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Value chain in decline: WTO

Value chain in decline: WTO

Cambodia is one of only two economies worldwide to have declined in global value chain (GVC) participation since 1995, according to the World Trade Organization’s latest study.

The WTO’s World Trade Report 2014, released Monday, shows Cambodia’s overall percentage of GVC participation – one country’s contribution to a multicountry production network – slipped from about 44 per cent in 1995 to 40 per cent in 2008.

“Looking at the changes across time, all economies apart from South Africa and Cambodia increased their participation in GVCs,” the report states, adding that data on GVC linkages remains scarce.

The report also shows that between 1995 and 2008, Cambodia became more involved in downstream production activities – participating only at the tail end of the production line of GVCs. Manufacturing was recorded as Cambodia’s biggest contributing sector to the world’s value chains.

The WTO stated that the reason that low-income countries, such as Cambodia, remained low on GVC participation was due largely to their ability to fulfil only low-skilled tasks.

“Upgrading remains a challenge for many developing countries,” the WTO report goes on to say.

Independent economist Srey Chanty said that Cambodia’s downstream GVC participation was a direct consequence of poor skills training at the tertiary level and the country’s ongoing dependency on the low-skilled garment and rice sectors.

“Cambodia is stuck in this low-skilled value chain system, with education of the labour force in Cambodia still very limited; that is why we are not moving away or forward in these sectors,” he said.

“Cambodia simply does not have the skill yet to increase their value in the chain of production, and so our share in the global production line is very, very limited.”

But Jayant Menon, lead economist on trade and regional integration for the Asian Development Bank, contested the WTO’s findings, saying that Cambodia has made significant improvements to its contribution to GVCs since 2008.

“Indeed, Cambodia appeared on the radar screens of Japanese firms looking to set up ‘reserve factories’ mainly after the recent Thai floods, but also a bit before that as wages in China began to rise sharply,” Menon said.

“The WTO’s World Trade Report 2014 only looks at the period up to 2008 in its analysis of GVCs in the region and therefore misses out on the notable improvements occurring in Cambodia since then in plugging into GVCs.”

The ADB last month urged all developing Asian nations, including Cambodia, to develop new GVCs by installing “low and predictable” trade tariffs and taxes, improved logistics and transport infrastructure and by developing policy that safeguards public health, social well-being and the environment.

Hiroshi Suzuki, chief economist and CEO of the Business Research Institute of Cambodia (BRIC) said Cambodia’s government along with Japanese firms had made significant improvements to the country’s involvement in GVCs.

“Cambodia would be now one of the biggest improved countries for participation in GVC because of Japanese investment in labour-intensive parts manufacturing,” he said, citing the Cambodian operations of electrical and auto-parts makers Minebea, Yazaki and Sumi since 2008.

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