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Revaluating yuan is no help in restoring competitiveness

By  Paul A. Ebeling, Jnr
AseanAffairs     18 October 2010

World Trade Organization (WTO) Director-General Pascal Lamy said on Friday "a reevaluation of the yuan would only have a modest impact on the sales price of the final product and would probably not restore the competitiveness of competing products manufactured elsewhere."

In his speech to the French Senate, Lamy regarded the current statistical gauge measuring international trade and balance of payments, based on the notion of "country of origin," and the concept of "resident" and "non- resident," as "flawed" and very often "lead us to the wrong solutions."

Citing the case of an iPod imported to the United States from China, Lamy said, "more and more products are Made in the World" rather than in one country. The value of the products, from design to manufacture of components and assembly, may require various operations across the world.

"Every time an iPod is imported to the United States, the totality of its declared customs value (US$150) is ascribed as if it were an import from China, contributing a bit more to the trade imbalance between the two countries," Lamy explained, in fact "less than US$10 of the US$150 actually comes from China, and all the rest is just re-exportation."

Mr. Lamy concluded that it is the innovating country that earns most of the profits, while the current statistics tend to focus on the last link of the chain, the one which ultimately earns the least.

The WTO Director-General calls for an early adjustment on statistics to address the needs of economic and social policy change. "Better late than never," he said.

Lamy made his remarks in Paris Friday, while speaking in a session on "Measuring Trade and Value-Added" at the French Senate.

By

Paul A. Ebeling, Jnr