Here are some of the reasons why discrepancies in the bilateral trade statistics exist? | Jawaher Al Mheiri - GulfToday

Here are some of the reasons why discrepancies in the bilateral trade statistics exist?

Jawaher Al Mheiri

@Jawahr_almheiri

Economic Affairs Specialist and an Aviationist.

Economic Affairs Specialist and an Aviationist.

Here are some of the reasons why discrepancies in the bilateral trade statistics exist?

The photo has been used for illustrative purposes.

The bilateral trade statistics are significant for understanding the economic interconnections between the trading partners, for developing trade and investment policies as well as for supporting business and government decisions.  

The bilateral trade statistics published by partner countries differ for various reasons, and it is important for the data users to understand why these discrepancies exist. Discrepancies between the reported trade statistics can obscure the interpretation of both sets of statistics, as well as contribute to overall global asymmetries in trade, especially for large economies such as the US and its main trading partners, thus challenging the measurement and the understanding of the structural changes in the rapidly evolving global economy.  

The reasons behind the discrepancies in the bilateral trade statistics can be broadly grouped into the following categories (but not limited to): trade system, time lags, Valuation and the types of goods excluded from the trade statistics.

The used trade system by a country is one of the discrepancy reasons. In concept, there are two trade systems mainly used to collect the trade statistics, including the general trade system (GTS) and the special trade system (STS).

The GTS is used when the statistical territory of country X matches with its economic territory, and its imports include all goods entering the economic territory of country X and its exports include all goods leaving the economic territory of country X. Whereas, The STS is used when the statistical territory includes only a particular part of the economic territory. In this system, the imports include all goods that are cleared through customs and to be used in the same country, and it excludes the Free Trade zones (FTZs) and the Industrial Free Zones (IFZs).

Time lags is among these reasons too. In various situations, because of the distance between country X and country Y, goods in transit at the end of the year are counted as exports by country X, but not counted as imports by country Y. And that’s because it still didn’t reach country Y due to the distance factor. Nevertheless, the time lag between the shipments only occurs at the beginning and the end of the year, thus minimizing the effect of timing on the overall trade statistics discrepancies.

Another factor is the Valuation, which includes different exchange rates used in reporting as well as the inclusion or exclusion of freight and insurance in value.  

The value of a shipment may change between the date it leaves country X and the date it arrives to country Y because of the changes in the exchange rate. But I personally don’t think that the changes in the exchange rate are to be considered as a major contributor to the discrepancies in the trade statistics.  

Moreover, in some countries imports are valued at Cost, Insurance and Freight (CIF), and exports are valued at Free on Board (FOB). This results in having the imports’ value higher than the exports’ value. Nevertheless, countries can adjust these figures by removing the freight and the insurance values from the import statistics, or by avoid using different evaluation methods, hence coming up with a unified methodology.

Furthermore, countries may exclude some of the traded goods when reporting their trade statistics. These goods may include returned goods, low value goods, emergency aid goods, vessels as well as military goods. So, when the exclusion list of two countries is not matching, such discrepancies in trade statistics will exist.  

All in all, the aforementioned reasons lead to the discrepancies in the reported bilateral trade statistics. Now, since the reasons are identified, it might be useful to know which goods are the main sources of the discrepancies between two countries. Additionally, to evaluate how important these goods are in the overall trade exchange between these countries.