draining development.pdf - Khazar University

Trade Mispricing and Illicit Flows 315Others work in the opposite direction. For instance, if there areimport restrictions, there is an incentive to underinvoice imports; themisdeclaration of cargo is an obvious solution to circumvent these traderestrictions. Bhagwati (1964) provides an early empirical assessment ofsuch activities. Similarly, to benefit from export subsidies, exports can beoverinvoiced. Celâsun and Rodrik (1989) argue that a sizable share ofthe increase in Turkish exports after 1980 is caused by a change in invoicingpractices among domestic entrepreneurs (to take advantage of generousexport subsidies).SummaryThe finding that official trade statistics may suffer from misreportingand faked declarations is a fact well known not only to statisticians ofinternational trade. Bhagwati (1964, 1967) provides an early economicdiscussion of incentives for misinvoicing in trade; Bhagwati and Hansen(1973) develop a trade model to examine the welfare effects ofsmuggling.Using trade statistics to quantify the extent of misreporting, however,appears to be difficult. Misreporting can work in either direction, so thatsome activities may offset each other in aggregate trade statistics. Also,the extent to which transactions are reported at all (and thus show up inthe trade statistics of at least one of the trade partners) may vary.Increased surveillance of trade transactions have apparently little measurableeffect. 3 Finally, discrepancies in trade statistics may simply arisefrom statistical factors. A quantitative assessment of such factors in abilateral context has been provided for trade flows between Australia andthe EU; reported trade figures differ, on average, by about 10 percentbetween the two trade partners. Table 10.1 summarizes the results. Asshown, the largest source of discrepancy between recorded exports andimports is the difference in (c.i.f.–f.o.b.) valuation, which inflates Europeanimport data by, on average, about 9 percent. In contrast, goods thatare imported by Australia and are subsequently reexported to the EUmay have initially artificially lowered the discrepancy (since they arerecorded in Australia’s exports, but not in the EU’s imports). In view ofall these difficulties, the EU, though aiming to reduce the declarationburden on businesses, still refrains from using mirror (single-flow) tradestatistics. 4