Asymmetries in international Trade in Goods Session 7.2 –Quality and Mirror exercises Asymmetries in international Trade in Goods MEDSTAT III training course on IMTS 17-19 April 2012

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES I - Main reasons for asymmetries Trade System Coverage Under reporting Identification of Partner countries Valuation Time of recording Others… II - MEDSTAT Asymmetry studies

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Trade System Several trade systems are defined by UNSD: general trade, special trade (strict definition or “relaxed” definition) Differences affect in particular inclusion or exclusion of transactions linked to free trade areas or Customs warehouse Use of different systems by countries leads to asymmetry Use of General trade is recommended by UNSD

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Coverage 1. Geographical definition of territories: Definition of the statistical territory may differ according to countries: Examples: inclusion or not of overseas territories (USA/Puerto Rico; France/West indies islands) or specific Customs territories (China/Hong Kong) Use of different geographical definitions leads to asymmetry International cooperation to harmonise definitions and practices

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Coverage 2. Military Equipment Military Equipment is sometimes excluded from trade statistics for confidentiality reasons (whereas it is often included in data of main producer/exporters) Inclusion of military equipment is recommended by UNSD Application of confidentiality rules allow to include military equipment without specific disclosure of this kind of trade

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Coverage 3. Specific goods not easily registered by Customs Some specific goods may not be subject to Customs declarations: Examples: Ships and aircrafts, sea products, electricity, software… Follow recommendations by UNSD about inclusion/exclusion of specific goods Find alternative sources of information for goods not reported to Customs (ex: registers for ships/aircrafts, direct reporting from companies,…)

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Under reporting or no reporting Under reporting may occur for various reasons: Application of thresholds by Customs Unformal trade (shuttle trade) Fraudulent trade Apply international recommendations by UNSD about full coverage of trade statistics Production of estimates for trade below threshold and for unformal trade (shuttle trade surveys)  Fraudulent trade is not to be included in trade statistics, but production of estimates useful for BOP and National Accounts

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Identification of partner countries According to IMTS recommendations, Imports should be allocated to the country of origin (and in addition by country of consignment with IMTS 2010) Exports should be allocated to the country of last known destination In case of re-exports, the re-exporting country will not be considered as the partner country in the mirror imports Exporters are not always aware of the real country of last destination

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Valuation According to IMTS recommendations, Imports are valuated at the CIF value (including the cost of international transport and insurance) Exports are valuated at the FOB value (excluding the cost of international transport and insurance) For each transaction, imports should be higher than mirror exports (except between neighbor countries with a mode of transport by land)

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Valuation In case of merchanting, the value of imports are increased by the margin of the intermediate operator. Example: the firm b in country B buys goods to the firm a in country A and sells the goods to the firm c in country C. Goods are dispatched directly from a to c value of exports by a to c: 10 000 value of transport from a to c: 200 margin of b: 1000 value of imports by c from a: 11200

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Time of recording Period of recording may differ between the export in country A and the import in country B Causes: duration of transport, storage in a free zone or in a Customs warehouse

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Other reasons… 1. Currency conversion: Exchanges rate may differ when measured at export side or import side: due to the delay of transport due to the rules applied (daily rate, monthly average,…)

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Other reasons… 2. Confidentiality rules: Part of data may not be disclosed at detailed level if the trade is concentrated on one (or two) firm(s). Confidential trade is sometimes hidden in a specific chapter (often chapter 99) Confidentialisation leads to asymmetries for specific products, but not at total trade level. It is recommended to include confidential trade at the most possible level of detail by product (for instance HS-4 or HS-2 digit) and by partner country

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Other reasons… 3. Errors in the Customs declarations: Errors can be introduced by declarants without fraud purpose Errors are limited when Customs administrations use computerised procedures including validation rules. It is important that Customs administration carry out validation rules on export side as well as on import side

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Other reasons… 4. Difficulties to classify products under the accurate commodity code in the detailed classification: Products classifications are often sophisticated, particularly at detailed level (> 5000 items for the Harmonised System, often more than 10 000 items in the national classifications) Often items with label “other goods…” Classification of goods may differ between the export declaration and the import declaration. Asymmetries are often increasing with the level of detail by product:

MAIN REASONS FOR EXTERNAL TRADE ASYMMETRIES Level of asymmetry is increasing with the level of detail: example of intra-EU trade (year 2000) …   mirror flow missing asym>90% 90%>asym>50% 50%asym>20% asym<20% Total Total Products 0,2 0,6 10,6 88,6 100 HS-2 0,1 4,2 5,8 28 61,9 HS-4 9 10,8 14,2 29,2 36,8 HS-6 15,5 16,4 25,2 27,4 CN-8 20,6 18 16,8 21,8 22,8

REASONS FOR EXTERNAL TRADE ASYMMETRIES Link with International recommendations Some asymmetries are due by the non application of IMTS international recommendations. Nevertheless, some asymmetries can occur even with the full application of these recommendations. The following table summarises which source of asymmetry can be solved by the application of recommendations:

REASONS FOR EXTERNAL TRADE ASYMMETRIES Link with International recommendations Causes of asymmetry Solved by application of IMTS recommendations Use of different Trade systems Yes Differences in the definition of geographical territories Yes, partly Exclusion of specific goods Under reporting due to threshold Under reporting due to unformal trade Under reporting due to fraudulent trade No Indirect Trade, Reexports CIF - FOB valuation Merchanting Time of recording Exchange rate Confidentiality Errors by declarants

II - MEDSTAT ASYMMETRY STUDIES Mirror analysis between EU and MED partner countries Asymmetry studies were carried out during phase II of program MEDSTAT (2006-2009) and are renewed under phase III (2010-2013): - Between the EU and 8 countries partners - Also on internal asymmetries between 4 partner countries (Egypt, Israel, Jordan, Palestine) The studies are carried out with a common methodology, leading to comparable results “Top-down” approach: identification of the main chapters leading to asymmetries, then analyze at more detailed level by product and partner country for the main chapters. Extraction of data from international data bases, production of a draft report, one week mission in the partner country, sometimes contacts are necessary with the EU Member States Production of a whole set of recommendations discussed with each partner country

II - MEDSTAT ASYMMETRY STUDIES Which is the magnitude of the discrepancies between the mirror flows of the EU and the Mediterranean countries ?

II - MEDSTAT ASYMMETRY STUDIES

II - MEDSTAT ASYMMETRY STUDIES Detailed analysis of asymmetries between the EU and MPCs shows that the main reasons for discrepancies are: - Differences in the trade systems; - Difficulties with measuring trade involving Free zones; - Confidentiality concerning the partner country in some EU countries (in particular for HS27); - Repairs of aircraft (HS88, HS84 and HS90); - Non-use of registers to measure trade in vessels and aircraft (HS88 and HS89); - Difficulties with measuring trade in diamonds (HS71); - Registration of the country of origin for used cars in accordance with international recommendations; - Possible under-declaration of values.

MEDSTAT ASYMMETRY STUDIES As there is still room for improvement in most MPCs, a set of recommendations was made for each partner country. The most frequent recommendations are: - Adopt the international classifications (of products and partner countries); - Check for full coverage; - Adopt the ‘general trade system’; - Improve the information on trade via Free zones; - Continue and step up the cooperation with customs authorities; - Lay down new rules on confidentiality; - Make better use of registers for vessels and aircraft (HS 88 and HS 89); - Improve checks for under-declared trade values; - Check processing activity, particularly in the textile, car and jewellery sectors; - Organise national workshops; - Re-organise customs procedures, adopting the Kyoto Convention; - Proceed periodically with new asymmetry studies.

CONCLUSIONS Various reasons can explain international trade asymmetries It is very useful to carry our periodic asymmetry studies with main partners and to identify the main sources of asymmetry Level of relative asymmetries can be considered as a quality indicator and introduced as such in a quality report The level of asymmetries is generally increasing with the level of detail of product classification Application of international recommendations limits the amount of asymmetries, but cannot suppress them completely

Thank you for your attention CONCLUSIONS Thank you for your attention Questions and remarks ?