implications of globalised value chains in the ... egs.pdf · upgrading in gvcs and the...

Implications of globalisedvalue chains in the environmental industry for trade policy

Przemek KowalskiSenior Economist, Trade and Agriculture Directorate, OECD

Value of the Environmental Goods Agreement25 October , 2016St. Regis Hotel, Beijing,

2Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]

1st Unbundling 2nd Unbundling

Geographical separation of production and consumption across international borders (traditional trade)

Separation of production segments: unpacking of factories across international borders

Spurred by: reductions in transportation costs

Spurred by: reductions in ICT and coordination costs

Trade policy: mainly about selling (market access)

Trade policy: mainly about producing or connecting factories (trade-investment-service-knowledge-IP)

What is really new with GVCs?

Baldwin (2012)

Two waves of globalisation


GVCs’ development since the early 1990s

GVC Index: ratio of imports of intermediate products to final demand, 1995=100, Source: Haugh et al. (2016)


The globalised solar PV panel supply chain

Source: Trina Solar


Average foreign value content in exports by sector

>80% of HS codes on the OECD Combined List of Environmental Goods (CLEG)


Upgrading in GVCs and the “smiley” curve

Environmental Goods and Services (?)

Mundabi (2008) for EGS

In some EGS value chains, like those for PV-solar and wind-energy, most of the value added is concentrated in downstream activities.


Silicon PV system cost breakdown

Source: OECD (2015)

Permitting costs, legal costs, engineering, financing, distribution, and post-module value-chain mark-up


Silicon PV system cost breakdown (2)

Source: OECD (2015)


Region by region trade weighted trade costs (AVE)

Trade costs remain significant, although tariffs account only for up to 1/10th

Source: OECD (2015) after Arvis et al. (2013) using the trade cost measure proposed in Novy (2010). Trade weighted average costs of trade by region for the year 2010.

E28 ECA ESA LAT MEN NAM PAC SAS SEA WCAE28 35ECA 67 62ESA 112 146 104LAT 110 159 189 94MEN 76 108 93 135 50NAM 66 102 125 92 72 15PAC 90 141 148 149 70 73 8SAS 95 139 162 184 61 89 107 92SEA 88 118 155 129 69 72 80 104 69WCA 108 165 94 128 115 105 143 100 162 104


Trade costs are amplified in fragmented production systems

The final price of a product with value added of 100, where n Is the number of border crossing , by different import tariff rates

Source: OECD (2013).


And they are often concentrated upstream

Note: “Tiers” refer to the different stages of production, with "Tier 1" representing the immediate inputs to the producer of the final good, "Tier 2" representing the inputs to the production of "Tier 1" inputs, "Tier 3" representing the inputs to the production of "Tier 2" inputs, etc.

Sour

ce: O

ECD

2016

, aft

er M

iroud

otet

al.,

201

3.

Decomposition of cumulative tariffs in EGS-related sectors


Effective tariffs are higher due to foreign content

Sour

ce: O

ECD

(201

3).


• Possibility to specialise in segments of value chains without mastering the whole process

• Engaging in GVCs requires a co-ordinated reduction of fragmentation-related costs of production (tariffs, NTBs, infrastructure, etc.)

• Engaging in GVC requires co-ordination of trade, investment, services, competition and innovation and IP policies

• Less clear whether and, if so how, to influence the nature of participation?

What have GVCs changed for policy making?


• It is about accessing inputs: EGA’s plurilateralliberalisation extended on an MFN basis

• Tariffs can be low but their effects can add up along the value chain and because of foreign content

Key questions:

• To what extent will the EGA go beyond end-use or final products to include intermediates?

• What is the possibility of including NTMs?• What is the possibility of including relevant

services?

Some implications for EGA negotiations


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Thank you!

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• Development of the OECD Trade in Value Added Database

• Additional countries, additional refinements (factors of production, ownership, firm size, etc.)

• Mapping participation GVCs• Countries, sectors, regional, global, inter-regional, inter-sector links

• GVC implications for specific issues and polices• Trade policy implications (tariff, NTM escalation, RoO)• Innovation and knowledge based capital development• Investment policy implications (restrictions and FDI promotion)• Labour market implications (skills, regulations, inequality)

• Country-specific analysis and advise• TiVA country notes, GVCs Diagnostics

OECD’s work on GVCs


Foreign sourcing is one of the key determinants of domestic value added embodied in exports

Dependent variable is the domestic value added in exports. Estimations are in changes (country-sector fixed effects). Period of analysis is 1995-2011


Foreign sourcing is determined by structural characteristics, commercial policies…

Source: estimations based on OECD TiVA Database, 2015, Kowalski et al. (2015)


High income Developing Total

-0.15 -0.10 -0.05 0.00 0.05 0.10 0.15

Logistics Performance Index (customs)

Intellectual property protection (index)

Infrastructure, availability and quality

Broadband subscription (per '000)

Tax rate (total)

Quality of Electricity supply (index)

FDI restrictiveness Index (net)

R&D expenditure

Institutional quality

Tertiary graduates (share of workforce)

Access to loans (index)

Technical occupations (share)

Product Market Regulation

Services Trade Restrictiveness Index

.. and certain trade-related domestic policies

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ions

bas

ed o

n O

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backward and forward GVC linkages as % of gross exports

Understanding the differences in GVC integration across countries

5944

47 4845

42 42 4133

4436 34

1735 33

4032

3539 37

29 29 2836

2014

2432 33

25 2437

3223

2620

1522

254

3227

2419

328

2514

2012

25 24 23 2615

218 11

2017

14

1224 21 17 20

21 20 20 26 16 23 23 41 23 24 17 23 20 15 17 25 24 25 16 32 38 27 18 18 24 25 12 16 25 21 27 33 26 22 43 15 20 23 26 42 17 19 30 23 31 18 19 19 15 25 17 3024 14 17

16

0

10

20

30

40

50

60

70

Luxe

mbou

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inese

Taipe

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epub

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ublic

Korea

Singa

pore

Malay

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land

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venia

Belgi

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Finlan

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nmark

Bulga

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land

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iaTh

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Latvi

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Russ

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any

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Backward Forward

Source: OECD TiVA Database, 2015


What are EGS ?

>80% of HS codes on the OECD CLEG


• Relatively new and fast growing market (esp. core EGS)• Significant role of state as a consumer, regulator and

investor (R&D)• Some segments require geographical proximity (e.g.

certain wind turbine components)• Some markets segments vertically integrated (solar, PV)• Contrary to popular belief, only some segments capital

and knowledge-intensive• Distinguished shape of the “smiley” curve

Interesting characteristics of EGS in GVC context


Vertical integration and production volume to gross margin in the solar industry

Source: China Greentech Initiative, 2011.

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