APEC Conference “Building APEC Economies’ Capacities of Employing Input-Output Tables for Advanced Economic Modeling”

24-25 November 2011, Singapore

Christophe Degain, WTO

The impact of global supply chains on trade:

Towards a measure of trade in value added and implications for trade policy

Global supply chains (GSCs) and world trade Ins and outs

International consumer demand

Export processing zones

Development of infrastructure and technological progress

Lower applied tariffs and trade policy incentives

Outsourcing and offshoring strategies and Foreign Direct Investment (FDI)

Emergence of “Trade in tasks”:

Need for new statistical measures of international trade

Global supply chains and world trade

• Increase of processing trade

• Predominance of trade in intermediate goods

• Development of intra-firm trade

Use and impact for trade analysis and policy

Sources: ILO and WTO

Global supply chains and world trade Export processing zones (EPZs) account for about 20 % of total merchandise exports of developing economies

economies with EPZs

(2006 or most recent year)

Global supply chains and world tradeIntermediate goods dominate world non-fuel

merchandise exports

Sources: UNSD and WTO

2009 value

Bill

ions

of

US$

Global supply chains and world trade The rise of intra-firm trade

Source: US BOP

US exports of private services, 1999-2010 (Millions of US$)

Trade in value addedTowards a new measure of international trade

Traditional trade statistics present some biases:• Multiple counting of trade flows in intermediate goods and

services• Difficult attribution of the country of origin of an imported product

Using I-O tables and measuring trade in value added terms allows:• To circumvent the biases observed with traditional statistics• To take into account the specificity of trade occurring between the

different actors of a production chain• To decompose the value added of exports into its domestic and

foreign contents

Implications of GSCs and trade in value added on trade policy

The concept of country of origin in question

Source: Meng and Miroudot

Source: WTO, based on Shih S. , Business Week (May 16, 2005)

Marketing

Brand

Innovation

Design

R&D

Standardization

InnovationR&D

Design

Added Value

Manufacture

Logistics

Marketing

Brand

Standardization

Manufacturing process

Logistics

AssemblyManufacture

Assembly

Customer

services

Customer services

Services

Implications of GSCs and trade in value added on trade policy

A better evaluation of the role of services in GSCs

Goods Servicesand services

Source: Meng and Miroudot, based on Xing and Detert (2010)

Implications of GSCs and trade in value added on trade policy

Bilateral trade balances revisited

Some evidence on the interdependency of economies within GVCs :• Exports of manufactured goods rely on imported inputs (goods and services)• Domestic VA is present not only in exports but also in imports (“Circular

trade”)• So called “national products” may be predominantly produced in other

countries, while products of foreign trademarks may be manufactured in the domestic market

Protectionist measures …• Tariffs increase• Anti-dumping measure• “Buying national” engagement

… can have counter-productive effects on economies and enterprises they are supposed to protect:• Reduction of the capacity of national firms to join GVCs• An increase of the cost of imported inputs affects national companies

involved in international production chains, as well as the functioning or competitiveness of the chain itself !

Implications of GSCs and trade in value added on trade policy

Trade barriers versus competitiveness

Implications of GSCs and trade in value added on trade policy Estimating the effective protection of sectoral domestic value added

Source: Diakantoni and Escaith, WTO (forthcoming 2012). Preliminary data, based on WTO tariffs and IDE-JETRO input-output databases

Supply shock from Japan to: a China Indonesia Korea Malaysia Philippines

Chinese Taipei

Thailand USA Average

b

(all economies)

Chemical products 0.7 0.3 2.2 2.1 1.0 3.2 1.0 0.3 1.4

Petroleum and petro products 0.1 0.0 0.0 0.7 0.3 0.1 0.0 0.1 0.3

Rubber products 0.6 0.6 1.7 1.1 1.2 2.6 1.3 0.4 1.3

Non-metallic mineral products 0.5 0.4 0.8 1.3 0.7 1.2 1.2 0.2 0.9

Metals and metal products 1.0 1.4 2.8 4.5 2.2 3.6 2.7 0.4 2.4

Industrial machinery 1.4 4.9 2.9 3.1 2.3 5.0 7.5 0.6 3.5

Computers and electronic equipment

3.6 1.5 3.0 4.3 7.4 5.6 5.7 0.8 3.9

Other electrical equipment 2.3 1.4 3.0 4.3 1.9 5.2 6.3 0.6 3.2

Transport equipment 1.4 1.6 2.9 3.8 2.1 3.4 5.8 1.0 2.8

Other manufacturing products 0.9 1.0 2.7 2.4 1.2 4.2 1.7 0.4 1.8

Average (all sectors) b 1.2 1.3 2.2 2.8 2.0 3.4 3.3 0.5 2.2

Implications of GSCs and trade in value added on trade policy

Analysing the transmission of macro-economic shocks

Sectoral transmission of a supply-driven shock emanating from the Japanese industries

(selected countries and sectors, 2008)

Notes: a/ Percentage increase in sectoral domestic production costs resulting from a 30 per cent raise in the price of intermediate inputs imported from Japan. Results higher than 2% are highlighted in red. b/ Simple average.

Source: adapted from Escaith and Gonguet, (2011), based on IDE-JETRO Asian Input-Output tables.

• Comparative advantage: trade in value added reveals that comparative advantage applies more to tasks than to final goods

• Trade and employment: the value added approach is relevant to estimate the “job content” of trade

• Trade and environment: I-O tables can help estimating countries’ CO2 emissions associated with trade and their potential impact on climate change

• Exchange rate policy: lower impact of currency revaluation on rebalancing trade imbalances

Implications of GSCs and trade in value added on trade policy

Others policy implications

Future challenges and the WTO MIWI initiative

Developing and improving the statistical tools used for trade in value added analysis• Development of standardised National Input-Output tables• Compilation of International Input-Output tables• Improving trade statistics: firm-level data, Services statistics

Trade in value added• Towards an internationally agreed methodology and the production of

trade in value added indicators to assist trade policy • Going beyond trade in value added: an income-based approach

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The WTO Made In the World Initiative (MIWI) at http://www.wto.org/miwiA place for discussion and sharing of experiences and information (working papers, publications,…) on trade in value added for statistical issues and trade policy matters

Contact and questions: christophe.degain@wto.org