It is what he said:

It is an honour for me to speak in front of you today about this book, the result of the cooperation between IDE-JETRO and the WTO. This project delivered a product which is both elegant and meaningful. Since it involves Japanese skills, it could not be otherwise: a good combination and balance between profoundness and beauty. I must give due credit to all those who participated in this truly “international supply chain”. It is always a challenge to illustrate complex matters in a straightforward and didactic way, without over-simplifying the analysis.

Those who have had the opportunity of following WTO activities, beyond the better-known trade negotiations, dispute settlement and surveillance missions, know that one of our priorities is understanding the implications for trade of the fragmentation of production processes in global manufacturing. Policy makers must be guided by proper statistics. Consequently, the necessity to measure trade in value added in order to have accurate information is at the heart of this publication. IDE-JETRO was the first institution to respond to the WTO’s call to start work on trade in value added in 2008, fully grasping its importance. Since then, many other organizations have joined forces to work on this subject, like the OECD, the European Commission or the World Bank.

The topic is indeed very important, because in today’s planet trade looks very different from when the first rules governing world trade were originally shaped after the Second World War and led to the creation of the GATT. Since its first version in 1947, we have seen a marked expansion of international trade, with trade growing much faster than world production. The ratio of international trade to the value of world GDP has risen from less than 6 per cent in 1950 to over 20 per cent today.

This change, already impressive, has been accelerating in the past 20 years. The old division of labour between nations has been radically changed by the recent wave of globalization. We are no longer in an economy where countries trade final goods, as Ricardo used to say on England’s clothing exports to Portugal, and Portugal’s wine exports to England. Today’s tendency is for countries to specialize in “tasks”, rather than in “products”.

Global value chains, or international supply chains, are core to this development: The parts and components that make up a final product are manufactured in different countries around the globe, many of which are developing countries. Manufacturing is “unbundled” to borrow an expression used by Professor Richard Baldwin.

With the international fragmentation of production, national boundaries and distances are collapsing. Reductions in transport costs, the information technology revolution, and more open economies have made it easier to distribute production across a range of countries.

Some say that we all now live in the same global village, and others claim that our world is flat. What is sure is that the world is increasingly inter-connected. “Factory Asia”, as it is often called, did not rise in a vacuum, but responded to an industrial logic that had its roots thousands of kilometres away. The book on Trade Patterns and Global Value Chains in East Asia, which we are presenting today, shows how industrial production in Asia is driven by demand from the USA, and how Asian producers have organized themselves to satisfy this demand, specializing in their comparative advantages.

Indeed, international trade today has become inseparable from global production networks, and it is important for policy makers, as well as analysts and opinion makers, to fully understand the implications of such economic interdependence among WTO members participating in the multilateral trading system.

Yet, it seems that the reality of economics is going much faster than our understanding and representation of it. Trade policy today looks as if it were still dominated by the old 19th century mercantilist minds, when nations measured the success of trade by the amount of gold accumulating in the King’s coffers.

But things have changed dramatically since the 19th century, and international trade cannot be considered as a zero sum game where my gains are my trade partner’s losses.

This transformation of the nature of international trade also changes the main objectives of trade negotiations. To deal with tariffs is technically simple, compared with negotiations in other areas that are necessary to make the functioning of global value chains possible, such as the regulatory frameworks governing foreign direct investment and services. The implications are profound since behind-the-border issues and measures touch upon essential and sensitive public policies and institutions. The last WTO World Trade Report highlights that negotiating regulatory frameworks for global supply chains is probably the most important reason behind the multiplications of regional trade agreements.

Global supply chains also imply that often-used categorizations in trade negotiations become blurred, such as “offensive” and “defensive” interests. For example, during the WTO Public Forum in September, a Swedish economist pointed out that 80 per cent of the effect of anti-dumping duties levied on cheap imports of footwear from developing Asia was actually applied on imports of European value-added. In other words, the anti-dumping measure was principally affecting European firms that exported design and components for assembly in developing Asia.

Global supply chains put in evidence what trade economists have known for a long time: trade is not a zero-sum game, and properly designed, it can be of benefit to all. Global manufacturing has brought a new dimension to the relationship between trade, investment, industrial production and development.

This book is an illustration of the new economics of trade and development. It shows that the traditional industrial giants of Europe, Japan and the USA outsourced and offshored low-skill tasks to concentrate on their core business, particularly research and development, engineering and marketing. Conversely, the developing countries have benefited from an accelerated transfer of production capacity, thanks to the flow of foreign direct investment and industrial know-how that took place in the process.

Particularly striking are the graphs in the book showing how swiftly developing Asian economies caught up with Japan and became the principal trading partners of the USA. This has not diminished the importance or wealth of Japan. The changes reflected in fact a redistribution of roles and tasks within the regional supply chain, and most such changes were probably prompted by the Japanese companies themselves. Far from being the zero-sum game, trade in tasks proves to be a win-win game for the region.

In less than 20 years, relatively lesser advanced economies in Asia have been able to become major players in manufacturing industries. Besides China, who is dubbed today the “World Manufacturer”, we see a series of industrial success stories in Malaysia or Thailand. Manufacture production is not alone to bloom in this new division of labour between industrialised and developing economies. Trade in commercial services has been spreading, as global manufacturing demands state-of-the-art logistic, communication and business services to thrive. In the process, as it is well illustrated in the book, Honk Kong and Singapore became giant trade hubs, while India and the Philippines developed successful export activities of business services.

Today, new players have joined the Asian regional supply chain and made the necessary investments and institutional changes to benefit from their comparative advantages. Some of these new countries, such as Cambodia or Viet Nam, are among the poorest in the world. Their experience, as one of the Asian countries who preceded them in this journey, is of utmost importance to fully understand how least-developed countries can benefit from the new international economy.

I would like to refer now to the implications of global manufacturing and trade in tasks to the way we should understand international economics today, and the need for fostering its global regulation.

Today, international production networks criss-cross the planet, though there are regions that remain largely absent such as Africa and Latin America (except for Mexico, Costa Rica and Brazil). Once we exclude oil, 60 per cent of international trade is in semi-finished goods, parts and components. This has profound implications for employment and social welfare. The work of an employee in one country, whose task is to bring additional value to the processing of goods, often depends on the smooth implementation of production plants thousands of kilometres away.

We have seen, unfortunately, that when the disaster hit Japan in March, the production lines of automobiles and electronics products had to stop or slow down in Europe and the USA because they had run out of the components which were produced by their Japanese suppliers. Similarly, the global financial crisis that began in the USA and then spread to Europe had a swift and deep negative impact on trade in most countries, even in the emerging economies, as the supply chains quickly adjusted their inventories and levels of activity to the uncertainty and drop in demand.

The increased economic interdependence through trade and global supply chains calls for a renewed dynamism of the multilateral trading system. The Doha Round is paralyzed with the most serious crisis in its ten years, a crisis that is essentially political and involves few but powerful players. And the negotiations are stuck on the most traditional subject of the multilateral trading system: industrial tariffs! And while members struggle to find a balance in partial liberalization of agriculture and non-agriculture goods, there is no lack of appetite for deeper liberalization in the form of preferential trade agreements whether free trade areas or customs unions. As mentioned earlier, these agreements become necessary not only to liberalize trade but to provide the rules and disciplines necessary for the steady development of supply chains, for example on investments and services.

I am sure the multilateral trading system will eventually catch up, but first the DDA must be concluded! Catching up will involve a process of convergence and harmonization, or at least the avoidance of incoherence, of the various regulatory frameworks that have emerged in preferential trade agreements. To converge on tariffs is technically simple. The regulatory spaghetti-bowl — I suppose that it is called noodle-bowl in Japan — poses far greater challenges and costs. We must all begin to look more closely at this if preferential trade agreements are to serve as building and not stumbling blocks. In this regard, I look forward to the discussions of the panel on the Trans-Pacific Strategic Economic Partnership and its implications.

I would like to conclude by highlighting the importance of global manufacturing and the Asian experience to better understand the relationship between trade and development. What Asian countries did to become the leading world manufacturers provides some lessons to other economies.

First, that autarky and isolationism is not a sustainable option, as some promoters of “deglobalization” would like us to believe. It was by opening their economies to trade and foreign investment that developing Asia became emerging Asia.

Second, that the state, in its central and territorial dimensions, is a key partner in facilitating trade. The book illustrates how the governments in the region cooperated with the industrial sectors to lower the cost of doing business, by lowering tariffs on traded goods, streamlining custom procedures and developing an adequate infrastructure of transport and communication services.

Third, that global production networks are not only about manufactured goods, but also about services. Indeed, one of the main conclusions of the book is the close relationship between manufacture production, business services and international logistics.
To finish, I would like to reiterate my thanks to IDE-JETRO and the Japanese authorities for their co-operation on this project and for inviting me to this ceremony. And also my thanks to you, a very patient audience.