1. Global Value Chains Challenges and opportunities for Australia

2. Agenda  The rise of GVCs  The challenge for government  The structural challenge  Opportunities – services and manufacturing  Manufacturing in ASEAN

3. The rise of GVCs  Half the world’s manufacturing imports are themselves semi-finished inputs  Around 70% of world service imports are intermediate services  Trade in intermediate goods and services account for the majority of international trade

4. The rise of GVCs

6. The challenge for government Efficient import capacity = competitive exports “ The statistical bias created by attributing commercial value to the last country of origin perverts the true economic dimension of bilateral trade imbalances. This affects the political debate and leads to misguided perceptions. ” - Pascal Lamy, former WTO Secretary-General (Source: Lowy Institute)

7. The challenge for government iPhone global value chain Source: OECD, 2011

8. The challenge for government  GVCs rely on coordinated, efficient movement of goods across borders  Government can help through trade facilitation reform  ‘Hard’ infrastructure improvements  ‘Soft’ customs and border policies and procedures  Accreditation and mutual recognition  Trusted Trader  MRAs in FTAs

9. The structural challenge Foreign value-added content of gross exports by country Source: OECD, 2008, 2009, 2011

10. The structural challenge Australia’s industry share of domestic and foreign value content of gross exports Source: OECD, 2011

11. The structural challenge Australia’s imported intermediate inputs used for exports, by import category Source: OECD, 2008, 2009, 2011

12. The structural challenge Australia’s domestic value-added embodied in intermediate exports to main partner countries Source: OECD, 2008, 2009, 2011

13. Summing up – where are we Australia’s domestic value-added embodied in intermediate exports to main partner countries Source: OECD, 2008, 2009, 2011

14. Opportunities “ I think what we’re seeing is a big shift away from large, vertically-integrated organisations, towards smaller, more independent units of production. Global value chains have emerged as a predominant form of activity in both manufacturing and in services, and the two are increasingly blurred. ” - Roy Green, Dean, UTS Business School (Source: Manufacturers’ Monthly) “ Australia will never win a race to the bottom on price and we should not seek to do so. Rather, the key to Australia’s future prosperity is to gain a permanent seat at the high value-added head of the GVC table. To that end, the impact GVCs have on the service economy is a primary consideration. ” - Nicholas Humphries, Australia Customs and Border Protection Fellow, Lowy Institute

15. Services and manufacturing Services content of gross exports by country, gross and value-added terms Source: OECD, 2011

16. Services and manufacturing Services value-added embodied in manufacturing exports, by country Source: OECD, 2011

17. Services and manufacturing Source: OECD/WTO/Austrade

18. Manufacturing in ASEAN  5% of global manufacturing  Easy access for Australia + regional liberalisation initiatives  Average tariffs across ASEAN-6 virtually zero since 2010  ASEAN 6 = 95% of regional GDP; US$225 billion attracted to manufacturing from 2009-2013

19. Manufacturing in ASEAN Source: Dealogic/McKinsey

20. Case: Thailand - Automotive  Thailand’s 3 rd largest industry – 12% of GDP  4 th largest in Asia  3m vehicle p/a capacity; 1800 parts suppliers  Growing aftermarket sector with 55% of vehicles 5yrs+  Parts sector supplies 100% of local pickup components, 60% of passenger car components

21. Wrapping up  Australia’s integration with GVCs is still tied to and defined by resources and geography  Services and to a lesser extent manufacturing are bright spots of potential  Government can help facilitation greater GVC integration through trade facilitation reform  Opportunity is right here, a short hop away

22. Thank you Niels Strazdins Head Research Manager Export House, 2/22 Pitt St, Sydney nielsstrazdins@export.org.au