draining development.pdf - Khazar University

Trade Mispricing and Illicit Flows 313exports to Canada [than] they record importing. (Herrigan, Kochen, andWilliams 2005, 9)Another potential issue of importance is timing. Because there areoften notable time lags between the departure and arrival of a shipment(for example, arising from long-distance sea cargo, a delay in customsdeclaration, or temporary storage in a warehouse), trade may be recordedin different calendar years. More importantly, statistical offices in thesource and destination countries may value goods at different prices orexchange rates. Finally, recorded trade at the commodity level may differbecause of the omission of individual transactions in one of the partnercountries (for example, because of varying thresholds for the low valueof trade across countries), the exclusion of certain product groups in acountry’s trade statistics (such as military material or repair trade), ordifferences in commodity classifications (for example, a regrouping of atransaction into chapter 99, which covers “items not elsewhere classified,”for reasons of confidentiality).Fraudulent trade activitiesDiscrepancies in trade statistics may also result from intended misdeclarationof trade activities. Transactions may be hidden completely (sothat official statistics underreport trade), purely imaginary (so that tradeis overstated in the data), or mispriced in trade invoices (with, a priori,unknown effects on trade statistics).Unreported trade. For unreported trade activities (that is, smuggling) toaffect asymmetries in partner country trade statistics, the transactionshave to be recorded by one of the partners. This is the setup that Fismanand Wei (2009) have in mind. For antiques and cultural property, there areoften strong export restrictions such that there is an incentive to smugglethe goods unrecorded out of a country. Imports, however, are properlydeclared since there are generally no constraints for the entry of suchgoods, and there is even the risk of seizure if there is a false declaration.Fictitious trade. An example of imaginary trade transactions (whereofficial trade figures are artificially inflated) is missing trader VAT fraudin intra–European Union (EU) trade. For intra-EU trade, for which no