1. Measuring Trade in Value Added: Trade in Tasks and Employment Hubert Escaith WTO WTO PUBLIC FORUM 2012 - Session 14 Value Chains, Labour Rights and Development 25 September 2012

2. From Trade in (final) Goods to Trade in Tasks: Global Production Networks, Outsourcing and Offshoring Production as a Network: From Taylorism to Toyotism, Make-or-Buy decision: First from the firm to the local market (local outsourcing) and then to the global market (international outsourcing, offshoring) Consequences on production structure: Some industrial jobs are outsourced to services within the same country (terciarization of industrial jobs) Some tasks are internationally outsourced/offshored: – Creating new trade flows in intermediate goods and services – Leading to a much faster industrialization of export-oriented developing countries Many manufactured goods are the product of international supply chains and are actually Made in the World

3. How to Measure Trade in Tasks: The Value Added Content Why? Why? – The value of intermediate goods is double counted each time the supply chain crosses national borders – All final value accrues to the last country of assembly, irrespective of the true origin of the value-added What is Value Added? What is Value Added? – The remuneration of the workers and shareholders, the compensation of capital, indirect taxes. How to Measure it in International Trade How to Measure it in International Trade a)Case studies: iPhone, Nokia, … b)National database on trade by enterprise characteristics: EUROSTAT and some other (mainly OECD) countries c)Inter-Countries Input-Output Tables: IDE-JETRO, OECD/WTO, USITC, WIOD, …

4. The statistical approach adopted by OECD/WTO Disentangling domestic and foreign value-added in global value chains – The value of a product can be decomposed according to the country where the value is added. – Trade flows in value-added terms can be estimated (from the point of view of an exporter or of an importer) Gross exports can be decomposed into: 4 Direct domestic value-added in the export industry Indirect domestic value-added generated via purely domestic transactions, broken down by all domestic industries. Indirect imported value-added (broken down by producing country and industry). Indirect domestic value-added embodied in imports (broken down by all domestic industries) Domestic value added Foreign value-added In process (2013), will cover about 50 countries from OECD and emerging countries.

5. Made in the World Initiative and OECD/WTO project to Measure Trade in Value Added What have we learnt so far? Excluding oil and fuel, more than 50% of trade is in intermediate goods 75% to 80% of total world trade is actual value-added More services are traded and more SME participation when accounting for indirect VA imbedded in manufacture exports OECD countries still count of a large share of total VA Bilateral trade balances are significantly reshuffled (ex. the size of the China-US deficit is halved) Emerging Countries Revealed Comparative Advantage in High Technology products is scaled down Jobs implications may differ between Industrialised and Industrializing Countries …

6. In all 18 OECD countries surveyed, the share of Low Skill wages in total production cost has decreased in all countries between 1997 and 2007. Some countries rebalanced the decrease in low skill workers by a higher share of Medium Skills, but most countries reduced also their weight. During the 10 years, in all OECD countries the share of High Skilled workers increased Source: HE based on WIOD data

7. Source: OECD (2012) Policy Priorities for International Trade and Jobs

8. From Trade in Value Added to Labour Content: Skills reflect comparative advantages When differentiating traded Value Added and workers compensation by skill levels: - Japan and Korea are net importers of VA created by low-skilled workers - Korea was still importing Medium Skills in 1995, but moved to net exports in 2006 - China is a net exporter of low-skilled tasks and an importer of medium and high skills. Remark: more VA may not mean more jobs if implicit wages are higher (if required tasks are more complex skills, calling for higher skill premium) Source: WTO/IDE-JETRO on the basis of WIOD

9. Wages in Asian Export Processing Zones: Wages in Asian Export Processing Zones: at or above national average, with higher skill premium Source: OECD