* Count the added value not the bilateral flows
* Trade deficits and surpluses seen changing
By Jonathan Lynn
GENEVA, Feb 2 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
"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)