Trade in Value-Added: Concepts, Methodologies and Challenges

OECD-WTO, "Trade in Value-Added: Concepts, Methodologies and Challenges", Joint OECD-WTO Note, March 15, 2012

“MADE IN THE WORLD” INITIATIVE WTO and OECD to develop statistics on trade in value added ==

Trade in value-added: concepts, methodologies and challenges (joint OECD-WTO note)

The WTO and the Organization for Economic Co-operation and Development (OECD) have signed a letter of understanding to develop statistics on trade in value added. Among other things, the two organizations will produce a publicly-available database of trade flows estimated in value-added terms.

Director-General Pascal Lamy have said that “improved measurement and knowledge of actual trade flows will help better understand the interdependencies of today’s national economies, supporting the design of better policies and better trade regulation worldwide.”

Globalization is changing business models and increasing international fragmentation of production. Companies divide their operations across the world, from the design of the product and manufacturing of components, to assembly and marketing, creating global production chains. More and more products are ‘made in the world’ rather than in any particular country. Traditional statistics are necessary but no more sufficient to identify the contribution of each trade partner to the total value of the final good in the supply chain.

By contributing to specific segments of a global value chains, trade partners are actually “trading tasks” rather than trading final products. Attributing the full commercial value of imports to the last country of origin can skew bilateral trade balances, pervert the political debate on trade imbalances and may lead to wrong and counter-productive decisions. Besides correcting for these accounting biases, the measure of trade in value added provides additional information of the contribution of each national sector of activity to the domestic value of total exports. This information is particularly relevant to analyse the source of international competitiveness and understand the relationship between trade and development.

Since 2008, OECD and WTO have been cooperating with other stakeholders to provide the international community with supplementary data that would shed lights on what is called “trade in tasks”, i.e., the domestic value added content of trade. This co-operation is by itself an example of today's globalization, as it included projects and research institutes from Europe (e.g., the WIOD consortium), Asia (IDE-JETRO) and the Americas (US-ITC, World Bank).

Thanks to the progress accomplished through this co-operation, OECD and WTO are convinced that the field is now mature enough to move from academic research to official statistics and international policy making. To this end, both organizations signed a letter of understanding to provide a stable institutional framework to the existing network of researchers and produce on regular basis a series of bilateral trade statistics based on value added contents.

Expected outputs and future lines of work

The fundamental objectives of the OECD-WTO cooperation are the following:

•To define a methodology for measuring trade in value-added based on best practices learned from all past and present experiences. •To produce a publicly available database of trade flows estimated in value-added terms using the inter-country input-output tables of the OECD, including the most relevant non-OECD members, and determine a methodology for the updating of this data set. •To build-up and sustain a network of relevant multilateral and national institutions active in relevant fields, and establish links with academic and research institutes involved in the field. •To investigate in co-operation with other relevant national and international agencies the remaining statistical issues, in particular in relation to trade in services as well as other relevant balance of payment concepts. •To promote a dialogue between experts and policy makers on the implications of “trade in tasks” and the potential of measuring trade in value added for international and national policies.