Talks ignore global value chains – WTO

By Time of article published Jun 13, 2011

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The World Trade Organisation (WTO) has launched a “made in the world” initiative in a bid to ensure that trade policies and regulations more accurately reflect the fact that traded goods are rarely made in just one “country of origin”.

Pascal Lamy, the director-general of the body that sets the rules governing international trade, hopes the initiative will lead to better-informed and smarter trade negotiations.

At a recent function to launch the initiative Lamy bemoaned the fact that although the nature of international trade had changed significantly in recent years, trade data had not.

Andreas Maurer, the chief of the WTO’s international trade statistics section, pointed out that industrial supply chains added to the “blurriness” of country of origin concepts because “the value of an imported good does not necessarily fully originate from the geographical origin mentioned in custom documents”.

Thus, in 2009 the US had a trade deficit in iPhones with China of $1.9 billion (R12.9bn at Friday’s exchange rate).

However, the single largest portion of the value of the iPhones being shipped from China to the US had been created in Japan. Germany and South Korea were also responsible for considerably more of the iPhones’ value than China.

China only accounted for $73.5 million of the $1.9bn value of that trade. Japan accounted for $685m, Germany $341m and South Korea $259m, while the rest of the world accounted for $543m.

“Intermediate goods, such as parts and components, cross borders several times and each country participating in this global supply chain adds a bit of value,” Lamy said.

“Many goods are assembled in China, but their commercial value comes from the numerous countries that precede its assembly.”

Global industry is increasingly locating the different stages of its activities, from creation to production, marketing and distribution, in a way that optimises its value-addition chain. Lamy explained that rapid progress in the development of transport, communications and information technologies had contributed to this profound change in the pattern of global trade.

“Developing countries, especially in Asia, have emerged as major players as they harness globalisation to ‘catch up’ to the industrialised west,” Lamy said.

Standard Bank economist Goolam Ballim said the “made in the world” initiative would “bring some contemporary relevance to the manner in which globalisation has impacted on international trade over the past 20 years”.

Ballim agreed that the concept of “country of origin” had become blurred as multinational firms increasingly were able to harness the competitive advantage of individual nations in their production chains. Ballim said this had led to a dramatic increase in productivity over the past 20 years.

Lamy believes that a focus on the “value-addition chain” will lead to a change in the way in which governments approach trade negotiations.

“When country A imposes high tariffs on products from country B, it may in fact be imposing these tariffs on none other than its very own producers who have located part of their production in country B.”

Ballim said the more nuanced approach implicit in the WTO’s initiative would not affect South Africa’s overall trading position, but would help policymakers understand that position better. - Ann Crotty

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