2014/SOM2/CTI/DIA3/003 Trade in Value Added Database: A Tool for Evidence-Based Trade Policy Submitted by: WTO Public-Private Dialogue on Building Asia Pacific Partnership Through Global Value Chains Collaboration Qingdao, China 12 May 2014
APEC Public-Private Dialogue on Building Asia-Pacific Partnership through Global Value Chains Collaboration Qingdao, 12 May 2014 TRADE IN VALUE ADDED DATABASE: A TOOL FOR EVIDENCE-BASED TRADE POLICY Hubert Escaith hubert.escaith@wto.org THE IMPORT CONTENT OF EXPORTS IS RISING (INTERMEDIATES 50-65% OF MERCHANDISE TRADE)* GROWING ROLE OF SUPPLY CHAIN PRODUCTION IN THE WORLD ECONOMY How does value-added measurement of trade work? *: Excluding oil 2 1
A NEW MEASURE OF TRADE IN VALUE ADDED The OECD-WTO TiVA database Access to the TiVA database: http://www.wto.org/miwi or http://stats.oecd.org/index.aspx?datasetcode=tiva_oecd_wto Coverage: Years: 1995, 2000, 2005, 2008, 2009 57 economies 19 aggregated sectors (ISIC Rev.3) Available data sets: Gross exports Value added embodied in gross exports Value added embodied in final demand Services value added content in gross exports Revealed comparative advantage (gross vs value added) and many more GVC indicators... Participation in Global Value Chain Internationalization of production has existed for many years but are a driving factor since the mid-1980s 45 line of equal growth rates during both periods GVC trade rose rapidly in the 1990s, in particular as part of the regional integration in Europe and North America APEC members dominate the economies which increased their GVC participation after 2000 (points above the 45 red line) 2
Knowing where the exported value-added is ultimately absorbed Business cycle and supply-demand interconnections Resizing bi-lateral trade balances MANY INTERMEDIARIES MAY EXIST BETWEEN THE INITIAL UPSTREAM SUPPLIERS AND THE FINAL USERS TIVA TRACES THE TRUE ORIGIN OF THE FOREIGN VALUE-ADDED ULTIMATELY CONSUMED Value-added measure resizes bi-lateral trade balances (2) 3
Some evidences on Global Value Chains and Trade in Services Embodied value-added and sectoral contributions to total trade: the rise of services Gross and value-added measures (2008, based on OECD-WTO data) 7 Services are one of the main components of nonprice competitiveness and value-chain upgrading 4
Role of embedded public and private services (customs, logistics, etc.) in facilitating trade and transportation Asian hubs among the most efficient Singapore ranks second only after Germany, Japan (7) and HK China(13) (before USA and Canada) But the region average is still far from best practices esp. for customs and infrastructure Logistic Index, World Bank (2012 or most recent) THE TRADE FACILITATION AGREEMENT FORMS PART OF THE BALI PACKAGE AGREED BY WTO MEMBERS AT THE NINTH MINISTERIAL CONFERENCE IN BALI ON 3-7 DECEMBER 2013 Benefits for Exporters Benefits for Government Transparency + Fairness Predictability Reduced time/costs Better compliance Better quality decisions Good Governance Reduced costs Reduced delays Reduced complexity Better compliance More effective government More efficient government Modernization Reduce clearance times and costs Align with modern business practice More effective government More efficient government 10 5
Trade Facilitation is especially important for helping developing economies to join valuechains and upgrade. OECD-WTO Survey to GVC operators, 2013 Measuring Effective Protection Linking tariff schedules to input-output structure Based on International input-output data The price of output sold by good-producing industries is higher than international prices thanks to nominal tariff duties on competing imports The production cost is also higher due to the higher price to be paid on inputs (both imported and domestic) Source: OECD Input-Output matrices used for the OECD-WTO TiVA database And based on Tariff line MFN applied duties Weighted tariff averages by product and partners, aggregated at the TiVA sector level (20 good-producing sectors) MFN and Preferential applied rates Source: WTO Integrated Data Base (IDB) The Effective Protection Rate (EPR) formula for sector "j" is the difference between the nominal protection enjoyed by the sector minus the average tariff paid on the required inputs from all involved sectors "i": = ( ) 1 6
Protection and Exports High Effective Protection may discourage exports (because of artificially high profits on the domestic market) Nominal and Effective protections higher in APEC than in the rest of the TiVA economies Excepted for sector 003 "Food, beverage and Tobacco", 004 (Textile), 007 (Fuel products) and 016 (Communication equipment). Nominal protection (MNF Tariffs, 2008) Effective protection (MNF Tariffs, 2008) Preferential agreements tend to increase effective protection ESPECIALLY IN THE CASE OF NON-APEC ECONOMIES Higher additional protection in APEC: 018, 001 and 003 (non-apec: 003) Reduced protection (negative impact) : 014, 019 and 016 Changes in EPR due to preferences 2008 7
High EPRs are known to discourage exports, TiVA debunks other preconceptions The highest growth rate in exports are observed for the economies that rely more on imports for their intermediate inputs: protectionisms is bad for trade balance. High domestic content in exports is NOT associated with high income, at the contrary. Rich economies show (in average) higher foreign content, especially in services exports. F2 (18.44 %) 1 0.75 0.5 0.25 0-0.25-0.5-0.75 Principal Components F1 and F2: 48 % of total variance AGR_PIB IND_PIB T_DM MAN_PIB T_DT GXPrim T_DP NATUR CONS_PIB GDP GXP_M ICT_X BTFAs T_FM T_FP SHIP RD_PIB XBAL_PIB URB T_DS SER_PIB PERCAP T_FT T_FS XBS_PIB GXSer FI_FLOUTpct FI_SKOUTpct FI_FLINpct FI_SKINpct MBS_PIB TRADE_PIB -1 exports is -1-0.75-0.5-0.25 0 0.25 0.5 0.75 1 Active variables F1 (29.82 %) Supplementary variables Domestic services in total exports Foreign services in total exports associated with high per-capita income High domestic content in total associated with low per capita income (agriculture and Conclusion Thanks to TiVA, What You See is What You Get! Important results for evidence-based policy making New light on the inter-sectoral complementarities between economies New light on the interdependence of business-cycles through the whole supply-chain Making visible the invisibles Value of services that are embodied in the value of merchandise trade. Role of services in the trade-and-development nexus. Highlighting the role of Trade Facilitation and imbedded supply-chain services Improving international competitiveness Joining high value-added supply chains 8