in so many different countries that the traditional concepts of ‘imports’ and ‘exports’ are no longer accurate, with major implications for traditional national and regional 'trade policies', the UNCTAD Trade and Development Board was told today.

Pascal Lamy and Supachai Panitchpakdi
Pascal Lamy and Supachai Panitchpakdi discuss Item 7:
Evolution of the international trading system and its trends from a development perspective

Value chains” – that is, the process by which raw materials are transformed into finished products – have become so vast and so international, and the upgrading of intermediate products often spread among so many countries at regional and global levels, that the traditional labels of “import” and “export” are not the best way to think of the process, World Trade Organization (WTO) Director-General Pascal Lamy said at Tuesday morning’s session of the Trade and Development Board (TDB).

UNCTAD Secretary-General Supachai Panitchpakdi added that because of the proliferation of global supply chains, regional trade agreements seem to be taking greater precedence and to be “more driven by desire not only to have market opening, but to have barrier-free trade – both imports and exports. You need this to have this style of international transaction happen.”

Dr. Supachai mentioned the ASEAN-plus trading arrangements involving 10 countries of South-East Asia which could be a template for Asia-wide regional trade agreements and regional integration. He said “The same thing is happening with pan-African economic integration” and told the meeting that more attention needed to assure better coherence between “multilateralisms and regionalisms.”

Dr. Supachai told the meeting that while “global value chains can help integrate developing countries into the global market,” what matters is whether their participation in the chains results in stable economic growth, the creation of more and better jobs, and in increased technical capacities for their domestic economies. He stressed the need for developing countries to be integrated into higher-value component productions.

The two agency chiefs spoke during a session of the TDB on the topic of “Evolution of the international trading system and its trends from a development perspective.”

“Decreased transport and communication costs, underpinned by a more predictable trade policy environment, have enabled industrial production to be fragmented across regions as never before,” Mr. Lamy said. “Particularly for smaller developing countries, but also for small and medium companies, global value chains lower the bar for entry into the global economy". He added that "this phenomenon is by no means exclusive to high-tech products. This replacement of ‘trade in goods’ with ‘trade in tasks’ has major implications for how we think about trade.” He also added that there are also implications for the development impact and attendant policies at firm, national, regional and global levels.

Mr. Lamy went on to say, “Our traditional methodology assigns the total commercial value of an import to a single country of origin. When applied to ‘made in the world’ products, the methodology can exaggerate bilateral trade imbalances and understate where value addition occurs. So we need to review the way we measure value-added trade."

He recommended government policies that “can help create a virtuous circle of increasing international competitiveness and trade flows, yielding steady developmental dividends.” He also called for public-private cooperation that can encourage foreign direct investment, “which often brings with it improved technology.” Both chiefs also highlighted the importance of services trade in value-addition production and saw it as a key driver for greater participation of developing countries in global trade.

Both Mr. Lamy and Dr. Supachai expressed concern about a recent uptick in restrictive trade measures, particularly so-called non-tariff measures (NTMs) which lately often take the form of health, safety, and environmental standards that can be difficult for developing-country imports to meet. The issue is complex and must be carefully studied and – hopefully – balanced so that free-trade considerations and health and environmental issues all are given due respect, Mr. Lamy said.

“We intend to continue to work with UNCTAD to shed further light on NTMs, and to explore ways to preserve the gains from trade without sacrificing public policy objectives,” he added. Dr. Supachai added that WTO and UNCTAD could work together to create a platform to provide advance warnings to developing countries in particular about forthcoming NTMs and their potential impact on trade.

Mr. Lamy called more traditional trade restrictions, also increasing over the past year, “like bad cholesterol, and the danger is that the benefits of trade openness will be incrementally undermined.”

Both Mr. Lamy and Dr. Supachai expressed concern about an apparent slowing of the recovery from the global financial crisis.

“The global economy remains fragile,” Mr. Lamy said. “Recovery from the financial and economic crisis remains sluggish and downside risks are substantial.”

He said the WTO last week revised downward its growth projections for global trade growth in 2012 from 3.7% to 2.5%.

Moderating the session was Mr. Guillermo Valles, Director of UNCTAD's Division on International Trade in Goods and Services, and Commodities (DITC). For the first time, the Trade Directors and senior officials of all the five UN Regional Commissions (ECA, ECE, ECLAC, ESCAP and ESCWA), as well as the Director of the International Trade Department of the World Bank were together on the panel and presented their perspectives as discussants and commentators.