October 19, 2011, (Wednesday)
National Graduate Institute for Policy Studies
(GRIPS) Soukairou Hall
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A number of factors have given rise to international specialization of the production process. The starting point was changes in consumption patterns in the developed world (mass production, mass consumption), but other factors include decreased tariff rates, development of infrastructure and technological progress, an increased number of export processing zones, and an expansion of outsourcing/offshoring and foreign direct investment, etc. These factors combined to advance the division of labor between countries, leading to the application of the “trade in tasks” concept. Trends seen in “trade in tasks” include i) the predominance of trade in intermediate goods, ii) the development of intra-firm trade, and iii) an increase in processing trade. The “trade in value-added” discussed in this book is a trade concept that matches such trends in international trade.

Trade in intermediate goods is flourishing in Asia. The following is a summary of its characteristics and trends. First, Asia's share of trade in intermediate goods worldwide has increased from the end of the 1990s, reaching 37% in 2010. Second, the majority of Asia's trade in intermediate goods is conducted within Asia. Third, Asia imports more intermediate goods than it exports. Fourth, as exemplified by Japan, the intermediate goods handled by Asian countries are becoming more sophisticated (or advanced). Finally, fifth, Asia’s trade in intermediate goods tends to focus on a decreasing number of components. With this in mind, we can say that Asia is the world’s factory, and that its supply chains boost the vitality of the markets in Asia.

Intermediate goods become final products after undergoing a number of production processes, and are then exported from a certain country. The problem then is the concept of the “country of origin.” For example, the Boeing 787 airliner is “Made in the USA,” but the parts included in it are produced in a variety of countries. Should this be labeled “Made in the USA?” It is possible that using the name of the final country in the production chain as the country of origin in this manner will be misleading. The reason is that there are very few cases in which industrial products are produced completely in a single country, and in most cases, they are actually “Made in the World.”

In collaboration with IDE-JETRO, the WTO has measured the new trade concept “trade in value-added.” It has the following characteristics and benefits. First, it is possible to evaluate more accurately the contribution to international trade by a certain country. Second, economic interdependence and the negative by-products of protectionism are highlighted. For example, if Country A levies an anti-dumping tax on Boeing, the companies in Country A that participate in Boeing’s supply chain may also be harmed. GVCs suggest that protectionist policies have the possibility of backfiring. Third, measurement of trade in value-added makes it possible to evaluate the service sector’s contribution to trade. This evaluation is not possible with conventional trade statistics. Finally, as indicated in Mr. Inomata’s report as well, it enables a more accurate calculation of the trade balances between two countries or regions, in other words, calculation of the trade balance on value-added base.

Trade in value-added does not replace conventional trade statistics, but is, rather, a supplement. I believe that its utilization will enable a better understanding of today’s international trade.