gvc revolution and trade policy - piie · nature of trade changed: 21st century trade “nexus”...
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GVC Revolution and Trade Policy
Richard BaldwinProfessor of International Economics at
the Graduate Institute, GenevaPresident of CEPR
June 14, 2016
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Globalisation changed(global GDP shares)
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Focus on 3 costs = 3 constraints on globalisation
Trade costs - (cost of moving goods)
Communication costs- (cost of moving ideas)
Face-to-face costs- (cost of moving people)
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Steam & Industrial Revolutions =>Unbundling of production & consumption
Hi face2face costs
Hi communications costs
Lower
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Markets expanded globally, butproduction clustered locally
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Industrial clustering boosted G7 innovation but know-how stayed local Great Divergence
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ICT Revolution unbundling of G7 factories
Hi face2face costs
Lower
Lower
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New North-to-South flows of know-how changed globalisation
Hi face2face costs
Lower
Lower
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Know-how moves across national borders within GVC boundaries
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Globalisation changed(global GDP shares)
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What puts Revolution in GVC Revolution?
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Big change #1
• Intra-factory flows become North-South trade.
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20th century trade vs “GVC trade”
Stage B
Stage A
Stage C
Factories crossing borders: Goods, know-how, ideas, capital & people
StageB
StageA
StageC
StageB
StageA
StageC
Goods crossing borders
GVC Trade “nexus” (goods, services, know-how, capital, people, etc).
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Factories crossing borders need extra disciplines (especially North South)
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Stage BStage C
Stage A
1) “Supply-chain disciplines”Connecting factories:Assurances for cross-border flows of goods, services, ideas, capital, technicians, etc.
2) “Production network disciplines”Doing business abroadAssurances for tangible & intangible assets, local business conditions, etc.
“Trade-investment-services-IP ‘nexus’”
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Trade governance changed: Deep Regional Trade Agreements (RTAs)
• Deep North-South RTAs provided necessary GVC disciplines.
– US, Japan and Germany.
• Mega-Regionals & mega-bilats start to harmonise the bilateral rules.
– Implications for WTO (not good).
– Implications for emerging markets, especially China, India, Russia, Brazil.
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Keystone analytic difference: 20th vs 21st RTAs
• Lack of discrimination technology
• Discrimination is technically difficult:
– Services, capital, firms, know-how.
• Thus, RTA provisions tend to be non-discriminatory (almost by accident).
– “soft preferences”
• Misthinking China & TPP.
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Soft preferences work differently
Japan US
TPP nations
Regulation costs
-10%
Regulation costs
-10%
Indonesia
-5%
-2%nonTPP nations
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Big Change #2: Comparative advantage is de-nationalised
• GVCs redraw international borders of comparative advantage.
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1. Basic nature of RTA bargain
– Traditional bargain = exchange of market access.
– Deep RTAs = Northern factories for Southern reform.
2. Implications:
– Only EU, US & Japan can do this deal (yet).
– WTO = no factories on offer => erosion of WTO centricity in world trade governance
De-nationalised comparative advantage => Political economy changed
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De-nationalised competitiveness
• Rich nations:
– Destroys naively nationalistic trade & industry policy.
• Poor nations:
– Destroys import substitution industrialisation.
– Brazil can’t do it the old way since China is doing it the new way.
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Summary: What changed?
Nature of trade changed: 21st century trade “nexus” (goods, services, know-how, capital, people, etc).
• Trade policy more complex & elements more entangled.– Deep regional trade agreements used to provide
rules underpin the ‘nexus’, i.e. GVC trade
Comparative advantage is de-nationalised.
• Political economy of trade deals changes.– Less “exchange of market access.”
– More “my factories for your reform.”
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ENDThanks for listening
•22
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My new book
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Extra slides for
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Key result:ICT ‘liberated’
know-how of G7 firms from G7
labour
25
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Regionalism changed: 21st century RTAs
• GVCs tend to be regional, so RTAs make sense as governance vehicle.
• New disciplines: Sd be a package.
Deep provisions
Number of RTAs
0
100
200
300
400
500
600
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
From 1990:- Number of RTAs soars.- Depth of RTAs soars.
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Which Deep RTA provisionsmatter?US RTAs (share with given provision)
0% 80%AD
CustomsCVM
Export TaxesFTA Agriculture
FTA IndustrialGATS
Public ProcurementSPS
State AidSTETBT
TRIMsTRIPs
AgricultureAnti-Corruption
Approximation of…Audio Visual
Civil ProtectionCompetition Policy
Consumer ProtectionCultural Cooperation
Data ProtectionEconomic Policy Dialogue
Education and TrainingEnergy
Environmental LawsFinancial Assistance
HealthHuman Rights
Illegal ImmigrationIllicit Drugs
Industrial CooperationInformation SocietyInnovation Policies
InvestmentIPR
Labour Market RegulationMining
Money LaunderingMovement of Capital
Nuclear SafetyPolitical Dialogue
Public AdministrationRegional Cooperation
Research and TechnologySME
Social MattersStatisticsTaxation
TerrorismVisa and Asylum
US LE frqUS AC frq
Provision in
WTO but
deeper
commitments
in the RTAs
Provision
not in WTO
Not legally enforceable
Legally enforceable
Source: WTO database on RTA provisions
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Less lumpiness means stronger/finer comparative advantage
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Like asymmetric trade liberalisation• Developing-nations parts exports rose MUCH
more than developed-nations exports.
1988 to 1998 1998 to 2008
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Source of Value-Added Export growth 1995-2008