A joint EU-CELAC strategy for upgrading participation in Global Value Chains and increasing total productivity

• In Event: After Brussels: Pragmatism in the EU-Latin American Relationship

Abstract

Today’s global economy is characterized by global value chains (GVCs), in which intermediate goods and services are traded in fragmented and internationally dispersed production processes. Businesses today look to add value in production where it makes most sense to do so. Analysis of GVCs implies to identify “value-added trade”. This has shown two important features: (i) deep regional integration is necessary for better participation in GVCs with third partners, (ii) services account for almost half of world trade – considerably more than traditionally estimated using only gross flows statistics.
Latin American economies have always participated to GVCs but any analysis of Latin America trade shows that this participation has not been so favourable to its own economic development. The failure of the “inward-looking” strategy and the counter-example of Asian successes with “outward-looking” policies demonstrate that international insertion quality and its impact upon development depend mainly from domestic policy choices. The participation of Latin America to GVCs indicates resilient weaknesses: low degree of trade openness and bad quality of trade structure by products, by destination and by firms.
The purpose of the LASA paper is to analyse the role the cooperation with the EU in the framework of the bi-regional Summits could play for improving the international insertion of CELAC economies along a common GVCs strategy. The main thesis will be that there is a need for bi-regional policy cooperation for improving the respective insertions in GVCs which tend to be led by the Pacific Rim powers and reverting the growing gap disfavouring the Atlantic Rim.
Adopting an ambitious active cooperation strategy EU/CELAC at micro level between firms, at research level in building a common space in Education, Science & technology as well as at macroeconomic level through a policy dialogue, is the fastest way to meet the social challenges of globalization for both regions. Such an attractive road of mutual interests based upon complementarity needs of both regions for breaking vicious circles of low internationalization, low SMEs productivity and low innovation capacity in order to increase their stagnant total factor productivity and the potential output.

Author

• Christian E Ghymers, Institut Catholique des Hautes Études Commerciales