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The statistics corner: issues in foreign trade data.

*Joseph W. Duncan is Corporate Economist and Chief Statistician, The Dun & Bradstreet Corp., New York, NY.

IN THE JANUARY 1990 publication of the Coalition of Service Industries entitled The Service Economy, Courtenay Slater discusses A New Outlook for Federal Statistical Policy." She states, "The rapid growth of international markets has created new policy questions, many of which cannot be answered with existing data. The volume of U. S. merchandise imports has increased dramatically and international flows of services, investment capital, and human beings have increased at an even more dizzying pace. The well-publicized problems of measuring merchandise trade pale when compared with those of obtaining reliable estimates of these other aspects of our international position.

"Although statistics about foreign trade and finance have improved in recent years, the need for information in this area has grown enormously. Not only the data but the statistical concepts are sorely lacking. Lack of reliable official information has left the door open to misinformation from non-government sources."

The comments in this month's The Statistics Corner are presented with the hope that individual members may offer further suggestions or criticisms of existing statistics relating to international trade relations of the United States.

These remarks are designed to be informal and provocative. Normally considerable discussion occurs of the technical details associated with existing trade statistics. I believe it would be useful to step back from the existing system and take a more comprehensive look at what is really needed for longer term policy making.

THE BASIC NEED FOR TRADE DATA

Today we are truly a global economy in the complete sense of that label. Multinational companies have been a part of the economic fabric for several decades, but it is only recently (the past ten to fifteen years) that inexpensive telecommunications, computer management systems and cheap transportation have made it possible for company managements to look at the entire globe as a changing matrix of resources for determining the most inexpensive sources of supply and the most attractive markets to pursue. Further, the frequency of financial exchanges and the importance of multilateral trading relationships have grown even more than the volume of physical trade.

In the new global economy, better data are needed to plan national and international economic policies, to coordinate international economic development and to monitor financial markets in individual countries. To assist businesses in becoming more competitive at the world level, better data are required for evaluating market opportunities and understanding emerging competitive pressures.

WHAT IS HAPPENING?

A number of developments erode our ability to measure international economic trends. Today, large quantities of physical cash move in suitcases and boxes outside normal banking channels. Caribbean banking-center countries are a major source of foreign investment in the U.S. and are a haven for dollars heading in the opposite direction. In fact, many transactions occur only in a dollar-based economy rather than the local national currency. For example, it is well known that approximately $5 billion in U.S. currency is circulating in Argentina alone. This situation for hard currency is not limited to the dollar. Another current example is the widespread recognition that the Deutschemark is the real currency of trade in East Germany.

Electronic transfers among banking institutions have ballooned, and the movement of financial transactions is increasingly difficult to monitor. In financial terms, cross-national ownership of companies, plants and facilities, and natural resources is dramatically changing the structure of economic power.

As mentioned earlier, corporate decisions involving out-sourcing (i.e., the selection of the most inexpensive country source) of inputs, have altered the nature of trade. For example, U.S. firms in France export final products to Britain. Who benefits the most from this transaction? The U.S. stockholder, who benefits from the profitability of the U.S. firm doing European trade? The French employee, who benefits from having a job? Or the British consumer, who benefits by having a cheaper or better product?

Japan is a major investor in the United States. Yet the relationships are often very subtle. If Japan pays yen directly to Germany for machinery to equip its facilities in the United States, the transaction shows up as an import of machinery into the United States even though no U.S. dollars are involved. How much trade has these characteristics? Even more complicated to reconcile is the fact that many intracompany transfers that involve outsourcing of inputs are valued at cost at the border even though other products are valued at market prices. Further, this cost may be accounting costs, which can be very different than actual costs. How can we quantify what the true value of this trade really is?

There has been much discussion about the 1992 program of a unified Europe. One characteristic of unification is to minimize paperwork at the border, emulating what occurs in the United States when goods move from Mississippi to Illinois, for example. One byproduct of this important political and economic change is that traditional customs data used for measuring exports and imports at the border will not be generated. In the absence of data on net exports, it will be difficult to estimate gross domestic product (GDP) for European countries, just as it is difficult to estimate gross domestic product for individual states inside the United States. What will be the implication of this GDP measurement change for determining national economic policy in Europe?

The recent measurement problems in the United Kingdom may provide an omen of things to come. In the third quarter of 1989, the U.K.'s statistical discrepancy between different methods of measuring GDP was more than 0.5 percent of the GDP level, when theoretically this should be zero. Because of the size and volatility of this measurement error, annualized nominal GDP growth rate estimates may vary by several percentage points, depending on the particular method of calculation.

SOME LIKELY PROBLEMS IN THE NEAR FUTURE

In Eastern Europe, trade is currently conducted with many barter relationships. They have, in effect, nonmarket input costs (due to the command economy), yet they are organized with multinational partnerships and rapidly changing trade flows. As a shift is made to encourage more market-based economic activities, significant implications arise for restructuring of enterprises and economic power within the Eastern Bloc. There also will be dramatic impact on Western economic policy as new markets are open and as new competitors enter the arena.

International data collection is being positively influenced by the harmonized program of commodity classification. However, introduction of such harmonization creates serious discontinuities in long-standing time series. Will it be possible to understand trends in trade when attempting to compare and reconcile the old and new classification systems?

For a number of years, the Western economies have been operating with a floating exchange rate system. Floating exchange rates affect relative prices of goods moving between countries. This creates difficulties from an economic policy perspective when attempting to analyze long-term investment trends and evaluate the performance of past investments. What time period and which exchange rate are used for the investment evaluation - when the initial decision is made, the actual time of the investment, or initial current market relationships?

Finally, although this list is not intended to be exhaustive, we should take note of the fact that economic blocs such as Common Market (EEC), the Asian bloc and the Caribbean initiative all share the characteristic that common data standards are developed and used for control of "bloc" related policy. These standards - particularly the common market standards - override the international statistical standards that are developed at higher levels like the United Nations. How will we understand what is happening if many different statistical standards are in place?

PREMISE

When approaching these many challenges, my suggestion is that a well thought-out, globally standardized data base is needed. Further, I suggest that a small amount of information consistently constructed is much better than a lot of impure apples and oranges that are in danger of spoiling with time and that are not necessarily relevant to the major decision needs of public and private decision makers.

As an example, consider the issue of oil inventories in relation to current supply and demand conditions. Basically, in the U.S. the oil inventory is a measurement of oil in the storage tanks. Imports of oil are measured at the point of entry when they are pumped from the ship to inland transit or onshore storage facilities. Yet an analysis of the inventory situation requires considerably more information. For example, a number of tankers are currently always en route. Often, in fact, the off-shore tankers are simply awaiting an appropriate market time to deliver their product.

How much oil is afloat, at what price, owned by what company or country, and available at what premium? Clearly, the definition and design of an information system to meet the needs of policy making or marketing with respect to oil requires a more comprehensive examination than is presently the case.

Interestingly, a major portion of the information required is available. For example, Lloyds of London has a graphic display of the location of all known tankers on the major oceans. Which tankers are taking on or discharging oil is also reasonably well known. Yet, there is no public effort to collect, analyze, and disseminate this valuable information. As a result, uncertainty is high, and errors of forecasts of current and future market conditions are significant.

WHAT TO DO

Today, enormous resources are devoted to a "census" approach to import and export information. Considerable effort is made to process the individual pieces of paper and reports that are filed at border authorities. Yet what is needed is a more intensive analysis of the characteristics behind the data, such as the nature of the value assignment discussed above. A redesigned trade data system could be developed by using well-known principles of sampling and devoting the same resources currently expended for a much more sophisticated and intensive analysis of the characteristics behind the data.

In the financial area there is a need for transnational banking authorities and national central banks to undertake a careful review of the types of financial flows occurring inside and outside current measurement systems. I believe this is of paramount importance, because the current information is woefully inadequate to address the key policy issues that are important in the 1990s and beyond. A fundamental redesign of information gathering about international transactions is called for as we approach the twenty-first century.
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Author:Duncan, Joseph W.
Publication:Business Economics
Date:Apr 1, 1990
Words:1743
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