Abstract
In April 2004, the 15th U.S.-China Joint Commission on Commerce and Trade (JCCT) established a statistical working group. Participating units from the Chinese side include the Ministry of Commerce of the People’s Republic of China and the Chinese General Administration of Customs; the U.S. side includes the U.S. Department of Commerce and the Office of the U.S. Trade Representative. In view of the unusually large and growing statistical discrepancies in the bilateral merchandise trade data officially published by two countries, the initial focus of the working group was to examine the bilateral merchandise trade statistics between China and the United States. Members agreed to conduct a reconciliation study, using recent data, to explain and quantify the statistical discrepancies in the bilateral merchandise trade data. The goal of the study is not to alter the official statistics of either country, but to identify the causes of the statistical discrepancies in the official data of the two countries, and to facilitate a common understanding by data users of the actual situation of the bilateral trade and the causes of the statistical discrepancies in the bilateral trade data. Adjustments made to statistical data, to achieve mutually agreed upon sets of trade figures, do not imply errors in the statistical systems of either country. Neither do the adjustments represent revisions or corrections to either country’s published trade figures.
Previously, in 1994, a trade statistics working group was established at the 8th U.S.-China JCCT meeting to address the issue of discrepancies in the bilateral trade statistics. The main conclusion reached was that goods shipped indirectly from China via Hong Kong and other intermediary countries or regions account for a large part of the discrepancy in the U.S.-China bilateral trade statistics. Although both countries follow the same international guidelines on merchandise trade statistics programs, the corresponding import and export statistics from both countries will not necessarily match. Differences in partner country attribution and value added in intermediary countries or regions are major causes of the discrepancies in indirect trade from China to the United States.
The present reconciliation study covers bilateral merchandise trade data in years 2000, 2004 and 2006. Following are the main findings and conclusions:
1. The level of bilateral trade between the United States and China has continued to grow, and so has the level of the discrepancies. However, the statistical discrepancy in percentage (the absolute statistical discrepancy over the corresponding imports’ value) has decreased in both eastbound trade (China to United States) and westbound trade (United States to China). In other words, disregarding the impact of trade expansion, the discrepancy in the bilateral trade statistics has decreased.
2. Eastbound trade contributes to the majority of the statistical discrepancy, about 80-90 percent of the total. This proportion has increased with the recent growth in the volume of bilateral trade. U.S. imports from China increased 187 percent, from $100.1 billion (U.S. Dollars) in 2000, to USD 287.8 billion in 2006. China exports to the United States rose 291 percent, from USD 52.1 billion in 2000 to USD 203.5 billion in 2006. Discrepancies increased from USD 48.0 billion to USD 84.3 billion over the same period, while westbound discrepancies decreased from USD 6.1 billion to USD 4.0 billion. Due to the larger discrepancies, the efforts of the working group are concentrated on analyzing the eastbound trade.
3. The statistical discrepancy in eastbound trade can stem from conceptual and methodological differences in the collection and processing of the trade data. Differences in statistical territory definitions, differences in timing of recording, and inclusion of re-exports in export statistics contribute to the discrepancy. However, these factors have minimal net impact. The working group further researched eastbound indirect and direct trade separately to study the statistical discrepancies:
(A) Eastbound indirect trade leaves China, enters the commerce of intermediary countries or regions, and is then re-exported to the United States. The proportion of indirect trade has decreased recently; however, it still accounted for as high as 52 percent of the total eastbound statistical discrepancy in 2006. Although both China and the United States follow the same international guidelines for partner country attribution, the discrepancy is hard to avoid due to the attribution of imports to country of origin, and exports to country of last known destination. Discrepancies may occur when goods enter the commerce of the intermediary country or region. New values may be added due to further processing, re-packing, or a simple price markup when the goods are re-sold. Another source of the discrepancies is when the intermediary country or region, instead of the United States, is the last known destination by Chinese exporters. In this case, the goods are recorded as exports to the intermediary country or region by Chinese customs while recorded as imports from China by the United States based on the principle of Country of Origin. Most indirect trade moves through Hong Kong, but the proportion is decreasing gradually every year. Indirect trade through other countries continues to increase in both volume and its contribution to the statistical discrepancy.
The group estimates that the statistical discrepancy attributable to the above causes in eastbound indirect trade contributed USD 28.9 billion to the overall discrepancy in 2000, USD 32.7 billion in 2004, and USD 44.1 billion in 2006.
(B) Eastbound direct trade moves from China to the United States without entering the commerce of other countries or regions. It accounted for the remaining 48 percent of the eastbound statistical discrepancy in 2006. The working group determined that differences in values declared to customs account for a large part of the statistical discrepancy in direct trade. A measurable factor in the direct trade discrepancy was that the values declared to the U.S. customs at the time of importation were higher than the values declared to the Chinese customs at the time of exportation. Goods exported from China may change ownership in route to the United States. The working group determined that this occurs more often with processed goods compared to general goods. The higher values reported for the goods in U.S. imports reflect markups and not any transformation of the products.
The working group held in-depth discussions over several technical issues in an effort to develop a methodology to quantify the statistical discrepancy attributable to markups in the eastbound direct trade data. The group estimates that the differences in reported values in eastbound direct trade contributed USD 13.2 billion to the overall discrepancy in 2000, USD 19.4 billion in 2004, and USD 21.0 billion in 2006.
(C) In summary, the working group identified reasons for the bilateral statistical discrepancy in eastbound trade, and developed estimates to quantify their contributions to the total discrepancy. After applying adjustments to the trade statistics based on these estimates, the statistical discrepancies for the three years in the study significantly decreased. In 2000, the eastbound statistical discrepancy base on officially published data was USD 48.0 billion, but once adjustments for explainable differences were made, the discrepancy decreased to USD 7.5 billion. In 2004, and 2006, the amount of statistical discrepancy is adjusted from USD 71.8 billion to USD 23.5 billion, and USD 84.3 billion to USD 24.2 billion, respectively. The residual, or remaining statistical discrepancy in eastbound trade that the working group did not account for, is between 8 and 12 percent of the total U.S. imports for each of the three years.
4. Only a small portion of the statistical discrepancy is due to westbound trade, so the working group limited its analysis by studying the conceptual and methodological differences without separating the data between indirect and direct trade. Results revealed that different methods of valuation applied by both countries (China values imports on a basis of cost, insurance, and freight, while the United States values exports on a free alongside ship basis) are the main factor that causes the statistical discrepancy in westbound trade.