# _New global trade patterns_

While it is difficult to define and measure precisely and univocally what is meant by trade within GVCs, we can provide assessments of its importance through proxies. The importance and evolution of trade within transnational corporations (TNCs) and of vertical trade, or trade in intermediates, are useful references: the rise of GVCs suggests that trade in “customized” intermediates should be increasing in relation to “generic” products or commodities (Sturgeon and Memedovic, 2011) and that part of this trade takes place within conglomerates.

Intra-firm trade has increased in recent decades (Lanz and Miroudot, 2011). UNCTAD estimates that nowadays 80% of trade involves TNCs (UNCTAD, 2013). Meanwhile, vertical trade (between affiliated companies or at arm’s length) explains most of the growth in world trade (Yi, 2003), more than half of world-manufactured imports are intermediate goods – i.e. primary goods, parts and components, and semi-finished products – (WTO, 2011), and more than 70 percent of worldimported services are intermediate services (Miroudot, Lanz and Ragoussis, 2009).

Trade patters also tend to be complex and multi-country. Evidence from the OECD-WTO (2013a) suggests that typically, about one-third of the imported intermediate goods are destined for the export market, with higher ratios in smaller economies (e.g. up to two-thirds for a country like Hungary) and in certain sectors (e.g. the foreign content of electronic goods exports was 40% in China and Korea, and up to 60% in Mexico).

Finally, services play an important role. While services trade has long been underestimated, recent analysis suggests that services typically represent more than one-third of the value of exports in most manufacturing sectors. Added to the value of trade in services itself, services represent more than half of the value of exports for most OECD countries, and a third of the exports of an emerging country like China (OECD-WTO, 2013a).

# _Changing paradigms_

The emergence of GVCs and new trade patterns suggest the revision of public strategies aimed at fostering competitiveness as well as of trade and development policies at large. In particular, four major paradigm changes could be taken into account (Cattaneo and Miroudot, 2013):

- (1) The change of relevant strategic framework, from countries to firms and GVCs. Competitiveness strategies should be tailored to trade and industrial organizations. Countries are not the relevant framework for analysis anymore; policy makers should think business and think global - or at least regional. A country cannot develop a competitive offer of goods or services in isolation. This implies that:

- Imports are not an expression of foreign competitiveness, but rather a means for firms to access the most efficient inputs and free resources to focus on core competences.

- Following business practices, policy should treat trade and FDI, both inward and outward, in an integrated framework.

- (2) The change of relevant economic framework, from industries to tasks and business functions. The objective is not to develop domestic industries that would capture all the segments of production or the whole value chain; it is to:

- Identify the country’s best position in the GVC and the most competitive supply of tasks or business functions;

- Acknowledge that an efficient manufacturing sector requires efficient and competitive services as well as a skilled workforce and continuous innovation in products, processes and business models. Services such as financial intermediation, R&D, logistics, and marketing are necessary to produce higher value added manufactures.

- (3) The change of relevant economic assets, from endowments and stocks to flows. International competition is increasingly vertical, and firms are at the same time competitors and sources of key inputs and competences to each other. In this context, GVCs have become the main channel

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