Dependence on small number of nations for certain products has risks

The growing share of foreign inputs in global exports has indicated that Global Value Chains (GVCs) continued to expand in 2022, though there are risks from the dependence on a small number of countries for certain products, a report has said.

Expansion of GVCs bodes well for spreading the benefits of trade to more firms, workers and developing economies, according to the GVC Development Report 2023 released on Thursday.

The report, GVC Development Report 2023: Resilient and Sustainable GVCs in Turbulent Times, was jointly published by the Asian Development Bank, the Institute of Developing Economies -- Japan External Trade Organisation, Research Institute for Global Value Chains at the University of International Business and Economics (UIBE) Beijing, and the World Trade Organisation (WTO).

"Global value chains continued to expand in 2022, as indicated by the growing share of foreign inputs in exports and the increasing participation rates of economies worldwide," it said.

However, the report also "flags increasing risks from the dependence on a small number of economies for certain products and highlights the vulnerability of GVCs to rising trade tensions and global crises," the WTO said in a statement.

The report said foreign inputs comprised 28 per cent of global merchandise exports last year, a "record" level, according to the report.

Moreover, GVC participation rates of almost all economies were higher in 2022 compared to their pre-pandemic levels in 2018.

GVCs involve the collaborative production of goods and services across different countries, where each country specializes in specific stages of the production process.

Major multinational companies lead this process, strategically allocating tasks such as design, manufacturing, assembly, distribution, and after-sales services to countries with efficient and cost-effective capabilities.

Today, about 70 per cent of global trade operates within GVCs. These chains encompass a wide range of products, including electronics (like laptops, tablets, TV), complex machinery, pharmaceuticals, automobiles, petroleum products, as well as simpler items like clothing and shoes.

ADB President Masatsugu Asakawa, IDE-JETRO President Kyoji Fukao, UIBE President Zhongxiu Zhao, and WTO Director-General Ngozi Okonjo-Iweala in the joint foreword of the publication said recent pandemic-related disruptions have revealed long-standing vulnerabilities in GVCs, especially those associated with over-concentration and over-dependence on a single economy or region for the supply of critical products.

The report also stated that these chains can lead to positive outcomes for firms in developing economies by improving productivity and alleviating constraints and can result in higher wages and better working conditions.

"Policies for making GVCs more inclusive should focus on facilitating entry into GVCs and increasing positive spillovers into the domestic economy," it added.