What is Trade in Value Added (TiVA)?
- The Trade in Value Added (TiVA) statistical method considers the value added by each country in the production of goods and services that are consumed worldwide.
- The TiVA method eliminates the double or multiple counting problem prevalent in traditional trade statistics.
- The OECD analyzes trade policy, investment policy and a host of other policy measures to assist countries in accounting for global supply chain value systems.
Understanding Trade in Value Added (TiVA)
The TiVA joint Organization for Economic Cooperation and Development (OECD) World Trade Organization (WTO) initiative considers the value added by each country in the production of goods and services that are consumed worldwide. Goods and services purchased are composed of inputs from various countries around the world, but the flows of the components in these global supply and production chains were not accurately reflected in previous measurement indicators.
TiVA indicators are designed to better inform policy makers by providing information and insights on commercial relations between nations. TiVA traces the value added by each industry and country in the production chain to the final export, and allocates the value added to these source industries and countries. TiVA recognizes that exports in a globalized economy rely on global value chains (GVCs), which use intermediate items imported from various industries in a number of countries.
TiVA In Action
Traditional trade statistics record gross flows of goods and services each time they cross a border. This creates a double counting or multiple counting problem. For example, a traded intermediate item used as an input for an export may be counted several times in trade figures.
The TiVA approach avoids double counting by accounting for the net trade flow between countries. For example, a cellphone manufactured in China for export may need several components such as memory chips, touch screen and camera from overseas companies located in Korea, Taiwan, and the U.S.
The overseas companies in turn need intermediate inputs such as electronic components and integrated circuits imported from other nations to produce the cellphone components that will be exported to the Chinese manufacturer. The TiVA method allocates the value added by each of these companies involved in the manufacture of the final cell phone export.
OECD Role In TiVA Measures
To improve and build on TiVA methodology, the OECD analyzes trade policy, investment policy, policies for development and a range of other domestic policies to aid policy makers to determine how economies can benefit from engagement in global value chains.
The Inter-Country Input-Output (ICIO) system calculates indicators to measure economic globalization, including trade in jobs and skills to show how many and what type of jobs are sustained by foreign final demand. The ICIO plus emissions data produces estimates of trade in embodied carbon to highlight where carbon dioxide is being consumed rather than produced. In addition, the OECD is evolving accounting frameworks and content of national input-output and supply use tables to more accurately measure global trade.
Example of TiVA
One of the most common cases provided as an example of global value chain is that of Apple's products. The Cupertino company designs its products in the U.S. but they are assembled in China with inputs and intermediate steps from a vast array of companies situated in different countries, from Germany to Japan to South Korea.
Complicating the manufacturing process further is the relationship between different companies involved in the process. For example, Foxconn—the company that is responsible for the final assembly—has operations in Taiwan as well as Mainland China. Both are involved in the production and assembly of Apple's products and component parts for its devices.
The complex interchange of components and supplier parts and intermediate steps involved means that a traditional system, in which only the immediate source of a part is considered for accounting, would result in errors. A TiVA accounting system creates a comprehensive dataset that can account for the value added to the device at each step of the manufacturing process.
For example, a 2010 study found that China accounted for less than 10% of the $144 (Chinese) factory-gate price of an iPod. A bulk of the components, amounting to approximately $100 of the device's total cost, were imported from Japan and the rest came from US and Korea.