The Asian Perspective
ADBI series on Asian Economic Integration and Cooperation
Edited by Richard Baldwin, Masahiro Kawai and Ganeshan Wignaraja
Chapter 3: Trade in value added: concept, development, and an East Asian perspective
The Institute of Developing Economies – Japan External Trade Organization (IDE-JETRO) and the WTO conducted joint research on the topic of global value chains and published a report of the collaboration in June 2011 (WTO and IDE-JETRO 2011). The research introduced the concept of ‘trade in value added’, which addresses an important issue of measuring international trade in the face of growing production sharing among different countries. The trade in value added approach redefines the relationship between countries of origin and destination in international trade. In contrast to the orthodox concept of trade balances based on foreign trade statistics, it focuses on the value-added contents of a traded product, and considers each country’s contribution to the value-added generation in a production process. The next section provides a non-technical explanation of the concept of trade in value added, with particular reference to East Asia. The basic motivation for focusing on East Asia stems from the general observation that the region has successfully fostered very sophisticated production networks across countries, and came to form what Richard Baldwin called ‘Factory Asia’ (Baldwin 2007). An increasing number of segments in the production process were rapidly and extensively relocated to different places in different countries within the region, yet what really characterizes the production system of East Asia is the diversity and complementarity of its constituent countries, where each country specializes in a different stage of a production process according to its own comparative advantage.
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