Public-Private Dialogue on Improving the Investment Climate for …mams.rmit.edu.au/klnk5ekl756a1.pdf · 2016. 5. 31. · empirically the trends in global value added trade, highlighting

Public-Private Dialogue on Improving the Investment Climate for Global Value Chain Development

28-29 April 2016, Kuala Lumpur, Malaysia

Discussion Paper and Recommendations

The Australian Department of Foreign Affairs and Trade

Improving the Investment Climate for Global Value Chain Development

Melbourne, 2016

Improving the Investment Climate for Global Value Chain Development The Australian APEC Study Centre

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Contents

List of Figures ................................................................................................................................................ 3

Introduction .................................................................................................................................................. 4

Literature Review .......................................................................................................................................... 5

The onset of production fragmentation ................................................................................................... 6

A trend towards Asia ................................................................................................................................. 8

Clustering .................................................................................................................................................. 9

Initiatives for investment facilitation ...................................................................................................... 10

External effects on trade flows ............................................................................................................... 11

Trends in Global Value Chains .................................................................................................................... 12

Measuring global value trade ................................................................................................................. 20

Asia in GVCs ............................................................................................................................................ 23

The Future of GVCs ..................................................................................................................................... 24

Benefiting from Global Value Chains .......................................................................................................... 27

Global Value Chain Governance ............................................................................................................. 29

Regional Cooperation to Support the Development of GVCs................................................................. 31

Key Points and Recommendations .................................................................................................... 35

Infrastructure .......................................................................................................................................... 35

Institutions .............................................................................................................................................. 37

Incentives ................................................................................................................................................ 38

Implementation ...................................................................................................................................... 39

References .................................................................................................................................................. 40

Appendix ..................................................................................................................................................... 43

WTO Trade in value-added and GVCs: economy profiles ....................................................................... 43


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List of Figures

Figure 1. Simple Global Value Chains .......................................................................................................... 12

Figure 2.Foreign value added share of gross exports ................................................................................. 14

Figure 3.Foreign value added share of gross exports in Total Services Sector (including construction

activities) ..................................................................................................................................................... 15

Figure 4.Foreign value added share of gross exports in Manufacturing .................................................... 15

Figure 5.Origin of foreign value added content of exports in developing economies, by geographic region,

1995-2011 ................................................................................................................................................... 16

Figure 6. Origin of foreign value added content of exports in developed economies, by geographic region,

1995-2011 ................................................................................................................................................... 17

Figure 7.GVC participation index, 2011 ...................................................................................................... 18

Figure 8.Foreign direct investment: Inward stock as % of world FDI, annual, 1995-2014 ......................... 19

Figure 9.Logistics Performance Index scores for Southeast Asian economies, 2007 and 2014 ................. 22


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Introduction

As transport and communications costs decline, the scope of goods and services being traded

has expanded. Global value chains (GVCs) now account for a significant share of world trade in

clothing and textiles, food products, chemicals, machinery and equipment. GVCs comprise the

entire series of activities in the production of goods and services - from their conception, to the

various stages of production, to marketing, until the goods and services reach the final

consumers. Value addition can occur across multiple borders until the product reaches its final

form and the final consumers. The opportunities to add value in different stages of production

in different locations enlarges the set of possible contributions to economic growth and

development. To better take advantage of such opportunities in Southeast Asia, a Public-

Private Dialogue on Improving the Investment Climate for Global Value Chain Development was

convened in Kuala Lumpur, Malaysia, on 28-29 April 2016 and this background paper was

prepared.1

Various terms have been used to describe related concepts, which may overlap or approach the

same concept from different perspectives. Global Value Chains focus on value-added, generally

across countries, and their analysis frequently emphasises trade in tasks or services, and the

capabilities of different trading partners. Vertically-Integrated Supply Chains focus on ensuring

the supply of inputs from one step to the next in a production process, and their analysis

emphasizes trade in goods, availability of low-cost suppliers, and supporting infrastructure.

Production Networks focus on the coordination of disparate and dispersed but interconnected

activities with emphasis on the service links and/or logistics connections between activities.

The concept of Outsourcing draws upon the theory of the firm and the relative costs of

undertaking activities by the firm itself compared to having them undertaken by a separate

supplier. The emphasis then is on ownership of the means of production, relative costs and

externalities. A subset of outsourcing is Offshoring which has experienced rapid recent growth.

1 This paper was prepared by Douglas H. Brooks, Bekzod Abdullaev and Cassandra Oaten of the Australian APEC

Study Centre at RMIT University. The authors gratefully acknowledge helpful suggestions by Michael Fairbairn, Heath McMichael, Ken Waller, and participants in the Public-Private Dialogue on Improving the Investment Climate for Global Value Chain Development, Kuala Lumpur, Malaysia, 28-29 April 2016.


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While outsourcing can be either domestic or international, offshoring focuses on the

international location of activities in the production process, and analyses frequently focus on

employment concerns and offsetting benefits.

The dispersal of stages in production processes has been closely linked to changes in the costs

of moving materials and intermediate goods. As part of these changes, the advent of fast

transport (air shipping and faster ocean vessels) has been equivalent to reducing tariffs on

manufactured goods from 32% to 9% over the 1950-1998 period, making international

shipment of unfinished goods much more cost-effective. Relative declines over time in air

shipping prices have made time-savings less expensive, contributing both to aggregate trade

growth and growth in time-intensive forms of integration, such as vertical specialization.

Meanwhile, containerization in ocean transport has changed the composition of freight rates,

lowering the cost of distant relative to proximate travel, and facilitating intermodal connections

on overland shipments.

The next section reviews major elements of the growing body of literature concerning global

value chains and important factors in their development. The following section investigates

empirically the trends in global value added trade, highlighting differences with gross value

trade caused by double counting of trade in intermediate goods, and discussing in more detail

the factors that make for a more favourable investment climate to support GVC development

and how those are changing over time. The third section explores possible future

developments in value chains, emphasising the role(s) of technological developments, and the

fourth section examines policy options to improve the investment climate for GVCs, keeping in

mind recent trends in GVC development and possible changes that may be coming in those

trends. The final section reiterates key points and draws recommendations from the preceding

discussion.

Literature Review

Production network structures that create final goods have, over time, changed the way

economies contribute to global value chains. Companies, as drivers of these shifts have focused


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on obtaining low costs, competitive efficiencies and proximity to consumer markets. As final

products have increased in complexity, third countries and source countries have been utilised

as parts of supply networks. International trade has been shown to be cheaper, more effective

and strategic in stages of production in complex goods and final services. Economies have been

able to develop competitive advantages from the economies of scale that they can develop via

scaling production and specialisation clusters. Being able to tap into global value and supply

chains has also assisted the development of low-income economies.

Jones and Kierzkowski (1990) provides a seminal analysis of the international division of labor

by production process. They highlight the advantages of (i) cost savings due to differences in

location advantages (e.g., differences in wage levels); (ii) low service link costs, depending on

trade facilitation, logistic services, and soft infrastructure. Over time, changes in production

technology and managerial techniques contributed to flexibility in forming production networks,

particularly as multinational enterprises had freedom to cut out production blocks and host

countries came to occupy niches based on (narrow) locational advantages and specific service

links.

Kimura and Ando (2005) emphasise the two dimensions inherent in global value chains:

geographical distance and disintegration (intra-firm vs. arm’s length transactions, with

distinctions based on location vs. ownership). The development of supply or value chains was

then supported by the clustering of production process fragments in geographical proximity,

forming industrial agglomerations.

The onset of production fragmentation

The dominance of export producing countries and demand driving consumers have not

followed a consistent pattern over time. Lehmann (2012) cites the dominance of China and

India in global trade in the 1800s. However, as innovation changed, predominantly driven by

the emergence of steam power, shifts were propelled with the emergence of new machinery

uses and improvement in transported goods. As transport costs and international trade barriers


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dropped, international trade increased and sellers became incentivised to gain market share

abroad. This created an ‘unbundling’ of value chains (Baldwin 2012).

Baldwin and Forslid (2014) characterize the current wave of globalisation as having occurred in two

phases. The first phase (up to the mid- or late-1980s) was driven primarily by cheaper transportation

costs and allowed greater physical separation between consumption and production. The second phase

was driven by improvements in ICT and is marked by the unbundling of stages of production and their

dispersal to nations with cost advantages. They characterize the process as deriving a balance between

fractionalization of supply chains and coordination among the links as, for example, offshoring a

particular stage in the production process may save on production costs but raise coordination costs.

The 1900s saw Western Europe and the USA rise to be key exporters, as well as key consumers.

But as additional shifts started to occur in the early 1970s away from these markets, tariffs and

preferential quotas came into force led by these consumer markets. Nations in South-East Asia

were affected by these agreements. They included the ‘Multi-Fiber Arrangements (MFA)’,

which dictated trade rules related to textiles and garments, which were among light

manufactures that were easier to develop as export sectors with low-skilled labour. Gereffi and

Memedovic (2003) note that these restrictions to imported clothing and textiles from

developing countries into the United States and the European Union (EU) attempted to protect

domestic industry and stop the shift that was taking place. This agreement involved establishing

quotas on the goods exported by emerging economies. These quotas had an expansionary

effect on global value chains. Gereffi and Memedovic (2003) explain that this restrictive quota

system was the reason that Taiwanese and Korean producers looked to internationalise their

production to third countries, reshaping interdependence in Asia and dispersing global value

chains. This response transferred skills and knowledge to the region as producers tried to shift

their production to maintain export quantities within quotas. Internationalisation was also

caused by labor shortages to keep up with market demand. The restrictions were liberalized

following the Uruguay Round of the WTOs The MFA was replaced by the WTO Agreement on

Textiles and Clothing (ATC) which involved a 10-year transitional programme leading to the

removal of quotas in 2005.


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In a bid to assist developing economies the EU started a "Generalised Scheme of Preferences"

(GSP) which allowed developing country exporters to pay less or no duties on their exports to

the EU. This gave them vital access to EU markets and contributed to their economic growth.

Shifts also occurred due to domestic regulation which shaped company choices. Large apparel

companies with extensive value chains “de-verticalised” their consumer-products divisions by

acquiring related product lines and offshoring contractors and production (Gereffi and

Memedovic 2003). This subcontracting element or ‘production sharing’, was highly utilised by

the USA through the “807/9802 program”. This allowed countries neighboring the USA to have

goods assembled offshore re-imported by the US with a tariff charged only on the value added

by foreign labour.

A trend towards Asia

In the post-war period, Japan achieved dominance as a production base which then re-sold

goods back into established consumer markets at lower costs than those at which the domestic

markets could produce. Exporting strength has, since then, remained in Asia. East Asian

economies, including Hong Kong, China; PRC; Chinese Taipei and Korea dominated global

clothing and textile markets until the early 1980s. These industries were aided by domestic

regulation and arrangements in which public sector backing cushioned domestic industries with

agreeable domestic financing options and implicit or explicit protection, as a form of “infant

industry” development.

The ICT revolution from the 1990s enabled massive increases in international data and

information flows. Cheaper and increasingly reliable communications reduced many costs

involved in international production and allowed companies to invest cheaply in third countries

as parts of international networks. Gereffi (2003) describes this change as the ‘third migration’

where low-cost production networks were developed in low priced developing nations. Kimura

(2013) refers to the same change as the ‘second unbundling’, continuing the phrasing trend of

Baldwin’s 2011 work. Kimura describes these production networks in Asia as the most

advanced in the world. This has been, in part, due to clustering of production blocks.


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Clustering

Clusters of efficient production have been created through regional niches in global production

sharing arrangements where those involved can share resources. Extensive use of industrial

estates have also bundled resources, particularly scarce and reliable infrastructure services.

Local factors in these estates, reinforced by globalisation, draw more buyers who then flock to

the location to, in effect, purchase their competitive advantage (Scott 1994). Vertical ties within

an economy can be developed through clustering (Porter 1990) and value-added production

becomes localised.

Changes in the business environment of competitors have a large effect. Too many changes and

companies may be willing to change locations to receive benefit for their production. Low-cost

of production, available labour, process upgrades using re-organisation or superior technology

and regulatory environments can determine these choices and affect existing clusters. These

influences are changing production networks and raising competition for existing value chains.

Firms can also upgrade their services to package additional functions to attract business

(Humphrey and Schmitz 2000).

Ng and Yeats (2003) stress that the magnitude of production sharing in East Asia has had a huge

influence in attracting manufacturing to the region. Lehmann (2012) also talks about the “highly

integrated and sophisticated intra-Asian patchwork of production and specialisation” that has

developed in the region. These focus around the PRC, South East Asian economies and Sri Lanka.

The 1990s also saw a trend in production growth in Central America and the Caribbean, which

grew quickly from a low base. These newly developed clusters were well located in proximity to

consumer markets. Clusters have been maintained despite the reduction in advantages of some

countries over time due to labour cost increases and appreciation in some East Asian currencies.

Asia’s dominance in global value chain innovation has been being driven by technology. Freund

(2016) points to the surging cross-border data flows facilitating business across borders in

South East Asia. These improvements from technology have benefited not just large companies,

but also micro, small and medium enterprises (MSMEs) in GVCs. UNCTAD (2013) argues that


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GVCs are seen by regulators as playing a key role in economic development strategies and act

as a ‘route to market for export products and services’. Elms (2013) suggests that investment

and outsourcing aspects of global value chains is really an investment in individuals who

operate and efficiently manage the inventory that the company requires. Herrera and

Macaranas (2015) showed that incubators and accelerators have acted as enablers for large

companies to help smaller companies in their GVC with access to funding, mobile platforms, e-

commerce opportunities, IT innovation and mentors. They also stress that industry clusters

have increased linkage opportunities for mentoring and research.

In the current wave of globalization, ICT is an increasingly productive complement to physical

infrastructure. ICT helps to reduce the costs of locating suppliers, negotiating contracts,

monitoring their implementation, and tracking the location and status of shipments. Some ICT

products (for example, email or software) may even displace other trade such as physical

package services, or reduce reliance on transit trade for land-locked countries or regions. ICT

may also accelerate the dominance of English or contribute to faster growth in countries with

greater facility in a global business language. Fink et al. (2002) find that higher

telecommunications costs dampen bilateral trade flows, especially for differentiated (rather

than homogeneous) products. In particular, as smaller shipments of a wider variety of higher

value-added products proliferate, the demand for ICT services rises. The same is true as the

growth of trade in services outpaces that in manufactures. Trade in services such as banking

and business services, or communications, are highly dependent on well-developed ICT

infrastructure in both exporting and importing countries.

Initiatives for investment facilitation

Academics are aware of the databases available which reveal the value-add coming from

different parts of production. The United Nations has measured trade data via its ‘unstats

database’ (http://unstats.un.org) since 1992. The World Bank and other multinational bodies

have also deeply analysed regional cooperation data in trade. The examples of sources include

Global Trade Analysis Project (GTAP), the World Trade Organisation (WTO) with the Institute of

Developing Economies (IDE-JETRO) and the World Input-Output Database (WIOD). But most

http://unstats.un.org/


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importantly is the joint OECD – WTO Trade in Value-Added (TiVA) database initiative which has

been established to use indicators to sum the amount of value addition at different production

stages of final products, thus informing policy makers with better understanding of

globalisation and giving a clearer idea of the commercial relations between economies. These

TiVA indicators are designed to better inform policy makers by providing new insights into the

commercial relations between nations.

As Governments look to enable participation of MSMEs as part of their growth targets, private

sector participants are also researching ways to increase this involvement. A study was

undertaken by the Asian Institute of Management and the APEC Business Advisory Council

(ABAC) to assist smaller businesses enter global value chains that were currently majority

controlled by big businesses. It showcased the shared value that can come from business

partnerships to both parties. The study (Herrera and Macaranas 2015) found that these

linkages between large and small companies had a high impact on productivity, cost reduction

and innovation. It also found that the value chain diversity that came from including MSMEs

promoted inclusion and diversified risk. Businesses who worked within this model had high

corporate social responsibility programs which helped them to locate needs for MSMEs in the

value chain from which both parties could benefit. Large companies could leverage their

position to reduce compliance burdens, and provide inclusive finance, research and

development capacity, basic infrastructure, certification, and accreditation to assist MSMEs

participation in GVCs, which in turn created value for the larger enterprises.

External effects on trade flows

With a highly interconnected global economy, investment in South East Asia has been affected

by global occurrences in the rest of the world. Freund (2016) argues that the lack of investment

in global value chains since the global financial crisis has not entirely been due to the sluggish

recovery and stagnation in Europe but because of the “unprecedented expansion of trade in

the 1990s and early 2000s” through China’s involvement in global value chains. This has

entailed a sharp shift which has had a flow on effect for the world economy. She suggests that

in the future another China-like effect may possibly occur with India and/or Brazil. Their


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incorporation into global value chains would potentially again raise demand for global

resources and create another boost to the global economy.

Trends in Global Value Chains

Figure 1 from the OECD (2013) shows that conventional trade statistics would record gross

exports from Europe (1) to North America, gross exports from the Russian Federation (5), Japan

(6), and Australia (7) to China, and gross exports from China (4), South America (2) and Africa (3)

to Europe. From the perspective of North America, its interconnection with Europe in this

example demonstrates part of the story. It is demand from North American consumers that

drives the output throughout this global value chain. The aim of the trade in value added

approach is therefore to identify the nature of these inter-relationships by breaking the value of

a given gross export down into its value-added components (by country of origin and industry).

Figure 1. Simple Global Value Chains

Source: OECD (2013)


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Dynamics of trade in Asia-Pacific has evolved significantly over the last two decades, with some

economies integrating more into value chains and some less. Thus, the analysis of how much

foreign value added is contributing to the export of a good or service is important for

maintaining and improving an economy’s growth and competitiveness. For example, China

recorded significant shares of foreign content in its exports between 1995 and 2011. This

phenomenon is not only confined to China but other Asian economies as well2 (Figure 2).

Furthermore, global value chains have created opportunities for some economies to specialise

in specific parts of a value chain.

The foreign content of exports has increased during the past two decades in the majority of

economies included in this study, although not at similar rates. Foreign value added content

depends on various factors, including the size of the economy, its economic structure and

degree of specialisation. Smaller and developing economies tend to have higher shares of

foreign value added embodied in their exports; larger and more developed economies have a

wider variety of domestically sourced intermediate goods available and are therefore less

reliant on foreign imports of intermediates. Countries with substantial natural resources, such

as Australia or PNG, have lower ratios of foreign value added in exports as mining activities

require fewer intermediate goods in the production process (OECD, 2013).

Strikingly, at the global level from 1995 to 2011, foreign value added in trade increased even as

both direct and indirect domestic value added contributions decreased. Figure 2 represents the

foreign value added content between 1995 and 2011 arranged in ascending order of 2011

values for economies in the current study. The figure illustrates that China, Viet Nam, Cambodia,

Thailand, Malaysia, Korea, Singapore and Chinese Taipei have close to 35% or more foreign

content in their exports, with other economies reporting less than 25%. An apparent surge can

be observed in Viet Nam, Cambodia and Korea during this period.

2 Statistics on Global Value Chains are not readily available for recent years and OECD-WTO Trade in Value Added

(TiVA) Database linking national I-O tables with bilateral trade remains the only consistent source for a wide range of indicators on GVCs.


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Figure 2.Foreign value added share of gross exports

Source: OECD/WTO (2013), OECD-WTO: Statistics on Trade in Value Added, (database); Authors calculations, (accessed March 2016)

Decomposition of foreign value added content into broad economic sectors such as services

and manufacturing shows a high level of differences across economies and industries (Figure 3

and 4). The fragmentation of production is more developed in manufacturing than in services,

resulting in important differences across industries. Services are less likely to be divided into

geographically dispersed stages of production than manufacturing products, particularly when

they should be provided face-to-face between the provider and the consumer. The OECD (2013)

notes that foreign value added is very large in basic industries that make heavy use of imported

primary goods such as coke and refined petroleum, basic metals, chemicals, and rubber and

plastics. Fragmentation is also significant for modular products in high-technology industries.

Parts and components are often produced in one country and exported to another in which

they are assembled. This international division of labour is found in electrical machinery,

radio/television and communication equipment, office, accounting and computing machinery,

as well as motor vehicles.

Accounting for the foreign content in total service exports reveals less than 25% foreign content

in all economies except Singapore, where it is close to 35% (Figure 3). As expected, India’s

foreign value added in services sector is one of the lowest and almost on par with Indonesia,

Australia and New Zealand.

0%5%

10%15%20%25%30%35%40%45%50%

2011 2005 1995


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Figure 3.Foreign value added share of gross exports in Total Services Sector (including construction activities)


Figure 4.Foreign value added share of gross exports in Manufacturing


0%5%

10%15%20%25%30%35%40%45%50%

2011 2005 1995

0%

10%

20%

30%

40%

50%

60%

70%

2011 2005 1995


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The foreign value added of economies’ exports originates largely in neighbouring economies

(Figures 5 and 6). In most Asian economies in 2011, between 40% and 70% of the foreign value

content of exports came from other Asian economies, with a reduction between 1995 and 2011

in some economies. The majority of the intermediates embodied in exports are sourced from

within the region, where parts and components are often produced by developed economies

such as Japan and Korea and then exported to emerging economies such as China and

increasingly Viet Nam and Cambodia for assembly into finished products before being exported

overseas.

Figure 5.Origin of foreign value added content of exports in developing economies, by geographic region, 1995-2011

Note: Eastern Asia includes Japan, Korea, China, Hong Kong (China), Chinese Taipei. Domestic share is subtracted from the region. ASEAN includes Brunei Darussalam, Indonesia, Cambodia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam.

31% 28% 27% 17%

6% 10% 8% 10% 5% 8% 8% 16% 12%

18% 9%

14% 11% 12% 17% 15%

24% 23%

41% 55%

47% 31%

41% 33%

13% 14%

34% 26% 37%

31% 44% 30% 38% 33%

51%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19

95

20

11

19

95

20

11

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95

20

11

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95

20

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95

20

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95

20

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95

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95

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95

20

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BruneiDarussalam

Cambodia China ChineseTaipei

India Indonesia Malaysia Philippines Thailand Viet Nam

from ASEAN from Eastern Asia from NAFTA

from Europe from South and Central America from other regions


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Figure 6. Origin of foreign value added content of exports in developed economies, by geographic region, 1995-2011

Note: Eastern Asia includes Japan, Korea, China, Hong Kong (China), Chinese Taipei. Domestic share is subtracted from the region. ASEAN includes Brunei Darussalam, Indonesia, Cambodia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam. Source: OECD/WTO (2013), OECD-WTO: Statistics on Trade in Value Added, (database); Authors calculations, (accessed March 2016)

Economies participate in GVCs both as users of foreign inputs and as suppliers of intermediate

goods and services used in other economies’ exports (Koopman et al., 2011). The participation

index shown in Figure 7 indicates the share of foreign inputs in economies’ exports (looking

backward along the value chain) and domestically produced inputs used in third economies’

exports (looking forward along the value chain). As the figure shows emerging economies

(China, Cambodia, Viet Nam, Thailand, Malaysia, Chinese Taipei) exhibit more backward

participation compared to forward participation in large (e.g. Japan) and resource rich

economies (e.g. Australia). All economies in this study recorded a positive change of

participation between 5% and 15% between 1995 and 2011 (See WTO (2016) country profiles in

the appendix).

23% 17%

50% 42%

14% 22% 32% 26%

16% 12%

33%

22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 2011 1995 2011 1995 2011 1995 2011 1995 2011 1995 2011

Australia Hong Kong Japan Korea New Zealand Singapore

from ASEAN from Eastern Asia from NAFTA

from Europe from South and Central America from other regions


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Figure 7.GVC participation index, 2011

Source: OECD/WTO (2013), OECD-WTO: Statistics on Trade in Value Added, (database);Authors calculations, (accessed March 2016)

Foreign direct investment plays an important role in establishing the links in global value chains,

transferring not just capital but access to markets and suppliers, managerial techniques, and

much more (Abdullaev et al, 2015). Over the last three decades, FDI restrictions have been

significantly lifted due to deregulation, technological change, expansion of trade and

production networks, establishment of economic blocs and globalisation, as well as increasing

evidence of FDI’s potentially positive effects on the host economy. This led to a fivefold surge in

world FDI inflows from $204 billion in 1990 to $1.2 trillion by 2014, of which a significant

amount was invested in Asia in the development of global value chains. Since the end of the

1990s, developed and developing economies alike experienced a sectoral shift in capital inflows

away from manufacturing and towards service sectors. Within FDI to the manufacturing sector,

a noticeable transformation was observed from low skill towards semi-skill and high-skill

industries. A diversity measure of FDI in different sectors developed by the Australian APEC

0%

10%

20%

30%

40%

50%

60%

70%

80%

Forward participation Backward participation


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Study Centre reveals that greenfield investments are heavily concentrated in a few sectors of

Asia-Pacific economies, particularly where there is potential for GVC participation.

Figure 8.Foreign direct investment: Inward stock as % of world FDI, annual, 1995-2014

Source: UNCTAD (2014)

Developing economies, especially from Asia, appeared noticeably on the world stage as

international investors on a larger scale from 2002 onwards. Since 2010, developing economies

began receiving more than half of the world’s FDI inflows, reflecting the gradual shift of the

global economy’s center of gravity toward developing countries, globalization of capital

markets and the growing prominence of developing economies in global supply chain linkages

(Figure 8).

Technological development in information and telecommunications has facilitated the (often

virtual) movement of factors of production over broader geographic areas, significantly

expanding both the intensive margin of trade (existing trade flows between partners) and the


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extensive margin of trade (trade in new goods and/or to new markets). This has also been

apparent in the increased trade of services, many of which play important roles in supporting

the management of domestic and international value chains.

Lower transportation costs have made a wider array and volume of products economically

feasible to trade. The revolution in storage philosophy (most notably the shift to “just-in-time”

delivery) has cut costs associated with inventories and emphasised more frequent shipments of

smaller quantities. This has in turn meant that flexibility in schedule and handling capabilities

(as shipment is required with shorter lead times between production and delivery) has also

become increasingly important.

The increasing role of global value chains in global economic activities supports economic

growth, and then feeds back to more technological innovations and alterations in demand and

consumption patterns. Value chains have become so central to global trade that some

observers suggest that competition will increasingly be between such value chains rather than

firms.

Measuring global value trade

To make the most of the potential of global value chains, it is important to first measure and

monitor their activity. GVC trade used to be monitored through gross trade data, which by its

nature can double count values of products as they cross borders if they include imported

inputs or components, overstating the actual valued added being exported to another country.

The availability of the recent trade in value added (TiVA) database from the OECD and WTO,

mentioned above, allows a big step forward in the study of global value added trade.

The TiVA database was assembled based on input-output tables so that as products and

services cross borders, only the value addition is captured and mapped. The database currently

covers 57 economies that are involved in most of the world’s global supply chain trade.

The evolution of global value trade participation is depicted in figure 2. While the chart merely

represents the top 5% of the largest bilateral flows, the number of bilateral relationships has


21

expanded enormously over time as can be seen by the evolution of the GVC network getting

denser.

Measuring trade in value added has revealed that over 50% of world trade is in intermediate

goods (excluding oil and fuel), and 75% to 80% of world trade is actual value-added. In TiVA,

the share of services in total trade doubles. Services enter value chains directly in

manufacturing processes, in pre- or post-manufacturing stages, in post-retail services, and in

recycling (Escaith 2013).

More MSME participation is also apparent once indirect value added imbedded in

manufactured exports is accounted for. Special economic zones (SEZs) can circumvent

shortcomings in logistics and supply chain weaknesses, but may also benefit more than larger

firms once those shortcomings are addressed. And once the double-counting inherent in gross

value trade is removed, bilateral trade balances are significantly reshuffled (ex. the size of the

China-US bilateral trade deficit is halved).

The World Bank’s logistics performance index (LPI) provides a good summary of the quality of

supply chains. The LPI is a composite indicator with values ranging from 0 to 5, whose

components include efficiency of the customs clearance process, the quality of trade and

transport related infrastructure (ports, railroads, roads, information and technology), ease of

arranging competitively priced international shipments, the logistics competence of transport

operations and customs brokers, tracking and tracing of consignments and timeliness of

shipments in reaching destinations. Improvements in logistics performance can lead to sectoral

reallocations in favour of relatively heavy industries in developing countries, which is consistent

with the goal of export diversification (Shepherd 2011).


22

Figure 9.Logistics Performance Index scores for Southeast Asian economies, 2007 and 2014

Source: World Bank (2015)

Focusing on risk factors that either can be influenced or controlled, means that value chains can

be evaluated along the aspects of (WEF 2011):

Costs - transport, inventory, surcharges, broker fees, managerial time

Speed - on time delivery

Security - minimization of risks associated with threats

Reliability and capability - products delivered in ideal condition; minimization of losses due to

spoilage, damage, loss, or mishandling.

Flexibility and resilience are rather recently appreciated attributes of value chains. Their

desirability has been brought into focus by just in time delivery and inventory – more frequent

shipments in smaller quantities, which raises the sensitivity to changing demand since changes

in demand get translated to changes in orders faster when inventories are smaller. Different

commodities have different needs, and having a diversified export base means that value chain

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Overall LPI 2014 Overall LPI 2007


23

infrastructure should be able to cater to different types of products. For example, increased use

of ocean going containers has been one of the responses to the need for flexibility.

Current business models (like just in time delivery) make firms less tolerant of risks and

unexpected disruptions. Supply chains that are able to minimize risks by anticipating them and

having back up lines or networks can add value in the current climate.

Asia in GVCs

A number of countries in Asia and the Pacific are major participants in the global value chain

trade. Southeast Asian economies, led by Singapore and Malaysia, have been major and

successful participants in global production networks since the early 1970s. The process of

international division of labor has opened up opportunities for countries to specialize in

different tasks in the production process in line with their relative cost advantages (Athukorala

2016) and the PRC, Japan, Korea, Chinese Taipei, and Singapore are now highly interconnected

in the global GVC network. Other SE Asian economies like the Philippines, Malaysia and Viet

Nam are also vital parts of the world’s global value chains. India has also emerged as a major

player starting 2005 and has tremendous potential, although so far it tends to be focused on

business services.

From 1995 to 2008, Asia’s share of world’s GVC trade based on value added increased from

around 8% to 16%. For both East and Southeast Asia, the most GVC intensive sectors have been

electrical and optical equipment, and textiles, textile products, leather and footwear; for South

Asia they are the chemicals and non-metallic mineral products, and basic metals and fabricated

metal products (Hummels, ADO 2014 Update).

By and large, GVCs support growth and have been behind the sustained success of many Asian

economies. Based on the experience of developing countries in Asia, they have been sources of

investments, technology and knowledge spillovers etc. GVCs have served to interconnect and

reinforce the process of globalization even further by interconnecting economies. But this is a

double edged sword. While domestic volatilities are smoothed out, the transfer of international

volatility to domestic market channel is made stronger and can spread rapidly, as was the case


24

in the global financial crisis in 2007-2008. Just the same, recovery can also be quicker. A key to

maximizing benefits from the GVCs is therefore to build resilience and flexibility (Catteneo et al.

2011), which depends heavily on the effective provision of services.

The Future of GVCs

The trade in intermediate products or trade in tasks is only set to expand further as

technologies improve. Products and services that fall under the ambit of global supply chains

are likely to expand as transport and communication costs continue declining and as more

people around the globe come to access these transport and communication technology.

From the point of view of factors of production, a central implication of the increasing

importance of GVCs is the changing landscape of comparative advantage from one that is based

on trade in products, to one that is based on trade in tasks.

One implication is that possible areas of comparative advantage have expanded significantly to

the point that a country need not develop an advantage in the entire series of production

activities to produce a final product and service. This offers a broad set of opportunities for

developing countries to participate. But what are the enabling factors for successfully doing so,

and for gradually advancing to activities with higher value added?

As economies undergo the normal structural transformation inherent in the development

process, after some point there is a diminishing role of manufacturing, generally first in terms

of output share and later in terms of employment share. The peak manufacturing share of GDP

tends to be about 20% on average, but its role in generating high productivity, and rapidly rising

productivity jobs is generally crucial to sustain rising incomes in developing economies.

Spillover effects are critical when manufacturing’s shares are rising, and contribute to

innovation and productivity growth. As economies move up the manufacturing ladder to

higher value-added activities, services become increasingly involved. Thus, as manufacturing

technologies (and products) evolve, the growing changes in manufacturing will be important for


25

employment, innovation and research, and education to ensure the necessary capabilities of

the workforce.

Electronics assembly is likely to become increasingly automated. Based on the experience of

more developed economies, services will continue to increase their shares of output and

employment to about 75% on average, with the output share increasing in advance of the

employment share. This will portend increases (and perhaps constraints) in health, education,

government, security, retail, and hospitality. There will also be growth in areas open to labor-

saving innovation, such as finance, retailing, wholesaling, and logistics. If technological changes

differ broadly between two general types of services – big labor absorbers but low productivity,

and limited labor absorbers but higher productivity – the result may be a polarized workforce

and rising inequality.

In response governments are increasingly looking at industrial policy (IP) as innovation policy.

China has been pouring money into R&D; other countries (including Viet Nam) are promising in

this regard but will have to further develop higher education to overcome a potential middle

income trap of lower pay. Malaysia may also have brighter prospects but there have been

indications research is moving from Malaysia to China, even as finance and tourism are doing

well.

A challenge will be how to apply IP as innovation policy to countries with low manufacturing

and research bases. Where there is currently a large pool of capital, it may shrink with aging,

contributing an urgency and need for Asian models. To some extent this is a political economy

issue, where economies remain below the technological frontier. Managing rapid growth can

raise its own set of issues. Rapid growth implies risks to supply chains, and unbalanced trade

can lead to unbalanced demand for transportation. Rapid growth can lead to congestion in

transport services, and challenges to quality control.

The expansion of global value chains increases interdependence among participating

economies, raising both risks and opportunities. Congestion in one economy (e.g., China), or a

slow-down there, can become an Asia-wide, if not global, problem. But there are also

economies of scale in services that support trade. Information technology and the rise of big


26

data continue to present new opportunities. Competition is increasing among service providers

in most sectors, but in the longer term, cartelization and uncompetitive markets also pose risk.

The importance of market power is already apparent in international shipping, where the

minimum efficient scale is significant, most shipping routes are serviced by few shipping lines,

and carriers are often organized in cartels (liner conferences) determining shipping prices and

market shares. The EU Competitiveness Council has determined that cartelization has already

led to less competitive shipping markets and higher shipping prices.

Digital platforms are now fundamental requirements of almost all commercial and trade

activity, not simply for advanced economies or sectors, but for traditional sectors and emerging

economies. The digital economy cuts across sectors, thus posing challenges for effective policy-

making both domestically and internationally.3 While the private sector is especially adept in

the ICT sector, the need for mutually interfacing logistics services at both ends of a trade route

is an area where regional cooperation could help users to share information and technology,

learn from best practices, and coordinate capacity building to enhance trade.

Communication and organizational technologies lower the marginal cost of coordination,

making it easier to slice up production processes into more stages and disperse stages

internationally. Thus, they tend to foster the current trend in Asia toward more vertical

specialization, offshoring, foreign direct investment and intra-industry trade. On the other hand,

better information technology makes it easier for a worker to master more tasks without loss of

efficiency, making greater specialization less necessary (Baldwin and Forslid 2014). Modern

supply chains integrate activities faster by systematic information sharing from internal and

external sources. Firms can now collect relevant information at each node along their networks

and this rich data can be methodically analysed to optimise demand, supply, inventory, costs

and service levels. In the process, producers from different countries can come together

(voluntarily) and integrate their sourcing, manufacturing, research, development, and logistics.

3 Recognizing this, the 2014 APEC Ministerial Declaration included an APEC Initiative of Cooperation to Promote

the Internet Economy.


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Benefiting from Global Value Chains

Since developing countries that manage to export a wider set of higher-quality (higher unit

value) goods and services have been found to grow more rapidly and enjoy greater welfare

gains than countries that do not, and since multinational corporations account for the vast bulk

of all transfers of goods and services across borders, emerging market governments strive to

design trade and investment strategies to attract foreign investors into new and higher-skill-

intensive sectors, linking the host economy into FDI global supply chains. The key to accomplish

this is for the would-be host to provide substantive assurance to the new investor in the novel

sector that the investor can integrate local production seamlessly into the investor’s global

supplier network.

Developing countries that want to use FDI to diversify and upgrade the production and export

base of the host economy need interventionist policies to overcome imperfections in

information markets, assure potential investors that they will be able to integrate plants in

untried sectors smoothly into their worldwide production networks, and overcome

coordination externalities to make such assurances credible (Moran 2015). This requires

adopting policies that increase the productivity and reliability of domestic companies. Access to

credit constitutes an important constraint to the development of indigenous supplier networks,

so reform of the financial sector is important for indigenous companies to grow and prosper.

Public sector support can take the form of creating industrial parks, reliable infrastructure, and

vocational training with curricula designed by companies who wish to employ the graduates.

Public programs for supplier identification, vendor development, and certification can be

conducted in a transparent, competitive fashion, again with selection criteria laid out by firms

who will provide purchase contracts to those that qualify.

The lessons for countries seeking to increase FDI are clear. Host authorities have to move

beyond improving doing-business indicators to public sector interventions. These public sector

interventions that include efficient pro-active investment promotion efforts, backed by

infrastructure improvements and public-private partnerships for vocational training. The goal is


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to attract middle-skill and higher-skill foreign companies to set up affiliates that link the host to

the global supply chains of the parents. Host authorities can then turn their attention to

vendor-development programs that create backward linkages deep into the local economy.

Comparative evidence from around the globe demonstrates that this is an effective route to

increasing economic growth and expanding economic welfare for countries that are successful

in the endeavor (Moran 2015).

To maximize benefits from participating in GVCs, most economies will need investments in

human capital, and both hard and soft infrastructure. While there is a great lack in physical

infrastructure in many developing countries, the political economy of infrastructure provision

points to a bias towards creation of green infrastructure with little emphasis on maintenance,

which at the end of the day could be more cost effective or even offer more substantial relief in

bottlenecks. Infrastructure that is not only geared towards trade but also towards enabling

seamless movement within borders is critical for maximizing spillovers and domestic linkages in

GVCs. This is for example, an especially difficult challenge for archipelagic countries like

Indonesia and the Philippines.

Soft infrastructure, in such areas as information, standards, transparency, is essential to

maximize the contributions of hard or physical infrastructure. Many infrastructure and logistics

bottlenecks can be temporarily addressed by concentrating efforts and facilities in special

economic zones (SEZs).

Ye and Abe (2012) note that the development of global supply chains has changed the risk

profile of business in ways that could potentially increase economic vulnerability in the region

through higher direct and indirect disaster risks. They note that supply chain strategies that

increase business efficiency may wind up deepening negative impacts of natural disasters. For

example, in September of 2011 there was disastrous flooding in central Thailand and Bangkok,

as reflected in sharp declines of industrial production. Of perhaps greater interest was the

steep decline of automotive sector production (and smaller declines in other sectors) in April of

the same year. These reflect nothing particular in Thailand, but rather the consequences of


29

Japan’s earthquake/tsunami/nuclear disasters in March and their follow-on effects on value

chains involving Thai producers.

Global Value Chain Governance

The public sector has a critical role to play in improving the investment climate for GVC

development in general, and in addressing market efficiency in particular. The public sector can

contribute to investigating the nature of transactions costs and finding where do bottlenecks

exist? It can assist in overcoming or managing coordination costs, especially where political

economy considerations hinder private sector efforts. The public sector also can ensure

competition, such as in areas of cabotage laws and monopsonies. Ensuring a competent and

productive workforce through provision of effective education and health services may be the

most important area, and may have the greatest impact on household incomes and national

development.

Policy plays a critical role in realizing the advantages of GVC participation. Development of

transportation and ICT infrastructure facilitates trade, as does reduction of red tape and delays

at border crossings. The optimal sequencing of infrastructure investments depends on a variety

of domestic and external factors. Brooks and Go (2013) found that in general, communications

infrastructure may have the greatest impact on growth for low income economies, with

transport networks more important in middle income stages and energy dominant in higher

income economies. An emphasis on physical infrastructure typically precedes that on

institutional or soft infrastructure. Developing efficient risk allocation mechanisms in public-

private partnerships for infrastructure investments facilitates the process. Expanded access to

financing and information about marketing opportunities helps SMEs to find niches where they

can contribute to global value chains and grow. Other behind-the-border measures, such as

strengthening competition policy, improving the environment for foreign (and domestic)

investment, and reforming public procurement processes can increase connectivity. While

essentially domestic, such measures may be politically more acceptable if coordinated with

trading partners. Similarly, financial integration lags manufacturing integration in Asia, given the


30

greater macroeconomic vulnerability to financial disruption but is an area where regulatory

harmonization to promote financial integration may spur further connectivity.

Bottlenecks at Asia’s borders often impede the efficiency of its logistics systems. Trade

facilitation—streamlining the movement of goods and services across borders—is therefore

vital. Improvement in physical facilities allows shipments to move smoothly and quickly but

simplification and harmonization of customs procedures is also necessary to ensure exports do

not incur costly delays. Complying with export requirements can take over 20 days on average

in East Asia (and over a month in South Asia) compared with half of that in the OECD. The

pattern is similar for importing, although the time and cost involved are slightly greater.

Flexibility, as well as timeliness, will become more valuable over time as greater trade implies

greater potential vulnerability to external shocks such as financial turmoil or sharp fluctuations

in fuel or other commodity prices. Multiple shipping in supply chains raises the impacts of fuel

price fluctuations. For example, Chinese steel produced with imported Brazilian iron ore for

export to the US would be hit twice by higher fuel charges (three times including the cost of

energy used in production). The impact is greater where the goods (or their imported

components) are shipped by air or have a high weight-to-value ratio, and so where fuel

accounts for a higher share of freight costs.

It is worth emphasizing that the role played by service providers is significant in reducing

transactions costs significantly. A logistics hub can fulfill the principle of minimum transactions

by facilitating the interaction between manufacturers and different layers of distributors and

traders. Aside from minimizing the number of transactions involved, the savings in time and

other resources allows each agent in the web of relationships to concentrate on what it does

best – similar to the gains from trade based on comparative advantage.

Some countries have attempted to overcome their supply chain weaknesses by setting up

special economic zones, which aside from various tax exemptions are known to have simpler

procedures on the import of raw materials and the export activities related to that. From this

table, it is apparent that products that (electronics and automotives) rely on global supply

chains are disproportionately represented in SEZs.


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This is because SEZs are dominated by multinationals. Moreover, heavy reliance on SEZs may

limit growth potentials to the extent that positive effects of trade such as FDI, employment,

regulatory reforms, and productivity gains, become geographically contained in these zones.

Some general principles on reform for improving supply chains are to take a broad and

comprehensive approach with prioritization of options Wescott (2012). A broad approach

should target the whole range of hard and soft infrastructure and regulatory environment. In a

comprehensive approach reforms should address inefficiencies at each point along the value

chain. Value chains are usually only as strong as their weakest links, therefore benefits of

reform in one area may not be realized until bottlenecks in other areas are removed.

Prioritization of options should be based on recognition of where the potential savings in trade

transactions are greatest.

Regional Cooperation to Support the Development of GVCs

As regional economies become more integrated in their trade and investment to support global

value chains, there is an increasing role for regional cooperation to ensure the smooth

functioning of international business. Regional cooperation can help to exploit positive

externalities (spillovers) and economies of scale. Coordinating investments (such as to support

cross-border infrastructure or harmonisation of regulations) can leverage impacts beyond the

capabilities of individual economies. For example, the Greater Mekong Subregion convenes

special forums to coordinate transport, telecoms, and electric power.

Cross country economic corridors, hubs and gateways, including special economic zones (SEZs),

can connect remote regions to international trade partners. Regional cooperation may help

address the special needs of landlocked economies, and speed up transactions through the

harmonisation of soft infrastructure.

In the main sectors benefiting from unbundling – electrical and mechanical machinery –

fractionalized production processes involve time cost and shipping cost sensitive elements.

Being near other supply chain participants – both headquarters and factories – makes it easier

to join global value chains. In this context comparative advantage of the region matters as


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much as that of the country when it comes to joining a global value chain, and the Asian region

has a strong advantage. This suggests that distance still matters, and while global connectivity

may become less difficult, regional connectivity still has advantages and what has policy

relevance for an individual country may draw more from its neighbors than previously. At the

same time, connectivity facilitates the transmission of shocks (for example, financial, or

slowdown of a major market) and entails costs, particularly at the local level, as well as benefits.

Box 1. Asia-Pacific Economic Cooperation (APEC) and GVC development

The Asia-Pacific Economic Cooperation forum provides a good example of how regional

cooperation can support investment climate improvements for GVC development.

First, the APEC Policy Support Unit (PSU) provides a good summary of issues relating to

trade in services, noting that the liberalisation of services and investment are critical to

the enhancement of GVCs (PSU Brief No. 9).

Many studies undertaken by APEC have found that while services which support global

value chains are significant, most attention has been directed to big services sectors like

telecommunications, transport, finance or energy. Yet work on other sectors is missing –

so called “sector orphans” - such as maintenance and repair services or services

incidental to manufacturing, research and development, technical testing and analysis,

rental and leasing – The PSU suggests a stock-take of these “orphans” would be

helpful to support prevailing business models.

Within APEC, various committees and sub-groups deal with services, but the work is not

well coordinated and a challenge for APEC is how to improve coordination. The

Economic Committee looks at regulatory structural reform and PSU suggest that the EC

and the senior finance officials meeting (SFOM) consider finance for supply chain

operations; further, PSU proposes that these two groups consider the security of trade

transactions’ financing within the value chain given the absence or inadequacy of

existing commercial laws, especially in developing economies. Meanwhile, the APEC

Business Advisory Council, through the Asia Pacific Financial Forum, is doing important


33

work on both matters under the APEC Finance Ministers’ processes.

The PSU suggests that previous work done by the Economic Committee on regulatory

reform be supported by sector-specific regulatory reforms studies and analysis by

extending work done on structural reform to include work on transport and

infrastructure.

Studies of international business strategies use all modes of supply at the same time in

their international operations; reform negotiations which ignore this feature of

business will produce outcomes which do not resonate with business – thus there is

value in designing a sector-based approach to reform packages and trade negotiations.

New types of service barriers are arising and international agreements are non-existent

to deal with them, eg. cloud computing and the security of private data – APEC is

among the first international grouping to develop a cross-border data privacy

framework but the work remains nascent. At the same time, unrestricted data flows

(the non-localisation of requirements) are important to ensure cross-border trade in

services (mode 1) can operate freely.

Servicification can bring unintended consequences of higher subsidy in manufacturing

(through subsidies on services) and impact competitive positions in goods trade.

SOEs when closely linked with services, for example, in telecommunications, energy et

al. can create an uneven playing field.

Case study work of value chains of firms in the region (only 22 firms) included

discussions on restrictions on investment and labour mobility, policies relating to skills

development, and a range of other regulatory issues – including customs facilitation and

security. Issues were not just about services but also relevant to manufacturing

operations, attesting to the need to think about policies in terms of their overall impact

on economies where manufacturing and the supply of services are increasingly co-

dependent.

APEC case studies point to positive experiences in liberalised port management, port

modernisation and transport and show how this has minimised the distance

disadvantage.


34

The APEC studies point to the effects of policy incoherence inherent in opening up

manufacturing for investments but maintaining restrictions on services. They find that

visa waivers for more economies facilitating labour mobility and relaxing foreign labour

quotas can be a strong complement to foreign investment openness and support the

transfer of technology. Support for SMEs with international standards accreditation

would boost their ability to participate in GVCs. Building constructive stakeholder

relationships between government and the private sector will improve transparency and

predictability and consistency in the business environment.

In summary, APEC is handling a complex subject in a concerted but as yet a disjointed

way. Efforts to strengthen coordination could include ways to increase compatibility with the

structural reform agenda, the services, investment and finance agendas - but this is much easier

said than done. Ultimately, the ingenuity to devise a template which can be used for a self-

assessment individual action plan for economies, incorporating the various components just

mentioned and which would be peer reviewed, man be needed.


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Key Points and Recommendations

Most economies in Southeast Asia have significant room for improvement in their investment

climate for global value chain development. Some improvements are general and will benefit

all investment, foreign and domestic. Chief among these is macroeconomic stability (where it is

lacking). Policy recommendations need to be tailored to an individual economy’s circumstances

and industrial policies, and behind-the-border measures that support trade facilitation or

implementation or enforcement of competition policy can make a good start by improving the

domestic competitiveness of firms. However, for GVCs involving cross-border trade and

investment, regional cooperation can play a useful role in coordinating regulations and

facilitating international transactions.

Heavy-handed industrial policies, such as local content, joint venture, or export requirements,

have been found to generally be ineffective or counterproductive. A lighter policy framework

offering national treatment for investors will do more to nurture value chain development.

Recommendations for improving the investment climate for GVCs can be grouped under four I’s

of infrastructure, institutions, incentives, and implementation.

Infrastructure

Reliable and efficient transportation and communication services are particularly important for

connecting and coordinating the different links in global value chains. Reasonably priced and

dependable power supplies are essential for producing most goods competitively. Water and

sanitation may also be important. All of these services require hard (physical) infrastructure,

without which attracting and retaining investment will be difficult.

Infrastructure helps to lower marginal costs, supporting a larger minimum efficient scale of

production, enabling greater cost-efficient production through economies of scale. It also

reduces time costs, search and border costs. Infrastructure development is likely to impact the

trade of differentiated products more than homogeneous ones. It eases congestion costs and

affects market and supplier access, which studies have found to be the most important factors

in attracting foreign direct investment, even greater than production costs. Improvements in


36

service efficiency resulting from infrastructure development can be equivalent to moving

production thousands of kilometres closer to trading partners.

Infrastructure and logistics influence both absolute and comparative advantage. They mitigate

limits in factor endowments, strengthen the importance of timeliness and reliability of delivery.

As production becomes increasingly international, infrastructure also plays a critical role in

intraregional integration. The following changes in the composition of trade in recent decades

as GVCs have developed point us toward changes in the kinds of trade infrastructure needed:

1. Light goods

2. Air transport

3. Demand for certainty, timeliness

4. Needs of small firms, new trade flows

5. Services

Infrastructure investment must keep pace with the changing needs of technological and

industrial development in order to retain competitiveness and foreign investment.

Soft (institutional) infrastructure should be developed as a complement to physical

infrastructure, and increasingly so after physical infrastructure services become readily

available. Information plays a central role in soft infrastructure, and certainty of the

information helps to reduce risks. A consultation culture should be fostered with frequent

exchanges between public and private sectors plays a critical role in ensuring the free flow of

policy relevant information and plays a key role in ensuring investment sustainability and

retention. Improvements in human capital, such as improvements in language or intercultural

skills, also provide information to ease cross-border transactions.

Technical assistance for building capacity may be required to meet international standards or to

upgrade managerial capabilities Involving small and medium enterprises in GVCs. Difficulties in

access to financing may put SMEs at a disadvantage, which could be overcome by special

programs, and large-small business matching may help in developing value chain linkages.


37

Efficient financial intermediation should also be developed to encourage reinvestment of

earnings by foreign investors.

Improved information availability, principally through information and communications

infrastructure development, can help lower costs of entering into, and monitoring, supply

contracts, as well as the time between perception of demand and a producer’s supply response.

Information availability is likely to impact differentiated products more than homogeneous

ones, aiding small and medium-sized enterprises which account for the bulk of employment in

most economies.

Transport, storage, port facilities, ICT (for information and coordination), and support sectors

(electricity, finance, etc.) infrastructure are needed for efficient value chain development.

Urban infrastructure to facilitate economic activity and supply health, water, power, education,

and housing is becoming increasingly necessary as the region urbanises and seeks to retain

investment and develop the benefits of agglomeration. The key actors that can ensure the

availability of these infrastructure are the government – which can directly provide and manage

infrastructure or set the environment and regulations for participation of the private sector for

their provision and management – and the private sector, through private public partnerships.

Institutions

Institutions, or “rules of the game” and related organizational structures are an essential part of

the economic and investment climate. Institutional structures include: (a) Regulations and

support for fulfilling regulatory requirements such as customs procedures; (b) International

agreements; (c) Competition forms and policies; and (d) Cooperation (including international

cooperation in the case of GVCs). The quality of institutions is paramount. Regulations should

be clear, consistent, and implemented and enforced in order to reduce regulatory uncertainty.

Trade facilitation most often aims at improving border clearance procedures. At the same time,

predictable legal rights and procedures, enforceable and equitable competition policy, and a

sound regulatory framework are equally important. Long term, local currency bond markets

that can support investment in general, and infrastructure investment in particular, should be

developed.


38

Social or legislated structures in which business operates can help or hinder international

linkages. Common examples are business associations, competition policy, intellectual

property rights, “single window” investment structures, streamlined customs practices, and so

on. Improved coherence of polices for trade, industrial development, and investment, as well as

regulatory coherence and consistency in the context of local conditions is required to provide a

clear and level playing field for commercial competition and investment retention. Regulatory

impact assessment with an international component can help, as well as review of any special

treatment afforded enterprises with government participation.

The government usually must serve as the coordinator and is most often the sole body with

authority to create legislation or regulations (preferably after consultations with stakeholders

throughout the process of design and enactment of laws or regulations). International

organizations and agreements, and collaborative arrangements can also play a role in

enhancing facilitation through cooperation and dialogue. Some policy makers argue that

international agreements and trading partners can help maintain pressure to keep regulations

in a partner country transparent and less discretionary.

Incentives

Incentives may be general and economy-wide or strategic and specific for firms participating in

GVC development. Consideration may be given to incentives for investment, for employment

objectives, to promote linkages, or to support risk taking or risk mitigation. Planning incentive

structures should consider the likely impacts on investment retention and externalities, as well

as attraction.

The incentives that influence investment go far beyond tax holidays. Prices are just one

example, but market access can often be more influential than price (including wage) subsidies.

Support should also be enacted for service providers to implement the principle of minimum

transactions (reducing the number of shipments involved in allocating goods or resources

among trading partners).


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Implementation

Announcements of policy changes to improve the investment climate are common. However,

greater efforts are needed in is following through with policy implementation for investment

climate improvement. This may involve capacity building activities (particularly for SMEs or

government officials involved in managing GVC development). It also involves ensuring that

infrastructure construction is followed by essential maintenance (politicians are often happy to

announce the former but not to ensure financing for the latter).

Policy making with the four I’s in mind will vary from economy to economy, depending on social

structures, stages of development, domestic market size, natural resource endowments, and

goals of the government. Southeast Asian economies can foster the investment environment

for development of GVCs through policies such as trade liberalization and facilitation, openness

to foreign investment, protection of intellectual property rights, and upgrading skills of the

labour force (particularly to support service sector development). In the long run, policies that

support development of a highly skilled labour force and high quality infrastructure and logistics

services will foster international trade and investment, and the development of GVC

participation. Learning from the experiences of others can contribute new concepts and help in

avoiding mistakes. Regional cooperation fora such as APEC can assist in this process.


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References: Abdullaev, B., Brooks, D.H., and Waller, K. (2015). Investment policy in APEC: developments and a look forward. In Current Issues in Asia Pacific Foreign Direct Investment (pp. 88-97). The Australian APEC Study Centre at RMIT. Athukorala, P. (2016). Southeast Asian Countries in Global Production Networks. In B. Jetin & M. Mikic (Eds.), ASEAN Economic Community: A model for Asia-wide Regional Integration? (pp. 79-100). Houndmills, UK: Palgrave Macmillan.

Baldwin R. & Forslid R. (2014). The development and future of factory Asia. In B. Ferrarini & D. Hummels (Eds.), Asia and Global Production Networks (pp. 338-368). Cheltenham: Edward Elgar.

Brooks D.H. & Go E.C. (2013). Infrastructure. In H. Hill & M.S. Gochoco-Bautista (Eds.), Asia Rising: Growth and Resilience in an Uncertain Global Economy. (pp. 76-103). Cheltenham: Edward Elgar.

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http://biblioteca.fundacionicbc.edu.ar/images/0/01/Clusters_11-00.pdf

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http://www3.weforum.org/docs/WEF_GAC_GlobalTradeSystem_Report_2012.pdf

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http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/200%203/07/26/000094946_03071704242197/additional/111511322_20041117183024.pdf

http://dx.doi.org/10.1787/9789264189560-en

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https://www.wto.org/english/res_e/statis_e/miwi_e/cou%20ntryprofiles_e.htm


43

Appendix

WTO Trade in value-added and GVCs: economy profiles

Trade in Value Added and Global Value Chains

The value added (VA) components of gross exports, 1995 and 2011 Evolution of the VA components of gross exports, 1995-2011

(annual % change)

Top export industries - Domestic and foreign VA content of exports, 2011(% share in industry total gross exports) (% share in economy total gross exports)

Domestic VA Foreign VA Total Domestic VA Foreign VA1. Mining 88.4 11.6 100.0 36.8 4.8

2. Wholesale and retail trade 90.8 9.2 100.0 12.1 1.2

3. Transport and storage 89.4 10.6 100.0 7.4 0.9

Top export destinations - Domestic and foreign VA content of exports, 2011

(% share in total gross exports to partner) (% share in economy total gross exports)

Domestic VA Foreign VA Total Domestic VA Foreign VA

1. China 86.8 13.2 100.0 23.2 3.5

2. Japan 87.5 12.5 100.0 15.1 2.2

3. Korea, Republic of 86.5 13.5 100.0 7.8 1.2

(% share in industry total gross exports) Value added origin

Total

Export industryPrimary

productsManufactures Services

Primary


Total 33.5 12.0 40.4 4.9 3.5 5.7 100.0

Primary products 64.8 3.4 20.3 4.7 2.5 4.4 100.0

Manufactures 11.5 36.7 27.4 9.2 6.3 8.9 100.0

Services 2.0 4.8 83.9 1.5 2.8 4.9 100.0

The GVC participation index, 2011 Evolution of total GVC participation, 1995-2011(% share in total gross exports) (annual % change)

AustraliaDeveloping

economies

Developed

economiesTotal GVC participation 43.6 48.6 48.0

29.5 23.1 24.214.1 25.5 23.8

Forward GVC participation, 2011 Backward GVC participation, 2011Top exporting industries to GVCs Top GVC-importing industries(% share in total exports of domestic inputs sent to third countries) (% share in total foreign content of exports)

1. Mining 42.1 1. Mining 34.4

2. Wholesale and retail trade 14.0 2. Basic metals 19.4

3. Transport and storage 7.7 3. Wholesale and retail trade 8.6

Top exporters of Australia inputs through GVCs Top foreign inputs providers

(% share in total exports of domestic inputs sent to third countries) (% share in total foreign content of exports)

1. China 26.1 1. United States 10.4

2. Korea, Republic of 14.7 2. China 7.9

3. Japan 8.9 3. Indonesia 5.7

The services VA content of exports, by origin, 2011 Evolution of the services VA content of exports, 1995-2011(% shares in manufactures and total exports) (annual % change)

Services VA contribution to exports of manufactures Services VA contribution to total exportsTop services industries contributing to exports of manufactures, 2011 Top services industries contributing to total exports, 2011(% share in gross exports of manufactures) (% share in total gross exports)

1. Wholesale and retail trade 11.6 1. Wholesale and retail trade 14.3

2. Other business services 6.3 2. Transport and storage 8.8

3. Transport and storage 6.2 3. Other business services 6.9

Top foreign services providers to exports of manufactures, 2011 Top foreign services providers to total exports, 2011(% share in gross exports of manufactures) (% share in total gross exports)

1. United States 1.2 1. United States 0.9

2. China 0.7 2. China 0.4

3. Japan 0.6 3. Japan 0.4

Trade in merchandise and commercial services intermediates(Billion $, % and annual % change)

2014 Share in total 1995-2014 2005-2014Merchandise exports in intermediates 135.3 76.6 8.0 12.2

Merchandise imports in intermediates 68.2 35.6 5.3 5.3

Intermediate commercial services exports 9.9 18.5 … 8.1

Cost and time to trade at the border, 2015

Exports, 2014 Australia World average Imports, 2014 AustraliaWorld

average

Cost to export at the border ($ per container) 1200 1841 Cost to import at the border ($ per container) 1220 2084

Time to export at the border (number of days) 9 22 Time to import at the border (number of days) 8 25

Documents to export (number) 5 6 Documents to import (number) 7 8

Inward FDI - Stocks Outward FDI - Stocks(billion $ and annual % change) 2013 2005-2013 (billion $ and annual % change) 2013 2005-2013Total 558.5 12.8 Total 438.7 12.1

Primary products 205.4 … Primary products ... …

Manufactures 78.6 … Manufactures 59.2 …

Services 204.4 … Services 161.9 …

Forward participation

Domestic and foreign sectoral VA contribution to gross exports, 2011

Backward participation

TRADE IN INTERMEDIATES

TRADE FACILITATION

FOREIGN DIRECT INVESTMENT

PARTICIPATION IN GLOBAL VALUE CHAINS (GVCs)

ROLE OF SERVICES VALUE ADDED IN EXPORTS

AustraliaVALUE ADDED CONTENT OF GROSS EXPORTS

(% share in total gross exports)

Domestic Foreign

56.3

69.4

29.5

18.4

0.1

0.1

14.1

12.1

0 10 20 30 40 50 60 70 80 90 100

2011

1995

Domestic VA sent to consumer economy Domestic VA sent to third economies

Domestic VA re-imported in the economy Foreign VA content of exports

27.4

40.4

8.9

5.7

0.0

10.0

20.0

30.0

40.0

50.0

Exports of manufactures Total exports

Domestic services Foreign services

9.4

9.3

9.3

7.0

5.6

5.9

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

10.8

13.1

13.0

8.3

0 5 10 15 20 25

Foreign VA content of exports

Domestic VA re-imported in the economy

Domestic VA sent to third countries

Domestic VA sent to consumer economy

Australia Developing economies Developed economies

8.0

13.1

12.2

0 2 4 6 8 10 12 14 16 18 20

Developed economies

Developing economies

Australia



(annual % change)




3. Construction 62.1 37.9 100.0 1.3 0.8




1. Japan 97.1 2.9 100.0 35.5 1.1


3. Australia 97.3 2.7 100.0 12.4 0.3


Total



Primary


Total 87.2 0.6 8.0 0.6 1.1 2.5 100.0


Manufactures 13.6 40.6 12.4 3.3 11.9 18.2 100.0

Services 11.4 0.9 70.2 2.3 4.3 10.7 100.0


Brunei

Darussalam

Developing

economies

Developed


42.7 23.1 24.24.3 25.5 23.8



2. Transport and storage 1.8 2. Construction 17.9


Top exporters of Brunei Darussalam inputs through GVCs Top foreign inputs providers


1. Korea, Republic of 20.4 1. United States 16.3

2. Australia 15.6 2. Singapore 10.9

3. Japan 15.4 3. Malaysia 10.7



1. Wholesale and retail trade 13.9 1. Transport and storage 3.4

2. Financial intermediation 4.4 2. Wholesale and retail trade 1.9



1. Singapore 2.5 1. United States 0.5

2. United States 2.1 2. Singapore 0.4



2014 Share in total 1995-2014 2005-2014Merchandise exports in intermediates 0.6 82.0 ... ...

Merchandise imports in intermediates 1.3 39.3 ... ...

Intermediate commercial services exports 0.0 … … …


Exports, 2014Brunei

DarussalamWorld average Imports, 2014

Brunei

Darussalam

World

average




Inward FDI - Stocks Outward FDI - Stocks(billion $ and annual % change) 2013 2005-2013 (billion $ and annual % change) 2013 2005-2013Total 14.2 5.6 Total 0.1 -17.7

Primary products ... … Primary products ... …

Manufactures ... … Manufactures ... …

Services ... … Services ... …

Brunei DarussalamVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign





TRADE FACILITATION




53.1

71.6

42.7

21.1

0.0

0.0

4.3

7.3

0 10 20 30 40 50 60 70 80 90 100

2011

1995



12.4 8.0

18.2

2.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0



7.9

5.7

6.2

5.0

7.8

6.0

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

6.9

6.2

15.5

8.5

0 5 10 15 20 25





Brunei Darussalam Developing economies Developed economies

8.0

13.1

14.1

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Brunei Darussalam



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Textiles 41.1 58.9 100.0 16.4 23.6






1. United States 56.3 43.7 100.0 16.8 13.0

2. Canada 53.7 46.3 100.0 3.6 3.1

3. United Kingdom 54.8 45.2 100.0 3.6 2.9


Total



Primary


Total 9.2 18.5 35.5 5.1 12.0 19.7 100.0


Manufactures 2.4 34.3 6.4 7.8 18.9 30.3 100.0

Services 6.2 5.8 66.2 3.0 6.8 11.8 100.0


CambodiaDeveloping

economies

Developed


11.9 23.1 24.236.8 25.5 23.8


1. Transport and storage 18.0 1. Textiles 64.0

2. Agriculture 17.7 2. Transport and storage 11.3


Top exporters of Cambodia inputs through GVCs Top foreign inputs providers


1. China 16.5 1. China 32.5

2. Viet Nam 11.8 2. Chinese Taipei 9.7

3. Thailand 10.3 3. United States 5.5




2. Transport and storage 6.7 2. Transport and storage 12.3

3. Financial intermediation 2.9 3. Other community and social services 5.0


1. China 10.4 1. China 5.8

2. Chinese Taipei 4.3 2. Chinese Taipei 2.3



2014 Share in total 1995-2014 2005-2014Merchandise exports in intermediates (2013) 2.9 31.5 ... 10.0

Merchandise imports in intermediates (2013) 5.8 70.4 ... 8.4



Exports, 2014 Cambodia World average Imports, 2014 CambodiaWorld

average





Primary products (2011) 0.8 … Primary products ... …

Manufactures (2011) 2.0 … Manufactures ... …

Services (2011) 2.8 … Services ... …





TRADE FACILITATION




CambodiaVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

51.3

69.3

11.9

18.0

0.0

0.0

36.8

12.7

0 10 20 30 40 50 60 70 80 90 100

2011

1995



6.4

35.5 30.3

19.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0



20.9

14.4

16.1

23.8

12.7

20.2

0 5 10 15 20 25

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

20.4

20.6

9.8

10.6

0 5 10 15 20 25





Cambodia Developing economies Developed economies

8.0

13.1

16.0

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Cambodia



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Computer and electronic 45.0 55.0 100.0 10.7 13.1


3. Textiles 73.5 26.5 100.0 7.5 2.7




1. United States 65.3 34.7 100.0 13.7 7.3

2. Japan 68.1 31.9 100.0 7.0 3.3



Total



Primary


Total 8.1 32.2 27.7 6.1 11.8 14.2 100.0


Manufactures 8.0 38.6 13.3 7.3 15.0 17.8 100.0

Services 5.9 12.0 75.6 2.0 1.7 2.7 100.0


ChinaDeveloping

economies

Developed


15.6 23.1 24.232.1 25.5 23.8


1. Wholesale and retail trade 16.7 1. Computer and electronic 40.7

2. Computer and electronic 8.2 2. Textiles 8.4

3. Basic metals 7.0 3. Electrical machinery 8.3

Top exporters of China inputs through GVCs Top foreign inputs providers


1. United States 10.1 1. Japan 14.7


3. Japan 6.3 3. Korea, Republic of 8.3




2. Financial intermediation 5.0 2. Transport and storage 6.4

3. Transport and storage 4.6 3. Financial intermediation 4.9




3. Korea, Republic of 1.4 3. Korea, Republic of 1.1






Exports, 2014 China World average Imports, 2014 ChinaWorld

average





Primary products (2010) 61.7 … Primary products (2011) 70.4 …

Manufactures (2010) 1524.8 … Manufactures (2011) 36.5 …

Services (2010) 905.8 … Services (2011) 317.9 …

ChinaVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign





TRADE FACILITATION




51.3

56.9

15.6

9.5

1.0

0.2

32.1

33.3

0 10 20 30 40 50 60 70 80 90 100

2011

1995



13.3

27.7

17.8

14.2

0.0

10.0

20.0

30.0

40.0

50.0



16.6

18.1

17.5

16.7

18.8

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

17.5

29.7

21.5

17.0

0 5 10 15 20 25 30 35





China Developing economies Developed economies

8.0

13.1

18.6

0 2 4 6 8 10 12 14 16 18 20

Developed economies


China



(annual % change)




3. Chemical products 41.5 58.5 100.0 4.2 6.0




1. China 56.5 43.5 100.0 23.2 17.8

2. United States 59.7 40.3 100.0 6.9 4.7

3. Japan 60.0 40.0 100.0 4.0 2.7


Total



Primary


Total 0.6 25.6 30.3 11.8 15.2 16.6 100.0


Manufactures 0.4 32.2 16.4 13.2 18.6 19.3 100.0

Services 0.3 3.2 78.3 6.8 3.9 7.5 100.0


Chinese TaipeiDeveloping

economies

Developed


24.1 23.1 24.243.5 25.5 23.8



2. Computer and electronic 26.0 2. Chemical products 13.8

3. Chemical products 6.3 3. Basic metals 8.4

Top exporters of Chinese Taipei inputs through GVCs Top foreign inputs providers


1. China 46.7 1. Japan 16.7







3. Financial intermediation 3.7 3. Other business services 5.1




3. United States 2.2 3. China 1.8






Exports, 2014 Chinese Taipei World average Imports, 2014Chinese

Taipei

World

average












TRADE FACILITATION




Chinese TaipeiVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

32.1

53.4

24.1

15.8

0.3

0.1

43.5

30.6

0 10 20 30 40 50 60 70 80 90 100

2011

1995



16.4

30.3

19.3

16.6

0.0

10.0

20.0

30.0

40.0

50.0



7.9

5.5

6.3

7.6

5.3

6.4

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

8.8

12.1

9.3

3.1

0 5 10 15 20 25





Chinese Taipei Developing economies Developed economies

8.0

13.1

9.0

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Chinese Taipei



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Transport and storage 76.6 23.4 100.0 33.0 10.1

2. Financial intermediation 91.6 8.4 100.0 13.9 1.3





1. China 80.7 19.3 100.0 27.5 6.6

2. United States 87.1 12.9 100.0 9.3 1.4

3. Japan 79.6 20.4 100.0 3.7 1.0


Total



Primary


Total 0.0 3.2 76.4 2.6 5.0 12.8 100.0


Manufactures 0.1 21.6 36.3 6.6 13.5 22.0 100.0

Services 0.0 1.5 80.0 2.2 4.2 12.0 100.0


Hong Kong,

China

Developing

economies

Developed


23.2 23.1 24.220.4 25.5 23.8




3. Financial intermediation 20.3 3. Hotels and restaurants 6.3

Top exporters of Hong Kong, China inputs through GVCs Top foreign inputs providers


1. China 34.2 1. China 26.2


3. Korea, Republic of 5.3 3. Japan 8.8





3. Other business services 4.6 3. Financial intermediation 16.7










Exports, 2014Hong Kong,

ChinaWorld average Imports, 2014

Hong Kong,

China

World

average












TRADE FACILITATION




Hong Kong, ChinaVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

56.4

62.5

23.2

15.8

0.1

0.1

20.4

21.6

0 10 20 30 40 50 60 70 80 90 100

2011

1995



36.3

76.4 22.0

12.8

0.0

20.0

40.0

60.0

80.0

100.0



5.6

6.5

6.4

-1.1

-1.7

-1.5

Foreign services

Domestic services

Total services

-5 0 5 10 15


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

5.3

2.4

8.3

5.0

0 5 10 15 20 25





Hong Kong, China Developing economies Developed economies

8.0

13.1

6.7

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Hong Kong, China



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Wholesale and retail trade 96.4 3.6 100.0 11.2 0.4


3. Petroleum products 43.4 56.6 100.0 4.8 6.2




1. United States 76.7 23.3 100.0 12.2 3.7

2. China 81.6 18.4 100.0 6.3 1.4

3. United Kingdom 78.8 21.2 100.0 4.3 1.1


Total



Primary


Total 9.3 18.9 47.8 9.6 4.7 9.7 100.0


Manufactures 9.6 33.5 20.9 16.2 7.0 12.9 100.0

Services 3.1 4.5 80.0 3.2 2.4 6.8 100.0


IndiaDeveloping

economies

Developed


19.1 23.1 24.224.0 25.5 23.8


1. Wholesale and retail trade 18.7 1. Petroleum products 25.8

2. Transport and storage 14.2 2. Manufacturing nec 12.1


Top exporters of India inputs through GVCs Top foreign inputs providers



2. Singapore 6.8 2. Saudi Arabia, Kingdom of 8.8

3. Germany 6.5 3. China 8.5









3. Germany 0.7 3. United Kingdom 0.6






Exports, 2014 India World average Imports, 2014 IndiaWorld

average












TRADE FACILITATION




IndiaVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

56.8

77.1

19.1

13.6

0.1

0.0

24.0

9.3

0 10 20 30 40 50 60 70 80 90 100

2011

1995



20.9

47.8 12.9

9.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0



23.7

17.0

17.8

22.9

15.0

17.1

0 5 10 15 20 25

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

23.6

34.0

19.0

14.4

0 5 10 15 20 25 30 35 40





India Developing economies Developed economies

8.0

13.1

21.2

0 5 10 15 20 25

Developed economies


India



(annual % change)




3. Food and beverages 91.3 8.7 100.0 9.3 0.9




1. Japan 88.9 11.1 100.0 13.5 1.7

2. China 89.3 10.7 100.0 13.0 1.6

3. United States 85.7 14.3 100.0 7.2 1.2


Total



Primary


Total 40.2 23.5 24.3 4.0 3.3 4.7 100.0


Manufactures 20.0 47.9 13.5 5.8 5.6 7.2 100.0

Services 4.5 7.4 78.9 2.4 2.4 4.4 100.0


IndonesiaDeveloping

economies

Developed


31.5 23.1 24.212.0 25.5 23.8



2. Wholesale and retail trade 12.7 2. Basic metals 10.6

3. Agriculture 5.4 3. Chemical products 8.6

Top exporters of Indonesia inputs through GVCs Top foreign inputs providers


1. China 18.3 1. Saudi Arabia, Kingdom of 11.7


3. Malaysia 9.0 3. Japan 8.3





3. Financial intermediation 2.4 3. Financial intermediation 2.2










Exports, 2014 Indonesia World average Imports, 2014 IndonesiaWorld

average




Inward FDI - Stocks Outward FDI - Stocks(billion $ and annual % change) 2013 2005-2013 (billion $ and annual % change) 2013 2005-2013Total 230.3 24.0 Total ... ...




IndonesiaVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign





TRADE FACILITATION




56.4

71.1

31.5

16.3

0.1

0.1

12.0

12.5

0 10 20 30 40 50 60 70 80 90 100

2011

1995



13.5

24.3

7.2

4.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0



7.0

6.5

6.6

6.5

6.4

6.4

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

8.5

16.0

13.4

7.2

0 5 10 15 20 25





Indonesia Developing economies Developed economies

8.0

13.1

11.6

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Indonesia



(annual % change)



2. Computer and electronic 82.8 17.2 100.0 12.4 2.6

3. Motor vehicules 86.1 13.9 100.0 11.5 1.9




1. China 84.9 15.1 100.0 21.2 3.8

2. United States 87.2 12.8 100.0 13.5 2.0



Total



Primary


Total 0.8 40.2 44.4 4.9 4.3 5.4 100.0


Manufactures 0.9 54.6 26.5 5.8 5.6 6.6 100.0

Services 0.6 7.1 85.4 2.7 1.5 2.7 100.0


JapanDeveloping

economies

Developed


32.8 23.1 24.214.6 25.5 23.8



2. Computer and electronic 11.4 2. Motor vehicules 12.7

3. Basic metals 9.9 3. Chemical products 11.7

Top exporters of Japan inputs through GVCs Top foreign inputs providers


1. China 31.8 1. China 14.7


3. Chinese Taipei 8.3 3. Saudi Arabia, Kingdom of 7.5









3. Australia 0.4 3. Australia 0.3






Exports, 2014 Japan World average Imports, 2014 JapanWorld

average





Primary products 0.2 … Primary products 91.5 …







TRADE FACILITATION




JapanVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

52.2

70.4

32.8

23.8

0.4

0.2

14.6

5.6

0 10 20 30 40 50 60 70 80 90 100

2011

1995



26.5

44.4

6.6

5.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0



8.9

3.3

3.7

9.2

3.5

4.3

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

10.3

7.7

6.0

2.0

0 5 10 15 20 25





Japan Developing economies Developed economies

8.0

13.1

7.1

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Japan



(annual % change)



2. Motor vehicules 62.3 37.7 100.0 6.6 4.0

3. Petroleum products 19.2 80.8 100.0 1.7 7.1




1. China 57.5 42.5 100.0 17.7 13.1

2. United States 63.4 36.6 100.0 7.0 4.0

3. Japan 53.1 46.9 100.0 4.1 3.6


Total



Primary


Total 0.7 32.4 25.3 14.7 12.1 14.9 100.0


Manufactures 0.6 39.1 13.3 16.5 14.1 16.4 100.0

Services 0.5 6.4 72.3 7.6 4.3 8.9 100.0


Korea,

Republic of

Developing

economies

Developed


20.5 23.1 24.241.6 25.5 23.8


1. Computer and electronic 16.7 1. Computer and electronic 20.0

2. Wholesale and retail trade 15.4 2. Petroleum products 17.0

3. Basic metals 8.4 3. Chemical products 10.7

Top exporters of Korea, Republic of inputs through GVCs Top foreign inputs providers


1. China 41.1 1. Japan 12.0


3. Chinese Taipei 5.2 3. Saudi Arabia, Kingdom of 9.5




2. Other business services 5.6 2. Other business services 7.0











Exports, 2014Korea,

Republic ofWorld average Imports, 2014

Korea,

Republic of

World

average





Primary products 0.3 … Primary products 31.2 …



Korea, Republic ofVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign





TRADE FACILITATION




37.5

60.5

20.5

17.1

0.4

0.1

41.6

22.3

0 10 20 30 40 50 60 70 80 90 100

2011

1995



13.3

25.3

16.4

14.9

0.0

10.0

20.0

30.0

40.0

50.0



12.3

6.4

8.0

12.6

6.9

9.4

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

13.6

16.5

10.5

6.0

0 5 10 15 20 25





Korea, Republic of Developing economies Developed economies

8.0

13.1

12.4

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Korea, Republic of



(annual % change)




3. Mining 87.1 12.9 100.0 7.9 1.2




1. China 51.2 48.8 100.0 13.1 12.5

2. Japan 68.1 31.9 100.0 6.4 3.0

3. United States 52.0 48.0 100.0 4.6 4.2


Total



Primary


Total 16.1 19.4 23.9 7.7 15.1 17.8 100.0


Manufactures 9.9 27.3 10.4 9.2 20.8 22.4 100.0

Services 4.8 6.5 65.8 5.5 5.9 11.4 100.0


MalaysiaDeveloping

economies

Developed


19.8 23.1 24.240.6 25.5 23.8


1. Mining 21.7 1. Computer and electronic 40.5

2. Wholesale and retail trade 17.9 2. Food and beverages 7.2

3. Computer and electronic 10.6 3. Chemical products 5.9

Top exporters of Malaysia inputs through GVCs Top foreign inputs providers


1. China 29.8 1. Japan 11.8

















Exports, 2014 Malaysia World average Imports, 2014 MalaysiaWorld

average












TRADE FACILITATION




MalaysiaVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

39.3

53.8

19.8

15.6

0.3

0.1

40.6

30.4

0 10 20 30 40 50 60 70 80 90 100

2011

1995



10.4

23.9

22.4

17.8

0.0

10.0

20.0

30.0

40.0

50.0



9.8

7.7

8.5

10.3

9.0

9.9

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

11.0

13.1

10.6

6.9

0 5 10 15 20 25





Malaysia Developing economies Developed economies

8.0

13.1

10.9

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Malaysia



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Food and beverages 81.3 18.7 100.0 21.2 4.9






1. Australia 82.5 17.5 100.0 21.5 4.6

2. China 84.7 15.3 100.0 9.1 1.6

3. United States 84.1 15.9 100.0 8.2 1.6


Total



Primary


Total 14.5 19.4 49.5 5.2 3.5 7.9 100.0


Manufactures 11.8 36.2 30.3 6.6 5.1 10.0 100.0

Services 2.6 3.3 82.7 3.7 2.0 5.8 100.0


New ZealandDeveloping

economies

Developed


16.6 23.1 24.216.6 25.5 23.8


1. Wholesale and retail trade 14.3 1. Food and beverages 29.4

2. Other business services 12.9 2. Wholesale and retail trade 11.9

3. Agriculture 11.0 3. Basic metals 8.8

Top exporters of New Zealand inputs through GVCs Top foreign inputs providers



2. China 18.2 2. Russian Federation 8.5










3. Russian Federation 0.7 3. Russian Federation 0.6






Exports, 2014 New Zealand World average Imports, 2014New

Zealand

World

average





Primary products 6.8 … Primary products ... …







TRADE FACILITATION




New ZealandVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

66.7

72.2

16.6

10.9

0.0

0.0

16.6

16.8

0 10 20 30 40 50 60 70 80 90 100

2011

1995



30.3

49.5

10.0

7.9

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0



5.0

6.9

6.6

5.7

7.8

7.2

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

6.2

4.1

9.1

5.8

0 5 10 15 20 25





New Zealand Developing economies Developed economies

8.0

13.1

7.5

0 2 4 6 8 10 12 14 16 18 20

Developed economies


New Zealand



(annual % change)








1. China 75.2 24.8 100.0 17.4 5.7

2. United States 80.0 20.0 100.0 9.5 2.4

3. Japan 76.3 23.7 100.0 8.9 2.8


Total



Primary


Total 7.3 29.6 39.6 7.2 7.4 8.9 100.0


Manufactures 6.2 49.2 15.7 7.1 10.9 11.0 100.0

Services 2.0 8.4 71.8 7.4 3.6 6.8 100.0


PhilippinesDeveloping

economies

Developed


27.4 23.1 24.223.5 25.5 23.8




3. Transport and storage 9.7 3. Basic metals 6.9

Top exporters of Philippines inputs through GVCs Top foreign inputs providers


1. China 32.4 1. Saudi Arabia, Kingdom of 11.2


3. Chinese Taipei 6.6 3. China 10.2





3. Other business services 2.1 3. Other business services 5.9






2014 Share in total 1995-2014 2005-2014Merchandise exports in intermediates 41.1 29.1 ... 4.6

Merchandise imports in intermediates 36.3 67.1 ... 0.1



Exports, 2014 Philippines World average Imports, 2014 PhilippinesWorld

average








PhilippinesVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign





TRADE FACILITATION




49.0

57.4

27.4

12.8

0.0

0.0

23.5

29.8

0 10 20 30 40 50 60 70 80 90 100

2011

1995



15.7

39.6 11.0

8.9

0.0

10.0

20.0

30.0

40.0

50.0

60.0



3.8

7.2

6.4

3.1

10.2

6.3

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

5.1

7.4

11.8

5.6

0 5 10 15 20 25





Philippines Developing economies Developed economies

8.0

13.1

7.8

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Philippines



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Transport and storage 55.5 44.5 100.0 11.1 8.9


3. Chemical products 55.2 44.8 100.0 5.6 4.5




1. China 58.7 41.3 100.0 7.2 5.1

2. United States 64.6 35.4 100.0 6.3 3.5

3. Malaysia 52.7 47.3 100.0 4.3 3.8


Total



Primary


Total 0.2 16.3 41.8 9.0 8.0 24.7 100.0


Manufactures 0.2 31.5 19.3 13.8 11.5 23.7 100.0

Services 0.1 2.7 62.0 4.8 4.9 25.5 100.0


SingaporeDeveloping

economies

Developed


19.9 23.1 24.241.7 25.5 23.8




3. Transport and storage 13.7 3. Petroleum products 15.0

Top exporters of Singapore inputs through GVCs Top foreign inputs providers



2. Malaysia 12.1 2. China 7.4
















Exports, 2014 Singapore World average Imports, 2014 SingaporeWorld

average






Manufactures (2010) 101.3 … Manufactures ... …

Services (2010) 371.3 … Services ... …





TRADE FACILITATION




SingaporeVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

38.3

45.2

19.9

12.3

0.1

0.2

41.7

42.3

0 10 20 30 40 50 60 70 80 90 100

2011

1995



19.3

41.8

23.7

24.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0



8.3

8.1

8.2

5.9

6.6

6.2

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

7.4

5.0

10.8

6.4

0 5 10 15 20 25





Singapore Developing economies Developed economies

8.0

13.1

8.3

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Singapore



(annual % change)




3. Food and beverages 77.1 22.9 100.0 7.0 2.1




1. China 59.5 40.5 100.0 9.8 6.7

2. Japan 61.4 38.6 100.0 6.1 3.8

3. United States 61.6 38.4 100.0 5.3 3.3


Total



Primary


Total 9.9 25.0 26.2 9.2 13.0 16.8 100.0


Manufactures 7.4 34.2 10.1 10.6 17.5 20.2 100.0

Services 4.2 6.6 68.6 6.4 3.9 10.3 100.0


ThailandDeveloping

economies

Developed


15.4 23.1 24.239.0 25.5 23.8



2. Agriculture 9.5 2. Motor vehicules 9.3

3. Chemical products 7.8 3. Machinery and equipment 9.1

Top exporters of Thailand inputs through GVCs Top foreign inputs providers


1. China 27.3 1. Japan 15.4

2. Malaysia 9.4 2. China 10.4

3. Japan 5.4 3. United States 6.9















Exports, 2014 Thailand World average Imports, 2014 ThailandWorld

average












TRADE FACILITATION




ThailandVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

45.5

63.7

15.4

12.1

0.1

0.1

39.0

24.2

0 10 20 30 40 50 60 70 80 90 100

2011

1995



10.1

26.2

20.2

16.8

0.0

10.0

20.0

30.0

40.0

50.0



10.9

5.9

7.5

11.1

5.5

8.6

0 5 10 15 20

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

11.8

14.6

10.2

6.3

0 5 10 15 20 25





Thailand Developing economies Developed economies

8.0

13.1

11.3

0 2 4 6 8 10 12 14 16 18 20

Developed economies


Thailand



(annual % change)


Domestic VA Foreign VA Total Domestic VA Foreign VA1. Food and beverages 75.2 24.8 100.0 9.2 3.0


3. Textiles 62.5 37.5 100.0 6.8 4.1




1. United States 65.6 34.4 100.0 10.1 5.3

2. China 63.9 36.1 100.0 8.9 5.0

3. Japan 60.7 39.3 100.0 6.7 4.3


Total



Primary


Total 23.0 17.5 23.2 7.9 13.4 14.9 100.0


Manufactures 14.8 26.9 9.5 10.0 18.9 19.9 100.0

Services 6.7 5.2 66.3 5.3 7.1 9.4 100.0


Viet NamDeveloping

economies

Developed


16.0 23.1 24.236.3 25.5 23.8


1. Mining 28.6 1. Computer and electronic 17.5

2. Wholesale and retail trade 15.6 2. Textiles 11.3

3. Agriculture 12.7 3. Food and beverages 8.4

Top exporters of Viet Nam inputs through GVCs Top foreign inputs providers


1. China 21.5 1. China 17.4


3. Malaysia 10.1 3. Korea, Republic of 8.0





3. Financial intermediation 3.3 3. Financial intermediation 3.0




3. Korea, Republic of 1.8 3. Korea, Republic of 1.3


2014 Share in total 1995-2014 2005-2014Merchandise exports in intermediates 44.2 31.4 ... 23.9

Merchandise imports in intermediates 103.3 74.9 ... 18.5



Exports, 2014 Viet Nam World average Imports, 2014 Viet NamWorld

average

Cost to export at the border ($ per container) 1841 Cost to import at the border ($ per container) 2084

Time to export at the border (number of days) 22 Time to import at the border (number of days) 25

Documents to export (number) 6 Documents to import (number) 8









TRADE FACILITATION




Viet NamVALUE ADDED CONTENT OF GROSS EXPORTS


Domestic Foreign

47.7

65.7

16.0

13.1

0.1

0.0

36.3

21.1

0 10 20 30 40 50 60 70 80 90 100

2011

1995



9.5

23.2

19.9

14.9

0.0

10.0

20.0

30.0

40.0

50.0



21.1

14.7

16.6

23.1

18.3

21.2

0 5 10 15 20 25

Foreign services

Domestic services

Total services


8.3

7.0

7.8

4.5

12.4

19.8

14.0

9.6

22.0

25.0

19.4

15.6

0 5 10 15 20 25 30





Viet Nam Developing economies Developed economies

8.0

13.1

21.1

0 5 10 15 20 25

Developed economies


Viet Nam