Measuring Trade in Value-Added Paris, November 2011 Measuring Trade in Value-Added OECD Working Party on Trade in Goods and Services Paris, November 2011 Contact:

Trade in Value-Added Increasing recognition that gross estimates of trade may create ‘misleading perceptions’ (Pascal Lamy), and imperfect policies in a number of areas, including: – dealing with bilateral trade imbalances –dealing with the impact of macro-economic shocks on supply-chains –understanding the importance of trade to jobs Leading to a call for new metrics that better respond to these issues. 2

3 The iPod Distribution of the value added 299 US$ –75$ profit to US (Apple) –73$ whls/retail US (Apple) The Apple iPod = 299$ of Chinese ‘exports’ to US –75$ to Japan (Toshiba) –60$ 400 parts from Asia –15$ 16 parts from the US – 2$ assembly by China

Responding to needs IO tables provide a means to respond to these developments by measuring interconnectedness of trade and trade in value-added terms. A number of initiatives have been launched using interconnected IO tables ( a world IO table). Including a two-year project of the OECD (STD/TAD/STI). 4

International Collaboration Various initiatives pooling resources to identify best practices for allocation of bilateral trade flows within IO tables. But recognition: that a long-term approach is needed to ‘institutionalise’ estimates of trade in value-added. And that its international nature requires the involvement of an international agency or international consortia. Formalising collaboration with WTO and IDE-JETRO, and exploring closers links with USITC, UNSD &World Bank. 5

Indicator & data sharing with IDE- JETRO and WTO in TiVA Project Value added in trade “headline” indicator: bilateral flows; by sector to the degree possible. Common to WTO and the OECD: publically available Input-Output tables, methodological assumptions and bilateral trade flow data OECD “analytical” data on trade in services, trade by enterprise, intangibles and income flows. Shared by OECD and IDE-JETRO OECD only

7 What do we know now: Import contents of exports (2005) Source: OECD Inter-country inter-industry model (March 2011)

Import contents of exports 8 Source: OECD Inter-country I-O model, 2011

And globalisation continues apace As production processes continue to become more fragmented and chains become more interconnected. Processing trade increasing in China. Driven by technological advancement, reduced transaction costs and trade policy reform. Reinforcing the need for on-going and robust estimates 9

Work Plan Estimates can be produced now, but necessarily require assumptions relating to BTD IO flows. Much of the work over next two years will be in improving the nature of these assumptions, by: Developing improved estimates of BTD by Industry and End-Use Improving BTD by services Using firm-level micro data Decomposing value-added into ‘labour’ and ‘capital’ flows. Contribution of intangibles (R&D and software) And investigating the scope to trace property income flows. 10

Chinese High Tech Exports by Ownership (% of the total)

Source: OECD STI Scoreboard Data on intangible investment are based on COINVEST [ and national estimates by researchers. Data for fixed investment are OECD calculations based on OECD, Annual National Accounts and EU KLEMS Databases, March Tangibles vs. intangibles Investment in fixed and intangible assets as a percentage of GDP, 2006

What can WPTGS do? Support the initiative & related developments especially in: – Improving bilateral trade flows, particularly in services – More detailed IO tables? Linking business statistics and trade registers (TEC) –Breakdowns by »Export intensive »Import Intensive »Export-Import Intensive »Processors? »Foreign/domestic ownership? 13