World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 Email: contact@weforum weforum2018 World Economic Forum. All rightsreserved. No part of this publication may bereproduced or transmitted in any form or by anymeans, including photocopying and recording, orby any information storage and retrieval system. The views expressed in this White Paper are those of the author(s) and do not necessarilyrepresent the views of the World Economic Forum or its Members and Partners. White Papers aresubmitted to the World Economic Forum as contributions to its insight areas and interactions, andthe Forum makes the fnal decision on the publication of the White Paper. White Papers describeresearch in progress by the author(s) and are published to elicit comments and further debate. Authors: Susan Stone, Senior Advisor, Organisation for Economic Co-operation andDevelopment (OECD), Paris Iza Lejárraga, Head, Investment Policy Linkages Unit, Investment Division,Directorate for Financial and Enterprise Affairs, OECD, Paris Reviewers: Dave Gruner, Manager, Global Public Policy, DTTL and Manager, Customs andGlobal Trade, Deloitte, Sweden Jessica Gladstone, Partner, Clifford Chance, United Kingdom Krishnan Ramadurai, Global Head, Capital Management, HSBC GroupManagement Services, United Kingdom The Global Value Chain Policy Series was launched in 2018 by the WorldEconomic Forum System Initiative on Shaping the Future of InternationalTrade and Investment. It consists of brief policy papers on various aspects ofglobal value chains (GVCs). The aim of the series is to stimulate cross-policydiscussion and thinking about GVCs and collect ideas from researchers andpractitioners on how to help GVCs contribute towards development, sustainabilityand inclusiveness. These ideas can then be examined in more depth in thecontext of particular value chains, regions or public-private initiatives. The WorldEconomic Forum is working to bring the relevant actors together to facilitate thismultistakeholder, cross-policy undertaking, aimed at catalysing partnerships forimpact. 3Global Value Chain Policy Series: Regulatory Coherence 4 5 5 5 6 7 8 8 8 9 11 12 Contents Introduction: GVCs and regulatory heterogeneity Effects of regulatory heterogeneity: Why it mattersNon-tariff measures have become increasinglyburdensome for businesses engaged in GVCsServicifcation and digitalization heighten theimportance of effective regulatory approachesRegulatory differences are a key source of trade costs,particularly for SMEs Multiple approaches exist for addressing regulatoryheterogeneityInternational regulatory cooperation (IRC) for GVCs:Synergies between trade and investment Trade and investment are intertwined: Implications forIRC agenda Regulatory heterogeneity affects the operation of globalfactories Expanding IRC efforts to investment regional andmultilateral opportunitiesConclusion Endnotes 4Global Value Chain Policy Series: Regulatory Coherence In a world economy characterized by the fragmentation ofproduction processes across different countries throughglobal value chains (GVCs), misaligned or redundantregulations can become a key source of transaction costs.For supply chains to work effciently, inputs need to besourced expediently and reliably across multiple markets.Any delays or frictions from diverse domestic standardsor inspection processes can generate disruptions thatreverberate across an entire regional or global productionnetwork. This results in accumulated transactions costs. Itadversely affects not only the parent company but a rangeof other businesses in upstream and downstream activities,particularly small and medium-sized enterprises (SMEs).Ultimately, the costs also affect consumers through higherprices for fnal goods, reducing real purchasing power andoverall living standards. In addition to and interlinked with trade, the operation ofsupply chains invariably entails foreign direct investment(FDI) by multinational enterprises (MNEs) across the variouscountries where the different segments of an integratedproduction process are located. Since investment is bydefnition a behind-the-border transaction, the qualityand predictability of domestic regulations greatly affectinvestment decisions and overall market access. Giventhat MNEs establish manufacturing affliates acrossmultiple markets and regions, the convergence ofregulatory processes across countries reduces searchand transaction costs, increasing effciency. Improvingregulatory frameworks can therefore help countries becomemore competitive in attracting “foreign factories” linked toGVCs, bringing important employment opportunities andassociated spillover effects.Overall, the increased awareness of the interdependencybetween trade and FDI brought about by GVCs impliesthat transaction costs for divergent or opaque regulatorymeasures do not just affect trade fows but have import- ant effects on investment as well, particularly FDI linkedto GVCs. In this context, GVCs heighten the importanceof reducing transaction costs from domestic regulations,without compromising the achievement of legitimate publicpolicy goals. Generally, trade and FDI costs from domesticregulation stem from two factors: how restrictive regulationsare and the extent to which they differ across the marketsin question. This paper focuses on the latter, discussing thebenefts of and avenues for promoting regulatory conver- gence from a GVC lens. Introduction: GVCs and regulatory heterogeneity 。。。。。。