Policy Options Paper
Trade Governance Frameworks in a World of Global Value Chains
The nature of international economic interdependence and competition has undergone fundamental changes as a result of the emergence and operations of global and regional value chains. Today we live in a networked economy led by investment flows. Promoting a better understanding of GVC implications from a sustainable development and trade governance perspective has become a critical task. Global value chains are the product of globalisation and particularly the lowering of transport costs and the information and communications technology revolution, whose advances have given firms the ability to efficiently unbundle their production processes across locations. GVCs, however, are not uniform in terms of governance or incentives. The implications of participating, or not, in a value chain will depend highly on their type and structure. Recent years have seen a slower pace of GVC expansion, which has been invoked as one of the structural causes behind the trade slowdown observed since the 2008 financial crisis. This does not mean, however, that the potential for fragmentation is exhausted or that all sectors are affected equally. Following an overview of the emergence of GVCs and their implications for development and trade governance, the present paper identifies policy options to enable the efficient functioning of supply chains while promoting the sustainable participation of countries in these fragmented production networks. The first set of recommendations centres on options to inform the design of domestic policies for GVC integration and upgrading. They aim to contribute to a better understanding of the operation of GVCs, promote dialogue on their developmental dimensions and strengthen government capacities. The second set of options, of a more systemic nature, envisages possible steps towards a supply chain informed agenda for future trade negotiations. This focuses primarily on the WTO but also preferential trade agreements. The paper concludes with an outline of the sequencing in which the options could be applied and the process through which they could be carried forward.