structural transformation in the era of international ... · 2011– 2015 . net sales or revenues...

Structural transformation in the era of international production: Risks, Opportunities and Policy Challenges

Piergiuseppe FortunatoWTO, Aid-for-Trade workshop, November 2018

Trade and Structural Change

• To what extent has trade promoted structural change?• Which countries/social groups have benefited from deeper trade integration?• Under what conditions can trade really sustain the SDGs?

Addressing to these question is crucial to dissipate the fog of war

The Times They Are a-Changin'

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The rise of the South?Share of world economy, 1990–2016

The rise of the South?Trade and Development Report 2018

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RIBS BRICS

Share of BRICS versus RIBS in world economy, 1990–2016

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B. Percentage of world gross exports

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Shares in top 2,000 TNCs profits, selected country groups and China, 1995-2015

Total gross exports, selected country groups and China, 1948–2016

Hollowing out of domestic value added in manufacturing (TiVA)

Changes in value added shares in gross exports, 1995–2014(Percentage points)

FOREIGN DOMESTICAgriculture and

extractives Manufacturing Services

Argentina 6.8 1.0 2.3 -10.1Brazil 4.7 17.6 -16.5 -5.8China -1.7 -2.8 11.9 -7.4India 11.6 -3.5 -12.9 4.8Indonesia 0.1 3.7 4.3 -8.1Mexico 6.1 0.0 0.4 -6.5Republic of Korea 15.5 -0.6 -6.1 -8.8Russian Federation 0.8 8.7 -6.4 -3.1Saudi Arabia -0.6 5.3 -0.3 -4.4South Africa 7.5 8.3 -12.3 -3.5Turkey 12.9 -0.3 1.8 -14.4Rest of the World -2.8 12.1 -4.9 -4.5Developing economies 4.2 4.3 -3.5 -5.1Developed economies 7.2 1.7 -10.1 1.1

A. Africa

Medium- and high-skill and technology-intensive manufactures (percentage)Processed commodities and low-skill manufactures (percentage)Unprocessed commodities (percentage)Value of total exports (trillions of current dollars, right scale)

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F. South, South-East and East Asiaa

Export structure by technological levels

The Free Trade Delusion

• The rapid development of China (and more generally East and South-East Asia) has nottriggered significant positive structural changes in the export structures of otherdeveloping regions; rather, it has intensified their role as providers of commodities

• GVCs fostered more participation to international trade & eased the access to markets,but many developing countries remained locked-in low value added activities(comparative advantage related to low labor cost) while firms at the top of the chainsusually headquartered in AEs took the lion shares

Headquarters and owners gain…producers lose (WIOD)

Increasing Market Concentration- Trade is a big firms gameAverage shares of top 1 per cent, 5 per cent and 25 per cent exporters in country total export, 1997–2014

Trade and Development Report 2018

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C. Developed countries

Top 1% Top 5% Top 25%

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D. Developing countries

Top 1% Top 5% Top 25%

2014

Increasing rents - A winner takes-all global economy

Table 2.3 Top 2,000 TNCs – key indicators, 1996–2015 (Trillions of dollars)

1996– 2000

2001– 2005

2006– 2010

2011– 2015

Net sales or revenues 12.8 18.7 29.7 36.8 Net income or profits 0.7 1.0 2.0 2.6 Ratio of profit to revenue 5.7% 5.4% 6.8% 7.0%

Source: UNCTAD database of consolidated financial statements, based on Thomson Reuters Worldscope.

Note: Data relate to annual averages.

The Free Trade Delusion [cont.] - Rising profits, growing inequality

Top 2,000 TNCs profit and the global labour income share, 1995–2015 (Percentage of world gross product)


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Change compared to 1995

1995 benchmark Top 2,000 TNCs net income Labour income Capital income excluding top 2,000 TNCs net income

• New digital technologies (e.g. big data and cloud computing) are making pre- and post-production segments more important where intangible assets are used more intensively

• Intangible assets are a source of market power and rents

• Most evident in platform-centred GVCs where control of data is an asset used to reshape the market and reinforce dominant positions thanks to network effect, asymettries of information and multisided practices (e.g. Uber, e-Bay, RBB, Amazon…)

• True even in more traditional manufacture-centred VCs where increasing shares of returns are now related to the ownership of intangibles

New technologies and the role of intangibles

Payments related to the use of foreign IPR, selected country groups, 1995–2015


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Value (right scale)

The rules of the game

Trade agreements are no longer about free trade. Paradoxically, even as tangible barriers totrade imposed by governments (such as tariffs and quotas) have been declining over the last 30years or so, intangible barriers to competition rooted in “free trade” treaties have surged to thebenefit of large firms. The objective of FTAs changed:• From reducing barriers at the border to reducing (harmonizing) domestic regulations

• From reducing import protectionism to promoting investment protectionism the increased legal protection of intellectual property granted by stringent patent rules (e.g. TRIPS) establishment of state-investor dispute settlement mechanisms and international investor tribunals (e.g.

ISDS)

• From broadening to scope for efficiency enhancing trade to broadening scope for intangibleintra-firm trade (and therefore transfer pricing practices)

The paradox of Free Trade AgreementsWTO-plus and WTO-extra policy areas included in trade agreements (number of treaties)


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A. WTO-plus policy areas in trade agreements B. WTO-extra policy areas in trade agreements

Included Legally enforceable

Payments related to the use of foreign IPR, selected country groups, 1995–2015


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Other developed countries

Value (right scale)

Income of the United States on direct investment abroad, selected countries, first quarter 2000 to first quarter 2018 (billons of dollars)


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Bermuda Switzerland

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B. Other economies

Germany China Japan

• Need to rethink multilateralism in progressive ways (beyond the dichotomy between corporate cosmopolitanism and regressive nationalism)

• A Havana Charter for the 21st Century• Active macro policy … a healthy trade system emerges from healthy economies that are

creating decent jobs (austerity damages trade)• Active distributional policy … decent jobs pay decent wages and curtail corporate rent

seeking (regressive tax policies damage trade)• Active industrial policy … productive investment, technological upgrading and strong

productivity growth underpins healthy economies … need policy space to manage these (rigged markets damage trade)

• Active infrastructure policy … infrastructure is key to sustained growth but there is more to this than bankability of projects (poorly planned infrastructure damages trade)

Making Trade Work for Development


structural transformation in the era of international ... · 2011– 2015 . net sales or revenues...

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