Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
30
exiting; (iii) increases in productivity and efficiency through technology transfer, innovation,
and improved access to intermediate goods.
2.6. TRADE AND GLOBAL VALUE CHAINS
Since the 1980’s international trade has been increasingly driven by lower Information and
Communication Technology (ICT) costs. As a result, coordination costs between countries have
fallen dramatically which has opened up the possibility of decomposing production pro- cesses
in stages across different countries. Hence whereas previously, goods were packages of a
single nation’s productive factors, and technology; this has now changed. Typically goods are
packages of many nations’ productive factors and technology. The work of Baldwin suggests
that the significant "winners" in this process to date have been a small group of countries -
China, Korea, India, Indonesia, Thailand, Turkey and Poland. These have all have increased
their share in world manufacturing GDP by more than 1% since the early 1990s. Except India,
all these countries are heavily involved in (regional) international supply chains of either Japan
(SE Asians) or Germany (Poland and Turkey). A key feature of this process is that firms are
increasingly using imported intermediates in producing exports.
The organisation of production into regional "factories" appears to be an important element of
this process, and involves flows of trade going between hubs and spokes. Baldwin identifies
several key hubs. These are:
• Factory US: US is the Hub and Canada and Mexico are the spokes.
• Factory Europe: Germany the hub and Eastern Europe countries the spokes.
UK/France smaller hubs.
• Factory Asia: Japan/Korea the hubs and south-east Asian the spokes. China is both a
and a hub/spoke
In these regionally integrated production networks it seems clear that distance is very
important; as is size. Small countries may have little option but to engage in parts of the value
chain; larger countries like India may have more (policy) choice here.
Vertically fragmented trade allows countries to specialise in much finer bits of the production
process. That specialisation can be driven by comparative advantage in those finer bits and the
gains are therefore gains from comparative advantage but at finer degrees of specialisation,
thus allowing for "Smithian" gains. It is also possible that the trade and the gains may be driven
by externalities / spillovers between firms and industries. Finally it is important to note that
this form of specialisation may be easier to achieve where integration is "deeper" ie where
non-tariff barriers between countries are lower.
There are various implications of this for policy.