This morning TOP hosted a briefing with Dr Stephanie Barrientos, co-coordinator of the research network “Capturing the Gains”, which examines economic and social upgrading in business communities across the developing world. They aim to inform policies on global production and trade that benefit poorer producers and workers. Their work explores the role of private sector, civil society, national governments and international organisations in promoting strategies for fairer international trade that secures real gains for poorer workers and producers in the South.
Global value chains are changing the dynamics of global trade and the way value is created and captured; measuring trade as arm’s length transactions between countries does not capture the transactions along local, regional and global value chains. UNCTAD estimates that 80% of world trade passes through global value chains and the percentage of developing country trade in these value chains has increased from 20% in 1990 to roughly 40%. The WTO is currently trying to recalibrate how trade is measured with a new system expected to be introduced this Summer.
As trade is increasingly coordinated by lead buyers rather than nations, the role of the private sector is a vital one. Walmart, Carrefour and Tesco – the biggest global players in the food retail sector have a combined gross revenue equal to the GDP of Switzerland. Walmart is China’s 6th largest trading partner. These supermarket giants are beginning to view developing countries not only as a supplier, but also a consumer destination – a perspective that is also helping them to focus on their supply chains and the need to build relationships with their producers.
Trade agreements are a secondary consideration for big private actors – their priority is on what they want to produce, when and for what cost. They will then look at different trade agreements to see how they can achieve their aims as quickly as possible incurring the least costs. Few of us have heard of Li Yun Fung, yet they are the world’s largest supplier of clothes and toys to retailers – these behind the scenes intermediaries are having an enormous impact on a changing trade landscape that does not rely on national trade agreements.
With trade increasingly coordinated by lead buyers, the role of the private sector in global trade policy is becoming more and more vital. The question is how can the big players help their producers move up the value chain ladder? As standards become tighter and suppliers need to cater for a range of buyers, a holistic approach to education and skills is essential to ensure a simultaneous upgrading of social standards; producers must be able to understand the markets that they are supplying. This skills provision must take cultural differences into account and ensure that the role of women has been fully taken into account. The private sector must continue to integrate the economic and social aspects of trade to secure a win-win for producers in the developing world.
The rise in bilateral trade agreements is continually affecting these global supply chains, but the loop holes they create must be closely monitored. Jordan and Egypt are currently able to take advantage of free trade agreements between the US and Israel, but creating Qualifying Industrial Zones – goods produced in QIZ areas have duty and quota free access to US markets as long as they contain a certain level of Israeli input and a minimum of 35% value-added. China has begun to exploit this set up – building its own business in Jordan and Egypt, but using Bangladeshi and Chinese workers sourced through a Filipino agency. Trade no longer conforms to the simple bilateral exchanges of the past and the global regulations must keep pace to protect the interests of the developing world.
Access to finance is also a critical factor, although mobile technology is beginning to find solutions. Subsidies in developed markets together with outdated rules of origin also continue to create major barriers to progress in poorer nations, which must be addressed – cars now have components from a minimum of 26 countries…developing countries must be given the opportunity to reap the benefits of their input into global value chains.