1

Globalization of trade flows

-- what you see is not what you

get --

2nd WPTGS meeting, OECDParis, 16.-18.11.2009

andreas.maurer@wto.org

2

Global economic crisis - decomposition of trade flows (wysinwyg)

Trade and Production: Import content of exports -- statistical measurement

Economic importance

Statistical measurement

Case studies --Trade & Business Links

Direct measurement

Indirect measurement

Trade: Goods for processing

Economic importance

Statistical measurement in BPM6/IMTS2010 Intra-firm trade

Economic importance

Statistical measurement in SNA 2008/BPM6/IMTS2010

Provisional Outline

3

Growth rates of merchandise trade by region, Q1 2009

Global economic crisis

Quarterly percentage change in world merchandise exports by region

-50.0

-45.0

-40.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

World North

America

South andCentral

America Europe Asia Others

2008Q4

2009Q1

Quarterly percentage change in world merchandise exports by region

-50.0

-45.0

-40.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

World North

America

South andCentral

America Europe Asia Others

2008Q4

2009Q1

... but second quarter world exports increased 8% (q/q)

4

5

Import content of exports – trade in value

addedThree ways of measuring the fragmentation of the value chain

1 Using firm surveys

2 Foreign trade statisticsThe increase in the share of parts and components in trade flows indicates more production-sharing between countries.

3 Using international input-output tables to depict inter-industry relations. I-O shows how the output of one industry is an input to each other industry. Input is enumerated in the column of an industry and its outputs are enumerated in its corresponding row. International I-O extends the inter-sectoral relations to several countries. It shows how dependent each national industry is on all other sectors from the domestic economy and from other partner countries, both as customer of their outputs and as supplier of their inputs.

International I-O is conceptually very simple, but requires high-quality data. It is a powerful modeling tool for:

Measuring size/magnitude of production linkages and the “length” of the chains Computing Vertical Specialization IndexTracking the international transmission of demand/supply shocks

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The “American car”*

only 3737 per cent of the production value is generated in the US

•30 per cent go to Korea for assembly

•17.5 per cent to Japan for components and advanced

technology

•7.5 per cent to Germany for design

•4 per cent to Chinese Taipei and Singapore for minor parts

•2.5 per cent to the UK for advertising...

•1.5 per cent to Ireland and Barbados for data processing...

... and that was in 19981998

* Grossmann, G. Rossi-Hansberg, E. The Rise of Offshoring, It’s not wine for cloths anymore

Firm surveys Trade and business links ?

7

Trade in intermediate goods, 2008

Share of intermediate goods in non-fuel merchandise trade, 2008

0% 10% 20% 30% 40% 50% 60% 70% 80%

World

China

China, Hong Kong

Costa Rica

Czech Rep.

Germany

Indonesia

Malaysia

Taipei, Chinese

Import

Export

Share of intermediate goods in non-fuel merchandise trade, 2008

0% 10% 20% 30% 40% 50% 60% 70% 80%

World

China

China, Hong Kong

Costa Rica

Czech Rep.

Germany

Indonesia

Malaysia

Taipei, Chinese

Import

Export

8

Trade in services – offshoring/tasks

• Estimating the size of offshore outsourcing is subject to definitional and statistical

challenges

• Classifications do not distinguish services to end-use clients or intermediate, or

business-to-business services.

Consequently, estimates vary

- 2005: OECD's and UNCTAD include all IT-enabled services, estimate at US$836 billion.[1]

- 2007/8 UNCTAD estimated the value of trade in "IT-enabled" services at US$1.1 trillion in 2005, ...[2]

- London School of Economics[3] estimates global market of offshore outsourcing of IT (ITO) and business process services (BPO) to exceed US$55 billion in 2008, 20 per cent increasing annually over next five years. - Leading recipients of IT and business process off-shored trade have been Brazil, Russia, India, and China. India’s exports US$40 billion, China, Russia, and Brazil US$5 billion, US$3.65 billion, and US$800 million respectively in 2008.

-------------------------------------------------------------[1] OECD, "Expanding International Supply Chains: The Role of Emerging Economies In Providing IT

and Business Process Services", Working Paper No. 52, May 2007.[2] UNCTAD, Information Economy Report 2007-2008. UNCTAD.

[3] Willcocks, Griffiths, and Kotlarsky, Beyond BRIC: Offshoring in non-BRIC countries: Egypt – a new growth market, LSE Outsourcing Unit, January 2009.

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Asian Input-Output tables (IDE-Jetro)

Leontief inverse

= (I-A)-1

Vertical trade (import content of exports)

= M * (I-A)-1 * X

A: technical coefficients matrixI: identity matrixX: export vectorM: vector of shares of import per sector in sector output

Using Input-Output tables to measure vertical trade

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An alternative measure of bilateral US trade deficit with ChinaAn alternative measure of bilateral US trade deficit with China

US-China trade balance(Million dollars and percentage) 2000 2008 *

Exports to China (traditional statistics) 16252 71456USA's share of domestic content in exports (%) 84 81Exports to China (adjusted) 13652 57880

USA imports from China (traditional statistics) 107615 356305China's share of domestic content in exports (%) 76 73USA imports from China (adjusted) 81787 260102

Trade balance (traditional statistics ) -91362 -284848Trade balance (adjusted) -68135 -202223Ratio trade balance (adjusted / traditional) (%) 75 71

* Excluding construction.

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Goods for Processing

(Balance of payments data, in billion dollars)

Source: IMF Balance of Payment statistics partially completed with WTO estimates for missing data.

The importance of goods for inward processing in developing economiestotal exports and imports (minimum approximation), 2000-2008

Exports, BOP basis

0

1000

2000

3000

4000

5000

6000

2000 01 02 03 04 05 06 07 2008

Goods resulting from inward processingOther goods

Imports, BOP basis

0

1000

2000

3000

4000

5000

6000

2000 01 02 03 04 05 06 07 2008

Goods for inward processingOther goods

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Goods for Processing China's trade by customs regime and type of enterprise, Jan-Jul 2009/08(Billion US dollars)Value JJ2009 JJ2008

Exports Imports Exports Imports1 Ordinary 627 520 803 6792 Processing&Assembling 49 39 64 553 Procesing&Assembling with imported material 252 123 320 169

of which FOE4 Processing&Assembling 21 20 27 285 Procesing&Assembling with imported material 172 88 216 121

Shares(2+3)/1 0.48 0.31 0.48 0.33(4+5)/1 0.31 0.21 0.30 0.22

(3/1) 0.40 0.24 0.40 0.25(5/1) 0.27 0.17 0.27 0.18

(4/2) 0.43 0.50 0.43 0.52(5/3) 0.68 0.72 0.68 0.71(4+5)/(2+3) 0.64 0.67 0.64 0.67Growth JJ09/08Ordinary -22 -23Processing&Assembling -23 -29Procesing&Assembling with imported material -21 -27

of which FOEProcessing&Assembling -23 -31Procesing&Assembling with imported material -21 -27

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Goods for Processing

US$ billions, 2007 BPM5 Adjustment BPM6

Exports of goods 1220 -618 602

Imports of goods 905 -352 553

Goods trade balance 315 -266 49

Exports of services 122 266 388

Imports of services 130 130

Services balance -8 266 258

Balance on goods and services

307 307

Current account balance 372 372

Source: IMF, BOPCOM,-08/11

A fictive example, China 2007

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ExampleExample Manufacturing services that change the condition of the Manufacturing services that change the condition of the

goodsgoods

ResidentEconomy A

ResidentEconomy B

ResidentEconomy C

ResidentEconomy D

Goods & Services Account: Economy A

• General merchandise (with B): 10 DR• General merchandise (with D): 30 CR

• Manufacturing services on physical inputs owned by others (with C): 15 DR

1

10 (for acquiring raw oil from B)

15 (for refining oil by C)

30 (for refined oil by C on behalf of A)

3

5

Money flow

Raw oil (acquired by A previously)

Owner: A 2

4 Refined oil, delivered by C on behalf of A),

owner: A

Goods flow

Services Account: Economy C

• Manufacturing services (15 CR)

Goods Account: Economy B

• Goods exports to A (10 CR)

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The application of the new BPM6 recommendations can lead to significant divergences in trade aggregates

Fear: the BOP treatment may lead to a loss of data in merchandise as principal data source

Alter statistical description of an economy’s economic structure: shift between goods and services, structure of industries/output ratios/ productivity measures

Data collection: revision of questionnaires, register links, need for sound compilation guideline

Warn users against break in series, consistency of time series (ratios, shares and rankings change)

for users: will link between int’l. trade and production be less ambiguous? Where is the limit between goods for processing and manufacturing?

Goods for Processing

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Intra-firm trade

0

100000

200000

300000

400000

500000

600000

700000

Value

1997 1999 2001 2003 2005 2007

Years

Intra-firm share in US total private services, 1997-2007

total private services

intra-firm

0

100000

200000

300000

400000

500000

600000

700000

Value

1997 1999 2001 2003 2005 2007

Years

Intra-firm share in US total private services, 1997-2007

total private services

intra-firm

Anecdotal evidence:

• One-third of all [merchandise] trade is within companies

• for the US in 2006, 37 to 38 per cent of its trade in merchandise is intra-firm (Akram/Khan/Holady study)

• and 28 per cent of its trade in services is intra-firm (2007)

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Intra-firm tradeIntra-firm trade

• 2008 SNA In principle, items transferring across borders should be valued at “arm’s

length” prices

• BPM6 (10.150) Services for the general management of a

branch/subsidiary/associate...included in other business services

• IMTS 2010 (draft): ...transactions between related parties (whatever the definition of “related")

should be included in international merchandise trade statistics the same way as if these transactions would take place between unrelated parties...

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IMTS 2010 – mode of transport, country of consignment, imports (fob), goods for processing, intra-firm trade

MSITS 2010 – other business services, mfr services on inputs owned by others

More research needed into trade in value added

Intermediate goods

I/O approach

New data sources: trade and business links

Conclusions