The WTO Made in the World Initiative (MIWI): Global Value Chains and their impact on trade statistics

and trade policy

International Conference on Production Networks, Value-Added and Trade Statistics Reforms 25-26 September 2012, Beijing University, PR China

Christophe Degain, WTO

Disclaimer The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

1. 2. 3.

The reasons behind the WTO Made in the World Initiative (MIWI)
MIWI objectives and tools The implications of Global Value Chains (GVCs) and trade in value added on trade policy Statistical challenges and potential directions to measure and promote trade within GVCs

4.

Lower applied tariffs and trade policy incentives

Development of infrastructure and technology

Outsourcing/Offshoring strategies and FDI

Global Value Chains

Emergence of Trade in tasks: Predominance of trade in intermediate goods Development of intra-firm trade Increase of processing trade
Impact on statistics Revision of international statistical concepts Need for new measures of international trade taking place within GVCs Policy impact Need for a new angle of trade analysis Need to adapt trade regulation to business reality

The core objectives of MIWI are: To promote the development of trade in value added statistics (international
Input-Output tables, statistical methodology, co-operation with various organizations and institutes,)

To mainstream the implications of GVCs and the Made in the World reality on trade policy
The MIWI initiative is presented on the WTO website at http://www.wto.org/miwi

The MIWI web portal: Presents all WTO activities and output around trade in value added (papers,
publications, events, projects,)

Gives access to relevant papers and websites from the research and statistical community Provides a forum for discussion and exchange of experiences and practical approaches

 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

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

Some evidence of 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

The linkages of companies within GVCs facilitate the international propagation of macroeconomic shocks and natural disasters

can have counter-productive effects on economies and enterprises they are supposed to protect: Reduced 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 and competitiveness of the whole chain

Sectoral transmission of a supply-driven shock emanating from the Japanese industries (selected economies and sectors, 2008)
Supply shock from Japan to: Chemical products Petroleum and petro products Rubber products Non-metallic mineral products Metals and metal products Industrial machinery Computers and electronic equipment Other electrical equipment Transport equipment Other manufacturing products Average (all sectors)
b a

China 0.7 0.1 0.6 0.5 1.0 1.4 3.6 2.3 1.4 0.9 1.2

Indonesia 0.3 0.0 0.6 0.4 1.4 4.9 1.5 1.4 1.6 1.0 1.3

Korea 2.2 0.0 1.7 0.8 2.8 2.9 3.0 3.0 2.9 2.7 2.2

Malaysia 2.1 0.7 1.1 1.3 4.5 3.1 4.3 4.3 3.8 2.4 2.8

Philippines 1.0 0.3 1.2 0.7 2.2 2.3 7.4 1.9 2.1 1.2 2.0

Chinese Taipei 3.2 0.1 2.6 1.2 3.6 5.0 5.6 5.2 3.4 4.2 3.4

Thailand 1.0 0.0 1.3 1.2 2.7 7.5 5.7 6.3 5.8 1.7 3.3

USA 0.3 0.1 0.4 0.2 0.4 0.6 0.8 0.6 1.0 0.4 0.5

Average (all economies) 1.4 0.3 1.3 0.9 2.4 3.5 3.9 3.2 2.8 1.8 2.2

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.

Added Value

Customer services

Standardization

Innovation

Brand
R&D Design Manufacture Assembly Marketing

Logistics

Services

Goods and services

Services
Manufacturing process

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

United States-China trade balance - Traditional vs VA measure (billions of US$)

Sources: UN Comtrade Database, IDE-JETRO AIO table and WTO estimates

 Trade and employment: the value added approach is relevant to estimate the job content of trade. Since salaries constitute a major component of value added, the value added tells us exactly where jobs are created
Trade and environment: the measurement of trade flows in VA can support policymaking in the assessment of the environmental impact of trade Competitiveness: depends on the level of performance from various domestic sectors and from foreign input providers Exchange rate policy: with globalized production networks, traditional exchange rate policy may have low impact in rebalancing bilateral imbalances and may also involve side effects

 Developing case studies, at firm level or product level, to better understand the business reality of GVCs Moving up the value chain Realizing the role of Small and Medium Enterprises (SMEs) Developing and improving the statistical tools used for trade in VA analysis Development of standardised National Input-Output tables Compilation of International Input-Output tables Improving trade statistics: bilateral data, firm-level data, services statistics Towards an internationally agreed methodology and the production of official trade in value added indicators to assist trade policy 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

The reduction of international transaction costs To focus on the reduction of tariffs applied to intermediate goods and inputs exchanged within GVCs To promote the development of cost-effective infrastructure services and technologies intensively used by GVCs To adapt existing trade rules and measures To reform the rules of origin to better correspond to real trade patterns, technology and production processes To reconsider the way anti-dumping measures are decided, by better taking into account the costs and benefits of such measures for the domestic economy in a globalised world Trade facilitation To setup Business Friendlypolicies with favourable environment, such as tax incentives, appropriate infrastructure or qualified workforce: To attract FDI and comply with MNEs offshoring strategies To offer the opportunity to national companies, incl. SMEs, to join GVCs To intensify the creation of EPZs (a starting point for developing economies to join GVCs) To simplify and improve the timeliness of administrative procedures and customs practices Innovation and technology-oriented policies: enable to increase competitiveness and capture higher shares of value added within GVCs

Contact and questions: christophe.degain@wto.org

Two MIWI publications for further details and analysis of GVCs and trade in value added. Free download 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)