Introduction

CHAPTER 7 Nontariff Measures and Services Trade Restrictions in Global Value Chains

Souleymane Coulibaly, Alejandro Forero Rojas, Hiau Looi Kee, and Daniel Mirza

Introduction

In an increasingly connected world of global value chains (GVCs), the trade policies of one country may affect the GVC participation of many countries, including itself, given that products are crossing borders multiple times. For certain products, the more relevant trade policy barriers could be tariffs, whereas for others, such as agricultural products, the more impeding trade policies could be in the form of nontariff measures (NTMs). But in the real world—as documented in World Development Report 2020: Trading for Development in the Age of Global Value Chains (World Bank 2020)—it is firms, not countries or industries, that participate in international trade. In line with this simple observation, economic research on international trade has transformed dramatically in the past 20 years, placing firm-level international strategies at center stage.

The expansion of GVCs entails not only a finer international division of labor but also several additional features, four of which are particularly important: 1. Matching of buyers and sellers. In GVCs, this is not a frictionless process. The fixed costs of importing and exporting partly reflect the costs of finding, respectively, suitable suppliers of parts and components or suitable buyers of one’s products. For this reason, these fixed costs are better understood as sunk costs, which naturally create

“stickiness” among participants in a GVC. 2. Relationship-specific investments. A source of lock-in for GVC relationships is that participants that often make many relationshipspecific investments (such as purchasing specialized equipment or customizing products) would obtain a much-depressed return if GVC