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GVC Reconfigurations and Trade and Industrial Policy

Author Kim Kyehwan et al. Date 2020.12.23 Page

The purpose of this study is to analyze the characteristics of the structural changes of the global value chain and the policies of major countries after the 2008 global economic crisis, and to find the orientations for trade, and industrial policies. To this end, the characteristics of changes in the global value chain structure were analyzed at three levels, including macro-level analysis using international input and output tables, structural change analysis for each stage of the industrial supply chain using trade data, and analysis of corporate value chain restructuring activities using survey data. In addition, it analyzed the value chain restructuring policies of major countries such as the US, China, Japan, and EU.


1. Analysis of global value chain structural changes using the international input-output data 


According to the results of the decomposition of GVC production methods, the share of GVC production gradually increased to around 2011, and then turned to stagnation or decline on the global level. In the case of the Korean economy, the GVC participation rate by the forward linkage method continued to increase or did not decrease significantly, while the GVC participation rate by the backward linkage method was notably decreased. According to the analysis of the GVC linkage structure, various countries and industries contributed to Korea's industrial production until the mid-2000s, but in recent years, the contribution of Korea itself and a few foreign countries, mainly China, have increased, simplifying the GVC structure and increasing the concentration. 


2. Analysis of supply chain structure and changes in the semiconductor, automobile, and mobile phone industries 


In the semiconductor and mobile phone industries, despite the recent de-Chinaization caused by the US-China dispute, imports and exports are still highly dependent on China. Major manufacturing equipment, materials, and parts are highly dependent on advanced countries such as the United States and Japan. In particular, the share of imported semiconductor materials such as wafer coating agents, prepared abrasives, and photoresist for semiconductor manufacturing reaches 90%, while the share of imported quartz products for semi-conductor manufacturing and wafer chip cutters is about 100%.

In the mobile phone industry, the share of exports of assembly products and modules to China is high, and the share of imports is also high in finished products and accessories. Recently, imports of displays, module assemblies and camera modules from Vietnam have increased. On the other hand, the proportion of imports from Japan and the United States is still high in mobile phone manufacturing equipment such as inspection equipment, electronic component mounting devices, measuring equipment. However, unlike the semiconductor industry, the weight of Japanese equipment for the mobile phones is gradually decreasing. Unlike the semiconductor and mobile phone industries, the automobile industry has a very low proportion of imports and exports of finished products from and to China. But China's share in parts and equipment imports has steadily increased, accounting for the largest share of imports in most items overtaking Japan.


3. Analysis of corporate GVC restructuring activities 


The analysis was largely divided into three parts: GVC restructuring for the last three years, GVC restructuring plans for the next three years, and the impact of Corona 19 and suggestions for government policies. In the last three years, about 20% of all respondents have participated in GVC restructuring, and when looking at the reorganization activities by type, relocation of production bases was the most common at 11%. Regarding the factors of GVC reorganization, the rise of the consumer market in emerging countries was the most important factor, showing that GVC restructuring are, above all, for the purpose of using new opportunity rather than for avoiding the risks. For future GVC restructuring, risk factors such as protectionism, deteriorating investment conditions, and pandemics were found to have a more important influence than opportunity factors such as emerging markets and new technologies. 64% of all respondents are expected to participate within 3 years, in GVC restructuring. However, there are very few companies expecting a reduction in overseas business, and only about 15% of all respondents are currently expecting a reduction in overseas business. For manufacturing companies, it was shown that expansion, not reduction of globalization, is the direction of business in the future. While China is an absolutely high diversification target country for semiconductors, Southeast Asia, US, Europe, and Vietnam are targets for diversification with similar or higher importance than China for automobiles. As for mobile phones, the US is the most important diversification target, and Southeast Asia is the second most important target country. This reflects the importance of China as a semiconductor market. And, as for the automobiles and mobile phones, as China’s importance as a production base declines, some are moving to Southeast Asia, and some are moving to the US, where the market is located.


4. Global value chain restructuring policy of the US, China, Japan and EU 


The United States is introducing aggressive industrial policies to limit China’s access to emerging technologies/industries, widening the gap with China, and strengthening technology and supply chain alliances with allies. In response to US policy, China aims to improve the self-sufficiency rate of materials, parts, and equipment, reduce the dependence of technology and supply chains on the US in high-tech industries, and further complete its own global supply chain centered on its own. Japan is also seeing the reorganization of the supply chain as a security issue, aiming to reduce dependence on a small number of countries and expand domestic production for this. The European supply chain restructuring policy is being promoted as part of a longterm European-level development strategy of green and digital transformation, and the goal of the supply chain restructuring policy is to secure strategic autonomy in emerging technologies.


5. Policy responses to global value chain reorganization


The strategy to respond to the reorganization of the global value chain consists of a vision, a goal, and policies to achieve the goal. First, the vision is to secure strategic autonomy through GVC innovation, and the goal is to build a resilient and flexible industrial system as the industrial foundation for strategic autonomy. The policy to achieve this goal consists of three pillars. The first is to strengthen industry information capabilities. Specifically, it proposes to install an industry intelligence unit, to establish a data base for analyzing the structure of global value chains in advanced technology and industry, and to strengthen the functions of the Foreign Investment Review Committee. The second is the industrial policy for the development of the advanced manufacturing industry. Specifically, it is proposed to upgrade the industrial and trade structure, strengthen industrial policies to foster the materials, parts and equipment industries, establish a joint public-private TF to rebuild and relocate the manufacturing GVC, and establish an acceleration center to strengthen the supply chain. Third, We propose an East Asian Advanced Manufacturing Platform policy tailored to the expansion of GVC to the Indo-Pacific region, active promotion and utilization of digital trade as a new frontier of GVC expansion, and strategic re-shoring policy.