Casos presentados por México ante el GATT y la OMC

promote GVC participation.

However, the key question for

most is how to incorporate GVCs

in development strategy.

It thus appears that countries can make a strategic choice whether to promote or not to promote GVC participation. To do so, they need to carefully weigh the pros and cons of GVC participation, and the costs and benefits of proactive policies to promote GVCs or GVC-led development strategies, in line with their specific situation and factor endowments. It should be noted that promoting GVC participation implies targeting specific GVC segments, i.e. GVC promotion is often selective by nature. Moreover, promotion of GVC participation is only one aspect of country’s overall development strategy.

However, for the majority of smaller developing economies with limited resource endowments there is often little alternative to development strategies that incorporate a degree of participation in GVCs. The question for those countries is not whether to participate in GVCs, but how.

To help answer that question, a number of key policy challenges can be distilled from the findings presented in the previous sections on patterns of value added trade and investment, drivers and locational determinants for GVC activities, and the development impact of GVCs:

t
Most developing countries are increasingly participating in GVCs, but many are still at an early stage of GVC development. An encouraging aspect of GVCs is that the prerequisites for the development of activities within value chains, and the determinants of investment in such activities, are generally fewer than the prerequisites for industries as a whole. Nevertheless, a key challenge for policymakers remains how to gain access and

connect local firms to GVCs.

t
GVC links in developing countries can play an important role in developing economies, in particular by contributing to GDP, employment and growth. The scope for these potential contributions depends on the configuration and governance of GVCs and on the economic context in GVC participant countries (including productive capacities and firm capabilities). The policy challenge is thus how to maximize the

t
In the longer term, GVCs can support the build-up of productive capacity, including through technology dissemination and skill building, and bring opportunities for industrial upgrading and increasing domestic value added in trade. However, the potential development benefits of GVCs – in particular technology dissemination, skill building and upgrading – are not automatic. Developing countries can remain locked into low value added activities. A strategic policy challenge is

how to ensure that opportunities to upgrade in GVCs are realized.

t
There are other risks and potential downsides to GVC participation, including negative effects on working conditions and job security, as well as social and environmental impacts. The question is how to mitigate the risks involved in

GVC participation.

t
Countries’ participation and role in GVCs and their value added trade patterns are often shaped by TNCs’ decisions on where to invest and with whom to partner. The

challenge for policymakers is thus how to align

and synergize trade and investment policies

in a world in which the two are inextricably intertwined.

Gaining access to GVCs, benefiting from GVC participation and realizing upgrading opportunities in GVCs requires a structured approach that includes (i) embedding GVCs in overall development strategies and industrial development policies, (ii) enabling GVC growth by maintaining a conducive investment environment and by putting in place infrastructural prerequisites, and (iii) building productive capacities in local firms. Mitigating the risks involved in GVC participation requires (iv) a strong environmental, social and governance framework. And aligning trade and investment policies implies the identification of (v) synergies between the two policy areas and in relevant institutions. These key elements of a policy framework for GVCs and development are summarized in table IV.11 and provide the structure of the remainder of this section.

Table IV.11. Building a policy framework for GVCs and development Key elements Principal policy actions

Embedding GVCs in development strategy

t
Incorporating GVCs in industrial development policies

t
Setting policy objectives along GVC development paths

Enabling participation in GVCs t
Creating and maintaining a conducive environment for trade and investment

t
Putting in place the infrastructural prerequisites for GVC participation

Building domestic productive capacity

t
Supporting enterprise development and enhancing the bargaining power of local firms

t
Strengthening skills of the workforce

Providing a strong environmental, social and governance framework

t
Minimizing risks associated with GVC participation through regulation, and public and private standards

t
Supporting local enterprise in complying with international standards

Synergizing trade and investment policies and institutions

t
Ensuring coherence between trade and investment policies

t
Synergizing trade and investment promotion and facilitation

t
Creating “Regional Industrial Development Compacts”

1. Embedding GVCs in development

strategy

In most developing countries, economic development requires not just increased productivity of the existing industrial structure but also a change in the structure of production (e.g. diversifying from a resource-based economy into manufacturing and services), involving industrial transformation and higher value-added activity. As production is increasingly organized within GVCs, development is likely to occur within such chains. Economic upgrading in GVCs – moving into higher value added functions within chains and into more technologically sophisticated value chains – is thus an important channel of development and industrialization.

Industrial policies focused on final goods and services are less effective in a global economy characterized by GVCs.53 _{GVCs require a new} approach to industrial development, one based on new markets, new products and new skills. Policymakers must understand the key elements of a GVC-based approach to industrial development:54 t
GVCs require more finely targeted policies.

GVC-based industrial development policies require a shift away from traditional industrial policies aimed at developing production capacity for final goods and services. Improvements in competitiveness do not necessarily arise from the development of integrated industries, but from upgrading to higher value tasks within industries. Measures aimed at encouraging the development of a vertically integrated industry can be an inefficient use of scarce resources.

t
GVCs increase the need for policies dealing

with the risk of the middle-income trap. The

fragmentation of industries increases the risk of “thin” industrialization, where a country enters an industry, but only in its low-value and low- skill aspects, such as assembly of electronics products or call centres in the services sector, without the ability to upgrade (see Section C). Although countries can also get stuck

GVCs imply a new role for

trade and investment in