UNECA E-Training on the Compilation of SUTs

OECD-WTO Trade in Value Added (TiVA) data: introductionChristophe Degain (Senior Statistician, WTO)

Fabienne Fortanier (Head of Trade Statistics, OECD)

christophe.degain@wto.orgFabienne.Fortanier@oecd.org

This course:

What is Trade in Value Added (TiVA) and why do we discuss it in a course on SUTs

What insights can TiVA indicators provide about country’s positions and activities in global value chains

Preview to next course:

How is TiVA exactly constructed and what elements of SUTs are particularly important

Towards the future: what additional analysis can be undertaken with minor extensions of SUTs E.g. the effects of GVCs for employment, or for CO2 emissions;

the role of SMEs and MNEs in your country’s involvement in GVCs

Presentation overview

BASICS ONTRADE IN VALUE ADDED AND

GLOBAL VALUE CHAINS

International consumer demand

Export processing zones

Development of infrastructure and technological progress

Lower applied tariffs and trade policy incentives

Outsourcing and offshoring strategies

Emergence of “Trade in tasks”

trade in intermediate goods

Trends in global production and world trade..

Increase of processing trade

Development of intra-firm trade

Foreign Direct Investment (FDI)

…resulting in increasing international fragmentation of production

Explosion of trade in intermediates as firms specialise in stages (tasks) of production

Gross trade flows increasingly embody components (and so value) created elsewhere

5

Escape slides: Air Cruisers (USA)

Horizontal Stabiliser:

Alenia Aeronautica (Italy)

Centre fuselage: Alenia Aeronautica (Italy)

Final assembly: BoeingCommercial Airplanes (USA)

Vertical Stabiliser: Boeing

Commercial Airplanes (USA)

Landing gear: Messier-Dowti (France)

Electric brakes: Messier-Bugatti (France)

Tires: Bridgestone Tires (Japan)

Doors & windows:

Zodiac Aerospace (USA)

PPG Aerospace (USA)

Tools/Software: Dassault Systemes (France)

Navigation: Honeywell (USA)

Pilot control system: Rockwell Colins (USA)

Wiring: Safran (France)

Centre wing box:

Fuji Heavy Industries (Japan)

Engines: GE Engines (USA),

Rolls Royce (UK)

Wing box: Mitsubishi Heavy Industries (Japan)

Wing ice protection: GKN Aerospace (UK)

Engine nacelles: Goodrich (USA)Aux. power unit: Hamilton

Sundstrand (USA)

Flight deck seats:

Ipeco (UK)

Lavatories:

Jamco (Japan)

Cargo doors: Saab (Sweden)

Forward fuselage:

Kawasaki Heavy Industries (Japan)

Spirit Aerosystems (USA)

Raked wing tips: Korean Airlines

Aerospace division (Korea)

Passenger doors:

Latécoère Aéroservices (France)

Prepreg composites:

Toray (Japan)

Rear fuselage:

Boeing South Carolina (USA)

Final consumption

3

7

5

62

Final assembly

1

4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

23

4

5

67

Value added in the country of final production

Value added by first tier suppliers

Value added by second tier suppliers

Trade in inputs (first

tier suppliers)

Trade in inputs(second tier

suppliers)

Decomposition of gross exports

From a ‘gross trade’ to a TiVA perspective

• Conventional, ‘gross’ trade statistics do not fully capture this fragmentation, creating misleading perceptions and imperfect policies

• TiVA aims to increase our understanding of the process of globalization by providing insights into the value added created by each country and industry in the production of goods and services that are traded and consumed worldwide

– How much value added is created by trade – directly and indirectly – and where?

– What is the (indirect) role of services in international trade?

– What are the risks (in GVCs) and impacts of policy measures

– How much is our economy/industry dependent upon foreign demand?

• TiVA’s work horse: Inter-Country Input-Output Table (ICIO), tracing input-output (GVC) relationships across industries AND countries.

6

National Supply and Use tables (SUTs) and/or Input-Output tables (IOTs)

Bilateral trade statistics in goods and services

Sector 1 Sector 2 Sector 3 Sector 1 Sector 2 Sector 3 Sector 1 Sector 2 Sector 3 Country A Country B Country C

Country A Sector 1

Sector 2

Sector 3

Country B Sector 1

Sector 2

Sector 3

Country C Sector 1

Sector 2

Sector 3

Taxes less subsidies on products

Cif-fob adjustments

Value added Labour compensation

Operating surplus

Taxes less subsidies on production

Output

Country A Country B Country C Final Demand

TiVA indicators

Trade in Value Added within a course on SUTs

Inter-Country Input-Output (ICIO) table

SUTs are the main building blocks, in combination with bilateral trade statistics, for constructing Inter-Country Supply and Use tables (and the ICIO), from which TiVA

indicators can be derived

New perspectives for trade analysis and policy

Gross exports ofintermediates (50)

Gross exports of final goods/services(150 = 50 + 100)

Gross vs Value Added measures of trade flows

Value added exports (50)

Value added exports (100)

: Gross trade flows

: Value added trade flows

Schematic presentation of trade in GVCs

Primary product

Upstream Downstream

1. Economy positions in production chain

3. Typical types of products

2. Examples of production tasks involved

Oil production Plastic box labelling

and packaging

(“Manu-services”)

Plastic production Final consumptionPlastic box

manufacturing

Intermediate goodIntermediate good Final good

INSIGHTS FROM TIVA ON COUNTRY’S POSITION AND ACTIVITIES IN GLOBAL VALUE CHAINS

EXPORT

Decomposing gross exports into value added components(according to the origin of value added)

EXPORT

Domestic value added

Imported (foreign) value added

Decomposing gross exports into value added components(according to the origin of value added)

Indirect domestic VA

Reimported domestic value added

Imported (foreign) value added

Direct domestic value added

This perspective opens up a range of possibilities to developnew indicators that describe the position of countries and

industries in GVCsSuch as for example the share of each component in exports, or

in total GDP (i.e. value added);Broken down by industry… and by source country (of imported

value added) … and by final destination (of exports)

Partner economies

Partner economies

Partner economies

Decomposing gross exports into value added components(according to the destination of value added)

The example of South Africa

Domestic VA exported ...

... and re-imported in South Africa ...

... f

or

furt

her

exp

ort

s…

34

mill

ion

$ (

0.0

3 %

of

gro

ss e

xp.)

South Africa gross exports 2011 (Bil. $) 119

South Africa VA exports 2011 (Bil. $) 119

of which:

Domestic VA

Sent to consumer economy 64

Sent to third economies 32

Re-imported in the economy 0

Foreign VA 23

…even if in not all countries the import content of exports has returned to pre-crisis levels, partly also reflecting domestic upgrading

TiVA highlights: Exports require imports…

14

0

10

20

30

40

50

60

LU

X

IRL

SV

K

HU

N

CZ

E

SG

P

MY

S

KH

M

KO

R

TH

A

VN

M

BE

L

FIN

TU

N

SV

N

ME

X

PO

L

NL

D

PR

T

DN

K

SW

E

CH

N

AU

T

ES

P

GR

C

CR

I

FR

A

ITA

DE

U

MA

R

PH

L

CA

N

ISR

GB

R

TU

R

CH

E

IND

ZA

F

CH

L

NO

R

JP

N

NZ

L

US

A

AU

S

RU

S

PE

R

AR

G

BR

A

IDN

SA

U

2014 1995 2008

Foreign value added as a % of exports, 1995-2014

Protectionism can be counter-productive

15

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

USA JPN GBR CHN DEU KOR MEX CZE HUN

Total Electronics Transport equipment

Imports are often embodied in exports

Intermediate imports embodied in exports as % of total intermediate imports, 2014

Examples of factors influencing import content in exports

Factor Foreign VA in exports

Domestic VA in exports

Reason

Size of economy Large economy (USA, VS = 15%)

Industrial capacity to domestically produce the inputs required for its production and exports (domestic value chains)Small economy

(Luxembourg, VS = 59%)

Industrial specialization Primary product exporter (Saudi Arabia, VS = 3%)

Position in the chain: beginningRequires less inputs (domestic/foreign) than downstream stages in the chain

High-Tech component producer(Korea, Rep. of, VS = 41%)

Position in the chain: middleImports basic inputs to produce High-Tech components and final products.Technology/High skills specialization

Assembler(Viet Nam, VS = 36%)

Position in the chain: endLast link in the chain, cumulating the VA of foreign inputs from previous production stages

Level of industrialization Low(Cambodia, VS = 27%)

Importer of inputs to export(Beginner in GVCs)

High(Japan, VS = 14%)

Producer and exporter of high VA intermediate / final goods and services

Services account for more than half of the value added embodied in exports

TiVA highlights: services matter…

17

Services value added as a % of exports, 2014

The actual contribution of industries to gross exportsThe example of South Africa

Export industry

→

Value added origin ↓

Domestic and foreign sectoral VA contributions to South Africa exports, 2011 (% share in industry’s total gross exports)

Domestic Foreign Total

Primary products

Manufactures Services Primary products

Manufactures Services

Total, of which: 24.4 18.4 37.8 8.0 4.3 7.1 100.0

Primary products61.1 5.4 21.1 2.9 3.6 6.0 100.0

Manufactures 11.8 32.2 27.7 13.8 5.6 8.9 100.0

Services 1.4 4.9 84.9 2.0 2.4 4.3 100.0

Source: OECD-WTO TiVA database

Domestic Foreign Total

Primary products

Manufactures Services Primary products

Manufactures Services

Total, of which: 24.4 18.4 37.8 8.0 4.3 7.1 100.0

Primary products61.1 5.4 21.1 2.9 3.6 6.0 100.0

Manufactures 11.8 32.2 27.7 13.8 5.6 8.9 100.0

Services 1.4 4.9 84.9 2.0 2.4 4.3 100.0

Domestic Foreign Total

Primary products

Manufactures Services Primary products

Manufactures Services

Total, of which: 24.4 18.4 37.8 8.0 4.3 7.1 100.0

Primary products61.1 5.4 21.1 2.9 3.6 6.0 100.0

Manufactures 11.8 32.2 27.7 13.8 5.6 8.9 100.0

Services 1.4 4.9 84.9 2.0 2.4 4.3 100.0

Domestic Foreign Total

Primary products

Manufactures Services Primary products

Manufactures Services

Total, of which: 24.4 18.4 37.8 8.0 4.3 7.1 100.0

Primary products61.1 5.4 21.1 2.9 3.6 6.0 100.0

Manufactures 11.8 32.2 27.7 13.8 5.6 8.9 100.0

Services 1.4 4.9 84.9 2.0 2.4 4.3 100.0

Domestic = DVC sourcing Foreign = GVC sourcing Total

Primary products

Manufactures Services Primary products

Manufactures Services

Total, of which: 24.4 18.4 37.8 8.0 4.3 7.1 100.0

Primary products61.1 5.4 21.1 2.9 3.6 6.0 100.0

Manufactures 11.8 32.2 27.7 13.8 5.6 8.9 100.0

Services 1.4 4.9 84.9 2.0 2.4 4.3 100.0

: direct VA exports

: indirect VA exports

TiVA: Who trades with who? Chinese trade balances

19

Smaller surplus with US, smaller deficits with Asian markets

Gross and Value Added Trade Balances - 2014

All you wanted to know about TiVA…

Trade in value added statistics:

Are estimates !o Not based on actual measures of the VA exchanged across countrieso Rely on complex compilation (crossing of various statistical systems, compilation assumptions like “Homogeneity of production

technology”)

Do not replace traditional trade statistics but rather complement them by providing another angle for trade analysiso Traditional statistics provide actual and detailed information (product level) on trade flows, BUT present biases (country of origin

difficult to determine, multiple counting of trade in intermediates) o Traditional statistics are used for the compilation of ICIO tables underlying TiVA

Constitute a macroeconomic approach with aggregated industries=> Not for decision-making or negotiation at product level

Are useful for trade analysts and policy makers to:o Understand current trade patterns, especially exchanges taking place within production networkso Outline the VA origins in exports and the actual contributions of economies/industries to international tradeo Provide key messages for trade policy-making, e.g.:

o Level of interconnection between economies and industries within GVCso Import to exporto Role of services in production and trade, …