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Making the Most of Global Value Chains – Lessons and Challenges from Asia

Marcus Bartley Johns's picture
As analysis of global value chains (GVCs) deepens, the scale of the policy challenge facing developing country governments has become clearer. How can they help firms enter GVCs, upgrade within them, and maximize the positive spillovers?
 
Earlier this year in our Singapore Trade and Competitiveness Hub we brought together our Asia country teams, global experts, and both private and public sector partners to discuss these issues. The conclusion was clear: there is a wide range of opportunities for greater GVC-related work in East and South Asia. This spans analytics and diagnostics; research and sharing of knowledge; projects to support government policy reforms; and developing a new set of public and private partnerships to underpin work in each of these areas.
Several interesting themes emerged from the workshop:
 
Governments need detailed analysis to help them prioritize policy reforms and maximize their benefits. Answering questions like “What GVC activities am I competitive in?” and “How do I maximize the development impact of GVC participation?” rests on a solid foundation in research and diagnostics. For this reason, the World Bank Group’s research program on GVCs continues to deepen, with the  a new database available on GVC participation; the launch of Making GVCs Work for Development; and events like the Conference on GVCs and Development. One priority for our teams in Asia will be to undertake more focused work with firms in the region to better understand the rapid changes underway in GVCs and what they mean for the governments we work with.
 
The participation and integration of Asian countries into GVCs varies greatly. The region includes a diverse spectrum of players, ranging from Singapore, which is a hub for GVC-lead firms, to Myanmar, which is just now looking at how it can increase its participation in GVCs after a long period of economic isolation. Countries like Malaysia, Thailand, Vietnam and Cambodia fall somewhere in between these two extremes. South Asia’s GVC integration is lower overall than East Asia, in part because of high intra-regional trade costs, although the picture is mixed – for example Bangladesh’s success in the textiles and apparel sector is well known. This diversity means that opportunities exist for countries to pursue activities with different levels of complexity in GVC participation, building on their comparative advantages. It also suggests a clear role for the World Bank Group in sharing experiences across Asia on GVC policy challenges and responses.
 
The reform agenda for governments is a challenging one in the area of GVCs. It involves bringing wide-ranging parts of government together to analyze, plan and implement reforms that facilitate GVC participation and upgrading. A quick review of countries in the region reveals that – unsurprisingly – none has a single “GVC strategy” but rather a range of different government plans in areas like trade policy, trade facilitation, investment, competition, industry, or skills, among many others. Driving coordination among these agencies is a central challenge. For us at the Bank Group it means we do not have one single counterpart agency to work with to design and implement a GVC-related reform agenda but rather need to work in a coordinated manner across many government agencies as well as with the private sector and other stakeholders. Maximizing the positive spillovers into the domestic economy is another challenge. Policymakers want to stimulate trade and attract investment but their ultimate goal is improving the lives of their citizens. This means better and higher-paying jobs, the transfer of skills and technology to local firms, and greater integration of local SMEs into GVCs.
 
There is much the Bank Group has to offer related to GVCs in the region – and indeed, we are already doing a lot. Trade facilitation – which is essential for GVC integration – is a long-standing priority. We have been working for decades on projects that integrate transport infrastructure investments with improvements to trade facilitation and border management. A number of projects like this are already underway in Asia, including the Nepal-India Trade and Transport Facilitation Project, and the Bangladesh Regional Connectivity Project. The World Bank Group has also helped many governments in the region assess their capacity to implement the WTO Trade Facilitation Agreement. Based on our recommendations, several governments are moving ahead with activities such as the development of online trade information portals, which make the process of trade more transparent and timely. Lao PDR, Cambodia, and Bangladesh, have already established such portals, and Vietnam and Sri Lanka will follow suit soon.
 
Other reform areas related to GVCs where we are already working or looking to scale up our support in Asia include: upgrading the national standards infrastructure; assisting governments in the design and implementation of investment and competition policy reforms to attract and retain GVC-related investment; and providing advice on the dynamics of GVC participation within specific sectors like tourism or agribusiness.
 
Our private sector partners see a clear need for coordinated approaches to GVCs by governments, rather than one-off reforms. It was clear from our workshop that a wide range of policy areas are relevant. Foremost were skills, a stable business and investment environment, and good access to markets through reliable trade and logistics infrastructure – while issues like tax incentives (which governments often turn to first in attracting investment) not as high on the list.
 
It is clear that there are many opportunities in the region as we deepen our support in Asia to help countries participate in GVCs and maximize the gains. We will be working with our public and private partners in the region to do so – building on our strong global research program, a solid body of projects in areas related to GVCs, and our long involvement on trade and competitiveness issues in Asia.