Statisticians hunt better ways to count trade figures

Wed Feb 2, 2011 1:39am EST

* Count the added value not the bilateral flows

* Trade deficits and surpluses seen changing

By Jonathan Lynn

GENEVA, Feb 2 (Reuters) - In an age of global supply chains, trade figures give an increasingly misleading picture of what is going on -- and trade statisticians are out to change that. Trade figures have become politically explosive -- witness the sensitivity of the U.S. deficit with China for relations between the two powers.

Trade is still measured in the traditional way -- looking at bilateral flows between one country and all the others.

Nowadays many goods are made up of components sourced from many different countries, based on designs and research from others, and assembled in one before being sold.

Measuring where value is added at each stage gives a more precise picture of who is buying what from whom, and for how much. "Economic reality is changing so fast that there is a need to change our statistics," said Hubert Escaith, chief statistician at the WTO.

The World Trade Organization is keenly interested in all this, and is hosting a meeting of experts this week.

WTO Director-General Pascal Lamy cites a recent study by the Asian Development Bank Institute of the trade flows involved in Apple's (AAPL.O) iPhone, assembled in China with components from many countries then exported to the United States and elsewhere.

Using traditional country of origin methods, the iPhone contributed $1.9 billion to the U.S. trade deficit with China.

But if China's iPhone exports to the United States were measured in value added -- the value added by China to the components -- those exports would come to only $73.5 million, he wrote in the Financial Times on Jan. 24.

FROM BLACK-AND-WHITE TO COLOUR

Deputy Director-General Alejandro Jara compares the new approach to moving from black-and-white television to colour.

This value-added approach will tend to reduce bilateral deficits and surpluses, and could even reverse the plus or minus signs on small amounts, although a country's overall balance with the rest of the world will be little affected.

For instance the United States would have a smaller deficit with China, but a bigger one with Malaysia and other countries.

"The deficit between the United States and China will not be what it is, but is going to be less, definitely less," Jara said. "How much less? I don't know."

Looking at figures in this way has huge implications for policymakers keen to defend or create jobs.

"You may be focusing on the wrong cause of your lack of competitiveness when you focus on one country," Escaith said.

One obvious area for re-examination is bilateral exchange rates. Many politicians in the United States urge pressure on China to appreciate the yuan and thus reduce the U.S. deficit. That may be the wrong -- or not the only -- target.

Or it may turn out that offshoring -- having things made abroad cheaply -- underpins more valuable research and design jobs at home.

At this week's conference the WTO has invited 150 statisticians from developed and developing countries to Geneva from Feb. 2 to 4.

The meeting will lay out the research challenges for the coming years and look at how to help developing countries finance the new way of counting.

Research is likely to show that some countries, including China and states in Southeast Asia and the European Union, are heavily integrated into international supply chains.

Other areas like Latin America -- with the exception of Mexico, some sectors in Brazil and Costa Rica -- appear not to be, raising the question: Why?

The new approach also looks at what combination of goods and services goes into assembling a product, and shows that services make up a much bigger share of trade than thought.

To get a bunch of grapes from Chile to an American supermarket requires more than a farmer to grow it, Jara said. Transport, packaging, quality control, legal services, accountants, telecoms and agronomists all play a role. (For Lamy article in FT go to bit.ly/e8HSnm ) (WTO conference details at bit.ly/fh7IpE ) (Editing by Stephanie Nebehay and Myra MacDonald)

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