Measuring Trade in Value-Added OECD National Accounts Working Party Meeting Paris October 2011 Contact: nadim.ahmad@oecd.org 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 The iPod The Apple iPod = 299$ of Chinese ‘exports’ to US Distribution of the value added • 299 US$ – 75$ profit to US (Apple) – 73$ whls/retail US (Apple) – 75$ to Japan (Toshiba) – 60$ 400 parts from Asia – 15$ 16 parts from the US – 2$ assembly by China http://blogs.computerworld.com/node/5724 3 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. 5 Indicator & data sharing with IDEJETRO and WTO in TiVA Project Common to WTO and the OECD: publically available Shared by OECD and IDE-JETRO OECD only Value added in trade “headline” indicator: • bilateral flows; • by sector to the degree possible. Input-Output tables, methodological assumptions and bilateral trade flow data OECD “analytical” data on trade in services, trade by enterprise, intangibles and income flows. What do we know now: Import contents of exports (2005) Source: OECD Inter-country inter-industry model (March 2011) 7 Import contents of exports Source: OECD Inter-country I-O model, 2011 8 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) 100% 90% Others 80% 70% Foreign wholly owned companies 60% Sino-Foreign Joint Ventures 50% 40% Chinese State Owned 30% 20% 10% 0% 2002 2003 2004 2005 2006 2007 2008 2009 Tangibles vs. intangibles Investment in fixed and intangible assets as a percentage of GDP, 2006 % Machinery and equipment Software and databases R&D and other intellectual property products Brand equity, firm-specific human capital, organisational capital 30 25 20 15 10 5 0 Source: OECD STI Scoreboard 2011. Data on intangible investment are based on COINVEST [www.coinvest.org.uk] and national estimates by researchers. Data for fixed investment are OECD calculations based on OECD, Annual National Accounts and EU KLEMS Databases, March 2010. What can WPNA do? • Support the initiative and related developments especially in: – Bilateral trade flows – Measurement of IPP investment by industry – Continue to improve comparability of employment estimates with value-added. – More detailed IO tables? • Breakdowns by Foreign/domestic ownership? 13