INSIGHT: OECD and WTO re-set global trade debate

16 January 2013 17:10  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Chemical producers will welcome the work done by the OECD and the World Trade Organisation (WTO) to highlight the interconnectedness of markets and the importance of free trade.

The industry has gained remarkably from the globalisation of its markets over three decades. The greatest threats to future growth and profitability lie in the uncertain economic environment and in expected slower global demand growth.

The failure to make progress in the most recent set of Doha Round global trade talks coupled with recession has spawned a variety of bilateral agreements which many see as running counter to broader multilateral free trade goals. And the threat of greater protectionism is very real.

That is why the OECD and WTO have worked to produce a set of data that re-sets the view of international trade in goods, services and value.

The joint 'Trade in Value-Added Initiative' has aimed to analyse the value added by a country in the production of goods and services which are then exported. The approach breaks with convention, the OECD says, which records the gross flow of goods and services each time they cross national borders.

The data highlight the extensive international flow of goods and services into new products and revenue generating business. They also show that a level of protectionism can double if the impact of tariffs and other barriers on value added is measured, rather than simply the impact on trade flows.

The OECD/WTO data show that China’s bilateral trade surplus with the US drops by 25% when looked at on a value added as opposed to a pure trade flow, or cost, basis. This reflects, the OECD says, “the high level of foreign-sourced content in Chinese exports”.

Chemical producers will recognise the importance of China as what the OECD call “a hub in ‘factory Asia’”. Almost half of all China’s imported intermediates are used as inputs for exports, it adds.

The data also show that one third of the total value of motor vehicles exported from Germany comes from other countries. Almost 40% of the value of China’s electronic exports comes from foreign sources.

The global trade in services is much greater when looked at on a value added basis reaching an average of 50% of OECD countries’ exports compared with less than a quarter by conventional trade data.

“Our new work with the WTO allows us to see more clearly than ever before how blocking imports will damage a country’s own competitiveness,” OECD secretary general, Angel Gurría, said on Wednesday. “Trade negotiations have to catch up to these new realities, and countries need to implement policies that help their firms better manage their place in international value chains.”

Companies work across national boundaries, moving raw materials, making products, supplying services and generating value along the way. Protectionism hobbles their ability to perform effectively, destroys value and eventually stifles economic development.

The chemical industry believes the case for chemical tariff liberalisation remains strong.

Just last month, president of Germany’s chemical trade group, the VCI, Karl-Ludwig Kley, urged the German government to continue to promote free trade in 2013. Kley spoke then of the high duties and costs to producers associated with the huge volume of bilateral trade between Germany and the US.

The OECD/WTO data show that blocking imports will damage a country’s own productivity and ultimately damage competiveness, Gurria said on Wednesday, speaking of the “self-defeating nature of protectionism”.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

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