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Feature Article - Australia-New Zealand Merchandise Trade, Bilateral
CONCEPTUAL AND METHODOLOGICAL DIFFERENCES
In the compilation of their international merchandise trade statistics for calendar year 1998, both countries followed the international standards contained in the United Nations (UN) publication, International Trade Statistics, Concepts and Definitions, Statistical Papers, Series M, No. 52, Rev. 1. However, definitional and conceptual differences still exist in the data, and the adjustments made to account for these differences are outlined below.
The adjustments shown in Table A represent the changes needed to transform Australia’s published imports to the same basis as New Zealand’s published exports. They do not reflect revisions to either country’s official statistics.
The only significant coverage difference affecting westbound trade relates to differing treatments of low value records.
In Australia, import entries lodged on informal clearance documents for values not exceeding $250 per transaction line, and imported parcel post items valued under $1,000, are excluded from import statistics. In addition, from July 1998 onwards, individual transaction lines (within a formally entered Customs import consignment) where the value of goods is less than $250, are also excluded from import statistics. In New Zealand, export statistics exclude all export shipments (regardless of the mode of transport) with a total value under $853 (NZ$1,000). If the total value of a shipment exceeds NZ$1,000, individual transactions under NZ$1,000 are included.
A net adjustment is required to account for the differing treatment. First, an estimate of Australia’s recorded direct imports valued under $853 (NZ$1,000) was applied as a negative adjustment, to exclude all of Australia's low value records below the New Zealand shipment threshold. The estimate of New Zealand's individual transactions under NZ$1,000 was then added as a positive adjustment, to account for its inclusion in New Zealand's export figures. No additional positive adjustment to account for the difference in the treatment of parcel post records, i.e., for New Zealand parcel post exports with a value between $853 and $1,000, was made, because these were thought to be insignificant. The resulting net adjustment made for low value trade was -$20 million.
Australia's import statistics are valued on a ‘Customs value’ basis. Customs value is the FOB transactions value adjusted for any transaction where the Australian Customs Service (Customs) considers the FOB transactions value not to be a true market value. New Zealand values its exports on an FOB basis.
No adjustment for valuation was made in the reconciliation study. The difference between Australia's imports on a FOB basis and on a Customs value basis was found to be insignificant.
In Australia, import values in foreign currencies are automatically converted to Australian dollars by Customs' computerised processing system, using exchange rates applicable on the date of export. The rates used are the daily average selling rates of currencies against the Australian dollar, as advised by the RBA. In New Zealand, export values reported in foreign currencies are converted to New Zealand dollars by SNZ using weekly exchange rates. No adjustment to account for these differences was made in the reconciliation study.
The UN recommends that exports be classified by country of final destination, which is the country where the goods are going to be consumed. This 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 consignment in place of the country of final destination.
For imports, the UN recommends that the country of origin, or production, be used to identify the trading partner supplying the goods. Production is defined to exclude minor operations, such as shelling, bottling or labelling, that do not alter the essential nature of the goods.
The UN recommendations for country classification of exports and imports are followed by the ABS and SNZ.
In concept, at least, export and import statistics will only align 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, such as with re-exports of merchandise and goods traded through intermediate countries. In the case of westbound trade, the following adjustments were applied to adjust for differences in country attribution principles.
New Zealand's re-exports. Goods which are imported by New Zealand and are subsequently re-exported to Australia should be recorded in New Zealand's exports to Australia, but not in Australia's imports from New Zealand. For data reconciliation purposes, this is shown as a positive adjustment of $272 million to Australia's imports from New Zealand during 1998. If, in fact, some of these goods have been recorded in Australian import statistics as originating in New Zealand, this adjustment may be overstated.
Australia's indirect imports. When Australia imports goods of New Zealand origin, from a country other than New Zealand, they are included in Australian imports from New Zealand, but will not generally be included in New Zealand's exports to Australia. This assumes that the New Zealand exporter is unaware of the subsequent retrading. However, in some instances, the New Zealand exporter will be aware of the ultimate destination of the goods and these transactions will be included in New Zealand's exports to Australia. It is impossible to distinguish between these two circumstances. In the reconciliation, an adjustment of -$5 million in 1998 has been included. This is the value of merchandise of New Zealand origin imported by Australia from third countries. Since some of Australia's indirect imports may be recorded as exports to Australia by New Zealand, this adjustment may somewhat overstate the effect of trade via third countries.
The timing adjustment accounts for merchandise trade 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 Customs to process the import entry (processing adjustment). Adjustments are made for each end of the reference period.
In the previous reconciliation study, the shipping adjustment was calculated on the assumption that it took, on average, 5 days to ship goods by sea from New Zealand to Australia. The assumption was derived from international cargo ship arrival and departure data recorded in the Daily Commercial News newspaper and discussions between the ABS and SNZ.
In this reconciliation study, date of export and date of arrival data, from the Customs COMPILE system, were used to calculate an average journey length between Australia and New Zealand. The results were compared with the Daily Commercial News to ensure the quality of the Customs data. Using this method it was determined that it took, on average, 7 days to ship goods by sea from New Zealand to ports on the east coast of Australia, and 10 days to ship goods to other Australian ports.
Based on these journey lengths, an estimate of the value of goods that arrived in Australia by sea before 7 January (for east coast ports) and 10 January (for other than east coast ports) was calculated, as these goods were likely to have left New Zealand in December of the previous year.
The value of goods in Australia's January 1998 imports statistics, that were assumed to be in New Zealand's December 1997 exports, was calculated as $39 million, and the value of Australia's January 1999 import statistics, that were assumed to be in New Zealand's December 1998 exports, was $29 million. The overall westbound shipping adjustment for 1998 was calculated as -$10 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.
$19 million of Australia's imports from New Zealand recorded in January 1998 actually arrived in December 1997 or earlier and were out of scope of the reconciliation. $18 million of Australia's imports from New Zealand recorded in January 1999 actually arrived in Australia in 1998 and should have been included in the reconciliation. Therefore, the overall processing adjustment for 1998 was -$1 million.
In aggregate, the total westbound timing adjustment for 1998 was -$11 million.
The adjustments shown in Table B represent the changes needed to transform Australian published exports to the same basis as New Zealand's published imports. They do not reflect revisions to either country's official statistics.
The differing treatment of low value records is the only significant eastbound coverage adjustment identified in the reconciliation study. In Australia, individual transaction lines within an export consignment where the value of the goods is less than $500 are excluded. In addition, exported parcel post items valued under $2,000 are excluded. In New Zealand, import statistics exclude all import shipments (regardless of the mode of transport) with a total value under $853 (NZ$1,000). If the total value of a shipment exceeds NZ$1,000, individual transactions under NZ$1,000 are included.
To adjust for these differences, an estimate of Australia's recorded direct exports with a value less than $853 (NZ$1,000) was applied as a negative adjustment, to exclude Australia's low value records below the NZ threshold. An estimate of New Zealand's individual transactions under NZ$1,000 was then added as a positive adjustment, to account for its inclusion in New Zealand's figures. No additional positive adjustment to account for the difference in the treatment of parcel post records, i.e., for New Zealand parcel post imports with a value between $853 and $2,000, was made, because these were thought to be insignificant. The resulting net adjustment for low value trade was $33 million.
Australia values its exports on an FOB transactions value basis, while New Zealand values its imports on a 'value for duty' basis. The major difference is that the New Zealand value for duty often excludes special export packaging and other costs incidental to delivering the goods on board ship. However, investigations have shown the differences between the two valuation methods to be insignificant.
In Australia, export values reported in foreign currencies are converted to Australian dollars using a representative mid-point of the buy and sell rates on the date of departure of the goods from Australia. In New Zealand, imports are converted from foreign currencies when the import documents are processed by the New Zealand Customs Service. The exchange rates used are set by the New Zealand Customs Service each fortnight. The impact of these differences was not investigated.
Australia classifies its exports by country of final destination and New Zealand classifies its imports by country of origin.
As noted above, export and import statistics will only align between trading partners when exports are shipped directly from the country of origin to the country of final destination.
In the case of eastbound trade, the following adjustments were applied to adjust for differences in country attribution principles.
Australian re-exports. When goods are imported by Australia and are subsequently re-exported to New Zealand, these goods should be recorded in Australia's exports to New Zealand, but not in New Zealand's imports from Australia. Consequently, for data reconciliation purposes, the value of Australia's re-exports to New Zealand needs to be subtracted from Australia's export statistics.
Australian re-exports to New Zealand during 1998 totalled $1,250 million. If some of these transactions have been recorded in New Zealand's import statistics as originating in Australia, this adjustment may be overstated. It is also probable that some re-export transactions have not been recorded as such in Australia's export statistics.
The previous reconciliation study with New Zealand identified instances of this, but it was not possible to quantify the effect at that time, so no further adjustments were made. As a result, particular emphasis was placed on identifying and quantifying this problem in the current study. The findings are discussed under Detailed Commodity Investigations.
New Zealand's indirect imports. When New Zealand imports goods of Australian origin from a country other than Australia, they will be included in New Zealand's imports from Australia, but will not generally be included in Australia's exports to New Zealand. This assumes that the Australian exporter is 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 New Zealand. It is impossible to distinguish between these two circumstances.
In this reconciliation an adjustment of $20 million has been included. This represents the value of merchandise of Australian origin imported by New Zealand from third countries. The value of Australia's exports to New Zealand via third countries was examined with a view to subtracting these from New Zealand's indirect imports, but the commodity match between this and New Zealand's indirect imports data was not very good, and so no offsetting adjustment was made.
For the 1998 reconciliation study both a shipping and a processing adjustment were made for eastbound trade. A processing adjustment for New Zealand's imports was not included in the previous study, because the lag was not significant.
The eastbound shipping adjustment was calculated using the same average journey length as for westbound trade i.e. 7 days for goods exported by sea from Australian east coast ports to New Zealand, and 10 days for goods exported by sea from other Australian ports to New Zealand.
Based on these journey lengths, an estimate of the value of goods that left Australia by sea after 21 December (for other than east coast ports) and 24 December (for east coast ports) was calculated, as these goods were likely to have arrived in New Zealand in January of the following year.
The value of goods in Australia's 1997 exports, which are assumed to be in New Zealand's 1998 imports, was calculated as $52 million and the value of Australia's 1998 exports, that were assumed to be in New Zealand's 1999 imports, was $89 million. The overall eastbound shipping adjustment was therefore -$37 million.
Like Australia, New Zealand import statistics are compiled on a month of processing by Customs basis and not a month of arrival basis. An adjustment to take account of goods which were exported from Australia outside the year in which they were recorded in New Zealand's import statistics is therefore necessary.
The eastbound processing adjustment was calculated as the net difference between the value of Australian origin goods imported by New Zealand during 1998 and the value of Australian origin goods that were processed and included in SNZ published imports for 1998. The eastbound processing adjustment was $33 million.
In aggregate, the total eastbound timing adjustment was -$4 million.
DETAILED COMMODITY INVESTIGATIONS
Once the data were adjusted for differences in the concepts and methods used by the two countries, the commodities with the largest discrepancies were investigated to identify and explain other differences that exist and quantify any data deficiencies.
Non-monetary gold, wool, fish and coal. Investigations revealed that the commodity discrepancies were largely due to differences in the 6 digit HS commodity code reported by the Australian importer and New Zealand exporter.
For these commodities the reconciliation differences were largely offsetting at the 4 digit HS level. The goods descriptions supplied on Customs documentation were used to check the accuracy of the Australian data. As these were not sufficiently detailed no adjustments or amendments to Australia's imports were made. Crude oil. Crude oil data were examined closely because of their significance to the Australia-New Zealand trade. Value, quantity and average unit value aggregates were compared.
The discrepancy was found to be largely due to delays in the lodgement of import entries i.e. some goods included in New Zealand's exports during 1997 were not lodged and included in Australia's imports until 1998. As such differences are covered by the processing adjustment, no further adjustment was necessary.
After adjusting for conceptual and methodological differences, the initial eastbound trade residual discrepancy was $370 million or 6.5%, i.e., Australia's exports exceeded New Zealand's imports by this amount. Large discrepancies were present in several commodities. The bilateral study focussed on examining, for the commodities with the largest discrepancies, the accuracy of Australian export entries.
Some practical difficulties limited these investigations. These included:
the absence of a unique exporter identifier on Australian Customs records;
the large volume of small value transactions; and
export transactions are readily accessible only for limited periods, as older transactions are archived. This restricts the data available for investigation and amendment.
The major data problems and commodities affected are described below.
Computer parts, aircraft parts and medical goods. Australia's exports of computer parts, aircraft parts and medical goods exceed New Zealand's imports by $52 million, $46 million and $35 million respectively, after Australia's re-exports are excluded. Investigations into the quality of Australia's export data identified significant mis-reporting of re-exports as Australian produce. Contact with exporters identified instances of goods imported by Australia from third countries for storage or packaging prior to re-export to New Zealand that were reported to Customs as manufactured in Australia.
Australia's exports to New Zealand were overstated by the value of the mis-reporting of Australian produce. New Zealand did not have the goods recorded in their imports from Australia, as the goods were not produced in Australia.
Affected data for the period July to December 1998 were amended prior to completion of the reconciliation study. These amendments are included in the re-exports adjustment of $1,250 million. An estimate of $51 million was made for the period January to June 1998, to account for data which was in error, but which had been archived, and is shown as an additional re-exports adjustment in Table B.
To reduce the frequency of these errors in future, the ABS prepared an Australian Customs Notice (ACN), State of Origin for Exports which was circulated to the exporting community. Exporters were requested to ensure that their agents correctly reported re-exports on their export entries and were advised to contact Customs if they needed assistance.
Printed material. The bilateral reconciliation identified large differences in the data for HS 491199 other printed matter and 490290 daily newspapers. The differences offset each other as Australia's exports of HS 491199 exceeded New Zealand's imports by $25 million and New Zealand's imports of HS 490290 exceeded Australia's exports by $25 million. Using the reported goods description from Customs entries, some evidence of mis-classification between the two items was found in Australia's exports under HS 491199. Where possible, data were amended.
Refined copper. The investigations revealed differences in the 6 digit classification reported by the Australian exporter and the New Zealand importer for this commodity. The goods descriptions supplied on Customs documentation were used to check the accuracy of the Australian data. As these were not sufficiently detailed no adjustments or amendments to Australia's exports were made.
Other commodity discrepancies. Large discrepancies in chapters 19, 21 and 80 were revealed by the bilateral reconciliation study. The data quality checks identified some mis-classification of pasta and other articles of base metal. Export data amendments totalling $14 million were made as a result of the investigations.
The residual westbound trade discrepancy of -$41 million, shown in Table A, represents the difference remaining after the application of the adjustments to westbound trade described above. The residual discrepancy is negative, indicating that the adjusted Australian merchandise imports figure is about 1% higher than the published New Zealand merchandise exports figure.
The application of the adjustments to eastbound trade described in this article have reduced the initial eastbound trade difference from -$1,571 million to a residual discrepancy of -$319 million . The residual discrepancy is negative, indicating that the adjusted Australian merchandise exports figure is higher than the published New Zealand merchandise imports figure. A large proportion of the residual eastbound trade discrepancy is likely to be due to other Australian re-exports not being identified as such in the documentation supplied to Customs. The total re-exports adjustment is understated by such transactions.
The differing application of rules of production by Australia and origin by New Zealand is also a likely reason for this high residual discrepancy. This occurs where goods imported by Australia from third countries undergo manufacturing that essentially changes the nature of the goods. In Australia these are treated as an export of domestic produce rather than a re-export. If the value of the good has been increased by less than 50%, however, it is not classified by New Zealand as an import from Australia. Isolated instances of this problem were identified, but as these were not individually significant, no further adjustment was made.
Other possible reasons for the eastbound residual discrepancy include: valuation differences; additional timing differences; minor coverage differences; and differing currency conversion practices.
For westbound trade the initial difference was 5.1% of Australia's imports and the residual discrepancy is 1.1%. The greatest contributor to narrowing the gap was the adjustment for New Zealand's re-exports of goods originating from third countries to Australia.
For eastbound trade the initial difference was 27.6% of Australia's exports and the residual discrepancy is 5.6%. The adjustment for Australia's re-exports to New Zealand of goods originating from third countries was the main reason for the decrease in the gap. These conclusions are similar to those in the previous bilateral study with New Zealand. In both studies the initial difference and residual discrepancy for westbound trade were smaller than for eastbound trade, and the largest adjustments were to exclude each country's re-exports. As previously indicated, the adjustments presented in the reconciliation do not represent revisions to the official published statistics of either country.
In this study the commodities with the largest discrepancies were more closely examined to identify other reasons for differences in the statistics of each agency. The main reasons were differences in the HS 6 digit classification reported by the exporters and importers and re-exports not being identified as such in Australian export statistics.
One of the purposes of bilateral reconciliation studies is to assess the quality of each agency's published statistics. The 1998 study raised quality issues regarding the production / re-export distinction in Australia's exports data. To reduce the incidence of this problem in future, an ACN was issued by Customs to the exporting community. New edit checks were also added to ABS data quality procedures. These are designed to capture and correct systemic errors prior to the release of statistical output.
Australian Bureau of Statistics, International Merchandise Trade, Australia, December quarter 1997 (Cat. no. 5422.0).
United Nations, International Trade Statistics, Concepts and Definitions, Statistical Papers, Series M, No.52 Rev.1.
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