Pacific Currents

Juan Navarro
Associate Faculty, Royal Roads University

Global value chains (GVCs) have been at the center of attention in both business and policy spheres around the globe for the past two years. Disruptions created in GVCs as a result of operational inefficiencies were only magnified by the COVID-19 pandemic. The discussions happening worldwide on the relevance of GVCs have allowed us to see how closely the world is interconnected via GVCs and how quickly local events can become a global matter, resulting in thousands of SMEs getting pushed out of business.

Global value chains have a critical role in the world economy and in our daily lives, representing more than two-thirds of global trade, providing essential products and services, and supporting jobs across a diversity of economic sectors ranging from agricultural and natural resources to traditional and high-tech manufacturing and a vast and diverse list of services.

While the ongoing discussions on GVCs have produced worthwhile conversations by creating more awareness and a better understanding of their relevance, we cannot deny that these discussions are not enough to remedy future disruptions that might happen as a consequence of new contingencies. Nor can they support efforts to build more resilient value chains after COVID-19.

Leo Guzman-Anaya¹
University of Guadalajara, Mexico
Member of PECC Mexico

Background

Mexico’s automotive industry experienced a wave of rapid growth after the 2008 financial crisis. It now ranks as the fourth major exporter and the seventh global producer of automobiles and fifth producer of auto parts. This position was achieved primarily because the industry has been characterized by global production networks with fragmentation of their production processes, where companies have searched for locations that favor cost optimization and manufacturing quality. In this sense, Mexico provided a developed and functional productive infrastructure, human capital endowment, and a growing internal market which stimulated the arrival of automotive Original Equipment Manufacturers (OEM) from north America, Europe, and Asia. Also, the favorable geographical location that provide entry to the north American market and a network of 13 Free Trade Agreements (FTA) with preferential access to 50 economies position Mexico as a preferred location for investment projects as reflected in an inflow of Foreign Direct Investment (FDI) in the automotive industry². Between 2008 and 2019, FDI flows to the industry experienced an annual average growth rate of 11.6% in real terms³.

Pascal Lamy
President of the Paris Peace Forum of the French Committee of the PECC
Former Director General of the WTO
&
Eduardo Pedrosa
Secretary-General, Pacific Economic Cooperation Council*

Even as some economies begin to relax their lockdowns, it is too early and too much is unknown to realistically assess the economic impact. The consequences of this crisis have been and will be felt across every aspect of human life. Although many uncertainties remain, whether sanitary, economic, social or political, we must make our best efforts to figure out what a post-crisis life might look like and prepare for it.