New OECD-World Bank-ITC report proposes measures to enhance developing country and SME integration into international production networks

Better policies, targeted capacity building and improved data and analysis could help developing country firms and small and medium-sized enterprises (SMEs) everywhere tap into and benefit from global value chains (GVCs), according to a new paper from the OECD, the World Bank Group, and the International Trade Centre (ITC).

Towards a G20 Strategy for Promoting Inclusive Global Value Chains, a joint paper by the three agencies, was presented to trade ministers from the Group of 20 leading economies at their July meeting in Shanghai, in preparation for the upcoming 4-5 September G-20 leaders’ summit in Hangzhou.

The paper points to policy reforms and technical assistance measures through which G20 governments could facilitate developing country and SME participation in multi-country production networks. It also proposes new initiatives to develop much-needed data and analytical capabilities in many countries, a prerequisite for making GVCs more inclusive.

Disproportionate constraints

The production of goods and services increasingly involves sourcing and co-ordinating tasks and inputs from multiple locations determined by competitive costs and quality.

The resulting regional and global value chains are typically led by large multinational enterprises (MNEs), generally from G20 countries. Developing-country firms and SMEs also participate in GVCs, but they must overcome disproportionate constraints both in the policy environment and in terms of firm-level capacity.

To tackle policy constraints, the paper identifies a number of priorities to reduce the costs of GVC participation for SMEs. G20 and other governments could ratify and implement the World Trade Organization Trade Facilitation Agreement, relax policies on rules of origin, eliminate all ‘nuisance’ tariffs that are below a to-be-defined low percentage, and raise the ‘de minimis’ levels below which goods shipments qualify for streamlined customs clearance. They could also work to improve the quality of hard and soft infrastructure and logistics services, expand access to trade information, and increase the ability of SMEs to comply with international and national standards.

The paper goes on to describe a wide array of potential capacity building initiatives that would strengthen developing-country and SME capacity to join GVCs. These include identifying factors that foster long-term links between MNEs and SMEs, empowering SMEs to take advantage of the digital economy, and creating financing instruments adapted to GVCs. Other such efforts could explore how best to design SME-friendly intellectual property systems, how to leverage spill-overs from foreign direct investment to increase SME productivity and boost innovative capacity, and how to strengthen collaboration and dialogue across countries to establish global platforms for information exchange, learning, and capacity support.

Increased efforts by international organizations such as the OECD, the World Bank Group, and ITC to enhance GVC-related data collection and analysis would bolster national and international initiatives to make GVCs more inclusive, the paper concludes.

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Background

This paper has been prepared further to the first meeting of the G20 Trade and Investment Working Group, convened by China on 28-29 January 2016, and represents an initial step towards developing a G20 strategy for promoting inclusive Global Value Chains (GVCs). It was distributed by the G20 presidency at the G20 Trade Ministers Meeting in Shanghai on 9-10 July.

The paper draws on the Inclusive Global Value Chains report submitted by the OECD and the World Bank Group to G20 Trade Ministers in October 2015, refining and prioritising the options contained therein. The original report proposed a holistic approach to promoting more inclusive GVCs spanning: (i) trade, investment and domestic policies both in G20 nations and in trade partner countries; (ii) investment in expanding the statistical basis and technical analysis of participation in GVCs; and (iii) sharing knowledge on best practices on rules, policies and programs (see Annex). This paper also takes into account relevant policy documents published since October 2015, including insights obtained from recently published reports on Aid for Trade.

While maintaining this holistic approach, this paper also reflects the focus of the G20 Trade and Investment Working Group and elaborates priority actions in three key areas:

• Priority policies for improving SME and developing country participation in GVCs primarily in the area of trade and investment;

• Targeted capacity building initiatives for better GVC integration in developing countries;

• Priority actions to expand data and analytical capacity.

Concrete actions can be taken by G20 governments to facilitate more inclusive GVCs by removing current constraints on SME participation in G20 countries themselves, and by further demonstrating global leadership through political support to a range of technical assistance measures provided by international organisations for SMEs and for firms in developing countries, as well as new measures to develop much needed data and analytical capabilities in many countries and across many sectors.