Untapping the Full Development Potential of Trade Along Global Supply Chains: A 'GVCs for LDCs' Proposal

Abstract

There is clear evidence that existing preferential schemes contributed significantly to boosting LDC exports. Many seem to believe the multilateral trading system could offer little to LDCs as they have already obtained market access to critical markets under the current preferential schemes. Despite the LDCs' reluctance to positively engage in recent WTO discussions, there is room for the global trading system and new multilateral initiatives to promote the participation of LDCs in global value chains (GVCs). Given that LDC exports are often further processed and "travel" down the GVCs as part of third-country exports still facing tariffs, one could envisage a global preferential scheme based on LDC value-added, i.e. products originating in any WTO members should receive an "LDC preferential treatment" proportionate to the value of LDC's inputs content embodied in their exports, whenever exported to any other WTO member. We conceptualize this new "GVCs for LDCs" proposal and estimate its economic potential using a dynamic CGE modelling framework. If LDC preferential market access is changed from the simple "direct export" approach (e.g. the GSP-like schemes currently in operation) to a GVC approach, LDC exports would receive a considerable boost (a 2.5% annual increase worth over $10 billion per year) and increased market premium for their products

Keywords: WTO, World Trade Organisation, CGE modelling, GTAP, development, Least Developed Countries, LDCs, global value chains, GVC, Generalised System of Preferences, GSP

JEL Classification: F1, F13, F17, F47