Global Value Chains in action:
Making the Australian Passport
(Click to enlarge)
A 'value chain' is the full range of activities involved in designing, producing and delivering a good or service. The nature of trade is changing, with value chains becoming 'global' and crossing more borders than ever. The OECD estimates that more than half of the value of world exports is attributable to trade within Global Value Chains (GVC).
Value chains have become 'global' for a number of reasons, including:
- increasing information and communication technology capabilities;
- changing production costs (e.g. Asia's manufacturing cost advantage);
- lower trade and transport costs and improved international logistics;
- fewer barriers to trade (e.g. tariff and quota reduction).
The Australian passport is a good example of a GVC in action. Our passports are assembled in Australia from components sourced from around the world, as illustrated on the previous pages.
The importance of Global Value Chains in Trade Today
The growing importance of GVCs has further increased the incentive for countries to cut barriers to trade. Many industries now source inputs for production from every corner of the globe. This means that tariffs and import restrictions decrease the competitiveness of a country's local industries, as they make imported inputs more expensive.
Countries increasingly rely on foreign inputs for their own firms' exports, which may then be further processed in partner countries. In 2011 almost two-thirds of OECD countries' trade consisted of intermediate inputs traded within GVCs.