Chapter

1. Introduction

Author(s):
International Monetary Fund
Published Date:
March 1993
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1.1 Purpose

Statistics on exports and imports by partner country are maintained in the data base and disseminated through publications and magnetic tapes. The Guide describes the collection, compilation, and dissemination of these statistics; discusses the concepts, methodology, coverage, and reliability of data for trade by partner countries; and provides information for accessing the data base.

1.2 Background

Publication of DOTS—by the United Nations, the World Bank, and the Fund—began in 1950 and continued through 1963. From 1964 through April 1976, DOTS was published by the World Bank and the Fund. In May 1976, the Fund assumed sole responsibility for DOTS publication.

Since inception, DOTS has undergone many changes. The initial issue (entitled Direction of International Trade) presented, for the first three months of 1950, data on nearly 100 countries.1 Coverage subsequently expanded so that, in 1992, the yearbook included data on more than 160 countries, and the quarterly issues, which replaced monthly issues in early 1991, included data for about 135 countries.

Along with the expansion in coverage came an expansion in external demand for DOTS itself. During the more than 40 years that DOTS has been published, the external user/ subscriber list has grown to include other international organizations, governments, central banks, universities, major international banks, other financial institutions, multinational companies, universities, and students throughout the world. Annual circulation has increased from a modest number of issues to approximately 8,000 copies of the DOTS yearbook and quarterlies. Since tapes became available in 1972, the number of tape subscribers—some of which provide access to clients through their time-sharing facilities—has increased to approximately 100.

The direction of trade statistics data base has also undergone changes. In April 1990, it was converted to an upgraded data management system with new features and capabilities. Because of the matrix nature and the extensive standardization and computerization of the data base, which is a subsystem of the Statistics Department’s Economic Information System (EIS), it became possible to provide supplementary estimates whenever reported trade data were not available or current. Thus, the latest monthly data for all countries could be obtained with a delay of four or fewer months. The availability of current trade data and estimates for individual countries, in turn, facilitated the compilation of up-to-date world and regional aggregates.

In 1993, the Fund’s data base for direction of trade statistics is one of the most comprehensive and current of its type. It contains—and users have regular access to—recent monthly, quarterly, and annual statistics for trade by partner country for individual countries that do not compile and publish (or do so only after substantial delay) such data themselves. While a number of other international agencies (United Nations Statistical Office, Organization for Economic Co-operation and Development, EUROSTAT) provide similar data, such information is—by comparison—restricted in coverage or less up-to-date.2

1.3 Uses of the Data

Trade-by-country statistics published in DOTS are supplemental to, and comparable to, data on total exports and imports published in lines 70 and 71 of IFS. (The latter are typically compiled on a customs basis.)

Trade-by-country statistics can be used for a number of purposes, including analysis of economic trends, balance of payments, national accounts, regional trade patterns and trade shares, and for checking the accuracy and reliability of trade data.

Fund-wide, staff regularly use direction of trade statistics data to analyze individual countries’ external trade flows for inclusion in “Recent Economic Developments,” analyze patterns of global and regional trade and weights of country aggregates for compilation of tables in World Economic Outlook, and calculate countries’ effective exchange rates for Fund operational use.

Staff of the Fund’s Statistics Department frequently use the data to estimate the value of exports and imports of a country that does not report (or does so only after substantial delay) trade data. For those countries that are late reporting for IFS, for example, staff may supplement reported data on total exports and imports with estimates from DOTS. In other cases where a country’s reported data are considered unreliable or when the user is seeking indications of under- or overinvoicing of exports and imports, staff may check the data base to compare the country’s trade data with the data of its partner countries.3 If large discrepancies between the two sets of data appear, then the data may need to be reviewed and necessary corrective measures taken. (For example, a discrepancy might be due largely to inadequate recording of government imports in the custom-based trade statistics of the importing country.)

1.4 Current Methodology and Practice

Users of international trade statistics are aware of discrepancies that arise in the comparison of these trade statistics and in the reconciliation of trade flows between partner countries. To address the question of the comparability of international trade statistics, this section presents recommendations for standard concepts and definitions for external trade statistics, outlined by the United Nations (UN),4 and discusses implications of country practices that differ from these principles.

1.4.1 Coverage

According to UN guidelines, the coverage of international trade statistics should be sufficiently broad to encompass all merchandise entering or leaving a country from or to another country, except goods being transported through a territory (i.e., transit trade). In effect, goods that add to or subtract from the material resources of a country should be included in the country’s export or import statistics.

The guidelines distinguish between three categories of goods: goods to be included in the statistics, goods to be recorded separately (relating mainly to the improvement and repair trade), and goods to be excluded:

a. Goods to be included in the statistics

1. Nonmonetary gold.

2. Government trade (sometimes separately shown), including goods shipped or received under foreign aid programs (civil and military).

3. Military goods (such as ammunition, vehicles, vessels, and aircraft).

4. Sales and purchases of electricity, gas, and water.

5. Postal items (mainly parcel post items coming into or leaving the country).

6. Transactions representing a service installed on a support device (such as a movie on film or videotape, and data or computer programs on computer tape). The recommendation is to value such transactions at the cost of their material support.

7. Trade in marine vessels and aircraft. These are important items of capital equipment but are usually underrecorded, because they do not necessarily cross customs frontiers. Therefore, it is recommended that ships and aircraft be recorded in the trade statistics on the basis of additions and deletions to the national registry.

8. Supplies of bunker fuel and stores to and from ships and aircraft engaged in international traffic, as well as transactions connected with drilling rigs, fishing operations, salvage from and to foreign vessels, and mining operations in international waters. These should, in principle, be recorded. However, sources additional to the customs documents are usually necessary for statistical processing.

b. Goods to be recorded separately

1. Improvement and repair trade. Treatment of this trade in external trade statistics varies widely from country to country. Conceptually, the movement of a commodity makes possible the purchase of a service. In practice, repair and improvement transactions are sometimes difficult to distinguish, because they cover a very large variety of cases. For this reason it is recommended that the value of goods for repair and improvement be recorded separately.

2. Goods on lease. Guidelines recommend that goods imported on a lease of less than one year be separately recorded.

c. Goods to be excluded

1. Merchandise moving between a country and its diplomatic representatives and armed forces operating abroad.

2. Temporary trade. The movements of goods of temporary admission are excluded, because they are expected to be reversed within a limited time.

3. Monetary transactions in the form of gold securities, bank notes, and coins. Not regarded as merchandise transactions, these are treated as claims on capital in the balance of payments.

In practice, certain types of goods are sometimes underrecorded in external trade statistics—for example, government trade, goods shipped or received under foreign aid programs, military equipment, ships registered under flags of convenience, and aircraft. Trade coverage differences between partner countries have impacts on the comparison of external trade flows.

1.4.2 Territory

Coverage of international trade statistics is related to the concept of statistical territory. For compilation of trade statistics, the following should be considered part of the national territory: territorial seas, exclusive economic zones, the continental shelf, diplomatic posts, and armed forces operating abroad. However, for statistical purposes, the customs points or the customs frontier are generally accepted as the boundary, because that is where the source documents for the exports and imports are validated. In most cases, the customs area of a country coincides with its geographical area. National frontiers or statistical boundaries as defined by individual governments are published by the United Nations in “Customs Areas of the World,” Statistical Papers, Series M., No. 30, Rev. 2, 1989.

The definition of statistical territory has implications for coverage of trade statistics of countries belonging to customs unions. For example, in DOTS the data for South Africa refer to the South African Common Customs Area (SACCA), which comprises Botswana, Lesotho, Namibia, South Africa, and Swaziland (intertrade data between SACCA members are not recorded and therefore are not reported to the Fund).

1.4.3 Valuation

UN guidelines recommend that imports be valued at the c.i.f. (cost, insurance, freight) transaction value at the frontier of the importing country. For exports, the guidelines recommend valuation at the f.o.b. (free on board) transaction value at the frontier of the exporting country. The transaction value is the value in the market existing between exporters in one country and importers in another.5 Essentially, this means that the value of a country’s exports is measured at the frontier of the exporting country and that the value of imports, including the cost of freight and insurance, is recorded at the frontier of the importing country.

In practice, although the recommendations on valuation are relatively clear, a wide diversity exists among countries in valuation and definitions used and in methods of obtaining value information. Definitions and practices followed are greatly influenced by customs practices such as duty collection, control procedures, and others. Sometimes an arbitrary valuation is made, particularly in the case of exports of raw materials: The prices at which the commodities will be sold in the importing countries may not be known at the time of export. Alternatively, official standard prices may be used as listed by the customs law even when market prices are known. Valuation problems can also arise from trade transactions under special arrangements (such as grants and defense assistance programs), trade flows between branches/subsidiaries of multinational corporations, and goods shipped under counter trade arrangements. Problems may arise as well from deliberate over- or underinvoicing of exports or imports to transfer funds illegally or to reduce the payment of duties.

Guidelines for valuation also cover conversion of currency during processing of customs statistics. Customs documents accompanying imports usually list the value of goods in U.S. dollars or in the exporting country’s currency, and this must be converted to the currency of the importing country. According to UN guidelines, the conversion rate to be used is that in effect at the time of export or import, as provided by each contracting party. (The customs authorities normally convert trade value denominated in foreign currencies into national currencies at a rate prevailing on the date of customs processing).6

1.4.4 Timing

According to the United Nations’ A System of National Accounts (SNA) (New York, 1993) and the Fund’s Balance of Payments Manual (Washington, 1993), imports and exports should be recorded at the moment ownership of the relevant goods changes from residents to nonresidents. While this guideline is conceptually valid, the UN guidelines on trade also recognize the practical limitations. International trade statistics are based on records of the physical movement of goods across country boundaries, and customs procedures largely determine the actual dates that exports and imports are recorded (usually the dates that goods are passed by customs). Moreover, some countries may use the shipping dates for arrivals and departures as the criteria for determining the time of recording. In addition, the date that an export is recorded and the date that an import is recorded can be separated by substantial intervals, owing to the time that goods are stored in warehouses abroad, the length of customs clearance procedure, the nature of shipment, or the transit lag.

Transit lag in trade represents the time it takes a recorded export to be recorded in the importing country. This lag depends upon various factors, such as geographical location of the countries in question, mode of transport used, distance traveled, or type of merchandise. Occasionally, the transit lag is deliberately increased or decreased to take advantage of change in market condition. Because trade growth is marked by trends and fluctuations and the transit lag itself varies between countries and over time, trade differences from time lags can create inconsistencies in the comparison of trade flows between partner countries.

1.4.5 Trade systems

There are two recognized systems of recording external trade statistics—the special system and the general system. The difference between the two systems lies mainly in their timing of recording: the special system records the movement of goods after customs clearance, whereas the general system records the movement of goods across national boundaries. Therefore, the special system may record goods sometime after actual importation, whereas the general system, using the national boundary as the statistical frontier, records all goods entering or leaving the country at the time of import or export regardless of customs clearance.

This difference between the two times of recording by the two systems has particular implications for data on goods moving through customsbonded storage areas (e.g., warehouses, export processing zones, or free areas). The two systems define and cover these goods differently:

The special system defines special imports as those imports recorded only after they are cleared by customs for home consumption (upon release from bonded warehouses or after arrival from overseas). That is, if the goods are routed through bonded warehouses, they are not recorded until they are withdrawn for home consumption. Special exports consist of goods made in the country and goods previously imported as special imports. On the other hand, the general system records goods placed in bonded warehouses at the time of import, even if those goods are cleared through customs for home consumption at a later date. Those exports of goods that have previously been imported are called re-exports.

Coverage of these goods moving through customs-bonded storage areas differs between the two systems as well. The general system covers entrepot trade, whereas the special system does not. Entrepot trade refers to goods that are entered into bonded warehouses and then re-exported. Therefore, they are excluded from recordation by customs and completely omitted from the trade statistics of the special system. These goods often are held only for temporary storage, division, repacking, or modification before they are dispatched to their final destination. Entrepot trade is an important activity in such countries as the United Kingdom, the Netherlands, Singapore, and Hong Kong. Other countries, such as former Yugoslavia and Mexico, have large export processing zones.

These differences in the times of recording goods moving through customs-bonded storage areas and in the coverage of entrepot trade could in many cases seriously affect the comparability of trade statistics between countries, particularly between data on special trade imports with corresponding export figures from partner countries.

While one system is not recommended as superior to the other, it is recognized that adoption of the general system facilitates the reconciliation of trade flows between partner countries and the compilation of balance of payments and national accounts statistics.

1.4.6 Partner country

For compilation of external trade statistics, the following definitions of partner country have been adopted by the UN Statistical Commission.

Country of origin: Country in which the goods have been produced or manufactured, according to the criteria laid down for the application of the customs tariff of quantitative restrictions or of any other measure related to trade.

Country of consumption: Country known at the time of dispatch as the country in which the merchandise is intended to be consumed, utilized, or further processed.

Country whence consigned/country of provenance: Country from which goods were initially dispatched to the importing country without any commercial transaction taking place in the intermediate countries.

Country of destination: Country known at the time of dispatch to be the final country where goods are to be delivered.

Country of purchase: Country where importer’s co-contractor is domiciled or has his business.

Country of sale: Country where exporter’s co-contractor is domiciled or has his business.

UN guidelines recommend that countries use only two of these definitions—country of origin and country of destination: The country of origin basis should be used by countries to compile import data, and the country of last known destination basis should be used by countries to compile export data. (Countries could collect data for country of consignment only for additional information.)

This method of recording data only for the country of origin/country of destination shows the direct relationship between the producing country and the importing country (and adequately describes triangular transactions). It avoids the problems for the reconciliation of trade flows between trading partners that the recording of different partner country definitions can lead to, such as the hypothetical case in which goods from country A are sent through country B en route to country C. If export value of country A is based on the country of destination (C) but import value of C is based on the country of consignment (B), the two flows will not correspond.

Despite the use of the country origin/country of destination method, some difficulties will remain for the determination of (1) the exact origin of some imports (e.g., raw materials and semi-manufactured goods), (2) sometimes, changes of final destination before the goods are landed, and (3) the final destination of exports shipped from landlocked countries. For example, the final destination for landlocked country A’s exports is country C (not country B that shipped country A’s exports from its ports).

In addition, there remain special problems (mentioned in section 1.4.1) with transactions involving coverage of ships and aircraft, especially those registered under flags of convenience. While they often are recorded by the country of export, they are not usually recorded as imports by their country of registration.

Finally, the coverage of partner countries in trade statistics may not be comprehensive because of confidentiality. Some countries are reluctant to publish trade data that would throw light on confidential transactions in some kinds of commodities or on transactions with some partner countries or a group of countries. Therefore, some bilateral trade flows may be omitted from the trade statistics and grouped under the heading “Other Countries” and “Special Categories.”

1.4.7 Discrepancies and asymmetries in trade statistics

Although some of the most interesting uses of trade-by-country statistics are based on a trade matrix framework, their use assumes the comparability of trade flows between trading partners. That is, in the absence of problems of valuation, timing, and coverage, the value of trade flows recorded in an exporting country would be equal to the corresponding trade flows recorded in the importing countries. However, despite efforts of international statistical organizations and national compiling agencies, international trade statistics are sometimes not comparable. A comparison of Parts A and B of the world tables in the Direction of Trade Statistics Yearbook indicates the degree to which the recording of trade flows for the world is symmetrical and accurate. Exports of the world to the individual countries shown in Part A, plus freight and insurance, should correspond to imports of the countries from the world shown in Part B and vice versa.

These figures for trade flows between partner countries differ for several basic reasons—namely, unavoidable reasons like different bases of valuation and time lags; different national systems of recording trade, including conversion practices; and errors in recording of trade data:

a. Bases of valuation

Unavoidable differences between export and import figures arise because most exports are recorded on an f.o.b. basis and most imports on a c.i.f. basis. The difference represents the cost of international freight and insurance.

b. Time lags

Differences in recording of exports and imports are caused by the time lag between the departure of exports from the country of origin and their arrival as imports (and recording) in the receiving country (see section 1.4.4). Time lags are unavoidable; at any given time, an important part of world trade is in transit. Therefore, because imports and exports are recorded only at the time they cross the frontiers of the exporting and importing countries, this means that a part of world trade has been recorded by the exporting country but not yet reported by the importing country.

The value of this share of world trade in transit may be estimated in absolute terms. Assumed to be proportional to the scale of trade, on a worldwide average it may be estimated to be three to four weeks worth of exports. However, there may be large variations around this estimate, depending on specific bilateral transit lag factors such as geographical location of the countries in question, the mode of transport utilized, distance traveled, type of merchandise, and differences in recording procedures in the exporting and importing countries.

Furthermore, the share of trade in transit may also fluctuate proportionally to changes over time in the scale of world trade or to specific factors like the U.S. dollar exchange rate or changes in the oil trade. An analysis of recent developments in world trade has shown that when world trade increases or decreases rapidly, the transit asymmetry fluctuates widely; when trade increases little or not at all, the proportion of trade in transit remains relatively constant.

Particularly since 1980, fluctuations in the U.S. dollar exchange rate have been a factor in discrepancies between recordings of exports and imports related to the transit lag. An appreciation or depreciation of the U.S. dollar against other currencies, from the time of recording by the exporting country to the time of recording by the importing country, might increase or decrease the U.S. dollar value of trade invoicing in other currencies.

Because oil trade represents an important part of world trade, fluctuations in oil inventories held at sea are also believed to be a source of discrepancy related to the transit lag, particularly since 1979. As the amount of these stocks varies through the use of idle tankers for storage purposes or variation of the speed of vessels, the variations trigger fluctuations in the amount of oil in transit recorded by the exporting country but not recorded by the importing country.

c. National systems of recording trade

Discrepancies between export and import figures from different systems of recording trade are caused by four factors:

1. The use of the general trading system by some countries and the special trading system by others, as already explained in section 1.4.5.

2. Differences in the definition of partner countries. While most countries record imports as coming from the producing country, some countries show them as coming from countries of consignment. In the case of exports, it is quite common to regard the countries of consignment as partner countries (see section 1.4.6.).

3. The exclusion by some countries, and the inclusion by others, of certain goods from the trade data. Different approaches are often found for military equipment, gold, second-hand ships and aircraft, electricity, and repaired goods that are subsequently returned to the owners.

4. Different conversion practices. Either partner (the exporter or the importer) might use different exchange rates or an inappropriate exchange rate for the same consignment.

d. Errors in recording of trade data

Finally, asymmetries may also arise from defective, inconsistent, or unreliable administrative procedures for compiling trade statistics and from deliberate or unintended overstatement or understatement of trade values.

At the level of international organizations, the problem of discrepancies and asymmetries in trade statistics is well recognized, and efforts are made to correct such asymmetries. In the Fund’s Statistics Department, attempts are made to correct these discrepancies when they are detected in the DOTS source data. Moreover, during technical assistance missions to developing countries, the countries’ trade statistics are compared with partner country data and, in cases of serious discrepancies, suggestions are made for the improvement of recording, valuation, conversion, and classification procedures, as appropriate. At the United Nations, the OECD, the EUROSTAT, and the Fund, several methodological and empirical studies designed to facilitate the formulation and adoption of corrective measures have been carried out on the causes and extent of asymmetries in trade statistics.

In this publication, the term country does not always refer to a territorial entity denned by international law and practice as a state. Country also refers, in this Guide, to some territorial (nonstate) entities for which statistical data are maintained and provided internationally on a separate and independent basis.

The OECD and EUROSTAT data bases cover OECD and EEC countries, respectively, as reporters. The UNSO data base (COMTRADE) covers volume as well as value data with commodity detail (in terms of SITC classification).

However, data from partner countries may also be underreported or overreported.

United Nations, “International Trade Statistics: Concepts and Definitions,” Statistical Papers, Series M, No. 52, Rev. 1 (New York, 1982). Attempts have also been made to harmonize customs procedures. The latest attempt is the Kyoto Convention (International Convention on the Simplification and Harmonization of Customs Procedures), Customs Cooperation Council, Kyoto, May 1973.

The definition of transaction value was set forth in the 1979 GATT Agreement. Article 1 of the GATT agreement states the following: The customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of importation … provided:

(a) that there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which (i) are imposed or required by law or by the public authorities in the country of importation, (ii) limit the geographical area in which the goods may be resold, or (iii) do not substantially affect the value of the goods;

(b) that the sale or the price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;

(c) that no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller …; and

(d) that the buyer and seller are not related, or where the buyer and seller are related, that the transaction value is acceptable for Customs purposes.

Articles 2 through 7 of the agreement give guidelines for determining the transaction value when the conditions of Article 1 are not met. Article 8 also provides guidelines in cases where the price does not include certain elements considered part of the transaction value for customs purposes.

For customs purposes some countries still use the current domestic value as the method of valuation, which is based on the 1928 Convention Relating to Economics Statistics of the League of Nations. This system of valuation refers to the value in the domestic market in the country of origin of the commodity.

For a discussion of related issues and country practices, see Dev K. Kar, “Currency Invoicing and Exchange Conversion in International Trade” (PIFS/86/1, IMF, unpublished).

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