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Prepared by
Foreign Trade Division
U.S. Bureau of the Census
January 1997
Revised July 1998
Table of Contents
- Reasons for Understatement
- Low Value Underestimation
- Failure to File
- Missing or Incomplete Information
- Undervaluation of Reported Information
- Proposed Solutions
- Automated Export System
- Outreach and Education
- Enforcement
- Improve Low Value Coverage
- Conclusion
- Appendix
- I. Comparisons with Partner Country Data
- II. Port Audits
- III. Other Observations
Summary
Comparison studies with partner countries, port audits and
information from those involved in exports have raised two significant
questions regarding the U.S. merchandise export statistics:
"How complete are the export data?" and "What can done to improve
them?"
Merchandise exports, which accounted for just 3.9 percent of
gross domestic product (GDP) in 1960, now account for 8.5 percent
of GDP. However, based upon comparisons with partner country
data, port audits, other studies and information from those
familiar with export trade, the Census Bureau believes that
merchandise exports are understated. Our best estimate is that
the understatement ranges from 3 to 7 percent of the published
export value, but could be as high as 10 percent. We do not
have adequate information, however, to develop estimates of
understatement by country or by product area.
There is no evidence of significant errors in the import data.
Thus, the estimated merchandise export undercount means that
the merchandise trade deficit could be overstated by as much
as $69 billion (34 percent of the published value) in 1997.
We do not adjust the export value because the information on
understatement is not sufficiently accurate.
The Census Bureau has identified four major causes of error
in the merchandise export statistics:
- underestimation of low valued transactions;
- failure of exporters to file the required documentation;
- missing or incomplete information on the documents that
are filed; and
- undervaluation of export shipments in response to foreign
quotas or tariffs.
To address these problems, several actions are proposed:
- full implementation of the Automated Export System,
- increased outreach and education,
- increased Customs enforcement of export filing requirements,
and
- improved coverage of low valued transactions.
Understatement of Export Merchandise Trade Data
Based upon a variety of studies and anecdotal evidence, the
U.S. Census Bureau, which compiles and publishes the merchandise
trade statistics, believes that the value of exports is understated.
From the information available, however, it is not possible
to develop a single, reliable estimate of the export understatement.
The Census Bureau has used several approaches to estimate the
export understatement, including comparisons with partner country
data, port audits, and other studies/observations. Based upon
these studies, we estimate that export understatement is most
likely in the 3 to 7 percent range, but could be as high as
10 percent. The studies upon which this estimate is based are
detailed in the appendix.
Since 1960, the significance of exports to the U.S. economy
has increased substantially. In 1997, exports of goods accounted
for 8.5 percent of U.S. gross domestic product, up from 3.9
percent in 1960. If our most conservative estimate of 3 percent
understatement is correct, the merchandise trade deficit for
1997 would be overstated by about $20 billion (10 percent of
the published value). If our worst case estimate of 10 percent
understatement is correct, the merchandise trade deficit would
be overstated by nearly $69 billion (34 percent).
Part of the increase in exports is a result of changes in trade
patterns in recent years. More, and quite often smaller, U.S.
companies have gotten involved in international trade. For example,
in the last decade, Mexico has significantly reduced its tariff
and nontariff barriers to trade, and encouraged processing and
assembly operations in its maquiladora zones. Many of the top
exporters, in terms of number of documents filed, are now located
along the southern border of the United States. Many industries
have established operations close to the U.S. - Mexico border.
This permits more, smaller shipments to satisfy "just-in-time"
delivery demands. This has increased the importance of low valued
trade.
In addition, the easing of trade barriers and the ease of shipment
by inexpensive international air parcel companies has made it
economically feasible for smaller companies to export worldwide.
The trade statistics are an integral part of the gross domestic
product compiled by the Bureau of Economic Analysis. Other major
users include the Federal Reserve Board, the Council of Economic
Advisors, the International Trade Commission, the International
Trade Administration, the U.S. Trade Representative, the Maritime
Administration, and the Army Corps of Engineers. In addition,
many private industry and academic users depend upon these data
to perform market studies, analyze competition, and develop
trade routes, among other uses.
Reasons for Understatement
We have identified four basic reasons for the understatement
of U.S. exports, which are compounded by the changing patterns
of trade mentioned above: 1) underestimation of low value transactions,
2) failure to file, 3) missing or incomplete information on
filed documents, and 4) undervaluation in reported information.
Low Value Underestimation
It appears that our estimates of low value trade are too
low. Exporters are not required to report transactions valued
less than $2,500. Instead, Census estimates the value of these
transactions based upon historical patterns of trade. However,
the data upon which these factors are based is now very old
and does not reflect recent shifts in trade patterns. We have
not collected data on transactions valued below $1,000 in
over a decade. Information on transactions valued between
$1,500 and $2,500 have not been reported since October 1989.
We have little information on which to accurately assess the
effects of recent changes in trade patterns. Companies involved
in air cargo trade tell us that our estimates significantly
understate the proportion of low valued transactions in U.S.
exports.
We have examined the issue in our reconciliation studies
and found that underestimation of low value trade accounted
for up to 3 percent of the reported value of U.S. exports
to those countries. However, this estimate is very rough since
trading partners can define their reporting codes differently
than the United States, thus creating more or less low valued
trade relative to the United States. We were only able to
obtain this information from three trading partners--Australia,
Korea and Mexico. The underestimation appears to differ significantly
from country to country. So, while these comparisons support
our belief that we underestimate low value trade, they do
not provide a basis firm enough for correcting our estimates.
Failure to File
Failure to file the required export documentation has been
a longstanding problem, particularly for overland and parcel
trade. As noted above, it can be very difficult to collect
paper documentation for overland truck and rail shipments.
In addition, smaller exporters may be less knowledgeable of
reporting requirements and more likely to see those requirements
as a burden. And, although we have not found any firm evidence
of this, we think that some exporters may be under the false
impression that the passage of the North American Free Trade
Agreement eliminated reporting requirements.
Missing or Incomplete Information
A 1992 analysis of one month's export reporting showed that
roughly half of all paper documents contained at least one
error. Most of these errors involve missing or invalid commodity
classification codes, and missing or incorrect quantities
or shipping weights. These errors have a negligible effect
on the reported export values or the balance of trade, but
can significantly affect detailed commodity and transportation
analyses. A 1995 joint Census/Customs review of selected vessel
manifests suggests that for this segment of trade the error
rate may be as high as 70 percent.
Undervaluation of Reported Information
Finally, in some cases there appears to be some intentional
misreporting. The 1989 port audit of air shipments showed
what appeared to be deliberate misclassification and undervaluation
of a small percentage of export shipments out of Miami to
Central and South America. These practices were intended to
circumvent high tariffs or quotas in the countries of destination.
The audits, however, uncovered no evidence of this practice
at the other three airports studied.
Proposed Solutions
No single solution will resolve all of these concerns. Instead
Census proposes the following combination of approaches: 1)
full implementation of the Automated Export System (AES), 2)
continued outreach and education efforts by both the Census
Bureau and the Customs Service, 3) increased Customs efforts
to ensure compliance with reporting requirements, and 4) expanded
coverage of low valued shipments. Several of these efforts are
currently underway, others will require either additional resources
or regulatory changes.
Automated Export System
The single most important step that can be taken to improve
export coverage is full implementation by the Customs Service
of the AES, a new Customs/Census program designed to permit
direct electronic submission of export documentation to the
Customs Service. The AES will improve the export data in several
ways. First, it will eliminate the logistics problems of collecting
paper documents, particularly from trucks and trains. Second,
it will allow editing of the data as they are received, so
that incomplete or incorrect information can be corrected
by the reporting party.
In addition to the statistical benefits, the AES benefits
exporters and their agents by simplifying the export reporting
process. In fact, because the system is designed to meet the
reporting requirements of most federal agencies, it should
reduce total reporting burden.
Several of our major trading partners already get most or
all of their export documentation electronically, often with
exceptions for small filers or small ports. These include
Mexico (mandatory electronic filing), Japan (largely electronic
except for small brokers without terminals), Korea (largely
electronic filing). Roughly 80 percent of Canada's exports
are to the United States, so it receives the data for these
transactions electronically through the data exchange.
There are several private service company initiatives underway
to facilitate AES reporting, including at least one that permits
small companies to complete electronic forms and submit them
to a private service center via the Internet.
At present, however, the Census Bureau and the Customs Service
are shouldering a double cost burden. They must pay the costs
of developing, expanding and maintaining the AES system, while
continuing to pay for handling and processing large numbers
of paper documents.
Currently, the AES is still in its initial implementation
period and accounts for less than one percent of export records.
The Census Bureau spent $3.8 million in FY1997 to review and
key the information from the paper export documents. Most
of this information is already stored in the computer systems
of exporters, freight forwarders and carriers.
Outreach and Education
Outreach to and education of the exporting community are
essential to improving the quality of the export statistics.
The Census Bureau has made several such efforts. From 1991
through 1993, an intensive exporter education program was
conducted that involved contacting exporters with frequent
reporting errors to educate them as to proper filing procedures.
This program was discontinued in 1993 due to budget cutbacks.
In 1995 and 1996, the Customs Service and the Census Bureau
have conducted many seminars and meetings with the export
community. Initially these programs concentrated mostly on
explaining and promoting the Automated Export System. More
recently, the agencies have launched an Outbound Compliance
program to increase, first through education and eventually
through enforcement, compliance with export reporting requirements.
These programs, again, are very costly and must be maintained.
Otherwise, the reporting improvements are quickly lost.
Enforcement
Additional enforcement efforts are essential to improved
export statistics. Over the years, the Customs Service has
not stringently enforced export reporting requirements, since
no taxes or tariffs were involved. While the AES system will
eliminate the undercoverage that occurs because of logistical
problems (for example, where the exporter prepared the proper
documents but the truck driver did not submit them), it will
do nothing to ensure compliance with reporting requirements
from those companies that are either unaware of the reporting
requirements or who intentionally violate them.
The Customs Service, with the assistance of the Census Bureau,
has begun an effort to increase "outbound compliance." This
program is starting with voluntary compliance efforts involving
educating exporters, forwarders and carriers regarding their
responsibilities. Later, enforcement actions are planned to
ensure compliance. It is essential that these efforts be continued.
Continued export understatement can be expected until there
is a reasonable expectation on the part of the export community
that noncompliance will be penalized.
One planned feature of the AES system would aid in ensuring
proper reporting. This feature would involve matching of the
electronic data for exports and for air and vessel manifests.
This will allow Customs to identify shipments for which no
export documentation was filed. Currently, all such matching
must be done against paper manifests, which is very time consuming
and expensive.
Improve Low Value Coverage
As noted earlier, it appears that we are underestimating
the aggregate value of low valued transactions. The current
minimum reporting threshold for exports has two main purposes--to
reduce the reporting burden on small exporters and to reduce
government processing costs. With electronic reporting, there
is often no benefit to reporting companies in eliminating
the lower valued transactions.
One feature requested by the export community under AES was
permission to report at the level at which their company records
are kept, instead of aggregating by product as is now required.
This was approved, provided the companies report all transactions,
regardless of value. If most companies choose this option,
it should provide the information needed to improve our estimates
of low value trade once AES participation expands.
Conclusion
The trade statistics significantly understate the value of
U.S. exports. The major causes of this understatement are changing
trade patterns, which have increased the number of companies
exporting, including many small companies; the boom in the small
package/air courier trade, which has increased the proportion
of shipments below the reporting threshold, failure of some
companies to file, reporting errors and intentional fraud. If
nothing is done to improve export reporting, the understatement
of exports will increase. In addition, the escalating costs
of processing large quantities of paper documents could force
an increase in the reporting threshold, further reducing export
coverage.
However, there are several actions that can and should be taken
to improve coverage, including full implementation of the Automated
Export System, increased outreach and education programs, greater
Customs enforcement of reporting requirements, and improved
coverage of low valued transactions. In addition, mandatory
electronic filing, with exceptions for small exporters, should
be considered as a way to significantly improve accuracy and
reduce processing costs.
Appendix - Studies of Export Undercoverage
I. Comparisons with Partner Country Data
The most extensively used approach to estimate export understatement
is to compare U.S. trade data with that of our major trading
partners. We have undertaken several studies each with Japan,
Korea, Australia and the European Union. Through these studies,
we attempt to identify and quantify the reasons behind the
discrepancies between the trade data published by the United
States and its major trading partners. Some of the discrepancies
result from legitimate conceptual differences. Working with
the partner country statistical agency, we further analyze
the discrepancies and adjust for as many conceptual and other
differences as possible. However, since the resulting "residual
discrepancy" between the final adjusted values for the United
States and the partner country may still contain the effects
of conceptual differences that we either could not identify
or could not quantify, it provides only a rough estimate of
the export undercount. In the various reconciliation studies,
the combined effect of proven nonreporting, underestimation
of low value trade, and unresolved discrepancies ranged from
3 to 9 percent of the reported U.S. export value, with most
of the studies falling in the 3 - 7 percent range.
Exports to Canada and Mexico are special cases. There is
virtually agreement, the United States and Canada have each
based their export statistics upon the partner country's import
data. Before this agreement, however, the understatement of
U.S. exports to Canada was estimated to be as high as 20 percent.
This high undercount, in large part, reflected the difficulties
of collecting data on overland shipments moving across this
open border.
While Census suspects that the underreporting of exports
to Mexico is greater than that to overseas partners, it does
not believe it to be as high as that experienced with Canada
before the data exchange. One reason is that increased automated
reporting of exports has eliminated some of the errors resulting
from the careless handling of paper documents by truck drivers
and others at the border crossings.
From 1991 - 1994 the discrepancy between published U.S. exports
and Mexican imports ranged between 8 and 12 percent. For 1995
- 1997, the discrepancy rose to a level ranging between 15
and 19 percent. However, it is unlikely that these discrepancies
reflect the true underreporting in U.S. exports. Based upon
discussions with Mexican officials, Census believes that the
discrepancies reflect both an understatement of U.S. exports
as well as an overstatement of Mexican imports from the United
States. Mexican officials believe that foreign goods, particularly
those imported for use in maquiladora and automotive operations,
may be incorrectly attributed to the United States. The Census
Bureau is currently working with several Mexican agencies
to further investigate the discrepancy.
II. Port Audits
In 1988 and 1989, Census and the U.S. Customs Service conducted
spot audits at four major airports. The audit teams assessed
the compliance with export filing requirements at the time
of export and looked for missing export documents. These audits
estimated the export understatement at between 2 and 8 percent.
Although the agencies originally planned additional audits
at vessel and overland ports, these plans were not carried
out due to the high cost of conducting these audits.
III. Other Observations
Census and Customs have frequent contact with carriers, freight
forwarders, exporters and others with knowledge of the export
trade. In addition, the agencies have conducted occasional
checks of carrier manifests and export document filing compliance.
Although information gathered from these sources is inexact
and often anecdotal, it cannot be ignored. These sources indicate
that export understatement may be somewhat higher than the
partner studies and port audits indicated, particularly in
certain situations, most notably the international undervaluation
of exports to countries with high import duties.
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