global value chains as the new development …...objective 2 global value chains are far from being...

Global value chains as the new

development paradigm: what

implications for Customs?

Gaëlle BALINEAU, Agence Française de Développement

10th World Customs Organization PICARD conference, Baku, Azerbaijan, 7-10 September, 2015

Objective

2

Global value chains are far from being a novelty

Popularity in the research agendas of international organizations and

academics is recent but…

GVCs seem to become a new development paradigm: What could be

the implications of this emerging consensus for Customs ?

Ratio of Value of Exported Intermediates to Final Goods

Source: Basco and Mestieri, 2014

Foreign value added in gross exports (weighted average)

Source: author, UNCTAD-Eora TiVA data

Outline of the presentation and main points

3

1. Global value chains: What are we talking about?

• Term which has been used to refer to different things (facts, concepts)

• from supply chains to “trade in value added”… (TiVA)

• ...from a misuse of language to a new development paradigm with measurable performance indicators?

2. Measuring trade in value added: what does that change for customs?

• Impact of trade facilitation indicators on trade performance has been widely studied

• As a consequence of new TiVA database, researchers have started to reassess the impact of customs efficiency on the “connectedness” to value chains

• Results at least hardly ever change, at most can be used to reaffirm the “trade facilitation imperative”

3. A role for customs in the governance of global wealth chains?

• GVCs are linked to other hot topics (base erosion, tax avoidance, abuse of transfer pricing) which are in turn obviously related to another customs mandate (revenue collection)

• International taxation reforms currently on the table confine customs to their “technical expertise”, whereas they may participate in greater reforms of the governance of global wealth chains

“The ‘value chain’ describes the full range of activities that firms and

workers do to bring a product from its conception to its end use and

beyond. This includes activities such as design, production,

marketing, distribution and support to the final consumer. The

activities that comprise a value chain can be contained within a

single firm or divided among different firms. Value chain activities can

produce goods or services, and can be contained within a single

geographical location or spread over wider areas. The GVC Initiative

is particularly interested in understanding value chains that are

divided among multiple firms and spread across wide swaths of

geographic space, hence the term ‘global value chain’ ”

“The ‘value chain’ describes the full range of activities that firms and

workers do to bring a product from its conception to its end use and

beyond. This includes activities such as design, production,

marketing, distribution and support to the final consumer. The

activities that comprise a value chain can be contained within a

single firm or divided among different firms. Value chain activities can

produce goods or services, and can be contained within a single

geographical location or spread over wider areas. The GVC Initiative

is particularly interested in understanding value chains that are

divided among multiple firms and spread across wide swaths of

geographic space, hence the term ‘global value chain’ ”

What are we talking about? (1/4)

4

According the Global Value Chain Initiative*

GVCs is not an analytical concept per se, but first and foremost a shortcut to describe

the fact that

“value chains”, i.e. “the full range of activities that firms and workers do to bring a product

from its conception to its end use and beyond” are “divided among multiple firms and

spread across wide swaths of geographic space”

Now GVCs seem to be viewed as shortcut to growth and development… what

happened?

https://globalvaluechains.org/, see also Kaplinsky & Morris, A Handbook for Value Chain Research, 2012

https://globalvaluechains.org/

https://globalvaluechains.org/

5

In the 1990s:

• G. Gereffi and, among others, T. Sturgeon, R. Kaplinsky, J. Humphrey studied

“global commodity chains” (CCC) and how power relationships between

producers, processors, agro-industries, exporters and retailers impact the

distribution of value-added along the chain.

• Gereffi and Korzeniewicz (1994): concepts of “buyer-driven GCC” and “producer-

driven GCC”

• Gereffi et al. (2005) refined their concepts to analyze how different types of

« governance » of other « global chains » (textiles, electronics) impact the

distribution of value-added

(five types of global value chain governance: hierarchy, captive, relational, modular, and

market)

Hence the term « global value chains »

Focus on the impact of GVCs governance on poverty (smallholders and small

farmers), related to « development » literature


6

At the same time

• Trade economists became increasingly interested in studying the key features of

the wave of globalization which started in the 1980s, i.e. increased trade in

intermediates inputs and increased flows of foreign direct investments (FDI)

• Delocalization, disintegration of production, fragmentation, global production

sharing, foreign outsourcing, slicing up the value, etc. are used interchangeability

• Baldwin (2012a) popularized the term “global supply chains” and “unbundling”,

and provided an economic framework to understand

“The functional and geographical unbundling of production processes”

i.e. why the full range of activities that firms and workers do to bring a product from its

conception to its end use and beyond are divided among multiple firms and spread across

wide swaths of geographic space

• Key concepts:

o Twofold unbundling of supply chain is feasible, and, second, it is profitable

o The degree of fragmentation of production into finer stages depends on a tradeoff

between specialization gains and coordination costs; its geographical dispersion on a

tradeoff between dispersion and agglomeration forces.


2000s: “global value chains” is an overarching label for the literature

which deals with any aspects of fragmentation of trade (Gereffi and Lee,

2012)

7


Source: author, Web of Knowledge

Development and global value chains

Trade and development policy have always been linked… but big

ideas for development (Import-substitution led industrialization,

Washington consensus) largely failed

GVCs provide an explanation as well as “promising” way of thinking

about development: joining instead building supply chain

8

Source: Baldwin, 2012a, The smile curve:

Good and bad stages in the value chain.

A new development paradigm?

Recent publications

9

Measuring connectedness to GVCs

Four main methodologies to measure and map value chains, and to

study how to “connect to” and “upgrading in” global value chains

10

Source: adapted from Amador & Cabral, 2014. The size of the circles represents the coverage of each measure

relatively to the real size of the GVCs phenomenon in the world economy

Complexity of the data required

Accu

racy o

f th

e m

ea

su

re

Parts and components

Vertical speciali-zation

Import content of prod.

I-O tables-based

indicators, 1st

generation Trade in

value-added

Firm-level data

I-O tables-based

indicators, 2nd

generation

Trade in value-added

11

Country

A

Country B Country

C

Gross exports

(intermediates) (100)

Gross exports (110)

Value-added (10)

Value-added (100)

- Avoid double counting (approx. 28% of global trade, UNCTAD, 2013)

- Require different data sources to obtain data in value added at finer level (i.e. by industry or

sector) (national and global input-output databases, firm surveys, trade data) different

organizations have developed different databases and different indicators

- Main findings with trade in value added data (OECD, 2013):

- True nature of economic interdependences (in value-added, US trade deficit is lower to

China but higher to Korea – iPhone famous example; extension and regionalization of

GVCs is an important phenomenon)

- Services are of greater importance

- Important role of emerging economies in GVCs

- Supply and demand shocks may differentially impact downstream and upstream

production

12

Connecting to- and upgrading in GVCs as

a new paradigm for development

+

Trade in value-added as the new measure

of country-performance…

=

What does this change for customs?

(Trade facilitation and revenue collection)

GVCs and customs: trade facilitation

“By focusing on gross values of exports and imports, traditional trade

statistics give us a distorted picture of trade imbalances between

countries…The picture would be different if we took account of how

much domestic value-added is embedded in these flows.” (a)

We need a “WTO 2.0” for the 21st century (b)

Customs should be impacted sooner or latter by new policy

recommendations following new analyses based on TiVA

Main point: for the moment, this is not the case. New studies reinforce

“trade facilitation” recommendations which focused on reducing trade

costs at the border, mainly through reducing clearance delays and

dwell time

13

(a) Director-General Pascal Lamy, in launching the WTO and IDE-JETRO joint publication “Trade Patterns and

Global Value Chains in East Asia” on 6 June 2011 at the WTO

(b) Baldwin, 2012b


First insights

Intuition: multiple border crossings in trade should magnify the

effects of trade barriers

• Koopman et al. (2010): the effective tariff rate associated to a disk drive

assembled in Thailand in 2004 was 17% higher than the nominal rate in the

United States, 46% higher in Korea and as much as 116% and 171% higher in

China and Mexico

• Same intuition holds for non-tariff and time- trade barriers.

Correlation between traditional measures of customs efficiency and

trade performance in value added: maps and correlation graphs

14


Literature on the impact of customs efficiency on trade performance

Microeconomic studies

• Based on firm-level data

• Scarce, not really comparable with TiVA

Macroeconomic studies, based on the gravity model (bilateral)

• 2 approaches (Arvis et al., 2013)

o “top down” (Xij as a function of usual suspects: GDP, common border,

distance, common language etc.)

o “bottom up”: infer trade costs from gravity equation, then regress trade costs

against usual suspects

• Trade performance indicators

o Gross exports, trade in part and components, TiVA (flows, backward &

forward indicators)

• Customs efficiency indicators

o Focus on the impact of selected indicators (“impact studies”)

o Compare (rank) different factors (policy oriented) (“determinants”)

15

16


Source: Arvis et al., 2013, p.7


17 Based on Kowalski, P. et al. (2015)

Total (61 countries, OECD TiVA)

Developing countries only


Researches with TiVA data are at their beginning, but first studies:

• Show that participation in value chains increases as trade costs in value

added decrease (Duval et al., 2015),

• Underline the role of customs efficiency in TiVA performance,

• Conclude that in any cases, customs reforms have a high benefits to

costs ratio.

GVCs and customs: TiVA data don’t change traditional trade policy

recommendations

Data at firm level?

• Narrower scope but take into account heterogeneity (FDI => growth,

job…)

• Trade costs, labor costs, infra, other taxes (corporate income tax CIT)

Hanson et al. 2005

GVCs and customs: revenue collection 18

GVCs and customs: revenue collection

Hot topics in international taxation mirror trade fragmentation issues

19

International trade governance International taxation systm

Evolutions Trans-territorial Intra-firm trade

Non-territorial Intra-firm transactions

Concerns Firms’ behavior towards FDI, trade,

and impact on growth, jobs

Tax avoidance through aggressive tax planning (e.g. abuse of transfer

pricing)

Policy “Making GVCs work for

development” “Mobilizing domestic resources for

development”

Accepted terms

“global value chains” (GVCs) “base erosion and profit shifting”

(BEPS)

Initiatives “Trade in Value Added”, “Made in

the World” (OECD/WTO, etc.) BEPS initiative (OECD)

Need for reform

Baldwin (2011) “Filling the gap between 21st century trade and 20th

century trade rules”

Devereux & Vella (2014) “Are we heading towards a corporate tax system fit for the 21st century?”


International trade consensus and customs

• 1980s: Washington consensus & trade liberalization

o “Development tax model 2.0”, Bird (2013)

o “tariff-tax reform” (from tariffs to VATs), Keen & Ligthart (2002)

Current international corporate income tax (ICIT) system

• Is both inappropriate and harder to implement (Devereux & Vella, 2014)

o “1920s compromise” from “non double taxation” to double non-taxation”

o ALP and transfer pricing

• More fundamental: encourages fiscal competition between countries =>

“race to the bottom”

Current ICIT has adverse effects through 2 channels (tax avoidance + lower

tax rates)

20

21 Source: Spillovers in International corporate taxation, IMF Policy papers, May, 9, 2014 , p. 22, IMF staff estimates

Corporate Income Tax Rates, 1980–2013



Evidence on firms’ responses to fiscal incentives (FDI) (Madiès &

Dethier, 2012)

• FDI are negatively correlated to tax rates, especially in developing

countries BUT fiscal spending (and its composition) is important too.

• “Race to the bottom” or “race to the top”?

Evidence on CIT competition

• EU/OECD: Yes, LAC & SSA: Yes (& no impact on growth), APEC: No

Need for ICIT reform

• BEPS: allocating rights to tax profits to countries where value-added is

created?

• Apportionment rules => countries can still compete on tax rates

• Devereux & Vella (2014): Allocation of the tax base based on the

location of sales (consumers are less mobile than elements of MNF)

o Like VAT but on profits

o “One-stop shop”

22

Conclusion

Several initiatives to better understand (theoretically and empirically)

• the twofold unbundling of production and trade (functional and

geographical),

• its impact on development and growth “strategies”,

• consequences for policies related to international trade and international

taxation.

For customs:

changes due to international taxation reform > changes due to “trade

policy 2.0”

Research would benefit from

• More collaboration between relatively distinct strands of literature (trade

economists, vs fiscal economists and public finance specialists)

• Firm level data, especially to investigate firms’ behavior and its impact

on growth (+ jobs, inequalities etc. – as this may in turn affect

international taxation and redistribution concerns)

23

24

Thank you for your attention

Gaëlle BALINEAU, Research officer

Agence Française de Développement

[email protected]

Presentation based on Balineau, G. (2015), “Global value chains as the new development

paradigm: what implications for customs?”, AFD Research Papers, forthcoming

AFD research papers website

mailto:[email protected]

http://www.afd.fr/site/afd/home/publications/travaux-de-recherche/publications-scientifiques/papiers-de-recherche

25

Trade in value-added databases

Project Institution Data sources Countries Industries Years

UNCTAD-Eora

GVC Database UNCTAD/Eora

National

supply-use

and I-O tables,

and I-O tables

from Eurostat,

IDE-JETRO and

OECD

187

25-500

depending

on the

country

1990-2010

Asian International

I-O tables

Institute of

Developing

Economies

(IDE-JETRO)

National

accounts and

firm surveys

10 76

1975,1980,

1985,1990,

1995,2000,

2005

Global Trade

Analysis Project

(GTAP)

Purdue

University

Contributions

from individual

researchers and

organisations.

129 57 2004, 2007

World Input-

Output Database

(WIOD)

Consortium of

11 institutions.

EU funded.

National supplyuse

tables 40 35 1995-2009

OECD-WTO TiVA

(Trade in Value

Added)

OECD/WTO National I-O

tables 61 18

1995, 2000,

2005,2008,

2009, 2010,

2011

Source: Amador & Cabral, 2014 and UNCTAD, 2013

26

Extension and regionalization of GVCs

Foreign value added content of exports,

1995&2009, Selected flows, by source

country/region, USD millions, at current

prices, source: OECD TiVa website

1995

2009

Number of documents to exports

27 Source: author, data from World Development Indicators, year=2011

28

Domestic value added in gross exports

Foreign value added in gross exports

Source: author, data from UNCTAD-Eora database and World Development Indicators, year=2011

Number of documents to exports and shares of

domestic and foreign VA in exports

Share of foreign VA in exports (%, quintiles)

29 Source: author, data from UNCTAD-Eora database, year=2011

Logistic performance index (World Bank)

30 Source: author, data World Development Indicators (World Bank LPI), year=2014

31

AGO

ALBARE

ARG ARM

AUS

AUT

AZE

BDI

BEL

BEN

BFA

BGD

BGR

BHR

BIHBLZ

BOLBRA

BRB

BRN

BWACAN

CHECHL

CHN

CIV CMR

COL

CPVCRI

CYP

CZEDEU

DNK

DOM

DZA

ECUEGY

ESP

EST

ETH

FIN

FRAGBR

GEO

GHA

GMB

GRC

GTM

GUY

HKG

HND

HRV

HTI

HUN

IDN

IND

IRL

IRN

ISL

ISR

ITA

JAM

JOR

JPNKAZ

KEN

KGZ

KHM

KOR

KWT

LBN

LKA

LSO

LTU

LUX

LVA

MAR

MDA

MDG

MEX

MKD

MLI

MLTMNE

MNG

MOZ

MRT

MUS

MWI

MYS

NAM

NGA

NIC

NLD

NOR

NPL

NZL

OMN

PAK

PAN

PER

PHL

POLPRT

PRY

QAT

ROM

RUS

RWA

SAU

SEN

SGP

SLV

SRB

SUR

SVK

SVN

SWESWZ

SYR

TCD

THA

TJK

TTO

TUN

TUR

TZA

UGA

UKR

URY

USA

VEN

VNM

YEM

ZAF

ZMB

ZWE

0.2

.4.6

.8

2 3 4 5 6Burden of customs procedure

FVA, % of gross exports Fitted values

UNCTAD-Eora database, 185 countries

Foreign value-added in exports and customs efficiency, 2011

Source: author, data from UNCTAD-Eora database and World Development Indicators

32

ARE

ARG

AUS

BDI

BEL

BGD

BGR

BHR

BHS

BIH

BLR

BOLBRACAF

CAN

CHECHL

CHN

CIV

CMRCOL

CRI

CYP

DEU

DNK

DOM

DZA

ECUEGY

ESP

EST

ETH

FIN

FRAGBR

GEO

GHA

GMB

GRC

GTM

HKG

HND HRV

HTI

HUN

IDN

IND

IRL

IRN

IRQ

ISR

ITA

JAM

JOR

JPN

KEN

KHM

KOR

KWT

LBN

LBY

LKAMAR

MDG

MEX

MLI

MLT

MMR

MNG

MRT

MUS

MYS

NAM

NGA

NLD

NPLNZL

PAK

PAN

PER

PHLPOLPRT

PRY

QAT

ROM

RUS

SAU

SDN

SEN

SGP

SLE

SLV

SVK

SWE

SYR

TCD

TGO

THA

TJK

TUNTUR

UGA

UKR

USA

UZBVEN

VNM

ZAFZMB

ZWE

0.2

.4.6

20 40 60 80Days to import, log scale



Foreign value-added in exports and time to import, 2012


33

AFGAGO

ALBARE

ARG ARM

ATG

AUS

AUT

AZE

BDI

BEL

BEN

BFA

BGD

BGR

BHR

BHS

BIH

BLR

BLZ

BOLBRA

BRB

BRN

BTNBWA

CAF

CAN

CHECHL

CHN

CIVCMRCOGCOL

CPVCRI

CYP

CZEDEU

DJI

DNK

DOM

DZA

ECUEGY

ERI

ESP

EST

ETH

FIN

FJI

FRA

GAB

GBR

GEO

GHAGIN

GMB

GRC

GTM

GUY

HKG

HND

HRV

HTI

HUN

IDN

IND

IRL

IRN

IRQ

ISL

ISR

ITA

JAM

JOR

JPNKAZ

KEN

KGZ

KHM

KOR

KWT

LAO

LBN

LBR

LKA

LSO

LTU

LUX

LVA

MAR

MDA

MDG

MDV

MEX

MKD

MLI

MLTMNE

MNG

MOZ

MRT

MUS

MWI

MYS

NAM

NER

NGA

NIC

NLD

NOR

NPL

NZL

OMN

PAK

PAN

PER

PHL

PNG

POLPRT

PRY

QAT

ROM

RUS

RWA

SAU

SDN

SEN

SGP

SLE

SLV

SRB

STPSUR

SVK

SVN

SWESWZ

SYC

SYR

TCD

TGO

THA

TJK

TTO

TUN

TUR

TZA

UGA

UKR

URY

USA

UZBVEN

VNM

VUTWSM

YEM

ZAF

ZARZMB

ZWE

0.2

.4.6

.8

0 5 10 15 20Documents to import



Foreign value-added in exports and import procedure, 2011


34

AFGAGO

ALB

ARE

ARG

ARM

AUS

AUT

AZE

BDI

BEL

BEN

BFA

BGR

BHR

BHS

BIH

BLR

BOL BRA

BTN

BWA

CAN

CHE

CHL

CHN

CIV

CMR

COG

COL

CRI

CUB

CYP

CZEDEU

DJI

DNK

DOM

DZA

ECUEGY

ERI

ESP

EST

ETH

FIN

FJI

FRA

GAB

GBR

GEO

GHA

GIN

GMB

GRC

GTMGUY

HKG

HND HRV

HTI

HUN

IDN

IND

IRL

IRN

IRQ

ISL

ITA

JAM

JOR

JPNKAZ

KEN

KGZ

KHM

KOR

KWT

LAO

LBN

LBR

LBY

LKA

LSO

LTU

LUX

LVA

MAR

MDA

MDG

MDV

MEX

MKDMLT

MMR

MNE

MNG

MRT

MUS

MWI

MYS

NAM

NER

NGA

NLD

NORNPL

NZL

OMN

PAK

PAN

PER

PHL

PNG

POLPRT

PRY

QAT

ROM

RUS

RWA

SAU

SDN

SEN

SGP

SLE

SLV

SRB

STP

SVK

SVN

SWE

SYR

TCD

TGO

THA

TJK

TUNTUR

TZAUKR

URY

USA

UZBVEN

VNM

YEM

ZAFZAR

ZWE

0.2

.4.6

1.5 2 2.5 3 3.5 4Logistics performance index



Foreign value-added in exports and logistics, 2012


35

Source: Africa

Progress Panel,

Africa Progress

Report, 2013,

Data:

OECD Stats

Extracts.

Global Financial

Integrity (2012),

Illicit Financial

Flows from

Developing

Countries 2001-

2010.

World Bank (2013),

Global Economic

Prospects.

All figures are average annual 2008-2010 for Sub-Saharan Africa

Cited references

Amador & Cabral, 2014, “Global value chains: surveying drivers, measures, and impacts”,

Working paper, Banco de Portugal; 3, January

Arvis, J.-F., Y. Duval, B. Shepherd and C. Utoktham (2013), “Trade Costs in the Developing

World 1995–2010”, Policy Research Working Paper # 6309, The World Bank

Baldwin, R. (2011), 21st century regionalism: Filling the gap between 21st century trade and 20th

century trade rules, CEPR Policy Insight 56, Centre for Economic Policy Research.

Baldwin, R. (2012a), Global supply chains: Why they emerged, why they matter, and where they

are going, CEPR Discussion Papers 9103, Centre for Economic Policy Research.

Baldwin, R. (2012b), WTO 2.0: Global governance of supply-chain trade, CEPR Policy Insight 64,

Centre for Economic Policy Research

Basco, S. and M. Mestieri (2014), “The World Income Distribution: The Effects of International

Unbundling of Production”, Toulouse School of Economics Working paper # 531

Bird, R.M. (2013), “Fiscalité et développement : qu’avons-nous appris en cinquante ans de

recherche ?”, document de travail #1, Centre International pour la Fisclaité et le

Développement (International Center for Tax and Developement).

Devereux, M. P. and J. Vella (2014), “Are we heading towards a coportate tax system fit for the

21st century?”, mimeo, Oxford University Centre for Business Taxation, Said Business

School, Oxford.

Gereffi, G., J. Humphrey and T. Sturgeon (2005), “The governance of global value chains”,

Review of International Political Economy, 12 (1): 78–104.

36

Cited references

Gereffi, G. and M. Korzeniewicz (1994), Commodity Chains and Global Capitalism, Greenwood

Press: Westport, CT

Gereffi, G. and J. Lee (2012), “Why the world suddenly cares about global supply chains”,

Journal of Supply Chain Management, 48 (3): 24-32.

Keen, M. and J. Ligthart (2002), “Coordinating tariff reduction and domestic tax reform”, Journal

of International Economics, 56, 489-507.

Koopman, R., Powers, W., Wang, Zhi, and Wei. S. (2010), Give Credit where Credit is Due:

Tracing Value-added in Global Production Chains, NBER Working Paper No. 16426,

Cambridge, MA

Kowalski, P. et al. (2015), “Participation of Developing Countries in Global Value Chains:

Implications for Trade and Trade-Related Policies”, OECD Trade Policy Papers, No. 179,

OECD Publishing, Paris.

Madiès, T., and J.-J. Dethier (2012), “Fiscal competition in developing countries: a survey of the

theoretical and empirical literature”, Journal of International Commerce, Economics and

Policy, 3 (2): 1-31

UNCTAD (2013), Global Value Chains and Development. Investment and value added trade in

the global economy.

37