Over the past three decades, global value chains have powered a complete transformation of global trade.

A transformation that creates tremendous opportunities for LDCs.

In a world of global value chains, LDCs no longer need to build whole industries from scratch to be part of the global economy. They can instead specialize in specific tasks along the global value chain and leave more complex tasks to other countries.

LDCs that join global value chains can gain a double dividend. Their most productive firms specialize and expand, lifting overall productivity. And local firms gain access to better and cheaper inputs, and they link with foreign firms, which pass on the best managerial and technological practices.

As a result, LDCs that become part of global value chains can see faster income growth and falling poverty.

The benefits of global value chains for LDCs are not just theoretical. They are very real.

In Ethiopia, firms that participate in global value chains are more than twice as productive as similar firms that do not.

And in Bangladesh, exports of apparel that use textiles from elsewhere in the global value chain have doubled every 3.8 years since 1988, making Bangladesh the world's third largest exporter of apparel and footwear after China and Viet Nam.

That impressive growth has come with a steep fall in poverty. In 1988, some 44 per cent of people in Bangladesh lived in extreme poverty. Three decades later, that figure had fallen to 15 per cent.

Those are not isolated experiences. Cross-country studies estimate that if a country increases its participation in global value chains by 10 per cent, its per capita income increases by up to 14 per cent.

And yet, not all LDCs benefited from the first wave of global value chain growth during the 1990s and early 2000s.

Many are being left behind.

Between 2011 and 2020, LDC exports of goods and services contracted and the share of LDCs in global exports stagnated. That share has yet to break through the symbolic 1 per cent mark.

What's more, ,LDC export baskets remain highly concentrated on a handful of commodities, some agricultural goods and minerals, even as rising clothing exports have helped diversify LDC trade somewhat.

The pandemic further dampens the trade prospects of LDCs.

Travel and other pandemic-induced restrictions interrupted a decade of rapid growth in services exports, until recently a bright spot in LDC trade.

And vaccine inequity is holding back the trade recovery in some regions, especially Africa, where most LDCs are located and where exports are yet to reach their pre-pandemic level.

A small silver lining to the pandemic is that it is accelerating the trend towards reshuffling of supply chains, as companies look for new sources of efficiency, get closer to the consumer and build buffers to better respond to future shocks.

That creates new trade opportunities for LDCs bypassed by the first wave of globalization.

Cambodia and Lao PDR are cases in point. Since 2010, both countries have seen their global value chain exports increase by double digits each year, even as the overall growth of global value chains has slowed considerably.

All that suggests that global value chains still offer LDCs a path to prosperity.

That brings me to the second part of your question. What can be done so that LDCs that have been left behind can catch up?

A big part of the answer is to improve access for LDC exporters to foreign markets. I understand that to be the main thrust of your GVCs for LDCs initiative.

That initiative makes a real contribution to discussions at the WTO on how to increase the participation of LDCs in global trade. You have put forward a concrete and innovative idea to ensure that preferential schemes better reflect the reality of today's world, where trade occurs mostly along global value chains.

That is a promising approach which could help LDCs reap the benefits of global value chain trade. I would therefore encourage you to continue discussing and refining these ideas to ensure the necessary buy-in from trade officials in LDCs and their trading partners.

Preferential access to developed country markets is just one part of the answer to integrate LDCs into the global economy.

Another essential part of the answer is to lower the cost of cross-border trade, which remains very high in LDCs. Trade costs in low-income countries are equivalent to a 270 per cent tariff, which means that trade costs more than triple the price of internationally traded goods over domestic goods.

That needs to change if LDCs want to link to global value chains.

Let me briefly highlight three policy levers that LDC governments have at their disposal to lower trade costs.

The first policy lever is to reduce delays at and behind the border by streamlining, simplifying and standardizing customs and other trade procedures. For many goods traded in global value chains, a day’s delay is equal to imposing a tariff in excess of 1 percent.

The WTO Trade Facilitation Agreement offers a powerful framework for reform. Our own studies show that the Agreement's full implementation could have a big payoff for LDCs, which could see the number of products exported go up by 35 per cent.

What's more, action on trade facilitation could partly offset the sharp rise in the cost of shipping that has resulted from pandemic-induced supply chain bottlenecks and that has a particularly damaging effect on landlocked and net food importing developing countries, many of which are LDCs.

The second policy lever that LDCs can use to lower trade costs is to improve the trade and investment regimes by making them more open, transparent and predictable. Study after study has shown that high tariffs and other trade barriers, as well as restrictions on foreign direct investment inflows inhibit a country's participation in global value chains.

That's because the costs of trade barriers are magnified when goods and services cross borders multiple times as happens along global value chains. And policies to attract foreign direct investment can remedy the scarcity of capital, technology and management skills that are critically important to join and move up in global value chains.

The third policy lever to lower trade costs is to modernize communications and transport infrastructure, and liberalize road, sea, and air transport. A focus on those areas can help LDCs overcome their geographical remoteness to major global value chain hubs in Asia, Europe and North America.

And given that global value chains might increasingly come together around digital platform firms in the future, it is equally important to create strong foundations for the digital economy to thrive in LDCs.

Cooperation, at both regional and global levels, will be essential to support domestic efforts by LDCs to join global value chains.

That's why it is very encouraging to see 19 LDCs engaging actively in WTO discussions on investment facilitation. They are part of a group of more than 100 WTO members working on a set of disciplines to make investment measures more transparent and predictable, and to ensure that those measures are administered in a way that is free of procedural red tape.

Groups of WTO members are also working on other issues that are critically important to the future of trade and global value chains, not least services regulation, electronic commerce and environmental sustainability. But so far, LDCs have mostly stayed away from those discussions.

That's a missed opportunity and highlights the need to work closely with LDCs to shape the rules that will govern trade and global value chains in the 21st century.

The WTO, through the Enhanced Integrated Framework and the Standards and Trade Development Facility is playing an important role in helping LDCs upgrade the quality of their goods and services and break into global value chains.

We must build on that support to ensure that LDCs are not left behind by a rapidly changing trade landscape.

Let me conclude by saying that, as academics, you lend intellectual heft to efforts in Geneva and elsewhere to turn that goal into reality. Your contribution is essential to help improve the global trading system and ensure that it delivers benefits for all people, everywhere. We are taking an important step here today and I look forward to continuing this dialogue.

Thank you.




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