APEC Conference “Building APEC Economies ’ Capacities of Employing Input-Output T ables for Advanced E conomic

1. The impact of global supply chains on trade: Towards a measure of trade in value added and implications for trade policy APEC Conference “Building APEC Economies’ Capacities of Employing Input-Output Tables for Advanced Economic Modeling” 24-25 November 2011, Singapore Christophe Degain, WTO

2. Global supply chains (GSCs) and world trade Ins and outs International consumer demand Emergence of “Trade in tasks”: • Increase of processing trade • Predominance of trade in intermediate goods • Development of intra-firm trade Lower applied tariffs and trade policy incentives Global supply chains and world trade Development of infrastructure and technological progress Need for new statistical measures of international trade Export processing zones Outsourcing and offshoring strategies and Foreign Direct Investment (FDI) Use and impact for trade analysis and policy

3. Global supply chains and world trade Export processing zones (EPZs) account for about 20 % of total merchandise exports of developing economies (2006 or most recent year) economies with EPZs Sources: ILO and WTO

4. Global supply chains and world trade Intermediate goods dominate world non-fuel merchandise exports Billions of US$ 2009 value Sources: UNSD and WTO

5. Global supply chains and world trade The rise of intra-firm trade US exports of private services, 1999-2010 (Millions of US$) Source: US BOP

6. 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

7. Implications of GSCs and trade in value added on trade policyThe concept of country of origin in question Source: Mengand Miroudot

8. Implications of GSCs and trade in value added on trade policyA better evaluation of the role of services in GSCs 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)

9. Implications of GSCs and trade in value added on trade policyBilateral trade balances revisited Source: Meng and Miroudot, based on Xing and Detert (2010)

10. Implications of GSCs and trade in value added on trade policyTrade barriers versus competitiveness • 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 !

11. 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

12. Implications of GSCs and trade in value added on trade policyAnalysing 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.

13. Implications of GSCs and trade in value added on trade policyOthers policy implications • 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

14. 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 • ------------------------------------ • The WTO Made In the World Initiative (MIWI) at http://www.wto.org/miwi • A 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