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5422.0 - International Merchandise Trade, Australia, Sep 1997  
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Feature Article - Bilateral merchandise trade statistics reconciliation: Australia and Japan, 1994


(This article was published in the September quarter 1997 issue of International Merchandise Trade, Australia (ABS Catalogue Number 5422.0))

INTRODUCTION

The Australian Bureau of Statistics (ABS) and Japan's Customs and Tariff Bureau (JCTB) have recently undertaken a bilateral reconciliation study covering merchandise trade flows between Australia and Japan. The ABS acknowleges the contribution of the JCTB in carrying out this study.

Japan is Australia's largest trading partner, accounting for 13.0 per cent of Australia's imports and 19.5 per cent of Australia's exports in the year ended June 1997. In 1994, the year for which the reconciliation has been undertaken, Japan's share of Australia's imports and exports was even higher, accounting for 17.8 per cent and 24.7 per cent respectively.

In 1994, Australia recorded imports of $12,100 million from Japan while Japan recorded exports to Australia of $11,986 million. The discrepancy of $114 million represents 0.9 per cent of Australia's imports from Japan. In the same year, Australia recorded exports of $15,992 million to Japan while Japan recorded imports from Australia of $18,794 million. The discrepancy of $2,802 million represents 17.5 per cent of Australia's exports to Japan.

There are many reasons why discrepancies exist in the recording of trade flows by trading partners. The purpose of this study was to quantify and adjust for conceptual and methodological differences so that the significance of the remaining differences could be determined.

Outcomes of the reconciliation study are shown in Tables A and B. These tables show the value of Australia's exports or imports, the value of adjustments made, and the value of Japan's imports or exports. Also shown is the residual discrepancy - this is the discrepancy that remains between the two sets of figures after all conceptual and practical adjustments have been made. All figures are in Australian dollars, converted using an average annual exchange rate of $A1 = 74.25, applicable in 1994. Previous investigations have shown that the impact of using an average annual rate rather than a monthly rate is likely to be minor.


CONCEPTUAL AND METHODOLOGICAL DIFFERENCES

Although both countries generally follow the international recommendations contained in the United Nations (UN) publication, International Trade Statistics, Concepts and Definitions, Statistical Papers, Series M, No. 52, Rev. 1, there are still definitional and conceptual differences in the data. The adjustments made to account for these differences in this reconciliation are outlined in this section. For more detailed information on the possible causes of differences between the exports of one country and the imports of the other, see the article Bilateral Merchandise Trade Statistics Reconciliation: Australia and the United States of America, 1991 to 1994 which was published in the September Quarter 1996 issue of International Merchandise Trade, Australia (Cat. No. 5422.0).


Southbound Trade

The adjustments shown in Table A represent the changes needed to transform Australia's published imports to the same basis as Japan's published exports. They do not reflect revisions to either country's official statistics.

  • Coverage

The most significant coverage difference affecting southbound trade relates to differing treatment of low value records.

In Australia, import entries lodged on informal clearance documents for values not exceeding $250 are excluded. In addition, imported parcel post items valued under $1,000 are excluded. In Japan, merchandise trade statistics exclude export shipments valued under $2,694 (200,000) regardless of mode of transport.

To adjust for this difference, the value of all Australian records less than $2,694 (200,000) in value was determined, resulting in a low value trade adjustment of -$256 million being applied.
  • Valuation

Australia values its imports on a 'Customs value' basis. Customs value is the FOB transactions value adjusted for any transaction where the Australian Customs Service considers the FOB transactions value to be not a true market value.

An adjustment for the difference between Australia's import value on an FOB basis and on a Customs value basis was made in the reconciliation study. The FOB value was higher than the Customs value, and an adjustment of +$8 million was made.
  • Country classification

In accordance with international recommendations, Japan classifies its exports by country of final destination and Australia classifies its imports by country of origin. Classification of exports by country of final destination can be a difficult task as the exporter is sometimes not in a position to know whether the goods are to be further manufactured or otherwise consumed in the country to which they are consigned, or whether they will be traded with yet another country. When the country of final destination is not known at the time of exportation, the exporter declares the country of last shipment (country of consignment) in place of the country of final destination.

In concept at least, exports and imports statistics will only be symmetrical between trading partners when exports are shipped directly from the country of origin to the country of final destination. Discrepancies occur when third countries are involved, as with re-exports of merchandise and goods traded through intermediate countries.

In the case of southbound trade, the following adjustments were applied to adjust for differences in country attribution principles.

          Japan's re-exports
          When goods are imported by Japan and are subsequently re-exported to Australia, these goods should be recorded in Japan's exports to Australia but not in Australia's imports from Japan. Consequently, for data reconciliation purposes, the value of Japan's re-exports to Australia needs to be subtracted from Japan's export statistics. In 1994, Japan's re-exports of Australian and third country merchandise totalled +$171 million.



          Australia's indirect imports

          When Australia imports goods of Japanese origin from a country other than Japan, they will be included in Australian imports from Japan, but will generally not be included in Japan's exports to Australia. This assumes that the Japanese exporter in unaware of the subsequent retrading. However in some instances the Japanese exporter will be aware of the ultimate destination of the goods and these transactions will be included in Japan's exports to Australia. It is impossible to distinguish between these two circumstances.

          In the reconciliation an adjustment of -$480 million has been made, which is the value of merchandise of Japanese origin imported by Australia from third countries. This is the largest adjustment made to southbound trade. Since some of Australia's indirect imports will undoubtedly be recorded as exports to Australia by Japan, this adjustment may somewhat overstate the effect of trade via third countries.
  • Timing

The timing adjustment accounts for merchandise which is likely to have been recorded in different years in the statistics of the exporting and importing countries. It is made up of an adjustment based on the amount of time it takes a shipment to reach Australia (shipping adjustment) and an adjustment for the time taken by the Australian Customs Service to process the import entry (processing adjustment). Adjustments are made for either end of the reference period.

When calculating the shipping adjustment it was assumed that it took, on average, 23 days to ship goods by sea from Japan to Australia. No adjustment is made for air freight. Australia's January 1994 statistics included $536 million of imports which arrived by sea between 1 January and 23 January, while Australia's January 1995 statistics included $879 million of imports which arrived by sea between 1 January and 23 January. It is assumed that these imports would have been included in Japan's 1993 and 1994 exports respectively. Using these figures, the overall shipping adjustment for the reference period was calculated as +$343 million.

The second component of the timing adjustment, the processing adjustment, is made to account for goods arriving in Australia outside the year in which they were recorded in Australia's import statistics. This adjustment applies to both sea and air freight and is necessary because Australia's imports are recorded statistically in the calendar month in which the import entries are finalised by Customs, rather than the month of arrival. $50 million of Australia's imports from Japan recorded in January 1994 actually arrived in December 1993 or earlier and were out of scope of the reconciliation. $73 million of Australia's imports from Japan recorded in January 1995 actually arrived in Australia in 1994 and should have been included in the reconciliation. Therefore, the overall processing adjustment was +$23 million.

The total southbound timing adjustment was +$366 million.


Northbound Trade

The adjustments shown in Table B represent the changes needed to transform Australia's published exports to the same basis as Japan's published imports. They do not reflect revisions to either country's official statistics.
  • Coverage

After comparing the goods excluded from each country's statistics, the following adjustments were applied to account for known differences in coverage between the two sets of statistics.


          Low value trade

          In Australia, individual transaction lines within an export consignment where the value of the goods is less than $A500 are excluded. In addition, exported parcel post items valued under $2,000 are excluded. In Japan, Customs data exclude import shipments valued under $2,694 (200,000) regardless of mode of transport.

          To adjust for this difference, the value of all Australian records less than $2,694 (200,000) in value was determined, resulting in a low value trade adjustment of -$22 million.

          Gold coin

          Gold coins are included in Australia's merchandise trade statistics, but excluded from Japan's statistics. An adjustment of -$14 million has been made to account Australia's exports to Japan of gold coin in 1994.

          Fish

          Fish caught in Australian waters and shipped directly to Japan are not landed in Australia and are therefore not included in Australia's export statistics. However, they are included in Japan's import statistics as originating from Australia. An adjustment of +$37 million was made based on the difference between Australia's exports of both fresh and frozen fish, and Japan's imports of fresh and frozen fish.

Investigations have indicated that the discrepancy due to any other coverage differences would be minimal.
  • Valuation

Australia values its exports on an FOB transactions value basis, while Japan values its imports on a 'cost, insurance and freight' (CIF) basis. Japan does not compile separate information on the freight and insurance component of the CIF value, so it was necessary to estimate this for the purposes of the reconciliation study.

The freight and insurance component was estimated for each commodity at the 6-digit level of the Harmonised System classification. For each commodity one of the following methods was used:

-
        For the 25 major commodities imported by Japan from Australia, information on freight and insurance rates were obtained by contacting Australian exporters.
-
        For codes within chapters 01, 06, 08, 69, 84, 85 and 90, freight and insurance rates were calculated by Japan (at the chapter level) based on an examination of a sample of one month's import documents.
-
        For commodities that Australia also imports from Japan (other than those in the above 2 categories), calculations were based on the CIF/FOB ratio for that commodity from Australia's imports data.
-
        For the remaining commodities, the average CIF/FOB ratio from Australia's imports data was used.

The resulting adjustment of +$2,622 million represented the largest adjustment made to northbound trade.
  • Country classification

Australia classifies its exports by country of final destination and Japan classifies its imports by country of origin. As noted above, the exporter is not always aware of the country of final destination and in this case the country of last shipment (country of consignment) is reported.

Exports and imports statistics can be expected to be symmetrical between trading partners only when exports are shipped directly from the country of origin to the country of final destination. Discrepancies occur when third countries are involved, as with re-exports of merchandise and goods traded through intermediate countries.

In the case of northbound trade, the following adjustments were applied to adjust for differences in country attribution principles.


          Australia's re-exports

          When goods are imported by Australia and are subsequently re-exported to Japan, these goods should be recorded in Australia's exports to Japan but not in Japan's imports from Australia. Consequently, for data reconciliation purposes, the value of Australia's re-exports to Japan need to be subtracted from Australia's export statistics. Australia's re-exports of Japanese and third country merchandise resulted in an adjustment of -$184 million in 1994.

          Japan's indirect imports

          When Japan imports goods of Australian origin from a country other than Australia, they will be included in Japan's imports from Australia, but will generally not be included in Australia's exports to Japan. This assumes that the Australian exporter in unaware of the subsequent movement. However in some instances the Australian exporter will be aware of the ultimate destination of the goods and these transactions will be included in Australia's exports to Japan. It is impossible to distinguish between these two circumstances.

          In the reconciliation an adjustment of +$312 million has been made, which is the estimated value of merchandise of Australian origin imported by Japan from third countries. This estimate was calculated by Japan based on an examination of a sample of one month's import documents. Since some of Australia's indirect imports will undoubtedly be recorded as exports to Japan in Australian trade statistics, this adjustment may somewhat overstate the effect of trade via third countries. The value of Australia's exports to Japan via third countries was examined with a view to subtracting these from Japan's indirect imports, but the commodity match between this and Japan's indirect imports data was not particularly good, so the extra adjustment was not made.

          Japan's re-imports

          Re-imports are goods originally exported which are imported to the originating country in either the same condition in which they were exported or after undergoing repair or minor operations which leave them essentially unchanged.

          Goods of Japanese origin that have been re-imported into Japan from Australia are recorded under a special commodity code in Japanese statistics as imports from Australia. In Australian statistics they would be classified as re-exports to Japan, and therefore have been removed from the reconciliation as part of the re-export adjustment. Consequently it is necessary to adjust for Japan's re-imports as well. In 1994 these amounted to +$47 million.

          A similar adjustment is not necessary for southbound trade, as goods of Australian origin that have been re-imported into Australia are included in Australia's published import figures as imports with country of origin Australia, and do not impact on the reconciliation.
  • Timing

The timing adjustment accounts for merchandise which is likely to have been recorded in different years in the statistics of the exporting and importing countries. It is made up of an adjustment based on the amount of time it takes a shipment to reach Japan (shipping adjustment) and an adjustment for the time between arrival in Japanese ports and Customs clearance of the import entry (processing adjustment). Adjustments are made for either end of the reference period.

When calculating the shipping adjustment it was assumed that it took, on average, 17 days to ship goods by sea from Australia to Japan. Northbound journeys have a shorter duration on average that southbound journeys because many northbound vessels travel directly from Australian ports to Japan, while southbound vessels often call at several ports. Based on a journey length of 17 days, the value of goods that left Australia by sea after 14 December was determined (as these goods were likely to have arrived in Japan in January of the following year).

The second component of the timing adjustment, the processing adjustment, is made to account for goods arriving in Japan outside the year in which they were recorded in Japanese import statistics. In calculating this adjustment it was assumed that the processing delays on average amounted to 4 days.

Using these assumptions, the value of goods in Australia's 1993 exports that are assumed to be in Japanese 1994 imports was calculated as $797 million, and the value of goods in Australia's 1994 exports that are assumed to be in Japan's 1995 imports was $803 million. The overall northbound timing adjustment is therefore -$6 million.
  • Other differences

Comparison of data at the commodity level identified a discrepancy in tobacco. Subsequent investigation determined that some tobacco that was imported by Australia from Japan for further processing and subsequent re-export to Japan was treated differently in the two sets of statistics. An adjustment of +$19 million has been included in the reconciliation to account for this.


RESIDUAL DISCREPANCIES
  • Southbound trade

The residual discrepancy of +$77 million, shown in Table A, represents the difference remaining after the application of the adjustments to southbound trade described above. The residual discrepancy is positive, indicating that the adjusted Australian merchandise imports figure is lower than the published Japanese merchandise exports figure. The residual discrepancy is 0.6 per cent of Australia's imports, compared with an initial discrepancy of 0.9 per cent.

Possible reasons for the residual discrepancy include: problems associated with correct country attribution; valuation differences; additional timing differences; minor coverage differences; and currency conversion practices.
  • Northbound trade

The application of the adjustments to northbound trade described above have reduced the discrepancy to almost zero. The residual discrepancy of -$9 million, shown in Table B, represents less than 0.1 per cent of Australia's exports. This compares with an initial discrepancy of 17.5 per cent.


CONCLUSION

This reconciliation study has demonstrated that a significant part of the 'asymmetry' in Japan-Australia bilateral merchandise trade data results from the conceptual factors underlying the compilation of the data. As previously indicated, the adjustments presented in the reconciliation do not represent revisions to the official published statistics of either country, nor do they imply, in general, errors in either country's published statistics.

For southbound trade the initial discrepancy was 0.9 per cent of Australia's imports, and the residual discrepancy 0.6 per cent. The greatest contributors to the narrowing of the gap were the adjustment for Australia's imports of Japanese origin goods via third countries, and differences in the treatment of low value transactions.

For northbound trade the initial discrepancy was 17.5 per cent of Australia's imports, and the residual discrepancy 0.1 per cent. The greatest contributor to the narrowing of the gap was the adjustment relating to insurance and freight, which are included in published Japanese imports, but not in Australian exports.

Japan is Australia's largest trading partner, accounting for 21.1 per cent of Australia's trade in 1994. The small magnitude of the residual discrepancies encourages a reasonable degree of confidence in the accuracy of Australia's import and export data, at least at the aggregate level.

Further reconciliation studies with Japan are not planned at this stage. However, work on a reconciliation study with New Zealand is nearing completion and the results of this study will be published in a later issue of International Merchandise Trade, Australia (Cat. No. 5422.0).


REFERENCES

ABS, International Trade database

Customs and Tariff Bureau, Ministry of Finance, Japan, unpublished data

United Nations, International Trade Statistics, Concepts and Definitions, Statistical Papers, Series M, No. 52 Rev. 1




TABLE A: AUSTRALIA/JAPAN MERCHANDISE TRADE RECONCILIATION 1994 SOUTH BOUND TRADE ($A million)

      AUSTRALIA'S PUBLISHED IMPORTS
12,100
      Adjustments
      Coverage
      - Low value trade
-256
      Valuation
      - FOB adjustment
8
      Country classification
      - Japan's re-exports
171
      - Australia's indirect imports
-480
      Timing
366
      Residual discrepancy
77
      JAPAN'S PUBLISHED EXPORTS
11,986


TABLE B. AUSTRALIA/JAPAN MERCHANDISE TRADE RECONCILIATION - 1994 NORTHBOUND TRADE ($A million)

AUSTRALIA'S PUBLISHED EXPORTS

Adjustments
15,992
Coverage
- Low value trade
-22
- Gold coin
-14
- Fish
37
Valuation
- CIF adjustment
2,622
Country classification
- Australia's re-exports
-184
- Japan's indirect imports
312
- Japan's re-imports
47
Timing
-6
Other differences
- Tobacco
19
Residual discrepancy
-9
JAPAN'S PUBLISHED IMPORTS
18,794


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