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Feature Article - Bilateral merchandise trade statistics reconciliation: Australia and the European Union, 1992-1997
The Australian Bureau of Statistics (ABS) and the Statistical Office of the European Communities (Eurostat) have recently undertaken a bilateral reconciliation study covering merchandise trade flows between Australia and the European Union (EU). The reconciliation exercise was initiated by Eurostat and was carried out for the period 1992 to 1997. The ABS acknowledges Eurostat's significant contribution to this study.
If viewed as a single market, the EU is Australia's largest trading partner for imports and the second largest for exports. In the year ended December 1997 Australia's recorded imports from the EU were valued at $20.3 billion, which represented 24% of Australia's total imports. The EU country which was the major source of Australia's imports for 1997 was Germany ($4.7 billion). In the same period, Australia's recorded exports to the EU amounted to $8.7 billion, accounting for 10% of Australia's total exports. The EU countries which were the main destinations for Australian exports were the United Kingdom and Italy ($2.4 billion and $1.6 billion respectively).
From the EU perspective, Australia is much less significant as a trading partner. In 1997, trade with Australia accounted for 2% of total EU exports and 1% of EU imports.
The purpose of this reconciliation was to identify and explain, to the extent possible, any discrepancies existing in the recording of trade flows between Australia and the EU.
Detailed merchandise trade data, based on Customs documentation, were provided to Eurostat by the ABS for all calendar years from 1992 to 1997. These data were compared with data from Comext, the EU trade database.
Data exchanged were at the most detailed commodity level. Both the EU and Australia base their commodity classifications on the international Harmonised System, so at the 6 digit level the data could be expected to be comparable. However, Australia's method of concealing confidential data, which involves removing it from the relevant code and regrouping it in chapter 98, limits comparability at the commodity level.
The EU export data were valued on a 'free on board' (FOB) basis and their import data on a 'cost, insurance and freight' (CIF) basis while Australian data for both exports and imports were valued using an FOB based valuation method.
The currency used in the reconciliation study was United States dollars. Both Australia and the EU converted exports and import values to US dollars on the basis of an average annual exchange rate. The rates used to convert Australian data were $US1 = $A1.3616 for 1992, $US1 = $A1.4789 for 1993, $US1 = $A1.3736 for 1994, $US1 = $A1.3554 for 1995, $US1 = $A1.2830 for 1996 and $US1 = $A1.3479 for 1997. For the purposes of this article, all figures have been reconverted to Australian dollars.
COMPARISON BEFORE RECONCILIATION
Table A shows the value of Australian exports to the EU and EU imports from Australia. The value of EU recorded imports exceeded that of Australian recorded exports by at least 10% in all years from 1992 to 1997 except 1993 and 1996. In 1993 the value of Australian recorded exports was 4% higher than the EU recorded imports in 1993, while in 1996 the EU recorded imports were 2% higher than Australian recorded exports.
EU import figures are expected to be significantly higher than Australian export figures since the cost of overseas freight and insurance is included in EU import values but excluded from Australian export values. Data for all years except 1993 and 1996 were broadly in line with this expectation.
Table A. Northbound trade
Table B shows the value of Australian imports from the EU and EU exports to Australia. For southbound trade both the EU and Australia use similar valuation methods. The percentage difference between EU exports and Australian imports ranged from close to nil in 1992 to 4% in 1995 and 1996. The stability and small magnitude of this difference suggests that for southbound trade the data are likely to be relatively reliable.
Table B. Southbound trade
The balance of trade is shown in Table C. Both the Australian and the EU figures indicate the same trend, a steady increase in the surplus for the EU and the deficit for Australia until 1996, followed by a slight decrease for 1997. The maximum discrepancy amounts to about $A1.6 billion in 1995.
Table C. Balance of trade (BOT)
In summary, the initial comparison of EU and Australian data indicated that the data line up fairly well, with the exception of 1993 and 1996 northbound data. It was decided therefore to limit the reconciliation work to northbound trade, with the main aim being to understand the underlying reasons for the distortions in the 1993 and 1996 data.
The reconciliation for northbound trade was carried out by quantifying and adjusting for conceptual and methodological differences in recording and then investigating any major coverage or quality deficiencies in the statistics produced by each agency. Australia's main trading partners within the EU were also consulted by Eurostat to identify potential sources of discrepancies and to investigate particular discrepancies.
CONCEPTUAL AND METHODOLOGICAL DIFFERENCES
This section outlines possible sources of discrepancies and provides a description of the associated adjustments made. It was not possible to adjust for all the sources of discrepancies listed below. This was partly because of the short time available to complete the exercise, and partly because some data were either not available or could only be collated at high cost.
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 (ABS Catalogue Number 5422.0).
The EU trade data are recorded on a 'special trade' basis, while Australian data are on a 'general trade' basis. The main difference between the two systems relates to the treatment of warehouse trade. When Australia declares an export to a warehouse located in the EU, no import is declared by the EU until the imported goods are released for free circulation or consumption. Discrepancies may therefore occur due to the time lag between warehouse inflows and outflows. In addition, if Australian goods exported to an EU warehouse were re-exported to a non-EU country the related import would never be declared by the EU. No information was available on these transactions, so no adjustment was made. However, the discrepancies arising from the use of differing trade systems are not likely to be significant.
International trade statistics measure, in principle, all goods that add to (imports) or subtract from (exports) a nation's stock of material resources. In practice both Australia and the EU rely on data collected by national Customs agencies as the primary source of their statistics, and some goods that fall within the scope of merchandise trade are omitted as customs entries are not required.
After comparing the goods excluded from each country's statistics, the following were identified as possible causes of discrepancy in the data on northbound trade.
In accordance with international recommendations, Australia values its exports on a 'free on board' (FOB) transactions value basis, while the EU values its imports on a 'cost, insurance and freight' (CIF) basis. As discussed briefly above, the difference between the two valuation methods is significant. The EU does not collect separate information on the freight and insurance component, so this was estimated for the purposes of the reconciliation using annual conversion rates calculated by the German Central Bank. As expected, the resulting valuation adjustments accounted for a large component of the northbound discrepancy. The following table shows the conversion rates used and the adjustments made.
Australia classifies its exports by country of final destination and the EU 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.
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.
The issue of timing can impact on the comparability of trade statistics. Given the geographic distance between Australia and the European Union, there is a time lag between when a shipment departs from Australia and when it arrives in an EU Member State. This time lag for sea cargo is approximately 31 days, which means that a shipment departing by sea from Australia in December would be recorded in different calendar years by Australia and the EU. In addition, the time necessary to establish the Customs declaration could increase this delay and in some cases the time lag could be about two months. In the reconciliation, the timing adjustment has been calculated by reassigning the portion of monthly EU trade shipped by sea from Australia to the previous calendar month (goods transported by sea account for 65 to 80% of total annual trade over the period from 1992 to 1997).
The conversion of reported data to a common currency by using an annual exchange rate can contribute to data discrepancies. Use of monthly rates should provide more accurate results. Adjustments for this were calculated by converting total monthly EU imports and Australian exports to US dollars using monthly rates and comparing the resulting annual totals with the reconciliation data which had been converted using annual rates. The adjustments applied were minor.
In carrying out a reconciliation study it is important to compare the definition of each partner territory.
Both Australia and the EU use the same definition for the Australian domestic territory in their trade statistics. However, differences exist in the definition of EU territory by Australia and the EU. Australia attributes trade with Andorra to France, with Greenland and Faeroe Islands to Denmark, and with San Marino and Vatican City to Italy. These territories are not, however, included in the EU statistical territory. In addition, the Canary Islands are considered by Australia to be part of Spain, whereas the EU has only included these islands since 1997. The EU has also included the French Overseas Departments (Reunion, Guadeloupe, Martinique and French Guyana) as part of the EU territory since 1997, but these are not included by Australia as part of France. The differences caused by the minor variations in definition of the EU are assumed to be negligible.
Comparison of data at the commodity level identified discrepancies in ships and in non-monetary gold.
COMPARISON AFTER RECONCILIATION
The results of the reconciliation study are shown in the tables below. All the adjustments to northbound trade discussed above have been applied to either the Australian export values (Table D) or the EU import values (Table E). It should be noted however that the adjustments do not represent revisions to previously published statistics. In most cases they merely reflect the conceptual and methodological differences underlying the compilation of the data.
Table D. Australian exports ($A m)
Table E. EU imports ($A m)
For each of the years studied, the CIF/FOB adjustment on EU imports was the most significant adjustment, accounting for approximately 8% of the total value of EU imports.
The residual discrepancy for northbound trade is shown in Table F - this is the discrepancy that remains between the two sets of figures after all the conceptual and other adjustments have been made. For the years 1992, 1994, 1995 and 1997 the residual discrepancies are significantly lower than the initial discrepancies shown in Table A. For 1993 there is no change in the residual discrepancy and for 1996 the residual discrepancy is -3%, compared with an initial discrepancy of +2%.
Table F. Northbound trade
Table G shows the balance of trade after making the adjustments to the northbound data. The effect of the reconciliation on the trade balances was relatively small. After reconciliation, the maximum discrepancy is $A1.0 billion, in 1995. Readers should note that there has been no investigation into discrepancies in recorded southbound trade, because they were relatively minor. However, such investigations may have resulted in smaller balance of trade discrepancies.
Table G. Balance of trade (BOT) ($A m)
The reconciliation study has demonstrated that a significant part of the 'asymmetry' in the EU-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 trading partner, nor do they imply in general, errors in either partner's published statistics.
For southbound trade, the initial discrepancies were stable and small in magnitude. Reconciliation work therefore concentrated on northbound trade where the initial discrepancy ranged from -4 to +13% of Australian exports. After adjustments the residual discrepancy ranged from -4 to +3% of Australia's exports. The greatest contributor to the narrowing of the gap was the adjustment relating to insurance and freight, which are included in published EU imports statistics, but not in Australian exports. The other major contributing factor for calendar years 1993 and 1996 were several adjustments made to account for transactions which had not been included in the EU statistics.
The small magnitude of the residual discrepancy encourages a reasonable level of confidence in the accuracy of Australian and EU data, at least at the aggregate level. At detailed levels it is more difficult to make comparisons. This is partly because of Australia's treatment of confidential data which can affect comparability at all levels of the commodity classification; and partly because of the Rotterdam effect which makes it difficult to compare Australian and EU data by EU Member State.
Further reconciliation studies with the EU are not planned at this stage. However, more targeted reconciliation studies may be considered based on specific user requests.
ABS, International Trade database
Eurostat, Comext database
United Nations, International Trade Statistics, Concepts and Definition, Statistical Papers, Series M, No. 52 Rev.1
Eurostat, Reconciliation Exercise on Merchandise Trade Statistics between Australia and the European Union, Technical Report, 1998
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