In recent decades, production processes have become increasingly fragmented, with production stages located in the most cost-effective locations. These international production chains are characterized by importing raw materials and semi-finished products, adding value by processing these products, and selling these processed products as semi-finished or finished products, often as exports. This is a company that does Currently, more than two-thirds of world trade consists of so-called intermediate goods, such as raw materials and semi-finished products intended for further processing. Global value chains are becoming longer and more complex, with production stages spread across different locations and even different countries.
In recent years, however, the increasing fragmentation of international production has stalled. Global value chains are under pressure from geopolitical shocks such as the US-China trade war, the coronavirus pandemic, and Russia's invasion of Ukraine. There is already discussion in the academic literature of the impending large-scale “redistribution” of global value chains. Today's policy debates focus on strategic dependence and strategic autonomy for the Netherlands and the EU as a whole. There is a desire to reduce high-risk strategic dependencies where a “trusted value chain” is essential.
Policy makers want a clear picture of risks in their supply chains at a detailed product country level. Traditional merchandise import statistics provide a “face value” measure of dependencies at the product level, but they only show the direct dependencies of a particular product from a particular country, and therefore do not form part of the overall picture. Only part of the story has been reported. Trade flows prior to these direct import dependencies are not measured.
A hypothetical example is a lithium battery imported from Germany by a Dutch car manufacturer. This battery contains lithium that is not mined in Germany but elsewhere, for example in Chile. In this example, there is a dependence on lithium, a key raw material mined in Chile, which is not detected in traditional import statistics. Global input/output data allows you to identify such hidden exposures. However, this data is highly aggregated and indirect dependencies can only be identified at the industry level rather than at the product level. In our hypothetical example, the Dutch automobile industry is indirectly dependent on Chile's mining and quarrying industry.
But policymakers are seeking “hidden exposure” for specific products, not industries. Two of today's speakers have independently developed a new method to identify these indirect import dependencies at the product level.
Here at the CBS World Cafe, insights from ongoing research were presented by:
• Antoine Bertaud Senior Economist at the Organization for Economic Co-operation and Development (OECD). He will be presenting his new OECD working paper on 'Granular Production Networks: Mapping and Testing Product-Level Vulnerabilities' (in collaboration with Anton Harembour and Lea Samek). This paper conducts a detailed mapping of global value chain (GVC) vulnerabilities using product-level trade data consistent with the OECD's country input-output tables. It provides new insights for policymakers and stakeholders in managing supply chain risks in a multi-risk global economy.
• Oscar Lemmers Senior Researcher at Statistics Netherlands (CBS). He will present new research on the supply chains of his five industries in the Netherlands (in collaboration with Khee Fung Wong, Tom Notten, Leen Prenen and Dennis Dahlmans). It's about the goods traded in these supply chains and how those goods are scored based on indicators that the literature says are associated with risk. This provided new insights into potential risks in critical supply chains to the Dutch Ministry of Economic Affairs and Climate Policy, which funded the study.
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