Global Value Chains and Canada's Trade Policy: Business as Usual or Paradigm Shift?

By Van Assche, Ari | IRPP Study, June 2012 | Go to article overview

Global Value Chains and Canada's Trade Policy: Business as Usual or Paradigm Shift?


Van Assche, Ari, IRPP Study


Global value chains are changing the face of international trade, and in order to reap their full economic benefits, Canada needs to broaden the scope of its trade policy to include factors such as human capital development and innovation.

Les chaînes de valeur mondiales sont en train de changer les paramètres du commerce international. Pour tirer pleinement profit de la nouvelle donne économique, le Canada doit élargir le champ de sa politique commerciale et y intégrer des éléments comme le capital humain et l'innovation.

Summary

The organization of global production has changed fundamentally in the past few decades. Thanks to reduced costs of communication and transportation and other barriers to trade, many firms have sliced up their supply chains and dispersed their production activities across multiple countries into what are known as global value chains (GVCs).

In this study, Ari Van Assche describes the structure and extent of GVCs and examines whether they require a fundamental rethinking of trade policy. He maintains that in some ways, they are simply a natural progression from "trade in goods" to "trade in tasks" that embodies specialization and comparative advantage inherent in standard trade theory. Nonetheless, GVCs mean that exports from a given country contain increasing proportions of import content, and this phenomenon challenges conventional wisdom about the links between trade and competitiveness.

One consequence of GVCs is that export-based measures of international competitiveness can be severely biased. To demonstrate this, the author shows that although China appears to have a strong competitive advantage in high-technology products, this is a statistical mirage, because most of the content of those exports was manufactured in industrialized nations.

In addition, imports within GVCs no longer necessarily reflect foreign competition. On the contrary, imported components are often highly complementary to domestic tasks in the context of global production networks, and they may therefore signal a competitive strength in the domestic sector. The author notes the example of aviation, where imports may be a reflection of strong domestic demand for components rather than of competition from foreign aircraft manufacturers.

To improve Canada's competitiveness in this networked environment, policy-makers need to focus on attracting and retaining the highest -valued activities to Canada, while allowing other tasks to be moved to where they can be conducted most efficiently. However, as the author points out, high-value-added activities are also subject to increasing international competition, and policy-makers must realize that allowing Canada to fully reap the economic benefits from participating in GVCs will require adjustments along a number of dimensions that transcend trade policy, such as human capital and innovation.

In his commentary, Todd Evans, director of corporate research at Export Development Canada, examines how cross-border investment and foreign affiliate sales fit into a broader conception of trade policy. Such activities have been expanding rapidly and are critical to supporting Canadian companies' trade networks and GVCs.

Résumé

L'organisation de la production mondiale s'est profondément transformée au cours des dernières décennies. La baisse des coûts de communication et de transport et la levée d'autres barrières commerciales ont incité nombre d'entreprises à fractionner leurs chaînes d'approvisionnement et à répartir leurs activités entre plusieurs pays, formant ce qu'on appelle des chaînes de valeur mondiales (CVM).

Ari Van Assche décrit dans cette étude la structure et l'étendue des CVM, puis se demande si elles nécessitent de repenser l'ensemble de notre politique commerciale. Car à certains égards, avance-t-il, les CVM marquent simplement le passage naturel du « commerce de biens » au « commerce de tâches » englobant la spécialisation et les avantages comparatifs propres à la théorie classique du commerce. …

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