Wednesday, August 8, 2012

International supply chains and Made in the world

Richard Baldwin has made an interesting analysis for the reasons for tariff liberalisation in developing countries since the late 1980's. In his "Unilateral tariff liberalisation" he proposes that tariff liberalisation in developing countries have taken place primarily due to the new reality of international supply chains that they are part of.

The two graphs below indicate the reduction of tariffs which were earlier a form of protecting local industry.

What caused this reduction? negotiations to reduce tariffs or trade realities. The explanation offered is the reality of international supply chains. The joining of international supply chains as well as the end of "infant-industry" protection seem to spark this reduction of tariffs.
"The second unbundling revolutionised development options facing poor nations – especially those geographically close to industrial powerhouse nations like Japan, the US and Germany. Rather than building their own supply chains behind tariffs walls over a span of decades (as was done in the US, Germany, Japan, Korea and others), the second unbundling allowed nations like Thailand and the Philippines to set up sophisticated manufacturing facilities in a matter of months by joining a supply chain.
The catch was that tariffs – and many other 'pro-industrialisation' policies from the pre-ICT era – turned out to be hindrances to joining supply chains. In reaction, many developing nations dropped the old policies to attract offshored manufacturing jobs and investment."
I am not an economist but I found this analysis interesting. the reality of international supply chains and their impact on tariffs is evident. Have the global trade  rules taken note of the reality of international supply chains? "made in the World" is the new reality rather than Made in China,  U.S. or Germany. While the stage in international trade law has shifted to non-tariff measures as new forms of protectionism gain ground, would the reality of global supply chains require a need for a relook at international trade regimes?  Another question is what explains the rise in "protectionist" measures, albeit non-tariff, in recent times though the reality of the global supply chains exist? While tariffs have reduced, non-tariff measures like technical regulations and other standards seem to have become the new norm.
Reverting back to the supply chain realityScott Lincicome has brought out the "Made in the World" concept aptly in his blogpost. I am borrowing the image used there (could not resist it) for its sheer clarity in explaining new realities:
The new reality of international supply chains?

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