Commentaries

WTO releases new statistical profiles on global value chains

The WTO has released new statistical profiles on global value chains (GVCs) for 61 economies. These profiles, available on the WTO website, bring together a set of indicators on trade taking place within GVCs.

The WTO has released new statistical profiles on global value chains (GVCs) for 61 economies. These profiles, available on the WTO website, bring together a set of indicators on trade taking place within GVCs.

Using data from the OECD-WTO Trade in Value-Added database (TiVA), these profiles provide insights into the actual contribution of foreign trade to an economy (the value-added content of exports), the interconnection between economies within GVCs and the role of the services industry in exports. Other indicators related to GVCs include trade in intermediate goods, trade facilitation and foreign direct investment.

Explanatory notes contain definitions and additional information for the interpretation and use of the indicators. The number of profiles available as well as the partners and industries shown in the tables reflect the current coverage of the TiVA database, which will be progressively extended in the future.

Measuring Trade in Value Added: An OECD-WTO joint initiative

What is Trade in Value-Added?

Trade in value-added describes a statistical approach used to estimate the sources of value (by country and industry) that is added in producing goods and services for export (and import). It recognises that expanding GVCs mean that a country’s exports increasingly rely on significant intermediate imports i.e. value added by industries in upstream countries.

For example, a motor vehicle exported by country A may require significant parts, such as engines and seats, produced in other countries. In turn, these countries will use intermediate inputs imported from other countries, such as steel and rubber, to produce the parts exported to A. The trade in value added approach traces the value added by each industry and country in the production chain and allocates the value added to source industries and countries.

Why is it important?

  • To reveal the underlying economic significance of exports and to reveal the importance of imports in producing exports: Traditional measures of trade record gross flows of goods and services each and every time they cross borders. This ‘multiple counting’ of trade may overstate the importance of exports to GDP. Moreover because, in an accounting sense, imports are treated as a negative item for GDP, gross statistics for imports can paint a misleading picture of their importance to economic growth and competitiveness. They do not for example reveal the role played by imports as inputs for exports. Equally they are not able to reveal the extent of a country’s own value added that is returned in its imports.
  • To better reflect who trades with who and the nature of interrelationships between emerging and developed economies: In the same way, conventional bilateral trade statistics do not typically reflect the full scale of GVCs. A reporting country will record the partner country for its exports on the basis of where the goods and services are directly exported. These exports will in turn be further processed by the importing country before, often, being exported again to another country, either as final goods or as further intermediate goods. Countries towards the beginning of value-chains (upstream) will have direct bilateral trade relationships with countries one step further down the value-chain (downstream) but may have little direct bilateral trade relationships with foreign consumers who purchase the final goods and services. Therefore conventional measures of trade are not able to reveal how changing demand by households, governments and investment in one country impact on value added generation in other countries. Typically, this means that conventional measures of trade do not reflect the full interdependence of markets and the interdependencies of emerging and more developed economies.
  • To provide more meaningful measures of bilateral trade balances: This different perspective on bilateral trade relationships also has an impact on bilateral trade balances. Countries, for example, at the end of value-chains, may record lower surpluses with their direct export markets and lower deficits with their major sources of imports; reflecting the fact that a country at the end of a value chain acts as an ‘intermediary’ for value-added generated elsewhere in producing intermediate goods and services.
  • To better reflect the contribution made by services: Goods dominate ‘traditional’ international trade statistics (accounting for about 80% in current prices). But this masks the important role played by services in creating goods. For example, returning to the motor vehicle example, significant intermediate inputs are provided by country A’s domestic service providers such as finance, insurance, research and development, accounting and other business services. Trade in value added estimates reveal the important contribution made by the services sector (domestic and foreign) in producing goods for export, and so provide better measures of the sources of international competitiveness.

What is value added?

Value added reflects the value that is added by industries in producing goods and services. It follows the definition of value-added (in basic prices) used in the 1993 System of National Accounts (SNA93) and is equivalent to the difference between its output (in basic prices) and the sum of its intermediate inputs (in purchasers prices) of goods and services. It is equivalent to the compensation for labour (Compensation of Employees) and compensation for capital (Operating Surplus), and also includes a component for ‘Other taxes on Production’. Definitions of Basic Prices, Purchasers Prices, Compensation of Employees, Operating Surplus, and Other Taxes on Production also follow the definitions in the SNA93.

How is trade in value added measured?

The approach relies on the construction of annual input-output tables for the world. These are based on official national input-output tables (IOTs) and national supply and use tables (SUTs). National IOTs reflect the interrelationships between domestic industries and also between industries and final demand categories (households, government, investment and exports as well as changes in inventories). They also reflect how intermediate imports are used in producing goods and services and how imports of final goods are consumed.

However, national IOTs are not able to reflect how the intermediate consumption of an industry in one country drives output in another. Using bilateral trade statistics it is possible to estimate these flows. The global tables produced by the OECD, the Inter-Country Input-Output (ICIO) database, includes national IOTs for 61 countries. The Rest of the World component is estimated using information on world GDP and input-output relationships observed in a selection of developing economies. The industry level of detail used covers 34 industries.

Dealing with asymmetries in official bilateral trade statistics

It is well-known that international trade statistics produced by national authorities are not globally consistent: total global gross exports do not equal total global gross imports. Inconsistencies are greater when bilateral trade flows in goods and services are considered and larger still when such flows are compared at a detailed product level. Even if total gross exports reported by country A to country B match reported imports from country A by country B, there may still be differences when these flows are looked at on a product by product level.

The construction of the OECD ICIO tables used to produce TiVA indicators, by necessity, attempts to resolve these inconsistencies under the constraints of SNA total trade in goods and services (adjusted for re-exports and purchases by non-residents) and drawing on available estimates of exports and imports in national IOTs and SUTs.

The efforts in balancing trade data has informed dialogue with national statistics institutions as part of on-going international efforts to reconcile international trade statistics; particularly in the area of trade in services where official statistics on bilateral trade data are notoriously weak. The balancing does not introduce any directional or structural bias but, clearly, the quality of TIVA results will be significantly improved as global inconsistencies reduce. This is not expected to have a significant impact on overall foreign content estimates broken down by industry but bilateral trade in value-added estimates may be affected.

What are the plans going forward?

The intention of this initiative is to mainstream the production of Trade in Value-Added estimates and make their production a permanent feature of the international statistics system. Work will continue to improve the coverage of countries, industries and years as well as increase the range of indicators available for policy analyses. In addition, work is already underway to improve the quality of the results, via a number of initiatives including: on-going efforts with international and national partners to improve bilateral trade in services statistics and, via OECD Working Parties and networks of official statistics, efforts to better account for the heterogeneity of firms (e.g. exporters versus non-exporters) within input-output tables.

In addition the OECD is developing estimates of “Trade in jobs” – reflecting what type of jobs (skills) and how many are affected by international trade and foreign final demand – and, developing an accounting framework to measure “Trade in Income” in recognition that knowledge based assets play an increasingly important role in value added creation. Where knowledge is ‘owned’ by foreign affiliate firms, the value added will be recorded in the country where the knowledge resides but profits will often be repatriated elsewhere. Measuring these flows will form an important part of the research programme in coming years.

Source: WTO

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