Magazine article International Trade Forum

New Drivers of Global Value Chains

Magazine article International Trade Forum

New Drivers of Global Value Chains

Article excerpt

The long-term impact of the changing trade landscape on global value chains is being shaped by changes in standards regimes, exchange rates, investment flows and other key determinants such as climate change. While trading with fast-growing emerging economies such as China, India and Brazil will become increasingly important, the question remains as to whether this will create export opportunities for other developing countries or merely divert trade away from the Organisation for Economic Co-operation and Development (OECD) countries towards the emerging economies.

The proliferation of standards

Across the OECD countries, there has been a proliferation of standards across three families of standards, including:

1. Private sector standards

2. Governmental regulation

3. Responses to voluntary civil society initiatives.

Private sector standards are at the core of business-to-business operations. Without them global value chains simply cannot function. Driven by buyers, they lay down detailed product specification and required key performance indicators, such as zero-defect components, to be achieved by suppliers, as well as their subcontractors. The number of private standards is bound to increase. In its 2010 flagship report on Market Access, Transparency and Fairness in Global Trade, ITC calls for greater transparency in private standards to ensure that these do not become burdensome barriers to trade, especially for developing country exporters.

Governmental standards primarily reflect concerns about health and safety. Emerging economies are likely to adopt regimes similar to those in OECD countries in the short to medium term. Therefore, any strategy by developing country exporters to supply substandard products to emerging economies is likely to be risky and short-lived. But process standards, for example about traceability, may be less onerous, enabling new export opportunities.

Voluntary standards requirements are likely to be less restrictive in emerging markets even for high-margin market segments such as organic foods or timber products. While OECD countries are increasingly adopting detailed process standards, this is less likely to be the case in the emerging and the so-called 'Next Eleven' economies.

In summary, newly emerging markets will operate with less specific standards, creating new outlets and opportunities for trade expansion among exporters in developing countries.

Exchange rates

Currency realignments, notably a weaker United States dollar and a relatively stronger Chinese yen and Indian rupee, may provide competitive advantages for exporters from other developing countries.

Other developing country exporters may find it somewhat easier to compete with, for example, China and India in third markets. With stronger currencies, the import demand in the emerging economies will increase. …

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