DEFINITION of 'Trade in Value Added (TiVA)'

A statistical method used to estimate the sources of value added when producing goods and services for export and import. “Trade in Value Added” (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 today’s globalized economy rely on global value chains (GVCs), which use intermediate items imported from various industries in a number of countries.

BREAKING DOWN 'Trade in Value Added (TiVA)'

Traditional trade statistics record gross flows of goods and services every single time they cross a border. This creates a “double counting” or “multiple counting” problem. For instance, a traded intermediate item used as an input for an export may be counted several times in trade figures. The TiVA approach avoids this double counting issue by accounting for the net trade flow between countries.

For example, a cellphone manufactured in China and exported from that nation may need several components such as memory chips, touch screen and camera from overseas companies located in Korea, Taiwan and the U.S. These overseas companies would 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 would allocate the value added by each of these companies involved in the manufacture of the final export, the cellphone in this instance.

The TiVA approach can unearth value-added figures that are quite startling. For example, since Apple’s ubiquitous iPhone is manufactured in China, it would be logical to assume that every iPhone exported from China earns that nation a handsome profit. But that’s hardly the case. An analysis in 2010 revealed that while the iPhone 4 cost $187.51 at the factory gate in China, Korea contributed $80.05 worth of components, the U.S. $22.88, Chinese Taipei $20.75 and Germany $16.08. China’s contribution in assembling the final product was just $6.50, or only about 3.5% of the total cost.

According to the OECD and WTO, the new perspective provided by measuring TiVA may impact policy choices in a number of areas, including global trade imbalances, market access and trade disputes, trade and employment, and export competitiveness.

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