XIV International Academic Conference on Economic and Social Development

1. Trade in value added: concepts, methodologies and challenges XIV International Academic Conference on Economic and Social Development National Research University Higher School of Economics (HSE) 2-4 April 2013, Moscow Christophe Degain, WTO

2. Presentation outline • Global Value Chains (GVCs)and world trade - Ins and Outs • Towards a new measure of trade in value added terms • The statistical tools • Two main concepts • The new OECD-WTO TiVA database • Implications of GVCs and trade in value added on trade policy • Going forward with the OECD-WTO TiVA database

3. GVCs and world trade - Ins and Outs Development of infrastructure and technology Lower applied tariffs and trade policy incentives Outsourcing/Offshoring strategies and FDI International consumer demand Export processing zones Global Value Chains Emergence of “Trade in tasks”: • Predominance of trade in intermediate goods • Development of intra-firm trade • Increase of processing trade • Policy impact • Need for a new angle of trade analysis • Need to adapt trade regulation to business reality • Impact on statistics • Revision of international statistical concepts • Need for new measures of international trade taking place within GVCs

4. Towards a new measure of trade in value added termsSome advantages of the value added approach Traditional 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 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

5. Towards a new measure of trade in value added termsThree approaches to measure trade in tasks or in value added

6. Towards a new measure of trade in value added termsThe use of International Input-Output (II-O) tables • Advantages of II-O tables • Identification of the origin and use of intermediate goods and services produced and traded amongst countries and industries (intermediate demand matrix) • Enable to take into account backward linkages between countries and industries (Leontief inverse matrix) • Coverage of all of goods and services • Some limitations • Assumptions applied during the construction phase of II-O tables (production assumption, proportionality assumption, dealing with inconsistencies of official trade statistics) • Aggregated sectoral level only, not product or firm level • Benchmark years only (every 5 years) • Some official II-O tables available: ICIO (OECD), WIOT (WIOD project), AIO (from IDE-JETRO), GTAP (Purdue University)

7. Towards a new measure of trade in value added termsTwo main concepts • The value addedembodied in grossexports: • Domestic value added content of gross exports • Foreign value added content of gross exports • The value addedcreated by final demand: • Domestic value addedembodied in foreign final demand • Foreign value addedembodied in domestic final demand

8. Towards a new measure of trade in value added termsWhere to find value added in gross trade flows ? (1/2) Source: WTO

9. Towards a new measure of trade in value added termsWhere to find value added in gross trade flows ? (2/2) Source: WTO

10. Towards a new measure of trade in value added termsThe OECD-WTO TiVA database • The rationale behind the TiVAdatabase: • Development of methodologies • Regular production of trade in value added indicators to support trade policy • Access to the TiVAdatabase: http://www.wto.org/miwior • http://stats.oecd.org/Index.aspx?DataSetCode=TIVA_OECD_WTO • Coverage of the OECD ICIO table: • Years: 2005, 2008, 2009 • 42 countries • 19 aggregatedsectors (ISIC Rev. 3) • Availabledata sets: • Gross exports • Value addedembodied in gross exports • Value addedembodied in final demand • Services value added content of gross exports • Revealed comparative advantage (grossvs value added) TiVA database new update coming soon with 57 countries

11. Implications of GVCs and TiVAon trade policySome traditional rules and principles in question The concept of country of origin: attributing the entire commercial value of an imported good to the last country of a production chain can be misleading Source: Meng and Miroudot

12. Implications of GVCs and TiVAon trade policySome traditional rules and principles in question The notion of comparative advantage: within GVCs, comparative advantage applies more to tasks than to final goods. Trade in value added enables to identify new comparative advantages, notably in the area of services. (see RCAs in the TiVA database) Source: WTO Secretariat estimates based on WIOD data, 2007

13. Implications of GVCs and TiVAon trade policyImporting intermediate goods and services to export Source: WTO Secretariat estimates based on WIOD data, 1995-2007

14. Implications of GVCs and TiVAon trade policyA better evaluation of the role of services in GVCs (1/2) Added Value Customer services Standardization Innovation Brand R&D Marketing Design Logistics Manufacture Assembly Services and services Services Goods Manufacturing process Brand Design R&D Customer services Logistics Assembly Marketing Innovation Manufacture Standardization Source: WTO, based on Shih S. , Business Week (May 16, 2005)

15. Implications of GVCs and TiVA on trade policyA better evaluation of the role of services in GVCs (2/2) Shares of domestic and foreign sectoral contributions in Russia exports of manufacturing products, 2008 Source: WTO estimates based on OECD ICIO table

16. Implications of GVCs and TiVA on trade policyBilateral trade balances revisited Sources: WTO estimates based on OECD ICIO table 2008

17. Going forward with the OECD-WTO TiVA databaseStatistical challenges and I-O modeling • Statistical challenges • Extending TiVA database coverage: countries, sectors, years and indicators • Improving data quality: • Trade statistics required for the construction of II-O tables (bilateral trade in services, inconsistencies of “Mirror” merchandise trade flows) • Standardization and development of national I-O tables and Supply-Use tables • Including official processing trade data in the II-O tables (e.g. for China, Mexico) • Further methodological developments • More trade in value added indicators • Fostering the use of Input-Output modeling to assist trade policy-making and reveal • the impact of trade and GVCs: • Trade and employment • Trade and environment • GVCs’ role in the propagation of macro economic shocks

18. Thank you - Спасибо! Link to the OECD-WTO TiVAdatabase: http://www.wto.org/miwi or http://stats.oecd.org/Index.aspx?DataSetCode=TIVA_OECD_WTO Twopublications for further details and analysis of GVCs and trade in value added. Free download from the MIWI website at http://www.wto.org/miwi WTO/IDE-JETRO joint publication: “Trade Patterns and Global Value Chains in East Asia: from trade in goods to trade in tasks” (2011) WTO/French Senate conference proceedings: “Globalization of industrial production chains and measurement of trade in value added” (2010) Contacts and questions:christophe.degain@wto.org or tiva.contact@oecd.org or miwifeedback@wto.org