## g7-global-value-chains-and-trade-in-value-added

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### SECTION I: INTRODUCTION TO THE ISSUE — globalization, challenges, and TiVA
- Globalization increases fragmentation of production across national economies due to reductions in transportation costs, the information technological revolution, lower production costs and more open economic policies.
- Fragmentation/unbundling: parts and components of a final product (goods or services) are increasingly produced in different countries; intermediate goods and associated services may cross national borders several times before final assembly and sale.
- International trade in goods and services is increasingly intra-firm trade, often organized and led by large multinational enterprises (MNEs) or enterprise groups.
- The 2008 System of National Accounts (2008 SNA) and Balance of Payments and International Investment Position Manual, 6th edition (BPM6) included updates to better account for globalization.

Core limitations of conventional national statistics
- National input-output analysis and national SUTs/IOTs map national value chains but generally stop at the border and provide limited information on:
  - how exports are used abroad;
  - the production process and country/countries of origin of imported goods;
  - firm-level input sourcing and export participation beyond what business censuses/surveys and customs data provide.
- Conventional macro and micro data lack the information needed to map entire global production processes and measure GVC linkages.

Core analytical questions TiVA seeks to answer
- What part of a country’s exports can be ascribed to value added produced at home or abroad?
- How can value added be allocated across different bilateral and sectoral trade flows?
- Which markets absorb production as final demand?
- What share of imports are consumed in production and subsequently embodied in exports?
- To what extent is a country’s production affected by macroeconomic shocks emanating from other countries?
- How can production be affected by trade policies implemented in a given country on a given industry, and/or vis-à-vis certain partners?

Trade in Value Added (TiVA) indicators — purpose and benefits
- TiVA indicators measure flows related to the value added (compensation of employees, other taxes on production and operating surplus) by a country in the production of any good or service that is exported.
- TiVA addresses double counting implicit in gross trade flows and provides a framework applicable to other global phenomena (e.g., carbon and resource footprints, Trade in Employment).
- Benefits:
  - Impacts trade policy, competitiveness, upgrading and innovation, and management of global systemic risk (the recent COVID-19 crisis highlighted GVC vulnerabilities).
  - Reveals foreign content of exports that gross statistics hide; informs development strategies and industrial policies by showing domestic value added generated by exports.
  - Highlights upstream domestic industries’ contributions to exports even when those industries have little direct international exposure.
- TiVA indicators are typically derived from Inter-Country Input-Output tables (ICIOs), which combine national SUTs or IOTs with international bilateral merchandise and services trade statistics.

GVC satellite account approach (GVC Handbook (2019) guidance)
- GVC satellite account: enterprise-centered GVC-specific SUTs integrated with detailed business statistics and GVC-specific institutional sector accounts.
- Coverage: production, earnings and employment, income and investment (capital and financial), balance sheets and transactions; industry and product breakdowns identifying ISIC divisions/groups and standardized products; trade of GVC-relevant products between GVC-partner countries.
- Implementation choices:
  - Countries determine scope (which GVCs, direct vs. indirect suppliers) based on analytical usefulness and data availability.
  - Focus on economically important and policy-relevant GVCs; one or several GVC-specific SUTs and preferably sector accounts.
- Enterprise-level data requirements:
  - Business, trade and investment data by business line of a global enterprise to specify industry-specific GVCs controlled by lead firms.
  - Differentiation by ownership (foreign-controlled vs. nationally-controlled) and by whether firms are part of the GVC to reflect governance structures.

Extended Supply and Use Tables (eSUTs) within the SNA framework
- eSUTs increase granularity within the SNA framework and help improve TiVA and GVC analysis by addressing:
  - Homogeneity assumptions in production functions across firms with differing integration in GVCs.
  - Trade in income issues, including value added generated by MNEs and potential repatriation to parent entities.
- OECD Expert Group on Extended Supply and Use Tables (created in 2014) addresses issues to improve TiVA quality; many countries implemented eSUTs following guidance such as Ahmad (2018).
- eSUTs and GVC-specific SUTs are closely related: eSUTs provide an extended multi-country SUT foundation supporting GVC-specific analysis.

Guidance Note (GN) scope and purpose
- GN discusses options to highlight GVC activity within current SNA and BPM frameworks by providing extensions or more granular data rather than changing core concepts.
- Options considered:
  - (i) TiVA indicators;
  - (ii) the GVC satellite account;
  - (iii) the eSUTs; and
  - (iv) other useful information, including supplemental BPM data inputs.

*Guidance Note (GN) on Global Value Chains and Trade in Value Added, prepared by Ms. Jennifer Ribarsky (GZTT Secretariat, IMF), Ms. Nancy Snyder (UNSD), and Ms. Jennifer Withington (Statistics Canada); reviewed by the Globalization Task Team (GZTT) and supervised by Messrs. Michael Connolly and Branko Vitas (co-Chairs of the Task Team).*

### eSUTs: flexibility, extensions, objectives, and data linkage
- ESUTs are be flexible, containing a number of possible extensions. Extensions range from simple extensions that show estimates of the origin (imports) and destination (exports) countries of products, more details on goods for processing transactions (manufacturing services on physical inputs owned by others) and re-exports (if import flow tables are not also provided), to more ambitious breakdowns by size-class of firm (statistical unit), by trading status (e.g., export orientation) or by control (e.g., foreign controlled or domestic entities that are part of an MNE group).
- Extensions also include linking the production accounts to:
  - the generation of income accounts,
  - employment statistics,
  - carbon dioxide (CO2) and other greenhouse gas emissions to address issues related to trade in income, employment, and embodied CO2.
- eSUTs capture differences in input/output structure of different producer types within the same industry absent from conventional tables.
- Central premise and implementation guidance:
  - Countries implement eSUTs according to their priorities and resources; objective is an integrated accounting framework linking structural business statistics, trade by enterprise characteristics, foreign affiliate trade statistics, and trade data.
  - Emphasis on parsimony in construction: focus on core activities and industries/products where extra granularity is needed.
  - If there is no foreign presence in a given industry, there is no granularity to be added.

### Balance of payments (BOP) statistics and their role in GVC analysis
- BOP statistics are integral to GVC construction (both GVC satellite accounts and TiVA indicators); BPM6 provides a useful framework for bridging detailed trade statistics and accounting frameworks to improve ICIO quality.
- WG-GVC (October 2019) identified BOP components useful for GVC indicators (Annex V); these often involve auxiliary tables, supplementary items, or more detailed breakdowns than standard BPM6 reporting.
- Working Group recommended additional guidance to identify merchandisers and factoryless goods producers (Guidance Note C.4 jointly developed by CATT and GZTT).

MNEs and current account treatment
- MNE transactions are key in globalization and GVCs; identifying MNEs in the current account is critical to address treatment of income.
- Value-added components: return to capital (operating surplus) and labor (compensation of employees). Return to labor is expected largely to remain in the host economy; profits of the direct investee enterprise ultimately accrue to the foreign parent. Domestic MNEs benefit from profits received from their foreign affiliates.
- WG-GVC proposed a further breakdown of the current account to better highlight MNE activity (Annex V, Table 3A). Recent work by CATT and DITT incorporates WG-GVC recommendations for updates of international standards.

### Recommended conceptual approach for measuring GVCs and TiVA
- No conceptual changes are required to the central SNA and BPM framework to account for GVCs.
- Conventional gross international trade flows should remain the featured measures of cross-border trade because:
  - they are important for calculating a country’s overall trade balance and GDP (net exports = gross exports less gross imports),
  - existing bilateral gross trade flow statistics are timely, long-standing, and prerequisite for constructing GVC satellite accounts and TiVA estimates.
- TiVA implications:
  - The TiVA approach has no impact on a country’s overall trade balance and therefore no impact on GDP as calculated as the sum of final expenditures.
  - TiVA expands the set of trading partners to include other countries in the GVC and reallocates a country’s overall trade balance among its trading partners.
  - In the value-added approach, measures of exports and imports would each be smaller, but net exports overall would be the same.
- Comparative framing:
  - TiVA estimates: macro approach requiring massive international effort to link country/regional SUTs with international trade statistics.
  - eSUTs: improve TiVA through targeted aggregations addressing homogeneity assumptions.
  - GVC satellite accounts: targeted bottom-up approach focusing on a GVC for specific product/industry or group of products/industries.

### Practical approaches, BOP reporting, and data requirements
National measurement options
- Extend existing SNA production, distribution and use of income, capital, financial, price, and volume accounts to detail international contributions to the national economy by industry.
- Combine existing SNA data (SUTs and IOTs) with international trade data to compile “national TiVA” where imports and exports in the SUTs and IOTs are split by country (examples: Statistics Finland, Statistics Netherlands, United States BEA).

Detailed BOP statistics and recommended reporting template (Committee 2019 support)
- Recommended reporting template elements may comprise:
  - total value of re-exports and main product and/or partner breakdown;
  - total value of goods acquired/sold under merchanting and main products and/or major trading partners (encouraged item);
  - reconciliation table between IMTS and BOP goods statistics along BPM6 Table 10.2;
  - product and partner breakdown of total trade in goods on a BOP basis and geographical breakdown of EBOPS categories.
- IMF and OECD prepared a reporting template included in CATT GN C.2.

Framework to highlight MNE role in the current account (WG-GVC recommendations)
- Supplementary data incorporating Trade by Enterprise Characteristics (TEC) for total exports and imports of goods and services broken down by:
  - domestic MNEs,
  - foreign-controlled enterprises,
  - other—domestic enterprises.
- Extensions to direct investment income distinguishing receipts and payments by resident ultimate controlling parent and non-resident ultimate controlling parent (Balance of payments / DI).
- Supplementary MNE data framework summarized in WG-GVC proposal (Annex V Table 3A).

Benefits of additional data
- Further breakdown of DI income by residency of the ultimate owner of the MNE could significantly improve interpretive and analytical power of TiVA estimates.
- eSUTs and more detailed BOP data improve TiVA estimates by better capturing underlying heterogeneity within activities (examples: OECD TiVA database breakdowns for China and Mexico).

Practical aspects, capacity constraints, and priorities
- Additional details within SNA and BPM to measure GVCs require considerable resources for data collection and linking.
- Harmonizing and integrating existing data (new IT systems, data exchange, micro-data linking, central business registers, administrative and other big data) can be done at lower cost than expansions that increase respondent burden.
- eSUTs data sources: national SUTs and IOTs integrated with MNE surveys, BOP surveys, tax data on non-financial flows and ownership, integrated business statistics, and reconciled trade statistics.
- GVC satellite account data sources: firm-specific micro-data, existing input-output coefficients, and information on governance and business functions; focus on traded products/industries grouped by GVC industries (e.g., horticulture, automotive, apparel and textile, electronic).
- Integrated business statistics and business registers should include links to foreign parents and affiliates; common business registers for MNE groups can assist in understanding global links and bilateral asymmetry analysis.
- Tailoring to statistical capacity: economies where GVCs are material should adopt the most beneficial approach; national compilers and policymakers decide which breakdowns and approaches to implement.
- Risk: inconsistent national implementations may fragment information and reduce comparability.

BOP two-level reporting approach for BPM
- Adopt two-level reporting:
  - (i) core or minimum set of items; and
  - (ii) encouraged/extensions for more statistically developed economies.
- Recommendations for identifying MNEs in the current account and identification of the ultimate investor have been subject to global consultation as part of GN C.2 and DITT GN D.6.

Importance of asymmetry resolution
- Resolving asymmetries (by trading partner and by product) is important for high quality ICIO tables and TiVA indicators.
- Reconciliation between IMTS data and BOP data by trading partner is particularly important to identify and resolve discrepancies and increase transparency.
- WG-GVC stocktaking survey indicates current difficulties in producing these data in most countries.

### SECTION VI: CHANGES REQUIRED TO THE 2008 SNA AND OTHER STATISTICAL MANUALS — proposals and consultation questions
- Proposal: add a new chapter to the next update of the SNA and BPM to describe GVCs and TiVA and the additional data needed (such as eSUTs or highlighting MNEs in the current account).
- Explicitly: "While there are no conceptual changes to the central frameworks, a description of GVCs and TiVA could be included in the next set of manuals as well as the additional data needed to aid such analysis (such as eSUTs or highlighting MNEs in the current account)."

2008 SNA chapters identified for update or inclusion in a globalization chapter
- Chapter 14: The Supply and Use Tables and Goods and Services Accounts
- Chapter 26: The Rest of the World Accounts and Links to the Balance of Payments
- Chapter 28: Input-Output and Other Matrix-Based Analyses
- Chapter 29: Satellite Accounts and Other Extensions

Questions for discussion posed in GN
- 1) Do you agree that the guidance note adequately summarizes the vast amounts of work done in this area? If not, specify what is missing.
- 2) Do you support including descriptions of global value chains (GVCs) and Trade in Value Added (TiVA) in the next set of manuals?
- 3) Do you agree that no changes are needed to the core/central framework concepts of the SNA and BPM to support GVC analysis?
- 4) Do you support including the development of supplementary information for GVC analysis in the next set of manuals to help motivate greater uptake?
  - a. Within the SNA, the GN favors building (i) TiVA indicators, (ii) GVC satellite account, and (iii) more granularity using the extended supply and use tables (eSUTs).
  - b. Within the BPM, leverage WG-GVC and guidance notes GN C.2 and D.6 for supplemental cross-border statistics detailed by components, enterprise groups, geography or product.

eSUTs and firm heterogeneity (OECD Expert Group inputs)
- Underlying principle: generate greater homogeneity by breaking down industries into firm-level aggregations reflecting production functions and use of imports/exports.
- Example breakdowns include ownership status, size-class, export orientation, and trade status (processor/non-processor; operating within or outside an export free zone).
- Not all activities must be decomposed; national circumstances determine eSUT development.
- GZTT suggested breakdowns of GVA by domestic MNEs versus foreign-controlled affiliates of foreign MNEs.

GVC-specific SUTs structure (examples)
- GVC-specific SUTs illustrate supply and use matrices broken down by business functions and standardized products (examples: Research and development; Manufacture of motor vehicles; Distribution and logistics; Marketing, sales and after-sale services; ICT services; Engineering and related technical services).
- Supply Table at basic prices and Use Table at basic prices include flows to/from Country B, Country C, Rest of World, final use categories (Final consumption expenditure; Gross capital formation; Exports), and GVA components (Compensation of employees; Other taxes less subsidies on production; Consumption of fixed capital; Net operating surplus/net mixed income; Gross operating surplus/gross mixed income; GVA).

BOP components identified by WG-GVC (selected items and availability thresholds)
- WG-GVC identified items to support GVC analysis, prioritizing items where 50 percent or more of survey respondents indicated availability (published or not).
- Selected entries preserved exactly:
  - Re-exports
    - Total value — Included in reporting template: Yes
    - Main products and/or major partners — Included in reporting template: Yes, but only top products and trading partners, such as top 5
    - Comment: "Availability is close to 50%, and data are very useful for GVC indicators." and "While availability is lower (38%), very useful for GVC indicators, particularly for economies with significant re-exports."
  - Goods acquired/sold under merchanting
    - Total gross value — Included: Yes (Availability above 50%).
    - Main products or major trading partners — Included: No (survey availability does not support collection).
  - Reconciliation table between IMTS and trade in goods on BOP basis (Table 10.2 in BPM6)
    - Total — Included: Yes (Availability above 50%).
    - Main products and/or major trading partners — Included: No (survey points to difficulties).
  - Breakdown of total trade in goods on BOP basis
    - Major trading partners and/or most important products — Included: Yes (Availability above 50%). Priority to trading partners.
  - Geographical breakdown of trade in services
    - 12 main EBOPS categories — Included: Yes (Availability above 50%).
  - Supplemental breakdown of travel services item
    - Supplemental classification proposed in BPM6 — Included: No (survey does not justify at this time).
- Recommendation: economies encouraged to report data to international organizations even if not published, to allay quality/confidentiality concerns while supporting GVC indicators.

MNEs in the current account and proposed TEC/DI breakdowns (WG-GVC framework)
- WG-GVC framework to incorporate TEC data into trade accounts and to further break down DI income by residency of the ultimate owner.
- Proposed structure and line items preserved exactly (selected lines):
  - Lines 1–11: Exports of goods and services (BOP; Exports total; Goods, BOP basis; By domestic MNEs — TEC; By foreign-controlled enterprises — TEC; Other—domestic enterprises — TEC; Services; By domestic MNEs — STEC; By foreign-controlled enterprises — STEC; Other—domestic enterprises — STEC)
  - Lines 11–21: Primary income receipts (BOP; Direct investment income — BOP/DI; Less: adjustment to convert direct investment receipts to a directional basis — BOP/DI; Outward direct investment income — BOP/DI; By resident UBOs — BOP/DI; By foreign UBOs — BOP/DI; Portfolio investment income — BOP; Other investment income — BOP; Reserve asset income — BOP; Compensation of employees — BOP; Secondary income receipts — BOP)
  - Lines 22–31: Imports of goods and services (BOP/DI; Imports total; Goods, BOP basis; By domestic MNEs — TEC; By foreign-controlled enterprises — TEC; Other—domestic enterprises — TEC; Services; By domestic MNEs — STEC; By foreign-controlled enterprises — STEC; Other—domestic enterprises — STEC)
  - Lines 32–41: Primary income payments (BOP; Direct investment income — BOP/DI; Less: adjustment to convert direct investment payments to a directional basis — BOP/DI; Inward direct investment income — BOP/DI; By resident UBOs — BOP/DI; By foreign UBOs — BOP/DI; Portfolio investment income — BOP; Other investment income — BOP; Compensation of employees — BOP; Secondary income payments — BOP)
- Note preserved verbatim: "The term ultimate beneficial owners (UBOs) has subsequently been replaced by the recommendations discussed in GN D.6. The DITT GN D.6 'Ultimate Investing Economy/Ultimate Host Economy and Pass-through Funds' proposes to streamline the concepts for ultimate investor (UCP/UIE/UHE) used in the standards. Notably, the UCP concept used in this GN would be consistent with the UIE concept under the proposed 'Winner Takes All (WTA)' approach."

*International Monetary Fund — g7-global-value-chains-and-trade-in-value-added (excerpts on eSUTs, balance of payments, and recommended approaches; SECTION VI: CHANGES REQUIRED TO THE 2008 SNA AND OTHER STATISTICAL MANUALS).*

### SECTION I: INTRODUCTION TO THE ISSUE

### SECTION I: INTRODUCTION TO THE ISSUE

### Globalization and the accounting challenge
- Globalization—"the economic integration of countries around the world"—has increased fragmentation of production across national economies due to reductions in transportation costs, the information technological revolution, lower production costs and more open economic policies.
- Fragmentation/unbundling: parts and components of a final product (goods or services) are increasingly produced in different countries; intermediate goods and associated services may cross national borders several times before final assembly and sale.
- International trade in goods and services is increasingly intra-firm trade, often organized and led by large multinational enterprises (MNEs) or enterprise groups.
- The 2008 System of National Accounts (2008 SNA) and Balance of Payments and International Investment Position Manual, 6th edition (BPM6) included updates to better account for globalization.

### Limitations of conventional national statistics
- National input-output analysis and national SUTs/IOTs map national value chains but generally stop at the border and provide limited information on:
  - how exports are used abroad;
  - the production process and country/countries of origin of imported goods;
  - firm-level input sourcing and export participation beyond what business censuses/surveys and customs data provide.
- Conventional data sources at both the macro (input-output) and micro (firm) levels lack the information needed to map entire global production processes and measure GVC linkages.

### Core analytical questions arising from GVCs
- What part of a country’s exports can be ascribed to value added produced at home or abroad?
- How can value added be allocated across different bilateral and sectoral trade flows?
- Which markets absorb production as final demand?
- What share of imports are consumed in production and subsequently embodied in exports?
- To what extent is a country’s production affected by macroeconomic shocks emanating from other countries?
- How can production be affected by trade policies implemented in a given country on a given industry, and/or vis-à-vis certain partners?

### Trade in Value Added (TiVA) indicators
- TiVA indicators measure flows related to the value added (compensation of employees, other taxes on production and operating surplus) by a country in the production of any good or service that is exported.
- TiVA addresses double counting implicit in gross trade flows and provides a framework applicable to other global phenomena (e.g., carbon and resource footprints, Trade in Employment).
- Benefits of a value-added perspective:
  - Impacts trade policy, competitiveness, upgrading and innovation, and management of global systemic risk (the recent COVID-19 crisis highlighted GVC vulnerabilities).
  - Reveals foreign content of exports that gross statistics hide; informs development strategies and industrial policies by showing domestic value added generated by exports.
  - Highlights upstream domestic industries’ contributions to exports even when those industries have little direct international exposure.
- TiVA indicators are typically derived from Inter-Country Input-Output tables (ICIOs), which combine national SUTs or IOTs with international bilateral merchandise and services trade statistics to form a complete global country-by-industry input-output matrix.

### GVC satellite account approach
- The GVC Handbook (2019) advocates a GVC satellite account to identify and articulate a GVC for a specific product or group of products produced within a GVC.
- A GVC satellite account comprises GVC-specific SUTs (national or multi-country) based on an enterprise-centered approach, integrated with detailed business statistics and information on business lines and business functions, and GVC-specific institutional sector accounts.
- Coverage of the GVC satellite account:
  - Production, earnings and employment, income and investment (capital and financial), balance sheets and transactions.
  - Industry and product breakdowns that explicitly identify relevant ISIC divisions/groups and standardized products that include final GVC products and intermediate goods and services.
  - Trade of GVC-relevant products between GVC-partner countries.
- Implementation choices and flexibility:
  - Countries determine the scope (which GVCs, direct vs. indirect suppliers) based on analytical usefulness and data availability.
  - GVC satellite accounts can focus on the most economically important and/or policy-relevant GVCs and can include one or several GVC-specific SUTs and preferably sector accounts.
  - A GVC-specific SUT is a natural extension of extended multi-country SUTs integrated into global ICIOs, with a focused lens on specific products produced in a GVC.
- Enterprise-level data requirements:
  - Business, trade and investment data collected from the business line of a global enterprise to correctly specify industry-specific GVCs controlled by lead firms.
  - Differentiation by ownership (foreign-controlled vs. nationally-controlled) and by whether firms are part of the GVC is necessary to reflect governance structures.

### Extended Supply and Use Tables (eSUTs) within the SNA framework
- eSUTs increase granularity within the SNA framework and help improve TiVA and GVC analysis by addressing:
  - Homogeneity assumptions in production functions across firms with differing integration in GVCs.
  - Trade in income issues, including value added generated by MNEs and potential repatriation to parent entities—helping reveal beneficiaries of international trade and investment.
- The OECD Expert Group on Extended Supply and Use Tables (created in 2014) addresses issues that improve TiVA quality; many countries have implemented eSUTs following guidance such as Ahmad (2018).
- eSUTs and GVC-specific SUTs are closely related: eSUTs provide an extended multi-country SUT foundation that supports GVC-specific analysis.

### Scope and purpose of the Guidance Note (GN)
- The GN discusses options to better highlight GVC activity within the current SNA and BPM frameworks by providing extensions or more granular data rather than changing core concepts.
- Options considered include:
  - (i) TiVA indicators;
  - (ii) the GVC satellite account;
  - (iii) the eSUTs; and
  - (iv) other useful information, including supplemental BPM data inputs.

*Source: Guidance Note (GN) on Global Value Chains and Trade in Value Added, prepared by Ms. Jennifer Ribarsky (GZTT Secretariat, IMF), Ms. Nancy Snyder (UNSD), and Ms. Jennifer Withington (Statistics Canada); reviewed by the Globalization Task Team (GZTT) and supervised by Messrs. Michael Connolly and Branko Vitas (co-Chairs of the Task Team).*

### 19.      ESUTs are be flexible, containing a number of possible extensions. Extensions range f rom

### g7-global-value-chains-and-trade-in-value-added - Section excerpts on eSUTs, BOP, and recommended approaches

### eSUTs: flexibility, extensions, and objectives
- ESUTs are be flexible, containing a number of possible extensions. Extensions range from simple extensions that show estimates of the origin (imports) and destination (exports) countries of products, more details on goods for processing transactions (manufacturing services on physical inputs owned by others) and re-exports (if import flow tables are not also provided), to more ambitious breakdowns by size-class of firm (statistical unit), by trading status (e.g., export orientation) or by control (e.g., foreign controlled or domestic entities that are part of an MNE group); similar to those described above under the GVC satellite accounts.
- Extensions also include linking the production accounts to:
  - the generation of income accounts,
  - employment statistics,
  - carbon dioxide (CO2) and other greenhouse gas emissions to address issues related to trade in income, employment, and embodied CO2.
- Various eSUTs extensions can capture important differences in the input and output structure of different types of producers in the same industry that are currently absent from conventional input and output tables.
- Central premise and implementation guidance:
  - Countries would implement eSUTs according to their own priorities and resources; the central premise is for countries to develop them in a way that is most relevant to their specific needs, circumstances, and data availability (Annex IV).
  - Objective: create an integrated accounting framework that can link disparate data sources—structural business statistics, trade by enterprise characteristics, foreign affiliate trade statistics, and trade data—into a coherent framework.
  - Emphasis on parsimony in construction: it is not necessary to breakdown all activities into more homogeneous groups; focus should be on core activities. Countries could focus on industries/products where extra granularity is needed (Hagino and Kim (2021) example for Japan).
  - If there is no foreign presence in a given industry, then there is no granularity to be added.

### Balance of payments (BOP) statistics and their role in GVC analysis
- Balance of payments statistics are an integral part of GVCs helping to construct both GVC satellite accounts and TiVA indicators; BPM6 provides a very useful framework for additional information helpful in bridging detailed trade statistics and accounting frameworks to improve the quality of ICIO tables.
- The WG-GVC (October 2019) identified a list of balance of payments components, building on the BPM6 framework, that would be useful in improving indicators used in the analysis of GVCs (Annex V). The identified BOP components often involve auxiliary tables, supplementary items, or more detailed (geographic or product) breakdowns than those recommended in the standard reporting form of BPM6.
- The Working Group recommended developing additional guidance to help identify merchandisers and factoryless goods producers (Guidance Note C.4 jointly developed by CATT and GZTT).
- Concerning MNEs:
  - MNE transactions are key in globalization, managing many GVCs and enabling exchange of goods, services, knowledge, technology, and capital across borders.
  - Identifying MNEs in the current account is critical and can help address the treatment of income.
  - Value-added consists of return to capital (i.e., operating surplus) and labor (i.e., compensation of employees). Return to labor is expected to largely remain in the host economy; profits (return to capital) of the direct investee enterprise ultimately accrue to the foreign parent. Domestic MNEs benefit from profits received from their foreign affiliates.
  - The WG-GVC proposed a further breakdown of the current account to better highlight MNE activity (Annex V, Table 3A). Recent work by CATT and DITT incorporates WG-GVC recommendations for updates of international standards.

### Recommended conceptual approach for GVC measurement
- No conceptual changes are required to the central SNA and BPM framework to account for GVCs.
- Conventional gross international trade flows should remain the featured measures of cross-border trade because:
  - they are important for calculating a country’s overall trade balance and GDP (net exports = gross exports less gross imports),
  - existing bilateral gross trade flow statistics are timely, long-standing, and prerequisite for constructing GVC satellite accounts and TiVA estimates.
- TiVA implications:
  - The TiVA approach has no impact on a country’s overall trade balance and therefore no impact on GDP as calculated as the sum of final expenditures.
  - TiVA expands the set of trading partners to include other countries in the GVC and reallocates a country’s overall trade balance among its trading partners.
  - In the value-added approach, measures of exports and imports would each be smaller, but net exports overall would be the same.
- Comparative framing of methods:
  - TiVA estimates: macro approach requiring massive international effort to link country/regional SUTs with international trade statistics.
  - eSUTs: improve TiVA through targeted aggregations addressing homogeneity assumptions.
  - GVC satellite accounts: targeted bottom-up approach focusing on a GVC for specific product/industry or group of products/industries.

### Practical approaches and data requirements
- National measurement options:
  - Extend existing SNA production, distribution and use of income, capital, financial, price, and volume accounts to detail international contributions to the national economy by industry.
  - Combine existing SNA data (SUTs and IOTs) with international trade data to compile “national TiVA” where imports and exports in the SUTs and IOTs are split by country. Examples of progress: Statistics Finland, Statistics Netherlands, United States BEA.
- Detailed BOP statistics and reporting template (Committee 2019 support):
  - Recommended reporting template may comprise:
    - total value of re-exports and main product and/or partner breakdown;
    - total value of goods acquired/sold under merchanting and main products and/or major trading partners (encouraged item);
    - reconciliation table between IMTS and BOP goods statistics along BPM6 Table 10.2;
    - product and partner breakdown of total trade in goods on a BOP basis and geographical breakdown of EBOPS categories.
  - IMF and OECD prepared a reporting template included in CATT GN C.2.
- Framework to highlight MNE role in the current account (WG-GVC recommendations):
  - Supplementary data incorporating Trade by Enterprise Characteristics (TEC) for total exports and imports of goods and services broken down by:
    - domestic MNEs,
    - foreign-controlled enterprises,
    - other—domestic enterprises (using new trade statistics).
  - Extensions to direct investment income distinguishing receipts and payments by resident ultimate controlling parent and non-resident ultimate controlling parent (Balance of payments / DI).
  - The proposed framework for supplementary MNE data is summarized in a table (WG-GVC proposal; Annex V Table 3A).
- Benefits of additional data:
  - Further breakdown of DI income by residency of the ultimate owner of the MNE could significantly improve interpretive and analytical power of TiVA estimates.
  - eSUTs and more detailed BOP data improve current TiVA estimates by better capturing underlying heterogeneity within activities. OECD TiVA database includes breakdowns for China (processing vs non-processing firms) and Mexico (global-manufacturers vs non-global-manufacturers).

### Practical aspects, capacity constraints, and priorities
- Resource implications:
  - Additional details within SNA and BPM to measure GVCs require considerable resources for data collection and linking.
  - Techniques for harmonizing and integrating existing data (new IT systems, data exchange, micro-data linking, central business registers, administrative and other big data) can be done at lower cost than expansions that increase respondent burden.
- eSUTs data sources:
  - Build on national SUTs and IOTs integrated with MNE surveys, surveys for BOP purposes, tax data on non-financial flows and ownership, integrated business statistics, and reconciled trade statistics.
- GVC satellite account data sources:
  - Based on firm-specific micro-data (public and non-public), existing input-output coefficients, and information on governance and business functions.
  - Focus on traded products/industries grouped by GVC industries (e.g., horticulture, automotive, apparel and textile, electronic) for international comparison and collaboration.
- Integrated business statistics and business registers:
  - Integrated business statistics facilitate assessment of GVC impacts on firm-level employment, income, productivity, and international trade.
  - National statistical business registers should include links to foreign parents and affiliates; common business registers for MNE groups can assist in understanding global links, facilitate data sharing, and support bilateral asymmetry analysis.
- Tailoring to statistical capacity:
  - Given varying statistical capacity, economies where GVCs are material should adopt the most beneficial approach; national compilers and policymakers decide which breakdowns and approaches to implement.
  - Risk: if national compilers do not produce a consistent view across countries, information may be fragmented and not provide a sufficiently comprehensive and comparable set of statistics.
- BOP two-level reporting approach for BPM:
  - Adopt a two-level approach: (i) core or minimum set of items; and (ii) encouraged/extensions data that more statistically developed economies can report.
  - Recommendations for identifying MNEs in the current account and identification of the ultimate investor have been subject to global consultation as part of GN C.2 and DITT GN D.6.
- Importance of asymmetry resolution:
  - Resolving asymmetries (by trading partner and by product) is important for high quality ICIO tables and TiVA indicators.
  - Reconciliation between IMTS data and BOP data by trading partner is particularly important to identify and resolve discrepancies and increase transparency.
  - The WG-GVC stocktaking survey indicates current difficulties in producing these data in most countries (see Appendix Table 2A).

*Source: IMF — g7-global-value-chains-and-trade-in-value-added (excerpts on eSUTs, balance of payments, and recommended approaches).*

### SECTION VI: CHANGES REQUIRED TO THE 2008 SNA AND OTHER STATISTICAL MANUALS

### SECTION VI: CHANGES REQUIRED TO THE 2008 SNA AND OTHER STATISTICAL MANUALS

### Proposal to update SNA/BPM to support GVC and TiVA analysis
- The guidance note supports adding a new chapter to the next update of the SNA and BPM to describe GVCs and TiVA and the additional data needed to aid such analysis (such as eSUTs or highlighting MNEs in the current account).
- No conceptual changes are proposed to the central frameworks of the SNA and BPM; the change is descriptive and data-focused: "While there are no conceptual changes to the central frameworks, a description of GVCs and TiVA could be included in the next set of manuals as well as the additional data needed to aid such analysis (such as eSUTs or highlighting MNEs in the current account)."

### 2008 SNA chapters identified for update or inclusion in a globalization chapter
- Chapter 14: The Supply and Use Tables and Goods and Services Accounts
- Chapter 26: The Rest of the World Accounts and Links to the Balance of Payments
- Chapter 28: Input-Output and Other Matrix-Based Analyses
- Chapter 29: Satellite Accounts and Other Extensions

### Questions for discussion (as posed)
- 1) Do you agree that the guidance note adequately summarizes the vast amounts of work done in this area? If not, please specify what is missing and should be included in the short guidance note.
- 2) Do you support including descriptions of global value chains (GVCs) and Trade in Value Added (TiVA) in the next set of manuals?
- 3) Do you agree that no changes are needed to the core/central framework concepts of the SNA and BPM to support GVC analysis?
- 4) Do you support including the development of supplementary information for GVC analysis in the next set of manuals to help motivate greater uptake?
  - a. Within the SNA, the GN favors building (i) TiVA indicators, (ii) GVC satellite account, and (iii) more granularity using the extended supply and use tables (eSUTs).
  - b. Within the BPM, leverage the Committee’s Working Group on Balance of Payments Statistics relevant for GVCs (WG-GVCs) and other guidance notes, namely the data collection recommendations of GN C.2 and D.6, for supplemental cross-border statistics detailed by components, enterprise groups, geography or product.

### Extended Supply-and-Use Tables (eSUTs) and firm heterogeneity
- OECD Expert Group on Extended Supply-Use Tables (created in 2014) proposes extensions to 2008 SNA Chapter 14 to improve understanding of globalization’s impact.
- Underlying principle: generate greater homogeneity by breaking down industries into firm-level aggregations reflecting production functions and use of imports/exports (examples of breakdowns):
  - ownership status (foreign-owned affiliates, domestic MNEs with affiliates abroad, domestic firms with no affiliates)
  - size-class
  - export orientation
  - trade status (processor/non-processor; operating within or outside an export free zone)
- Not all activities must be decomposed; national circumstances (statistical capacity and policy demands) determine the development of eSUTs.
- GZTT suggested breakdowns of GVA by domestic MNEs versus foreign-controlled affiliates of foreign MNEs.
- References to empirical work: Ahmad (2018); Fetzer et al. (2018); Hagino and Kim (2021); INEGI (2020); Statistics Netherlands (2021).

### GVC-specific Supply and Use Tables (SUTs) structure
- GVC-specific SUTs illustrate supply and use matrices broken down by business functions and standardized products (examples include Research and development; Manufacture of motor vehicles; Distribution and logistics; Marketing, sales and after-sale services; ICT services; Engineering and related technical services).
- Supply Table at basic prices and Use Table at basic prices are presented with columns/rows for flows to/from Country B, Country C, Rest of World, final use categories (Final consumption expenditure; Gross capital formation; Exports), and GVA components (Compensation of employees; Other taxes less subsidies on production; Consumption of fixed capital; Net operating surplus/net mixed income; Gross operating surplus/gross mixed income; GVA).

### Balance of payments components identified by WG-GVC (relevant for GVC analysis)
- WG-GVC identified items to support GVC analysis:
  - All standard components as identified in BPM6 for the goods account, with breakdown of main products involved; including Re-exports; Goods acquired under merchanting; Goods sold under merchanting.
  - A reconciliation table between international merchandise trade statistics (IMTS) and balance of payments trade in goods statistics (along lines of BPM6 Table 10.2), including main products and/or partner countries where possible.
  - Balance of payments trade in goods statistics identified by CPC or CPA and partner country, consistent with national accounts SUTs.
  - Supplementary breakdown of the travel item as identified in BPM6.
  - Geographical breakdowns for trade in services statistics, starting with the 12 main EBOPS categories and prioritizing more detailed service categories according to country relevance.

### Proposed items for data collection (summary of WG-GVC proposals and availability thresholds)
- The WG-GVC included items where 50 percent or more of survey respondents indicated the data were available (published or not yet published). Items below 50% availability could be included if of particular value.
- Table 2A summary of proposals (selected entries preserved exactly):
  - Re-exports
    - Total value — Included in reporting template: Yes
    - Main products and/or major partners — Included in reporting template: Yes, but only top products and trading partners, such as top 5
    - Comment: "Availability is close to 50%, and data are very useful for GVC indicators." and "While availability is lower (38%), very useful for GVC indicators, particularly for economies with significant re-exports."
  - Goods acquired/sold under merchanting
    - Total gross value — Included: Yes (Availability above 50%).
    - Main products or major trading partners — Included: No (survey availability does not support collection).
  - Reconciliation table between IMTS and trade in goods on BOP basis (Table 10.2 in BPM6)
    - Total — Included: Yes (Availability above 50%).
    - Main products and/or major trading partners — Included: No (survey points to difficulties).
  - Breakdown of total trade in goods on BOP basis
    - Major trading partners and/or most important products — Included: Yes (Availability above 50%). Priority to trading partners.
  - Geographical breakdown of trade in services
    - 12 main EBOPS categories — Included: Yes (Availability above 50%).
  - Supplemental breakdown of travel services item
    - Supplemental classification proposed in BPM6 — Included: No (survey does not justify at this time).
- Recommendation: economies encouraged to report data to international organizations even if not published, to allay quality/confidentiality concerns while supporting GVC indicators.

### MNEs in the current account and proposed TEC/DI breakdowns
- WG-GVC developed a framework to incorporate TEC data into trade in goods and services accounts and to further break down DI income by residency of the ultimate owner of the MNE.
- Reviewed historical frameworks (Julius (1990); National Research Council (1992)) and the "Ownership-Based Disaggregation of the U.S. Current Account"; these pose definitional and conceptual reconciliation issues with AMNE/FATS and the BOP that WG-GVC could not fully address.
- Proposed framework provides additional detail within both the trade in goods and services account and within the primary income account for DI income (Table 3A). Selected structure and line items preserved exactly:
  - Lines 1–11: Exports of goods and services (BOP; Exports total; Goods, BOP basis; By domestic MNEs — TEC; By foreign-controlled enterprises — TEC; Other—domestic enterprises — TEC; Services; By domestic MNEs — STEC; By foreign-controlled enterprises — STEC; Other—domestic enterprises — STEC)
  - Lines 11–21: Primary income receipts (BOP; Direct investment income — BOP/DI; Less: adjustment to convert direct investment receipts to a directional basis — BOP/DI; Outward direct investment income — BOP/DI; By resident UBOs — BOP/DI; By foreign UBOs — BOP/DI; Portfolio investment income — BOP; Other investment income — BOP; Reserve asset income — BOP; Compensation of employees — BOP; Secondary income receipts — BOP)
  - Lines 22–31: Imports of goods and services (BOP/DI; Imports total; Goods, BOP basis; By domestic MNEs — TEC; By foreign-controlled enterprises — TEC; Other—domestic enterprises — TEC; Services; By domestic MNEs — STEC; By foreign-controlled enterprises — STEC; Other—domestic enterprises — STEC)
  - Lines 32–41: Primary income payments (BOP; Direct investment income — BOP/DI; Less: adjustment to convert direct investment payments to a directional basis — BOP/DI; Inward direct investment income — BOP/DI; By resident UBOs — BOP/DI; By foreign UBOs — BOP/DI; Portfolio investment income — BOP; Other investment income — BOP; Compensation of employees — BOP; Secondary income payments — BOP)
- Note preserved verbatim: "The term ultimate beneficial owners (UBOs) has subsequently been replaced by the recommendations discussed in GN D.6. The DITT GN D.6 'Ultimate Investing Economy/Ultimate Host Economy and Pass-through Funds' proposes to streamline the concepts for ultimate investor (UCP/UIE/UHE) used in the standards. Notably, the UCP concept used in this GN would be consistent with the UIE concept under the proposed 'Winner Takes All (WTA)' approach."

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/gztt/g7-global-value-chains-and-trade-in-value-added.pdf_