INSIDE GLOBAL ISSUES
Working Paper No. 201504
Foreign Affiliate Sales and the Measurement of Trade in Both Goods and Services
Li Chunding, Chen Yan
Abstract: There is an incompatibility between measures of trade in goods and services. Measures of goods trade reflecting GATT are restricted to trade that crosses borders. Service trade, however, under GATS includes both cross border delivery and foreign affiliate sales within borders. We propose that for comparability the trade component of foreign affiliate sales in goods should be included in goods trade or affiliate sales should be removed from service trade data. We make modifications to reported goods and services trade for specific countries by using data on affiliate sales to produce more consistently measured cross country estimates of trade flows.
Keywords: Trade Statistics; Foreign Affiliate Sales; Commercial Presence; Cross Border Trade
1. Introduction
This paper discusses how we measure trade flows between countries in the modern global economy and how much difference alternative treatments imply for our perceptions of the degree that global economies are integrated. It focuses on the treatment of foreign affiliate sales, putting on one side the related issue of whether we should focus on trade in goods or value added discussed extensively in recent literature (Hummels et al, 2001; Koopman et al, 2008; Johnson and Noguera, 2009). Given we wish to measure trade in goods and services, how large are they and with what degree of imbalance.
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2. Foreign Affiliate Sales and Trade Statistics
Traditionally, trade in goods is recorded as the physical movement of goods across borders and import and export data on trade in goods are obtained from customs clearance data. For services, this treatment does not capture all modes of service delivery covered by the WTO General Agreement on Trade in Services (GATS) since data on GATS mode 3(commercial presence) is missing under such an approach. At present, for several countries commercial presence trade in services via foreign affiliate sales data may or may not be included. Importantly, it is included for such large economies as the US and Germany. The result is the use of different bases both across goods and services and across countries for the two sets of trade data.
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3. A Methodology for Calculating Both Cross-Border and FAS Measures of Trade in Both Goods and Services
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4. Some Specific Results of Important Trade Topics with FAS
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5. Implications and Concluding Remarks
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