Towards a G20 Strategy for Promoting More Inclusive Global Value Chains

WASHINGTON, September 6, 2016—Global value chains, which enable goods and services to be sourced and produced from multiple locations across the globe, are entrenched in the world economy. But increasingly, large multinational enterprises (MNEs) from G20 countries are leading production activities worldwide. Due to a variety of constraints and challenges, small and medium-sized enterprises (SMEs) as well as firms from developing countries are being left out.

Creating global value chains that are more inclusive of firms besides MNEs can generate benefits for all – including boosting economic growth, living standards and employment opportunities. But opening up global value chains to greater participation by SMEs requires policy changes that removes constraints. For example, SMEs are at a disadvantage when it comes to:

• Understanding procedures, regulations and international standards that make it possible to import or export;
• Paying “nuisance tariffs” on intermediate products, which are minimal for G20 economies for a whole but significant for SMEs and firms in developing countries;
• Internal capabilities such as education, skills, standards and innovation, that enable a company to move up a value chain;
• Access to and use of ICTs and other digital technologies – including broadband internet – that could help boost innovation.

The World Bank Group, OECD and International Trade Centre have collaborated on a paper, Towards a G20 Strategy for Promoting Inclusive Global Value Chains, that suggests policies for the G20 Trade and investment Working Group to promote more inclusive global value chains. The paper proposes actions in three key areas:

• Establish a trade and investment action plan for inclusiveness that defines clear and achievable objectives;
• Provide political leadership and support for collaboration across the public and private sector to establish global platforms that share best practices and enable capacity building;
• Provide political support to establish a multi-year plan to expand and upgrade the statistical and analytical foundation countries need to identify appropriate investment policies.

“The G20 platform is uniquely positioned to address coordination failures between and within countries,” explains Daria Taglioni, Lead Economist for the World Bank Group and co-author of the paper. “The G20 can offer the political leadership and clout with the private sector that’s necessary to target the major constraints facing SMEs and to leverage GVCs for a ‘race to the top’ in participating countries.”

The latest paper from the three organizations follows a 2015 report from the Bank Group and OECD that outlined the challenges facing SMEs and LIDCs as they seek to integrate into global markets, specifically into value chains.

The World Bank Group works closely with G20 members and other international organizations, as well as the B20, to provide analysis and policy recommendations for the G20 in the area of trade and investment. Priorities in 2016 during the Chinese Presidency have been providing evidence on the drivers of the global trade slowdown; global trends and drivers of trade costs; and G20 actions to promote further inclusion of developing countries in international trade.